Supreme Court of the Philippines

January 27, 2009 BIR RULING [DA-(013) 045-09] Sec. 229 Supreme Court of the Philippines Program Management Office 6/F Supreme Court Centennial Building, Padre Faura St., Ermita, Manila Attention: Edilberto A. Davis Judicial Reform Program Administrator Gentlemen : This refers to your letter dated November 19, 2008, on behalf of Arts International, Inc. (" Arts " for brevity) in relation to its request for the refund of tax withheld by the Supreme Court on the technical services which the former provided to the latter. ScAIaT It is represented that the Supreme Court engaged the services of Arts to provide technical services for the creative, physical and technical aspects of the Global Forum on Liberty and Prosperity held on October 18 to 20, 2006; that pursuant to Sections 3 and 4 of Revenue Regulations (RR) No. 30-2003, the Fiscal Management and Budget Office (FMBO) of the Supreme Court withheld 15% tax amounting to P1,342,637.26 from the total payment made by the Supreme Court to Arts which was in the amount of P5,751,212.02; that Arts referred the matter to the BIR in a letter dated December 20, 2006 seeking legal opinion regarding the applicable tax rates for its transactions; that the BIR issued Ruling No. DA-033-2007 dated January 23, 2007 stating among others that Arts , being a supplier of services i.e. , event organizer, income payments made by private corporations and/or government offices to Arts are subject to 2% withholding tax pursuant to Section 3 (M) and (N) of RR 17-2001, amending RR 2-98; that the taxes withheld were already remitted by the Supreme Court to the BIR as reflected in its BIR Form 1601-E (Monthly Remittance Return of Creditable Income Taxes Withheld-Expanded); and that as a consequence Arts is now seeking a refund of the tax withheld in excess of the said tax rate or in the aggregate amount of P1,162,850.50. In reply, please be informed that in an action for refund, the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim for refund or credit. This is so because exemptions from taxation are highly disfavored in law and he who claims exemption must be able to justify his claim by the clearest grant of organic or statutory law. (Asiatic Petroleum Co. {P.I} v. Llanes, 49 Phil. 466 cited in Collector of Internal Revenue v. Manila Jockey Club, Inc., 98 Phil. 670) Since the FMBO of Supreme Court withheld from its income payments to Arts at the rate of 15% instead of 2% and remitted the same to the BIR, the taxes actually withheld exceeded the amount that should have been due from Arts on its income in said transaction. Therefore, Arts has the right to claim a refund or credit of the excess tax erroneously withheld and remitted to the BIR. However, Arts should be the one to file its request/claim for refund or credit and not the Supreme Court because Arts must show that it has complied with the provisions of Sections 204 (C) and 229 1 of the Tax Code. Pursuant to Revenue Delegation Authority Order No. 03-02, 2 the proper BIR Office to process claims for tax credit/refund of taxpayers is the Revenue District Office (RDO) where the said taxpayer-claimant is registered, to wit: DTIACH "SEC. 2. Venue for the Processing of Applications/Claims for Tax Credit/Refund. 2.1.1. Tax refund/credit requests of taxpayers covering all internal revenue taxes shall be processed by the RDO/BIR Office where the taxpayer is registered or required to be registered;" An opportunity must be given the internal revenue branch of the government to investigate and confirm the veracity of the claims of the taxpayer. Based on the foregoing, the request for refund of excess taxes withheld should be filed by Arts with the RDO where it is registered as taxpayer and attach thereto the pertinent supporting documents and returns. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts as represented are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . The Commissioner may SDHAEC xxx xxx xxx (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however , That a return filed showing an overpayment shall be considered as a written claim for credit or refund ." (Emphasis supplied) SEC. 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 therefore, 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. 2. Dated February 15, 2002, "Identifying the BIR Office to Process Applications/Claims for Tax Credit/Refund". HIaTDS