Time is gold: inaction and a P296M tax refund

By Erickson Padilla, Tax Manager

The Court of Tax Appeals (CTA) granted the claim for tax refund of P296 million to SM Investments Corporation (SMIC) representing to the unutilized creditable withholding tax (CWT) for the calendar year 2014. This is based on the appeal of SM Investments Corporation SMIC  to reconsider its ruling in 2020 that partially granted P289.8 million of excess CWT.

The CTA ruling written by Associate Justice Erlinda P. Uy ordered the Bureau of Internal Revenue (BIR) to refund or issue a tax credit certificate representing the company’s excess CWT for 2014.

In this CTA Case, the Commissioner of Internal Revenue (CIR) of the BIR contends that SM Investments Corporation SMIC failed to exhaust its administrative remedies before bringing the case to Court in the Division, hence, pending the closure of this investigation, no grant of refund may be given to the Company based on the filed claim.

The CTA ruled however that the two-year prescriptive period is about to end, hence, it was correct on the part of the Company to have elevated its judicial claim within the two-year prescriptive period under Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, 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."

Based on the foregoing provisions, the judicial claim for tax refund must be made within two years from the date of payment of the tax or penalty, regardless of any supervening cause that may arise after such payment.

It is worth noting that in this CTA Case between SMIC and the CIR, the Court found that there is no showing that the BIR ever acted upon the Company’s administrative claim for refund from the time it was filed on September 21, 2015 up to the filing of its judicial claim on April 7, 2017. Considering that the two-year prescriptive period is about to end, it was correct on the part of the Company to have elevated its judicial claim within the said two-year prescriptive period.

It can be viewed based on the foregoing CTA ruling that the administrative and judicial remedy of filing a claim for refund of erroneously or excessively paid tax must be done within two years from the date of payment of the tax both in the administrative and judicial levels. Hence, in case of inaction by the CIR prior to the two-year prescriptive period, the taxpayer who is claiming for refund may already elevate the case to the CTA, without violating the exhaustion of administrative remedies, such in the case of SM IC.