Tax Updates March 2023 (SyCipLaw Tax Issues And Practical Solutions (T.I.P.S.) International Edition Vol. 8)

• Law Firm: SyCip Salazar Hernandez & Gatmaitan
• Subject Matter: Tax, Income Tax, Sales Taxes: VAT, GST, Withholding Tax
• Author: SyCip Salazar Hernandez & Gatmaitan
• Published date: 24 May 2023

1. For input valued-added tax ("VAT") refund claims filed prior to 2018, is the 120-day period for the Bureau of Internal Revenue ("BIR") to decide a claim for refund of excess unutilized input VAT attributable to zero-rated sales counted from the taxpayer's submission of complete documents as enumerated in Revenue Memorandum Order ("RMO") No. 53-98?

No. In Commissioner of Internal Revenue ("CIR") v. CE Casecnan Water and Energy Company ("Casecnan") (G.R. No. 212727, February 1, 2013), the Supreme Court ("SC") held that the 120-day period should be reckoned from the filing of the application for refund, regardless of the sufficiency of the supporting documents submitted by the taxpayer.

In Casecnan, Casecnan filed administrative claims for refund/tax credit with the BIR under Sec. 112(C) of the Tax Code for unutilized input VAT attributable to its zero-rated sales for the year 2008. Due to inaction by the CIR despite the lapse of 120 days, Casecnan filed petitions for review with the Court of Tax Appeals ("CTA"). The CTA Division partially granted the petition and ordered the CIR to refund or issue a tax credit certificate to Casecnan. The CTA En Banc affirmed the CTA Division's decision in toto.

The CIR filed a Petition for Review on Certiorari before the SC arguing that the judicial claim was prematurely filed because the 120-day period under Sec. 112(C) of the Tax Code had not yet commenced to run due to the insufficiency of supporting documents in Casecnan's application for tax refund/credit before the BIR. The CIR contended that the 120-day period should be counted from the time the taxpayer submits all the supporting documents stated in RMO No. 53-98. The CIR further claimed that since Casecnan failed to submit the complete required documents under RMO No. 53-98, then the 120-day waiting period did not commence, and thus, Casecnan's judicial claim was premature.

The SC said that the completeness of the documents to support a claim for refund/tax credit under Sec. 112(C) of the Tax Code should be determined by the taxpayer, and not by the BIR. Should the taxpayer decide to submit only certain documents, or should the taxpayer fail, or opt not to submit any document at all, in support of its application for refund under Sec. 112(C) of the Tax Code, then the 120-day period should be reckoned from the filing of the said application. Otherwise, taxpayers will be at the mercy of the BIR and the period within which they can elevate their case to the CTA will never run, to their extreme prejudice.

The BIR's reliance on the completion of requirements under RMO No. 53-98 in commencing the 120-day period should not be countenanced since the said order merely provides for the guidelines to be observed by BIR examiners of the documents to be requested from taxpayers during the conduct of an audit related to input VAT refund applications. It is not a directive addressed to taxpayers.

SyCipLaw TIP 1:
The completeness of the documents to support a claim for refund (filed prior to 2018) under Sec.112(C) of the Tax Code is determined by the taxpayer, not the BIR. Thus, should the taxpayer submit only certain documents, or should he opt not to submit any document at all, in support of its application for refund under Sec. 112(C) of the Tax Code, the 120-day waiting period should be reckoned from the date of filing of the said application. Should there be inaction on the part of the CIR, a taxpayer thereafter has 30 days to avail of its judicial remedy before the CTA. Note that with the amendment of the Tax Code by the Tax Reform for Acceleration and Inclusion ("TRAIN") Law for input VAT claims for refund filed starting January 1, 2018, the BIR has ninety (90) days to grant the refund of creditable input VAT from the date of submission of the official receipts, invoices, or other documents in support of the application filed, and the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim, appeal with the CTA.

2. Is the CTA empowered to decide issues beyond the stipulation of the parties?

Yes. In Tanduay Distillers, Inc. ("Tanduay") v. CIR (G.R. No. 256740, February 13, 2023), the SC held that the CTA is not bound strictly by the issues raised by the parties. Quoting Sec. 1, Rule 14 of the Revised Rules of the CTA, the CTA is not limited to "issues stipulated by the parties, but may also rule upon related issues necessary to achieve an orderly disposition of the case."

In Tanduay v. CIR, Tanduay filed two administrative requests for a refund of excise taxes it erroneously paid. Thereafter, two separate judicial claims for refund were filed with the CTA Division which consolidated the petitions. During the CTA Division proceedings, the counsels of the parties stipulated (a) that the CIR's denial of the refund claim was purely based on legal issues and (b) that there is no issue as to the amount of the excise taxes paid by Tanduay.

The CTA Division denied the claim for Tanduay's failure to prove its entitlement to a tax refund due to the insufficiency of evidence presented. The CTA En Banc affirmed the denial of the claim.

Tanduay went up to the SC and argued that the CTA erred when it delved into the facts despite the stipulation of the parties. Tanduay insisted that their stipulation was in the nature of a judicial admission, which should bind not only the hands of the parties but also the court.

Disagreeing, the SC said that whether considered a judicial admission or not, the parties' stipulation that the basis for the denial of Tanduay's claim for refund is purely legal shall not deprive the CTA from making its own determination of facts at the judicial level, in consideration of the CTA's power to receive evidence in the exercise of its original jurisdiction. In fact, the scope of CTA's review power covers factual findings, and the claim for refund is litigated anew at the CTA level. It is incumbent upon Tanduay to prove that it was, in fact, entitled to a refund. The taxpayer claimant has the burden of proof to establish strict compliance with the conditions for the grant of a tax refund or credit. Ultimately, it is Tanduay's failure to prove its compliance with the documentary and evidentiary requirements for its refund claim that was fatal to its case.

Tax refunds are construed strictly against the taxpayer and liberally in favor of the State. As such, it is incumbent upon the taxpayer-claimant to establish the factual basis of its claim for tax refund or credit, which Tanduay failed to do.

SyCipLaw TIP 2:
Especially in a case for tax refund (which is strictly construed against the taxpayer), it would be more prudent to prove strict compliance with the conditions for granting a refund rather than rely on judicial admissions. The scope of the CTA's power to review covers factual findings and a claim for refund is litigated de novo at the CTA level. To prove its entitlement to a tax refund before the CTA, a taxpayer must sufficiently establish the factual basis of his claim through compliance with the documentary and evidentiary requirements for its refund claim...