BIR Ruling No. 395-14

October 16, 2014 BIR RULING NO. 395-14 R.A. No. 8424; BIR Ruling No. 003-2002 Metropolitan Bank and Trust Company North Drive Branch B.S. Aquino Drive, Bacolod City, Negros Occidental Attention: Ms. Betty S. Aguilar Branch Manager Gentlemen : This refers to your letter request dated December 13, 2011 requesting for the allowance of the application of your double payment of creditable withholding tax (CWT) on the sale of real property between Metropolitan Bank and Trust Company (MBTC) to Jordan Fishing Corporation in the amount of P1,032,000.00 to a similar tax obligation on a subsequent bank transaction over a property which is also located in Bacolod City. It is represented that on August 8, 2011, MBTC sold a commercial property located at a reclamation area with a total of 4,000 square meters and covered by Transfer Certificates of Titles Nos. T-302158, T-302159, T-302163 and T-302164 to Jordan Fishing Corporation. CWT of P1,152,000.00 and documentary stamp tax of P258,000.00 were assessed. Subsequently, MBTC paid both amounts. On August 17, 2011, Jordan Fishing Corporation paid the CWT of P1,032,000.00 for the same sale transaction. Such double payment was due to the failure of MBTC to communicate with Jordan Fishing Corporation the prior payment made. A Certificate Authorizing Registration for the transaction was issued on August 25, 2011. You now request that you be allowed to apply the amounts wrongfully paid to a similar tax obligation on a subsequent bank transaction of MBTC over a property also located in Bacolod City. In reply, please be informed that after consideration of the facts and the applicable jurisprudence thereto, we cannot grant you the authority to offset the CWT wrongfully paid. It is well-settled that a taxpayer may not offset taxes due from the claims that he may have against the government. (BIR Ruling No. 003-02 dated January 11, 2002) This is based on the ruling of the Supreme Court in the case of Philex Mining Corporation vs. Commissioner of Internal Revenue and the Court of Tax Appeals (G.R. No. 125704, August 28, 1998) , viz. : TSaEcH "In several instances prior to the instant case, we have already made the pronouncement 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. We find no cogent reason to deviate from the aforementioned distinction. Prescinding from this premise, in Francia v. Intermediate Appellate Court , we categorically held that taxes cannot be subject to set-off or compensation, thus: "We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government . A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government." The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit , which reiterated that: ". . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off." Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. , wherein we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet been approved by the Commissioner, is no longer without any support in statutory law. It is important to note that the premise of our ruling in the aforementioned case was anchored on Section 51(d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex." In as much as there has been double payment of taxes due on the same transaction, Jordan Fishing Corporation may apply for the refund of the taxes it paid erroneously per Section 204 (c) of the National Internal Revenue Code of 1997 subject to the condition stated therein. Accordingly, we regret to inform you that your aforesaid request is denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner