January 2014 Philippine Supreme Court Decisions on Tax Law

Here are select January 2014 rulings of the Supreme Court of the Philippines on tax law:

Court of Tax Appeals; findings of fact. The Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. Factual findings made by the CTA can only be disturbed on appeal if they are supp1ied by substantial evidence or there is a showing of gross error or abuse on the part of the CTA. In the absence of any clear and convincing proof to the contrary, the Court must presume that the CTA rendered a decision which is valid in every respect. Commissioner of Internal Revenue v. Toledo, Power, Inc., G.R. No. 183880, January 20, 2014.

Refund; solutio indebiti; elements. There is solutio indebiti when: (1) Payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and (2) Payment is made through mistake, and not through liberality or some other cause. Solutio indebiti does not apply in this case because there exists a binding relation between petitioner and the CIR, the former being a taxpayer obligated to pay VAT and the payment of input tax was not made through mistake since petitioner was legally obligated to pay for that liability. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the VAT system. At the time of payment of the input VAT, the amount paid was correct and proper. CBK Power Company Limited vs. Commissioner of Internal Revenue, G.R. No. 198729-30, January 15, 2014.

Value-added tax; refund of input value-added tax;; prescriptive period for judicial and administrative claims. Under Section 112 of the National Internal Revenue Code (NIRC), it is only the administrative claim for refund of input value-added tax (VAT) that must be filed within the two-year prescriptive period; the judicial claim need not fall within the two-year prescriptive period. Subsection (A) of the said provision states that “any VAT-registered person whose sales are zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.” The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” refers to applications for refund/credit filed with the Commissioner of Internal Revenue (CIR) and not to appeals made to the Court of Tax Appeals (CTA). This is apparent in the first paragraph of subsection (D) of the same provision which states that the CIR has “120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)” within which to decide on the claim. Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; reckoning point for two-year prescriptive period. The doctrine in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, which held that claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229, should be effective only from its promulgation on June 8, 2007 until its abandonment on September 12, 2008 in the case of Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation. The Atlas doctrine was limited to the reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the two-year prescriptive period in claiming refund or credit of input VAT. In this case, the claim for refund was filed on October 6, 2005. Thus, it is covered by the rule prior to the advent of either Atlas or Mirant. Therefore, the proper reckoning date as provided in Section 112(A) of the NIRC is the close of the taxable quarter when the relevant sales were made. Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; 30-day period also applies to appeals from inaction. Section 112(D) of the NIRC speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the CIR to act on the administrative claim for refund or credit, and the period of 30 days, which refers to the period for interposing an appeal with the CTA. The 30 day period applies not only to instances of actual denial by the CIR of the claim for refund or tax credit, but to cases of inaction by the CIR as well. The taxpayer can file the appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) filed the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; 30-day period to appeal is mandatory and jurisdictional; exception. The 30-day period to appeal to the CTA, as provided in the case of Commissioner of Internal Revenue vs. San Roque Power Corporation, is both mandatory and jurisdictional. The law states that a taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day period, appeal the decision or the unacted claim with the CTA. However, there is an exception to this rule. Bureau of Internal Revenue (BIR) Ruling No. DA-489-03 dated December 10, 2003 declared that a taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of petition for review. Thus, in cases of premature filing, taxpayers can rely on the BIR ruling from the time of its issuance, December 10, 2003 until its reversal by the Supreme Court on October 6, 2010, when the 120+30 day periods were held to be mandatory and jurisdictional. However, late filing is absolutely prohibited even during the time when the BIR ruling was in force. Commissioner of Internal Revenue vs. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; administrative claim.  The value-added tax (VAT) law provides for a mechanism that would allow VAT-registered persons to recover the excess input taxes over the output taxes they had paid in relation to their sales. For the refund or credit of excess or unutilized input tax, Section 112 of the National Internal Revenue Code (NIRC) is the governing law. Given the distinctive nature of creditable input tax, the law under Section 112(A) provides for a different reckoning point for the two-year prescriptive period, specifically for the refund or credit of that tax only. Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zero-rated, a claim for the refund or credit of creditable input tax that is due or paid, and that is attributable to zero-rated or effectively zero-rated sales, must be filed within two years after the close of the taxable quarter when such sales were made. The reckoning frame would always be the end of the quarter when the pertinent sale or transactions were made, regardless of when the input VAT was paid. CBK Power Company Limited vs. Commissioner of Internal Revenue, G.R. No. 198729-30, January 15, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; judicial claim. Section 112(D) of the NIRC provides that the Commissioner of Internal Revenue (CIR) has to decide on an administrative claim within one hundred twenty (120) days from the date of submission of complete documents in support thereof. Thereafter, the taxpayer may appeal within 30 days from the receipt of the decision or from the expiration of the 120-day period within which the claim has not been acted upon. Given that the 30-day period to appeal to the Court of Tax Appeals (CTA) is dependent on the 120-day period, compliance with both periods is jurisdictional. The period of 120 days is a prerequisite for the commencement of the 30-day period to appeal to the CTA. CBK Power Company Limited vs. Commissioner of Internal Revenue, G.R. No. 198729-30, January 15, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; judicial claim; reckoning point of the prescriptive period. The taxpayer can file his administrative claim for refund or issuance of tax credit certificate anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner of Internal Revenue (CIR) will then have 120 days from such filing to decide the claim. If the CIR decides the claim on the 120th day or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the Court of Tax Appeals (CTA). In other words, the taxpayer may “within thirty (30) days from receipt of the decision denying the claim or after the expiration of the one hundred twenty day period, appeal the decision or the unacted claim with the [CTA].” Team Energy Corporation (formerly Mirant Pagbilao Corp.) vs. Commissioner of Internal Revenue, G.R. No. 190928, January 13, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; judicial claim; reckoning point of the prescriptive period. The taxpayer can file his administrative claim for refund or issuance of tax credit certificate anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner of Internal Revenue (CIR) will then have 120 days from such filing to decide the claim. If the CIR decides the claim on the 120th day or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the Court of Tax Appeals (CTA). In other words, the taxpayer may “within thirty (30) days from receipt of the decision denying the claim or after the expiration of the one hundred twenty day period, appeal the decision or the unacted claim with the [CTA].” Team Energy Corporation (formerly Mirant Pagbilao Corp.) vs. Commissioner of Internal Revenue, G.R. No. 190928, January 13, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; judicial claim; reckoning point of the prescriptive period. A VAT-registered taxpayer claiming for refund or tax credit of their excess and unutilized input VAT must file their administrative claim within two years from the close of the taxable quarter when the sales were made. After that, the taxpayer must await the decision or ruling of denial of its claim, whether full or partial, or the expiration of the 120-day period from the submission of complete documents in support of such claim. Once the taxpayer receives the decision or ruling of denial or expiration of the 120-day period, it may file its petition for review with the CTA within thirty (30) days. The 120-30-day period in Section 112(C) of the NIRC is mandatory and its non-observance is fatal to the filing of a judicial claim with the CTA. In the Aichi case, the Court explained that if after the 120-day mandatory period, the CIR fails to act on the application for tax refund or credit, the remedy of the taxpayer is to appeal the inaction of the CIR to the CTA within thirty (30) days. The judicial claim, therefore, need not be filed within the two-year prescriptive period from the close of the taxable quarter but has to be filed within the required 30-day period after the expiration of the 120 day period. Team Energy Corporation (formerly Mirant Pagbilao Corp.) vs. Commissioner of Internal Revenue, G.R. No. 190928, January 13, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; judicial claim; reckoning point of the prescriptive period; exception. The mandatory and jurisdictional nature of the 120+30-day rule does not apply on claims for refund that were prematurely filed during the interim period from the issuance of BIR Ruling No. DA-489-03 on December 10, 2003 to October 6, 2010 when the Aichi doctrine was adopted. The exemption was premised on the fact that prior to the promulgation of the Aichi decision, there was an existing interpretation laid down in BIR Ruling No. DA-489-03 where the BIR expressly ruled that the taxpayer need not wait for the expiration of the 120-day period before it could seek judicial relief with the CTA. Since the CIR has exclusive and original jurisdiction to interpret tax laws, taxpayers acting in good faith should not be made to suffer for adhering to general interpretative rules of the CIR interpreting tax laws, should such interpretation later turn out to be erroneous and be reversed by the CIR or the Court. Indeed, Section 246 of the NIRC expressly provides that a reversal of a BIR regulation or ruling cannot adversely prejudice a taxpayer who, in good faith, relied on the BIR regulation or ruling prior to its reversal. BIR Ruling No. DA-489-03 is a general interpretative rule because it is a response to a query made, not by a particular taxpayer, but by a government agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency mentions in its query to the CIR the administrative claim of Lazi Bay Resources Development, Inc., the agency was, in fact, asking the CIR what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day period. Team Energy Corporation (formerly Mirant Pagbilao Corp.) vs. Commissioner of Internal Revenue, G.R. No. 190928, January 13, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; exception. The 120+30 day period is mandatory because the law is clear and unequivocal. Section 112 of the NIRC decrees that a VAT-registered person, whose sales are zero-rated or effectively zero-rated, may apply for the issuance of a tax credit or refund creditable input tax due or paid attributable to such sales within two years after the close of the taxable quarter when the sales were made. From the date of submission of complete documents in support of its application, the CIR has 120 days to decide whether or not to grant the claim for refund or issuance of tax credit certificate. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the CIR to act on the application within the given period, the taxpayer may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day period, appeal with the  CTA the decision or inaction of the CIR. This rule, however, is not without exception, Strict compliance with the 120+30day periods is not necessary when the judicial claims are filed between December 10, 2003 (issuance of BIR Ruling No. DA-489-03 which states that the taxpayer need not wait for the 120-day period to expire before it could seek judicial relief) to October 6, 2010 (promulgation of the Aichi doctrine which declared that the 120-+30 day periods are mandatory) All taxpayers, therefore, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its reversal by the Court in Aichi on October 6, 2010, as an exception to the mandatory and jurisdictional 120+30 day periods. Commissioner of Internal Revenue v. Toledo, Power, Inc., G.R. No. 183880, January 20, 2014.

Value-added tax; refund of input value-added tax; prescriptive period; rules on the determination of the prescriptive period for filing. In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT, as provided in Section 112 of the NIRC, are as follows: (1)An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made (2)The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction (3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR (4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day periods. Commissioner of Internal Revenue v. Toledo, Power, Inc., G.R. No. 183880, January 20, 2014.

Value-added tax; refund of input value-added tax; invoicing requirements. The words “zero-rated” must appear in the invoice covering zero-rated sales. Although the same was merely stamped and not pre-printed in the present case, the same is sufficient compliance with the law, since the imprinting of the word “zero-rated” was required merely to distinguish sales subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other VAT provisions of the Tax Code. Commissioner of Internal Revenue v. Toledo, Power, Inc., G.R. No. 183880, January 20, 2014.

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

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