Bar Q 2012.docx

Question April 16, 2012 – CORP. filed its annual corporate ITR for 2011 showing an overpayment of income tax of P 1M, which is to be carried over to the succeeding year(s). May 15, 2012 - CORP. sought advice from you and said that it contemplates to file an amended return for 2011, which shows that instead of carryover of the excess income tax payment, the same shall be considered as a claim for tax refund and the small box shown as “refund” in the return will be filled up. Within the year, the corporation will file the formal request for refund for the excess payment. QUESTION: (A) Will you recommend to the corporation such a course of action and justify that the amended return is the latest official act of the corporation as to how it may treat such overpayment of tax or should you consider the option granted to taxpayers as irrevocable, once previously exercised by it? Explain your answer. (5%) Answer: No. Legal Basis: Once the option to carry-over and apply the excess quarterly income tax against 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 the taxable year period and no application for tax refund or issuance of tax credit certificate shall be allowed therefore (Section 76, NIRC).

Section 76 provides that a taxpayer has the option to file a claim for refund or to carryover its excess income tax payments. The option to carry-over, however, is irrevocable. Thus, once a taxpayer opted to carry-over its excess income tax payments, it can no longer seek refund of the unutilized excess income tax payments. The taxpayer, however, may apply the unutilized excess income tax payments as a tax credit to the succeeding taxable years until such has been fully applied pursuant to Section 76 of the NIRC. Conclusion: Since the CORP elected to carry over its excess credits for the year 2011 in the amount of P1M as tax credits for the following year, it could no longer claim a refund. Again,

at the risk of being repetitive, once the carry over option was made, actually or constructively, it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized. Cited case ni Sir: Systra Phil., Inc. v. CIR (B) Should the petition for review filed with the CTA on the basis of the amended tax return be denied by the BIR and the CTA, could the corporation still carry over such excess payment of income tax in the succeeding years, considering that there is no prescriptive period provided for in the income tax law with respect to carry over of excess income tax payments? Explain your answer. Legal basis: In case the corporation is entitled to a tax credit or refund of theexcess estimated quarterly income taxes paid, the refundable amount shownon its final adjustment return may be credited against the estimatedquarterly income tax liabilities for the taxable quarters of the succeeding taxable year. Yes. The carry-over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess income tax payments may now be carried over to the succeeding taxable years until fully utilized. In addition, the option to carry-over excess income tax payments is now irrevocable. Hence, unutilized excess income tax payments may no longer be refunded Cited case (Belle Corp. v. CIR, G.R. No. 181298, January 10, 2011). Doctrine of equitable recoupment— The doctrine of equitable recoupment means that when the refund of a tax illegally or erroneously collected or overpaid by ,a taxpayer is barred by the statute of limitations and a tax is being presently assessed against said taxpayer, said present tax may be recouped or set off against the tax, the refund of which has been barred. The same thing would be true where the Government has failed to collect a tax within the period of limitation and said collection is already barred, and the taxpayer has to his credit a tax illegally or erroneously collected or overpaid, whose refund is not yet barred, the Government need not make refund of all the illegally or erroneously collected tax, but it may set off against it the tax whose collection is barred by the statute of limitations.“ In

the case of Collector of Internal Revenue 1:. University of Santa Toma-s, supra», the Supreme Court was faced with the question whether this doctrine is appli~ cable in this jurisdiction. The Court of Tax Appeals, although it had found that the amount erroneously collected from the University of Santo Tomas could not be refunded because the claim was filed beyond the two—year period, applying the doctrine of equitable recoupment, held that the percentage tax and surcharge which where valid charges against the University, may and should be set off or credited against .and to the extent of the amount of taxes erroneously collected. The Supreme Court however, reversed the Tax Court and held that thisdoctrine is not applicable in this jurisdiction. To start with, the Court observed, this is a common law principle and is not binding on our courts, and there is nothing in our laws, particularly the tax law, authorizing its acceptance and application. Said the Court: We fully realize the advantages of the doctrine both to the Government and to the taxpayer, but we feel and we believe that the drawbacks to the acceptance and enforcement of equitable recoupment far outweigh any advantage and benefit to be derived therefrom, and unless and until the Legislature secs fit and finds it beneficial and necessary to introduce this doctrine into this jurisdiction by means of legislation, we are not prepared, neither are we inclined to accept and introduce the same as a legal principle which the courts may invoke and apply in the course of interpreting and applying the tax laws. “ With this doctrine enforced and available to both parties, the tax collecting agency would be tempted to delay and neglect the collection of taxes within the period set by the law, confident that when it finally wakes up from its lethargy, it could still recover the tax it failed to collect by having it. set off or recouped from any tax which it may have illegally collected from the taxpayer. And this is not without its resulting danger, because a collector, to play safe and have a fund available for said set off and recoupment of a tax which he had failed and neglected to collect, may be tempted to make illegal assessments and collections, and the taxpayer would be helpless because however illegal and unauthorised the assessment may be, the Collector can always enforce the same by levy and distraint, and the only remedy of the taxpayer would be to file a formal demand for refund, followed by a court suit to enforce the demand. As regards the taxpayer, he may also be tempted to delay and neglect the filing of the corresponding suit or refund of a tax illegally or erroneously collected, trusting that he can always recover or be credited with the same or part thereof by refusing to pay a valid tax assessed against him and compelling the Government to set off the same against a tax paymenthe could no longer recover."

The Supreme Court concluded with the statement that the acceptance and adoption of such doctrine should be left to the sound discretion of the Legislature. Bar 2010 B) It may claim as refund the amount of P500,000 representing its income tax overpayment for its taxable year 2009 is correct. Under Section 76 of NIRC, in case the sum of quarterly tax payment is not equal to the total tax due for the entire taxable year, one of the options of a corporation is to be refunded of the excess amount paid. Thus, Mirador Inc's exercise of its right to refund P500,000in the taxable year 2009 is allowed. However, it cannit exercuse the option of refund for P1,000,000 excess payment on taxable year 2008 because under the same section, once an option to carry over has been made, such option is irrevocable and no application for refund shall be allowed. D) Assessment notice is valid even if the taxpayer received the same after the 3-year period from the date of filing tax return is correct. Under Section 222(c) of NIRC, an internal revenue tax which has been assessed within the period of limitation may be collected within 5 years following the assessment of tax. This is an exception to the rule that internal revenue taxes shall be assessed within 3 years after the last day of filing returns. In this case, the FINAL assessment for taxabke year 2008 was mailed in 2011, which is within the 5 years following the assessment of tax. Thus, the notice is still valid. BPI v CIR GR 139736