Mckinsey & Co. (Phils.) v. Commissioner of Internal Revenue

SPECIAL FIRST DIVISION [C.T.A. CASE NO. 10281. May 30, 2023.] MCKINSEY & CO. (PHILS.) , petitioner , vs. COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION DEL ROSARIO , P.J p : This is a Petition for Review filed by petitioner McKinsey & Co. (Phils.) on June 17, 2020, 1 seeking for a refund of, or issuance of a Tax Credit Certificate (TCC) in the amounts of P39,613,320.00 and P62,813,748.00, allegedly representing its excess and unutilized creditable withholding taxes (CWT) for calendar years (CY) 2017 and 2018, respectively. HTcADC PARTIES Petitioner McKinsey & Co., (Phils.) is a foreign corporation organized and existing under the laws of Delaware, U.S.A. It is authorized to engage in management consulting and to render general accounting (for internal management purposes only and will not involve the practice of accounting profession and the related output will not be submitted to any government regulatory or licensing agency), administrative, business planning and coordination, data processing and communication, training and personnel management, and other business process services to affiliated companies and/or offices. 2 It is registered with the BIR with Tax Identification Number (TIN) 005-649-673-00000. 3 Respondent Commissioner of Internal Revenue (CIR) is sued in his official capacity, having been duly appointed and empowered to perform the duties of his office including, among others, the duty to act on and approve claims for refund and/or tax credits as provided by law. 4 FACTS On April 15, 2018, petitioner filed its Annual Income Tax Return (ITR) for CY 2017. 5 On April 14, 2019, petitioner filed its Annual ITR for CY 2018. 6 On April 13, 2020, petitioner filed before the Bureau of Internal Revenue (BIR) its letter claim for refund of excess CWT for CY 2017 and 2018, 7 with attached BIR Forms No. 1914 or the Applications for Tax Credits/Refunds 8 for its claimed excess and unutilized CWTs in the amounts of P39,613,320.00 and P62,813,748.00 for CYs 2017 and 2018, respectively. Alleging inaction on its claims for refund, petitioner filed the present Petition for Review on June 17, 2020, 9 invoking Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, and Supreme Court Administrative Circular No. 39-2020 to preserve its right to claim for refund of its excess and unutilized CWT for CYs 2017 and 2018. 10 In the Resolution dated July 7, 2020, petitioner was directed to make the necessary amendments to its Petition for Review to conform to the provisions of the 2019 Amendments to the Revised Rules of Procedure which took effect on May 1, 2020, within five (5) days from notice. 11 On July 21, 2020, petitioner filed its Compliance/Submission (Re: Amended Petition for Review), with attached Amended Petition for Review. 12 In the Resolution dated August 3, 2020, the aforesaid Compliance/Submission (Re: Amended Petition for Review) and the Amended Petition for Review were noted. 13 Summons was issued to respondent on August 25, 2020. 14 CAIHTE On September 26, 2020, respondent filed a Motion for Extension of Time to File Answer. 15 In the Resolution dated October 16, 2020, the said motion was granted and respondent was given until October 25, 2020 to file his Answer. 16 Respondent timely filed his Answer To Petitioner's "Amended Petition for Review" on October 26, 2020. 17 In his Answer, respondent raised the following Special and Affirmative Defenses, viz. : 1. The judicial claim for refund of CWT for CY 2017 was filed out of time; 2. Petitioner failed to show that the income covered by Certificates of Creditable Tax Withheld at Source were declared as part of petitioner's income for CYs 2017 and 2018; 3. Petitioner's claims should be dismissed for manifest insufficiency of evidence even in the administrative level; and, 4. A claim for tax refund is strictly construed against the taxpayer for the same partakes the nature of tax exemption. Respondent's Pre-Trial Brief was filed on February 4, 2021, 18 which was noted in the Minute Resolution dated February 9, 2021. 19 Petitioner's Pre-Trial Brief, on the other hand, was filed on February 15, 2021. 20 The Pre-Trial Conference was held on February 18, 2021, 21 as scheduled. 22 On March 10, 2021, the parties filed their Joint Stipulation of Facts and Issues (JSFI). 23 In the Resolution dated May 20, 2021, the parties' JSFI was approved, and the Pre-Trial was deemed terminated. 24 The Pre-Trial Order was issued on June 28, 2021. 25 During trial, petitioner presented its testimonial and documentary evidence. Petitioner filed its Formal Offer of Evidence (FOE) on December 1, 2021, 26 with respondent's Comment (to Petitioner's Formal Offer of Evidence) filed on December 14, 2021, 27 and petitioner's Reply to Respondent's Comment filed on February 2, 2022. 28 In the Resolution dated May 12, 2022, petitioner's formally offered exhibits were admitted, except Exhibits "P-31", "P-32", "P-34", "P-35" and "P-36" for failure to present the originals for comparison and Exhibit "P-112" for not being found in the records. 29 With the filing of petitioner's Motion for Reconsideration on June 2, 2022 and its Motion to Substitute Exhibits on August 18, 2022, petitioner's Exhibits "P-31", "P-32", "P-34", "P-35" and "P-36" were subsequently admitted in the Resolution dated September 28, 2022. 30 Respondent, on the other hand, opted not to present any evidence in this case, 31 claiming that the burden of proof of entitlement to refund is on the claimant. 32 With the filing of petitioner's Memorandum on November 3, 2022 33 and respondent's Memorandum on November 7, 2022, 34 the case was submitted for decision in a Minute Resolution dated December 1, 2022. aScITE ISSUES Whether or not petitioner is entitled to its claim for refund of or issuance of TCC for excess and unutilized CWT in the amounts of P39,613,320.00 and P62,813,748.00 for CYs 2017 and 2018, respectively. This issue may be broken down into the following sub-issues: 1. Whether petitioner's excess and unutilized CWT in the amounts of P39,613,320.00 and P62,813,748.00 for CYs 2017 and 2018 are duly substantiated by documentary evidence; 2. Whether the income from which the CWTs being claimed for refund were withheld was reported as part of the revenues declared in petitioner's 2017 and 2018 Annual ITRs; 3. Whether petitioner carried over its excess and unutilized CWT for CY 2017 to the succeeding taxable periods; 4. Whether petitioner carried over its excess and unutilized CWT for CY 2018 to the succeeding taxable periods; and, 5. Whether petitioner filed its administrative and judicial claims for refund of excess and unutilized CWT for CYs 2017 and 2018 within the two-year prescriptive period provided under Sections 204 (C) and 229 of the NIRC of 1997, as amended. 35 PETITIONER'S ARGUMENTS To establish its entitlement to the refund or TCC sought, petitioner contends the following: (i) Its excess CWT in the amounts of P39,613,320.00 and P62,813,748.00 for CYs 2017 and 2018 are properly substantiated by documentary evidence; (ii) Its excess CWT for CYs 2017 and 2018 were neither applied as tax credit nor carried over to the succeeding taxable quarters/year(s); (iii) The income from which the taxes were withheld were included by petitioner as part of its gross income in its 2017 and 2018 ITRs; and, (iv) Petitioner filed both the administrative and the judicial claims for refund of excess and unutilized CWT for CYs 2017 and 2018 with the BIR and this Court within the two (2)-year period prescribed by law. RESPONDENT'S ARGUMENTS Respondent counter-argues that: (i) The judicial claim for refund of CWT for the entire CYs of 2017 and 2018 was filed out of time; (ii) Petitioner failed to show that the income covered by Certificates of Creditable Tax Withheld at Source were declared as part of petitioner's income for CYs 2017 and 2018; DETACa (iii) Proof of actual remittance to the BIR of the withheld taxes and testimonial evidence of the payors and withholding agents are required; (iv) Petitioner failed to prove that the Certificates of Taxes Withholding pertaining to prior years were declared as part of the income for their respective years to prove the existence of prior [year's] excess credit; and, (v) A claim for refund is strictly construed against the taxpayer for the same partakes the nature of tax exemption. THE COURT'S RULING Jurisdiction over the case As earlier stated, the present Petition appeals the inaction of respondent on petitioner's administrative claims for refund of excess CWT for CY 2017 and 2018. Section 7 (a) (2) of R.A. No. 1125, as amended by R.A. 9282 vests the Court of Tax Appeals (CTA) of exclusive appellate jurisdiction to review on appeal inaction of respondent in cases involving refunds of internal revenue taxes. 36 The administrative and judicial claims were timely filed A refund of tax paid by the taxpayer, which was erroneously or illegally collected by the BIR is sanctioned by the NIRC of 1997, as amended. Sections 204 and 229 thereof provide: " SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . The Commissioner may 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." aDSIHc xxx xxx xxx " 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 therefor, 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." Section 204 of the NIRC of 1997, as amended, applies to administrative claims for refund, while Section 229 of the same Code pertains to judicial claims for refund. 37 A claimant must first file an administrative claim for refund before the CIR, prior to filing a judicial claim before the CTA. Notably, both the administrative and judicial claims for refund should be filed within the two (2)-year prescriptive period as provided in Sections 204 (C) and 229 of the NIRC of 1997, as amended, and that the claimant is allowed to file the latter even without waiting for the resolution of the former in order to prevent the forfeiture of its claim through prescription. The primary purpose of filing an administrative claim is to serve as a notice of warning to the CIR that court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded. 38 While the law provides that the two (2)-year period is counted from the date of payment of the tax, the Supreme Court clarified in ACCRA Investments Corporation vs. Court of Appeals, et al. , 39 that the two (2)-year prescriptive period for claiming a refund of overpaid income tax/CWT commences to run on the date of filing of the Final Adjustment Return. This was reiterated in Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, Inc.) , 40 where it was held that the two (2)-year prescriptive period is reckoned from the filing of the final adjustment return. It is only when the Final Adjustment Return covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. 41 In the present case, the following are the dates relative to the filing of petitioner's Annual ITRs for CYs 2017 and 2018, the corresponding deadline for petitioner to file its administrative and judicial claims, and the dates of filing of petitioner's administrative and judicial claims, viz. : ATICcS CY Filing of Annual ITR Deadline to File Administrative and Judicial Claims Date of Filing of Administrative Claim Date of Filing of Judicial Claim 2017 April 15, 2018 April 15, 2020 April 13, 2020 June 17, 2020 2018 April 14, 2019 April 14, 2021 April 13, 2020 June 17, 2020 Based on the foregoing, the filing of petitioner's administrative claim on April 13, 2020 , and petitioner's judicial claim for CY 2018 on June 17, 2020 were made within the two (2)-year prescriptive period provided under Sections 204 (C) and 229 of the NIRC of 1997, as amended. Anent the timelines of petitioner's judicial claim for CY 2017, as aforesaid, petitioner had until April 15, 2020 to file the same. In view, however, of the threat of COVID-19 infection and the correlated imposed quarantine restrictions, the Supreme Court issued the following Administrative Circulars in 2020, viz. : Issuance Contents Administrative Circular No. 31-2020 dated March 16, 2020 The filing of petitions and appeals, complaints, motions, pleadings and other court submissions that fall due during the period from 15 March 2020 until 15 April 2020 is extended for thirty (30) calendar days counted from 16 April 2020 . Administrative Circular No. 34-2020 dated April 8, 2020 The filing of petitions and appeals, complaints, motions, pleadings and other court submissions that fall due up to 30 April 2020 is extended for 30 calendar days, counted from 1 May 2020 . Administrative Circular No. 35-2020 dated April 27, 2020 The filing of petitions, appeals, complaints, motions, pleadings and other court submissions that fall due up to 15 May 2020 in the ECQ areas is extended for 30 calendar days, counted from 16 May 2020 . Administrative Circular No. 36-2020 dated April 27, 2020 The filing of petitions, appeals, complaints, motions, pleadings and other court submissions that fall due up to 15 May 2020 in the GCQ areas is extended for 30 calendar days, counted from 16 May 2020 . Administrative Circular No. 39-2020 dated May 14, 2020 The filing of petitions, appeals, complaints, motions, pleadings and other court submissions that fall due up to 31 May 2020 before the courts in areas under MECQ areas is extended for 30 calendar days, counted from 1 June 2020 . Administrative Circular No. 40-2020 dated May 15, 2020 The filing of petitions, appeals, complaints, motions, pleadings and other court submissions that fall due up to 31 May 2020 before the courts in the areas under GCQ is extended for 30 calendar days, counted from 1 June 2020 . Administrative Circular No. 41-2020, dated May 29, 2020 All courts nationwide were directed to be in full operation starting June 1, 2020. The same Administrative Circular declares that there shall no longer be extensions in the filing of petitions, appeals, complaints, motions, pleadings and other court submissions that will fall due beginning June 1, 2020 . In view of the foregoing, the filing of petitioner's judicial claim for refund was extended from April 15, 2020 to June 30, 2020. Thus, the filing of petitioner's judicial claim for CY 2017 on June 17, 2020 was made within the extended period. As the present Petition for Review covering petitioner's judicial claims for CYs 2017 and 2018 have been seasonably filed on June 17, 2020, the Court has acquired jurisdiction to take cognizance of the same. ETHIDa Petitioner complied with Section 76 of the NIRC, as amended Section 76 of the NIRC of 1997, as amended, states: SEC. 76. Final 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 sum 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 tax credit certificate shall be allowed therefor. Pursuant to the above-mentioned provision, a corporation entitled to a tax credit or refund of excess estimated quarterly income taxes paid has two (2) options, either: (1) to carry-over the excess credit and apply the same against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable year; or (2) to apply for a cash refund or issuance of a TCC within the prescribed period. 42 If the carry-over option is selected, such is irrevocable for that taxable period and no application for cash refund or issuance of tax credit certificate shall be allowed therefor. TIADCc In exercising its option, the corporation must signify in its Annual ITR (by marking the option box provided therein) its intention, either to carry over the excess credit or to claim a refund. 43 To ease the administration of tax collection, these remedies are in the alternative, and the choice of one precludes the other. 44 In the present case, petitioner reported the following in its Annual ITRs for CY 2017 45 and CY 2018, 46 filed on April 15, 2018 and April 14, 2019, respectively, viz. : CY 2017 CY 2018 Exhibit "P-4" 47 Exhibit "P-17" 48 Sales/Revenues/Receipts/Fees P926,452,026.00 P1,408,955,835.00 Less: Cost of Sales/Services 819,375,670.00 1,167,732,710.00 Gross Income from Operation 107,076,356.00 241,223,125.00 Add: Non-Operating & Other Taxable Income Not Subject to Final Tax 14,113,941.00 12,080,446.00 Total Gross Income 121,190,297.00 253,303,571.00 Less: Deductions 210,531,280.00 253,303,571.00 Net Taxable Income (Loss) (P89,340,983.00) P0.00 RCIT (30%) - - MCIT (2% of gross income) P2,423,806.00 P5,066,071.00 Income Tax Due 2,423,806.00 5,066,071.00 Less: Tax Credits/Payments Prior Year's Excess Tax Credits 75,126,319.00 72,702,513.00 Creditable Tax Withheld for the First Three Quarters 29,386,080.00 44,438,748.00 Creditable Tax Withheld for the Fourth Quarter 10,227,240.00 18,375,000.00 Total Tax Credits 114,739,639.00 135,516,261.00 Tax Overpayment (P112,315,833.00) (P130,450,190.00) Petitioner claims that its Minimum Corporate Income Tax (MCIT) liability for CY 2017 amounting to P2,423,806.00 was paid using a portion of its prior year's excess credit amounting to P75,126,319.00 leaving a balance of P72,702,513.00. Thus, the CWT for CY 2017 in the total amount of P39,613,320.00 49 remained unutilized. Petitioner likewise claims that its MCIT liability for CY 2018 amounting to P5,066,071.00 was paid using a portion of its prior year's excess credit amounting to P72,702,513.00 leaving a balance of P67,636,442.00. Hence, its CWT for CY 2018 in the total amount of P62,813,748.00 50 remained unutilized. An examination of petitioner's Annual ITRs for CY 2017 51 and 2018 52 reveals that petitioner chose the option to be refunded. cSEDTC Likewise, petitioner's Annual ITRs for CY 2018 53 and CY 2019 54 as well as its Quarterly Income Tax Returns 55 prove that the alleged unutilized CWT in the amounts of P39,613,320.00 and P62,813,748.00 were not carried over to the succeeding taxable periods. The "Prior Year's Excess Credits Other Than MCIT" found in petitioner's Annual ITR for CY 2018 shows the amount of P72,702,513.00. This amount reflects the excess credits of petitioner from years prior to CY 2017 amounting to P75,126,319.00 less the MCIT due for CY 2017 amounting to P2,423,806.00. Similarly, the "Prior Year's Excess Credits Other Than MCIT" found in petitioner's Annual ITR for CY 2019 shows the amount of P67,636,442.00. This amount reflects the excess credits of petitioner from years prior to CY 2018 amounting to P72,702,513.00 less the MCIT due for CY 2018 amounting to P5,066,071.00. Thus, the amounts prayed to be refunded in this case have not been carried over to the succeeding taxable periods. The unutilized CWTs for CY 2017 and CY 2018 in the amounts of P39,613,320.00 and P62,813,748.00 remain intact and may accordingly be the subject of a claim for refund under Section 76 of the NIRC of 1997, as amended. Petitioner complied with the requisites to be entitled to a tax credit or refund of excess and unutilized CWTs Jurisprudence laid down the basic requirements in order for a taxpayer to claim tax credit or refund of CWT, thus: (1) The claim must be filed within the two (2)-year period from the date of payment of the tax; (2) The fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld; and, (3) It must be shown on the return of the recipient that the income received [and which was subjected to withholding tax] was declared as part of the recipient's gross income. 56 As earlier discussed, petitioner's administrative and judicial claims for CYs 2017 and 2018 were timely filed. Thus, the Court shall proceed to discuss petitioner's compliance with the second and third requirements. AIDSTE Second Requisite: Fact of withholding is established by copies of withholding statements duly issued by the payor The second requisite mandates petitioner to prove the fact of withholding of the claimed CWTs by a copy of the statement duly issued by the payor, acting as the withholding agent, to the payee, showing the names of the payor and payee, the income payment, the amount of tax withheld, and the nature of the tax paid. As held by the Supreme Court in Commissioner of Internal Revenue vs. Philippine National Bank , 57 the certificate of creditable tax withheld at source (CWT certificate) is the competent proof to establish the fact that taxes were withheld, and it is not even necessary for the person who executed and prepared the certificate of creditable tax withheld at source to be presented and to testify personally to prove the authenticity of the certificates. To prove the fact of withholding, petitioner presented its Certificates of Creditable Withholding Tax at Source (BIR Form No. 2307) for CY 2017 and CY 2018 amounting to P39,613,320.00 and P62,813,748.00, respectively. For CY 2017 Exhibit Period Covered Payor Income Payments CWT From To P-5 28-Mar-17 28-Mar-17 International Container Terminal Services, Inc. P28,000,000.00 P4,200,000.00 P-6 01-Apr-17 30-Apr-17 PLDT, Inc. 104,000,000.00 15,600,000.00 P-7 17-May-17 17-May-17 International Container Terminal Services, Inc. 40,000,000.00 6,000,000.00 P-8 01-Jul-17 30-Sep-17 Holcim Philippines, Inc. 1,627,200.00 244,080.00 P-9 01-Jul-17 30-Sep-17 Metropolitan Bank & Trust Company 13,500,000.00 2,025,000.00 P-10 04-Sep-17 04-Sep-17 International Container Terminal Services, Inc. 8,000,000.00 1,200,000.00 P-11 01-Aug-17 31-Aug-17 Nutri-Asia, Inc. 780,000.00 117,000.00 P-12 10-Oct-17 10-Oct-17 International Container Terminal Services, Inc. 32,000,000.00 4,800,000.00 P-13 26-Oct-17 26-Oct-17 International Container Terminal Services, Inc. 10,000,000.00 1,500,000.00 P-14 01-Oct-17 31-Dec-17 Holcim Philippines, Inc. 1,641,600.00 246,240.00 P-15 27-Nov-17 27-Nov-17 Manila Electric Company 14,040,000.00 2,106,000.00 P-16 01-Oct-17 31-Dec-17 Metropolitan Bank & Trust Company 10,500,000.00 1,575,000.00 Total P264,088,800.00 P39,613,320.00 For CY 2018 Exhibit Period Covered Payor Income Payments CWT From To P-18 01-Jan-18 31-Jan-18 Globe Telecom, Inc. P10,030,000.00 P1,504,500.00 P-19 01-Jan-18 31-Jan-18 Metropolitan Bank & Trust Company 10,500,000.00 1,575,000.00 P-20 01-Jan-18 31-Mar-18 Holcim Philippines, Inc. 1,614,720.00 242,208.00 P-21 01-Jan-18 31-Mar-18 Metropolitan Bank & Trust Company 10,500,000.00 1,575,000.00 P-22 01-Jan-18 31-Mar-18 Globe Telecom, Inc. 3,880,000.00 77,600.00 P-23 01-Feb-18 28-Feb-18 Globe Telecom, Inc. 7,760,000.00 155,200.00 P-24 01-Mar-18 31-Mar-18 International Container Terminal Services, Inc. 12,000,000.00 1,800,000.00 P-25 15-Feb-18 15-Feb-18 International Container Terminal Services, Inc. 12,000,000.00 1,800,000.00 P-26 12-Feb-18 12-Feb-18 International Container Terminal Services, Inc. 24,000,000.00 3,600,000.00 P-27 14-Mar-18 14-Mar-18 Ayala Corporation 10,000,000.00 1,500,000.00 P-28 01-Apr-18 30-Jun-18 Globe Telecom, Inc. 19,400,000.00 2,910,000.00 P-28 01-Apr-18 30-Apr-18 Globe Telecom, Inc. -11,640,000.00 -232,800.00 P-29 01-Apr-18 30-Apr-18 International Container Terminal Services, Inc. 33,600,000.00 5,040,000.00 P-30 17-Apr-18 17-Apr-18 Holcim Philippines, Inc. 16,713,600.00 2,507,040.00 P-31 01-Apr-18 30-Jun-18 Ayala Corporation 5,000,000.00 750,000.00 P-32 01-Jun-18 30-Jun-18 International Container Terminal Services, Inc. 15,600,000.00 2,340,000.00 P-33 15-May-18 15-May-18 Metro Pacific Investment Corporation 56,700,000.00 8,505,000.00 P-34 01-Apr-18 30-Jun-18 Ayala Corporation 13,900,000.00 2,085,000.00 P-35 01-Jul-18 31-Jul-18 Ayala Corporation 12,400,000.00 1,860,000.00 P-36 01-Sep-18 30-Sep-18 Ayala Corporation 32,300,000.00 4,845,000.00 P-37 15-Nov-18 15-Nov-18 Bank of the Philippine Islands 8,000,000.00 1,200,000.00 P-38 01-Oct-18 31-Dec-18 Metro Pacific Investment Corporation 88,000,000.00 13,200,000.00 P-39 06-Dec-18 06-Dec-18 Bank of the Philippine Islands 26,500,000.00 3,975,000.00 Total P418,758,320.00 P62,813,748.00 Upon verification, the Court found that the aforesaid CWT certificates are complete in their relevant details such as the names of the payor and payee, the income payment, the amount of tax withheld, and the nature of the tax paid. As the said CWT certificates sufficiently prove the fact of withholding, the amounts of P39,613,320.00 and P62,813,748.00 pertaining to CYs 2017 and 2018, respectively, may be refunded to petitioner. SDAaTC Third Requisite: The income received was declared as part of the gross income The third requisite mandates petitioner to prove that the income payments that were subjected to CWTs were reported or declared as part of its gross income in its Annual ITRs. Review of the records reveals that, based on the CWT certificates, the claimed CWTs for CYs 2017 and 2018 were withheld on income payments to petitioner in the amounts of P264,088,800.00 and P418,758,320.00, respectively. These amounts were declared in petitioner's Annual ITRs for CYs 2017 and 2018. Said 2017 and 2018 Annual ITRs disclose gross sales/revenue/receipts in the amounts of P926,452,026.00 and P1,408,955,835.00, respectively. The revenue section in the Statements of Comprehensive Income of petitioner's Audited Financial Statements (AFS) for CYs 2017 58 and 2018 59 shows the breakdown of sales/revenue/receipts/fees reflected in its Annual ITRs, as follows: CY 2017 CY 2018 Billing Revenue: Consultancy Services P252,403,420.00 P641,781,595.00 Shared Services Center 278,354,426.00 326,309,251.00 Loaned Services 395,694,180.00 352,329,347.00 Total P926,452,026.00 P1,320,420,193.00 The relevant income payments for CYs 2017 and 2018 amounted to P264,088,800.00 and P418,758,320.00. Said amounts are claimed to be part of the revenues from consultancy services amounting to P252,403,420.00 and P641,781,595.00, respectively. Notably, the income payments for CY 2017 on which the claimed CWTs were withheld in the amount of P264,088,800.00 are higher than the reported consultancy services in the same year amounting to P252,403,420.00. On the other hand, it is noted that the income payments for CY 2018 which amounted to P418,758,320.00 are lower than the reported consultancy services of P641,781,595.00. Petitioner provided detailed reconciliations 60 to reconcile the amounts reported as consultancy services and the relevant income payments on which the claimed CWTs were withheld. The Court finds these reconciliations to be sufficient. Anent petitioner's CWT claim for CY 2017, Ms. Elena D. Cabahug, petitioner's Accounting Officer, claims that the amount of revenues from consultancy services for the said year is P252,403,420.00, thus: "Q78: On the face of the 2017 General Ledger Transaction Detail (Exhibit P-53) appears the amount of Php252,403,420.99. What relation, if any, does this have to the total amount of revenue recorded in the 2017 GLTD which you said is the same amount of revenue from Consultancy Services in the 2017 audited financial statements? A78: This is the revenue recorded in the 2017 GLTD." 61 The Court is constrained not to give credence to said claim. Upon perusal of the General Ledger for CY 2017 62 and upon re-computation of the figures reflected therein, it was found that the total revenues from consultancy services amounted to P97,044,813.00 only which is way lower than the total reported consultancy services per AFS/ITR amounting to P252,403,420.00. The variance of P155,358,607.00 was not supported by any documentary evidence explaining the same. AaCTcI Since the submitted General Ledger failed to provide the entire breakdown of the total consultancy services of P252,403,420.00 per petitioner's AFS/ITR for CY 2017, the Court cannot ascertain the veracity of the amounts recorded in the General Ledger as the same may not have ultimately formed part of the amount of gross income of P252,403,420.00 per petitioner's AFS/ITR. Therefore, all of the CWTs traceable to the General Ledger for CY 2017 shall be disallowed since it cannot be ascertained if the related income payments thereof formed part of the gross income reported in petitioner's AFS/ITR for CY 2017. Even assuming that the General Ledger for CY 2017 is reliable, still the following income payments cannot be traced in the said General Ledger: Exhibit No. Period Covered Payor Income Payment CWT To From P-5 28-Mar-17 28-Mar-17 International Container Terminal Services, Inc. P28,000,000.00 P4,200,000.00 P-7 17-May-17 17-May-17 International Container Terminal Services, Inc. 40,000,000.00 6,000,000.00 P-10 04-Sep-17 04-Sep-17 International Container Terminal Services, Inc. 8,000,000.00 1,200,000.00 P-12 10-Oct-17 10-Oct-17 International Container Terminal Services, Inc. 32,000,000.00 4,800,000.00 P-13 26-Oct-17 26-Oct-17 International Container Terminal Services, Inc. 10,000,000.00 1,500,000.00 Total P118,000,000.00 P17,700,000.00 Nonetheless, perusal and examination of the reconciliations provided in the Sworn Statement 63 of Ms. Elena D. Cabahug, petitioner's Accounting Officer, show that the income payment from PLDT, Inc. amounting to P104,000,000.00 with corresponding CWT of P15,600,000.00, was allegedly declared as income/revenue in the CY 2016 and CY 2015, to wit: acEHCD Year Income was Reported Income Payment CWT Remarks 2015 P37,858,086.00 P5,678,712.90 Collected in 2016 64 2016 66,141,914.00 9,921,287.10 Collected in 2017 65 Total P104,000,000.00 P15,600,000.00 It bears stressing that there is nothing erroneous when CWT certificates are traced to the gross income reported in prior years for as long as the income on which the taxes were withheld was included in the ITRs covering the said prior years. 66 Petitioner submitted both its ITRs for CYs 2015 67 and 2016. 68 However, petitioner was able to submit only the General Ledger for CY 2016. Thus, the income payment declared in 2015 and collected in 2016 amounting to P37,858,086.00 with corresponding CWT of P5,678,712.90 shall be disallowed considering that the same was earned in CY 2015 and it cannot be determined whether the same income payment was indeed included in the gross income declared in CY 2015 absent a presentation of a general ledger or an equivalent document showing the entire breakdown of the gross income for CY 2015. With respect to the income payments reported in CY 2016 amounting to P66,141,914.00 with corresponding CWTs of P9,921,287.10, the Court was able to trace it to the General Ledger for CY 2016. Thus, the Court finds it proper to grant the refund of the CWT amounting to P9,921,287.10 for CY 2017 . With respect to petitioner's CWT claims for CY 2018, the Court painstakingly traced the amounts of income payments in the General Ledgers for CYs 2017 and 2018. The Court found that income payments were partly reported in the General Ledger for CY 2017 and partly reported in the General Ledger for CY 2018, as shown below: EcTCAD Exhibit Payor Income Payment CWT Reported in 2018 GL Reported in 2017 GL P-18 Globe Telecom, Inc. P10,030,000.00 P1,504,500.00 P4,640,000.00 P5,390,000.00 P-19 Metropolitan Bank & Trust Company 10,500,000.00 P1,575,000.00 10,500,000.00 P-20 Holcim Philippines, Inc. 1,614,720.00 242,208.00 1,614,720.00 P-21 Metropolitan Bank & Trust Company 10,500,000.00 1,575,000.00 10,500,000.00 P-22 Globe Telecom, Inc. 3,880,000.00 77,600.00 3,880,000.00 P-23 Globe Telecom, Inc. 7,760,000.00 155,200.00 7,760,000.00 P-24 International Container Terminal Services, Inc. 12,000,000.00 1,800,000.00 12,000,000.00 P-25 International Container Terminal Services, Inc. 12,000,000.00 1,800,000.00 12,000,000.00 P-26 International Container Terminal Services, Inc. 24,000,000.00 3,600,000.00 24,000,000.00 P-27 Ayala Corporation 10,000,000.00 1,500,000.00 10,000,000.00 P-28 Globe Telecom, Inc. 19,400,000.00 2,910,000.00 19,400,000.00 P-28 Globe Telecom, Inc. -11,640,000.00 -232,800.00 -11,640,000.00 P-29 International Container Terminal Services, Inc. 33,600,000.00 5,040,000.00 33,600,000.00 P-30 Holcim Philippines, Inc. 16,713,600.00 2,507,040.00 16,713,600.00 P-31 Ayala Corporation 5,000,000.00 750,000.00 5,000,000.00 P-32 International Container Terminal Services, Inc. 15,600,000.00 2,340,000.00 15,600,000.00 P-33 Metro Pacific Investment Corporation 56,700,000.00 8,505,000.00 56,700,000.00 P-34 Ayala Corporation 13,900,000.00 2,085,000.00 13,900,000.00 P-35 Ayala Corporation 12,400,000.00 1,860,000.00 12,400,000.00 P-36 Ayala Corporation 32,300,000.00 4,845,000.00 32,300,000.00 P-37 Bank of the Philippine Islands 8,000,000.00 1,200,000.00 8,000,000.00 P-38 Metro Pacific Investment Corporation 88,000,000.00 13,200,000.00 88,000,000.00 P-39 Bank of the Philippine Islands 26,500,000.00 3,975,000.00 26,500,000.00 Total P418,758,320.00 P62,813,748.00 P374,040,000.00 P44,718,320.00 As discussed above, those traceable to the General Ledger for CY 2017 shall be disallowed for failure of petitioner to provide a breakdown of the gross income for CY 2017 and to show that the income payments ultimately formed part of the gross income reported in CY 2017. Thus, income payments amounting to P44,718,320.00 (P49,358,320.00 less P4,640,000.00 representing income payment from Globe Telecom, Inc. traceable in the General Ledger for CY 2018) with corresponding CWTs of P6,707,748.00, broken down below, shall be disallowed: Exhibit No. Payor Income Payment CWT Disallowed CWT P-18 Globe Telecom, Inc. P10,030,000.00 69 P1,504,500.00 P808,500.00 P-19 Metropolitan Bank & Trust Company 10,500,000.00 1,575,000.00 1,575,000.00 P-20 Holcim Philippines, Inc. 1,614,720.00 242,208.00 242,208.00 P-21 Metropolitan Bank & Trust Company 10,500,000.00 1,575,000.00 1,575,000.00 P-30 Holcim Philippines, Inc. 16,713,600.00 2,507,040.00 2,507,040.00 Total P49,358,320.00 P7,403,748.00 P6,707,748.00 On the other hand, the Court was able to trace income payments totaling to P374,040,000.00 (P379,430,000.00 less P5,390,000.00 representing income payment from Globe Telecom, Inc. traceable in the General Ledger for CY 2017) and corresponding CWTs of P56,106,000.00 in the General Ledger for CY 2018 , detailed as follows: SDHTEC Exhibit No. Payor Income Payment CWT Refundable CWT P-18 Globe Telecom, Inc. P10,030,000.00 70 P1,504,500.00 P696,000.00 P-22 Globe Telecom, Inc. 3,880,000.00 77,600.00 77,600.00 P-23 Globe Telecom, Inc. 7,760,000.00 155,200.00 155,200.00 P-24 International Container Terminal Services, Inc. 12,000,000.00 1,800,000.00 1,800,000.00 P-25 International Container Terminal Services, Inc. 12,000,000.00 1,800,000.00 1,800,000.00 P-26 International Container Terminal Services, Inc. 24,000,000.00 3,600,000.00 3,600,000.00 P-27 Ayala Corporation 10,000,000.00 1,500,000.00 1,500,000.00 P-28 Globe Telecom, Inc. 19,400,000.00 2,910,000.00 2,910,000.00 P-28 Globe Telecom, Inc. -11,640,000.00 -232,800.00 -232,800.00 P-29 International Container Terminal Services, Inc. 33,600,000.00 5,040,000.00 5,040,000.00 P-31 Ayala Corporation 5,000,000.00 750,000.00 750,000.00 P-32 International Container Terminal Services, Inc. 15,600,000.00 2,340,000.00 2,340,000.00 P-33 Metro Pacific Investment Corporation 56,700,000.00 8,505,000.00 8,505,000.00 P-34 Ayala Corporation 13,900,000.00 2,085,000.00 2,085,000.00 P-35 Ayala Corporation 12,400,000.00 1,860,000.00 1,860,000.00 P-36 Ayala Corporation 32,300,000.00 4,845,000.00 4,845,000.00 P-37 Bank of the Philippine Islands 8,000,000.00 1,200,000.00 1,200,000.00 P-38 Metro Pacific Investment Corporation 88,000,000.00 13,200,000.00 13,200,000.00 P-39 Bank of the Philippine Islands 26,500,000.00 3,975,000.00 3,975,000.00 Total P379,430,000.00 P56,914,500.00 P56,106,000.00 Conclusion In view of the foregoing discussions, petitioner has sufficiently proven its entitlement to a refund or issuance of TCC in the amounts of P9,921,287.10 and P56,106,000.00 , representing its excess and unutilized CWTs for CYs 2017 and 2018, respectively, or a total of P66,027,287.10 , computed and presented as follows: Refundable CWTs for CY 2017 P9,921,287.10 Refundable CWTs for CY 2018 56,106,000.00 Total Refundable CWTs P66,027,287.10 WHEREFORE , premises considered, the present Petition for Review is PARTIALLY GRANTED . Accordingly, respondent Commissioner of Internal Revenue is ordered to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner McKinsey & Co. (Phils.) in the total amount of P66,027,287.10, representing its excess and unutilized Creditable Withholding Taxes for calendar years 2017 and 2018, respectively. HSAcaE SO ORDERED. (SGD.) ROMAN G. DEL ROSARIO Presiding Justice Catherine T. Manahan and Marian Ivy. Reyes-Fajardo, JJ. , concur. Footnotes 1. CTA Docket Vol. I, pp. 6-16. 2. Exhibit "P-1"; CTA Docket Vol. II, p. 966. 3. Exhibit "P-3"; CTA Docket Vol. II, p. 1005. 4. Joint Stipulation of Facts and Issues (JSFI), CTA Docket Vol. I, p. 380. 5. Exhibit "P-4"; CTA Docket Vol. II, p. 1006. 6. Exhibit "P-17"; CTA Docket Vol. II, p. 1025. 7. CTA Docket Vol. II, pp. 555-563. 8. CTA Docket Vol. II, pp. 564-565. 9. CTA Docket Vol. I, pp. 6-16. 10. Petition for Review, CTA Docket Vol. I, p. 9. 11. CTA Docket Vol. I, p. 121. 12. CTA Docket Vol. I, pp. 122-140. 13. CTA Docket Vol. I, pp. 318-319. 14. CTA Docket Vol. I, p. 320. 15. CTA Docket Vol. I, pp. 323-327. 16. CTA Docket Vol. I, p. 329. 17. CTA Docket Vol. I, pp. 332-345; the deadline October 25, 2020, fell on a Sunday; the next working day is October 26, 2020 . 18. CTA Docket Vol. I, pp. 351-353. 19. CTA Docket Vol. I, p. 356. 20. CTA Docket Vol. I, pp. 358-369. 21. CTA Docket Vol. I, pp. 372-373. 22. Resolution dated November 20, 2020, CTA Docket Vol. I, p. 347; Notice of Pre-Trial Conference, CTA Docket Vol. I, pp. 348-350. 23. CTA Docket Vol. I, pp. 380-388. 24. CTA Docket Vol. I, pp. 390-391. 25. CTA Docket Vol. I, pp. 410-415. 26. CTA Docket Vol. II, pp. 944-965. 27. CTA Docket Vol. II, pp. 1090-1092. 28. CTA Docket Vol. II, pp. 1084-1088. 29. CTA Docket Vol. II, pp. 1099-1102. 30. CTA Docket Vol. II, pp. 1127-1129. 31. Par. V (A) and (B), JSFI, CTA Docket Vol. I, p. 387; Par. II, Pre-Trial Order dated June 28, 2021, CTA Docket Vol. I, p. 413. 32. Par. V (B), JSFI, CTA Docket Vol. I, p. 387. 33. CTA Docket Vol. II, pp. 1130-1148. 34. CTA Docket Vol. II, pp. 1149-1160. 35. Issues, JSFI, CTA Docket Vol. I, pp. 380-381. 36. "Sec. 7. Jurisdiction. The CTA shall exercise: a. Exclusive appellate jurisdiction to review by appeal, as herein provided: x x x 2. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial[.]" 37. Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, Inc.) , G.R. No. 231581, April 10, 2019. 38. Metropolitan Bank & Trust Company vs. The Commissioner of Internal Revenue , G.R. No. 182582, April 17, 2017. 39. G.R. No. 96322, December 20, 1991. 40. G.R. No. 231581, April 10, 2019. 41. Commissioner of Internal Revenue vs. TMX Sales, Inc., et al. , G.R. No. 83736, January 15, 1992. 42. University Physicians Services, Inc.-Management, Inc. vs. Commissioner of Internal Revenue , G.R. No. 205955, March 7, 2018. 43. Systra Philippines, Inc. vs. Commissioner of Internal Revenue , G.R. No. 176290, September 21, 2007. 44. Philippine Bank of Communications vs. Commissioner of Internal Revenue, et al. , G.R. No. 112024, January 28, 1999. 45. Exhibit "P-4", CTA Docket Vol. II, pp. 1006-1013. 46. Exhibit "P-17", CTA Docket Vol. II, pp. 1025-1033. 47. CTA Docket Vol. II, pp. 1006-1013. 48. CTA Docket Vol. II, pp. 1025-1033. 49. P29,386,080.00 + P10,227,240.00 = P39,613,320.00. 50. P44,438,748.00 + P18,375,000.00 = P62,813,748.00. 51. Line 21, Exhibit "P-4-a", CTA Docket Vol. II, p. 1006. 52. Line 21, Exhibit "P-17-a", CTA Docket Vol. II, p. 1025. 53. Exhibit "P-17", CTA Docket Vol. II, pp. 1025-1033. 54. Exhibit "P-50", CTA Docket Vol. II, pp. 584-594. 55. Exhibits "P-41" to "P-49", CTA Docket Vol. II, pp. 566-582. 56. Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, Inc.) , G.R. No. 231581, April 10, 2019. 57. G.R. No. 180290, September 29, 2014. 58. Exhibit "P-51", CTA Docket Vol. II, pp. 593-636. 59. Exhibit "P-92", CTA Docket Vol. II, pp. 736-786. 60. Exhibits "P-54", CTA Docket Vol. II, p. 639; and "P-94", CTA Docket Vol. II, p. 788. 61. Sworn Statement of Ms. Cabahug, Exhibit "P-153", CTA Docket Vol. II, p. 435. 62. Exhibit "P-53", CTA Docket Vol. II, p. 638. 63. Sworn Statement of Ms. Cabahug, Exhibit "P-153", CTA Docket, Vol. II, pp. 437-438. 64. Sworn Statement of Ms. Cabahug, Exhibit "P-153", CTA Docket Vol. II, p. 438. 65. Sworn Statement of Ms. Cabahug, Exhibit "P-153", CTA Docket Vol. II, p. 437. 66. Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, Inc.) , G.R. No. 231581, April 10, 2019. 67. Exhibit "P-152", CTA Docket Vol. II, pp. 880-888. 68. Exhibit "P-55", CTA Docket Vol. II, pp. 640-647. 69. Only the income payment amounting to P5,390,000.00 was traceable in the General Ledger for CY 2017. 70. Only the income payment amounting to P4,640,000.00 was traceable in the General Ledger for CY 2018.