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Jones Lang Lasalle (Philippines), Inc. v. CIR
CTA Case No. 9590, March 12, 2020.

CTA Third Division
Uy, J:

Lessons Applicable: CTA Jurisdiction, Prescription, Due Process
Laws Applicable: RA 1124, as amended by RA 9282, Section 3 (a) (1), Rule 4, under Section 228 of the NIRC of 1997, as amended, and RR No. 12-99

FACTS:

September 3, 2009: Commissioner of Internal Revenue (CIR) issued a Letter Notice informing Jones Lang Lasalle (Philippines), Inc. (JLL) that a computerized matching on the information/data provided by 3rd-party sources against its declarations per income/VAT/percentage withholding tax returns, disclosed discrepancies for calendar year 2007.
May 11, 2010: CIR issued Letter of Authority (LOA).
May 31, 2010: CIR issued an undated Notice for Informal Conference.
October 8, 2010: CIR issued the Preliminary Assessment Notice (PAN).
October 19, 2011: CIR issued a FAN.
September 19, 2016: JLL filed a letter stating that the deficiency VAT assessment for VY 2007 and Collection Letter should be cancelled.
May 8, 2017: JLL received a Final Notice Before Seizure (FNBS) dated February 28, 2017.
JLL filed a petition for Review (With Urgent Motion for the Issuance of an Order to Suspend the Collection of Tax)

ISSUES:
1.    W/N CTA has jurisdiction to act on the Petition for Review
2.    W/N period to assess has already prescribed.
3.    W/N due process requirements under NIRC and its regulations has been complied with.

HELD: Granted.
1.    YES. Issuance of the subject FBNS constitutes the final decision of CIR that is appealable before the CTA.

Jurisdiction over the subject matter or nature of an action is fundamental for a court to act on a given controversy. CTA being a court of special jurisdiction can take cognizance only of matters that are clearly within its jurisdiction.
Based on RA 1124, as amended by RA 9282 and Section 3 (a) (1), Rule 4 of the Revised Rules of the CTA, the jurisdiction of the CTA is not limited to decisions of the CIR involving disputed assessments. The second part thereof also includes “other matters” arising under the NIRC or other laws administered by the BIR.

Jurisdiction of the CTA to rule on “other matters arising under the NIRC or other laws administered by the BIR” include among others, the validity of the warrant of distraint and levy and waiver of statute of limitations.
Moreover, the term “other matters” pertain to matters directly related to disputed assessments or refunds or internal revenue taxes, fees or other charges, penalties imposed in relation thereto.

CIR v. Isabela Cultural Corporation (G.R. No. 135210, July 11, 2001): FBNS which indicates that the taxpayer was being given "this LAST OPPORTUNITY" to pay; otherwise, its properties would be subjected to distraint and levy, constitutes the CIR’s final decision.

2. NO. Section 11 of RA 1125 as amended, provides that any party adversely affected by a decision or ruling of the CIR may file an appeal with the CTA 30 days after the receipt of such decision or ruling. Since FBNS was received on May 8, 2017, thus it has until June 7, 2017 or 30 days, to appeal and challenge its validity with the CTA. Hence, May 15, 2017 was within the 30-day period.

3. NO. Failure to strictly comply with the notice requirements prescribed under Section 228 of the NIRC of 1997, as amended, and RR No. 12-99 is tantamount to denial of due process.

If there exists sufficient basis to assess the taxpayer, the CIR or his authorized representative is mandated to issue a PAN. Thereafter, a formal letter of demand and an assessment notice shall be issued by the CIR or his duly authorized representative. The use of the word “shall” in these legal provisions indicates the mandatory nature of the requirements laid down therein. Thus, it is essential for CIR to establish and prove that the requisite assessment notices were fully served to the taxpayer within the prescription period.
Tax assessment, due process requires that the taxpayer must actually receive the assessment.
If the taxpayer denies having received the assessment notices, it is incumbent upon respondent to prove by competent evidence that the assessment notices were indeed received by the taxpayer.
It is basic in the rule of evidence that bare allegations unsubstantiated by evidence, are not equivalent proof.
BIR was fully informed of the change in address in accordance to Section 11 of RR No. 12-8531. Court notes that the new address was likewise indicated in the documents issued by the BIR in the BIR records. Evidently, BIR had knowledge of the change of address and should have sent the PAN and FAN to its new address. But, they were sent to the old address. While it appears that BIR did indeed issued the assessment notices, it failed to present evidence to refute JLL’s claim that it did not receive said assessment notices. Consequently, there was no valid service of assessment notices to petitioner.

Tax Case Digest: People v. Mallari, G.R. No. 197164, December 4, 2019

People v. Mallari
G.R. No. 197164, December 4, 2019

SC Second Division
Hernando, J.

Lessons Applicable: Doctrine of Immutability
Laws Applicable:

FACTS:

October 23, 2007: Revenue Delegation Authority Order (RDAO) No. 202007, Regional Director Alfredo V. Misajon (Misajon) of the Bureau of Internal Revenue (BIR), Revenue Region No. 6 of Manila (BIR Manila) filed a criminal complaint against respondens Benedicta Mallari (Mallari) and Chi Wei-Neng (Wei-Neng), President and General Manager of Topsun Int’l (Topsun) for violation of Section 255 in relation to Sections 253 and 256 of the 1997 National Internal Revenue Code (NIRC) before the Office of the City Prosecutor (OCP) of Manila before the Office of the City Prosecutor.
August 7, 2009: Assistant City Prosecutor of Manila Gideon C. Mendoza (ACP Mendora) found probable cause to indict Mallari and Wei-neng and Information was subsequently filed before the CTA 1st Division.
CTA 1st Division dismissed the criminal complaint for failure of ACP Mendorza to obey a lawful order of the court to submit a certified true copy of the Memorandum of the CIR authorizing Misajon to prosecute.
January 18, 2010 (out of time): Special counsels/prosecutors of the BIR Manila filed their Entry of Appearance with Leave to Admit Attached Motion for Reconsideration maintaining that RD Misajon can sign approval and referral letters to authorize the institution of criminal actions/cases from the regional office with the courts, government agencies, or quasi-judicial bodies under Section 220 of the NIRC in accordance with the delegated authority vested by the CIR to RD under RDAO No. 2-2007. Further, March 27, 2007 Memorandum issued by the CIR gives authority to specific BIR legal offices to prosecute and conduct criminal proceedings with respect to violation of tax laws like in the instant case.
CTA En Banc dismissed Petition for Review on Certiorari under Rule 45 of the Rules of Court affirming CTA 1st Division decision which has already become final.

ISSUE: W/N CTA 1st Division decision which has already become final

HELD: YES. By Doctrine of Immutability, the resolution can no longer be reviewed nor modified even if it is meant to correct an erroneous conclusion of law and facts of the said tax court.

Alleged negligence of special counsel ACP Mendoza bind petitioner.

Case Digest: Republic of the Philippines v. Sps. Marcelino (2019)

Republic of the Philippines v. Sps. Marcelino
G.R. No. 205473, December 10, 2019
SC First Division
Caquioa, J

Lessons Applicable: Capital Gains Tax on Expropriation
Laws Applicable: Section 6 Rule 67

FACTS:
•    RTC Order dated August 23, 2012 and Order dated January 10, 2013 directed the expropriation of a 100 sqm. Lot in Valuenzuela City covered by Transfer Certificate of Title (TCT) No. V-16548 issued in the name of Sps. Marcelino and Sps. Bunsay and orderining Department of Public Works and Highways (DPWH) to pay Sps. Bunsay consequential damages equivalent to the value of the capital gains tax (CGT) and other taxes necessary to transfer the Disputed Property in its name.
•    Department of Public Works and Highways (DPWH) filed a Motion for Partial Reconsideration (MPR) praying for the deletion of the award for just compensation representing replacement cost of improvements and equivalent value of CGT and other taxes necessary to transfer
•    RTC granted the MPR in part by excluding the replacement cost of improvements
•    DPWH filed a Petition for review on certiorari filed under Rule 45 of the Rules of Court against the Order dated August 23, 2012 and Order dated January 10, 2013

ISSUE: W/N RTC award for consequential damages should include equivalent value of CGT and other taxes necessary to transfer

HELD: NO. While award of consequential damages equivalent value of CGT and other taxes necessary to transfer must be struck down for being erroneous, it is just and equitable to direct Republic to shoulder such taxes to preserve the compensation awarded as a consequence of the expropriation. Compensation, to be just, must be of such value as to fully rehabilitate the affected owner; it must be sufficient to make the affected owner whole.

•    CGT, being a tax on passive income, is imposed by National Internal Revenue Code (NIRC) on the seller as a consequence of the latter’s presumed income from the sale or exchange of real property. However, the transfer of real property by way of expropriation is not an ordinary sale contemplated under Art. 1458 of the Civil Code. It is akin to a “forced sale” or one which arises not from consensual agreement of the vendor and vendee, but by compulsion of law. Unlike in an ordinary sale wherein the vendor sets and agrees on the selling price, the compensation paid to the affected owner in an expropriation proceeding comes in the form of just compensation determined by the court. Just compensation is defined as the fair and full equivalent of the loss incurred by the affected owner.
•    Section 6 Rule 67 of the Rules of Court mandates that in no case shall xxx the owner be deprived of the actual value of his property so taken. Since just compensation requires that real, substantial, full and ample equivalent be given for the property taken, the loss incurred by the affected owner necessarily includes all incidental costs to facilitate the transfer of the expropriated property to the expropriating authority including the CGT, other taxes and fees due on the forced sale.

Taxation Case Digest: Association of International Shipping Lines v. Sec. of Finance (2020)

Association of International Shipping Lines v. Sec. of Finance
G.R. No. 222239, January 15, 2020
SC First Division
Lazara-Javier, J.

Lessons Applicable: Res judiciata, Petition for Declaratory Relief, Income tax and VAT on demurrage and detention fees, Interpretative and internal rule

Laws Applicable: CA 55, RA 9337, RMC 31-2008

FACTS:

July 1, 2005: Republic Act No. 9337 (RA 9337) was enacted amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the 1997 National Internal Revenue Code, as amended. (NIRC)

January 30, 2008: Commissioner of Internal Revenue (CIR) Lilian Hefti issued Revenue Memorandum Circular No. 31-2008 (RMC 31-2008) seeking to clarify certain provisions of the NIRC with portions, to wit:

Q-3: Are on-line international sea carriers subject to VAT?
A-3: No. On-line international sea carriers are not subject to VAT they being subject to percentage tax under Title V of the Tax Code. xxx However, if these on-line international sea carriers engage in other transactions not exempt under Section 119 of the Code, they shall be liable to the twelve percent (12%) VAT on these transactions.

Q-4: Are demurrage fees collected by on-line international sea carriers due to delay by the shipper in unloading their inbound cargoes subject to tax?
A-4: Yes, Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines is considered income from Philippine source and is subject to income tax under the regular rate as the other types of income of the on-line carrier. Said other line of business may likewise be subject to VAT or percentage tax applying the rule on threshold discussed in the succeeding paragraph.

Q-5: Are detention fees and other charges collected by international sea carriers subject to tax?
A-5: Detention fees and other charges relating to outbound cargoes and inbound cargoes are all considered Philippine-sourced income of the international sea carriers they being collected for the use of property or rendition of services in the Philippines, and are subject to the Philippine income tax under the regular rate, and to the Value added tax, if the total annual receipts from all the VAT-registered activities exceeds one million five hundred thousand pesos (P1,500,000.00). However, if the total annual gross receipts do not exceed one million five hundred thousand pesos, said taxpayer is liable to pay the 3% percentage tax.

Q-14: Are sales of goods, supplies, equipment, fuel and services to persons engaged in international shipping operations subject to VAT?
A-14: The sale of goods, supplies, equipment, fuel and services (including leases of property) to the common carrier to be used in its international sea transport operations is zero-rated. Provided, that the same is limited to goods, supplies, equipment, fuel and services pertaining to or attributable to the transport of goods and passengers from a port in the Philippines directly to a foreign port without docking or stopping at any other port in the Philippines to unload passengers and/or cargoes loaded in and from another domestic port xxx

Q-34: Are commission incomes received by the local shipping agents from their foreign principals subject to VAT?
A-34: The commission income or fees received by the local shipping agents for outbound freights/fares received by their foreign principals which are on-line international sea carriers ( touching any port in the Philippines as part of their operation) shall be zero-rated pursuant to the provisions of Section 108(B)(4) of the Code. Said provision does not require that payments of the commission income or fees for “services rendered to persons engaged in international shipping operations, including leases of property for use thereof,” be paid in acceptable foreign currency in order that such transaction may be zero-rated. On the other hand, commission income or fees received by the local shipping agents pertaining to inbound freights/fares received by their foreign principals/on-line international sea carriers or pertaining to freights/fares received by off-line international sea carriers shall be subject to VAT at 12%.

December 6, 2010: Petitioners Association of International Shipping Lines, Inc. (AISL), APL Co. Pte. Ltd. (APL) and Maersk-Filipinas, Inc. (Maersk) sought to nullify RMC No. 31-2008 via a petition for declaratory relief under Civil Case No. Q-09-64241 praying for the issuance of a writ of preliminary injunction enjoining then CIR and her agents from implementing, enforcing or acting pursuant to or on the basis of the challenged provisions of RMC 31-2008 and render judgment declaring these challenged provisions void.

It alleged that RMC 31-2008 was void as it imposed regular tax rate of 30% and 12% VAT on the demurrage and detention fees collected by international shipping carriers from shippers or consignees for delay in the return of containers, on the domestic portion of services to persons engaged in international shipping operations, and on commission income received by local shipping agents from international shipping carriers or in connection with inbound shipments.

May 18, 2012: RTC branch 98 in Civil Case No. Q-09-64241 declared as invalid the challenged provisions of RMC 31-2008 insofar as it subjects demurrage and detention fees to the regular corporate income tax under Section 28(A)(1) and 12% VAT.

March 7, 2013: RA 10378 was enacted amending Section 28 (A)(3)(a) of the NIRC which reads:

Being incidental to the trade or business of the international carrier, demurrage fees should instead form part of the Gross Philippine Billings (GPB) subject to 2.5% tax under Section 28 (A)(1)(3b) of the NIRC and the same does not expressly impose 12% VAT on the domestic portion of the services rendered by international carriers.

December 4, 2013: Petitioners initiated a petition for declaratory relief challenging Section 4.4 of RR 15-2013 (implementing rules of RA 10378) and impleading both the Secretary of Finance and CIR.

4.4) Taxability of Income Other Than Income from International Transport Services. —All items of income derived by international carriers that do not form part of Gross Philippine Billings as defined under these Regulations shall be subject to tax under the pertinent provisions of the NIRC, as amended.

Demurrage fees, which are in the nature of rent for the use of property of the carrier in the Philippines, is considered income from Philippine source and is subject to income tax under the regular rate as the other types of income of the on-line carrier.
Detention fees and other charges relating to outbound cargoes and inbound cargoes are all considered Philippine-sourced income of international sea carriers they being collected for the use of property or rendition of services in the Philippines, and are subject to the Philippine income tax under the regular rate.

September 15, 2015: RTC dismissed the petition for declaratory relief

1.    granted the motion for judicial notice of the existence of RMC 31-2008, May 18, 2012 RTC Order in Civil Case No. Q-09-64241 and the enactment of RA 10378 – all these being official acts of different branches of government
2.    Declared that it had no jurisdiction over the petition for declaratory relief pursuant to CA 55 which removed from RTC the authority to rule on cases involving one’s liability for tax, duty, or charge collectible under any law administered by the Bureau of Customs (BOC) or BIR
3.    Ruled against res judicata because:
a.    res judicata does not give rise to a cause of action for the purpose of initiating a complaint
b.    RA 10378 constituted a supervening event which negated the application of res judicata
c.    there is no similarity of parties, subject matters, and cause of action
d.    it found RR 15-2013 to be reasonable tax regulation and an interpretative issuance, the effectivity of which does not require a public hearing nor prior registration with the UP Law Center.

January 8, 2016: Petitioners’ partial motion for reconsideration was denied
Petitioners, on pure questions of law, sought for Supreme Court’s discretionary appellate jurisdiction to review. They reiterated the arguments raised in their petition for declaratory relief.

ISSUES
1.    Does res judicata apply in this case?
2.    Is a petition for declaratory relief proper for the purpose of invalidating RR 15-2013?
3.    Is RR 15-2013 a valid rule?

HELD: Denied
1.    NO. Res judicata applies in the concept of “bar by prior judgment” if the following requisites concur:
a.    Former judgment or order must be final
b.    Judgment or order must be on the merits
c.    Decision must have been rendered by a court having jurisdiction over the subject matter and the parties – not met since while RMC 31-2008 which is the subject of Civil Case No. Q-09-64241 and RR 15-2013 subject of the present case both treat demurrage and detention fees to be within the prism of regular corporate income tax rate, they emanate from different authority. Moreover, the judgment in Civil Case No. Q-09-64241 which only binds the CIR cannot serve as a judicial precedent for the purpose of precluding the Secretary of Finance from promulgating a similar issuance on the same subject. It also cannot be judicial precedent to be followed in subsequent cases by all courts in the land as it is rendered by RTC and not SC.
d.    There must be, between the 1st and 2nd action, identity of parties of subject matter and of cause of action – not met since RTC branch 98 in Civil Case No. Q-09-64241 is only binding on herein petitioners and the CIR as lone respondent. However, in this case, although the petitioners are the same, the respondents are the CIR and the Sec. of Finance.

CIR issued RMC 31-2008 on January 30, 2008 under the auspices of Section 4 of the NIRC while Sec. of Finance issued RR 15-2013 on September 20, 2013 in obedience to the legislative directive under Section 5 of RA 103778 and pursuant to his rule-making power under Section 244 of the NIRC. Both were issued pursuant to their separate powers and prerogatives granted by law.

2. No. Since there is no actual case involved in a petition for declaratory relief, it cannot be the proper vehicle to invoke the power of judicial review to declare a state as invalid or unconstitutional. As decreed in DOTR v. PPSTA (G.R. No. 230107, July 24, 2018), the proper remedy is certiorari or prohibition.

Nonetheless, the court held in Diaz et al v. Secretary of Finance, et al (G.R. No. 193007, July 19, 2011): “But there are precedents for treating a petition for declaratory relief as one for prohibition if the case has far-reaching implications and raises questions that need to be resolved for the public good. The Court has also held that a petition for prohibition is a proper remedy to prohibit or nullify acts of executive officials that amount to usurpation of legislative authority. xxx Although the petition does not strictly comply with the requirements of Rule 65, the Court has ample power to waive such technical requirements when the legal questions to be resolved are of great importance to the public. The same may be said of the requirement of locus standi which is a mere procedural requisite.”

3. Yes. RR 15-2013 is a valid interpretative and internal issuance for the guidance of all internal revenue officers and others concerned. It merely sums up the rules by which international carriers may avail of preferential rates or exemption from income tax on their gross revenues derived from the carriage of persons and their excess baggage based on the principle of reciprocity or an applicable tax treaty or international agreement to which the Philippines is a signatory. As such it need not pass through a public hearing or consultation, get published nor registered with UP Law Center for its effectivity.

In treating demurrage and detention fees as regular income subject to regular income tax rate, the Secretary of Finance relied on Section 23(A)(I)(3a) of NIRC, as amended by RA 10378, which is still in effect since not amended by Tax Reform for Acceleration and Inclusion (TRAIN) law.
Under 55 15-2013, demurrage and detention fees are not deemed within the scope of GPB. GPB covers gross revenue derived from transportation of passengers, cargo and/or mail originating from the Philippines up to the final destination. Any other income, therefore, is subject to the regular income tax rate. When the law is clear, there is no other recourse but to apply it regardless of its perceived harshness. Dura lex sed lex.

Exclusion of demurrage and detention fees from the preferential rate of 2.5% is proper since they are not considered income derived from transportation of persons, goods and/or mail, in accordance with the rule expressio unios est exclusion alterius.
Demurrage and detention fees fall within the definition of “gross income” - acquired in the normal course of trade or business

Demurrage fees – rent payment for the vessel
Detention fees – use of container

Tax Case Digest: Filipinas Synthentic Fiber v. CA (1999)

THIRD DIVISION
Filipinas Synthentic Fiber v. CA (1999)
G.R. Nos. 118498 & 124377 October 12, 1999
PURISIMA, J.

Lessons Applicable: Apply accrual method equally for both deduction and income, estoppel applies in CTA tax disputes

Laws Applicable:

FACTS:

Filipinas Synthetic Fiber Corp. received a letter of demand for deficiency withholding tax on interest loans, royalties and guarantee fees paid by it non-resident corporations.
It filed a protest on the ground that: "For Philippine Internal Revenue Tax purposes, the liability to withhold is from the time of accrual or remittance citing BIR ruling No. 71-3003 and 24-71-003-154-84.
It then filed a Petition for Review at the CTA and CA who denied its petition that it can be paid upon remittance.

ISSUE: W/N liability to withhold tax at source on income payments to non-resident foreign corporations arises upon remittance of the amount due rather than upon accrual.

HELD: No. CA AFFIRMED in toto.

Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of Internal Revenue and his deputies are not made liable to law.
Since there was a definite clear liability and imminent certainty that it was going to earn income it should already be taxable.
Moreover, petitioner is estopped for he has already claimed deductions as there were incurred as a business expense in the form of interest and royalties paid.

Jurisprudence: G.R. No. 168118 August 28, 2006

SECOND DIVISION
Manila Bank v. CIR (2006)
G.R. No. 168118 August 28, 2006
SANDOVAL-GUTIERREZ, J.

FACTS
Before us is a Petition for Review on Certiorari assailing the Decision of the Court of Appeals dated May 11, 2005 in CA-G.R. SP No. 77177, entitled The Manila Banking Corporation, petitioner, versus Commissioner of Internal Revenue, respondent.

The Manila Banking Corporation, petitioner, was incorporated in 1961 and since then had engaged in the commercial banking industry until 1987. On May 22, 1987, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) issued Resolution No. 505, pursuant to Section 29 of Republic Act (R.A.) No. 265 (the Central Bank Act), prohibiting petitioner from engaging in business by reason of insolvency. Thus, petitioner ceased operations that year and its assets and liabilities were placed under the charge of a government-appointed receiver.

Meanwhile, R.A. No. 8424, otherwise known as the Comprehensive Tax Reform Act of 1997, became effective on January 1, 1998. One of the changes introduced by this law is the imposition of the minimum corporate income tax on domestic and resident foreign corporations. Implementing this law is Revenue Regulations No. 9-98 stating that the law allows a four (4) year period from the time the corporations were registered with the Bureau of Internal Revenue (BIR) during which the minimum corporate income tax should not be imposed.

On June 23, 1999, after 12 years since petitioner stopped its business operations, the BSP authorized it to operate as a thrift bank. The following year, specifically on April 7, 2000, it filed with the BIR its annual corporate income tax return and paid P33,816,164.00 for taxable year 1999.

Prior to the filing of its income tax return, or on December 28, 1999, petitioner sent a letter to the BIR requesting a ruling on whether it is entitled to the four (4)-year grace period reckoned from 1999. In other words, petitioners position is that since it resumed operations in 1999, it will pay its minimum corporate income tax only after four (4) years thereafter.

On February 22, 2001, the BIR issued BIR Ruling No. 007-2001 stating that petitioner is entitled to the four (4)-year grace period. Since it reopened in 1999, the minimum corporate income tax may be imposed not earlier than 2002, i.e. the fourth taxable year beginning 1999. The relevant portions of the BIR Ruling state:

In reply, we hereby confirm that the law and regulations allow new corporations as well as existing corporations a leeway or adjustment period of four years counted from the year of commencement of business operations (reckoned at the time of registration by the corporation with the BIR) during which the MCIT (minimum corporate income tax) does not apply. If new corporations, as well as existing corporations such as those registered with the BIR in 1994 or earlier, are granted a 4-year grace period, we see no reason why TMBC, a corporation that has ceased business activities due to involuntary closure for more than a decade and is now only starting again to place its business back in order, may not be given the same opportunity. It should be stressed that although TMBC had been registered with the BIR before 1994, yet it did not have any business from 1987 to June 1999 due to its involuntary closure. This Office is therefore of an opinion, that for purposes of justice, equity and consistent with the intent of the law, TMBC's reopening last July 1999 is akin to the commencement of business operations of a new corporation, in consideration of which the law allows a 4-year period during which MCIT is not to be applied. Hence, MCIT may be imposed upon TMBC not earlier than 2002, i.e., the fourth taxable year beginning 1999 which is the year when TMBC reopened.

Likewise, we find merit in your position that for having just come out of receivership proceedings, which not only resulted in substantial losses but actually brought about a complete cessation of all businesses, TMBC may be qualified to ask for suspension of the MCIT. The law provides that the Secretary of Finance, upon the recommendation of the Commissioner, may suspend the imposition of the MCIT on any corporation which suffers losses on account of prolonged labor dispute, or because of force majeure, or because of legitimate business reverses. [NIRC, Sec. 27(E)(3)] Revenue Regulations 9-98 defines the term legitimate business reverses to include substantial losses sustained due to fire, robbery, theft or embezzlement, or for other economic reasons as determined by the Secretary of Finance. Cessation of business activities as a result of being placed under involuntary receivership may be one such economic reason. But to be a basis for the recognition of the suspension of MCIT, such a situation should be properly defined and included in the regulations, which this Office intends to do. Pending such inclusion, the same cannot yet be invoked. Nevertheless, it is the position of this Office that the counting of the fourth taxable year, insofar as TMBC is concerned, begins in the year 1999 when TMBC reopened such that it will be only subject to MCIT beginning the year 2002.

Pursuant to the above Ruling, petitioner filed with the BIR a claim for refund of the sum of P33,816,164.00 erroneously paid as minimum corporate income tax for taxable year 1999.

Due to the inaction of the BIR on its claim, petitioner filed with the Court of Tax Appeals (CTA) a petition for review.

On April 21, 2003, the CTA denied the petition, finding that petitioners payment of the amount of P33,816,164.00 corresponding to its minimum corporate income tax for taxable year 1999 is in order. The CTA held that petitioner is not entitled to the four (4)-year grace period because it is not a new corporation. It has continued to be the same corporation, registered with the Securities and Exchange Commission (SEC) and the BIR, despite being placed under receivership, thus:

Moreover, it must be emphasized that when herein petitioner was placed under receivership, there was merely an interruption of its business operations. However, its corporate existence was never affected. The general rule is that the appointment of the receiver does not terminate the charter or work a dissolution of the corporation, even though the receivership is a permanent one. In other words, the corporation continues to exist as a legal entity, clothed with its franchises (65 Am. Jur. 2d, pp. 973-974). Petitioner, for all intents and purposes, remained to be the same corporation, registered with the SEC and with the BIR. While it may continue to perform its corporate functions, all its properties and assets were under the control and custody of a receiver, and its dealings with the public is somehow limited, if not momentarily suspended. x x x

On June 11, 2003, petitioner filed with the Court of Appeals a petition for review. On May 11, 2005, the appellate court rendered a Decision affirming the assailed judgment of the CTA.

Thus, this petition for review on certiorari.

The main issue for our resolution is whether petitioner is entitled to a refund of its minimum corporate income tax paid to the BIR for taxable year 1999.

Petitioner contends that the Court of Tax Appeals erred in holding that it is not entitled to the four (4)-year grace period provided by law suspending the payment of its minimum corporate income tax since it is not a newly created corporation, having been registered as early as 1961.

For his part, the Commissioner of Internal Revenue (CIR), respondent, maintains that pursuant to R.A. No. 8424, petitioner should pay its minimum corporate income tax beginning January 1, 1998 as it did not close its business operations in 1987 but merely suspended the same. Even if placed under receivership, its corporate existence was never affected. Thus, it falls under the category of an existing corporation recommencing its banking business operations.

Section 27(E) of the Tax Code provides:
Sec. 27. Rates of Income Tax on Domestic Corporations. x x x

(E) Minimum Corporate Income Tax on Domestic Corporations. -

(1) Imposition of Tax. - A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations, when the minimum corporate income tax is greater than the tax computed under Subsection (A) of this Section for the taxable year.

(2) Carry Forward of Excess Minimum Tax. - Any excess of the minimum corporate income tax over the normal income tax as computed under Subsection (A) of this Section shall be carried forward and credited against the normal income tax for the three (3) immediately succeeding taxable years.
x x x
Upon the other hand, Revenue Regulation No. 9-98 specifies the period when a corporation becomes subject to the minimum corporate income tax, thus:

(5) Specific Rules for Determining the Period When a Corporation Becomes Subject to the MCIT (minimum corporate income tax) -

For purposes of the MCIT, the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the Bureau of Internal Revenue (BIR).

Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning January 1, 1998.

x x x

The intent of Congress relative to the minimum corporate income tax is to grant a four (4)-year suspension of tax payment to newly formed corporations. Corporations still starting their business operations have to stabilize their venture in order to obtain a stronghold in the industry. It does not come as a surprise then when many companies reported losses in their initial years of operations. The following are excerpts from the Senate deliberations:

Senator Romulo: x x x Let me go now to the minimum corporate income tax, which is on page 45 of the Journal, which is to minimize tax evasion on those corporations which have been declaring losses year in and year out. Here, the tax rate is three-fourths, three quarter of a percent or .75% applied to corporations that do not report any taxable income on the fourth year of their business operation. Therefore, those that do not report income on the first, second and third year are not included here.

Senator Enrile: We assume that this is the period of stabilization of new company that is starting in business.

Senator Romulo: That is right.

Thus, in order to allow new corporations to grow and develop at the initial stages of their operations, the lawmaking body saw the need to provide a grace period of four years from their registration before they pay their minimum corporate income tax.

Significantly, on February 23, 1995, Congress enacted R.A. No. 7906, otherwise known as the Thrift Banks Act of 1995. It took effect on March 18, 1995. This law provides for the regulation of the organization and operations of thrift banks. Under Section 3, thrift banks include savings and mortgage banks, private development banks, and stock savings and loans associations organized under existing laws.

On June 15, 1999, the BIR issued Revenue Regulation No. 4-95 implementing certain provisions of the said R.A. No. 7906. Section 6 provides:

Sec. 6. Period of exemption. All thrift banks created and organized under the provisions of the Act shall be exempt from the payment of all taxes, fees, and charges of whatever nature and description, except the corporate income tax imposed under Title II of the NIRC and as specified in Section 2(A) of these regulations, for a period of five (5) years from the date of commencement of operations; while for thrift banks which are already existing and operating as of the date of effectivity of the Act (March 18, 1995), the tax exemption shall be for a period of five (5) years reckoned from the date of such effectivity.

For purposes of these regulations, date of commencement of operations shall be understood to mean the date when the thrift bank was registered with the Securities and Exchange Commission or the date when the Certificate of Authority to Operate was issued by the Monetary Board of the Bangko Sentral ng Pilipinas, whichever comes later.

x x x

As mentioned earlier, petitioner bank was registered with the BIR in 1961. However, in 1987, it was found insolvent by the Monetary Board of the BSP and was placed under receivership. After twelve (12) years, or on June 23, 1999, the BSP issued to it a Certificate of Authority to Operate as a thrift bank. Earlier, or on January 21, 1999, it registered with the BIR. Then it filed with the SEC its Articles of Incorporation which was approved on June 22, 1999.

It is clear from the above-quoted provision of Revenue Regulations No. 4-95 that the date of commencement of operations of a thrift bank is the date it was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board of the BSP, whichever comes later.

Let it be stressed that Revenue Regulations No. 9-98, implementing R.A. No. 8424 imposing the minimum corporate income tax on corporations, provides that for purposes of this tax, the date when business operations commence is the year in which the domestic corporation registered with the BIR. However, under Revenue Regulations No. 4-95, the date of commencement of operations of thrift banks, such as herein petitioner, is the date the particular thrift bank was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board of the BSP, whichever comes later.

Clearly then, Revenue Regulations No. 4-95, not Revenue Regulations No. 9-98, applies to petitioner, being a thrift bank. It is, therefore, entitled to a grace period of four (4) years counted from June 23, 1999 when it was authorized by the BSP to operate as a thrift bank. Consequently, it should only pay its minimum corporate income tax after four (4) years from 1999.

WHEREFORE, we GRANT the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 77177 is hereby REVERSED. Respondent Commissioner of Internal Revenue is directed to refund to petitioner bank the sum of P33,816,164.00 prematurely paid as minimum corporate income tax.

SO ORDERED.

Tax Case Digest: Manila Bank v. CIR (2006)

SECOND DIVISION
Manila Bank v. CIR (2006)
G.R. No. 168118 August 28, 2006
SANDOVAL-GUTIERREZ, J.

Lessons Applicable: 4-year grace period is based on the registration and commencement (not only for newly formed corporation), MCIT law encourages new business

Laws Applicable: MCIT

FACTS:

Manila Bank, after 12 years of being prohibited to operate due to insolvency by the Monetary Board of the BSP, is granted to operate as a thrift bank.
It paid its taxed for 1999.
Then, it asked the BIR whether it is entitled to the 4-year grace period before it shall be subject to MCIT.
BIR confirmed its entitlement.
It filed a claim for refund erroneously paid as MCIT in 1999.
Due to inaction, it filed a Petition for Review with the CTA who denied it since it is not a new corporation and has continued its registration with the SEC and BIR.

ISSUE: W/N Manila Bank is entitled to a 4-year grace period.

HELD: Yes. GRANT the petition.

The intent of the Congress relative to the MCIT is to grant 4-year grace period so that newly formed corporate can stabilize itself in order to obtain a stronghold in the industry.
Rev. Reg. No. 4-95 clearly provides that the date of commencement of the operations of a thrift bank is the date that it was registered with the SEC or the date when the certificate of authority to operate was issued by the Monetary Board of the BSP, whichever comes later.
Rev. Reg. No. 4-98, implementing RA 8424 imposing MCIT provides for purposes of this tax, date when business operations commence is the year which the company is registered with the BIR, thus in this case only on June 23, 1999

Jurisprudence: G.R. No. 176165 June 15, 2011

SECOND DIVISION
CIR v. Mirant (2011)
G.R. No. 176165 June 15, 2011
MENDOZA, J.

These are two consolidated petitions for review on certiorari under Rule 45 of the Rules of Court.

In G.R. No. 171742, petitioner Commissioner of Internal Revenue (CIR) seeks the reversal of the January 17, 2006 Decision and March 9, 2006 Resolution of the Court of Tax Appeals (CTA) En Banc in CTA E.B. Case No. 123.

In G.R. No. 176165, petitioner Mirant (Philippines) Operations, Corporation (Mirant) seeks the reversal of the October 26, 2006 Decision and January 5, 2007 Resolution of the CTA En Banc in CTA E.B. Case No. 125.

THE FACTS
Petitioner is empowered to perform the lawful duties of his office including, among others, the duty to act on and approve claims for refund or tax credit as provided by law.

Respondent Mirant is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at Bo. Ibabang Pulo, Pagbilao Grande Island, Pagbilao, Quezon.

Mirant also operated under the names Southern Energy Asia-Pacific Operations (Phils.), Inc., CEPA Operations (Philippines) Corporation; CEPA Tileman Project Management Corporation; and Hopewell Tileman Project Management Corporation.

Mirant, duly licensed to do business in the Philippines, is primarily engaged in the design, construction, assembly, commissioning, operation, maintenance, rehabilitation and management of gas turbine and other power generating plants and related facilities using coal, distillate, and other fuel provided by and under contract with the Government of the Republic of the Philippines or any subdivision, instrumentality or agency thereof, or any government-owned or controlled corporations or other entities engaged in the development, supply or distribution of energy.

Mirant entered into Operating and Management Agreements with Mirant Pagbilao Corporation (formerly Southern Energy Quezon, Inc.) and Mirant Sual Corporation (formerly Southern Energy Pangasinan, Inc.) to provide these companies with maintenance and management services in connection with the operation, construction and commissioning of coal-fired power stations situated in Pagbilao, Quezon, and Sual, Pangasinan respectively.

On October 15, 1999, Mirant filed with the Bureau of Internal Revenue (BIR) its income tax return for the fiscal year ending June 30, 1999, declaring a net loss of P235,291,064.00 and unutilized tax credits of ₱32,263,388.00:

Gross Income

	P (64,438,434.00)
Less: Deductions	170,852,630.00
Net Loss	₱(235,291,064.00)

Income Tax Due	₱---
Less: Prior Years Excess Credits	4,714,516.00
Creditable Tax Withheld
First Three Quarters	21,702,771.00
Fourth Quarter	5,846,101.00
Tax Overpayment	₱32,263,388.00

On April 17, 2000, Mirant filed with the BIR an amended income tax return (ITR) for the fiscal year ending June 30, 1999, reporting an increased net loss amount of ₱379,324,340.00 but reporting the same unutilized tax credits of ₱32,263,388.00, which it opted to carry over as a tax credit to the succeeding taxable year, thus:

Gross Income	₱(113,113,036.00)
Less: Deductions	248,211,204.00
Net Loss	₱(379,324,240.00)

Income Tax Due	₱ ---
Less: Prior Years Excess Credits	4,714,516.00
Creditable Tax Withheld
First Three Quarters	21,702,771.00
Fourth Quarter	5,846,101.00
Tax Overpayment	₱32,263,388.00

To synchronize its accounting period with those of its affiliates, Mirant allegedly secured the approval of the BIR to change its accounting period from fiscal year (FY) to calendar year (CY) effective December 31, 1999. Thus, on April 17, 2000, Mirant filed its income tax return for the interim period July 1, 1999 to December 31, 1999, declaring a net loss in the amount of ₱381,874,076.00 and unutilized tax credits of ₱48,626,793.00:

Gross Income

	₱(320,895,462.00)
Less: Deductions	60,978,614.00
Net Loss	₱(381,874,076.00)

Income Tax Due	₱ ---
Less: Prior Years Excess Credits	32,263,388.00
Creditable Tax Withheld
First Three Quarters	16,363,405.00
Fourth Quarter	---
Tax Overpayment	₱48,626,793.00

Mirant indicated the excess amount of ₱48,626,793.00 as To be carried over as tax credit next year/quarter.

On April 10, 2001, it filed with the BIR its income tax return for the calendar year ending December 31, 2000, reflecting a net loss of ₱56,901,850.00 and unutilized tax credits of ₱87,345,116.00, computed as follows:

Gross Income

	P(4,080,541.00)
Less: Deductions	52,821,309.00
Net Loss	₱(56,901,850.00)

Income Tax Due	₱ ---
Less: Prior Years Excess Credits	48,626,793.00
Creditable Tax Withheld
First Three Quarters	25,336,971.00
Fourth Quarter	13,381,352.00
Tax Overpayment	₱87,345,116.00

On September 20, 2001, Mirant wrote the BIR a letter claiming a refund of ₱87,345,116.00 representing overpaid income tax for the FY ending June 30, 1999, the interim period covering July 1, 1999 to December 31, 1999, and CY ending December 31, 2000.

As the two-year prescriptive period for the filing of a judicial claim under Section 229 of the National Internal Revenue Code (NIRC) of 1997 was about to lapse without action on the part of the BIR, Mirant elevated its case to the CTA by way of Petition for Review on October 12, 2001. The case was docketed as CTA Case No. 6340.

The CTA First Division rendered judgment partially granting Mirants claim for refund in the reduced amount of ₱38,620,427.00, representing its duly substantiated unutilized creditable withholding taxes for taxable year 2000 out of the total claim of ₱38,718,323.00 therefor. It appears that the total claim was reduced by ₱97,896.00 for the following reasons: the amount of ₱92,996.00 was deducted because the CTA First Division found that it was not covered by the withholding tax certificate issued by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000. Moreover the additional amount of ₱4,900.00 was also deducted because based on the reconciliation schedule for the creditable taxes of ₱745,290.00 withheld by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000 on Mirants Philippine peso billings under Invoice No. 0015, the corresponding creditable taxes claimed by Mirant in its 2000 income tax return amounted to ₱750,190.00 which was higher by ₱4,900.00 than that reflected in the certificate.

Additionally, Mirants claim for the refund of its unutilized tax credits for the taxable year 1999 in the total amount of ₱48,626,793.00, was denied as it exercised the carry-over option with regard to the said unutilized tax credits, which is irrevocable pursuant to the provisions of Section 76 of the 1997 NIRC.

The dispositive portion of the assailed May 18, 2005 Decision of the CTA First Division reads:

IN VIEW OF ALL THE FOREGOING, the instant Petition for Review is hereby GRANTED but in a reduced amount of ₱38,620,427.00. Accordingly, respondent is ORDERED TO REFUND, or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the amount of P38,620,427.00 representing unutilized creditable withholding taxes for taxable year 2000.

Both parties filed their respective motions for partial reconsideration of the above decision, but these were both denied for lack of merit in a Resolution dated September 22, 2005.

Both parties sought redress before the CTA En Banc in two separate petitions for review docketed as CTA EB Case No. 123 and CTA EB Case No. 125, respectively.

According to the CTA, although arising from the same case, CTA Case No. 6340, these two cases were not consolidated because CTA EB Case No. 125 was initially dismissed due to procedural infirmities.

In a Resolution dated April 28, 2006, however, acting on Mirants motion for reconsideration, the CTA En Banc recalled its earlier resolution and reinstated the case.[21] Eventually, the CTA En Banc in separate decisions, denied due course and dismissed the two cases. The CIR and Mirant filed their respective motions for reconsideration but both were denied. Thus, the CIR and Mirant filed their respective petitions for review with this Court, docketed as G.R. No. 171742 and G.R. No. 176165, respectively.

ISSUES

In G.R. No. 171742, the CIR raises the following issue:
WHETHER OR NOT THE COURT OF TAX APPEALS ERRED ON A QUESTION OF LAW IN HOLDING RESPONDENT ENTITLED TO A REFUND OR TAX CREDIT IN THE AMOUNT OF P38,620,427.00.

In G.R. No. 176165, Mirant raises the following issue:

WHETHER OR NOT PETITIONER IS ENTITLED TO A CLAIM FOR ADDITIONAL REFUND OR ISSUANCE OF A TAX CREDIT CERTIFICATE IN THE AMOUNT OF P48,626,793.00 REPRESENTING EXCESS CREDITABLE WITHHOLDING TAXES FOR THE FISCAL YEAR ENDED JUNE 30, 1999 AND THE INTERIM PERIOD FROM JULY 1, 1999 TO DECEMBER 31, 1999.

In essence, the issue is whether Mirant is entitled to a tax refund or to the issuance of a tax credit certificate and, if it is, then what is the amount to which it is entitled.

RULING OF THE COURT

The Court finds the assailed decisions and resolutions of the CTA En Banc in CTA E.B. Case Nos. 123 and 125 to be consistent with law and jurisprudence.

Once exercised, the option to carry over is irrevocable.

Section 76 of the National Internal Revenue Code (Presidential Decree No. 1158, as amended) 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 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. (Underscoring and emphasis supplied.)

The last sentence of Section 76 is clear in its mandate. Once a corporation exercises the option to carry-over and apply the excess quarterly income tax against the tax due for the taxable quarters of the succeeding taxable years, such option is irrevocable for that taxable period. Having chosen to carry-over the excess quarterly income tax, the corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit certificate for the amount representing such overpayment.

In the recent case of Commissioner of Internal Revenue v. PL Management International Philippines, Inc., the Court discussed the irrevocability rule of Section 76 in this wise:

The predecessor provision of Section 76 of the NIRC of 1997 is Section 79 of the NIRC of 1985, which provides:

Section 79. Final Adjustment Return. Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total net 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 net income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes-paid, the refundable amount shown on its final adjustment return may be credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year.

As can be seen, Congress added a sentence to Section 76 of the NIRC of 1997 in order to lay down the irrevocability rule, to wit:

xxx 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 tax refund or issuance of a tax credit certificate shall be allowed therefor.

In Philam Asset Management, Inc. v. Commissioner of Internal Revenue, the Court expounds on the two alternative options of a corporate taxpayer whose total quarterly income tax payments exceed its tax liability, and on how the choice of one option precludes the other, viz:

The first option is relatively simple. Any tax on income that is paid in excess of the amount due the government may be refunded, provided that a taxpayer properly applies for the refund.

The second option works by applying the refundable amount, as shown on the FAR of a given taxable year, against the estimated quarterly income tax liabilities of the succeeding taxable year.

These two options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications v. Commissioner of Internal Revenue, the Court ruled that a corporation must signify its intention whether to request a tax refund or claim a tax credit by marking the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection.

One cannot get a tax refund and a tax credit at the same time for the same excess income taxes paid. xxx

In Commissioner of Internal Revenue v. Bankof the Philippine Islands, the Court, citing the aforequoted pronouncement in Philam Asset Management, Inc., points out that Section 76 of the NIRC of 1997 is clear and unequivocal in providing that the carry-over option, once actually or constructively chosen by a corporate taxpayer, becomes irrevocable. The Court explains:

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

The last sentence of Section 76 of the NIRC of 1997 reads: 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 tax refund or issuance of a tax credit certificate shall be allowed therefor. The phrase for that taxable period merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer. In the present case, the excess income tax credit, which BPI opted to carry over, was acquired by the said bank during the taxable year 1998. The option of BPI to carry over its 1998 excess income tax credit is irrevocable; it cannot later on opt to apply for a refund of the very same 1998 excess income tax credit.

The Court of Appeals mistakenly understood the phrase for that taxable period as a prescriptive period for the irrevocability rule. This would mean that since the tax credit in this case was acquired in 1998, and BPI opted to carry it over to 1999, then the irrevocability of the option to carry over expired by the end of 1999, leaving BPI free to again take another option as regards its 1998 excess income tax credit. This construal effectively renders nugatory the irrevocability rule. The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of 1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and complication as regards said taxpayer's excess tax credit. The interpretation of the Court of Appeals only delays the flip-flopping to the end of each succeeding taxable period.

The Court similarly disagrees in the declaration of the Court of Appeals that to deny the claim for refund of BPI, because of the irrevocability rule, would be tantamount to unjust enrichment on the part of the government. The Court addressed the very same argument in Philam, where it elucidated that there would be no unjust enrichment in the event of denial of the claim for refund under such circumstances, because there would be no forfeiture of any amount in favor of the government. The amount being claimed as a refund would remain in the account of the taxpayer until utilized in succeeding taxable years, as provided in Section 76 of the NIRC of 1997. It is worthy to note that unlike the option for refund of excess income tax, which prescribes after two years from the filing of the FAR, there is no prescriptive period for the carrying over of the same. Therefore, the excess income tax credit of BPI, which it acquired in 1998 and opted to carry over, may be repeatedly carried over to succeeding taxable years, i.e., to 1999, 2000, 2001, and so on and so forth, until actually applied or credited to a tax liability of BPI.

Inasmuch as the respondent already opted to carry over its unutilized creditable withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the NIRC of 1997. Thereby, the respondent became barred from claiming the refund. [Underscoring supplied]

In this case, in its amended ITR for the year ended July 30, 1999 and for the interim period ended December 31, 1999,[28] Mirant clearly ticked the box signifying that the overpayment was To be carried over as tax credit next year/quarter. Item 31 of the Annual Income Tax Return Form (BIR Form No. 1702) also clearly indicated If overpayment, mark one box only. (once the choice is made, the same is irrevocable).

Applying the irrevocability rule in Section 76, Mirant having opted to carry over its tax overpayment for the fiscal year ending July 30, 1999 and for the interim period ending December 31, 1999, it is now barred from applying for the refund of the said amount or for the issuance of a tax credit certificate therefor, and for the unutilized tax credits carried over from the fiscal year ended June 30, 1998.

Mirant is entitled to the refund of its unutilized creditable withholding taxes for the taxable year 2000.

It is apt to restate here the time-honored doctrine that the findings and conclusions of the CTA are accorded the highest respect and will not be lightly set aside. The CTA, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject unless there has been an abusive or improvident exercise of authority. Citing Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue, this Court in Toshiba Information Equipment (Phils.), Inc. v. Commissioner of Internal Revenue, explicitly pronounced

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.

In this case, having studied the applicable law and jurisprudence, the Court agrees with the conclusion of the CTA that Mirant complied with all the requirements for the refund of its unutilized creditable withholding taxes for taxable year 2000.

In Commissioner of Internal Revenue v. Far East Bank & Trust Company (now Bank of the Philippine Islands), the Court enumerated the requisites for claiming a tax credit or a refund of creditable withholding tax:

1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax;
2) It must be shown on the return that the income received was declared as part of the gross income; and
3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld.

First, Mirant clearly complied with the two-year period. This requirement is based on Section 229 of the NIRC of 1997 which provides:
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. [Underscoring supplied]

Mirant filed its income tax return for the taxable year ending December 31, 2000 on April 10, 2001. Thus, from such date of filing, petitioner had until April 10, 2003 within which to file its claim for refund or for the issuance of a tax credit certificate in its favor.

Mirant filed its administrative claim with the BIR on September 20, 2001. It thereafter filed its Petition for Review with the CTA on October 12, 2001, or clearly within the prescribed two-year period.

Second, Mirant was also able to establish that the income, upon which the creditable withholding taxes were paid, was declared as part of its gross income in its ITR. As the CTA En Banc concluded:

As regards petitioner CIRs contention that respondent Mirant was not able to establish that the income upon which the creditable withholding taxes were paid was included in respondents Income Tax Returns, a perusal of the records reveals otherwise. The reported creditable taxes withheld of ₱38,718,323.00 were withheld from the services fees of ₱871,127,253.00 received by respondent from its affiliates, the Southern Energy Quezon, Inc. and the Southern Energy Pangasinan, Inc., pursuant to the Operating and Maintenance Service Agreements entered into by respondent Mirant with said entities (Exhibits HH, K, and K-1). The gross income figure of ₱871,127,253.00 is the very same amount declared by respondent in its income tax return for taxable year 2000 (Exhibits O-11 & O-12).

The CIR disagrees but merely alleges without any clear argument or basis that Mirant failed to prove that the income from which its creditable taxes were withheld were duly declared as part of its income in its annual ITR.

Thus, there being no cogent reason presented to reverse the findings and conclusions of the CTA, the Court affirms its finding that the income received was declared as part of the gross income, as shown in Mirants tax return.

Finally, Mirant was also able to establish the fact of withholding of the creditable withholding tax.

The CIR is of the opinion that Mirants non-presentation of the various payors or withholding agents to verify the Certificates of Creditable Tax Withheld at Source (CWTs), the registered books of accounts and the audited financial statements for the various periods covered to corroborate its other allegations, and its failure to offer other evidence to prove and corroborate the propriety of its claim for refund and failure to establish the fact of remittance of the alleged withheld taxes by various payors to the BIR, are all fatal to its claim.

Citing the CTA First Division, Mirant argues that since the CWTs were duly signed and prepared under pain of perjury, the figures appearing therein are presumed to be true and correct. The CWTs were presented and duly identified by its witness, Magdalena Marquez, and further verified by the duly commissioned independent CPA, Ruben R. Rubio, on separate hearing dates, before the CTA First Division. Moreover, these certificates were found by the duly commissioned independent CPA to be faithful reproductions of the originals, as stated in his supplementary report dated March 24, 2003.

The Court agrees with the conclusion of the CTA En Banc:

Contrary to petitioner CIRs contention, the fact of withholding was likewise established through respondents presentation of the Certificates of Creditable Tax Withheld At Source, duly issued to it by Southern Energy Pangasinan, Inc. and Southern Energy Quezon, Inc., for the year 2000 (Exhibits Y, Z, AA to FF). These certificates were found by the duly commissioned independent CPA to be faithful reproductions of the original copies, as per his Supplementary Report dated March 24, 2003 (Exhibit RR).

As to petitioner CIRs contention that the Report of the independent CPA dated February 21, 2003 shows several discrepancies, We sustain the findings of the First Division. On direct examination, Mr. Ruben Rubio, the duly commissioned independent CPA, testified and explained that the discrepancy was merely brought about by: (1) the difference in foreign exchange (forex) rates at the time the certificates were recorded by respondent Mirant and the forex rates used at the time the certificates were issued by its customers; and (2) the timing difference between the point when respondent Mirant recognized or accrued its income and the time when the corresponding creditable tax was withheld by its customers. x x x

x x x

As extensively discussed by the First Division:
The creditable withholding taxes of P40,600,971.79 reflected in the certificates were higher by P1,882,648.79 when compared with the creditable withholding taxes of P38,718,323.00 reported by petitioner in its income tax return for taxable year 2000 (Exhibit O-7). As stated by SGV & Co. in its report dated February 21, 2003 (Exhibit NN), tax credits were claimed by petitioner in its income tax return for taxable year 2000 prior to its receipt of the certificates from the withholding agents. At the time it recognized and accrued its income, petitioner also reported the related creditable withholding taxes, which was prior to the receipt of the certificates from the withholding agents. Hence, the discrepancy of P1,882,648.79 in creditable withholding taxes was mainly brought about by the difference between the foreign exchange (forex) rates used at the time when petitioner recorded its income and the related tax credits and the forex rates used by the withholding agents at the time when income payments were made to petitioner in reporting its tax credits, the same do not have a bearing on petitioners total claim because the resulting increase in the amounts of creditable withholding taxes reflected in the certificates were not declared by the petitioner in its income tax return for the said year. However, for the creditable taxes withheld by Southern Energy Quezon, Inc. for the period October 1, 2000 to December 31, 2000 totalling P7,670,746.00 (which formed part of the creditable withholding taxes of P8,834,280.11 shown in the certificate marked as Exhibit EE), the same were based on forex rates which were lower than those used by petitioner in recognizing the tax credits of P7,763,742.00 for the same transactions. In other words, petitioners claimed unutilized tax credits of P92,996.00 (P7,763,742.00 less P7,670,746.00) were not covered by the withholding tax certificate issued by Southern Energy, Quezon Inc. for the period October 1, 2000 to December 31, 2000 and should therefore be deducted from the total claim of P38,718,323.00 Below is the breakdown of the amount of P92,996.00:

			Creditable Withholding Taxes		Overclaimed Tax Credits
Exhibits	Period Covered	Withholding Agent	Per Certificate (a)	Per ITR (b)	(b) (a)
EE, QQ	10/01/00 12/31/00	Southern Energy Quezon, Inc.	P4,298,892.00	₱4,350,327.00	P51,435.00
			3,371,854.00	3,413,415.00	41,561.00
			P7,670,746.00	P7,763,742.00	P92,996.00

The reconciliation schedule also shows that for the creditable taxes of P745,290.00 withheld by Southern Energy Quezon Inc. for the period October 1, 2000 to December 31, 2000 on petitioners Philippine peso billings under Invoice No. 0015, the corresponding creditable taxes claimed by petitioner in its 2000 income tax return amounted to P750,190.00 which were higher by P4,900.00 than those reflected in the certificate. Accordingly, the amount of P4,900.00 shall be deducted from petitioners total claim.

In fine, this Court finds that of the total unutilized credits of P38,718, 323.00 declared by petitioner in its 2000 income tax return, only the amount of P38,620,427.00 (P38,718,323.00 less P92,996.00) was duly substantiated by withholding tax certificates.

Therefore, as the CTA ruled, Mirant complied with all the legal requirements and it is entitled, as it opted, to a refund of its excess creditable withholding tax for the taxable year 2000 in the amount of ₱38,620,427.00.

The Court finds no abusive or improvident exercise of authority on the part of the CTA. Since there is no showing of gross error or abuse on the part of the CTA, and its findings are supported by substantial evidence, there is no cogent reason to disturb its findings and conclusions.

WHEREFORE, the petitions in G.R. No. 171742 and G.R. No. 176165 are DENIED.

SO ORDERED.