It is a well-settled principle that tax exemptions are construed strictly against taxpayers. Hence, tax refunds, which are considered as tax exemptions, are resolved strictly against the claimant.
Under Section 229 of the Tax Code of 1997, as amended, any national internal revenue tax alleged to have been erroneously or illegally assessed or collected may be refunded within two years from the date of payment of the tax or penalty by filing a claim for refund or credit with the Commissioner of Internal Revenue (CIR).
A taxpayer claiming refund based on erroneous payment of tax must comply with the substantial and procedural rules set for claiming refunds -- i.e., (1) there must be a written claim stating a categorical demand for reimbursement filed by the taxpayer with the CIR; (2) there must be proof of tax payment; and, (3) the claim for refund must be filed on time. The two-year period runs from the date the tax was paid.
Recently, in Lawl Pte. Ltd. v. CIR, CTA EB Case No. 1118 CTA Case No. 8307, May 12, 2015, the CTA had the occasion to expound on the rules regarding the proper venue of claim for refund of erroneously paid tax by a nonresident foreign corporations (NRFC).
In the instant case, the taxpayer-refund claimant is a nonresident foreign corporation duly organized and existing under the laws of Singapore, which owns shares of stock in a domestic waterworks and sewerage company. The taxpayer sold its shares of stock to another domestic company and for this purpose, filed its capital gains tax return, wherein it indicated that it is availing of the tax exemption under the Philippine-Singapore Tax Treaty. It also applied for tax treaty relief with the Bureau of Internal Revenue (BIR) International Tax Affairs Division (ITAD). LAWL paid the capital gains tax on July 6, 2009 to secure the issuance of Certificate Authorizing Registration on the sale of shares.
The BIR denied its request for tax relief under the Philippine-Singapore Tax Treaty for lack of legal basis. Consequently, the taxpayer filed a request for review of the BIR ruling with the Secretary of Finance. The taxpayer also subsequently filed its administrative claim with the BIR ITAD for the refund of the capital gains tax and interest it paid.
While its administrative claim for refund and review of its ruling were pending, the taxpayer filed a judicial claim for a refund to comply with the two-year prescriptive period within which to claim the tax refund. In its answer, the BIR contended that based on the provisions of Section 229 of the Tax Code, as amended, taxpayers claiming a refund on illegally or erroneously collected taxes must file their written claim for refund with the CIR, not with the BIR ITAD, which does not have the authority to receive or process applications and/or claims for tax refund/credit certificates. According to the BIR, the taxpayer should have filed its administrative claim for refund with the Revenue District Office (RDO) where it filed its capital gains tax return.
The Court ruled that LAWL complied with Sections 204 (C) and 229 of the National Internal Revenue Code when it filed its written claim with the BIR ITAD since under Paragraph III (E) (2.3) of Revenue Administrative Order No. 11-00, ITAD, specifically its Tax Treaty Implementation and Exchange Information Section, shall process claims for tax credit/refund of erroneously collected internal revenue taxes arising from the application of tax treaty provisions including requests for exemptions. Thus, LAWL properly filed its administrative claim before the BIR ITAD. Accordingly, the taxpayer is deemed to have sufficiently complied with the requirements as to the filing of claim for refund with the proper BIR office.
In this recent decision, the CTA en banc elaborates on the proper venue for filing of refund under Section 229 of the 1997 Tax Code, as amended. The codal provision provides the claim for refund must be filed with the CIR. However, in practice, a claimant files the claim for refund with the RDO where the taxpayer is registered. In case of NRFC they are considered registered under RDO 39 pursuant to Revenue Regulations No. (RR) 11-08, as amended by RR 07-12, which requires NRFC to register with CIR through RDO 39 for purposes of taxpayer identification number issuance. Given the foregoing, NRFC are in effect registered with RDO 39 thus, their claim for refund may also be filed with said BIR office.
The CTA decision, while ruling that filing with the BIR ITAD is proper, did not categorically state that filing with RDO 39 is incorrect. Therefore, it is safe to assume that NRFCs can choose to file refund claims with RDO 39 or with BIR ITAD, provided the claim arises from the application of tax treaty provisions including requests for exemptions. In other words, claims for refund in cases other than those arising from tax treaty provisions must still be filed with the RDO where the claimant is registered.
This decision is a welcome development for NRFCs and provides an exception to the general rule on venue for filing for refunds. NRFCs should take note of this requisite in order to make sure claims for refund sufficiently comply with existing laws and regulations and are not denied on mere technicality.
Jennylyn V. Reyes is a senior associate of the Tax Advisory and Compliance division of Punongbayan & Araullo.
source: Businessworld
Under Section 229 of the Tax Code of 1997, as amended, any national internal revenue tax alleged to have been erroneously or illegally assessed or collected may be refunded within two years from the date of payment of the tax or penalty by filing a claim for refund or credit with the Commissioner of Internal Revenue (CIR).
Recently, in Lawl Pte. Ltd. v. CIR, CTA EB Case No. 1118 CTA Case No. 8307, May 12, 2015, the CTA had the occasion to expound on the rules regarding the proper venue of claim for refund of erroneously paid tax by a nonresident foreign corporations (NRFC).
In the instant case, the taxpayer-refund claimant is a nonresident foreign corporation duly organized and existing under the laws of Singapore, which owns shares of stock in a domestic waterworks and sewerage company. The taxpayer sold its shares of stock to another domestic company and for this purpose, filed its capital gains tax return, wherein it indicated that it is availing of the tax exemption under the Philippine-Singapore Tax Treaty. It also applied for tax treaty relief with the Bureau of Internal Revenue (BIR) International Tax Affairs Division (ITAD). LAWL paid the capital gains tax on July 6, 2009 to secure the issuance of Certificate Authorizing Registration on the sale of shares.
The BIR denied its request for tax relief under the Philippine-Singapore Tax Treaty for lack of legal basis. Consequently, the taxpayer filed a request for review of the BIR ruling with the Secretary of Finance. The taxpayer also subsequently filed its administrative claim with the BIR ITAD for the refund of the capital gains tax and interest it paid.
While its administrative claim for refund and review of its ruling were pending, the taxpayer filed a judicial claim for a refund to comply with the two-year prescriptive period within which to claim the tax refund. In its answer, the BIR contended that based on the provisions of Section 229 of the Tax Code, as amended, taxpayers claiming a refund on illegally or erroneously collected taxes must file their written claim for refund with the CIR, not with the BIR ITAD, which does not have the authority to receive or process applications and/or claims for tax refund/credit certificates. According to the BIR, the taxpayer should have filed its administrative claim for refund with the Revenue District Office (RDO) where it filed its capital gains tax return.
The Court ruled that LAWL complied with Sections 204 (C) and 229 of the National Internal Revenue Code when it filed its written claim with the BIR ITAD since under Paragraph III (E) (2.3) of Revenue Administrative Order No. 11-00, ITAD, specifically its Tax Treaty Implementation and Exchange Information Section, shall process claims for tax credit/refund of erroneously collected internal revenue taxes arising from the application of tax treaty provisions including requests for exemptions. Thus, LAWL properly filed its administrative claim before the BIR ITAD. Accordingly, the taxpayer is deemed to have sufficiently complied with the requirements as to the filing of claim for refund with the proper BIR office.
In this recent decision, the CTA en banc elaborates on the proper venue for filing of refund under Section 229 of the 1997 Tax Code, as amended. The codal provision provides the claim for refund must be filed with the CIR. However, in practice, a claimant files the claim for refund with the RDO where the taxpayer is registered. In case of NRFC they are considered registered under RDO 39 pursuant to Revenue Regulations No. (RR) 11-08, as amended by RR 07-12, which requires NRFC to register with CIR through RDO 39 for purposes of taxpayer identification number issuance. Given the foregoing, NRFC are in effect registered with RDO 39 thus, their claim for refund may also be filed with said BIR office.
The CTA decision, while ruling that filing with the BIR ITAD is proper, did not categorically state that filing with RDO 39 is incorrect. Therefore, it is safe to assume that NRFCs can choose to file refund claims with RDO 39 or with BIR ITAD, provided the claim arises from the application of tax treaty provisions including requests for exemptions. In other words, claims for refund in cases other than those arising from tax treaty provisions must still be filed with the RDO where the claimant is registered.
This decision is a welcome development for NRFCs and provides an exception to the general rule on venue for filing for refunds. NRFCs should take note of this requisite in order to make sure claims for refund sufficiently comply with existing laws and regulations and are not denied on mere technicality.
Jennylyn V. Reyes is a senior associate of the Tax Advisory and Compliance division of Punongbayan & Araullo.
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