ASG Law

Tag: quarterly ITR

  • Proof in Tax Refund Claims: Annual ITR Suffices, Quarterly Returns Not Mandatory

    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

  • Tax Refunds: Proving Excess Creditable Withholding Tax Without Quarterly ITRs

    The Supreme Court ruled that taxpayers claiming a refund for excess creditable withholding tax (CWT) do not always need to present quarterly income tax returns (ITRs) from the subsequent year. The annual ITR, if it sufficiently demonstrates that the excess CWT was not carried over to the succeeding taxable year, can be enough. This decision eases the burden on taxpayers and clarifies the requirements for claiming tax refunds.

    Can an Annual ITR Prove a Taxpayer Didn’t Carry Over Excess Credits, Qualifying Them for a Refund?

    Winebrenner & Iñigo Insurance Brokers, Inc. sought a refund for excess CWT for the 2003 calendar year. After the Bureau of Internal Revenue (BIR) failed to act on their claim, the company filed a petition with the Court of Tax Appeals (CTA). The CTA initially granted a partial refund but later reversed its decision, requiring the presentation of quarterly ITRs for 2004 to prove that the excess CWT had not been carried over to the succeeding quarters. The CTA En Banc affirmed this decision, leading Winebrenner & Iñigo to elevate the case to the Supreme Court.

    At the heart of the matter was Section 76 of the National Internal Revenue Code (NIRC), which governs the treatment of excess tax credits. This section stipulates that a corporation can either:

    (A) Pay the balance of tax still due; or
    (B) Carry-over the excess credits; or
    (C) Be credited or refunded with the excess amount paid, as the case may be.

    The NIRC further states that once the option to carry over 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. The central question before the Supreme Court was whether proving that no carry-over had been made absolutely required the presentation of quarterly ITRs.

    The Supreme Court, in reversing the CTA’s decision, sided with the petitioner, holding that while the burden of proof to establish entitlement to a refund lies with the taxpayer, proving that no carry-over has been made does not necessarily require the submission of quarterly ITRs. The Court emphasized that other competent and relevant evidence could suffice, pointing to the annual ITR for 2004 submitted by Winebrenner & Iñigo. The Court noted that the annual ITR contains the total taxable income earned for the four quarters of a taxable year, as well as deductions and tax credits previously reported or carried over in the quarterly income tax returns for the subject period.

    The Court highlighted that the absence of any amount written in the “Prior Year’s Excess Credits – Tax Withheld” portion of the petitioner’s 2004 annual ITR clearly shows that no prior excess credits were carried over in the first four quarters of 2004. The Supreme Court cited previous rulings, including Philam Asset Management Inc. v. Commissioner of Internal Revenue, which held that requiring the ITR or the Final Adjustment Return (FAR) of the succeeding year to be presented to the BIR has no basis in law and jurisprudence. The Court found that the CTA erred in not recognizing and discussing in detail the sufficiency of the annual ITR for 2004.

    Furthermore, the Court underscored the responsibility of the CIR to verify the claims by presenting contrary evidence, including the pertinent ITRs obtainable from its own files. The Court stated that claims for refund are civil in nature and the petitioner need only prove preponderance of evidence to recover excess credit. “Preponderance of evidence is the weight, credit, and value of the aggregate evidence on either side and is usually considered to be synonymous with the term ‘greater weight of the evidence’ or ‘greater weight of the credible evidence.’ It is evidence which is more convincing to the court as worthy of belief than that which is offered in opposition thereto.”

    The Court emphasized the principle of solution indebiti, stating that the CIR must return anything it has received if it does not rightfully belong to it. According to Article 2154 of the Civil Code, “If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.” The Court ultimately reinstated the original decision of the CTA Division, granting Winebrenner & Iñigo a refund of P2,737,903.34 as excess creditable withholding tax paid for taxable year 2003.

    FAQs

    What was the key issue in this case? The main issue was whether a taxpayer must present quarterly income tax returns of the succeeding year to claim a refund for excess creditable withholding tax. The court examined the indispensability of these returns in proving that the excess tax credits were not carried over.
    What did the Supreme Court decide? The Supreme Court held that while taxpayers must prove their entitlement to a refund, presenting quarterly income tax returns from the subsequent year is not always mandatory. The annual income tax return, if sufficient, can serve as evidence.
    What is the “irrevocability rule” mentioned in the decision? The “irrevocability rule” under Section 76 of the National Internal Revenue Code states that once a taxpayer chooses to carry over excess tax credits to the next taxable year, that choice is irreversible. This means they cannot later claim a refund for the same amount.
    What evidence did the petitioner present in this case? The petitioner, Winebrenner & Iñigo, presented their annual income tax return for the succeeding year (2004), which did not show any prior year’s excess credits being carried over. This was considered sufficient evidence by the Supreme Court.
    What is the responsibility of the Commissioner of Internal Revenue (CIR) in refund cases? The CIR has the responsibility to verify the taxpayer’s claim and present contrary evidence if they believe the refund is not warranted. This includes checking their own records and presenting relevant ITRs.
    What is meant by “preponderance of evidence” in this context? “Preponderance of evidence” means that the evidence presented by the taxpayer must be more convincing than the evidence presented against it. It refers to the weight, credit, and value of the aggregate evidence presented.
    What is solution indebiti, and how does it relate to this case? Solution indebiti is a legal principle stating that if someone receives something they are not entitled to, they have an obligation to return it. In this case, the Supreme Court invoked it to argue that the CIR must return any excess taxes it received.
    What should taxpayers do if they want to claim a tax refund? Taxpayers should gather all relevant documents to prove their entitlement to the refund. While quarterly ITRs may not always be necessary, having them available can strengthen their claim.

    The Winebrenner & Iñigo case offers significant clarification on the evidence required for claiming tax refunds. While the burden of proof remains with the taxpayer, the Supreme Court’s decision provides flexibility, recognizing that the annual ITR can suffice in demonstrating the absence of a carry-over. This ruling balances the government’s interest in proper tax collection with the taxpayer’s right to a refund of excess taxes paid.

    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: Winebrenner & Iñigo Insurance Brokers, Inc. v. Commissioner of Internal Revenue, G.R. No. 206526, January 28, 2015