The Supreme Court has affirmed that taxpayers claiming refunds for excess creditable withholding taxes (CWT) do not need to present quarterly income tax returns (ITRs) from the subsequent year to prove their claim. The Court emphasized that the annual ITR sufficiently shows whether excess credits were carried over. This ruling clarifies the requirements for CWT refund claims, easing the burden on taxpayers and reinforcing the Commissioner of Internal Revenue’s (CIR) duty to verify claims.

Unnecessary Burden? PNB’s Tax Refund Claim and the Quarterly ITR Debate

This case revolves around Philippine National Bank’s (PNB) claim for a refund of excess and unutilized creditable withholding taxes (CWT) for the taxable year 2005. The Commissioner of Internal Revenue (CIR) denied the claim, arguing that PNB needed to submit its quarterly income tax returns (ITRs) for 2006 to prove that the excess CWT was not carried over to the subsequent taxable year. The Court of Tax Appeals (CTA) En Banc initially sided with the CIR but eventually reversed its decision, leading the CIR to file a petition for review on certiorari before the Supreme Court. The core legal question is whether presenting these quarterly ITRs is, in fact, indispensable for a CWT refund claim.

The Supreme Court addressed the issue by emphasizing that the burden of proof to establish entitlement to a refund lies with the claimant, citing the need to show compliance with the statutory requirements under the National Internal Revenue Code (NIRC) and relevant BIR rules. However, the Court disagreed with the CIR’s contention that presenting quarterly ITRs is an indispensable part of this burden.

In fact, the Court looked into Section 76 of the NIRC, which governs the filing of the final adjustment return. According to the provision:

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.

The Court noted that neither the NIRC nor the BIR’s regulations require the submission of quarterly ITRs for the succeeding taxable year when claiming a refund. It reiterated the established requirements: 1) file the claim within two years from the date of payment; 2) show that the income was declared as part of the gross income; and 3) establish withholding through a statement from the payor.

Building on this principle, the Supreme Court clarified that after a claimant meets these minimum statutory requirements, the burden shifts to the BIR to disprove the claim. If the BIR believes the CWT was carried over, it must prove this assertion. The Court emphasized that the BIR should have its own copies of the claimant’s quarterly returns and that the failure to present these documents during trial is detrimental to the BIR’s case.

Moreover, the Supreme Court acknowledged PNB’s submission of its annual ITR for 2006, stating that this document sufficiently reveals whether a carry-over to the succeeding quarters was made. The annual ITR contains the total taxable income for the four quarters of the taxable year, including deductions and tax credits previously reported. As the court noted:

If the excess tax credits of the preceding year were deducted, whether in whole or in part, from the estimated income tax liabilities of any of the taxable quarters of the succeeding taxable year, the total amount of the tax credits deducted for the entire taxable year should appear in the Annual ITR under the item “Prior Year’s Excess Credits.” Otherwise, or if the tax credits were carried over to the succeeding quarters and the corporation did not report it in the annual ITR, there would be a discrepancy in the amounts of combined income and tax credits carried over for all quarters and the corporation would end up shouldering a bigger tax payable. It must be remembered that taxes computed in the quarterly returns are mere estimates. It is the annual ITR which shows the aggregate amounts of income, deductions, and credits for all quarters of the taxable year. It is the final adjustment return which shows whether a corporation incurred a loss or gained a profit during the taxable quarter. Thus, the presentation of the annual ITR would suffice in proving that prior year’s excess credits were not utilized for the taxable year in order to make a final determination of the total tax due.

Anent, the CIR also questioned the authenticity of the Certificates of Creditable Taxes Withheld, this was dismissed on procedural grounds, stating that the objection was raised belatedly. The Supreme Court emphasized that factual findings of the CTA, when supported by substantial evidence, are generally not disturbed on appeal.

FAQs

What was the key issue in this case?	The key issue was whether a taxpayer claiming a refund of excess creditable withholding taxes (CWT) must present quarterly income tax returns (ITRs) from the subsequent year to prove that the excess CWT was not carried over.
What did the Supreme Court rule?	The Supreme Court ruled that presenting quarterly ITRs from the subsequent year is not mandatory. The annual ITR is sufficient to show whether excess credits were carried over.
What are the requirements for claiming a CWT refund?	The requirements are: (1) file the claim within two years from the date of payment; (2) show that the income was declared as part of gross income; and (3) establish withholding through a statement from the payor.
Who has the burden of proof in a CWT refund claim?	Initially, the taxpayer must prove entitlement to the refund. Once the minimum requirements are met, the burden shifts to the BIR to disprove the claim.
What is the CIR’s responsibility in CWT refund claims?	The CIR has the duty to verify the veracity of refund claims. If the CIR asserts that the CWT was carried over, it must present evidence to support this claim.
What is the significance of the annual ITR in this context?	The annual ITR provides a comprehensive overview of the taxpayer’s income, deductions, and tax credits for the entire year. It reveals whether excess credits were utilized in the subsequent year.
What if the CIR fails to present evidence against the refund claim?	The Supreme Court has indicated that the failure of the BIR to present evidence, such as its own copies of the taxpayer’s returns, can be detrimental to its case.
What was the basis for the CIR’s denial of PNB’s claim?	The CIR initially denied PNB’s claim due to the lack of quarterly ITRs and questioned the authenticity of the Certificates of Creditable Taxes Withheld.
What was the final decision of the Supreme Court?	The Supreme Court affirmed the CTA En Banc’s decision, ordering the CIR to refund or issue a tax credit certificate to PNB for the excess CWT.

This Supreme Court decision provides clarity for taxpayers seeking CWT refunds, affirming that the annual ITR is sufficient to demonstrate whether excess credits were carried over. This ruling reduces the burden on taxpayers and reinforces the CIR’s responsibility to thoroughly verify refund claims.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Commissioner of Internal Revenue vs. Philippine National Bank, G.R. No. 212699, March 13, 2019