TAX AMNESTY AND TAX CREDIT CERTIFICATE

March 7, 2018

G.R. No. 205955

UNIVERSITY PHYSICIANS SERVICES INC. - MANAGEMENT, INC., Petitioner

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent

DECISION

MARTIRES, J.:

When a corporation overpays its income tax liability as adjusted at the close of the taxable
year, it has two options: (1) to be refunded or issued a tax credit certificate, or (2) to carry
over such overpayment to the succeeding taxable quarters to be applied as tax credit
against income tax due. Once the carry-over option is taken, it becomes irrevocable such
that the taxpayer cannot later on change its mind in order to claim a cash refund or the
issuance of a tax credit certificate of the very same amount of overpayment or excess
income tax credit.

Does the irrevocability rule apply exclusively to the carry-over option? Such is the novel
issue presented in this case.

We cannot subscribe to the suggestion that the irrevocability rule enshrined in Section 76
of the National Internal Revenue Code (NIRC) applies to either of the options of refund or
carry-over. Our reading of the law assumes the interpretation that the irrevocability is
limited only to the option of carry-over such that a taxpayer is still free to change its choice
after electing a refund of its excess tax credit. But once it opts to carry over such excess
creditable tax, after electing refund or issuance of tax credit certificate, the carry-over
option becomes irrevocable. Accordingly, the previous choice of a claim for refund, even if
subsequently pursued, may no longer be granted.

The aforementioned Section 76 of the NIRC provides:

SECTION 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 a tax credit certificate shall be
allowed therefor.

Under the cited law, there are two options available to the corporation whenever it
overpays its income tax for the taxable year: (1) to carry over and apply the overpayment as
tax credit against the estimated quarterly income tax liabilities of the succeeding taxable
years (also known as automatic tax credit) until fully utilized (meaning, there is no
prescriptive period); and (2) to apply for a cash refund or issuance of a tax credit certificate
within the prescribed period.11 Such overpayment of income tax is usually occasioned by
the over-withholding of taxes on the income payments to the corporate taxpayer.

The irrevocability rule is provided in the last sentence of Section 76. A perfunctory reading
of the law unmistakably discloses that the irrevocable option referred to is the carry-over
option only. There appears nothing therein from which to infer that the other choice, i.e.,
cash refund or tax credit certificate, is also irrevocable. If the intention of the lawmakers
was to make such option of cash refund or tax credit certificate also irrevocable, then they
would have clearly provided so.

In other words, the law does not prevent a taxpayer who originally opted for a refund or tax
credit certificate from shifting to the carry-over of the excess creditable taxes to the taxable
quarters of the succeeding taxable years. However, in case the taxpayer decides to shift its
option to carryover, it may no longer revert to its original choice due to the irrevocability
rule. As Section 76 unequivocally provides, once the option to carry over has been made, it
shall be irrevocable. Furthermore, the provision seems to suggest that there are no
qualifications or conditions attached to the rule on irrevocability.

Law and jurisprudence unequivocally support the view that only the option of carry-over is
irrevocable.

Aside from the uncompromising last sentence of Section 76, Section 228 of the NIRC
recognizes such freedom of a taxpayer to change its option from refund to carry-over. This
law affords the government a remedy in case a taxpayer, who had previously claimed a
refund or tax credit certificate (TCC) of excess creditable withholding tax, subsequently
applies such amount as automatic tax credit. The pertinent text of Section 228 reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer
of his findings: Provided, however, That a pre-assessment notice shall not be required in the
following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the
computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or

(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have carried over and automatically
applied the same amount claimed against the estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year; or

(d) When the excise tax due on exciseable articles has not been paid; or

(e) When the article locally purchased or imported by an exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded
or transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment
is made; otherwise, the assessment shall be void.

The provision contemplates three scenarios:

(1) Deficiency in the payment or remittance of tax to the government (paragraphs [a], [b]
and [d]);

(2) Over claim of refund or tax credit (paragraph [ c ]); and

(3) Unwarranted claim of tax exemption (paragraph [e]).

In each case, the government is deprived of the rightful amount of tax due it. The law
assures recovery of the amount through the issuance of an assessment against the erring
taxpayer. However, the usual two-stage process in making an assessment is not strictly
followed. Accordingly, the government may immediately proceed to the issuance of a final
assessment notice (FAN), thus dispensing with the preliminary assessment (PAN), for the
reason that the discrepancy or deficiency is so glaring or reasonably within the taxpayer's
knowledge such that a preliminary notice to the taxpayer, through the issuance of a PAN,
would be a superfluity.
Pertinently, paragraph (c) contemplates a double recovery by the taxpayer of an overpaid
income tax that arose from an over-withholding of creditable taxes. The refundable amount
is the excess and unutilized creditable withholding tax.

This paragraph envisages that the taxpayer had previously asked for and successfully
recovered from the BIR its excess creditable withholding tax through refund or tax credit
certificate; it could not be viewed any other way. If the government had already granted the
refund, but the taxpayer is determined to have automatically applied the excess creditable
withholding tax against its estimated quarterly tax liabilities in the succeeding taxable
year(s), the taxpayer would undeservedly recover twice the same amount of excess
creditable withholding tax. There appears, therefore, no other viable remedial recourse on
the part of the government except to assess the taxpayer for the double recovery. In this
instance, and in accordance with the above rule, the government can right away issue a
FAN.

If, on the other hand, an administrative claim for refund or issuance of TCC is still pending
but the taxpayer had in the meantime automatically carried over the excess creditable tax,
it would appear not only wholly unjustified but also tantamount to adopting an unsound
policy if the government should resort to the remedy of assessment.

First, on the premise that the carry-over is to be sustained, there should be no more reason
for the government to make an assessment for the sum (equivalent to the excess creditable
withholding tax) that has been justifiably returned already to the taxpayer (through
automatic tax credit) and for which the government has no right to retain in the first place.
In this instance, all that the government needs to do is to deny the refund claim.

Second, on the premise that the carry-over is to be disallowed due to the pending
application for refund, it would be more complicated and circuitous if the government were
to grant first the refund claim and then later assess the taxpayer for the claim of automatic
tax credit that was previously disallowed. Such procedure is highly inefficient and
expensive on the part of the government due to the costs entailed by an assessment. It
unduly hampers, instead of eases, tax administration and unnecessarily exhausts the
government's time and resources. It defeats, rather than promotes, administrative
feasibility. Such could not have been intended by our lawmakers. Congress is deemed to
have enacted a valid, sensible, and just law.

Thus, in order to place a sensible meaning to paragraph (c) of Section 228, it should be
interpreted as contemplating only that situation when an application for refund or tax
credit certificate had already been previously granted. Issuing an assessment against the
taxpayer who benefited twice because of the application of automatic tax credit is a wholly
acceptable remedy for the government.

Going back to the case wherein the application for refund or tax credit is still pending
before the BIR, but the taxpayer had in the meantime automatically carried over its excess
creditable tax in the taxable quarters of the succeeding taxable year(s), the only judicious
course of action that the BIR may take is to deny the pending claim for refund. To insist on
giving due course to the refund claim only because it was the first option taken, and
consequently disallowing the automatic tax credit, is to encourage inefficiency or to
suppress administrative feasibility, as previously explained. Otherwise put, imbuing upon
the choice of refund or tax credit certificate the character of irrevocability would bring
about an irrational situation that Congress did not intend to remedy by means of an
assessment through the issuance of a FAN without a prior PAN, as provided in paragraph
(c) of Section 228. It should be remembered that Congress' declared national policy in
passing the NIRC of 1997 is to rationalize the internal revenue tax system of the
Philippines, including tax administration.

The foregoing simply shows that the lawmakers never intended to make the choice of
refund or tax credit certificate irrevocable. Sections 76 and 228, paragraph (c),
unmistakably support such intention.

In either case, it is clear that the taxpayer cannot avail of both refund and automatic tax
credit at the same time. Thus, as Philam declared: "One cannot get a tax refund and a tax
credit at the same time for the same excess income taxes paid." This is the import of
the Court's pronouncement that the options under Section 76 are alternative in
nature.

In other words, previous incarnations of the words "the options are alternative... the choice
of one precludes the other" did not lay down a doctrinal rule that the option of refund or
tax credit certificate is irrevocable.

Again, we need not belabor the point that insisting upon the irrevocability of the option for
refund, even though the taxpayer subsequently changed its mind by resorting to automatic
tax credit, is not only contrary to the apparent intention of the lawmakers but is also clearly
violative of the principle of administrative feasibility.

Prior to the NIRC of 1997, the alternative options of refund and carryover of excess
creditable tax had already been firmly established. However, the irrevocability rule was not
yet in place. As we explained in PL Management, Congress added the last sentence of
Section 76 in order to lay down the irrevocability rule. More recently, in Republic v. Team
(Phils.) Energy Corp., we said that the rationale of the rule is to avoid confusion and
complication that could be brought about by the flip-flopping on the options, viz:

The evident intent of the legislature, in adding the last sentence to Section 76 of the NIRC of
1997, is to keep the taxpayer from flip-flopping on its options, and avoid confusion and
complication as regards said taxpayer's excess tax credit.

The current rule specifically addresses the problematic situation when a taxpayer, after
claiming cash refund or applying for the issuance of tax credit, and during the pendency of
such claim or application, automatically carries over the same excess creditable tax and
applies it against the estimated quarterly income tax liabilities of the succeeding year. Thus,
the rule not only eases tax administration but also obviates double recovery of the excess
creditable tax.

Further, nothing in the contents of BIR 1702 expressly declares that the option of refund or
TCC is irrevocable. Even on the assumption that the irrevocability also applies to the option
of refund, such would be an interpretation of the BIR that, as already demonstrated in the
foregoing discussion, is contrary to the intent of the law. It must be stressed that such
erroneous interpretation is not binding on the court. Philippine Bank of Communications v.
CIR is apropos:

It is widely accepted that the interpretation placed upon a statute by the executive officers,
whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous.
Thus, courts will not countenance administrative issuances that override, instead of
remaining consistent and in harmony with, the law they seek to apply and implement.

However, the petitioner remains entitled to the benefit of carry-over and thus may apply
the 2006 overpaid income tax as tax credit in succeeding taxable years until fully
exhausted. This is because, unlike the remedy of refund or tax credit certificate, the option
of carry-over under Section 76 is not subject to any prescriptive period.