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BDB Laws Tax Law for Business appears in the opinion section of Business Mirror every Thursday.

Only preponderance of evidence required in a claim

for refund
BECAUSE of current rules in the withholding-tax system, where almost all revenues are subject
to withholding taxes at source, it is not unusual for taxpayers to incur excess income-tax

The creditable withholding-tax system operates as an advance tax payment of the recipient of
the income. The payor of the income is required to deduct at source a portion of the income
payment, which is supposed to equal or approximate the income tax due from the payee of the
income, so that at the end of the year the taxpayer is not burdened by the full impact of the tax
and will pay only the balance. But that is not always the case. The sum of these taxes withheld,
plus any quarterly payments, made more often, exceed the annualized income taxes due. When

this happens, there is an excess income-tax payment, and taxpayers are often faced with the
dilemma on the disposition of these excess income-tax payments.

The law gives the taxpayer the option to simply carry over the excess tax payment to be applied
against income taxes due in the future. There is no prescription for the utilization of excess
income-tax payment. It can be repeatedly carried over in the subsequent income-tax returns
(ITRs), until such time that the taxpayer has income taxes due against which the excess tax can
be applied. The problem with this option is that if the taxpayer is in the same tax position in the
future, the carried-over excess tax payment will never be recovered. It is a useless asset sitting
in the taxpayers book.

Thus, instead of a carryover, taxpayers can opt to recover the excess income-tax payment
through an application for refund or issuance of tax credit certificate. This entails some costs
and obligation, though, on the part of the taxpayer. And the more important consideration is the
responsibility placed upon the taxpayer to prove his claim. Based on an old doctrine holding
that tax refunds are in the nature of tax exemptions, which should be strictly construed against
taxpayers, the Court had placed upon the taxpayer the burden to prove his entitlement to the
claim. Failure on the part of the taxpayer to discharge that responsibility often results in the
denial of the claim.

There are, in fact, a number of refund claims that were denied for failure of the taxpayer to
present some documents that the Court believes to be necessary in proving the claim. For
instance, in a claim for refund of unused creditable withholding taxes, it is settled that for it to
prosper, the taxpayer must show that the unused taxes were not carried over to the succeeding
period. To prove the non-carryover, the Tax Court had considered as an important requirement
for taxpayers to present in evidence the quarterly and the annual ITRs of the succeeding year.
Nonpresentation of said returns means that the taxpayer is not able to prove the non-carryover,
resulting in the denial of the claim. In other words, a taxpayer fails to discharge his burden of
proving that no carryover was made when he does not present his tax returns of the succeeding

In a recent decision of the Supreme Court, though, in GR 206526, January 28, 2015, the Court
ruled that the submission of the quarterly ITRs of the succeeding year is not indispensable to a
taxpayers refund claim if he is able to prove through other means the fact that he did not carry
over the subject of the claim. According to the Court, providing that no carryover has been made
does not absolutely require the presentation of the subsequent years quarterly ITRs. Any
document, other than the quarterly ITRs, would suffice. In this case, the annual ITR of the
following year showing that no carryover was made is sufficient.

It is well to note, as the Court emphasized, that claims for refund are civil in nature. As such,
while the claimant has the burden of proving his entitlement, only preponderance of evidence is
needed in order to recover excess credits. The Supreme Court had also emphasized in earlier
decisions that claims for refund, representing excess creditable withholding taxes, necessitates
only the preponderance of evidence. This must be so in the case of excess creditable
withholding taxes, where the claim is not based on exemption and neither based on the fault of
the taxpayer but on excess advance tax payments resulting from withholding of tax at source.


The author is a senior partner of Du-Baladad and Associates Law Offices (BDB Law), a


of World


Services (WTS) Alliance.

The article is for general information only and is not intended, nor should be construed, as a
substitute for tax, legal or financial advice on any specific matter. Applicability of this article to
any actual or particular tax or legal issue should be supported therefore by a professional study
or advice. If you have any comments or questions concerning the article, you may e-mail the
author or call 403-2001, local 310.