PM Reyes Tax Supplement for the 2014 Bar

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR ! Atty. Pierre Martin D. Reyes Note: This covers significant and relevant Supreme Court jurisprudence on taxation law from January 31, 2013 to March 31, 2014.

XYZ Airlines has no personality to file the subject tax refund claim because it is not the statutory taxpayer. Does XYZ Airlines have personality to file the refund?

Possessors may reproduce and distribute this supplement provided my name remains clearly associated with my work and no alterations in the form and content of this supplement are made. No stamping is allowed.

A. Yes. In Philippine Airlines v. Commissioner of Internal Revenue, G.R. No. 198759, July 1, 2013, the Supreme Court held that the rule in the Silkair case does is inapplicable to a case where the party to which the economic burden is shifted is provided an exemption from both direct and indirect taxes. In Silkair, the Court held that the the proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.

--------------------------------------------------------GENERAL PRINCIPLES --------------------------------------------------------Q. What is a tax amnesty? A. A Tax amnesty refers to the articulation of the absolute waiver by a sovereign of its right to collect taxes and power to impose penalties on persons or entities guilty of violating a tax law. Tax amnesty aims to grant a general reprieve to tax evaders who wish to come clean by giving them an opportunity to straighten out their records. (CS Garments, Inc. v. Commissioner of Internal Revenue, G.R. No. 182399, March 12, 2014)

In this case, the Supreme Court held that the abovementioned rule should not apply to instances where the law clearly grants the party to which the economic burden of the tax is shifted an exemption from both direct and indirect taxes. In which case, the latter must be allowed to claim a tax refund even if it is not considered as the statutory taxpayer under the law.

Note: Amnesty taxpayers may immediately enjoy the privileges and immunities under a Tax Amnesty Law, provided they fulfill the suspensive conditions imposed therein. (CS Garments, Inc. v. Commissioner of Internal Revenue, G.R. No. 182399, March 12, 2014)

The Court applied the Maceda case, where it upheld the National Power Corporation’s (NPC) claim for a tax refund since its own charter specifically granted it an exemption from both direct and indirect taxes.

Q. ABC Petroleum sold XYZ Airlines petroleum fuel. ABC Petroleum passed on the related excise tax to XYZ Airlines. Now, XYZ Airlines sought to refund the said excise taxes on the basis of the tax exemption privileges provided for in its franchise. The CIR argues that

The Supreme Court held that the propriety of a tax refund claim is hinged on the kind of exemption which forms its basis. If the law confers an exemption from both direct or indirect taxes, a claimant is entitled to a tax refund even if it only bears the economic burden of the applicable tax. On the other hand, if the 1!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR ! exemption conferred only applies to direct taxes, then the statutory taxpayer is regarded as the proper party to file the refund claim.

serious implications on our Government’s commitment to the goals and objectives of the Chicago Convention.

Q. ABC Petroleum sold to various international airlines petroleum fuel. ABC Petroleum is prohibited from passing on the said excise taxes to the international airlines as the latter are exempt from excise tax under Section 135. Thus, ABC Petroleum sought to refund the said excise taxes. The BIR argues that pursuant to the Philippine Acetylene case, a tax exemption being enjoyed by the buyer cannot be the basis of a claim for tax exemption by the manufacturer or seller of the goods for any tax due to it as the manufacturer or seller. Can ABC Petroleum refund the said excise taxes?

Under the basic international law principle of pacta sunt servanda, we have the duty to fulfill our treaty obligations in good faith. This entails harmonization of national legislation with treaty provisions. In this case, Sec. 135(a) of the NIRC embodies our compliance with our undertakings under the Chicago Convention and various bilateral air service agreements not to impose excise tax on aviation fuel purchased by international carriers from domestic manufacturers or suppliers. Construction of the tax exemption provision in question should give primary consideration to its broad implications on our commitment under international agreements. --------------------------------------------------------INCOME TAX ---------------------------------------------------------

A. Yes. In Commissioner of Internal Revenue v. Pilipinas Shell, G.R. No. 188497, February 19, 2014 , the Supreme Court held that a petroleum company, as the statutory taxpayer who is directly liable to pay the excise tax on its petroleum products, is entitled to a refund or credit of the excise taxes it paid for petroleum products sold to international carriers, the latter having been granted exemption from the payment of said excise tax under Sec. 135 (a) of the NIRC.

Q. XYZ Bank Philippines remitted to XYZ Bank Germany an amount representing the 15% branch profit remittance tax on its regular banking unit net income to XYZ Germany. Realizing that it made an overpayment of BPRT, XYZ Philippines filed with the BIR an administrative claim for refund and at the same time requested from the International Tax Affairs Division (ITAD) a confirmation of its entitlement to the preferential tax rate of 10% under the RP-Germany Tax Treaty. The BIR denied the claim on the ground that the application for a tax treaty relief was not filed with ITAD prior to the payment by the former of its BPRT and actual remittance of its branch profits to DB Germany, or prior to its availment of the preferential rate of ten percent (10%) under the RPGermany Tax Treaty provision. The CIR contends that the XYZ Philippines

The Court maintained that Section 135 (a), in fulfillment of international agreement and practice to exempt aviation fuel from excise tax and other impositions, prohibits the passing of the excise tax to international carriers who buys petroleum products from local manufacturers/sellers such as respondent. However, the Court agreed that there was a need to reexamine the effect of denying the domestic manufacturers/sellers’ claim for refund of the excise taxes they already paid on petroleum products sold to international carriers, and its 2!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR ! violated the fifteen (15) day period mandated under Section III paragraph (2) of Revenue Memorandum Order (RMO) No. 1-2000. Will the failure to strictly comply with RMO No. 1-2000 deprive persons or corporations of the benefit of a tax treaty?

indicate a deprivation of entitlement to a tax treaty relief for failure to comply with the 15-day period. We recognize the clear intention of the BIR in implementing RMO No. 1-2000, but the CTA’s outright denial of a tax treaty relief for failure to strictly comply with the prescribed period is not in harmony with the objectives of the contracting state to ensure that the benefits granted under tax treaties are enjoyed by duly entitled persons or corporations.

A. No. In Deutsche Bank AG Manila v. Commissioner of Internal Revenue, G.R. No. 188550, August 19, 2013 , the Supreme Court held that the noncompliance with the 15-day period for prior application should not operate to automatically divest entitlement to the tax treaty relief especially in claims for refund.

Bearing in mind the rationale of tax treaties, the period of application for the availment of tax treaty relief as required by RMO No. 1-2000 should not operate to divest entitlement to the relief as it would constitute a violation of the duty required by good faith in complying with a tax treaty. The denial of the availment of tax relief for the failure of a taxpayer to apply within the prescribed period under the administrative issuance would impair the value of the tax treaty. At most, the application for a tax treaty relief from the BIR should merely operate to confirm the entitlement of the taxpayer to the relief.

Our Constitution provides for adherence to the general principles of international law as part of the law of the land. The time-honored international principle of pacta sunt servanda demands the performance in good faith of treaty obligations on the part of the states that enter into the agreement. Every treaty in force is binding upon the parties, and obligations under the treaty must be performed by them in good faith. More importantly, treaties have the force and effect of law in this jurisdiction.

The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has negative implications on international relations, and unduly discourages foreign investors. While the consequences sought to be prevented by RMO No. 1-2000 involve an administrative procedure, these may be remedied through other system management processes, e.g., the imposition of a fine or penalty. But we cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring prior application for tax treaty relief.

A state that has contracted valid international obligations is bound to make in its legislations those modifications that may be necessary to ensure the fulfillment of the obligations undertaken.” Thus, laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto. The BIR must not impose additional requirements that would negate the availment of the reliefs provided for under international agreements. More so, when the RP-Germany Tax Treaty does not provide for any pre-requisite for the availment of the benefits under said agreement.

Q. What are the requirements for a claim for refund of excess creditable withholding tax?

Likewise, it must be stressed that there is nothing in RMO No. 1-2000 which would 3!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR ! A. A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites:

proceeds have been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas; 8) Where there are both zero-rated or effectively zero- rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and 9) The claim is filed within two years after the close of the taxable quarter when such sales were made

1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax; 2) It must be shown on the return of the recipient that the income received was declared as part of the gross income; and 3) The fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld.

( Luzon Hydro Corporation v. Commissioner of Internal Revenue, G.R. No. 188260, November 13, 2013)

(Commissioner of Internal Revenue v. TeaM (Philippines) Operations Corporation, G.R. No. 185728, October 16, 2013 )

Q. ABC Hydro Corporation, is a renewable power generation company. It filed a claim for refund to cover its unutilized input VAT corresponding to the four quarters of taxable year 2001. It, however, did not produce evidence showing! that! it! had! zero3rated! sales! for! the! four! quarters! of! taxable! year! 2001.! Should! ABC’s!claim!be!denied?

--------------------------------------------------------VALUE-ADDED TAX --------------------------------------------------------Q. What are the requirements for a claim for VAT refund?

A. Yes. In Luzon Hydro Corporation v. Commissioner of Internal Revenue, G.R. No. 188260, November 13, 2013 , the Supreme Court held that petitioner did not competently establish its claim for refund or tax credit. The petitioner did not produce evidence showing that it had zero-rated sales for the four quarters of taxable year 2001. The petitioner did not reflect any zero-rated sales from its power generation in its four quarterly VAT returns, which indicated that it had not made any sale of electricity. Had there been zero-rated sales, it would have reported them in the returns. Indeed, it carried the burden not only that it was entitled under the substantive law to the allowance of its claim for refund or tax credit but also that it met all the requirements for evidentiary substantiation of its claim.

A. A claim for refund or tax credit for unutilized input VAT may be allowed only if the following requisites concur, namely: 1) The taxpayer is VAT-registered; 2) The taxpayer is engaged in zero-rated or effectively zero-rated sales; 3) The input taxes are due or paid; 4) The input taxes are not transitional input taxes; 5) The input taxes have not been applied against output taxes during and in the succeeding quarters; 6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales; 7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange 4!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR ! without any action from the CIR. 4) All taxpayers, however, can rely on BIR Ruling No. DA-489- 03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional 120+30 day periods.

Although the petitioner has correctly contended here that the sale of electricity by a power generation company like it should be subject to zero- rated VAT under Republic Act No. 9136, its assertion that it need not prove its having actually made zero-rated sales of electricity by presenting the VAT official receipts and VAT returns cannot be upheld.

(See Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485, Taganito Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 196113, Philex Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 197156, February 12, 2013 )

Q. What are the rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT as provided in Section 112 of the 1997 Tax Code? A. In Mindanao II Geothermal Partnership v. Commissioner of Internal Revenue, and Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue, 1 the Supreme Court provided the following rules on prescriptive periods involving VAT:

Otherwise presented, the Supreme Court in Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014 summarized the rules as follows: A. Two-Year Prescriptive Period

1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. 2) The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction. 3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR’s decision denying the administrative claim or from the expiration of the 120-day period

1) It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi) 2) The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made. (San Roque) 3) The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas states that the twoyear prescriptive period for filing a claim for tax refund or credit of unutilized input VAT payments should be counted from the date of filing of the VAT return and payment of the tax. (San Roque) B. 120+30 Day Period 1) The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the

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G.R. Nos. 193301 and 194637, March 11, 2013.

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PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR !

2) 3) 4)

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claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120day period. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque) As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque) Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA489-03 was in force. (San Roque)

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229 (date of filing of return and payment of tax) should be effective only from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing the twoyear prescriptive period in claiming refund or credit of input VAT. (Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014 )

A taxpayer can file his administrative claim for refund or issuance of tax credit certificate anytime within the two- year prescriptive period. If he files his claim on the last day of the twoyear prescriptive period, his claim is still filed on time. The Commissioner will then have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. (Team Energy Corporation v. Commissioner of Internal Revenue, G.R. No. 190928, January 13, 2014 )

Q. What is the distinction between an ‘excess input VAT” and an “excessively collected” tax?

Q. What is the reckoning date of the twoyear prescriptive period to file the administrative claim for refund?

A. The input VAT is not “excessively” collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller of goods, properties or services used as input by another VAT-registered person in the sale of his own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer as part of the purchase price. The second VATregistered person, who is not legally liable for the input VAT, is the one who applies the input VAT as credit for his own output VAT.

A. The reckoning date is the close of the taxable quarter when the relevant sales were made.

In a claim for refund or credit of “excess” input VAT under Section 110(B) and Section 112(A),

(See Commissioner of Internal Revenue v. Visayas Geothermal Power Company, G.R. No. 181276, November 11, 2013 )

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PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR !

187485, Taganito Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 196113, Philex Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 197156, February 12, 2013 )

the input VAT is not “excessively” collected as understood under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is “excessively” collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an “excess” input VAT. The term “excess” input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as “excessively” collected under Section 229.

Q. What is the effect of failure to comply with the 120-day waiting period in a claim for refund of input taxes? A. Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer’s petition. The charter of the CTA expressly provides that its jurisdiction is to review on appeal “decisions of the Commissioner of Internal Revenue in cases involving x x x refunds of internal revenue taxes.”

Any suggestion that the “excess” input VAT under the VAT System is an “excessively” collected tax under Section 229 may lead taxpayers to file a claim for refund or credit for such “excess” input VAT under Section 229 as an ordinary tax refund or credit outside of the VAT System.

When a taxpayer prematurely files a judicial claim for tax refund or credit with the CTA without waiting for the decision of the Commissioner, there is no “decision” of the Commissioner to review and thus the CTA as a court of special jurisdiction has no jurisdiction over the appeal.

From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is “erroneously, x x x illegally, x x x excessively or in any manner wrongfully collected.” In short, there must be a wrongful payment because what is paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should “apply only to instances of erroneous payment or illegal collection of internal revenue taxes.” Erroneous or wrongful payment includes excessive payment because they all refer to payment of taxes not legally due. Under the VAT System, there is no claim or issue that the “excess” input VAT is “excessively or in any manner wrongfully collected.”

The charter of the CTA also expressly provides that if the Commissioner fails to decide within “a specific period” required by law, such “inaction shall be deemed a denial” of the application for tax refund or credit. It is the Commissioner’s decision, or inaction “deemed a denial,” that the taxpayer can take to the CTA for review. Without a decision or an “inaction x x x deemed a denial” of the Commissioner, the CTA has no jurisdiction over a petition for review. (Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485, Taganito Mining

(Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 7!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR !

Corporation v. Commissioner of Internal Revenue, G.R. No. 196113, Philex Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 197156, February 12, 2013 )

or refund of the creditable input tax due or paid to such sales.” In short, the law states that the taxpayer may apply with the Commissioner for a refund or credit “within two (2) years,” which means at anytime within two years. Thus, the application for refund or credit may be filed by the taxpayer with the Commissioner on the last day of the two-year prescriptive period and it will still strictly comply with the law. The two- year prescriptive period is a grace period in favor of the taxpayer and he can avail of the full period before his right to apply for a tax refund or credit is barred by prescription. 2) Section 112(C) provides that the Commissioner shall decide the application for refund or credit “within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A).” The reference in Section 112(C) of the submission of documents “in support of the application filed in accordance with Subsection A” means that the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period. In short, the two- year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit. Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the Commissioner. As held in Aichi, the “phrase ‘within two years x x x apply for the issuance of a tax credit or refund’ refers to applications for refund/credit with the CIR and not to appeals made to the CTA.” 3) If the 30-day period, or any part of it, is required to fall within the two-year prescriptive period (equivalent to 730 days), then the taxpayer must file his administrative claim for refund or credit within the first 610 days of the two-year prescriptive period.

The 30-day period to appeal to the CTA is dependent on the 120-day period and compliance with both periods is jurisdictional. The period of 120 days is a prerequisite for the commencement of the 30-day period to appeal to the CTA. (CBK Power Limited v. Commissioner of Internal Revenue, G.R. Nos. 19872930, January 15, 2014 ) In Nippon Express (Philippines) Corporation v. Commissioner of Internal Revenue, G.R. No. 196907, March 13, 2013 , the petition failed because the judicial claim of petitioner was filed on April 25, 2003, only one day after it submitted its administrative claim to the CIR. Petitioner failed to wait for the lapse of the requisite 120-day period or the denial of its claim by the CIR before elevating the case to the CTA by a petition for review. As its judicial claim was filed during which strict compliance with the 120+30day period was required, the Court cannot but declare that the filing of the petition for review with the CTA was premature and that the CTA had no jurisdiction to hear the case. Q. Is the 30-day period within which to file the judicial claim required to fall within the 2-year prescriptive period? A. The 30-day period need not necessarily fall within the two-year prescriptive period for the following reasons: 1) Section 112(A) clearly, plainly, and unequivocally provides that the taxpayer “may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate 8!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR !

Geothermal Partnership, G.R. No. 191498, January 15, 2014 )

Otherwise, the filing of the administrative claim beyond the first 610 days will result in the appeal to the CTA being filed beyond the two-year prescriptive period. Thus, if the taxpayer files his administrative claim on the 611th day, the Commissioner, with his 120-day period, will have until the 731st day to decide the claim. If the Commissioner decides only on the 731st day, or does not decide at all, the taxpayer can no longer file his judicial claim with the CTA because the two-year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period granted by law to the taxpayer to file an appeal before the CTA becomes utterly useless, even if the taxpayer complied with the law by filing his administrative claim within the two-year prescriptive period.

Q. ABC argues that the judicial claim is seasonably filed so long as it is filed after the 120-day waiting period but before the lapse of the two-year prescriptive period under Section 112(A). In other words, a taxpayer may file an appeal with the CTA after the expiration of the 120-day period, in which case the 30-day period does not apply. Is this contention correct? A. No. The! 303day! period! applies! not! only! to! instances! of! actual! denial! by! the! CIR! of! the! claim! for! refund! or! tax! credit,! but! to! cases! of! inaction!by!the!CIR!as!well. ! The taxpayer can file the appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120day period if the Commissioner does not act within the 120-day period.

The theory that the 30-day period must fall within the two-year prescriptive period adds a condition that is not found in the law. It results in truncating 120 days from the 730 days that the law grants the taxpayer for filing his administrative claim with the Commissioner. This Court cannot interpret a law to defeat, wholly or even partly, a remedy that the law expressly grants in clear, plain, and unequivocal!language.

(Commissioner of Internal Revenue v. Mindanao II Geothermal Partnership, G.R. No. 191498, January 15, 2014 )

(Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485, Taganito Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 196113, Philex Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 197156, February 12, 2013 )

Q. Should the 120+30 day period rule be given only prospective effect given that the manner by which the BIR and the CTA actually treated the 120+30 day period constitutes an operative fact? A. No. The general rule is that a void law or administrative act cannot be the source of legal rights or duties.

It is only the administrative claim that must be filed within the two-year prescriptive period; the judicial claim need not fall within the twoyear prescriptive period. (Commissioner of Internal Revenue v. Mindanao II

The doctrine of operative fact is an exception to the general rule, such that a judicial declaration of invalidity may not necessarily obliterate all the effects and consequences of a void act prior to 9!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR ! such declaration

December 10, 2003 but before October 6, 2010, the date when the Aichi case was promulgated. Thus, even though petitioner's judicial claim was prematurely filed without waiting for the expiration of the 120-day mandatory period, the CTA may still take cognizance of the instant case as it was filed within the period exempted from the 120-30-day mandatory period.

Clearly, for the operative fact doctrine to apply, there must be a “legislative or executive measure,” meaning a law or executive issuance, that is invalidated by the court. From the passage of such law or promulgation of such executive issuance until its invalidation by the court, the effects of the law or executive issuance, when relied upon by the public in good faith, may have to be recognized as valid. In the present case, however, there is no such law or executive issuance that has been invalidated by the Court except BIR Ruling No. DA-489-03.

In Commissioner of Internal Revenue v. Team Sual Corporation, G.R. No. 194105, February 5, 2014 , Team Sual filed its judicial claim for refund/tax credit of its unutilized input VAT with the CTA on April 1, 2002 – more than a year before the issuance of BIR Ruling No. DA489-03. Accordingly, Team Sual cannot benefit from the declaration laid down in BIR Ruling No. DA-489-03. As stressed by the Court in San Roque, prior to the issuance of BIR Ruling No. DA-48903, the BIR held that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of the law.

The doctrine of operative fact was applied by the Supreme Court when it recognized the simultaneous filing during the period between 10 December 2003, when BIR Ruling No. DA489-03 was issued, and 6 October 2010, when this Court promulgated Aichi declaring the 120+30 day periods mandatory and jurisdictional, thus reversing BIR Ruling No. DA-489-03.

In Republic of the Philippines v. GST Philippines, G.R. No. 190872, October 17, 2013, it was held that GST can benefit from BIR Ruling No. DA-489-03 with respect to its claims for refund of unutilized excess input VAT for the second and third quarters of taxable year 2005 which were filed before the CIR on November 18, 2005 but elevated to the CTA on March 17, 2006 before the expiration of the 120-day period (March 18, 2006 being the 120th day). BIR Ruling No. DA-489-03 effectively shielded the filing of GST's judicial claim from the vice of prematurity.

( Commissioner of Internal Revenue v. San Roque Power Corporation, G.R. No. 187485, Taganito Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 196113, Philex Mining Corporation v. Commissioner of Internal Revenue, G.R. No. 197156, October 8, 2013) Note: Thus, in Procter & Gamble Asia PTE Ltd. v. Commissioner of Internal Revenue, G.R. No. 202071, February 19, 2014 , the Petitioner was able to claim the benefit of BIR Ruling No. DA-489-03 as the judicial claims were filed on October 2, 2006 and December 29, 2006.

GST's claims, however, for the four quarters of taxable year 2004 and the first quarter of taxable year 2005 should be denied for late filing of the petition for review before the CTA. GST filed its VAT Return for the first quarter of 2004 on April 16, 2004. Reckoned from the close of the first taxable quarter of 2004 on March 31, 2004, the administrative claim filed on June 9, 2004 was well within the required two-year prescriptive period

In Team Energy Corporation v. Commissioner of Internal Revenue, G.R. No. 197760, January 13, 2014 , petitioner filed its judicial claim on April 18, 2007 or after the issuance of BIR Ruling No. DA-489-03 on 10!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR ! from the close of the taxable quarter, the last day of filing being March 31, 2006. The CIR then had 120 days from June 9, 2004, or until October 7, 2004, to decide the claim. Since the Commissioner did not act on the claim within the said period, GST had 30 days from October 7, 2004, or until November 6, 2004, to file its judicial claim. However, GST filed its petition for review before the CTA only on March 17, 2006, or 496 days after the last day of filing. In short, GST was late by one year and 131 days in filing its judicial claim.

judicial claim for refund must be denied for having been filed late. Although respondent filed its administrative claim with the BIR on August 9, 2004 before the expiration of the two-year period in Section l 12(A), it undoubtedly failed to comply with the 120+30-day period in Section l l 2(D) (now subparagraph C) which requires that upon the inaction of the CIR for 120 days after the submission of the documents in support of the claim, the taxpayer has to file its judicial claim within 30 days after the lapse of the said period. The 120 days granted to the CIR to decide the case ended on December 7, 2004. Thus, DEPI had 30 days therefrom, or until January 6, 2005, to file a petition for review with the CTA. Unfortunately, DEPI only sought judicial relief on May 5, 2005 when it belatedly filed its petition to the CTA, despite having had ample time to file the same, almost four months after the period allowed by law. As a consequence of DEPI's late filing, the CTA did not properly acquire jurisdiction over the claim.

For the second quarter of taxable year 2004, GST filed its administrative claim on August 12, 2004. The 120-day period from the filing of such claim ended on December 10, 2004, and the 30th day within which to file a judicial claim fell on January 9, 2005. However, GST filed its petition for review before the CTA only on March 17, 2006, or 432 days after the last day of filing. GST was late by one year and 67 days in filing its judicial claim. For the third and fourth quarters of taxable year 2004, GST filed its administrative claims on February 18, 2005. The 120th day, or June 18, 2005, lapsed without any action from the CIR. Thus, GST had 30 days therefrom, or until July 18, 2005, to file its judicial claim, but it did so only on March 17, 2006, or 242 days after the last day of filing. GST was late by 242 days in filing its judicial claim.

In Commissioner of Internal Revenue v. Toledo Power Company, G.R. No. 183880, January 20, 2014 Respondent’s judicial claims for refund of its unutilized input VAT covering the third and fourth quarters of 2001 were filed on October 24, 2003 and January 22, 2004, respectively. As held in the San Roque ponencia, strict compliance with the 120+30 day mandatory and jurisdictional periods is not necessary when the judicial claims are filed between December 10, 2003 (issuance of BIR Ruling No. DA-489-03 which states that the taxpayer need not wait for the 120-day period to expire before it could seek judicial relief) to October 6, 2010 (promulgation of the Aichi doctrine).

In Applied Food Ingredients Company v. Commissioner of Internal Revenue, G.R. No. 184266, November 11, 2013 , the Petitioner’s judicial claim was filed on 24 July 2002, when the 120+30 day mandatory periods were already in the law and BIR Ruling No. DA-489-03 had not yet been issued, Petitioner does not have an excuse for not observing the 120+30 day period. Failure of petitioner to observe the mandatory 120day period is fatal to its claim and rendered the CTA devoid of jurisdiction over the judicial claim.

Clearly, therefore, Respondent’s refund claim of unutilized input VAT for the third quarter of 2001 was denied for being prematurely filed with the CTA, while its refund claim of unutilized input VAT for the fourth quarter of 2001 may be entertained since it falls within the exception

In Commissioner of Internal Revenue v. Dash Engineering, G.R. No. 184145, December 11, 2013, the Supreme Court held that respondent's 11!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR ! provided in the Court’s most recent rulings.

presented beared the name of DEF Corporation instead of ABC Corporation. The BIR contends that ABC failed to comply with the VAT invoicing requirements as the use of the business name “DEF” by ABC was never approved by the SEC. Is the BIR’s contention correct?

Q. What is the effect non-compliance with the documentary and evidentiary requirements for a VAT refund claim? A. No. In J.R.A Philippines v. Commissioner of Internal Revenue , the Supreme Court held that failure to comply with the invoicing requirements provides sutt1cient ground to deny a claim for tax refund or tax credit. A claim for tax refund or tax credit, the applicant must prove not only entitlement to the claim but also compliance with all the documentary and evidentiary requirements therefor.

A. Yes. In Bonifacio Water Corporation v. The Commissioner of Internal Revenue, G.R. No. 175142, July 22, 2013, , the Supreme Court held that the change of petitioner’s name to “Bonifacio GDE Water Corporation,” being unauthorized and without approval of the SEC, and the issuance of official receipts under that name which were presented to support petitioner’s claim for tax refund, cannot be used to allow the grant of tax refund or issuance of a tax credit certificate in petitioner’s favor. The absence of official receipts issued in its name is tantamount to non- compliance with the substantiation requirements provided by law.

Q. ABC Corporation filed a claim for refund of unutilized input taxes. The BIR contends that ABC failed to comply with the VAT invoicing requirements as the words “zero-rated” was merely stamped and not pre-printed. Is the BIR’s contention correct?

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A. No. In Commissioner of Internal Revenue v. Toledo Power Company, G.R. No. 183880, January 20, 2014 , the Supreme Court held that the words “zero-rated” appeared on the VAT invoices/official receipts presented by the Repondent in support of its refund claim. Although the same was merely stamped and not pre-printed, the same is sufficient compliance with the law, since the imprinting of the word “zero-rated” was required merely to distinguish sales subject to 12% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to properly implement and enforce the other VAT provisions of the Tax Code.

Q. May the Supreme Court motu proprio determine if the CTA has jurisdiction over a claim for refund? A. Yes. In Commissioner of Internal Revenue v. Silicon Philippines, G.R. No. 169778, March 12, 2014 , the Supreme Court held that the! CTA! is! a! court! of! special! jurisdiction.! As! such,! it! can! only! take! cognizance! of! such! matters! as! are! clearly! ! within! its! jurisdiction. However,! although! the! parties! have! not! raised! the! issue! of! jurisdiction,! nevertheless,! the! Supreme! court! Court!may!motu proprio determine!whether!or! not!the!CTA!has!jurisdiction!over!respondent’s! judicial! claim! for! refund! taking! into! consideration,!the!factual!and!legal!allegations!

Q. ABC Corporation filed a claim for refund of unutilized input taxes. ABC Corporation changed its name to DEF Corporation. Thus, the official receipts 12!

PM REYES BAR REVIEWER ON TAXATION SUPPLEMENT FOR THE 2014 BAR !

contained! in! the! pleadings! filed! by! both! parties!and!found!by!the!court!a quo. *** Nothing else follows *** GOOD LUCK ATENEAN BARRISTERS! ATENEO 100% ONE BIG FIGHT!

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