Metropolitan Bank & Trust Company vs The Commissioner of Internal Revenue G.R. No. 182582 April 17, 2017

Facts:
On June 5, 1997, Solidbank Corporation (Solidbank) extended a foreign currency denominated loan to Luzon Hydro Corporation (LHC), in the principal amount of US$123,780,000.00. With the agreement that LHC is bound to shoulder all the corresponding taxes, as well as the filing of tax returns and remittance of the taxes withheld to the BIR.
On March 2, 2001 and October 31, 2001, LHC paid MBTC the total amounts of US$1,538,122.17 and US$1,333,268.31, respectively. Pursuant to the Agreement, LHC withheld, and eventually paid to the BIR, the ten percent (10%) final tax on the interest portions of the aforesaid payments, on the same months that the respective payments were made to petitioner. In sum, LHC remitted a total of US$106,178.69,8 or its Philippine Peso equivalent of ₱5,296,773.05, as evidenced by LHC’s Schedules of Final Tax and Monthly Remittance Returns for the said months.
However, Metrobank inadvertently remitted the aforesaid amounts to the BIR as well when they were included in its own Monthly Remittance Returns of Final Income Taxes Withheld for the months of March 2001 and October 2001.

On December 27, 2002, Metrobank filed a letter to the BIR requesting for the refund. Thereafter and in view of the CIR inaction, Metrobank filed its judicial claim for refund via a petition for review filed before the CTA on September 10, 2003.

In its defense, CTA averred that (a) the claim for refund is subject to administrative investigation; (b) Metrobank must prove that there was double payment of the tax sought to be refunded; (c) such claim must be filed within the prescriptive period laid down by law; (d) the burden of proof to establish the right to a refund is on the taxpayer; and (e) claims for tax refunds are in the nature of tax exemptions, and as such, should be construed strictissimi juris against the taxpayer.

The CTA Division denied Metrobank’s claim for refund for lack of merit. It ruled that Metrobank’s claim relative to the March 2001 final tax was filed beyond the two (2)-year prescriptive period. It pointed out that since Metrobank remitted such payment on April 25, 2001, the latter only had until April 25, 2003 to file its administrative and judicial claim for refunds. In this regard, while Metrobank filed its administrative claim well within the afore said period, or on December 27, 2002, the judicial claim was filed only on September 10, 2003. Hence, the right to claim for such refund has prescribed.

On the other hand, the CTA Division also denied Metrobank’s claim for refund relative to the October 2001 tax payment for insufficiency of evidence.

The CTA en banc affirmed the CTA Division’s ruling. It held that since Metrobank’s March 2001 final tax is in the nature of a final withholding tax, the two (2)-year prescriptive period was correctly reckoned by the CTA Division from the time the same was paid on April 25, 2001. As such, Metrobank’s claim for refund had already prescribed as it only filed its judicial claim on September 10, 2003. Hence, this petition.

Issue:
Whether Metrobank’s claim for refund has already prescribed.

Held:
Yes, the right of Metrobank for refund has prescribed.

Section 229 of the NIRC provides for the proper procedure in order to claim for refunds, to wit:
Section 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.
:
A claimant for refund must first file an administrative claim for refund before the CIR, prior to filing a judicial claim before the CTA. Notably, both the administrative and judicial claims for refund should be filed within the two (2)-year prescriptive period indicated therein, and that the claimant is allowed to file the latter even without waiting for the resolution of the former in order to prevent the forfeiture of its claim through prescription. In this regard, case law states that “the primary purpose of filing an administrative claim is to serve as a notice of warning to the CIR that court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded. To clarify, Section 229 of the Tax Code – then Section 306 of the old Tax Code – however does not mean that the taxpayer must await the final resolution of its administrative claim for refund, since doing so would be tantamount to the taxpayer’s forfeiture of its right to seek judicial recourse should the two (2)-year prescriptive period expire without the appropriate judicial claim being filed.”

The tax involved in this case is a ten percent (10%) final withholding tax on Metrobank’s interest income on its foreign currency denominated loan extended to LHC.

Section 2.57 (A) of Revenue Regulations No. 02-9831 explains the characterization of taxes of this nature, to wit:
Section 2.57. Withholding of Tax at Source (A) Final Withholding Tax. – Under the final withholding tax system, the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income tax return for the particular income.

The finality of the withholding tax is limited only to the payee’s income tax liability on the particular income. It does not extend to the payee’s other tax liability on said income, such as when the said income is further subject to a percentage tax. For example, if a bank receives income subject to final withholding tax, the same shall be subject to a percentage tax.

Final withholding taxes are considered as full and final payment of the income tax due, and thus, are not subject to any adjustments. Thus, the two (2)-year prescriptive period commences to run from the time the refund is ascertained, i.e., the date such tax was paid, and not upon the discovery by the taxpayer of the erroneous or excessive payment of taxes.

Credit to: Igi Respicio 

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