Zuellig Pharma Corporation vs. Commissioner of Internal Revenue

DECISION

CASANOVA, J.:

This is a Petition for Review, filed on April 11, 2014 by petitioner Zuellig Pharma Corporation, praying for the refund of the amount of P477,269,935.23, allegedly representing its excess and unutilized creditable withholding taxes (CWT) for the calendar year (CY) ended December 31, 2011.

Petitioner Zuellig Pharma Corporation is a corporation duly organized and existing under the laws of the Republic of the Philippines, with principal place of business at Km. 14 West Service Road, South Superhighway corner Edison Avenue, Barangay Sun Valley, Paranaque City. 1 It is a registered taxpayer with the Bureau of Internal Revenue (BIR), Large Taxpayer Service, with Taxpayer Identification No. (TIN) 000-172-443-000. 2 On the other hand, respondent is the duly appointed Commissioner of Internal Revenue (CIR), vested with authority to carry~

out all the functions, duties, and responsibilities of said office, including inter alia, the power to decide, approve, and grant claims for refund of or issuance of TCC for overpaid or erroneously paid or collected internal revenue taxes, including excess and unutilized CWT, with office at the 5th Floor, BIR National Office Building, Agham Road, Diliman, Quezon City. 3 Petitioner is primarily engaged in the business of manufacturing, preparing, compounding, processing, packaging, buying and selling at wholesale and retail, importing and exporting, and otherwise dealing in all kinds of drugs, chemicals, patent, proprietary and other medicines, biological products, oils, dyestuffs, perfumeries, toilet and fancy articles, fancy goods, cosmetics, druggists, sundries, soaps, veterinary products and generally dealing in goods, wares, merchandise and personal property of every kind.4 On April 16, 2012, petitioner filed its Annual Income Tax Return (ITR)5 for CY 2011 with the BIR, through the Electronic Filing and Payment System ( eFPS).

Petitioner then manually filed on April 30, 2012, its Annual ITR6 for CY 2011 with the BIR, Large Taxpayers Assistance Division I together with a copy of its audited financial statements7 for the year ended December 31, 2011.

On June 13, 2013, petitioner filed with the BIR through eFPS its Amended Annual ITR8 for CY 2011 using the new BIR Form No. 1702. In both its manually and electronically-filed Annual ITRs9 for CY 2011 petitioner indicated its option to claim for refund of its excess and unutilized CWT for CY 2011. On April 13, 2012, petitioner filed with respondent a letter10 signifying its intent to claim for refund of its excess and unutilized CWT for CY 2011.4

Thereafter, on February 28, 2014, petitioner submitted a letter11 dated February 12, 2014 to the BIR, Large Taxpayers Services, supplementing its claim for refund and expounding on the legal and factual bases thereof.

On April 1, 2014, petitioner filed with the BIR, Large Taxpayers Services, an Application for Tax Credits/Refunds (BIR Form No. 1914)12, praying for the refund of its excess and unutilized CWT for CY 2011 in the amount of P477,269,935.23. To date, respondent has neither approved nor denied petitioner's administrative claim for refund of its excess and unutilized CWT for CY 2012. Hence, the instant Petition for Review filed on April 11, 2014. Within the extended time granted by the Court13, respondent filed his Answer14 on June 6, 2014, interposing the following Special

and Affirmative Defenses:

"SPECIAL AND AFFIRMATIVE DEFENSES On the basis of the foregoing allegations and in further support of the Specific Denials herein set forth, respondent respectfully alleges as her affirmative defenses that:

4.

Taxes collected are presumed to be in accordance with laws and regulations. 5.

Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau of Internal Revenue. A claim for refund is not ipso facto granted because respondent CIR still has to investigate and ascertain the validity of the claim. 6.

Taxes are essential to government's very existence; (CIR v. Solidbank Corporation, G.R.

No~

148191, November 25, 2003) hence, the dictum that taxes are the lifeblood of the government." For this reason, the right of taxation cannot easily be surrendered; statutes granting tax exemptions are considered as a derogation of the sovereign authority. (CIR v. Fortune Tobacco Corporation, G.R. Nos. 167274-75, July 21, 2008) Since tax refunds are regarded as tax exemptions therefore, these are to be construed strictissimi juris against the person or entity claiming the exemption. (Philippine Phospate Fertilizer Corporation vs. Commissioner of Internal Revenue G.R 141973, June 28, 2005) 7.

In an action for refund, the burden of proof is on the taxpayer who claims the exemption and he must justify his claim by the clearest grant under the Constitutional or statutory law and cannot be permitted by vague implications (BPI Leasing Corporation vs. Honorable Court of Appeals, G.R 127624, November 18, 2003) The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund. (Commissioner of

Internal

Revenue

vs.

Eastern

Telecommunications Philippines, Inc. G.R. 163835 July 7, 2010) 8.

Petitioner must prove that it filed the corresponding administrative and judicial claim for refund within the two-year prescriptive period pursuant to

Sections 204 and 229 of the National Internal

Revenue Code of 1997, as amended. 9.

The amount of Php477,269,935.23 being claimed by petitioner as alleged excess and unutilized Creditable Withholding Taxes for the calendar year ended

December

31, 2011 is not properly documented.

10. In the foregoing case, it should be noted that nowhere in the petition did petitioner aver that it..,...

complied with the required submission of supporting documents to justify its claim for refund.

11. In relation thereto, petitioner must prove compliance with the prescribed checklist of requirements to be submitted involving claims for creditable withholding tax pursuant to Revenue Memorandum Order (RMO) No. 53-98 (Checklist of Documents to be Submitted by a Taxpayer upon Audit of his Tax Liabilities as well as of the Mandatory Reporting Requirements to be Prepared by a Revenue Officer, all of which comprise a Complete Tax Docket), otherwise there would be no sufficient compliance with the filing of an administrative claim for refund, the administrative claim thereof being merely pro-forma.

12. RMO No. 53-98 was issued to identify the documents required from a taxpayer during audit of the application for refund.

For

Income

Tax/Withholding Tax, the specific documents that need to be submitted are as follows:

INCOME TAX/ WITHHOLDING TAX

A) Requirements from Taxpayer 1) Certified Financial Statements, including comparative Profit and Loss Statement with

Statement of Cost of Goods Manufactured

and Sold, if applicable.

2) Proof of claimed tax credit if applicable. 3) Proof of the claimed 'Interest Expense', if applicable.

4) Proof of claimed Bad Debts/ worthlessness of credits, if applicable.

5) Reconciliation of 'Book Income' and

'Taxable Income'.

6) Certificate of Registration issued by the appropriate regulatory agency, together with~ the conditions attached to such registration, if applicable.

7) Proof of Exemption under special laws, if applicable.

8) Certification of the appropriate regulatory agency as to taxpayer's entitlement to tax incentives, if applicable. 9) Xerox copy of used Tax Credit Certificate with annotation of issued TDM at the back, if applicable.

10) Proof of payment of deficiency tax, if any/applicable.

a) current year I period b) previous year I period 11)

Reports

submitted to applicable regulatory agency that reflects the financial condition and result of operation of the taxpayer e.g., Annual Statement prepared by insurance companies submitted to the Insurance Commission etc., if applicable.

13. Further,

Revenue

Regulations

(R.R.)

2-2006

(Mandatory Attachments of the Summary Alphalist of Withholding Agents of Income Payments

Subjected to Tax Withheld at Source (SAWT) to Tax Returns With Claimed Tax Credits due to Creditable Tax Withheld At Source and of the Monthly Alpha list of Payees (MAP) Whose Income Received Have

Been

Subjected to Withholding Tax to the

Withholding Tax Remittance Return Filed by the

Withholding Agent/Payor of Income Payments)

provides:

Section 2. MANDATORY SUBMISSION OF

SUMMARY ALPHALIST OF WITHHOLDING

AGENTS OF INCOME PAYMENTS SUBJECTED

TO

CREDITABLE

WITHHOLDING

TAXES

(SAWT) BY THE PAYEE/INCOME RECIPIENT

AND OF MONTHLY ALPHALIST OF PAYEES~

CfA CASE NO. 8801

(MAP) SUBJECTED TO WITHHOLDING TAX

BY THE WITHHOLDING AGENT INCOME

PAYOR AS ATTACHMENT TO THEIR FILED

RETURNS.

A.

XXX .•• XXX ... XXX B. Persons required to submit Summary

Alphalist of Withholding Agents of Income

Payments subjected to Withholding-Taxes

(SAWT)

1. All persons claiming refund or applying their creditable tax withheld at source against the tax due with not more than ten (10) withholding agents-payor of income payment per return period are strictly required to submit SAWT in hard copy as attachment to the required tax return;

2. All persons claiming for refund or applying their creditable tax withheld at source against the tax due with more than ten (10) withholding agents-payor of income payment per return period are strictly required to submit SAWT electronically in 3.5 inch floppy diskette following the format to be prescribed by the BIR;

XXX ... XXX ... XXX

14. In its claim for refund for the calendar year 2011, petitioner clearly failed to submit the pertinent documents required pursuant to RMO No. 53-98 and R.R. 2-2006.

15. Likewise, petitioner must prove that it has fully complied with the requisites to sustain a claim for refund or tax credit of excess and unutilized creditable Withholding Tax as ruled by the Supreme Court in Citibank N.A. vs. Court of Appeals, et al. quoted herewith, to wit:

a.) That the claim for refund was filed within the two year prescriptive period as provided~ under Section 204( c) in relation to Section 229 of the NIRC of 1997;

b.) That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom.

c.) That the income upon which the taxes were withheld was included in the return of the recipient.

16. Petitioner must also prove that it did not carry-over the excess creditable withholding taxes against the

Quarterly and Annual Income Tax Returns in the

succeeding taxable years as provided under Section 76 of the 1997 Tax Code.

17. In the alternative, if petitioner opted to choose a tax refund instead of tax credit certificates or to be carried over as tax credit next year/quarter for the alleged excess and unutilized

Creditable

Withholding Taxes, such option should be indicated in its Annual Income Tax Return by shading the circle of its choice provided for in Part II, Line 37 of the said return.

18. Unfortunately for the petitioner, it never made a choice in its Annual Income Tax Return filed for the calendar year 2011. Upon scrutiny of the aforesaid document, all the options were left blank. Petitioner did not shade the option to be refunded in Line 37 of the said return. Hence, it never signified that it chose to be refunded.

19. For ease of reference, Section 76 of the NIRC, as amended is quoted herewith as follows: SEC.

76.

Final

Adjustment

Return.-

Every

corporation liable to tax under Section 27 shall file a final adjustment return covering the 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 credits; 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 therefore.

20. Following the premise above-mentioned, petitioner has the burden of proving that the right to such tax refund indubitably exists and well-founded doubt is fatal to the claim."

A pre-trial conference was scheduled on July 17, 2014. 15 Subsequently, the Respondent's Pre-Trial Brief16 was filed on July 3, 2014 while the Petitioner's Pre-Trial Brief17 was filed on September 8, 2014.

Thereafter, the parties filed their Joint Stipulation of Facts and Issues18 on September 29, 2014, which was approved and adopted by the Court in the Pre-Trial Order dated October 8, 201419.&--

Upon motion 20 of petitioner, the Court commissioned Ms. Katherine 0. Constantino as the Independent Certified Public Accountant (ICPA).

In support of its claim for refund, petitioner presented the following witnesses: Mr. Joel R. Ducut 21 , petitioner's Assistant Corporate Controller; and Ms. Katherine 0. Constantino 22 , the Independent Certified Public Accountant (ICPA). Petitioner filed its Formal Offer of Evidence23 on May 13, 2015, which was resolved by the Court in the Resolution dated September 15, 201524 • On October 5, 2015, petitioner filed a Motion for Reconsideration with Motion to Admit25, which was partially granted by the Court in the Resolution26 dated April 14, 2016. Thereafter, respondent presented his lone witness, Revenue Officer Ma. Theresa L. Espino27• Respondent filed his Formal Offer of Documentary Evidence28 on June 24, 2016. In the Resolution29 dated June 28, 2016, the Court admitted all of respondent's evidence. On July 11, 2016, respondent filed a Manifestation30 stating that in lieu of filing a Memorandum, he is adopting his Answer dated June 5, 2014 as his Memorandum.~

Petitioner, on the other hand, filed its Memorandum31 on August 30, 2016. The case was then considered submitted for decision in the Resolution32 dated September 6, 2016. The parties stipulated that the main issue33 to be resolved in this case is:

"'WHETHER OR NOT PETITIONER IS ENTITLED TO

ITS CLAIM FOR REFUND OF ALLEGED EXCESS AND

UNUTILIZED CWT FOR CY 2011 IN THE AMOUNT OF P477,269,935.23.' The issue may be broken down in the following sub- issues:

1. Whether or not petitioner's alleged excess and unutilized CWT for CY 2011 in the amount of P477,269,935.23 are duly substantiated by documentary evidence.

2. Whether or not the income from which the CWT's being claimed for refund were withheld was reported as part of the revenues declared in petitioner's Annual ITR.

3. Whether or not petitioner exercised the option to carry over its alleged excess and unutilized CWT for CY 2011 to the succeeding taxable periods.

4. Whether or not petitioner filed its administrative and judicial claims for refund of alleged excess and unutilized CWT for CY 2011 within the two-year prescription period provided under Sections 204(C) and 229, National Internal Revenue Code of 1997 (the 'Tax Code').'&

Based on relevant jurisprudence and BIR Revenue Regulations,34 in order for a taxpayer to be entitled to a refund of or an issuance of tax credit certificate for its unutilized excess cwr, the following three

(3) basic requisites must be sufficiently established:

1. the claim for refund must be filed within the two-year prescriptive period as provided under Sections 204(C) and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended;

2. The fact of withholding must be established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and 3.

The income upon which the taxes were withheld must be declared as part of the gross income of the recipient. As to 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/ Abate and Refund 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 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 Commissioner a claim for credit or refund within two (2).-

CfA CASE NO. 8801 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 credit or refund." "SEC. 229. Recovery of Tax Erroneously or Illegally 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 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 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." In applying the foregoing provisions, the Supreme Court in the case of ACCRA Investments Corporation vs. Court of Appeals, eta/./ 35 held that the two-year prescriptive period for claiming a refund of overpaid income tax/CWT commences to run on the date of filing of the Final Adjustment Return. It is only when the Final Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures.36 This ruling was reiterated in the case of Commissioner of Internal Revenue vs. Primetime Property}7 where the Supreme Court held that the two-year prescriptive period is reckoned from the filing of the final adjusted return. The present claim pertains to taxable CY 2011 for which petitioner filed its original Annual Income Tax Return {AITR) through the SIR's Electronic Filing and Payment System (EFPS) on April 16, (j/1...-

201238• Counting from this date, petitioner had until April 16, 2014 within which to file a claim for refund of its 2011 excess CWT both in the administrative and judicial levels. Petitioner's letter-claim for refund39 filed with the respondent on April 13, 2012, supplemental letter-claim for refund40 and Application for Tax Credits/Refunds41 filed with the BIR's Large Taxpayers Service on February 28, 2014 and April 1, 2014, respectively, as well as its subsequent appeal via a Petition for Review filed before this Court on April 11, 2014 fell within the two-year prescriptive period under Sections 204(C) and 229 of the NIRC of 1997, as amended. With regard to the second and third requisites, Section 2.58.3 (B) of Revenue Regulations (RR) No. 02-98, as amended, states: "Sec. 2.58.3. Claim for tax credit or refund. -

XXX

XXX

XXX

(B)

Claims for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment 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." (Emphasis supplied) To prove the fact of withholding of the claimed CWT of P477,269,935.23, petitioner presented its Schedule 42 of Creditable Withholding Tax and the related Certificates 43 of Creditable Tax Withheld at Source for CY 2011. Upon examination of these documents, the

Court-commissioned

Independent

CPA

firm, Constantino Guadalquiver & Co., through its Partner, Ms. Katherine 0. Constantino, summarized its findings as follows: 4~

Findings

Annex

Reference

(Exh. "P- 19")

Income Payment

Tax Withheld

CWT duly supported by original Certificate of

Creditable Tax Withheld at Source (BIR Form

2307)

Annex 1-a

p 43,249 700,267.27 p 441 220,333.92 CWT duly supported by original Certificate of

Creditable Tax Withheld at Source (BIR Form

2307) with incorrect Petitioner's TIN indicated therein Annex 1-b 847 817 242.41 9 822,185.21 CWT duly supported by original Certificate of

Creditable Tax Withheld at Source (BIR Form

2307) with unclear date Annex 1-c 2 752 283.81 24 449.26 CWT supported by photocopies certificate with correct name, TIN and date Annex 1-d 743 610 625.61 7 545 434.24 CWT certificates not yet provided 18 657 143.95

Total

P44,843,880,419.10 P477 ,269,546.58 The Court noted that the amount of P477,269,546.58 is lower by P388.65 when compared with petitioner's claimed cwr of P477,269,935.23. Thus, the said discrepancy of P388.65 shall be disallowed from petitioner's claim for being unsupported. Moreover, the cwr in the amounts of P9,822,185.21, P24,449.26, P7,545,434.24 and P18,657,143.95 aggregating to P36,049,212.66 shall be disallowed.

While the amount of P9,822,185.21 was duly supported by original Certificate of Creditable Tax Withheld at Source (BIR Form 2307), it has incorrect petitioner's TIN, and the date indicated in BIR Form 2307 was unclear. On the other hand, the amount P7,545,434.24 was only supported by photocopies of certificates with correct name, TIN and date. Finally, the amount P18,657,143.95 is disallowed because the same was not supported with Cwr Certificates. In addition, petitioner's claim should be reduced by the following cwr in the total amount of P786,401.46 for also not being properly substantiated with BIR Forms No. 2307:

Income

Exhibit

Customer Name

Payment

CWT

CWT supported by SIR Forms No. 2307 but not in the name of the petitioner Argent Business Consultants and Stores Specialist,

P-254

Inc.

p 1400.00 p 14.00 Argent Business Consultants and Stores Specialist,

P-365

Inc.

26 977.60 269.78

CWT supported by SIR Forms No. 2307 but without signature of the payor/payor's authorized representative

P-3643

Majesty Pharmacy, Inc.

P-358746

Drugman Drug House

P-358771

Druqman Drug House

P-362567

New Sacred Heart Pharmacy - Dumaguete Branch

P-363929

Rufino Brodeth & Co., Inc./Luz Pharmacy CWT supported by SIR Forms No. 2307 but with different petitioner's TIN indicated therein

P-358233

Da_gupan Doctors Villaflor Memorial Hospital, Inc.

P-358234

Dagupan Doctors Villaflor Memorial Hospital Inc.

P-358235

Dagupan Doctors Villaflor Memorial Hospital Inc.

P-358237

Dagupan Doctors Villaflor Memorial Hospital Inc.

P-358244

Dagupan Doctors Villaflor Memorial Hospital Inc.

P-361298

L TS Supermarkets, Inc.

CWT supported by SIR Forms No. 2307 but dated outside the period of claim

P-359666

First Lane Supertraders Co., Inc.

P-359667

First Lane Supertraders Co. Inc.

P-359668

First Lane Supertraders Co. Inc. CWT supported by SIR Forms No. 2307 but without petitioner's TIN indicated therein

P-363038

Philhealthcare Inc.

P-363039

Philhealthcare, Inc.

P-363040

Philhealthcare, Inc.

P-365467

Tai-Pan Dev't. Inc. Gaisano Ca_Qital San Carlos

P-365468

Tai-Pan Dev't. Inc. Gaisano Capital San Carlos Supporting SIR Forms No. 2307 which do not pertain to the claimed CWT

P-361523

Mactan Doctors Hospital Inc.

P-361524

Mactan Doctors Hospital Inc. CWT supported by SIR Forms No. 2307 which were claimed twice by petitioner P-1696;

P-1697

Capitol Medical Center Inc. P-1490;

P-4191

Professional Services Inc. (The Medical City) P-356821;

P-356822

Cebu Fedco Marketing Corp.

Total Additional Disallowed CWT

3 422,350.23 34 223.52 85,773.75 857.74 216 321.92 2 163.22 113 811.56 1 016.17 713,954.80 7 139.55 1 009,389.69 9 012.38 1 646 455.02 14 700.48 3 415 526.61 30 495.78 2 411 579.22 21 531.96 1 268 977.16 11 330.13 23,564 047.00 235 640.47 767 290.00 7 672.90 316 718.00 3 167.18 199 794.00 1/997.94 404 462.71 4 044.63 654 743.82 6,547.44 1 094 030.23 10 940.30 16 327.00 163.27 17 430.00 174.30 2 164,518.00 21 645.18 1 810,106.00 18 101.06 14 681,104.00 146 811.04 21 244,791.35 189 685.66 790 203.00 7 055.38 P786,401.46 As to the third requisite, records disclose that the claimed CWT pertain to petitioner's sales of goods and services for the CY 2011. In ascertaining that the total amounts of sale of goods and services which were booked by petitioner in its sales register and general ledger (GL) for the CY 2011 tally with the sale of goods and services declared as taxable income per petitioner's AITR for the same year, the ICPA prepared the following reconciliations:~

CfA CASE NO. 8801

On the Sale of Goods:

"We compared the net sales per sales register generated by the Petitioner's SIR-registered system (to be presented as Exhibit P- 31, Folder 12 to 77, Box 7 to 14), with the general ledger balances of total revenue for the year 2011 (previously presented as Exhibit P-25, Folder 5, Box 1), with the net sales reported in the audited financial statements for the year 2011 (previously presented as Exhibit P-5) and with the net sales amount of the amended annual income tax return for the CY 2011 (previously presented as Exhibit P-6). A detailed tabular presentation is presented in Annex

3. Summarized details follows:

Particulars

Amount of sales Per sales register p 57,915,958,134.46 Per qeneral ledqer of all sales 58,031 790,982.54 Per audited financial statements 57,985,824,408.00 Per amended annual income tax return 58,012 576,794.00 Comparison disclosed the following differences:

Differences

a. Sales reqister and qeneral ledger (P 115 832,848.08)

b. General ledger and audited financial statements 45,966 574.54

c. Audited financial statements and amended annual income tax return (26,752,386.00)

d. Sales register and annual income tax return 96,618,659.54

a. Reconciliation of Sales Register and General Ledger amount The discrepancy of P115,832,848.16 pertains to the following amounts which were not included in the sales register because these do not relate to the sale of goods:

Account Code

40101 41202 42001 42002

Account Name

Accrued Tax T /P

Financial Discounts

Services T /P

Services 1/C

Add adjustment for timing differences: Undelivered sales for CY 2010 reported as sales in GL 2011 (Exhibit 34, Folder 80, Box 1) Trade Returns for 2010 recorded in 2011 (Exhibit 37, Folder 80, Box 1) Trade Returns of 2011 not yet recorded in GL (Exhibit35, Folder80, Box 1)

General Ledger

Balance

(P217,250,159.30) (83,778,665.26) 399,261,189.10 182,780.00 P98,415,144.54 25,128,948.63 11,162,033.18 (18,471,733.37)~

Undelivered sales of 2011 recorded in 2012 (Exhibit36, Folder SO, Box 1) (401,544.82) 17,417,703.62 115 832 848.16

b. The difference of P45,966,574.54 between the general ledger and audited financial statements pertains to clinical trial management service income, recorded in the general ledger under Account code 42001 Service T/P account, which was treated as an outright reduction to non-operating expenses under Account Code 48605, Other N-OP inc/exp with GL balance amounting to P47,639,031.33 (P45,966,574.54 clinical trial management and P¹,672,456.79 pertaining to others). Entry details of P45,966,574.54 were provided by the Petitioner (to be presented as Exhibit P-26, Folder 6, Box 1). Accordingly, the difference between the sales reported in the sales register and the audited financial statements amounting to P69,866,273.60 was due to the following: Difference between sales register and general ledger as shown in a. above P115,832,848.16 Clinical trial management services income treated as outright reduction (45,966 574.54)

Total

P69,866,273.62

c. The difference of 26,752,386.00 between sales per income tax return and audited financial statements pertains to the excess municipal taxes accrual which was an additional to the taxable income in the annual income tax return per Petitioner- prepared reconciliation (to be presented as Exhibit P-27, Folder 7, Box 1).

d. Accordingly, the difference of net sales per sales register with the sales per amended return of 96,618,659.60 was due to the following:

Difference between sales register and general ledger as shown in a. above P115,832,848.16 Clinical trial management services income treated as outright reduction as shown in b. above (45/966,574.54) Excess Municipal taxes accrual stated above 26,752 386.00

Total

P96,618,659.60

On the Sale of Services:

"Reconciliation between general ledger and amended annual income tax return as follows: t2r ,

Account

Description

SALES AMOUNT

perGL

per ITR

Difference

40001

VAT SALES T/P

(64,838 920 385.00) (64 838 920 385.48) 0.48 40101

ACCRUED TAX T/P

217,250 159.30 190 497 773.43 26 752 385.87 40201

VAT ON SALES T/P

6,905,544 547.00 6 905 544,547.46 (0.46)

FINANCIAL

41202

DISCOUNTS

83 778 665.26 83 778 665.26 - 42001

SERVICES T/P

(399 261189.10} (353 294 614.94) (45 966 574.16) 42002

SERVICES I/C

(182 780.00) (182 780.00) -

TOTAL

(58,031,790,982.54) (58,012,576,794.27) {19,214,188.27) Accordingly, the difference of total sales per general ledger with the sales per amended annual income tax return of 19,214,188.27 was due to the following: Clinical trial management services income treated as outright reduction (to be presented as Exhibit P-26, Folder 6, Box 1) (P45,966,574.54) Excess Municipal taxes accrual stated above (to be presented as Exhibit P-27, Folder 9, Box 1) 26 752,386.00

Total

{P19,214,185.54)* *Difference of P².73 (P19,214,188.27- P19,214,185.54) is due to rounding decimals. '' Certainly, the total taxable sales of goods and services per petitioner's sales register and GL were the same amounts reported by petitioner in its 2011 AITR. The income payments related to the claimed CWT were recorded in petitioner's sales register and GL. The ICPA was able to trace the income payments related to the claimed CWT to the sales register and GL, except for the following sales of goods in the amount of P969,074,728.83 and sales of services in the amount of P618,630,611.39, detailed as follows:

SALE OF GOODS

Per BIR Form 2307

!CPA's

Computation of

Sales Amount per

Income Payment

Tax Withheld

Sales Register

Difference

Customer Name

(A)

(B)

(A-B)

INCOME PAYMENT WITH NO CORRRESPONDING RECORD IN THE SALES REGISTER

Barili District Hospital

75 661.00 756.61 - 75 661.00

Benguet Provincial

Government

18 670.00 166.70 - 18 670.00 Cebu Doctors Colleqe Inc. 152 678.57 1 526.79 - 152 678.57

Cypress Manufacturing Limited

1 045 200.00 10 452.00 - 1 045 200.00

Daanbantayan District

Hospital

1 618.00 16.18 - 1 618.00

DOH - Regional Health Office -

CAR

Dynasty Management &

Development Corp

Emilus Supermarket Systems

Inc.

Everlink Distribution Group, Inc.

Far East Noble House

FMC Renalcare Corp.

Gaisano Dadaingas Inc.

Handyman Express Mart Inc. Lion Commercial Corp.

Provincial Government Of

Cavite

Riviera Mercantile Sys. Inc. Sara Lee Philippines Inc.

Shogun Management &

Development Corp.

Shopmore Commercial Corp. Waltermart Handyman, Inc.

Subtotal

257 142.86 75 382 233.93 49 894.69 30 775.44 38 638J63.36 431,125.00 66 893.25 73 275.00 294 308.02 780 535.89 4 044 159.00 89 285.71 40 030 611.29 245 319.64 124 625.00 161,832 775.65 2 571.43 - 257,142.86 735,017.49 - 735 017.49 498.95 - 49 894.69 30 775.44 - 30 775.44 383 286.13 - 38 638 763.36 4,311.25 - 431125.00 668.94 - 66 893.25 732.75 - 73 275.00 2 943.08 - 294 308.02 7 369.44 - 780 535.89 40 441.59 - 4 044 159.00 1 785.71 - 89 285.71 399 260.26 - 40 030 611.29 2 453.18 - 245 319.64 1 246.25 - 124 625.00 1,626. 280.17 - 161,832 775.65 INCOME PAYMENT PER SALES REGISTER IS LESS THAN THE INCOME PAYMENT REFLECTED IN THE CWT

CERTIFICATES

AB Pharma Inc.

20,381 040.24 203 810.41 20 233 930.44 147 109.80 Ace Hardware Phil's Inc.

11 179 300.00 111 793.00 11 025 551.42 153 748.58 Ace Med Inc.

2 954 419.83 29 544.20 2 580 027.64 374 392.19

Act General Merchandise &

Drug, Inc.

144,780 830.81

1447 808.32

144 670 718.92 110 111.89

Adela Serra Ty Memorial

Medical Center

691 370.57* 6,913.70 522 706.14 168 664.43

Allah Valley Medical Specialists

Center Inc.

5 854 536.00 58 545.36 5 576 733.70 277 802.30 Antipolo City Hospital Inc.

1473 385.94

14 733.87 1 356 312.03 117 073.91 Asia Renal Care (Phils.)

1468 286.22

14 682.86 516 492.10 951 794.12 Asociacion Benevola De Cebu, Inc. (Chong Hua Hospital) 214 552 762.01 2 145 527.65 206 176 602.34 8 376 159.67

Benguet General Hospital

4 513 965.49* 45 148.57 4 252 494.34 261 471.15

Botica Real

34 709,394.08 336/657.61 10 312 376.74 24 397 017.34

Bureau Of Corrections

2 588 471.00 25 884.71 2 483 890.32 104 580.68

Cagayan De Oro Medical

Center Inc.

17 852 832.00 178 528.32 16 969 829.26 883 002.74

Cagayan Valley Medical Center

10 912 837.60 232 944.64 9 053 476.24 1 859 361.36 Cebu Far Eastern Druq Inc. 2 163 237.24 19 341.77 1,884 554.97 278 682.27

Center For Health

Development Iv-B

229 906.03 2 052.73 86 284.32 143 621.71

Christ The King Medical

Services Inc.

11 544 341.00 115 443.41 356 523.16 11187 817.84

City Government Of Pasig

45 690 051.00 456 900.51 18 256 901.26 27 433 149.74

City Government Of Bago

51 339.29 513.39 47 767.86 3 571.43

City Government Of Binan

1 571 429.00* 15 714.29 136 562.50

1434 866.50

City Government Of Makati

29 713 385.71 297 133.86 21 333 043.66 8 380 342.05

City Government Of

Muntinlupa

2,008 928.57 20 089.29

1169 709.18

839 219.39

City Supermarket

Incorporated

51,544 719.99 515 447.18 so 543 219.22 1 001 500.77

Colinas Verdes Hospital

Managers Corp.

123 829 568.00 1,238 295.68 119 035 961.00 4 793 607.00

Commission On Audit

2 428 261.00 24 282.61 137 573.71 2 290 687.29 -

Commission On Elections

Complete Solution Pharmacy

And Gen. Mer.

160,039.20 1,453.03 155,012.68 91,798,776.00 917,987.76 76,510,309.92 CVC Supermarket Inc.

Davao Adventist Hospital, Inc.

Davao Central Warehouse

Club, Inc.

Davao Regional Hospital

De Los Santos Med.Ctr.

Diagnostic Corp.

Dranix Distributor Inc. Iloilo E. Berlin Pharma Erlinda G. Germar/ Farmacia

Fatima & Fatima Soda Founta

Ever Commonwealth Center, Inc.

Evercare Pharma

Everplus Superstore, Inc.

Extract Sales Incorporated

FEB Cuisine Corp.

FEU - Dr. Nicanor Reyes

Medical Foundation

Gaisano Bros. Mdsg., Inc.

Grand Union Supermarket

Inc., Operator Inter-Medical Unified System, Inc.

ISS Facility Services Phil., Inc.

Jemstar Trading Corporation

Juliano, Susan G.

K2 Drug & Medical Supplies

Larrazabal, Susanna Ortega LTS Affiliates, Inc.

Lucena United Doctors

Incorporated

Manson Drug Corp.

Marionnaud Philippines, Inc.

Mary Johnston Hospital Inc.

Medical Mission Group

Hospital & Health Services

Cooper

Metropolitan Pharmaceutical

Products Inc.

Mindanao Sanitarium Ad

Hospital

Mount Carmel Diocesan

General Hospital

Negros Union Drug Co., Inc.

Norvic Drugs Corporation

Oslob District Hospital

Perpetual Succor Hospital &

Maternity, Inc.

Philex Mining Corporation

Philippine Long Distance

Telephone Compan

Philippine Heart Center

Province Of Pampanga

Nueva Ecija Prohealth 00. 705.66 Inc./Heart Of Jesus Hospital 300,785.66 3,007.87 29,619.72 738,512.00 7,385.12 735,418.37 3,205,653.65 30,932.35 2,618,366.10 10,101,256.00 101,012.65 1,671,797.18 30,485,949.18 304,859.50 30,352,181.41 15,232,920.78 152,329.21 14,163,576.80 10,310,756.00 108,196.38 1,206,667.24 4,851,894.00 48,518.94 4,077,860.92 15,451,062.84 154,510.62 10,535,625.73 44,764,014.47 447,640.07 36,906,409.12 206,136.46 76,910,417.45 78,820,886.01 3,010,996.18 8,130,608.00 81,306.08 8,031,427.66 15,084,981.00 150,849.81 15,078,129.00 28,603,984.71 286,039.85 20,342,184.64 13,359,095.27 133,590.96 13,355,251.11 1,093,587.21 10,935.87 150,296.25 14,283,673.00 142,836.22 13,499,641.94 84,000.00 1,680.00 6,447.26 10,381,614.12 103,816.14 5,323,076.74 108,432,225.46 1,084,545.61 106,784,231.16 61,824,609.38 618,246.09 9,648,673.07 12,455,928.00 124,559.28 12,333,856.68 347,337,544.82 3,473,375.69 246,640,598.58 26,710,298.00 267,102.98 26,672,619.64 1,781,627.77 17,816.27 1,461,365.65 17,856.47 257.12 15,943.28 25,287,731.24 136,521.59 15,908,113.44 32,028,938.00 320,289.38 31,301,758.99 30,342,354.11 303,423.53 29,755,646.84 94,556,608.66 945,566.09 54,500,131.63 5,026.52 15,288,466.08 3,093.63 987,287.55 8,429,458.82 133,767.77 1,069,343.98 11,517,423.24 774,033.08 4,915,437.11 7,857,605.35 90,609.11 30,143,860.25 23,838,244.46 320,049.93 99,180.34 6,852.00 8,261,800.07 3,844.16 943,290.96 784,031.06 77,592.74 5,058,537.38 1,647,994.30 52,175,936.31 122,071.32 100,696,946.24 37,678.36 320,262.12 40,013.77 1,913.19 9,379,617.80 727,179.01 986,707.27 56,477.03 18,000.00 160.71 16,071.43 58,770,014.28 587,700.15 54,026,909.59 7,601,762.08 76,017.61 6,162,002.66 139,984,747.45 1,399,847.48 132,244,275.27 294,471,060.57 3,776,666.97 137,624,178.74 2,678,348.21 26,783.48 2,187,098.21 330,405.38 1,928.57 4,743,104.69 1,439,759.42 7,740,472.18 156,846,881.83 491,250.00

Provincial Government Of

Neqros Occidental

Provincial Government Of

Nueva Vizcava- Nueva Vizcava

Provincial Government Of Or. Neg.

Puregold Junior Supermarket

Inc.

Research Institute For Tropical

Medicine

Right Choice Supermarket

Rilem Pharma Corp.

Rivera Medical Center Inc. Roldan, Kenneth Bautista-

Netnet

Royal Duty- Free Shops Inc. Rustan Supercenters Inc.

San Pedro Doctors Hospital

Inc.

Super 8 Retail Systems Inc.

Suy Sing Commercial Corp

The Landmark Corporation

Vaduz Marketinq Inc.

Veterans Memorial Medical

Center

Waltermart Supermarket Inc.

Watsons Personal Care Stores

(Phils.). Inc.

Wing An Marketinq Inc.

Subtotal

TOTAL

3 372 840.00 314 065.00 1 868 680.08 109 971 961.92 18 780 384.92 330 641 059.97 233 134.67 24 567 322.17 6 343 721.00* 10 635 565.00 127 323 391.00 6 823 716.27 29 549 624.00 35 528,582.00 47 922 257.00 165 275 664.38 45 815 791.00 63 669 284.14 1 889 289 750.00 10 366 943.01

5. 409,204,731P19.S1 PS 571 037,147.16 33 728.40 2 530 189.39 842,650.61 2 804.15 283 640.18 30 424.82 17 421.92

1486 520.11

382 159.97 1 099 719.66 60 160 645.38 49 811 316.54 187 737.62 16 784 499.05

1995 885.87

3 306 387.59 325 551 286.74 5 089 773.23 2 331.34 233 134.60 0.07 244 230.89 18 957 477.40 5 609 844.77 63 437.21 6 342 824.78 896.22 106 355.73 10 472 530.83 163 034.17 1 273 233.91 12 740 561.88 114 582 829.13 68 237.16 6 517 936.44 305 779.83 295 496.24 28 405 611.84

1144 012.16

355 285.82 35 449 835.41 78 746.59 479 222.57 43 927 289.23 3 994 967.77

1652 756.64

161 868 769.29 3 406 895.09 408 936.17 38 498 667.54 7 317 123.46 636,691.95 52 213 056.54 11 456 227.60 18 892 897.50 1 846 923 169.36 42 366 580.64 103 669.42 5 268 888.92 5 098 054.09 54,868 554.21 4,601,962,418.33 807.241,953.18 P56,494 834.38 P4,601,962,418.33 P969 074,728.83 *Income payment per BIR Form No. 2307 included VAT amount. Independently computed income payment based on tax withheld.

SALE OF SERVICES

Per BIR Form 2307

Service Income per General

Income Payment

Tax Withheld

Ledger

Difference

Customer Name

(A)

(8-)

(A-B)

INCOME PAYMENT PER SALES REGISTER IS LESS THAN THE INCOME PAYMENT REFLECTED IN THE CWT

CERTIFICATES

Abbott Laboratories

237 571 740.90 5 526 721.13 25 002 625.57 212 569 115.33 Alkem Laboratories Inc.

159 777.76 3 195.56 137 450.19 22 327.57 B. Braun Medical Supplies 6 581,894.42 88,666.62 917 383.47 5 664 510.96 Bayer Philippines Inc.

12 477.307.25 508 149.29 9 705 279.35 2 772 027.90 Fresenius Kabi PhiliPPines Inc. 10 100 859.16 204 030.19 9 286 767.80 814 091.36 Galderma Philippines Inc. 1 334.800.50 26.696.01 185 091.04 1,149 709.46 Glaxosmithkline Philippines Inc. 75 573 915.50 1 417.195.47 32 490 214.39 43 083 701.11 Msd (I.A) Corp Ph 22 417 495.87 448 349.93 12 335 460.20 10 082 035.67 Novartis Healtcare Philippines, Inc.

89 228 264.81 1 754 719.18 37 736 808.38 51 491 456.43 Oep Philippines Inc.

3 497 199.98 69 180.59 3 319 125.72 178 074.26 Pascual Laboratories Inc. 55 910 118.00 559 101.18 5 747 749.48 50 162 368.52 pfizer Inc.

80 051 571.00 1 587 316.28 27 605 441.69 52 446 129.31

Reckitt Benckiser Healthcare

(Phil) Inc.

103 198 827.70 2 746 302.20 3 528 596.62 99 670 231.08 Sandoz Philippines Corp.

9 869 251.00 197 385.02 7,779 982.91 2 089 268.09 ..

Sanofi- Aventis Philippines Inc. Sanofi Pasteur Inc.

Schering- Plough Corp.

TOTAL

19 920 254.50 28 667,725.50 59 966,008.98 P816 527 012.83 398 405.09 12 322 163.26 7 598 091.24 482,299.15 5 453 826.65 23 213 898.85 1199,269.09 4 342 434.71 55,623 574.27 P17 216 981.98 P197,896,401.44 P618,630,611.39 Consequently, petitioner's claimed CWT in the amounts of P10,121,236.91 and P13,090,532.87 related to the unverified sales of goods and services in the amounts of P969,074,728.83 and P618,630,611.39, respectively, shall be denied as follows:

SALE OF GOODS

ICPA's

Deduction

Computation of

from

Sales Amount per

Income Payment

Petitioner's

Tax Withheld

Sales Register per BIR Form 2307

CWTCiaim

Customer Name

(A)

(B)

(C)

[D=A-(A x B/C)

INCOME PAYMENT WITH

NO CORRRESPONDING

RECORD IN THE SALES

REGISTER

Barili District Hospital

p 756.61 - p 75 661.00 p 756.61

Benguet Provincial Government

166.70 - 18 670.00 166.70 Cebu Doctors College Inc. 1 526.79 - 152 678.57 1 526.79

Cypress Manufacturinq Limited

10 452.00 - 1 045 200.00 10 452.00

Daanbantayan District Hospital

16.18 - 1 618.00 16.18

DOH - Regional Health Office -

CAR

2 571.43 - 257 142.86 2 571.43

Dynasty Management &

Development Corp

735 017.49 - 75 382 233.93 735 017.49

Emilus Supermarket Systems

Inc.

498.95 - 49,894.69 498.95 Everlink Distribution Group, Inc. 30 775.44 - 30 775.44 30 775.44

Far East Noble House

383 286.13 - 38 638 763.36 383 286.13 FMC Renalcare Corp.

4 311.25 - 431125.00 4,311.25 Gaisano Dadaingas Inc.

668.94 - 66 893.25 668.94 Handyman Express Mart Inc. 732.75 - 73 275.00 732.75 Lion Commercial Corp.

2 943.08 - 294 308.02 2 943.08

Provincial Government Of Cavite

7 369.44 - 780 535.89 7 369.44 Riviera Mercantile Sys. Inc. 40 441.59 - 4 044 159.00 40 441.59 Sara Lee Philippines Inc. 1 785.71 - 89 285.71 1 785.71

Shogun Management &

Development Corp.

399 260.26 - 40 030 611.29 399 260.26 Shopmore Commercial Corp. 2 453.18 - 245 319.64 2 453.18 Waltermart Handyman, Inc. 1 246.25 - 124 625.00 1 246.25

Subtotal

, 1,626. 280.17 - , 161,832,775.65 , 1,626,280.17

INCOME PAYMENT PER

SALES REGISTER IS LESS

THAN THE INCOME

PAYMENT REFLECTED IN

THE CWT CERTIFICATES

AB Pharma Inc.

p 203 810.41 p 20 233,930.44 p 20 381 040.24 p 1 471.10 Ace Hardware Phil's Inc.

111 793.00 11 025 551.42 11179 300.00 1 537.49 Ace Med Inc.

29 544.20 2 580 027.64 2 954 419.83 3 743.92 erA CASE NO. 8801

Act General Merchandise &

Druq Inc.

Adela Serra Ty Memorial

Medical Center

Allah Valley Medical Specialists

Center Inc.

Antipolo City Hospital Inc. Asia Renal Care (Phils.)

Asociacion Benevola De Cebu, Inc. (Chong Hua Hospital)

Benquet General Hospital

Botica Real

Bureau Of Corrections

Cagayan De Oro Medical Center

Inc.

Cagayan Valley Medical Center

Cebu Far Eastern Drug Inc.

Center For Health Development

Iv-B

Christ The King Medical

Services Inc.

City Government Of Pasiq

Cjty Government Of Bago

City Government Of Binan

City Government Of Makati

City Government Of Muntinluoa

City Supermarket Incorporated

Colinas Verdes Hospital

Managers Corp.

Commission On Audit

Commission On Elections

Complete Solution Pharmacy

And Gen. Mer.

CVC Supermarket Inc.

Davao Adventist Hospital Inc. Davao Central Warehouse Club, Inc.

Davao Regional Hospital

De Los Santos Med. ctr.

Diagnostic Corp.

Dranix Distributor Inc. Iloilo E. Berlin Pharmacy Erlinda G. Germar/ Farmacia

Fatima & Fatima Soda Founta

Ever Commonwealth Center, Inc.

Evercare Pharmacy

Everplus Superstore Inc.

Extract Sales Incorporated

Feb Cuisine Corp.

Feu- Dr. Nicanor Reyes Medical

Foundation

Gaisano Bros. Mdsg. Inc.

Grand Union Supermarket Inc.,

Operator

Inter-Medical Unified System, Inc.

ISS Facility Services Phil. Inc.

Jemstar Trading Corporation

1,447 808.32 6 913.70 58 545.36 14 733.87 14 682.86 2 145 527.65 45,148.57 336 657.61 25 884.71 178 528.32 232 944.64 19 341.77 2 052.73 115 443.41 456 900.51 513.39 15 714.29 297 133.86 20 089.29 515 447.18 1 238 295.68 24 282.61 1453.03 917 987.76 7 385.12 30 932.35 101 012.65 304 859.50 152 329.21 108 196.38 48 518.94 154 510.62 447,640.07 3 631.49 1 070 552.93 1 026 591.32 30 110.01 81 306.08 150 849.81 286 039.85 133 590.96 10 935.87 142 836.22 144 670 718.92 144 780 830.81 1101.12 522 706.14 774 335.04 2 246.68 5 576 733.70 5 854 536.00 2 778.02 1 356 312.03

1473 385.94

1170.74 516 492.10

1468 286.22

9 517.94 206 176 602.34 214 552 762.01 83 761.60 4 252 494.34 5 055 641.35 7 172.37 10 312 376.74 34 709 394.08 236 634.54 2 483 890.32 2 588 471.00 1 045.81 16 969 829.26 17 852 832.00 8 830.03 9,053 476.24 10,912 837.60 39 689.79

1884 554.97

2 163 237.24 2 491.73 86 284.32 229 906.03 1 282.34 356 523.16 11 544 341.00 111 878.18 18 256 901.26 45 690 051.00 274 331.50 47 767.86 51 339.29 35.71 136 562.50 1 760 000.00 14 494.98 21 333 043.66 29 713 385.71 83 803.42

1169 709.18

2 008 928.57 8 392.20 50 543,219.22 51 544,719.99 10,015.01 119 035 961.00 123 829,568.00 47 936.07 137 573.71 2 428 261.00 22 906.87 155 012.68 160,039.20 45.64 76 510 309.92 91 798 776.00 152 884.66 735 418.37 738 512.00 30.94 2 618 366.10 3 205 653.65 5 666.92 1 671 797.18 10 101 256.00 84 294.66 30 352 181.41 30 485 949.18 1 337.68 14 163 576.80 15 232 920.78 10 693.44 (1 206,667.24) 10 310 756.00 120 858.60 4 077 860.92 4 851 894.00 7 740.33 10 535 625.73 15 451 062.84 49 154.37 36 906 409.12 44 764 014.47 78 576.04 206 136.46 296 745.57 1108.85 76,910 417.45 107,054 277.70 301 441.46 78,820 886.01 102,659 130.47 238 382.45 3 010 996.18 3 331 046.11 2 893.00 8 031427.66 8 130 608.00 991.80 15 078 129.00 15 084 981.00 68.52 20 342,184.64 28 603 984.71 82 618.00 13 355,251.11 13 359 095.27 38.44 150,296.25 1 093,587.21 9 432.91 13 499 641.94 14 283,673.00 7 840.28

Juliano Susan G.

K2 Drug & Medical Supplies

Larrazabal Susanna Ortega

Lts Affiliates Inc.

Lucena United Doctors

Incorporated

Manson Druo Coro.

Marionnaud Philippines Inc. Mary Johnston Hospital Inc.

Medical Mission Group Hospital

& Health Services Cooper

Metropolitan Pharmaceutical

Products Inc.

Mindanao Sanitarium Ad

Hospital

Mount Carmel Diocesan General

Hospital

Neoros Union Druo Co. Inc.

Norvic Drugs Corporation

Nueva Ecija Prohealth

Inc./Heart Of Jesus Hospital

Oslob District Hospital

Perpetual Succor Hospital &

Maternity, Inc.

Philex Minino Corooration

Philippine Long Distance

Telephone Comoany

Philippine Heart Center

Province Of Pamoanoa

Provincial Government Of

Negros Occidental

Provincial Government Of

Nueva Vizcaya- Nueva Vizcaya

Provincial Government Of Or. Neg.

Puregold Junior Supermarket

Inc.

Research Institute For Tropical

Medicine

Right Choice Supermarket

Rilem Pharma Corp.

Rivera Medical Center Inc.

Roldan/ Kenneth Bautista-

Netnet

Royal Duty- Free Shoos Inc. Rustan Supercenters Inc.

San Pedro Doctors Hospital Inc. Super 8 Retail Systems Inc.

Suy Sing Commercial Corp

The Landmark Corporation

Vaduz Marketing Inc.

Veterans Memorial Medical

Center

Waltermart Supermarket Inc.

Watsons Personal Care Stores

(Phils.), Inc.

Wing An Marketing Inc.

Subtotal

1 680.00 103 816.14 1 084 545.61 618 246.09 124 559.28 3 473 375.69 267 102.98 17 816.27 1 580.17 257.12 136 521.59 320 289.38 303 423.53 545 566.09 3 007.87 160.71 587 700.15 76 017.61 1 399 847.48 3 776 666.97 26 783.48 33 728.40 2 804.15 17 421.92 1 099 719.66 187 737.62 3,306 387.59 2 331.34 244 230.89 63 437.21 106 355.73 1,273 233.91 68 237.16 295 496.24 355 285.82 479 222.57 1 652 756.64 408 936.17 636 691.95 18 892 897.50 103 669.42 1'54,868. 554.21 6 447.26 84 000.00 1 551.05 5 323 076.74 10 381 614.12 so 585.37 106 784 231.16 108 432 225.46 16 483.34 9 648 673.07 61 824 609.38 521 759.36 12 333 856.68 12 455 928.00 1 220.71 246 640 598.58 347 337 544.82 1 006 969.53 26 672 619.64 26 710 298.00 376.78 1 461,365.65 1 781 627.77 3 202.62 118,004.15 158,017.92 400.14 15 943.28 17,856.47 27.55 15 908.113.44 25 287 731.24 so 638.01 31 301 758.99 32 028 938.00 7 271.79 29 755 646.84 30 342.354.11 5/867.07 54 500 131.63 54 556 608.66 564.77 (29 619.72) 300 785.66 3 304.07 16.071.43 18,000.00 17.22 54 026 909.59 58 770,014.28 47 431.05 6 162 002.66 7 601,762.08 14 397.59 132 244 275.27 139 984.747.45 77/404.72 137 624 178.74 294 471 060.57 2 011 601.54 2 187 098.21 2 678,348.21 4/912.50 2 530 189.39 3 372.840.00 8/426.51 283 640.18 314.065.00 271.65

1486 520.11

1 868.680.08 3/562.92 60 160 645.38 109 971 961.92 498/113.18 16 784 499.05 18 780 384.92 19/951.82 325 551 286.74 330 641 059.97 so 897.38 233 134.60 233 134.67 0.00 18 957 477.40 24 567 322.17 55 769.10 6 342 824.78 7 045 642.41 6 327.99 10 472 530.83 10 635 565.00 1 630.34 12 740 561.88 127 323 391.00

1145 828.29

6 517 936.44 6 823 716.27 3 057.80 28 405 611.84 29 549 624.00 11 440.12 35 449 835.41 35 528 582.00 787.47 43 927 289.23 47 922 257.00 39 949.68 161 868 769.29 165 275 664.38 34 068.95 38 498 667.54 45 815 791.00 65 310.16 52 213 056.54 63 669 284.14 114 562.12 1 846 923 169.36 1 889 289 750.00 423 665.81 5 268 888.92 10 366 943.01 so 980.54 1'4,601,962 418.33 1'5. 4111719,504.25 " 8,494,956.74 ...

TOTAL P56,494,834.38 | _P4,601,962,418.33 | P5,572,552,279.90 | P10,121,236.91

SALE OF SERVICES

Service Income Income Payment Deduction from

per General per BIR Form Petitioner's CWT

Tax Withheld Ledger 2307 Claim [D=A-(A x

Customer Name A B

INCOME PAYMENT PER

SALES REGISTER IS LESS

THAN THE INCOME

PAYMENT REFLECTED IN

THE CWT CERTIFICATES

Abbott Laboratories 5,526,721.13 25,002,625.57 237,571,740.90 4,945,075.61 Alkem Laboratories Inc. 3,195.56 137,450.19 159,777.76 446.55 B. Braun Medical Supplies 88,666.62 917,383.47 6,581,894.42 76,308.28 Bayer Philippines Inc. 508,149.29 9,705,279.35 12,477,307.25 112,893.27 Fresenius Kabi Philippines Inc. 16,444.07 Galderma Philippines Inc. 22,994.19 Glaxosmithkline Philippines Inc. 1,417,195.47 807,924.61 Msd (I.A) Corp Ph. 448,349.93 201,640.72 Novartis Healthcare Philippines, Inc. 1,754,719.18 37,736,808.38 89,228,264.81 1,012,605.66 Qep Philippines, Inc. 69,180.59 3,319,125.72 3,497,199.98 3,522.61 Pascual Laboratories Inc. 559,101.18 5,747,749.48 55,910,118.00 501,623.69 Pfizer, Inc. 1,587,316.28 27,605,441.69 80,051,571.00 1,039,937.05

Reckitt Benckiser Healthcare

Phil), Inc. 2,746,302.20 3,528,596.62 103,198,827.70 2,652,400.04 Sandoz Philippines Corp. 197,385.02 7,779,982.91 398,405.09 12,322,163.26 482,299.15 5,453,826.65 In fine, petitioner complied with the three basic requisites for refund of excess CWT for taxable CY 2011 to the extent of only P417,222,162.68, computed as follows:

Per ICPA report

Pp

Pp

66{ Per this Court's further verification | ge cores} Discrepancy between the CWT per | sect seagoonsr petitioner's schedule and CWT per Petition for Review 388.65 36,836,002.77 2) CWT the related income payments of pf P_ 477,269,935.23 which were not traced to the sales ister and genera! ledger

Sales of goods P10,121,236.91 Sales of services 13/090,532.87 23,211,769.78

Properly Substantiated CWT

P417,222,162.68 We now proceed to determine whether the aforesaid CWT of P417,222,162.68 are unutilized and may be the proper subject of a claim for refund or issuance of tax credit certificate pursuant to Section 76 of the NIRC of 1997, as amended, which reads: "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 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." The above provision prescribes two options to a taxable corporation whose total quarterly income tax payments in a given taxable year exceed its total income tax due. The taxpayer may either file a tax refund (either in the form of cash or tax credit certificate) or avail of a tax credit. However, once the carry-over option is taken actually or constructively it becomes irrevocable for that taxablee....

period.45 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. 46 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 carry 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 other47• A perusal of petitioner's Amended Income Tax Return (AITR)48 for CY 2011 filed on June 13, 2013 shows that petitioner had income tax credits in the total amount of P1,084,014,135.3349 consisting of the prior year's excess credits other than the Minimum Corporate Income Tax (MCIT) in the amount of P606,744,200.10 50 and creditable withholding taxes accumulated during the four (4) quarters of CY 2011 in the aggregate amount of P477,269,935.23 51, to wit: Prior Year's Excess Credits other than MCIT p 606,744 200.10

Creditable Tax Withheld for the First

Three Quarters

P269,508 749.26

Creditable Tax Withheld for the

Fourth Quarter

207,761 185.97 477,269 935.23

Total Tax Credits

P1,084,014,135.33 Petitioner claims that its 2011 income tax due in the amount of P286,241,875.5052 was paid using a portion of its prior year's excess credits of P606,744,200.10 leaving the prior year's excess credits in the amount of P320,502,324.60 (P606,744,200.10 less P286,241,875.50) and creditable taxes withheld during the year 2011 in the amount of P477,269,935.23 totaling P797,772,259.83 53 unutilized as of December 31, 2011, as shown below: ... 45 Phi/am Asset Management, Inc./ vs.

Commissioner of Internal Revenue, G.R. Nos. 156637/162004. December 14, 2005; Systra Philippines/ Inc./ vs. Commissioner of Internal Revenue, G.R. No. 176290. September 21, 2007. 46 Commissioner of Internal Revenue vs. Bank of the Philippine Islands, G.R. No. 178490, July 7, 2009.

47 Philippine Bank of Communications vs. Commissioner of Internal Revenue, et al., G.R. No. 112024, January 28, 1999.

Income Tax Due P 286,241,875.50 Less: Prior Year's Excess Credits 606,744,200.10 Balance of Prior Year's Excess Credits P 320,502,324.60 Add: Creditable Taxes Withheld — 2011 477 935.23 Excess Creditable Taxes Withheld as of December 31, 2011 P797,772,259.83 As illustrated below, the prior year’s excess credits of P606,744,200.10 arose from the years 2003 to 2010, thus: CWT for at the end of

Income Prior Year’s

Taxable Tax Due Excess Credits

Year a b the Year e Year c) = (b) less (a th "P-33-a" 148,895,959.60 53,036,118.40 To prove the existence of its prior year’s excess credits, petitioner submitted BIR Forms No. 2307. However, only those pertaining to taxable year 2010 in the total amount of ®436,033,691.27, was accounted by the ICPA, to wit:

Annex

Reference (Exh.

Summary of Findings “p-19” Income Payment Tax Withheld

1. CWT duly supported by original BIR Form 2307 P 29,618,642,348.35 | P _296,832,700.36 BIR Form 2307 Annex 8-b 4,217,889,832.61 43,942,418.50

3. CWT duly supported by original BIR Form 2307 with incorrect Petitioner's TIN indicated therein 294,131,240.34 2,902,371.19

(Income Tax

Still

Due)/ Balance of

Prior Year’s

Excess Credits

Excess CWT

4. CWT duly supported by original BIR Form 2307 with unclear date 213,227.48 1,903.81

5. CWT certificate supported by photocopies with correct name, TIN and date 1,939,236,066.22 19,055,743.90

6. CWT certificates not provided 73,298,553.51 P36,070,112,715.00 | P436,033,691.27 nn, |

Based on the foregoing, only the amounts of P296,832,700.36 and P43,942,418.50 totaling P340,775,118.86 were properly supported by BIR Forms No. 2307. However, these CWT do not represent petitioner's excess CWT for CY 2010 since petitioner reflected in its AITR for the said year an income tax due of P337,760,187.90. Deducting this income tax due of P337,760,187.90 from the CWT of P340,775,118.86, yields to an amount of only P³,014,930.96 excess tax credits for CY 2010. As stated earlier, petitioner reflected in its 2011 AITR an income tax due of P286,241,875.50 which when offset against the prior year's (CY 2010) excess tax credits in the amount of P3,014,930.96, there still remains an income tax due of P283,226,944.54 which shall be deducted against the substantiated CWT of P417,222,162.68. Consequently, petitioner's unutilized excess CWT for CY 2011 amounted only to P133,995,218.14, computed as follows:

Income Tax Due for CY 2011

p 286,241,875.50

Less: Prior Year's (CY 2010) Excess Credits

3,014,930.96

Balance of Income Tax Due for CY 2011

p 283,226,944.54

Less: Properly Substantiated CWT for CY 2011

417,222,162.68

Refundable Excess CWT for CY 2011

P133,995,218.14 In its original 2011 AITR54 electronically filed on April 16, 2012, petitioner marked the option "To be refunded". Moreover, in its subsequent manual filing of the said return on April 30, 2012, petitioner also marked the option "To be refunded"55 • These, together with petitioner's submission of a letter-claim for refund 56 with the respondent's office on April 13, 2012, supplemental letter-claim for refund57 and Application for Tax Credits/Refunds58 with the SIR's Large Taxpayers Service on February 28, 2014 and April 1, 2014, respectively, and the fact that petitioner did not carry-over the present claim to the subsequent CY 2012 59 served as an expression of its choice to have the CWT for CY 2011 refunded. Clearly, petitioner sufficiently proved that it is entitled to a refund of unutilized excess CWT for CY 2011 but in the reduced amount of P133,995,218.14.~

WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is ORDERED to REFUND in favor of petitioner the amount of P133,995,218.14, representing its excess and unutilized creditable withholding taxes for CY ending December 31, 2011.

WE CONCUR:

0~---.~C. ~c.(~ \2 KANifo c. cAsTANEn~.lR..

Associate Justice

CAESAR ~SANOY

A

Associate Justice

~'7·~~~­ CATHERINET.MANAHAN

Associate Justice

ATTESTATION

I 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. ~~-h> C.~~ q.

JUANITO C. CASTANEDA,GJR.

Associate Justice

Chairperson, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 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.

Presiding Justice