ITAD Ruling No. 091-05

August 30, 2005 ITAD RULING NO. 091-05 Section 229, NIRC of 1997 AYC Consultants, Inc. 14th Floor, Sagittarius Bldg. H.V. Dela Costa Street Salcedo Village, City of Makati Attention: T. A. Gonzales Manager, Administrative and Support Services Gentlemen : This refers to your fax letter dated November 6, 2001, requesting for advice whether the taxes withheld by ABS-CBN Broadcasting Corporation (ABS-CBN) for taxable year 1996 and for some part of taxable year 1997 on the income of Geothermal Engineering International Pty. Ltd. (GEI) may still be refunded, in connection with BIR Ruling No. ITAD-030-01 dated March 13, 2001. This request for clarification arose when the docket pertaining to your request for refund, pursuant to Section 204(C) of the National Internal Revenue Code (Tax Code) of 1997, on behalf of GEI, covering taxable years 1996 to 1998, filed with this Office on June 16, 1999, was forwarded for investigation to Revenue District Office (RDO) No. 39 South Quezon City, and the latter Office disallowed the refund of the taxes withheld for the above-stated taxable periods. In addition to the representations made in BIR Ruling No. ITAD-030-01, it is further represented that GEI does not have any business nor office here in the Philippines; that all services rendered by GEI were done in Australia; and that GEI was subjected to taxes in Australia. Furthermore, it is your position that since the services were rendered outside the taxing jurisdiction of the Philippines, the prescriptive period shall not apply. EDCcaS In reply, please be informed that Section 229 of the Tax Code of 1997 provides, viz : "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 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 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 to have been erroneously paid. Based on the foregoing provision, the claim for refund or tax credit must be filed, or the suit or proceeding must be commenced in court, within two (2) years from date of payment of the tax or penalty regardless of any supervening cause. Relative thereto, the Supreme Court has ruled that the provision is mandatory, is not subject to qualification, and applies regardless of the conditions under which payment has been made. ( Commissioner of Internal Revenue vs. Insular Lumber Co., et al ., L-24221, December 11, 1967; Commissioner of Internal Revenue vs. Victorias Milling Co., Inc., et al ., L-24108, January 3, 1968) Thus, even when the person subject to tax was never present in the Philippines, the two-year prescriptive period applies. Section 11 of Republic Act No. 1125, in part, states that: "SEC. 11. Who may appeal ; effect of appeal . Any person, association or corporation adversely affected by a decision or ruling of the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the Court of Tax Appeals within thirty days after the receipt of such decision or ruling. . . ." In Allison J. Gibbs, et al. vs. Collector of Internal Revenue, et al . (G.R. No. L-13453, February 29, 1960), the Supreme Court declared that: ". . . Section 306 (now Section 229) of the National Internal Revenue Code should be construed together with Section 11 of Republic Act No. 1125. In fine, a taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must comply with the requirements of both sections, that is, he must file a claim for refund with the Collector of Internal Revenue (now Commissioner of Internal Revenue) within 2 years from the date of his payment of the tax, as required by said Section 306 of the National Internal Revenue Code, and appeal to the Court of Tax Appeals within 30 days from receipt of the Collector's decision or ruling denying his claim for refund, as required by said Section 11 of Republic Act No. 1125. If however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector. This is so because of the positive requirement of Section 306 and the doctrine that delay of the Collector in rendering decision does not extend the peremptory period fixed by the statute ." HITEaS In view thereof, the taxes withheld by ABS-CBN on the income of GEI for taxable year 1996 and for some part of taxable year 1997 may no longer be refunded. Please be guided accordingly. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue