Question
April 16, 2012 – CORP. filed its annual corporate ITR for 2011 showing an
overpayment of income tax of P 1M, which is to be carried over to the succeeding
year(s).
May 15, 2012 - CORP. sought advice from you and said that it contemplates to file an
amended return for 2011, which shows that instead of carryover of the excess income
tax payment, the same shall be considered as a claim for tax refund and the small box
shown as “refund” in the return will be filled up. Within the year, the corporation will
file the formal request for refund for the excess payment.
QUESTION:
(A) Will you recommend to the corporation such a course of action and justify that the
amended return is the latest official act of the corporation as to how it may treat such
overpayment of tax or should you consider the option granted to taxpayers as
irrevocable, once previously exercised by it? Explain your answer. (5%)
Answer: No.
Legal Basis:
Once the option to carry-over and apply the excess quarterly income tax against
income tax against income tax due for the taxable quarters of the succeeding
taxable years has been made such option shall be considered IRREVOCABLE
for the taxable year period and no application for tax refund or issuance of tax
credit certificate shall be allowed therefore (Section 76, NIRC).
Section 76 provides that a taxpayer has the option to file a claim for refund or to carry-
over its excess income tax payments. The option to carry-over, however, is irrevocable.
Thus, once a taxpayer opted to carry-over its excess income tax payments, it can no
longer seek refund of the unutilized excess income tax payments. The taxpayer,
however, may apply the unutilized excess income tax payments as a tax credit to the
succeeding taxable years until such has been fully applied pursuant to Section 76 of the
NIRC.
Conclusion:
Since the CORP elected to carry over its excess credits for the year 2011 in the amount
of P1M as tax credits for the following year, it could no longer claim a refund. Again,
at the risk of being repetitive, once the carry over option was made, actually or
constructively, it became forever irrevocable regardless of whether the excess tax
credits were actually or fully utilized.
Cited case ni Sir: Systra Phil., Inc. v. CIR
(B) Should the petition for review filed with the CTA on the basis of the amended tax
return be denied by the BIR and the CTA, could the corporation still carry over such
excess payment of income tax in the succeeding years, considering that there is no
prescriptive period provided for in the income tax law with respect to carry over of
excess income tax payments? Explain your answer.
Legal basis: In case the corporation is entitled to a tax credit or refund of theexcess
estimated quarterly income taxes paid, the refundable amount shownon its final
adjustment return may be credited against the estimatedquarterly income tax
liabilities for the taxable quarters of the succeeding taxable year.
Yes.
The carry-over of excess income tax payments is no longer limited to the succeeding
taxable year. Unutilized excess income tax payments may now be carried over to the
succeeding taxable years until fully utilized. In addition, the option to carry-over excess
income tax payments is now irrevocable. Hence, unutilized excess income tax
payments may no longer be refunded
Cited case (Belle Corp. v. CIR, G.R. No. 181298, January 10, 2011).
Doctrine of equitable recoupment—
The doctrine of equitable recoupment means that when the refund of a tax
illegally or erroneously collected or overpaid by ,a taxpayer is barred by the
statute of limitations and a tax is being presently assessed against said tax-
payer, said present tax may be recouped or set off against the tax, the refund of
which has been barred. The same thing would be true where the Government
has failed to collect a tax within the period of limitation and said collection is
already barred, and the taxpayer has to his credit a tax illegally or erroneously
collected or overpaid, whose refund is not yet barred, the Government need not
make refund of all the illegally or erroneously collected tax, but it may set
off against it the tax whose collection is barred by the statute of limitations.“ In
the case of Collector of Internal Revenue 1:. University of Santa Toma-s,
supra», the Supreme Court was faced with the question whether this doctrine
is appli~ cable in this jurisdiction. The Court of Tax Appeals, although it had
found that the amount erroneously collected from the University of Santo
Tomas could not be refunded because the claim was filed beyond the two—year
period, applying the doctrine of equitable recoupment, held that the percentage
tax and surcharge which where valid charges against the University, may and
should be set off or credited against .and to the extent of the amount of taxes
erroneously collected. The Supreme Court however, reversed the Tax Court and
held that thisdoctrine is not applicable in this jurisdiction. To start with, the
Court observed, this is a common law principle and is not binding on our courts,
and there is nothing in our laws, particularly the tax law, authorizing its
acceptance and application. Said the Court:
We fully realize the advantages of the doctrine both to the Government and to
the taxpayer, but we feel and we believe that the drawbacks to the acceptance
and enforcement of equitable recoupment far outweigh any advantage and
benefit to be derived therefrom, and unless and until the Legislature secs fit and
finds it beneficial and necessary to introduce this doctrine into this jurisdiction
by means of legislation, we are not prepared, neither are we inclined to accept
and introduce the same as a legal principle which the courts may invoke and
apply in the course of interpreting and applying the tax laws. “ With this doctrine
enforced and available to both parties, the tax collecting agency would be tempted to
delay and neglect the collection of taxes within the period set by the law, confident that
when it finally wakes up from its lethargy, it could still recover the tax it failed to
collect by having it. set off or recouped from any tax which it may have illegally
collected from the taxpayer. And this is not without its resulting danger,
because a collector, to play safe and have a fund available for said set off
and recoupment of a tax which he had failed and neglected to collect, may be
tempted to make illegal assessments and collections, and the taxpayer would
be helpless because however illegal and unauthorised the assessment may be,
the Collector can always enforce the same by levy and distraint, and the only
remedy of the taxpayer would be to file a formal demand for refund, followed
by a court suit to enforce the demand. As regards the taxpayer, he may also be
tempted to delay and neglect the filing of the corresponding suit or refund of a
tax illegally or erroneously collected, trusting that he can always recover or be
credited with the same or part thereof by refusing to pay a valid tax assessed
against him and compelling the Government to set off the same against a tax
paymenthe could no longer recover."
The Supreme Court concluded with the statement that the acceptance and
adoption of such doctrine should be left to the sound discretion of the
Legislature.
Bar 2010
B) It may claim as refund the amount of P500,000 representing its income tax
overpayment for its taxable year 2009 is correct.
Under Section 76 of NIRC, in case the sum of quarterly tax payment is not
equal to the total tax due for the entire taxable year, one of the options of a
corporation is to be refunded of the excess amount paid.
Thus, Mirador Inc's exercise of its right to refund P500,000in the taxable year
2009 is allowed.
However, it cannit exercuse the option of refund for P1,000,000 excess
payment on taxable year 2008 because under the same section, once an option
to carry over has been made, such option is irrevocable and no application for
refund shall be allowed.
D) Assessment notice is valid even if the taxpayer received the same after the
3-year period from the date of filing tax return is correct.
Under Section 222(c) of NIRC, an internal revenue tax which has been
assessed within the period of limitation may be collected within 5
years following the assessment of tax. This is an exception to the rule that
internal revenue taxes shall be assessed within 3 years after the last day of
filing returns.
In this case, the FINAL assessment for taxabke year 2008 was mailed in 2011,
which is within the 5 years following the assessment of tax. Thus, the notice is
still valid.
BPI v CIR GR 139736