October 2013 Philippine Supreme Court Decisions on Tax Law

Here are select October 2013 rulings of the Supreme Court of the Philippines on tax law:

National Internal Revenue Code; income tax; creditable withholding tax; claims for tax credit or refund; requisites. A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites: (1) The claim must be filed with the Commissioner of Internal Revenue within the two-year period from the date of payment of the tax; (2) It must be shown on the return of the recipient that the income received was declared as part of the gross income; and (3) The fact of withholding is 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. The first requirement is based on section 229 of the National Internal Revenue Code of 1997 which provides that “no such suit or proceeding shall be filed after the expiration of two  years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment.” The second and third requirements are based on Section 10 of Revenue Regulation No. 6-85 which provides that a claim will prosper only “when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the Withholding Tax Statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom.” Commissioner of Internal Revenue v. Team [Philippines] Operations Corporation (formerly Mirant [Philippines] Operations Corporation), G.R. No. 185728. October 16, 2013.

National Internal Revenue Code; income tax; creditable withholding tax; claims for tax credit or refund; requisites; certificate of creditable withholding tax. Commissioner of Internal Revenue insists that the fact of withholding had not been established since the original copies of the Certificates of Creditable Tax Withheld at Source were not submitted to the Court of Tax Appeals (CTA) and that the payors or withholding agents or persons who prepared and executed the same were not presented to prove the authenticity of the certificates. Taxpayer presented the original copies of the certificates to the court-commissioned independent certified public accountant (ICPA) who examined the original copies and certified that the copies submitted to the CTA as evidence were faithful reproductions of the original certificates. Said procedure was in accordance with Rule 13 of the Revised Rules of the Court of Tax Appeals provides that one of the duties of an Independent CPA is the “reproduction of, and comparison of such reproduction with, and certification that the same are faithful copies of original documents, and pre-marking of documentary exhibits consisting of voluminous documents.” Section 3 of the same rule provides that the submission of the pre-marked documents is still subject to verification and comparison with the original documents. Commissioner never signified any intention to verify the authenticity of the withholding tax certificates. She did not interpose any objections when the certificates were formally offered in court as part of taxpayer’s evidence. She made no effort to examine the original certificates to determine its authenticity and to ascertain that the photocopies are faithful reproductions by comparing it with the original copies. Hence, she cannot now claim that it was deprived of the opportunity to examine and scrutinize the certificates and other documents submitted by taxpayer. It is not necessary for the person who executed and prepared the Certificates of Creditable Tax Withheld at Source to be presented and to testify personally as to the authenticity of the certificates. The copies of the Certificates of Creditable Tax Withheld at Source when found by the duly commissioned ICPA to be faithful reproductions of the original copies would suffice to establish the fact of withholding. Commissioner of Internal Revenue v. Team [Philippines] Operations Corporation (formerly Mirant [Philippines] Operations Corporation), G.R. No. 185728. October 16, 2013.

National Internal Revenue Code; value-added tax (“VAT”); refund of input VAT. Prior to the issuance of Bureau of Internal Revenue (BIR) Ruling No. DA-489-03, the BIR’s actual administrative practice was to contest simultaneous filing of claims at the administrative and judicial levels, until the Court of Appeals declared in the case of Commissioner v. Hitachi Computer Products (Asia) Corporation (the “Hitachi case”) that the BIR’s position was wrong. The Hitachi case is the basis of BIR Ruling No. DA-489-03 dated December 10, 2003 allowing simultaneous filing. From then on, taxpayers could rely in good faith on BIR Ruling No. DA-489-03  until the Court held in the case of Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (the “Aichi case”), promulgated on October 6, 2010, that the 120+30 day period is compulsory. Strict observance of the 120+30 day period is the presently controlling doctrine.  Judicial and administrative claims simultaneously filed during the period from the promulgation of BIR Ruling No. DA-489-03 until the promulgation of the Aichi case, are treated as valid claims. Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485/G.R. No. 196113/G.R. No. 197156. October 8, 2013.

National Internal Revenue Code; claim for refund of input VAT; limited applicability of operative fact doctrine. The Court applied the doctrine of operative fact when it recognized the simultaneous filing during the period between December 10, 2003, when BIR Ruling No. DA-489-03 was issued, and October 6, 2010, when the Court promulgated its decision in the Aichi case declaring the 120 + 30 day periods mandatory and jurisdictional thus reversing BIR Ruling No. DA-489-03. The doctrine of operative fact is incorporated in section 246 (non-retroactivity of rulings) of the National Internal Revenue Code (the “Tax Code”).  Under section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner of Internal Revenue from the time the rule or ruling is issued up to its reversal by the Commissioner or the Court. The reversal is not given retroactive effect. This, in essence, is the doctrine of operative fact. There must, however, be a rule or ruling issued by the Commissioner that is relied upon by the taxpayer in good faith. A mere administrative practice, not formalized into a rule or rulings, will not suffice because such a mere administrative practice may not be uniformly and consistently applied. An administrative practice, if not formalized as a rule or ruling, will not be known to the general public and can be availed of only by those with informal contacts with the government agency. Since the law has already prescribed in section 246 of the Tax Code how the doctrine of operative fact should be applied, there can be no invocation of the doctrine of operative fact other than what the law has specifically provided in section 246.. Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485/G.R. No. 196113/G.R. No. 197156. October 8, 2013.

National Internal Revenue Code; value-added tax (VAT); refund of input VAT; period to file judicial claim.  A taxpayer is required to file an administrative claim for input VAT refund within 2 years from the close of the taxable quarter when the sales were made. The taxpayer will always have 30 days to file the judicial claim for refund even if the Commissioner acts only on the 120th day, or does not act at all during the 120 day period. With the 30 –day period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or tax credit of unutilized excess input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period. Failure to comply with the 120-day waiting period violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer’s petition. The 120+30 day rule, therefore, is mandatory and jurisdictional. However, BIR Ruling No. DA-489-03 dated December 10, 2003 provided a valid claim for equitable estoppel under section 246 of the National Internal Revenue Code. The aforementioned ruling was classified as a general interpretative rule that was made in response to a query by the very government agency that was tasked to implement the processing of tax refunds and credits. All taxpayers could therefore rely on the aforementioned ruling from the time of its issuance, December 10, 2003, until its reversal in the Case of Aichi which was promulgated on October 6, 2010. Republic of the Philippines represented by the Commissioner of Internal Revenue v. GST Philippines, Inc., G.R. No. 190872. October 17, 2013.

Local Government Code; real property tax; assessment; administrative remedies; payment under protest. Section 252 and section 222 of the Local Government Code sets out the administrative remedies available to a taxpayer or real property owner who does not agree with the assessment of the real property tax sought to be collected. The language of the law is clear and no interpretation is needed. Section 252 emphatically directs that the taxpayer/real property owner questioning the assessment should first pay the tax due before his protest can be entertained. Secondly, within the period prescribed by law, any owner or person having legal interest in the property not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may file an appeal with the Local Board of Assessment Appeals (LBAA) of the province or city concerned. Thereafter, within thirty days from receipt, he may elevate, by filing a notice of appeal, the adverse decision of the LBAA with the Central Board of Assessment Appeals. Camp John Hay Development Corporation v. Central Board of Assessment Appeals, G.R. No. 169234. October 2, 2013.

Local Government Code; real property tax; assessment; administrative remedies; claim for exemption. A claim for exemption from payment of real property taxes does not actually question the assessor’s authority to assess and collect such taxes, but pertains to the reasonableness or correctness of the assessment by the local assessor, a question of fact which should be resolved, at the very first instance, by the Local Board of Assessment Appeals. This may be inferred from section 206 (Proof of Exemption of Real Property from Taxation) of the Local Government Code. By providing that real property not declared and proved as tax-exempt shall be included in the assessment roll, section 206 implies that the local assessor has the authority to assess the property for realty taxes, and any subsequent claim for exemption shall be allowed only when sufficient proof has been adduced supporting the claim. Therefore, if the property being taxed has not been dripped from the assessment roll, taxes must be paid under protest if the exemption from taxation is insisted upon.  Camp John Hay Development Corporation v. Central Board of Assessment Appeals, G.R. No. 169234. October 2, 2013.

(Caren thanks Carlos P. Garcia for assisting in the preparation of this post.)

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