SM Investments Corporation vs. Commissioner of Internal Revenue

DECISION

CASTANEDA, JR., J, :

STATEMENT OF THE CASE

This Petition for Review filed by SM Investments Corporation, seeks for the refund or issuance of a Tax Credit Certificate (TCC) in the amount of P¹, 170,533,633.00, representing its alleged excess and unutilized Creditable Withholding Tax (CWT) for the calendar year ended December 31, 2013.

STATEMENT OF FACTS

Petitioner is a domestic corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, Jr.- with principal office at lOth Floor One E-com Center, Harbor Drive, Mall of Asia Complex, CBP-IA, Pasay City. 1 Respondent is the Commissioner of the Bureau of Internal Revenue (BIR), duly appointed to exercise the powers and perform the duties of his office including, inter alia, the power to decide disputed assessments, refunds of internal revenue taxes, fees, other charges, and penalties imposed in relation thereto, or other matters arising under the Tax Code.

He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. On April 2, 2014,² petitioner filed through the Electronic Filing and Payment System (EFPS) its Annual Income Tax Return (ITR) for the year ended December 31, 2013, while on April 3, 2014/ petitioner received through electronic mail the

BIR's

acknowledgement receipt. On the same date, or on April 3, 2014,4 petitioner manually filed the subject Annual ITR. Meanwhile, under Item No. 20 of petitioner's Annual ITR, it appears that petitioner made an overpayment in the amount of P1,388,739,568.00, which it intends to refund through the issuance of a TCC as shown under Item No. 21 thereof. Consequently, on February 18, 2015/ petitioner filed its administrative claim for refund. On March 2, 2015, the BIR through OIC - Assistant Commissioner Large Taxpayers Service, Nestor S. Valeroso, issued a Letter of Authority6 (LOA) to inspect petitioner's pertinent records.

However, the BIR failed to act on petitioner's claim for refund. Thus, on April 1, 2016/ petitioner was constrained to file the instant Petition for Review.

On June 28, 2016,8 respondent filed his Answer, where he essentially argued that petitioner failed to submit the relevant 1r

documents under Revenue Memorandum Order (RMO) No. 53-98, in connection to its claim for refund.

On September 30, 2016, the parties filed their Joint Stipulation of Facts and Issues.9 On October 14, 2016, the Court issued the Pre- Trial Order. 10 During trial, petitioner presented the following witnesses: Ms. Helen Grace D. Dela Cruz11 - Senior Assistant Vice President for Controllership of petitioner; Atty. Adan T. Delamide12 -

Court-

appointed Independent Certified Public Accountant (ICPA); and Ms. Cecilia R. Patricio13 - Senior Vice President for the Corporate Tax Division of petitioner. Further, on June 8, 2017, petitioner filed its Formal Offer of Evidence.14 On the other hand, during the hearing on April 11, 2018, respondent's counsel manifested that she has no witness to present. Consequently, the Court directed the parties to file their respective memoranda.15 On May 11, 2018, respondent filed his Memorandum (For the Respondent)16 while on May 28, 2018, petitioner filed through registered mail its Memorandum. 17 Thus, on June 5, 2018,18 the Court issued a Resolution submitting the case for decision. Hence, this Decision.

STATEMENT OF THE ISSUE

The main issue to be resolved in this case is whether petitioner is entitled to its claim for refund or issuance of a TCC in the amount 'jt-

of P1,170,533,633.00, representing its alleged excess and unutilized CWT for the calendar year ended December 31, 2013. 19

THE RULING

The Court has jurisdiction to entertain the instant Petition The Court shall first determine whether it has jurisdiction to entertain the instant Petition.

Sections 204(C) and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, respectively provide: "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) 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, ('e-

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: Providec;t 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."

It is settled that Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally collected taxes. Section 204 applies to administrative claims for refund, while Section 229 to judicial claims for refund. In both instances, the taxpayer's claim must be filed within two (2) years from the date of payment of the tax or penalty.20 Here, petitioner filed through EFPS its Annual ITR on April 2, 2014. Counting two (2) years from the said date, petitioner had until April 2, 2016 within which to file both its administrative and judicial claims for refund, respectively. Considering that petitioner filed its administrative claim on February 18, 2015 and its judicial claim on April 1, 2016, both claims were timely filed. As such, the Court has jurisdiction to entertain the instant Petition. Petitioner has the liberality to choose the documents necessary to substantiate its claim for refund As stated earlier, respondent asserts that petitioner failed to submit relevant documents under RMO No. 53-98, in support of its claim for refund. ~ 2° Consolidated cases of CBK Power Company Limited v. Commissioner of Internal Revenue and Commissioner of Internal Revenue v. CBK Power Company Limited, G.R. Nos. 193383-84 & 193407-08, January 14, 2015.

The Court finds respondent's assertion untenable. The definition of the phrase "relevant supporting documents" is already well-settled. In the case of Commissioner of Internal Revenue

v. First Express Pawnshop Company, Inc.,21 the Supreme Court ruled that relevant supporting documents are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. 22 While the present case does not involve tax assessment, the above-ruling of the Supreme Court is applicable in this case, such that the BIR cannot determine what type of document petitioner needs to produce in order to prove its claim for tax refund. In other words, petitioner has the liberality to present any evidence which, to its mind, is sufficient to prove its claim. Petitioner is partially entitled to its claim for refund Petitioner's basis for its claim is Section 76 of the NIRC of 1997, as amended, which provides:

"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 ~ 21 G.R. No. 172045-46, June 16, 2009, 589 SCRA 275. 22 ld.

paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor." (Emphasis supplied) Based on the foregoing, the corporate taxpayer's excess tax credits or overpaid income tax in a given taxable year may either be refunded (either in the form of cash or tax credit certificate) or carried-over/applied to the succeeding taxable years. However, once the option to carry-over has been made, the same becomes irrevocable for that taxable period.

A perusal of petitioner's Annual ITR for taxable year 201323 shows that the excess tax credits as of December 31, 2013 in the amount of P1,388,739,568.00/4 which petitioner marked as "To be issued a Tax Credit Certificate (TCC)", 25 consisted of the balance of the prior year's excess credits amounting to P218,205,935.00 and creditable taxes withheld during the year in the aggregate amount of P1,170,533,633.00, as shown below: 26

Income Tax Due

p 534 208,518.00 Less: Excess MCIT applied this current taxable year 122 775,252.00

Balance

p 411 433,266.00

Less: Prior Year's Excess Credits

629 639,201.00

Balance of Prior Year's Excess Credits

p (218 205 935.00)

Add: Creditable Taxes Withheld During the Year:

From Previous quarters I P C263,179,666.oo) For the fourth quarter I (907,353, 967 .00) ( 1, 170,533,633.00)

Excess Tax Credits

P(1,388,739,568.00) Inasmuch as only the prior year's (2012) excess credits in the amount of P218,205,935.00 was carried-over by petitioner in its Jt..-

original Annual ITR for taxable year 2014/7 the tax credits for taxable year 2013 in the amount of P1,170,533,633.00 may be refundable pursuant to Section 76 of the NIRC of 1997, as amended. However, in order to be entitled to a claim for refund or issuance of a TCC of excess/unapplied creditable withholding tax at source, petitioner must satisfy the following requirements: 28 1.) 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; 2.) 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; and 3.) That the income upon which the taxes were withheld were included in the return of the recipient. Considering that the timeliness of the instant claim has been resolved, the Court shall proceed to examine the propriety of the documentary evidence submitted by petitioner to support its claim. Regarding the second requisite, Section 2.58 of Revenue Regulations No. 2-98, as amended, provides: "(B) Withholding tax statement for taxes withheld- Every payor required to deduct and withhold taxes under these regulations shall furnish each payee, whether individual or corporate, with a withholding tax statement, using the prescribed form (BIR Form No. 2307) showing the income payments made and the amount of taxes withheld therefrom, for every month of the quarter within twenty

(20) days following the close of the taxable quarter employed by the payee in filing his/its quarterly income tax return. Upon request of the payee, however, the payor must furnish such statement to the payee simultaneously with the income payment. For final ~ 27 Item 1, Schedule 7, Exhibit "P-6", Docket, Vol. II, p. 635. 28 Section 2.58.³, Revenue Regulations No. 2-98, as amended.

withholding taxes, the statement should be given to the payee on or before January 31 of the succeeding year." (Emphasis supplied) The Court commissioned ICPA reported that petitioner's prior year's CWT carried over to the taxable year 2013 in the amount of P629,639,201.07 consists of the following: 29

From 2007 CWT

p 114,592,822.07

From 2012 CWT

515,046 379.00

Total

p 629,639,201.07 With regard to the substantiation of its CWT for the years 2012 and 2013, the ICPA found that: 30

Taxable Year 2012

CWT properly supported by BIR Form No. 2307 p 499 523 165.95 CWT amount supported by BIR Form No. 2307 with the correct amount 18_L5181560.35 Total CWT supported by BIR Form No. 2307 p 518,041,726.30

Taxable Year 2013

CWT properly supported by BIR Form No. 2307 p 1,165,515 721.47 CWT not supported by BIR Form No. 2307 3,623,616.20 CWT dated outside Taxable Year 2013 1,394,295.77

Total

P1,170,533,633.44 It should be noted that for the year 2012, petitioner declared CWT in the amount of P515,046,379.00 (P355,265,679.00 plus P159,780,700.00).31 On the other hand, the ICPA findings show that CWT amounting to P518,041,726.30 is supported by BIR Forms No. 2307.32 Further, the ICPA noted that: 33 "All documents reviewed, other than those with remarks stated above, are photocopies of originals we have examined. xxx" (Emphasis supplied) ~

In his supplemental report, he stated that petitioner subsequently submitted several original copies of BIR Form No. 2307 (Certificate of Creditable Tax Withheld At Source) for verification and amended his previous findings accordingly: 34

Description

2013 2012 Exhibits marked as photocopy as of 1/20/2017 Exhibits with original certificates submitted after 1/20/2017 p 14,087,185.15 p 10,941,436.30 5,149,865.09 328,121.26 Total remaining tax credits supported by a photocopy of BIR Form No. 2307 P8,937 ,320.06 P10,613,315.04

Corollary

thereto, the Court denied admission of the photocopied documents as evidence for failure to submit the originals for comparison.35 Thus, the Court can only consider CWT for the taxable years 2012 and 2013 in the amounts of P1,156,578,400.97 and P504,433,063.96, respectively, as properly supported by BIR Form No. 2307, computed as follows:

2013 2012 Total CWT declared per ITR p 1 170,533 633.00 p 515 046 379.00

Less: Disallowed CWT

CWT not supported by SIR Form No. 2307 p 3 623,616.20 p - CWT dated outside Taxable Year 2013 1 394,295.77 - CWT supported by photocopy of SIR Form No. 2307 8,937,320.06 10,613,315.04 Total disallowed CWT p 13,955,232.03 p 10 613 315.04 Properly supported CWT P1, 156,578,400.97 P504,433,063. 96 With regard to the third requisite, the ICPA reported that: 36 "14.

Our review of Petitioner's ITR, particularly, Schedule 9 thereof, audited financial statements, and our interview with Petitioner's personnel, the following summarizes the total amount of gross income per CWT reported as taxable gross income:

Type of Income

PerFS

Per ITR

PerCWT

Dividends

P14 340 256 945

- -

Management and Service Fees

3 270 557 223 p 3 270 557 223 p 3,270 557 223 34 Exhibit "P-2283", Docket, Vol. III, pp. 1314-1315. 35 Resolution dated September 13, 2017, Docket, Vol. IV, pp. 1432-1435. 36 Exhibit "P-2279", Docket, Vol. II, pp. 755-756.

Reference

(a)

Rent

1 526 377 752 1446 222 647 1,425 475 463 Gain on sale of Available-for- sale securities 166 006 083 215 818,402 -

Operating Expense

(1 524 191 006) (2,253 826 442) - Reimbursable charges - - 735 620 612 Interest expense (6 879 240 665) (5,849 992 3701 - Interest income 3 012 422 853 2511_158 856 3,76l_014

Loss on Fair Value of

derivatives (1 055 844 500) (2) - Gain on sale of properties 6 103 551 5 607/579 580 17 266,997L914

Forex Gain (Loss)

_(_331 213 848) 474 126 817 -

Other Income (Lossl

(135,918/609) 43,243 574 11 838,184

NOLCO

Net Income

P12,395 315 779

Income

Statement

(1 424,193 225) p 1 780 685,06137 Line 26C, ITR Below are the explanation for the foregoing items: P22 714 250,410

SAWT

(a) The amount of management and service fees covered by CWT tallies with the amount of management and service fees reported in the ITR. This means the gross income upon which the related CWT were withheld were reported part of Petitioner's gross income.

(b) The amount of rent income reported in the ITR is higher by Php20,747,184. Since the income per ITR is higher, it is reasonable to assume that all gross income covered by CWT were all reported as taxable income. However, it could be possible that some tenants did not withhold or failed to issue the related CWT in 2013.

The difference between the rent income per FS and per ITR pertains to PAS 17 adjustments and accretion of tenant's deposit, net of amortization of deferred rent.

(c) Reimbursable charges were subjected to withholding tax but were no longer presented as a separate item in the ITR because it was already presented net together with operating expenses for ITR presentation purposes. The effect of deducting the reimbursable charges from the deductible operating expenses is the same as reporting it as gross income since the reduction of the allowable deduction results in a higher taxable income.

(d) There is a big difference of Php247,397,842 between interest income per ITR and interest income covered by CWT. This is primarily due to the fact that no withholding were made from Petitioner's interest income from investment in bonds. 9e- 37 Should be P1,780,695,061.00, Exhibits "P-3" and "P-5", Docket, Vol. II, pp. 585 & 597. (b) _(_c}_ (dl (el (f)

(e) The gain on sale of properties pertain to the sale of various properties to one of Petitioner’s affiliates. However, due to accounting rules, no gain was recognized in the Petitioner’s books. Nevertheless, Petitioner was subjected to withholding tax based on the gross selling price of the transaction, the capital gain of which were reported as taxable income. Note that while the CWT shows the gross income, the amount reported in the ITR is only the gain on sale. This proves that the total amount of gross selling price Php17,266,997,914, which was subjected to withholding tax and covered by CWT, were fully reported as taxable income in the ITR with the return of taxable gain of Php5,607,579,580.

Proof of gross selling price and supporting deeds of sale are presented as Exhibits P-2265 to P-2272. How the gain was computed is presented as Exhibit P-2277.

(f) There is a discrepancy of Php31,405,391 between the amount of other income reported in the ITR and the amount of other income supported by CWT.”

The details of the above-report are shown under Annex I of the ICPA Report, where he compared the income payments per BIR Form No. 2307/SAWT vs. the revenue per books/ITR.*® The same schedule shows that total income payments per BIR Form No. 2307 amount to #22,714,250,410.05. Total revenue recorded in petitioner's books and reported in its ITR amounts to P22,650,617,693.72, resulting to a discrepancy of P63,632,716.33.° Meanwhile, a scrutiny of Annex I of the ICPA Report reveals that the revenue recorded in petitioner’s books amounting to P70,422,401.03, does not have the corresponding income payments per SAWT/BIR Form 2307, as shown below:”° 38 Exhibit “P-2279”, Docket, Vol. II, pp. 831-849. 39 Id, “© Exhibit “P-2279”, Annex I, Docket, Vol. II, pp. 848-849.

~ 40" Muiti Realty Development sn lobe Telecom Inc ollibee Foods Corporation

MCLG Mgmt Corp

M Travel Inc.

and T Leisure Worldwide

entral Business Park 1 Island A Association Inc.

T Music World, Inc.

arriedo Tenants 18,189,686.17_

TOTAL

_P 70,422,401.03_ Je

Thus, the Court shall not consider the foregoing in determining whether the corresponding income payments of the claimed CWT are reported as part of petitioner’s taxable revenues for the year 2013.

The remaining P22,580,195,292.69 revenue per FS/ITR (total revenue of P22,650,617,693.72 less P70,422,401.03) was compared per client/customer according to the SAWT/Certificates of Creditable Taxes Withheld (BIR Form No. 2307) which show total income payments of ?22,714,250,410.05.

Meanwhile, the Court finds that the CWT claimed amounting to P943,656,142.68 should be disallowed, for failure to prove that the income payments were properly recorded in petitioner’s books. Hence, they may not be reported as revenue in its return, as follows:

| Registered Name __ Per FS/TTR Difference

_ DESSERTS PLUS

_.2,830,836.13 106,966.00

- HOTEL SPECIALIST

DAVAO INC

SM ARENA

_ COMPLEX

_CORPORAT

SM PRIME

PHILIPPINES INC (502,915.34) 10,277.52

Lex SERVICE

___PHILIPPINES INC

nd 64,240.01 1,754,120. _(974,927.14) CORP tS 583.86

_ FIRST LEISURE

__VENTURES GR

_ FITNESS FIRST |

_PHILIPPINES

~ HEALTH CAPITAL.

4,018.10 | 305,080.65 (104,175.65) ..⁴,410,369.93 39,108.55 HEAVENLY. URBAN. soossnstssstonnnnnsaneseeecssssnensstgnunmmustsnnasdssnsersonmesnmnunense mene _CHEFING,

~ HIGHLANDS PRIME

LHOMEWORLD

__CORPORATION _

HOTEL SPECIALIST

oud, 499.⁵ __ (14,894.68) 499,982.50 37,433.50 _ (21,930.22)

_ KULTURA STORE

MANILA

_ SOUTHCOAST

_ DEVELOP.

_ MARKET

_ STRATEGIC FIRM

| METRO MANILA ~

| SHOPPING MECCA |

sont 280,724.00 _(16,597.28) 38,894,567.50 _ _(3,034,205.85)

_ MULTI STORES

__(3,076,444.22) 1,559,009.

_ 1,138.59

_ PHO2 DAMCO

PHILIPPINES, INC

_ PHO7 MAERSK

| CREW MGT

_ SERVICES PHILS

_ PHILIPPINE SEVEN

___CORPORATION

_A1991,913.50 _.2111,332,69 267,091.50

_RUSTAN COFFEE

|_CORPORATION

_.1,2775,192.00 __{15,493.04) 60,113,769.07 315,090,115.50__

| MANAGEMENT

_16,052,336.27 NC ssn 452,127.15 (37,118.15)

_ SM ARENA

_ COMPLEX

_AAS9,892.61 0 2,634,711,39

_ SM DEVELOPMENT

__CORPORATION

_ SM KEPPEL LAND —

(367,516.04) _ 7,971.30 “SM PRIME

» HOLDINGS INC

_ SMX CONVENTION

SPORTS CENTRAL

_MANILA INC __21,101,276.50 __1,116,066.19 (14,789.69)

| STAR APPLIANCE —

_CENTER INC

_ SUPER SHOPPING

| MARKET INC

12,205.99 170,115,034.

2, 902,192.71

_ SUPPLIES STATION

- SURESTE |

__ PROPERTIES INC.

545,581.14 _.4,636,596.00 _.078,544,50

_ MARKETING

__CORPORATION

_ CUSTOMER CARE

_ MANAGEMENT

35,212.50.

_ UNITED COCONUT

_ PLANTERS LIFE

_ ASSURANCE

__ CORPORATION

_ WATSONS

_ PERSONAL CARE

_ STORES

_ WEST AVENUE ~

__ 1,182.50 _..11,959,928.00 (10,083.79) 448,863.72

__PHILIPPINES INC

- AK7 ENTERPRISES

CORPORATION _

- ANCHOR LAND

_ HOLDINGS INC |

_ ASIA PILOT

..163,909,963.8 2,475.00 __ (1,064.52) _.1,986,558.27) (17,177.42) _ (286,350.55)

~ CHINA BANKING

_.. CORPORATION

__PHILIPPINES INC

| HAIR GROUP

30,605.61 000 604,875.1 von 23706 _CHEF INC.

CH 1,936.4 " HIGHLANDS PRIME __{45,120.00) 304,968.14 885,109.73 _.39,307,434.17 0 11,017,177.23

_ HOTEL SPECIALIST

__TAGAYTAY. ;

_ INTERNATIONAL

OY WORLD I

....39,613,509.4 _11,335,908.8 3993.03

_ SOUTHCOAST |

_ STRATEGIC FIRM

oe (1,634.20) __{933,770.19) _ 29,191.96

_ NURSERY CARE

_.CORPORATION _71430,762,00 _.371,538.10 TAZ A75.51 18,286.49 3,870,087.

1 31932,658.0

_ CREW MGT

_ SERVICES PHILS

296,410.

_..24928,202.4 _(118,174.22)

PHILIPPINE SEVEN

__CORPORATION

404,097.60... a on1915,956.24 (2,111,858.64) AMZ, 147,.00 0 5857.35 127,560.07... (10,413.07)

SAND T LEISURE

__WORLDWIDE

_ SAVORY FASTFOOD

__INCORPORA

21 864,403,8 on 21913,909:

569,181.00 762,848.72.

_{193,667.72) _(184,539.13) (139,132.98) 1,422,239.20 1,606,778.33

_ SHOPPING CENTER

_ MANAGEMENT

CORP

SM ARENA

_ COMPLEX

_.CORPORAT

_ SM DEVELOPMENT

_CORPORATION

_ SM HOTELS AND

__ENTERTAINME

__12,209,467.94 401,105.07 300,940.30 "SM MART INC 50.10

- SM PRIME

123.44)

- SMART

~ COMMUNICATIONS |

SMX CONVENTION

408,736.00 , _(104,144.02) n29,631,230.4 (14,26 46)

_ STAR APPLIANCE

__CENTER INC

- SUPER SHOPPING |

MARKETING

21,834,618.80 __ 18,522.46 _2,987,876.13__-1,015,424.67 2,467,280.

_.21294,660.48 _{964,732.40) _.CORPORATION (4,806.10)

| CUSTOMER CARE

_ MGT PHILS INC

~ UNITED COCONUT

WATSONS 0 5%

244,611.21

_ PERSONAL CARE 17,112,880.40 © 855,644.02 | 17,301,069.95 | (188,189.55)

__STORES _ _

- WEST AVENUE

THEATRES CORP

_ METRO MANILA

__ SHOPPING MEC _

_ MULTI STORES

CORP

271,657.

_...382,075.38 _.38,894,567.67 _(3,034,205.68) (3,101 A.

29,871,304.60 153.63)

| SUPER SHOPPING

__MARKETINC

_ 14-678 PROPERTY

__ HOLDINGS INC.

_ 18-2 PROPERTY

_ HOLDINGS INC. _

_ 19-1 PROPERTY

_149,251,353.53 Ly 291,917.7 _.. (231,676.42) 407,239.45 480,268.71 __ (73,029.26) __{9,059.80) HOLDINGS INC.

_ 6-3 PROPERTY

_ HOLDINGS INC. _

CRESCENT PARK —

14-678 PROPERTY

_HOLDINGS INC.

| CRESCENT PARK

| 18-2 PROPERTY

__ HOLDINGS INC.

_.943,795.7. _2112,997.1 (169,241.38) 472,797.05 ee e957, 582.60 __ (84,785.55) 72,973.23 .

19-1 PROPERTY

_ 24 PROPERTY

__HOLDINGS INC.

CRESCENT PARK 6-

| 3 PROPERTY

_ HOLDINGS INC. 82,394.80 _TOTAL ___ P20,347,406,493.56 P943,656,142.68 P20,220,004,455.05 __P 127,402,038.51 193,242.17. (29,384.27) Likewise, the following income payments in the amount of P383,246,997.60 were not properly recorded in petitioner’s books and as such, they may not be reported as revenue in its return:

Registered Name

~DIGITEL MOBILE PHILS

INC

_ MARKETING

_CONVERGENCE INC

_ MCC TRANSPORT

__PHILIPPINES

..96,422,18 (5 (280,336.98).

B50 13,426.97 617,735.95. 53, 512.55 gp

3,513,766.32 COMMUNE 329,118.67 4,206.83

_ PHILIPPINE LONG

__ DISTANCE

—_— 402,161.97 __COMMUNICATIONS INC _312,043,62. 07163008 | 133,515.

__INTERNATIONAL GLOB

- SUMMERHILLS HOME

_DEVELOPM

SYBASE EQUITY —

1,610,491.

_.2,732,923.02 .DEVELOPMENT CO INC 2%

_ AEGIS PEOPLESUPPORT

PHILIPPINES _

_ AIRLITE INT'L TRAVEL &

14,250.

_ CENTRAL BUSINESS

PARK 1 ISLAND ASSO.

622,649.14.

_ FITNESS FIRST

PHILIPPINES

-IPLUS INTELLIGENT —

NETWORK

_ LEGISPRO

__CORPORATION

842,951.54 221,897.56 | (293 331.25) _

- MARKETING

9 772.0

PERNOD RICARD

__PHILIPPINES _

~ PHO3 MAERSK FILIPINAS

ut, 704,959.80 ....⁶,426,663.00

_ AMUSEMENT AND

107,810/155.60 | 9,390,507.⁷!

PHILIPPINE GLOBAL

_.COMMUNI 1,444.21.

| SUMMERHILLS HOME

_DEVELOPM

/ SYBASE EQUITY —

| INVESTMENTS

ns 249,802.00 748,222.55

_ WAREHOUSE

__DEVELOPMENT COM

- PHILIPPINE GLOBAL

__ COMMUNI 10% | 22,607.40 | 2,260. 74 22,607.40_ _ TOTAL _P383,246,997.60 _P17,567,246.73 _P376,593,911.75 P6,653,085.85__ Further, the corresponding CWTs in the total amount of P17,567,246.73, are not fully supported by original copies of BIR Form No. 2307, as found by the ICPA. On the other hand, the amount of P⁸,698,111.06 is supported by photocopies of Certificates of Creditable Tax Withheld At Source (BIR Form No. 2307), detailed as follows:

Registered Name / Tax Base

HILIPPINE GLOBAL COMMUNICATIONS _ 18,928.57 LOOMBERRY RESORTS AND HOTEL INC 13,106,881.23 262,137.63

ARKETING CONVERGENCE INC

MEGALINK INC 1,045,273.37 ERNOD RICARD PHILIPPINES 220,482.79 4,409.66 HILIPPINE LONG DISTANCE 112,674.32 STREAM INTERNATIONAL GLOB 670,063.05 13,401.26

WAREHOUSE DEVELOPMENT CO INC

AIRLITE INT'L TRAVEL & TOURS INC

_BLOOMBERRY RESORTS AND HOTEL INC 5% | _17,688,450.65. 884,422.56 je “| Exhibit “P-2283”, Annex A, Docket, Vol. III, pp. 1316-1322.

TTNESS FIRST PHILIPPINES . 27,427. 54 AERSK FILIPINAS INC 1,691,388.0 40.

ERCANTILE OCEAN MARITIME

ERNOD RICARD PHILIPPINES

YBASE EQUITY INVESTMENTS ; ~_ 24,888.40 | _PHILIPPINE GLOBAL COMMUNICATIONS 10% __ 13,250.01 __ 1,325.02_ _TOTAL | | P189,003,870.07 _P_8,698,111.06__ With regard to the discrepancy in recording the income payments in the books of accounts, the Court notes that when there is substantial difference between the amounts reflected in the financial statements and the amounts per certificates of withholding, there is uncertainty as to whether the income payments indeed formed part of petitioner’s revenue in its return. Petitioner did not offer any explanation or reconciliation of the difference that may be brought about by timing or revenue recognition difference.

It should be emphasized that the Court is consistent in applying the well-settled rule that “actions for tax refund or credit, as in the instant case, are in the nature of a claim for exemption and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven. The burden is on the taxpayer to show that he has strictly complied with the conditions for the grant of the tax refund or credit.’”? In the present case, petitioner failed to discharge its burden of complying with the substantiation and reporting requirements of its claim. 5e * Coca-cola Bottlers Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 222428, February 19, 2018.

Hence, the Court finds that only income payments in the aggregate amount of ?1,983,596,918.90 with corresponding CWT of P209,310,244.05, have been substantially reported by petitioner as revenue in its books of accounts and in its ITR for the year 2013, and the taxes withheld therefrom may be refundable, as follows:

Registered Name

CONSOLIDATED PRIME DEVELO

-E HARDWARE PHILIPPINES

CASAMIA FURNITURE CENTER INC

GOLDEN ARCHES DEVELOPMENT

MADISON SHOPPING PLAZA IN

MANDURRIAO STAR INC

“MERCANTILE STORES GROUP I

SONDRIK INC

WONDERFOODS INC

~BACOLOD CHICKEN INASAL/AMELIA S.

___TANALGO

KULTURA STORE INC

LTBG MGT CORP

3,650,002.50 50,771,929.50 180,960.00 2 10,035,001.00 501,750.05 4,385,324.80 3,087,610.20 1,604,228.2

PRIME SPOTS INC 3,056,158.4 152,807.92 ST MUSIC WORLD, INC.

UPTREND FASHION DESIGN CORP

CHINA BANKING CORPORATION 11,815,576.2 MAINSTREAM BUSINESS INC 66,824,587.4

MANILA SOUTHERN ASSOCIATE

MERIDIEN BUSINESS LEADER

MINDANAO SHOPPING DESTINA

£ M MART INC : 19,744,974.54 :

_WATSONS PERSONAL CARE STORES | | 111,434,091. 16,715,113.76 | _TOTAL | _P1,983,596,918.90 | P209,310,244.05__ However, the foregoing includes CWTs which were merely supported by photocopies of Certificates of Taxes Withheld (BIR Form No. 2307), as found by the ICPA in his Supplemental Report:*°

Registered Name

DET NORSKE VERITAS AS

_MEDIASCAPE, INC.

_SM KEPPEL LAND INC | | 508,346.51 76,251.98 _ _TOTAL | _P4,142,473.82__P239,208.99 | Thus, only the amount of P209,071,035.06 (P209,310,244.05 less P239,208.99) complied with the requisites set forth in Section 2.58.3 of Revenue Regulations No. 2-98, as amended. pP-

To recapitulate, petitioner’s refundable creditable withholding tax amount to ®209,071,035.06, computed as follows:

_Less disallowed CWT:

| erly reporte :

Not properly reported in FS and not fully — Substantiated mn T SOT 24673 Reported in FS but supported by photocopy 239, 208. 99. | 961,462,598. 40. _P 209,071,035.06 _ On the other hand, the Court notes that petitioner’s income tax liability for the year 2013 was settled, as follows:

_Income tax due P534,208,518.30 | 296,840,444. 23 534,208,518.30_ An examination of petitioner's annual income tax return for the year 2012* shows that the MCIT in the amount of P122,775,251.80 was offset against the excess CWT carried over from the previous taxable period. It should be noted, however, that petitioner did not offer evidence to support its CWT for the taxable year 2007. Hence, the CWT therefrom shall not be considered.

Considering that petitioner substantiated its 2012 CWT in the amount of #504,433,063.96, the income tax due for 2013 will be offset, thus:

Income tax due for 2013 P 534,208,518.30 Less: CWT from 2012 504,433 ,063.96 Balance - to be taken from refundable 2013 CWT P_29,775,454.34 Refundable CWT P 209,071,035.06 Less: Balance of 2013 Income Tax Due (29,775,454.34) Net Refundable CWT P179,295,580,72 De * Total CWT per SAWT for 2013 is P1,170,533,633.46, Annex I of ICPA Report, Docket Vol. II, p. 849.

© Exhibit “P-17”, Docket, Vol. II, pp. 672-680 and 681-686.

In sum, the Court finds that petitioner was able to prove that it is entitled to its refund claim only in the total amount of P179,295,580.72. Hence, the partial grant of the instant Petition is in order.

WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, let a tax refund or a tax credit certificate be issued in favor of petitioner in the total amount of P179,295,580.72, representing petitioner's excess and unutilized Creditable Withholding Tax for the calendar year ended December 31, 2013.

I CONCUR:

~~~c.~~,.,Q .fUANITO C. CASTANEDl, JR.

Associate Justice

~' j'; /kc • ... ,..A,_- 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.

~·~C.G~1 Q <J'UANITO C. CASTANEtiA,.JR.

Associate Justice

Chairperson

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