BIR Ruling [DA-283-03]

August 26, 2003 BIR RULING [DA-283-03] Section 204 Social Security System East Avenue, Diliman Quezon City Attention: Mr. Horacio T. Templo Chief Actuary and Executive Vice President Gentlemen : This refers to your letter dated October 16, 2000 requesting for the condonation of the surcharge, interest and compromise penalty amounting to P3,040,787.68 and the offsetting of P3,185,610.29 expanded withholding tax (EWT) and documentary stamp tax (DST) from the P204.16 million Social Security System (SSS) receivable from the Bureau of Internal Revenue (BIR) representing refund on P191.153 million taxes withheld on discounts and stock transactions of the SSS covering the period August 1986 to August 1989 and on P13.008 million taxes withheld on earnings from Treasury Bills for the period January 2 to February 3, 1989. It is represented that the J.O.S. Managing Builders, Inc. (JOSMBI) sold the entire 6th floor of the Aurora Milestone Building to the SSS on November 18, 1997 and computed the EWT at 2.5% of the P69,970,171.55 net purchase price of the subject property since JOSMBI is a CREBA member; that accordingly, the SSS withheld and remitted to the BIR on December 12, 1997 P1,362,458.29 representing 2.5% of P69,970,171.55 as payment for the EWT; that as a requirement to effect the transfer of the Condominium Certificate of Title (CCT) under the name of the SSS, the SSS requested tax clearance from the BIR; that however, Revenue Officer Nick S. Cruz advised the SSS that the correct EWT rate is 5% per Revenue Regulations No. 12-94; that the SSS is, therefore, being assessed for additional charges for the underpayment of the EWT and non-payment of the DST; and that the tax assessment of P6.226 million as of September 19, 2000 consists of the following: For Condonation For Offsetting Total Basic EWT P2,136,050.29 P2,136,050.29 Add: Surcharge P 534,012.57 Interest 1,470,363.42 Compromise 25,000.00 DST 1,049,560.00 1,049,560.00 Add: Surcharge 263,390.00 Interest 723,021.69 Compromise 25,000.00 3,040,787.68 Total P3,040,787.68 P3,185,610.29 P6,226,397.97 =========== =========== =========== In reply, please be informed that under Section 204(B) of the NIRC of 1997, the Commissioner of Internal Revenue may abate or cancel a tax liability only in two (2) cases, viz : (a) the tax or any portion thereof appears to be unjustly or excessively assessed; or (b) the administration and collection costs involved do not justify the collection of the amount due. ISTCHE In view of the foregoing, this Office regrets to deny your request for the condonation of the surcharge, interest and compromise penalty amounting to P3,040,787.68 inasmuch as your case does not fall under the grounds within which the Commissioner may abate or cancel a tax liability. On the issue of offsetting, the Supreme Court in Philex Mining Corporation vs. Commissioner of Internal Revenue, Court of Appeals, and The Court of Tax Appeals (G.R. No. 125704 dated August 28, 1998) citing the cases of Francia v. Intermediate Appellate Court (162 SCRA 753) and Caltex Philippines v. Commission on Audit (208 SCRA 726) ruled that ". . . taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. . . ." Accordingly, your request for the offsetting of the P3,185,610.29 expanded withholding tax (EWT) and documentary stamp tax (DST) from the P204.16 million Social Security System (SSS) receivable by the Bureau of Internal Revenue (BIR) representing refund on P191.153 million taxes withheld on discounts and stock transactions of the SSS covering the period August 1986 to August 1989 and on P13.008 million taxes withheld on earnings from Treasury Bills for the period January 2 to February 3, 1989 cannot be granted for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group