Effect of Option to Carry-over Excess Quarterly Income Tax Against Income Tax Due for Taxable Quarters of Succeeding Taxable Years

September 13, 2004 BIR RULING NO. 017-04 Sec. 76 000-00 Mocom Philippines Inc. Phase 2, Block 4, Lot 2, Cavite Economic Zone Rosario, Cavite Attention: Mr. Joseph A. Rufin Finance Manager Gentlemen : This refers to your letter dated March 24, 2003 for a clarificatory ruling on whether or not MOCOM PHILIPPINES INC. (MPI for brevity) can offset its excess income tax credits against its income tax liabilities until the same are fully applied or utilized. The facts, as you represent, are as follows: MPI, as reflected in its Annual and Quarterly returns for taxable years 1998 to 2001, has accumulated excess income tax credits during the following years, to wit: 1. 1998 Excess Corporate Income Tax Payment P3,485,315.00 2. 1999 Excess Quarterly Income Tax Payment 155,100.55 3. 2000 Withholding Tax on Subcon Services Withheld by Clarion Manufacturing 9,933.57 4. 2001 Withholding Tax on Subcon Services Withheld by Clarion Manufacturing 21,884.43 5. 2001 Excess Quarterly Income Tax Payment 29,850.67 P3,702,803.22 =========== MPI opted to carry-over as tax credit against its quarterly income tax liabilities for the next succeeding years the above-mentioned excess income tax credits. CSHEca The sole legal issue in this case is: Whether or not MPI can offset its excess income tax credits against its income tax liabilities until the same are fully applied or utilized. In reply, please be informed that Section 76 of the 1997 Tax Code provides that: "SEC. 76. Fiscal Adjustment Return . Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the stub of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still due; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as the case may be. In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly 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 that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor . (Emphasis supplied.) Accordingly, should a taxpayer opt to carry-over its/his excess quarterly income tax against its/his income tax due for the taxable quarters of the succeeding taxable years, such taxpayer can no longer opt to apply for a cash refund or issuance of a tax credit certificate. Conversely, should a taxpayer, opt to apply for a cash refund or issuance of a tax credit certificate, such taxpayer can no longer opt to carry-over its/his excess quarterly income tax against its/his income tax due for the taxable quarters of the succeeding taxable years. cAaDHT In Pilipinas Transport Industry, Inc. v. Commissioner of Internal Revenue , C.T.A. Case No. 6073 dated March 1, 2002, the Court pronounced that: "Under Section 76 of the Tax Reform Act of 1997, the taxpayer's excess tax credits or overpaid income tax in a given taxable year may be refunded or applied against its income tax liabilities of the succeeding taxable years. However, once the option to carry-over has been made, the same becomes irrevocable for that taxable period. . . " A careful scrutiny of your Annual and Quarterly returns for the taxable years 1998, 1999 and 2001 readily reveal that you opted to carry-over as tax credits your excess income tax credit against its income tax liabilities by putting an "x" mark on the box to be applied as credit to next year. Thus, the said excess income tax credits may be applied in payment of your quarterly income tax liabilities for the taxable quarters of the succeeding taxable years until the same are fully utilized. However, it must be emphasized that your accumulated creditable withholding tax for the taxable year 2000 cannot be carried over for the reason being that you opted for the issuance of a tax credit certificate as indicated in your 2000 income tax return. Such option is considered irrevocable under Section 76 ( supra ). Hence, the same could no longer be carried over and credited against your quarterly income tax liabilities for the next taxable years. No pronouncement is made on the validity of the excess creditable income tax of MPI or its computation thereof. The same must be verified with the Revenue District Office having jurisdiction over MPI. HCITDc This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue