Is the Bureau of Internal Revenue (BIR) inclined to approve refund claims? At a time where the government’s budget is dedicated to reviving the economy after the COVID-19 pandemic, granting tax refunds would put the agency in a pickle. However, rejecting such refund applications due to these considerations would be arbitrary on the part of the BIR.
The rules are clear. For tax refunds of unutilized excess creditable expanded withholding tax (CWT), three essential conditions must be met: (i) the timeliness of the refund application, (ii) the fact of withholding is established, and (iii) that the income upon which the taxes were withheld was included in the return of the recipient/claimant. To prove that these three conditions were satisfied, the refund application should be accompanied by complete documentary support for the BIR’s verification.
Since claims for refund are construed strictly against the taxpayer and in favor of the government, the documents supporting a CWT refund application are carefully scrutinized by the BIR. In Merck Sharp & Dohme (I.A.) LLC – Philippine Branch vs. Commissioner of Internal Revenue (CTA Case No. 9803, 25 June 2021), the BIR alleged that the instant claim for tax refund is tainted with procedural infirmity due to the taxpayer’s failure to submit complete documents in support of its administrative claim for refund. According to the BIR, taxpayers must prove compliance with both Revenue Memorandum Order (RMO) No. 53-98 and Revenue Regulations (RR) No. 2-2006 to support the validity of their claim for unutilized CWT.
In relation to the aforementioned RMO and RR, the BIR particularly insisted that the submission of proof of actual remittance is indispensable in claims for refund or issuance of a tax credit certificate for unutilized excess CWT for purposes of proving the CWT withheld.
With the BIR holding firm on the requirements, what would count as sufficient evidence in proving tax refund claims?
RMO No. 53-98 prescribes the documents that a taxpayer is required to submit to the BIR upon audit of his tax liabilities, as well as the different mandatory audit reporting requirements to be prepared, submitted and attached to a tax audit docket by a Revenue Office. On the other hand, RR No. 2-06 prescribes the mandatory attachments of the Summary Alphalist of Withholding Agents of Income Payments Subjected to Tax Withheld as Source (SAWT) to tax returns with claimed tax credits due to CWT at source.
The Tax Court ruled that the non-submission of the documents enumerated in RMO No. 53-98 should not result in an outright denial of the tax refund claim. It is not fatal to the claim for refund since the RMO is merely a guide to revenue officers as to what documents they may require taxpayers to present during an audit. Nothing stated in the issuance would show that it was intended as a benchmark in determining the completeness of the submitted documents to support a taxpayer’s claim for tax refund.
What is more critical is that the taxpayer should be able to establish the fact of withholding through a copy of the withholding tax statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom.
The Tax Court cited the case of Commissioner of Internal Revenue vs. Philippine National Bank (G.R. No. 180290, 29 September 2014)wherethe Supreme Court clarified that the certificate of creditable tax withheld at source (BIR Form 2307) is the competent proof to establish the fact that taxes were withheld, and upon presentation of a withholding tax certificate complete in its relevant detail and with a written statement that it was made under the penalties of perjury, the burden of evidence shifts to the Commissioner of Internal Revenue to examine.
Further, contrary to the BIR’s claim that the proof of actual remittance should be submitted, the aforementioned Supreme Court case clarified that proof of actual remittance of the withholding tax is not a prerequisite to claim a refund of unutilized tax credits, since it is the payor-withholding agent, and not the payee-refund claimant who is vested with the responsibility of withholding and remitting income taxes.
Similar to this instant case, taxpayers are generally intent on presenting adequate proof of their claim for refund. However, if the BIR were to demand undue requirements, refund claims at the administrative level would naturally result in a denial. As taxpayers are keen to recover their losses, I hope that the BIR would conscientiously evaluate submitted documents for refund applications. At the end of the day, both the government and the taxpayer are on the same boat in seeking to revive the economy.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
Edelweiss Chua is an assistant manager at the Tax Services department of Isla Lipana & Co., the Philippine member firm of the PwC network.