SUGGESTED ANSWER: A taxpayer needs to establish not only that the refund is justified under the law, but also the correct amount that should be refunded.
If the latter requisite cannot be ascertained with particularity, there is cause to deny the refund, or allow it only to the extent of the sum that is actually proven as due.
Tax refunds partake of the nature of tax exemptions and are thus construed strictissimi juris against the person claiming the exemption. The burden in proving the claim for refund necessarily falls on the taxpayer. (Far East Bank Trust and Company, etc., v.
Commissioner of Internal Revenue, et al., G. R. No. 138919, May 2,
2006)
66. What are the requisites for the refund of
illegally deducted taxes from the income of an employees’
trust fund ?
SUGGESTED ANSWER: What has to be established, as a matter of evidence, is that the amount sought to be refunded to the bank-trustee corresponds to the tax withheld on the interest income earned from the exempt employees’ trust. The need to be determinate is important, specially if the bank trustee, in the ordinary course of its banking business, earns interest income not only from its investments of employees’ trusts, but on a whole range of accounts which do not enjoy the same broad exemption as employees’ trusts. (Far East Bank Trust and Company, etc., v. Commissioner of Internal
Revenue, et al., G. R. No. 138919, May 2, 2006)
NOTES AND COMMENTS:
a. Employees’ trust fund, defined. An employees’ trust
fund is a trust established by an employer to provide retirement, pension, or other benefits to employees - it is a separate taxable entity established for the exclusive benefit of the employees. (Development
Bank of the Philippines v. Commission on Audit, 422 SCRA 459)
b. Income of employees’ trust is tax exempt. “ Any
provision of law to the contrary notwithstanding, the retirement benefits received by official and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to amendment, levy or seizure by or under any legal or equitable process whatsoever except to pay a debt of the official or employee concerned to the private benefit plan or that arising from liability imposed in a criminal action’ x x x “ (Sec. 1, Rep. Act 4917)
A tax-exempt employees’ trust fund is referred to under the NIRC of 1997 as a “ reasonable private retirement plan, which means “ a pension, gratuity, stock bonus or profit-sharing plan maintained by
an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or employees, or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials or employees.” [Sec. 32 (B) (6 ) (a), NIRC of 1997]
c. Extent of exemption. The tax exemption enjoyed by
employees’ trust is absolute irrespective of the nature of the tax. It does not apply only to the tax on interest income from money market placements, bank deposits, other deposit substitute instruments and government security, because the source of the interest income does not have any effect on the exemption enjoyed by employee’ s trusts. (Far East Bank Trust and Company, etc., v. Commissioner of Internal
Revenue, et al., G. R. No. 138919, May 2, 2006)
67. A bank-trustee of employee trusts filed an application for the refund of taxes withheld on the interest incomes of the investments made of the funds of the employees’ trusts. Instead of presenting separate accounts for interest incomes made of these investments, the bank-trustee instead presented witness to establish that it would next to impossible to single out the specific transactions involving the employees’ trust funds from the totality of all interest income from its total investments. On the above basis will the application for refund prosper ?
SUGGESTED ANSWER: No. The application for refund will not prosper.
The bank-trustee needs to establish not only that the refund is justified under the law (which is so because incomes of employees’ trusts are tax exempt), but also the correct amount that should be refunded.
Tax refunds partake of the nature of tax exemptions and are thus construed strictissimi juris against the person or entity claiming the exemption. The burden in proving the amount to be refunded necessarily falls on the bank-trustee, and there is an apparent failure to do so.
A necessary consequence of the special exemption enjoyed alone by employees’ trusts would be a necessary segregation in the accounting of such income, interest or otherwise, earned from those trusts from that earned by the other clients of the bank-trustee. (Far
East Bank and Trust Company, etc., v. Commissioner, etc., et al.,
earnings of the employee’ s trust has not been shown as they have been commingled with the interest income of the other clients of the bank-trustee.
68. CTA Circular No. 1-95 clearly requires that photocopies of the receipts or invoices must be pre-marked and submitted to the CTA to verify the correctness of the summary listing and the CPA certification. CTA Circular No. 1-95, issued on
25 January 1995, reads:
“ 1. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers, dates and amounts covered by the invoices or receipts; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination and evaluation of the voluminous receipts and invoices. Such summary and certification must properly be identified by a competent witness from the accounting firm.
2. The method of individual presentation of each and every receipt or invoice or other documents for marking, identification and comparison with the originals thereof need not be done before the Court or the Commissioner anymore after the introduction of the summary and CPA certification. It is enough that the receipts,
invoices and other documents covering the said accounts or payments must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check and verify the correctness of the summary and CPA certification. However, the
originals of the said receipts, invoices or documents should be ready for verification and comparison in case doubt on the authenticity of the particular documents presented is raised during the hearing of the case.” (Emphasis supplied)
69. Manila Electric Company a grantee of a legislative franchise under Act No. 484, as amended by Republic Act No. 4159 and Presidential Decree No. 551,1[3] had been paying a 2% franchise tax based on its gross receipts, in lieu of all other taxes and assessments of whatever nature. Upon the effectivity of Executive Order No. 72 on February 10, 1987, however, respondent became subject to the payment of regular corporate income tax.
For the last quarter ending December 31, 1987, respondent filed on April 15, 1988 its tentative income tax
reflecting a refundable amount of P101,897,741, but only P77,931,812 was applied as tax credit for the succeeding taxable year 1988.
Acting on a yearly routinary Letter of Authority No. 0018064 NA dated June 27, 1988 issued by petitioner, directing the investigation of tax liabilities of respondent for taxable year 1987, an investigation was conducted by Revenue Officer Frederick Capitan which showed that respondent was liable for “ 1. deficiency income tax in the amount of P2,340,902.52; and 2. deficiency franchise tax in the amount of P2,838,335.84.”
On April 17, 1989, respondent filed an amended final corporate Income Tax Return ending December 31, 1988 reflecting a refundable amount of P107,649,729.
Respondent thus filed on March 30, 1990 a letter-claim for refund or credit in the amount of P107,649,729 representing overpaid income taxes for the years 1987 and 1988.
Petitioner not having acted on its request, respondent filed on April 6, 1990 a judicial claim for refund or credit with the Court of Tax Appeals.
It is gathered that respondent paid the deficiency franchise tax in the amount of P2,838,335.84. It protested the payment of the alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for refund or credit.
The Court of Tax Appeals granted the P107,649,729 claim for refund, or in the alternative for the BIR to issue a tax credit. Is the Court of Tax Appeals correct ?
SUGGESTED ANSWER: Yes. Section 69 of the National Internal Revenue Code of 1986, now Sec. 76 provides, if the sum of the quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable income of that year as shown in its final adjustment return, the corporation has the option to either: (a) pay the excess tax still due, or (b) be refunded the excess amount paid. The returns submitted are “ merely pre-audited which consist mainly of checking mathematical accuracy of the figures in the return.” After such checking, the purpose of which being to “ insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes,” (Revenue Memorandum Order No. 32-76 dated June 11, 1976) the refund or tax credit is granted. (Commissioner of Internal Revenue v.
Manila Electric Company, G. R. No. 121666, October 10, 2007)