(d) Tax refund vis-à-vis Tax Credit ---
Note: We already discussed this in Income Taxes but nonetheless let us review.
Q: Discuss the difference between tax refund and tax credit?
A tax refund requires a physical return of the sum erroneously paid by the taxpayer while a tax credit involves the application of the reimbursable amount against any sum that may be due and collectible from the taxpayer.
Note: Ano ba ang practical implications ng difference ng tax refund and tax credit? Isipin niyo na lang bumili ka ng damit sa department store tapos may sira pala. Kapag yun talaga yung gusto mong shirt, you ask for a refund.
Babalik sa iyo yung pera tapos puwede mo itong gamitin para bumili ng libro or whatever. Pero may isa ka pang gustong shirt dun sa store na un pero mas mahal ng konti, ipa-credit mo. Bayaran mo nalang yung kulang. That’s how simple it is.
Q: May a taxpayer ask for both a tax refund and a tax credit?
No. As held in PHILAM ASSET MANAGEMENT V. CIR [DECEMBER 14, 2005], a taxpayer may apply for either a tax refund or tax credit, but not both. The choice of one precludes the other.
Note: If you avail of the tax credit, you get what is called a Tax Credit Certificate (TCC). There is no suspensive condition for its validity. Remember that.
Q: PSPC acquired some TCCs (tax Credit Certificates) through the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center from other BOI-registered entities.
PSPC then utilized the said TCCs for its excise taxes and were then issued TDM (Tax Debit Memo) and ATAPs (Authority to Accept Payment) by the BIR. However, the BIR assessed PSPC for delinquent excise taxes alleging that PSPC is not a qualified transferee of the TCCs. CA ruled that the PSPC was not entitled to the benefit of the TCCs and thus upheld the assessment. Was the use of PSPC of the TCCs valid?
Yes. As held in PILIPINAS SHELL V.CIR[DECEMBER 21, 2007], there is no suspensive condition for the validity of TCCs as they are effective immediately and only computational errors are allowed as basis to invalidate TCCs. Also, even if the source is defective, it does not affect PSPC’s right as it acted in good faith and the agencies approved of the use of TCCs.
In CIR V. PETRON [MARCH 21, 2012], the Supreme Court had occasion to reiterate that TCCs are valid and effective from their issuance and are not subject to post-audit as a suspensive condition for their validity.
Note: However, by virtue of RR 14-2011 [JULY 29,2011], all Tax Credit Certificates (TCCs) issued by the BIR are no longer transferable or assignable to any person.
--- (e) Essential requisites for claim of
refund
---
Note: I already discussed this under the requirements for a claim for refund or tax credit.
--- (v) Who may claim/apply for tax refund/tax credit
(a) Taxpayer/withholding agents of non-resident foreign corporations ---
Q: Who is the proper party to claim a tax credit/refund?
The proper party to seek a refund is the statutory taxpayer, who is the person on whom the tax is imposed by law and who paid the same, even if that
person shifted the tax to another (see SILKAIR SINGAPORE V.CIR[NOVEMBER 14,2008])
Q: May a withholding agent file a claim for tax refund?
Generally, the person entitled to claim a tax refund is the taxpayer. However, if the taxpayer does not file the claim, the withholding agent may file the same.
In CIR V. SMART COMMUNICATIONS [AUGUST 25, 2010], it was submitted that rule allowing the withholding agent to file the claim is applicable only when the withholding agent and the taxpayer are related parties. The Supreme Court disagreed and stated that such relationship is not required. A withholding agent has a legal right to file a claim for refund. First, he is considered a taxpayer under the Tax Code as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount withheld be finally found to be less than the amount that should have been withheld. Second, as an agent of the taxpayer, his authority to file the income tax return and remit the tax withheld to the government includes the authority to file a claim for refund and to bring an action for recovery of such claim.
Q: Is the withholding agent who filed the claim for tax refund obliged to remit the same to the taxpayer?
Yes. In CIR V.SMART COMMUNICATIONS [AUGUST 25, 2010], the Supreme Court ruled that while the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer under the principle of unjust enrichment.
Q: What are the requisites for claim for tax credit or refund of a creditable withholding tax?
1. Claim must be filed within the two-year prescriptive period from date of payment of the tax
2. It must be shown on the return that the income received was declared as part of gross income
3. The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid
and the amount of tax withheld. (BANCO FILIPINO V.CA[MARCH 27,2007]
See alsoORIX AUTO LEASING PHILIPPINES CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE,CTACASE NO.8001, NOVEMBER 28,2012;PHILIPPINE BANK OF COMMUNICATIONS VS.CIR,CTACASE NO.7915,JUNE 6,2012;MANILA NORTH
TOLLWAYS CORPORATION VS. CIR, C.T.A. EB NO. 812, OCTOBER 11, 2012) WINEBRENNER & IŇIGO INSURANCE
BROKERS, INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTACASE NO.8277,DECEMBER 19,2012
Note: In the third requisite, the taxpayer need not prove the fact of remittance to the BIR of the taxes withheld by the various payors (withholding agents). CIR V. MIRANT
[JUNE 15,2011]
In a claim for refund of its excess income tax payment or creditable withholding taxes paid, claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. Presentation of forgotten evidence is disallowed. MIRANT NAVOTAS IICORPORATION VS.CIR,CTA EBNO.754(CTACASE NO.7618),JUNE 5,2012
U
NITEDI
NTERNALP
ICTURES V. CIR, G.R.
168331, O
CTOBER11, 2012
DOCTRINE: Failed to reconcile the discrepancy between income payments per income tax return and the certificate of creditable tax withheld will result in the denial of a claim for refund.
FACTS:For the same case mentioned in the preceding number, the Court also denied the claim pertaining to the year 1999. As found by the Court, the certificate of tax withheld would reveal that the taxpayer earned P146,355,699.80. On the contrary, its annual income tax return reflects a gross income from film rentals in the amount of P145,381,568.00. However, despite the P974,131.80 difference, both the certificate of taxes withheld and income tax return filed by the taxpayer for taxable year 1999 indicate the same amount of P7,317,785.00 as creditable tax withheld. Also, taxpayer failed to present sufficient proof to allow the Court to trace the discrepancy between the certificate or taxes withheld and the income tax return.
HELD:The Court agreed with the position of the Office of the Solicitor General that the amount of income payments in the income tax return must correspond and tally to the amount indicated in the certificate of withholding, since there is no possible and efficacious way by which the BIR can verify the precise identity of the income payments as reflected in the income tax return. Therefore, taxpayer’s claim for tax refund for taxable year 1999 must be denied, since it failed to prove that the income payments subjected to withholding tax were declared as part of the gross income of the taxpayer.
--- (vi) Prescriptive period for recovery of tax erroneously or illegally collected
---
Note: I have already discussed the 2-year prescriptive period as well.
Now, let’s compare the procedure for claiming a tax refund under Section 229 and that of the refund of excess or unutilized input taxes under Section 112(c).
Q: Outline the steps for tax refund/credit of erroneously or illegally collected internal revenue tax under Section 229 and compare it with the recovery of excess or unutilized input tax under Section 112(C)
Section 229 Section 112(c) Recovery of erroneously
or illegally collected internal revenue tax 60 days from filing of claim receipt of resolution under Rule 45 receipt of resolution under Rule 45
Note: (1) Majority of authorities including Atty. Montero is of the view that with regard to refund of erroneously or illegally collected tax, the CIR must act within a period of 120 days. That period, however, is found in Section 112(A) which applies to refunds of erroneously or illegally collected tax. Further, the 180 day period provided in Section 228 applies to a protest. What should we follow?
120 or 180? Well, it doesn’t matter. In the refund of erroneously or illegally collected tax, as long as you file your claim for refund within the 2-year period, you’re fine.
In fact, you may simultaneously file a claim for refund and a file a suit with the CTA. This brings me to my second point.
(2) As held in the case of CIR V.AICHI FORGING COMPANY OF ASIA
[OCTOBER 6,2010],non-observance of the 120-day period is fatal to the judicial claim. Thus, you cannot simultaneously file your claim for refund of excess or unutilized input tax and file a suit with the CTA. The 2 year prescriptive period applies only to the administrative claim meaning that you should file your claim with the CIR within 2 years. As to the judicial claim, you wait for the 120 days to lapse.
--- (vii) Other consideration affecting tax refunds
---
Note: Let’s discuss here the Irrevocability Rule under Section 76. That is found in Title II (Income Tax). It’s not included in the portion of the syllabus on Income Tax. I will discuss it here because it relates to tax credit or tax refund.
Read Section 76, Tax Code
Q: What are the options available to the corporation when the sum of the quarterly tax payments made during the taxable year is more than the total tax due on the entire taxable income of that year?
The corporation shall either:
1. Pay the balance of tax still due 2. Carry-over the excess credit
3. Be credited or refunded with the excess amount paid
Q: What is the irrevocability rule?
Once the option to carry-over the excess and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed. (see Section 76, Tax Code and SYSTRA PHILIPPINES V. CIR [SEPTEMBER 21,2007])
In ASIAWORLD PROPERTIES V. CIR [JULY 29, 2010], the Supreme Court opined that once the taxpayer opts to carry-over the excess income tax against the taxes due for the succeeding taxable years (tax credit), such option is irrevocable for the whole amount of the excess income tax, thus, prohibiting the taxpayer from applying for a refund. The unutilized tax credits will remain in the taxpayer’s account and will be carried over and applied against the taxpayer’s income tax liabilities in the succeeding taxable years until fully utilized.
See alsoBELLE CORPORATION V.CIR[JANUARY 14,2011];
CIR V. PL MANAGEMENT PHIL. [APRIL 4, 2011]; CIR V. PHILAMGEN [SEPTEMBER 29,2010];CIR V.MCGEORGE FOOD
[OCTOBER 20, 2010]; CIR VS. RHOMBUS ENERGY, INCORPORATED,C.T.A.EBNO.803,OCTOBER 11,2012
U
NITEDI
NTERNATIONALP
ICTURESAB
V. CIR [O
CTOBER11, 2012]
DOCTRINE: Carry-over of excess income tax payments will result in the denial of a claim for refund of excess income tax payment.
FACTS:The taxpayer filed its annual income tax return for the taxable year 1998 showing an excess income tax
payment. It opted to carry-over this excess as tax credit to the succeeding taxable year. This was applied to the 1999 taxable year leaving again an excess income tax payment.
The taxpayer then applied for a refund for this amount.
HELD: The Supreme Court cited Section 76 of the Tax Code, which provides that “once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a TCC shall be allowed therefore. Having chosen to carry-over the excess quarterly income tax, the taxpayer here cannot thereafter choose to apply for a cash refund or for the issuance of a TCC for the amount representing such overpayment. The taxpayer’s claim for refund should be denied as is option to carry over has precluded it from claiming the refund of the excess income tax payment.
Q: Does the irrevocability rule apply to the claim of refund or issuance of TCC?
No. The irrevocability rule in Section 76 of the Tax Code applies only to the option to carry-over the excess income tax payment, and not to the claim for refund or issuance of a TCC. Nowhere in Section 76 was it stated that the option to claim refund or TCC, once chosen, is irrevocable. UNITED COCONUT PLANTERS BANK VS. COMMISSIONER OF INTERNAL REVENUE,CTAEBCASE NO.725,AUGUST 23,2012;
STABLEWOOD PHILIPPINES,INC. VS.CIR,CTAEB751 (CTA7705)
Q: If the corporate taxpayer fails to signify his intention in the Final Adjustment Return, is it barred from making a valid request for refund should it choose this option later on?
No. As held in PHILAM ASSET MANAGEMENT V. CIR [DECEMBER 14,2005], failure to indicate a choice will not bar a valid request for a refund, should this option be chosen by the taxpayer later on.
Q: What is the implication when a corporation fills out the portion “Prior Year’s Excess Credits” in the Final Adjustment Return?
As held in PHILAM ASSET MANAGEMENT V. CIR [DECEMBER 14, 2005], the fact that the corporation filled out the portion “prior year’s excess credits” in the Final Adjustment Return means that it categorically availed itself of the carry-over option. If
an application for tax refund has been or will be filed, that portion should necessarily be blank.
Q: Is there an exception to the irrevocability rule?
Yes. In STABLEWOOD PHILIPPINES,INC. VS.CIR,CTA EBNO.794,OCTOBER 08,2012, the CTA held that If the corporation permanently ceases its operations before full utilization of the tax credits it opted to carryover, it may be allowed to claim the refund of the remaining tax credits as an exception to the irrevocability rule under Section 76 of the NIRC of 1997, as amended. However, the dissolving corporation must prove that the termination of its operations is permanent in nature and that it is cleared from any tax or other government liabilities before a tax refund may be granted. Therefore, a corporation contemplating dissolution must first secure a tax clearance certificate from the Commissioner of Internal Revenue (CIR), which certificate shall be submitted to the Securities and Exchange Commission (SEC) for the issuance of the Certificate of Dissolution.
--- F. ORGANIZATION AND FUNCTIONS OF THE BUREAU OF INTERNAL REVENUE ---
Q: What are the powers and duties of the BIR?
The powers and duties of the BIR shall comprehend:
1. The assessment and collection of all national internal revenue taxes, fees and charges
2. The enforcement of all forfeitures, penalties and fines connected therewith
3. Including the execution of judgments in all cases decided in its favor by the CTA and the ordinary courts
4. The Bureau shall give effect to and administer the supervisory and police powers conferred to it by this Code or other laws (see Section 2, Tax Code)
Q: Describe briefly the structure of the BIR?
The BIR is under the supervision and control of the Department of Finance (DOF). It is headed by the Commissioner of Internal Revenue and assisted by 6 Deputy Commissioners. Each region of the country has a Revenue Regional Director. The country is also divided into Internal Revenue districts headed by Revenue District Officers.
Q: What are the powers of the CIR?
1. To interpret tax laws and to decide cases (Section 4, Tax Code)
2. To obtain information and to summon, examine and take testimony of persons (Section 5, Tax Code)
3. To make assessment and prescribe additional requirements for tax administration and enforcement (Section 6, Tax Code)
4. To delegate power (Section 7, Tax Code) 5. To ensure the provision and distribution of
forms, receipts, certificates, and appliances and acknowledgment of payment of taxes (Section 8, Tax Code)