Bussiness Process Outsourcing International Inc. vs. Commissioner of Internal Revenue

DECISION

COTANGCO-MANALASTAS, ./. :

TH.E CASE This case is a Petition for Review filed by Business Process Outsourcing International, Inc. on April 13, 2007, pursuant to Section II ofRepublic Act No. 1125 (R.A. ll25), as amended by Section 9 of R.A. No. 9282, and Section 3(a), Rule 8 ofthe 2005 Revised Rules of the Court ofTax Appeals (RRCTA), praying for a refund or the issuance of a tax credit certificate (TCC) in the amount of P¹ 3,253,645.00 i...__-

Business Process Outsourcing International, Inc. vs. CIR Page 2 of l 9 representing its excess/unutilized creditable withholding income taxes for the taxable years ended December 31, 2004 and 2005.1

THE PARTIES

Petitioner Business Process Outsourcing International, Inc. (hereinafter "BPOI" for brevity) is a corporation organized and existing under and by virtue of Philippine laws, with principal office at 6758 Ayala Avenue, 1226 Makati City.² Respondent, on the other hand, is the duly-appointed Commissioner of Internal Revenue (CIR) who is empowered to perform the duties of his office, including among others, the duty to act upon and approve claims for refund or tax credit as provided by law, with office address at the BIR National Office Building, Agham Road, Diliman, Quezon City.³

THE FACTS

The factual milieu of the case, as culled from the records, and as agreed upon by the parties in their Joint Stipulation of Facts and Issues⁴ (JSFI) filed on August 24, 2007, are as follows:

BPOI was organized primarily to engage in the business of providing, design, supply, implement and operate all forms of outsourced business processes and services to enable clients to sharpen their strategic business focus and to assist clients in running their businesses, including their accounting units, by providing people and/or systems and outer outsourced services.

On March 10, 2006, petitioner BPOI filed its Final Corporate Annual Income Tax Return⁵ (ITR) for the taxable year ended December 31, 2004, reflecting therein a£..---

Business Process Outsourcing International, Inc. vs. CIR taxable income of P12,928,353.55, which resulted in an income tax due amounting to P4,137,073.00. The income tax due was offset against the P13,519,311 prior year's excess credits and creditable taxes for all the quarters of 2004, thereby leaving an excess tax credit or overpayment ofP9,382,238.00, as shown below: Income Tax Due (for the year 200-1) 4, 137,073.00

Less:

Prior Year's Excess Credits

720,268.00

Creditable Tax Withheld for the First Three

Quatiers

10,-183,919.00 Creditable Tax Withheld Per BIR Form No.

2307 for the Fourth Quarter

2,315,12-1 .00 13,519,311.00

Tax Payable/(Overpayment)

(9,3 82,238.00) For the P9,382,238.00 overpayment, BPOI opted "To be refunded." For the taxable year ended December 31, 2005, petitioner BPOI filed its Final Corporate Annual Income Tax Return on May 2, 2006 where it declared a taxable income of P18,646,884.00, which resulted in an income tax due amounting to P⁶,060,237. After deducting from its income tax due against its creditable taxes for all the quarters of 2005, BPOI was left with a total tax credit or overpayment of P3,871 ,407.00 detailed as follows:

Income Tax Due (for the year 2005) 6,060,23 7.00

Less:

Creditable Tax Withheld for the First Three

Quarters

7,555,029.00 Creditable Tax Withheld Per BIR Form No.

2307 for the Fourth Quarter

2,376,615.00 9,931,6-1-1.00

Tax Payable/(Overpayment)

(3,871,407.00) Again, BPOI chose "To be refunded' for its P3,871 ,407.00 overpayment. l-- Business Process Outsourcing International, Inc. vs. CIR On March 30, 2007, petitioner, through its tax counsel, filed with respondent CIR, through Revenue District Office No. 47, a written claim for the refund of or the issuance of a TCC for the excess/unutilized creditable withholding taxes for the taxable years ended December 31, 2004 and 2005 in the aggregate amount of P13,253,645.00, broken down as follows:

Unutilized balance from taxable year 2004 after offsetting against 2004 tax - P9,382,238.00 Unutilized balance from taxable year 2005 after offsetting against 2005 tax 3,871 ,407.00

TOTAL

P13,253,645.00 According to petitioner, to date, respondent has not yet acted with finality on the subject claim for refund. Hence, petitioner elevated its claim to this Court by filing a Petition for Review on April 13, 2007 for the purpose of staying the running the two-year prescriptive period and to preserve the right of BPOI to claim, by judicial action, the reftmd of or issuance of a tax credit certificate for its excess/unutilized creditable withholding income taxes for the taxable years 2004 and 2005 pursuant to Section 229 of the National Internal Revenue Code (NIRC) of 1997 in relation to Section 204 of the same Code. 6 In this present Petition for Review, BPOI maintains that during the taxable year of 2004, it had creditable income taxes withheld/paid in the aggregate amount of P12,799,043.00, and that after off-setting its 2004 income tax due from the prior year's excess credits and a portion of the 2004 tax credits, it still had excess/unutilized creditable withholding income taxes from 2004 in the amount of P9,382,238.00. Petitioner further pointed out that, on the face of its 2004 Corporate Annual Income/_--

Business Process Outsourcing International, Inc. vs. C1R

Tax Return, it indicated its intention of filing a claim for refund for such excess/unutilized creditable withholding income taxes. Likewise, for the taxable year of 2005, petitioner BPOI claims that it had creditable income taxes withheld/paid in the aggregate amount of P9,931 ,644.00, and that after off-setting its 2005 income tax due from a portion of the 2005 tax credits, it still had excess/unutilized creditable withholding income taxes from 2005 in the amount of P3,871 ,407.00. Also, petitioner emphasized that it indicated on the face of its 2005 Corporate Annual Income Tax Return its intention of filing a claim for refund for such excess/unutilized creditable withholding income taxes. Furthermore, BPOI included in its discussion its assertion that the right to seek for the refund or the issuance of a TCC of the amount of excess/unutilized creditable withholding income taxes for the taxable years ended December 31, 2004 and 2005 finds legal authority under Sections 76 and 204 of the NIRC of 1997; respondent CIR is the appropriate party to whom the instant claim for refund or issuance of a TCC is directed pursuant to Section 204 of the NIRC; this Court has the exclusive appellate jurisdiction to review the instant Petition for Review in accordance with Republic Act No. 1125, as amended by Republic Act No. 9282.

On June 12, 2007, respondent filed his Answer7 and alleged by way of special and affirmative defense, that:

"/

XXX

"6. Granting but without admitting that Petitioner filed a claim for refund, the same is still subject to investigation by the Bureau of Internal Revenue;

7. Petitioner failed to demonstrate that the tax, which is the subject of this case, was erroneously or illegally collected; V Docket, pp. 54-56.

Business Process Outsourcing International, Inc. vs. CIR

8. Taxes paid and collected are presumed to be made in accordance with the laws and regulations, hence, not creditable or refundable;

9. It is incumbent upon the Petitioner to show that it has complied with the provision of Sections[sic) 204(C) in relation to Section 229 of the 1997 Tax Code, as amended;

10. In an action for tax credit or refund, the burden is upon the taxpayer to prove that it is entitled thereto, and failure to discharge the said burden is fatal to the claim (Emmanuel & Zenaida Aguilar

v. Commissioner, C"'A-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxation in the Philippines, Is' Edition p. 206); 11 . Claims for refund are construed strictly against the claimant, the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 3I SCRA 95) and as such, they are looked upon with disfavor.

(Western Minolco

Corp. vs. Commissioner of Internal Revenue I24 SCRA I2I)." Pre-trial ensued. Petitioner filed its pre-trial brieF on July 23, 2007, while respondent's pre-trial brief was received by this Court on July 24, 2007. On August 24, 2007, the parties filed their Joint Stipulation of Facts and Issues10, which was approved by this Court in a Resolution dated September 5, 2007. Consequently, the pre-trial was terminated and the parties were ordered to proceed with the trial on the merits.

A Motion for Leave of Collli for the Commissioning of an Independent Certified Public Accountant (CPA) 11 was filed by petitioner praying that Ms. Nila N. Mendiola of Nila N. Mendiola and Company be commissioned as Independent CPA to conduct the actual examination, evaluation and audit of the voluminous documents to be offered and presented by petitioner in the instant case. During the hearing held on September 24, 2007, the Court commissioned Ms. Nila N. Mendiola as the l.--

CI A Case No. 7605 Business Process Outsourcing international, inc. vs. CiR

Independent CPA for this case.12 A final and consolidated report dated May 26, 2008 was submitted by the Collli commissioned Independent CPA, Ms. Nita N. Mendiola, on May 27, 2008.

On August 7, 2008, petitioner filed its Formal Offer of Evidence 13 with a prayer that the attached Exhibits, as well as those appended to the records of the Court and the pre-marked photocopies of original documents verified by the Independent CPA be admitted as evidence for petitioner. In a Resolution14 dated October 6, 2008, the Exhibits "A" to "HH", inclusive of their submarkings, were admitted subject to this Court's final evaluation and/or appreciation of their purposes, materiality, relevancy, and probative value to the issues involved in this case. Respondent CIR filed its Formal Offer of Exhibits 15 on June 15, 2009. A Resolution16 was issued by this Court on February 3, 2010 wherein Exhibits " I ", " 1- a", " 1-b", " 1-c", "2", "4", "5", "6", "7", "8", "9", " 1 0", " 11 ", " 11-a", and " 11-b" were admitted subject to this Collli's final evaluation and/or appreciation of their purposes, materiality, relevancy, and probative value to the issues involved in this case. Initially, Exhibits "3", "3-a" and "3-b" were denied for respondent's failure to submit the originals thereof for comparison, however, finding merit in respondent's Motion for Reconsideration, another Resolution 17 was issued by this Court on May 12, 2010 admitting the said exhibits. In the same resolution, the parties were ordered to file their respective Memoranda, within thirty (30) days from receipt of resolution, afterwhich, the case shall be deemed submitted for decision. V

CIA Case No. 7605 Business Process Outsourcing international, inc. vs. CiR

Considering the report of the Records Division dated June 21 , 2010 that the parties failed to file their respective Memorandum within the prescribed period, the present petition was declared submitted for decision.

THE ISSUES

The parties, m their Joint Stipulation of Facts and Issues, submitted the following issues for this Court's resolution, to wit: " 1. Whether Petitioner's claim for refund was filed within the two- year prescriptive period as prescribed under Sections 204 and 229 of the NIRC;

2. Whether the creditable withholding taxes for the taxable years 2004 and 2005 are duly substantiated by the necessary statements issued by the withholding agents to Petitioner, showing the amount paid and the amount oftax withheld therefrom;

3. Whether the income upon which the creditable taxes were withheld were included and reported as income in the income tax returns of Petitioner;

4. Whether Petitioner is entitled to the refund and/or credit of the amount of P1 3,253,645.00 representing its excess/unutilized creditable withholding income taxes for the taxable years ended December 31, 2004 and 2005;

5. Whether

Petitioner

has excess and unutilized creditable withholding tax for the year 2004 and 2005 in the aggregate amount ofP13,253,645.00;

6. Whether Petitioner had carried over to the succeeding taxable years the alleged excess creditable withholding tax for the year(s) 2004 and 2005."

THE RULING O.F THE COURT The Petition for Review is hinged principally on Section 76 of the NIRC of 1997, in relation to Sections 204 and 229 ofthe san1e Code. Section 76 of the NIRC of 1997 is hereunder quoted for ready reference: V

Business Process Outsourcing International, Inc. vs. CIR

XXX

"SEC. 76. - Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:

(A)

Pay the balance of tax still due; or

(B)

Carry-over the excess credit; or

(C)

Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. 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 tax credit certificate shall be allowed therefor."

XXX

It is readily apparent from the above-cited provision that two (2) options are available to any corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid: [ 1] to carry over the excess credit or [2] to be credited or refunded with the excess amount paid. Also provided in the last sentence of Section 76 is the "irrevocability rule", where it is provided that once the option to carry over the excess credits has been made, the same shall be considered irrevocable for that taxable period. "In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to catTy over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the other."

18 It is significant to note, however, that "failure of the taxpayer to make an L

Business Process Outsourcing International, Inc. vs. CJR appropriate marking of its option in the ITR does not automatically mean that the taxpayer has opted for a tax credit." 19 In the cases of Citibank, N.A. v. Court of Appeals 20 and Banco Filipino Savings and Mortgage Bank vs. Court of Appeals, et a/. 21 the Supreme Court had the occasion to pronounce the three conditions for the grant of a claim for refund of creditable withholding tax, to wit:

1) the claim is filed with the CIR within the two-year period from the date of payment of the tax;

2) 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 the tax withheld therefrom. The second condition is specifically imposed under Section 10 of Revenue Regulation No. 6-85 (as amended), viz:

Sec. 10. Claim for tax credit or refund . ~ (a) Claims for Tax Credit or Refund of income tax deducted and withheld on income payments shall be given due course 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 w ithheld therefrom xxx. (Emphasis supplied) 3) it is shown on the return of the recipient that the income payment received was declared as part of the gross income fr---- 19 Commissioner of Internal Revenue vs. Bank of the Philippine, Islands, G.R. No. 1781190, July 7, 2009 citing Phi/am Asset Management, Inc. v. Commissioner of Internal Revenue, G. R. No. 156637, December 111 , 2005.

20 G.R. No. 10711 311 , October 10, 1997,280 SCRA 11 59. 21 G. R. No. 155682, March 27, 2007 citing Jose C. Yitug and Ernesto D. Acosta, Tax Law and Jurisprudence, 329 (2006), citing Gihb v. Collector, I 07 Phi l. 230 ( 1960); Calamba Steel Center, Inc. v. Commissioner on Internal Revenue, G .R. No. 15 1857, April 28, 2005, 457 SCRA 482.

Business Process Outsourcing international, inc. vs. CiR

After having discussed the established and prevailing laws, rules, and enunciated jurisprudential principles in this jurisdiction, applicable to the grant of a claim for refund of creditable withholding tax, this Court shall now proceed in determining whether petitioner was able to satisfactorily meet the terms or the three conditions for the grant of a claim for refund of creditable withholding tax. First, a perusal of the records of this case shows that petitioner meets the first condition. Pertinent to the first requisite are Sections 204(C) and 229 of the NIRC of 1997, which read as follows:

XXX

"SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may

XXX

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissione1· a claim for credit o1· refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for uedit or •·efund." (Emphasis supplied)

XXX

"SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding shall be maintained in any comt for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illega lly assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regard less of any supervening cause that may arise after payment: Provided, however, That the L

Business Process Outsourcing International, Inc. vs. CIR

Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." Relative to the foregoing provisions, noteworthy 1s the case of ACCRA Investments Corporation vs. The Honorable Court of Appeals, et a!. n where the Supreme Court held that the two-year prescriptive period for the filing of a claim for refund or tax credit of excess income tax paid/withheld should be reckoned from the date of filing of the final adjustment retmn.

In the instant case, petitioner is claiming for the refund or the issuance of a TCC for its excess/unutilized creditable withholding income taxes for the taxable years 2004 and 2005. For the taxable years ended December 31 , 2004 and 2005, petitioner filed its Final Corporate Annual Income Tax Returns on March 10, 2006 and May 2, 2006, respectively. Petitioner filed its administrative claim for refund for the taxable years 2004 and 2005 on March 30, 2007; while its judicial claim via the instant Petition for Review was filed with this Court on April 13, 2007. Clearly, both filings of claim for refund and Petition for Review were made within the two-year prescriptive period.

Anent the second requisite, Petitioner submitted Schedule of Certificate of Taxes Withheld at Source/BIR Forms 2307,/.3 and Certificates of Taxes Withheld at Somce/BIR Forms 2307 /.4 which were examined by the Court-commissioned Independent CPA, Ms. NilaN. Mendiola. V'

Business Process Outsourcing International, Inc. vs. CIR

In her report dated May 26, 2008, Ms. Mendiola found that of the P1 3,253,645.00 creditable taxes, Petitioner may validly claim only P1 2,667,730.33, r computed as follows: )

Amount of disallowed creditable taxes withheld in 7.004 and 7.005 per audit Amount of excess creditable taxes withheld which arc being claimed for issuance of tax credit certificates per Petition for Review Should-be excess creditable taxes withheld for the issuance of tax credit certificates based on audit findings and verilication p 585,9 14.67 13,253,645.00 p 12,667,730.33 The difference of P585,914.67 represents recorded or claimed creditable taxes withheld at source without the corresponding Certificates of Taxes Withheld or BIR Forms 2307 as summarized in Exhibit K-1.26 Upon further examination of the documents submitted in suppot1 of Petitioner's claim, the undersigned found that Certificates of Taxes Withheld at Source (BIR Forms 2307) presented as evidence and marked as Exhibits N-1 to N- 983 cover only the four quarters of 2004 and the first quarter of 2005, supporting creditable withholding taxes in the amount of P1 5,437,244.62. Thus, creditable taxes in the amount of P6,707,527.71, as computed hereafter, should likewise be disallowed for being unsupported with documentary evidence.

CWT

Per Schedule of Certificate of Taxes Withheld at

Source!l3TR Forms 7.307 (Exh. J-?.0 and J-45) With FOE of supporting documents (bh. N .J toN '/63

and N '/64 to 983/

7 CWT without FOE of suppor·ting documents p 17.,559,398.03 p 9,585,374.30 12,559,398.03 2,877,846.59 p p 6,707,527.71 p 7.7., 144,772.33 15,437,244.62 p 6,707,527.7 1 Furthermore, additional disallowances amounting to P849, 167.61 were found by the Court, itemized as follows:

Period Covered

1) No signature ofauthorized representative ofpayor

N-7

Jan-04

Australia and New Zealand Banking Group Ltd.

N-8

fcb-04 Australia and New Zealand Banking Group Ltd.

N-9

N-1 7.

Mar-04

Jan-Mar 7.00tl 25 Exhibit FF, Page 6.

26 Exhi bit FF, Page 7.

Australia and New Zealand Banking Group Ltd.

Ayala Corporation

1' 700.00 700.00 700.00 7.,300.00 L- 27 See Exhi bits J- 1 to J-20 and Exhi bits N-764 to 983 for details of CWT with FOE of supporting documents for the year 2004 and Annex A of this Report for the year 2005.

Business Process Outsourcing International, Inc. vs. CIR

N-34

Jan-Mar 7.0011

Calyon Corporate and Investment Bank

I ,258.36

N-57

Feb-04

Finaeor Finance Corporation

6 1.60

N-58

Mar-04

Finacor Finance Corporation

61.60

N-77

Jan-04

Japan J'NB Leasing&. Finance Corp.

565.00

N-78

Feb-04

Japan l'NB Leasing&. Finance Corp.

565.00

N-79

Mar-04

Japan PNB Leasinr, &. Finance Corp.

565.00

N-80

Jan-Mar 7.004 Jardine Davies, Inc.

14,471.50

N-11 6

Jan-Mar 7.0011 Parar,on Travel Ltd.

I ,500.00

N- 11 7

Jan-Mar 7.0011 Perfetti Van Melle Phi is. Inc.

459.00

N-127

Jan-Mar 2004

PIT l'hi1s., lnc.

450.00

N- 154

Jan-Jun 2004

i\BN i\nu·o Hank, lnc.

1, 150.00

N-767

i\pr-Jun 2005

Duracom Mobile Power Corporation

5,229.00

N-770

i\pr-Jun 2005 East i\sia Diesel power Corporation 5,103.00

N-778

Jan-Mar 7.005

Ayala Aviation Corporation

I ,297 .. 00

N-808

Jan-Mar 7.005

Calyon Corporate and Investment Bank

90 1.00

N-8 16

Jan-Mar 7.005 CitiFinancial Corp.

1, 177.40

N-838

Jan-Mar 7.005 eTelecare Global Solutions, Inc. (PTT) 3,87.0.00

N-843

Mar-05

Finacor Finance Corporation

62 .70

N-898

Jan-Mar 2005

Meridian Telekoms, lnc.

4,068.00

N-946

Jan-Mar 2005

Quezon Power (Phils.) 1 Jd. Company 5,602.26

N-952

Jan-Mar 2005

Sehering Plough i\nimal Health, lnc.

1,377.60

N-959

Jan-Mar 7.005 Sykes Asia, Inc.

3,780.00

N-960

Jan-Mar 7.005 Synr,enta Phil ippines, Inc.

7.,460.00

Sub-total

p 60,380.02 2) CWT claimed twice or CWT claimed pertain to one supporting document only

N-45a

Jan-Mar 2004

Da1i (Pbi1s.) lnc.

p 533.80

N-49a

Jan-Mar 2004

Duracom Mobile Power Corporation

2,985.00

N-120

Jan-Mar 2004

l'hilip Morris Philippines Mfg., lnc.

63,604 .08 N-1 7.3a Jan-Mar 7.004 Procter &. Gam hie Asia Pte. Ltd.

40, 17.9.78 N-1 7.3b Jan-Mar 7.004 Procter &. Gamble Asia Pte. Ltd.

40, 17.9.78 N-1 7.3c Jan-Mar 7.004 Procter & Gamble Asia Pte. Ltd.

40, 129.78 N-1 7.4a Jan-Mar 7.004 Procter & Gamble Distributinr, 7.,477.98 N-124b

Jan-Mar 2004

Procter &. Gamble Distributing 2,477.98 N-124c

Jan-Mar 2004

Procter &. Gamble Distributing 2,477.98

N-150a

Jan-Mar 2004

TrustiJ1ternational l'aper Corp.

2,01 6.00

N-15 la

Dec. 28, 2003-Mar. 27, 2004 Tupperware Pbils., inc.

6,3 11.65

N-1 56a

Jan-Mar 7.0011 Visteon Phils., lnc.

3,3 15.00

N-774a

Jan-Mar 7.005 AACI Transport, Inc.

7. 17.00

N-786a

Jan-Mar 7.005

Bank of America

1, 100.00 N-8/.&a Jan-Mar 7.005 Duracom Mobi le Power Corporation 5,974.50

N-829a

Jan-Mar 2005

East i\sia Diesclpower Corporation 5,836.50

N-853a

Jan-Mar 2005

Grand Plaza Hotel Corporation

2,309.00

N-883a

Jan-Mar 2005

L'Oreal Philippines, 1J1c.

6,849.75

N-9 19a

Jan-Mar 2005

Perfetti Van Melle Pbils. lnc.

720.00 N-97./.a Jan-Mar 7.005 Phi lex Mininr, Corporation 3,600.00

N-94 1a

Jan-Mar 7.005 Procter & Gamble Distributinr, 18 1,67 1.05 N-94 1b Jan-Mar 7.005 Procter & Gamble Distributi ng 18 1,67 1.05 N-94 1c Jan-Mar 7.005

Procter & Gamble Distributing

18 1,67 1.05

N-942a

Jan-Mar 2005

Procter &. Gamble Distributing 2,532.36 N-942b

Jan-Mar 2005

Procter &. Gamble Distributing 2,532.36 N-942c

Jan-Mar 2005

Procter &. Gamble Distributing 2,532.36 Sub total p '/85,80). '/9 3) Name of payee not indicated in certificate of tax withheld

N-11 5

Jan-Mar 7.004 Dart (Phils.) Inc.

p 533.80

Sub-total

p 533.80 1--

Business Process Outsourcing international, Inc. vs. CJR 4) No supporting documents

N-21a

Jan-Mar 2004

Baxter Healthcarc l'hi1s. inc.

Sub total

TOTAL

Page 15 of 19

1' 2,448.00 p 2,448.00 p 849,167.61 In sum, Petitioner was able to substantiate its creditable withholding taxes for the years 2004 and 2005 in the amount ofP14,588,077.01 , computed as follows: Creditable tax withheld:

7.00!1 7.005

Less: Disallowances

Per !CPA Findinr,s CWT without FOE of supporting documents Additional disallowance per this Court's findings Substantiated CWT fo•· 2004 and 2005 p 17.,799,043.00 9,93 1,644.00 p 585,9 14.67 6,707,527.71 849,167.61 p 7.7., 730,687.00 8,142,609.99 p 14,588,077.01 Finally, petitioner, however, failed to prove that it complied with the third requisite. A comparison of Petitioner's gross revenues declared in its Annual Income Tax Returns for the taxable years 2004 and 2005 with the total income payments for the same period per BIR Forms No. 2307 showed the following discrepancies: G •·oss income Per Schedule of Certificate of Taxes Withheld at Source/13TR Forms 2307 (Exh. J 20 and J 4J) Gross revenue per ITR Diffe•·ence I' 172,030,077.01 139,784,325.00 p 32,245,752.01 1' 176,374,092.11 152327,084.00 p 24,047,008.11 The independent CPA found that Petitioner's several invoices/income pertaining to the taxes withheld at source being claimed for tax credits formed part of its gross income in previous years, to wit:n 2003 (1)

(a) 11 ,188,839.00 (2) (3)

(b) I ,256,342.00 (4) Total fo •· the yea•· p 12,445,181.00

Note:

( I a) 7.003 invoices collected in 7.0011.

(2a) 2004 invoices collected in 2005.

(3a) 2004 invoices collected in 2004.

(3b) 7.003 invoices collected in 7.005.

2004

(a) 11,698,273.00

(a) 72,234,545.00 p 83,932,818.00 (4a) 7.005 invoices collected in 7.005. V 28 Exhibit FF, Page 7

(a) 84,518,533.00 p 84,518,533.00

CIA Case No. 7605 Business Process Outsourcing International, Inc. vs. CIR

Even so, the discrepancies of P32,245,752.01 and P24,047,008.11 are still not fully accounted for. Thus, for failure to prove that the income from which the taxes were withheld were included in the return of the recipient, Petitioner cannot claim for refund the unutilized excess creditable withholding taxes for the taxable years 2004 and 2005.

Moreover, based on Section 76 of the National Internal Revenue Code (NIRC) of 1997, as amended, the corporate taxpayer's excess tax credits or overpaid income tax in a given taxable year may either be refunded (either in the form of cash or tax credit certificate) or carried-over/applied to the succeeding taxable years. However, once the option to carry-over has been made, the same becomes irrevocable for that taxable period.

Petitioner's claim of P 13,253,645.00 consists of the following: Excess credits in 2004 Excess credits in 2005 lc:xcess Tax Credits Claimed for Refund p 9,382,238.00 3,871,407.00 p 13,253,645.00 A perusal of Petitioner's amended and original Annual Income Tax Return for taxable years 200429 and 2005,30 respectively, shows the following: income tax due for tl1c taxable year Less: Tax credits Prior year's excess credits Creditable tax witl1hcld for ilic first tlrrcc quarters Creditable tax witl1hcld for the fourth qurutcr Total tax credits Tax ove•·payment 2004 l' 4,137,073.00 l' 720,268.00 10,483,9 19.00 2,315,124.00 l' ( 13,5 19,3 11.00) P(9,3S2,23S.OO) 2005 l' 6,060,23 7.00 l' 7,555,029.00 2,376,615.00 l' (9,931,644.00) P(3,871 ,407.00) Petitioner marked the option "To be refunded" in the face of its Annual Income Tax Returns for the taxable years 2004 and 2005. However, Petitioner did not present its originally filed 2006 and 2007 Annual Income Tax Returns showing that it did not catTy over the excess CWT of the previous taxable years. The Court cannot t---

CIA Case No. 7605 Business Process Outsourcing International, i nc. vs. CJR ascertain whether or not Petitioner originally carried over the claimed excess creditable withholding taxes.

In the case of Commissioner of Internal Revenue vs. Bank of Philippine Islands,31 the Supreme Court clarified and expounded the irrevocability rule through the following pronouncements:

XXX

The Court categorically declared in Phi lam that: "Section 76 remains clear and unequivocal. Once the carry-over option is taken, actually or constructively, it becomes irrevocable." It mentioned no exception or qualification to the irrevocability rule.

Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. Consequently, after the taxpayer opts to carry-over its excess tax credit to the following taxable period, the question of whether or not it actually gets to apply said tax credit is irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, "no application for tax refund or issuance of a tax credit cett ificate shall be allowed therefor".

XXX

Phi/am reveals a meticulous consideration by the Court of the evidence submitted by the parties and the circumstances surrounding the taxpayer's option to carry over or claim for refund . When circumstances show that a choice has been made by the taxpayer to carry over the excess income tax as credit, it should be respected; but when indubitable circumstances clearly show that another choice - a tax refund - is in order, it should be granted. "Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens." Therefore, as to which option the taxpayer chose is generally a matter of evidence. It is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund . Tax refunds, like tax exemptions, are construed strictly against the taxpayer. (Paseo Realty and Development Corporation v. Court of Appeals, G.R. No. 11 9286, 13 October 20011, !J!JO SCRA 235, 2!J7.) xxx There can be no doubt that BPI opted to carry over its excess income tax credit from 1998; it only subsequently changed its mind - which it was barred from doing by the irrevocability rule." ~

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Business Process Outsourcing International, Inc. vs. CIR

WHEREFORE, premises considered, petitioner's claim for refund or the issuance of a tax credit certificate in the amount of P13,253,645 .00, representing its exL:ess/unutilized creditable withholding income taxes for the taxable years ended December 31, 2004 and 2005, is hereby DENIED.

WE CONCUR:

~Mb&~~EZ

Associate Justice

ATTESTATION

1 attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. riSTA

CIA Case No. 7605 Business Process Outsourcing International, Inc. vs. CIR

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

L v.~ ERNESTO D. A COST A

Presiding Justice