McKinsey & Co. vs. Commissioner of Internal Revenue

DECISION

RINGPIS-LIBAN, J.

STATEMENT OF THE CASE

This resolves the Petition for Review flied by McKinsey & Co., (Phils.) praying for the refund of excess creditable withholding tax (CWI) for calendar years 2009 and 2010 in the respective amounts of P24,104,576.00 and P38,372,134.65, or an aggregate amount of P62,476,710.65.

STATEMENT OF FACTS

Petitioner MdCinsey & Co., (Phils.) is a corporation organized and existing under the laws of the State of Delaware, United States of Americay with principal place of business at 1209 Orange Street, Wilmington, Delaware 19801 U.S.A.

It is authorized to transact business in the Philippines as a branch office to engage primarily in management consultancy services pursuant to Securities and Exchange Commission (SEC) Registration No. A 1998-67 5. Petitioner's branch office is located at 29F Equitable Bank Tower, 87 54 Pas eo de Roxas, Makati City.¹ It is registered with the Bureau of Internal Revenue (BIR) Revenue District Office (RDO) No. 50-South Makati, with Taxpayer Identification No. 005-649-673-000.² Respondent is sued in her official capacity as the Commissioner of the Bureau of Internal Revenue, having been duly appointed to exercise the powers and perform the duties of her office including, inter alia, the power to decide disputed assessments, refunds of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code (NIRC) of 1997, as amended. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City.

Petitioner flied its Annual Income Tax Return³ (ITR) for calendar year (CY) 2009 on April 15, 2010, reporting an annual income tax due in the amount of P926,359.00 representing its Minimum Corporate Income Tax (MCIT).⁴ Petitioner's MCIT liabilities were then paid using a portion of its Prior Year's Excess Credits other than MCIT, which at the beginning of the year was in the amount of P85,263,890.00.⁵ At the end of 2009, petitioner had total tax credits/payments in the amount of P84,337,531.00 and unutilized creditable withholding taxes in the amount of P24,104,577.00.⁶

Petitioner

chose to refund the CWT in 2009 by ticking the box "To be refunded" in its Annual ITR for CY 2009.

7 Petitioner also flied its Annual Income Tax Return8 for taxable year 2010 on April 14 2011, reporting an annual income tax due in the amount of P1,952,092.00 representing its MCIT for CY 2010.9

Petitioner's MCIT

liabilities were then paid using its PriorY ear's Excess Credits other than MCIT, which at the beginning of the year was in the amount of P84,337,531.00. 10 At the end of 2010, petitioner had total tax credits/payments in the amount of P82,385,439.00 and unutilized creditable withholding taxes in the amount of P38,382,260.00.11 Petitioner likewise opted to refund the unutilized CWT for 2010 by ticking the box "To be refunded" in its Annual ITR for CY 2010.~

In sum, petitioner's Annual ITRs show unutilized CWT for CY 2009 and 2010 in the amounts of P24,104,577.00 and P38,382,260.00, respectively, or the total amount of P62,486,837.00. The Court however notes that petitioner is claiming the refund of the lower amount of P62,476,710.65. On March 29, 2012, petitioner flied with the BIR Revenue District Office No. 50-South Makati an administrative claim for refund of its purported excess CWT for CY 2009 and 2010, in the amount of P24,104,576.00 and P38,372,134.65, respectively, or the aggregate amount of P62,476,710.65.13 On April13, 2012, alleging inaction on the part of respondent, petitioner flied the present Petition for Review14 and Motion for Time (To submit the Original Copy of Petitioner's Secretary's Certificate of Board Resolution) 15• On April 16, 2012, petitioner flied a Manifestation and Motion 16 , submitting the original copy of the Secretary's Certificate. Respondent flied a Motion for an Extension of Time to File Answer17 through registered mail on May 21, 2012, which was received by this Court on May 25, 2012. The said motion was granted by the Court in its Order18 dated May 28, 2012.

On June 6, 2012, respondent flied her Answer with (1) Motion to Dismiss and (2) Comment/Opposition to Petitioner's Motion for Time19, interposing as its Special and Afftrmative Defenses that petitioner's claim for refund is still subject to investigation by the Bureau of Internal Revenue; that petitioner's claim of its entidement for refund or the issuance of a refund or a tax credit certificate has no basis either in fact or in law, for its failure to show or demonstrate any evidence to the effect that the tax, which is the subject of this case, was erroneously or illegally collected; and that petitioner's alleged claim for refund or issuance of a tax credit certificate in the aggregate amount of P62,476,710.65 as alleged unutilized creditable withholding taxes for taxable years 2009 and 2010 were not fully substantiated by proper documents, such as sales invoices, official receipts and others. Respondent also pointed out that the verification and certification against fotum shopping was defective because the attached Secretary's Certificate is a mere photocopy and that Mr. Wilfredo Agustin is noy

authorized to sign the same, thus, the Petition for Review should be dismissed.20 Petitioner flied its Opposition/Comment (fo Respondent's Motion to Dismiss)21 on June 21, 2012, maintaining that Mr. Wilfredo Agustin was authorized to sign any and all documents, and to take such actions and execute and deliver such documents as may be necessary or appropriate; that the jurisprudence cited by respondent does not squarely apply to the instant petition; that Mr. Wilfredo Agustin as petitioner's accounting officer has the authority to sign the verification and certification against forum shopping, even without presenting proof of such authority; and that the Supreme Court has relaxed the rule on submission of verification and certification against forum shopping, under special circumstances and for compelling reasons, and where there is substantial compliance with the rule. On August 2, 2012, the Court issued a Resolution22 denying respondent's Motion to Dismiss, ruling that N1r. Wilfredo Agustin, the Accounting Assistant of petitioner's Corporate branch in the Philippines, has been authorized to sign the verification and certification against forum shopping.

The case was set for pre-trial conference on October 4, 2012.23 Accordingly, petitioner's Pre-Trial Brief4 was flied on September 28, 2012; while respondent's Pre-trial Brief5 was flied on October 1, 2012. Thereafter, the parties flied their Joint Stipulation of Facts and Issues26 on October 31, 2012, which the Court approved in the Pre-trial Order27 dated November 13, 2012. In the same Order, the pre-trial was deemed terminated and the parties were ordered to proceed with the trial. During the trial, petitioner presented its Accounting Officer, Ms. Maria Cristina 0. Alon, as its sole witness.

28 On November 11, 2013, petitioner flied its Formal Offer of Evidence.29 In the Resolution30 dated February 11, 2014, this Court admitted as petitioner's evidence Exhibits "A" to "UUU", 'WWW" to "AAAAA", and "CCCCC", inclusive of submarkings but denied Exhibits

''VVV" ''VVV -1" "VVV -2" "BBBBB" and "CCC"

' ' ' ' /

Petitioner then filed an Omnibus Motion (I) For Reconsideration of the Resolution dated 11 February 2014, and (II) For Correction of the Description of Exhibits "PPP-1" and "GGGG-1" in the Formal Offer of Evidence 31 on March 6, 2014.

In the Resolution32 dated June 2, 2014, the Court admitted Exhibit "BBBBB", noted the correction of the description of Exhibits "PPP-1" and "GGGG-1", and still denied Exhibit "CCC".

On the part of respondent, she filed a l\IIanifestation praying for the submission of the case for resolution based on available records and requesting for a period of thirty (30) days to file her Memorandum.33 In the Resolution34 dated July 2, 2014, the Court noted respondent's Manifestation and cancelled the presentation of evidence previously scheduled. The Court also ordered both parties to submit their respective Memoranda within thirty (30) days from notice.

Petitioner filed a Motion for Additional Time to File Memorandum35, which was granted by Court. 36 Petitioner submitted its Memorandum37 on August 15, 2014, wlllle respondent submitted her Memorandum38 on August 12,2014.

Petitioner and respondent then submitted a Joint l\IIotion to Admit (Supplemental Joint Stipulation of Facts)39 on August 18, 2014, which was noted and admitted by the Court.40 In the Resolution41 dated September 8, 2014, the case was considered submitted for decision by the Court.

STATEMENT OF ISSUES

As jointly stipulated by the parties, the issues42 to be resolved by this Court are/!

(a) Whether or not Petitioner is entitled to the tax refund or credit of excess CWT for taxable years 2009 and 2010. (b) Whether or not Petitioner has excess CWT in the amount of P62,476,710.65 for taxable years 2009 and 2010. (c) Whether or not the excess CWT for taxable years 2009 and 2010 were carried over and applied as tax credit certificate to the succeeding taxable quarters/year(s). (d) Whether or not the income from which the taxes withheld and included by Petitioner as part of gross income in its 2009 and 2010 income tax returns.

(e) Whether or not Petitioner's claim for refund representing excess CWT for taxable years 2009 and 2010 in the aggregate amount of P62,476,710.65 is substantiated by documentary evidence.

RULING OF THE COURT

Petitioner anchors its claim on Section 7 6 of the NIRC of 1997, as amended, which provides:

"SEC. 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall flle 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 thy 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 tax credit certificate shall be allowed therefor." (Emphasis supplied) Based on the above-quoted provision, in case of overpayment of income taxes, a taxable corporation has two options, it may file a claim for refund (either in the form of cash or tax credit certificate) or it may carry over the same to the succeeding taxable quarters/ years until it is fully utilized. However, once the carry-over option is taken actually or constructively it becomes irrevocable for that taxable period.43 The phrase "for that taxable period" refers to the taxable year when the excess income tax, subject of the option, was acquired by the taxpayer.44 A perusal of petitioner's Annual ITRs for CY 2009 and 2010 disclosed that petitioner had MCIT due in the respective amounts of P926,359.00 and P1,952,092.00 totaling P2,878,451.00.

Petitioner alleges that these MCIT liabilities were paid using a portion of its reported prior year's excess credits of P85,263,890.00, thus, leaving the balance of the prior year's excess credits of P82,385,439.00 and creditable taxes withheld in 2009 and 2010 in the respective amounts of P24,104,577.00 and P38,382,260.00 or in the total amount of P62,486,837.00 unutilized as of December 31,2010, as shown below: 2009 2010

Total

(Exhibit "D'')

(Exhibit "E '')

Gross Income

p 46,317,931.00 p 97,604,600.00 P143,922,531.00

Less: Deductions

76,089,815.00 97,604,600.00 173,694,415.00

Taxable Income

(29,771,884.00) - (29,771,884.00)

Minimum Corporate Income Tax

926,359.00 1,952,092.00 2,878,451.00 Less: PriorY car's Excess Credits 85,263,890.00 84,337,531.00 85,263,890.00

Balance of Prior Year's Excess

Credits

84,337,531.00 82,385,439.00 82,385,439.00

Add: Creditable Taxes Withheld

During the Year

24,104,577.00 38,382,260.00 62,486,837.00

Total Excess Credits as of

December 31

P108,442,108.00 P120,767,699.00 P144,872,276.00 To prove the existence of its prior year's excess credits of P85,263,890.00, petitioner presented Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307) for the years 1999 to 2002 and 2004 to 2006 that reflected creditable withholding taxes in the amount of P86,460,040.28, detailed as follows~

Exhibit

Period Covered

"HHH"

10/ 01 / 99 to 12/ 31/ 99

"III"

01 / 01 / 00to03/ 31/ 00 "]]]" 10/ 01/00 to 12/ 31/00

"KKK"

10/ 01 / 00 to 12/ 31 / 00

"EEEE"

03/ 01 / 01 TO 03/ 31 / 01

"QQQ"

01/01/01 to 03/ 31/01

"RRR"

04/ 01 / 01 to 06/30/ 01

"MMM"

04/ 01 / 01 to06/30/01

"LLL"

08/ 01 / 01 to09/30/01

"NNN"

10/ 01 / 01 to 12/ 31 / 01 "000" 10/ 01 / 01 to 12/ 31 / 01

"PPP"

12/ 01 / 01 to 12/31/ 01 "A.AAA" 01 / 01 / 02 to 03/ 31 / 02

"BBBB"

01 / 01 / 02 to 03/ 31 / 02

"SSS"

04/ 01 / 02 to 06/30/ 02

"UUU"

04/01 / 02 to 06/ 30/02

''WWW''

04/01/02 to 06/30/02

"YYY"

04/ 01 / 02 to 06/ 30/ 02

"TTT"

07/01 / 02 to 09/ 30/ 02

"ZZZ"

07/01 / 02 to 09/ 30/ 02

''XXX''

10/ 01 / 02 to 12/31/ 02

"HJ-U-IH"

04/ 01 / 04to06/ 30/ 04 "1111" 04/ 01 / 04to06/ 30/ 04

"GGGG"

07/01 / 04 to 09/ 30/ 04

"DDDD"

07/01 / 04to09/ 30/ 04

"CCCC"

10/ 01 / 04 to 12/ 31/ 04

"FFFF"

12/ 01 / 05 to 12/ 31 / 05

"DDD"

10/ 01 / 06 to 12/31/ 06

"EEE"

10/ 01 / 06 to 12/31/ 06

"FFF"

04/ 01 / 06 to 06/30/ 06

"GGG"

10/ 01 / 06 to 12/31/ 06

Income Tax

Withholding Agent

Withheld

Equitable PCI Bank

p 503,125.00

Subtotal

p 503,125.00 Bayan Telecommunications, Inc.

p 747,955.00 Bayan Telecommunications, Inc.

519,896.25 •

Southern Energy Asia-Pacific Operations

(Phils.), Inc.

143,272.75

Subtotal

p 1,411,124.00 Integrated MicroElectronics, Inc.

p 101,333.28

Ayala Corporation

2,380,800.00

Ayala Corporation

683,264.78 Mirant (Phils) Operations Corp.

470,763.00

Equitable PCI Bank

4,813,612.50 Mirant (Phils) Operations Corp.

2,622,261.00

Equitable PCI Bank

3,862,800.00

Benpres Holdings Corporation

3,286,627.89

Subtotal

P18,221,462.45

Ayala Corporation

p 366,652.00

Equitable PCI Bank

7,625,700.00

Equitable PCI Bank

5,603,650.00 Globe Telecom, Inc.

346,050.80

PAGCOR

759,000.00

Department of Tourism

56,100.00

Equitable PCI Bank

5,742,400.00

Department of Tourism

58,600.00

Department of Tourism

8,560.00

Subtotal

P20,566, 712.80

Jollibee Foods Corporation

p 6,615,384.75

Jollibee Foods Corporation

6,615,384. 7 5

Jollibee Foods Corporation

5,734,234.13

Ayala Corporation

2,433,912.00

Ayala Corporation

870,947.40

Subtotal

P22,269 ,863. 03

Bank of the Philippine Islands

p 5,625,637.50

Subtotal

p 5,625,637.50 Globe Telecom, Inc.

p 1,449,870.00 Smart Communications, Inc.

6,602,376.00

Philippine Long Distance Telephone

Company

3,207,493.50 Smart Communications, Inc.

6,602,376.00

Subtotal

P17 ,862,115.50 T otal P86,460,040.28 -;;

In an earlier case45 involving the same parties and issues but covering petitioner's claimed CWT for taxable years 2007 and 2008, this Court's Second Division, in partially granting the claim, found that petitioner had excess tax credits for taxable year 2006 in the amount of P2,220,487.60 that can be utilized to partially pay for petitioner's MCIT liabilities for taxable years 2007 and 2008 totaling P5,109,558.00. The 2006 excess tax credits in the amount of P2,220,487.60 was arrived at by deducting petitioner's MCIT liability for 2006 in the amount of P82,634.00 from the creditable income taxes withheld by Holcim Philippines, Inc. for 2006 in the amount of P2,303,121.60 (Exhibit "0"). Hence, only the remaining MCIT due for taxable years 2007 and 2008 in the amount P2,889,070.40 was deducted from petitioner's substantiated CWT for taxable years 2007 and 2008. Below is the relevant portion of the Amended

Decision:

While the certificate marked as Exhibit "0" pertains to petitioner's 2006 CWT, the same does not represent petitioner's excess credits for taxable year 2006. In its 2006 Annual ITR, petitioner reflected an MCIT due of P82,634.00 which shall be deducted from the 2006 CWT of P2,303,121.60. Thus, only the amount of P2,220,487.60 (P2,303,121.60 less P82,634.00) represents petitioner's excess credits for taxable year 2006, which shall be applied against petitioner's MCIT liabilities for taxable years 2007 and 2008 in the total amount of P5,109,558.00. Consequently, only the remaining MCIT due for taxable years 2007 and 2008 in the amount of P2,889,070.40 shall be offset against petitioner's substantiated claim for 2007 and 2008 in the amount of P117,011,064.40 leaving a refundable amount of P114,121,994.00, representing petitioner's excess C\XIT for taxable years 2007 and 2008.

Clearly, from the foregoing, petitioner's MCIT liabilities for 2006, 2007, and 2008 were paid utilizing the creditable taxes withheld by Holcim Philippines, Inc. and a portion of petitioner's creditable taxes withheld in 2007 and 2008. Therefore, it can be safely concluded that all of the Certificates of Creditable Taxes Withheld at Source46 submitted by petitioner in the present case pertaining to creditable taxes withheld in 2006 by Globe Telecom, Inc., Smart Communications, Inc. and Philippine Long Distance Telephone Company in the amount of P17 ,862,115.50 represent petitioner's excess tax credits for CY 2006 which remained unutilized as of D ecember 31, 2008. As regards the Certificates of Creditable Tax Withheld at Source pertaining to CY 1999, 2000, 2001, 2002, 2004, and 2005, it cannot be ascertained whether the creditable withholding taxes indicated therein pertain to the excess of petitioner's total tax credits over its income tax liabilities for~

the years 1999 to 2005 because petitioner failed to submit its Annual ITRs for the said years.

Nevertheless, the verified prior year's (2006) excess tax credits of P17 ,862,115.50 are more than sufficient to cover petitioner's MCIT liabilities for taxable years 2009 and 2010 in the respective amounts of P926,359.00 and P1 ,9 52,092.00 totalling P2,878,451.00. Consequently, the reported creditable taxes withheld in 2009 and 2010 in the respective amounts of P24,104,577.00 and P38,382,260.00 or in the aggregate sum of P62,486,837.00 which petitioner marked as "To be refunded"47 in its Annual ITRs for the said years remained unutilized as of December 31, 2010. Since only the excess tax credits from taxable year 2006 and prior years were carried over in petitioner's Quarterly Income Tax Returns and Annual ITRs for CY 201048 and 201149, the reported CWT for CY 2009 and 2010 in the total amount of P62,486,837.00 may be the proper subject of a claim for refund pursuant to Section 76 of the NIRC of 1997, as amended. It is to be noted though that petitioner is claiming a lower amount ofP62,476,710.65.

It is well-settled that a taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites:50 1.

The claim must be flied with the BIR Commissioner within the two-year period from the date of payment of the tax; 2.

It must be shown on the return that the income received was declared as part of the gross income; and 3.

T he 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 the tax withheld.

Anent the first requisite, Sections 204(C) and 229 of the NIRC of 1997, as amended, provide as follows:

"SEC. 204. Authority of the Commissioner to Compromise, A bate and Rej11nd or Credit Taxes. - The Commissioner may-

XXX

XXX

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 theiy

value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return flied showing an overpayment shall be considered as a written claim for credit or refund."

"SEC. 229. Recovery of Tax Erroneous!J or Illegai!J Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been 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 flied 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 flied after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the 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." The above provisions mandate that the administrative and the judicial remedies of filing a claim for refund of erroneously or excessively paid tax must be done within two years from the date of payment of the tax. For actions for refund of excess corporate income tax, the Supreme Court ruled that the two-year prescriptive period should be counted from the filing of the final adjustment return, because it is only during that date that the exact tax liability or refundability of the tax can be determined. 51 The present claim pertains to CY 2009 and 2010 for which petitioner flied its Annual ITRs on April 15, 201052 and April 14, 2011 53, respectively. Counting from these dates, petitioner had until April 15, 2012 and April 14, 2013 within which to flie a claim for refund of its excess CWT both in the administrative and judicial levels. Thus, petitioner timely filed with the BIR its administrative claim for refund on March 29, 201254 and its judicial claim for refund through the instant Petition for Review on April 13, 201255 ~

With regard to the third requisite, petitioner presented Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307) duly issued by its various clients showing CWT in the amounts of P24,104,576.00 and P38,372,134.64 for CY 2009 and 2010, respectively, or in the aggregate sum of P62,476,710.65, broken down as follows:

Incom e Tax

Period Covered

Withholding Agent

Incom e Paym ent

Withheld

For Taxable Year 2009

"G"

04/ 01/ 09 to 06/ 30/ 09 PLDT

73,333,333.33 11 ,000,000.00

"H"

04/01/ 09 to 06/ 30/ 09 Smart Communications, Inc. 68,320,200.00 10,248,030.00

"I"

07/01/09 to 09/ 30/ 09 San Miguel Corporation

19,043,640.00 2,856,546.00

Subtotal

P160,697 ,173.33 P24,104,576.00

For Taxable Year 2010

'~]" "!("

"L"

"M"

"N"

"0"

"P"

"Q"

"R"

"S"

"T"

"U"

"V"

"W"

Subtotal

01/ 01/ 10to03/ 31/ 10 ABS-CBN Broadcasting Corp.

46,071,000.00 6,910,650.00 03/01/ 10to03/ 31/ 10

Manila Electric Company

15,000,000.00 2,250,000.00

04/01/ 10to06/30/10 Ayala Corporation

16,894,800.00 2,534,220.00 07/01/ 10to09/30/10

Ayala Corporation

26,314,600.00 3,947,190.00 10/ 01/ 10 to 10/31/ 10

Vicsal Development Corporation

20,287,950.00 3,043,192.50 12/ 01/ 10 to 12/ 31/ 10 Globe Telecom, Inc.

37,815,981.00 5,672,397.15 10/ 12/ 10 to 10/ 12/10

Bank of the Philippine Islands

27,320,580.00 4,098,087.00 12/01/10 to 12/31/ 10

Petron Corporation

20,824,320.00 3,123,648.00 12/ 01 / 10 to 12/31/ 10

Petron Corporation

480,000.00 72,000.00 11/ 01 / 10 to 11/30/ 10 V alueshop Market Market, Inc.

20,010,000.00 3,001,500.00 10/ 01 / 10 to 11/30/ 10 V alueshop Market Market, Inc.

10,005,000.00 1,500,750.00 10/ 01/ 10 to 11/ 30/ 10

Vicsal Development Corporation

5,002,500.00 750,375.00 11/ 01/ 10 to 11/ 30/ 10 Metro Legazpi Devt. Corp.

5,002,500.00 750,375.00 11/ 01/ 10 to 11/ 30/ 10

Vicsal Development Corporation

4,785,000.00 717,750.00 P255,814,231.00 P38,372,134.65

Total

P62_!_4I§_1_?10. 65 Therefore, petitioner complied with the third requisite. This brings us to the second requisite, i.e., whether or not the income upon which the subject taxes were withheld were included and reported by petitioner in its Annual ITRs for CY 2009 and 2010. The certificates show that the claimed CWT for the year 2009 in the amount of P24,104,576.00 and for the year 2010 in the amount of P38,372,134.64 were withheld on income payments of P160,697,173.33 and P255,814,231.00, respectively. On the other hand, petitioner's Annual I'IRs for the years 2009 and 2010 showed higher gross "Sales/ Revenues/ Receipts/Fees" in the amounts of P284,202,227.0056 and P508,239,819.0057, respectively;c-1

The Revenue section in petitioner's Statements of Comprehensive

Income

for 2009 and 2010 indicated the breakdown of "Sales/Revenues/Receipts/Fees" reflected in petitioner's Annual ITRs, to wit: 2009 2010

Revenue

(Exhs. "DD" to "DD-2'') (Exhs. "E E" to "EE-2'')

Billing Revenue

Consultancy Services

p 58,190,753.00 p 308,060,311 .00

Shared Services

132,513,939.00 121,394,226.00

Loaned Services

93,497,535.00 78,785,282.00 T otal P284,202,227 .00 P508,239,819.00 In her Judicial Affidavit58 dated February 15, 2013, petitioner's Accounting O fficer, Ms. Maria Cristina 0. Alon, explained why there is a discrepancy between the gross income reported in petitioner's Annual ITRs for CY 2009 and 2010 and the gross income related to the claimed CWT, to wit: 141.

Q :

Please explain if you can, why the total amount of sales/revenues, which Petitioner reported in the 2009 annual income tax return is not equal to the am ount of income from which CWT were withheld?

A:

First reason is that the total sales/ revenues reported in the 2009 annual income tax return included not only the revenues from local customers, which are subject to CWT, but also revenues from foreign affiliates, which are non-residents and which are therefore not required to withhold under the law. The revenues derived from foreign affiliates are those which pertain to the Shared services center and Loaned services. The revenues from Shared services center and Loaned services are reflected in the 2009 audited financial statements in the amounts of P132,513,939.00 and P93,497,535.00, respectively. Second reason for the discrepancy in the amount of revenue reflected in the audited financial statements, and the amount of income payments supported by certificates of tax withheld is that Petitioner accrued income in 2008, the payment of which, together with the corresponding certificate of tax withheld, were received in 2009.

Third reason is that Petitioner recorded or accrued income in its books in 2009, but for which the corresponding payments and the certificates of tax withheld were received in 201 0~

Last reason is that because Petitioner billed its customers in U.S. Dollars, there is foreign currency translation difference arising from the use by Petitioner of a Peso-U.S. Dollar exchange rate (in recording income in its books) that is different from the Peso-U.S. Dollar exchange rate used by customers (when they issued the certificates of tax withheld).

XXX

XXX

XXX

149.

Q:

What other evidence, if any, does Petitioner h ave to prove the fact that income p ayments to Petitioner from which CWT were withheld, were reported in the 2009 annual income tax return?

A:

The income payments of the customers, from which the CWT were withheld, are recorded in Petitioner's General Ledger - Transaction Detail for 2009 ("2009 GLTD"), which is the revenue/ sales ledger account of Petitioner. Petitioner recorded the revenues earned from customers in this ledger account. The revenue recorded in the ledger account became the basis of the revenue reported in the 2009 annual income tax return, and audited financial statements. It should be noted that the amounts of income payments of the customers recorded in the ledger account are supported by customer billing invoices, official receipts and corresponding certificates of tax withheld (BIR Form No. 2307).

XXX

XXX

XXX

152.

Q:

You said that the amounts of revenue recorded in the GLTD support the amounts of revenue reflected in the 2009 audited financial statements, specifically, the revenues from Consultancy Services, which were subjected to CWT. Is this correct?

A:

Yes. The total revenue recorded in the 2009 GLTD of P58,190,753.00 is actually the same as the amount of revenue from Consultancy Services reflected in the 2009 audited financial statements.

XXX

XXX

XXX

155.

Q:

If the total amount of revenue reflected in both the 2009 audited financial statements and GL TD is P58,190,753.00, would you explain why the total amount o).;

income payments supported by certificates of tax withheld (from which the CWTs sought to be refunded were withheld) is P160,697 ,173.33?

A:

As I earlier stated (in Q&A No. 141), the reason for the discrepancy in the amount of revenue reflected in the audited financial statements and the amount of income payments supported by certificates of tax withheld is that Petitioner accrued income in 2008, the payments for which, together with the corresponding certificates of tax withheld, were received in 2009. Moreover, Petitioner recorded or accrued income in its books in 2009, but for which the corresponding payments and the certificates of tax withheld were received in 2010. Furthermore, there is foreign currency translation difference on account of the use by Petitioner of a Peso-U.S. Dollar exchange rate in recording income in its books that is different from the Peso-US Dollar exchange rate used by customers in issuing the certificates of tax withheld.

XXX

XXX

XXX

159.

Q:

Will you further illustrate how the adjustments in the amount of revenue per GLTD and audited financial statements of P58,190,753.00 were made, in order to arrive at the amount of total income payments per certificates of tax withheld ofP160,697,173.33?

A:

Yes. From the amount of revenue per GLTD and audited financial statements of P58,190,753.00, we deducted the amount of income accrued in 2009, the payments of which and the corresponding certificates of tax withheld were arrived in 2010, which is P27 ,850,950.00.

Then, we deduct the foreign currency translation difference of P753,775.00.

Lastly, we add the amount of income accrued in 2008, the payment of which and the corresponding certificate of tax withheld were received in 2009, which is P131,11 1.145.33. This is illustrated below:

Revenue per 2009 GLTD/ Audited Financial Statements

P 5s,t9o,753.oo I Less: I 2009 Revenue - CWT Collected in 2010 I "ZZZZ" (27,850,950.00) y

I Foreign currency translation difference Add: I 2008 Revenue - CWT Collected in 2009

Revenue per Certificates of Tax Withheld

XXX

XXX

(753,775.00) 131,111,145.33 P160,697 ,173.33

XXX

203.

Q:

Will you explain why the total amount of sales/revenues, which Petitioner reported in the 2010 annual income tax return is not equal to the amount of income from which the CWT were withheld?

A:

First reason is that the total sales/revenues reported in the 2010 annual income tax return included not only the revenues from local customers, which are subject to CWT, but also revenues from foreign affiliates, which are non-residents and which are therefore not required to withhold under the law. The revenues derived from foreign affiliates are those which pertain to the Shared services center and Loaned services. The revenues from Shared services center and Loaned services are reflected in the 2010 audited financial statements in the amounts of P1 21,394,226.00 and P78,785,282.00, respectively. Second reason for the discrepancy in the amount of revenue reflected in the audited financial statements, and the amount of income payments supported by certificates of tax withheld is that Petitioner accrued income in 2009, the payment of which, together with the corresponding certificate of tax withheld, were received in 2010.

Third reason is that Petitioner recorded or accrued income in its books in 2010, but for which the corresponding payments and the certificates of tax withheld were received in 2011. Last reason is that because Petitioner billed its customers in U.S. Dollars, there is foreign currency translation difference arising from the use by Petitioner of a Peso-U.S. D ollar exchange rate (in recording income in its books) that is different from the Peso-U.S. Dollar exchange rate used by customers (when they issued the certificates of tax withheld).

XXX

XXX

XXX

210.

Q:

What other evidence, if any, does Petitioner have to prove that the income payments, from which the~

CWT were withheld, are reported in the 2010 annual income tax return?

A:

The income payments of the customers, from which the CWT were withheld, are recorded in the 2010 GLTD, which is the revenue/sales ledger account of Petitioner. Petitioner recorded the revenue earned from customers in this ledger account. The revenue recorded in the ledger account became the basis of the revenue reported in the 2010 annual income tax return, and audited financial statements. It should be noted that the amounts of income payments of the customers recorded in the ledger account are supported by customer billing invoices, official receipts and corresponding certificates of tax withheld (BIR Form No. 2307).

XXX

XXX

XXX

213.

Q:

You said that the amounts of revenue recorded in the 2010 GL TD support the amounts of revenue reflected in the 2010 audited financial statements (specifically, the revenues from Consultancy Services, which are subject to CWT). Is this correct?

A:

Yes. The total revenue recorded in the 2010 GLTD of P308,060,311.00 is actually the same as the amount of revenues from Consultancy Services reflected in the 2010 audited financial statements.

XXX

XXX

XXX

216.

Q:

If the total amount of revenue reflected in both the 2010 audited financial statements and GL TD is P308,060,311.00, would you explain why the total amount of income payments supported by certificates of tax withheld (and from which CWTs sought to be refunded were withheld) is only P255,814,231.00.

A:

As I've explained earlier (in Q&A No. 203), the reason for the discrepancy in the amount of revenue reflected in the audited financial statements and the amount of income payments supported by certificates of tax withheld is that Petitioner accrued income in 2009, the payments for which, together with the corresponding certificates of tax withheld, were received in 2010. Moreover, there is foreign currency translation difference on account of the use by Petitioner of a Peso-U.S. D ollar exchange rate in recording income in its books that is different from the Peso-US Dollar exchange rate used by customers in issuing the certificates of tax withheld.;rl"

XXX

XXX

XXX

220.

Q:

Will you further illustrate how the adjustments in the amount of revenue per GLTD and audited financial statem ents of P308,060,311.00 will be made in order to arrive at the am ount of income p ayments per certificates of tax withheld of P255,814,231.00?

A:

Yes. From the amount of revenue per GLTD and audited financial statements of P308,060,311.00, we add the amount of income accrued in 2009, the payments of which and the corresponding certificates of tax withheld were received in 2010 of P27,850,950.00.

Then, we deduct the amount of income accrued in 2010, the payments of which and the corresponding certificates of tax withheld were received in 2011 of P79,307,600.00 and the foreign currency translation difference of P789,430.00. This is illustrated below:

Revenue per 2010 GLTD /Audited Financial Statements

p 308,060,311.00

Add:

2009 Revenue - CWT Collected in 2010

''AAAAA''

27,850,950.00

Less:

2010 Revenue- CWT Collected in 2010

(79,307,600.00) Foreign currency translation difference _(_789,430.00)

Revenue per Certificates of Tax Withheld

P 255,814,231.00 From the above testimony and the Statements of Comprehensive Income for the years ended December 31, 200959 and 201060, General Ledger

Transaction

Detail

(GLTD)

for 20086\ 200962 and 201063,

CWT

Reconciliations64 and Reconciliation Schedules of Revenues per GLTD and Revenues per Certificates of Tax Withheld for 200965 and 201066, petitioner duly established that it declared in its Annual ITRs for the years 2009 and 2010 the gross income related to the substantiated CWT for the years 2009 and 2010 in the respective amounts of P24,104,576.00 and P38,372,134.65 or in the sum of P62,476,710.65/

Tax refunds partake the nature of tax exemptions and are thus construed strictissimi juris against the person or entity claiming the exemption.67 The burden in claiming tax refund rests upon the taxpayer. In this case, petitioner was able to prove its entitlement to the claim for refund.

WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND in favor of petitioner the amount ofP62,476,710.65 representing its unutilized excess tax credits for calendar years 2009 and 2010.

WE CONCUR:

~-~_,fL.:..

MA. BELEN M. RINGPIS-LIBAN

Associate Justice

ATTESTATION

I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writeypf the opinion of the Court's Division.

LOVEL

. BAUTISTA

Assobate Justice

Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, is it hereby certified tl1at the conclusions in the above decision were reached in consultation before the case wRssigned to the writer of the opinion of the Court.

-

Presiding Justice