TAXATION IX ESSAY QUESTION- 2012 BAR EXAMS

IX

On April 16.. 20·12, the corporation filed its annual corporate income
tax return for 2011, showing an overpayment of income tax of P1 Million,
which is to be carried over to the succeeding year(s). On May 15, 2012,
the corporation sought advice from you and said that it contemplates to file
an amended return for 2011, which shows that instead of carry over 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.

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%)

b)
Should the petition for review filed with the CTA on the
basis of the amended tax return be denied by the SIR
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.
(5%)

X

UNITED INTERNATIONAL G.R. No. 168331
PICTURES AB,
vs.

CIR
October 2012

COMMISSIONER OF INTERNAL REVENUE,
- versus -
BANK OF THE PHILIPPINE ISLANDS,

G.R. No. 178490
July 7, 2009

Anent the first issue, petitioner asserts that there is nothing in the law

which perpetually prohibits the refund of carried over excess tax. It

maintains that the option to carry-over is irrevocable only for the next

“taxable period” where the excess tax payment was carried over.

We are not convinced.

Section 76 of the NIRC of 1997 states –

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)
(B)
(C)
Pay the balance of tax still due; or
Carry-over the excess credit; or
Be credited or refunded with the excess amount paid, as the
case may be.
6 Id. at 137.


Decision 6 G.R. No. 168331

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 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 therefore. (Emphasis supplied)

From the aforequoted provision, it is clear that once a corporation

exercises the option to carry-over, such option is irrevocable “for that

taxable period.” Having chosen to carry-over the excess quarterly income

tax, the corporation cannot thereafter choose to apply for a cash refund or for

the issuance of a tax credit certificate for the amount representing such

overpayment.7

To avoid confusion, this Court has properly explained the phrase “for

that taxable period” in Commissioner of Internal Revenue v. Bank of the

Philippine Islands.8 In said case, the Court held that the phrase merely

identifies the excess income tax, subject of the option, by referring to the

“taxable period when it was acquired by the taxpayer.” Thus:

x x x Section 76 remains clear and unequivocal. Once the carry-over
option is taken, actually or constructively, it becomes irrevocable. It
mentioned no exception or qualification to the irrevocability rule.

Hence, the controlling factor for the operation of the irrevocability
rule is that the taxpayer chose an option; and once it had already done so,
it could no longer make another one. Consequently, after the taxpayer opts
to carry-over its excess tax credit to the following taxable period, the
question of whether or not it actually gets to apply said tax credit is
irrelevant. Section 76 of the NIRC of 1997 is explicit in stating that once
the option to carry over has been made, “no application for tax refund or
issuance of a tax credit certificate shall be allowed therefor.”

The last sentence of Section 76 of the NIRC of 1997 reads: “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

7 Commissioner of Internal Revenue v. Mirant (Philippines) Operations, Corporation, G.R. Nos.
171742 and 176165, June 15, 2011, 652 SCRA 80, 89-90.
8 G.R. No. 178490, July 7, 2009, 592 SCRA 219.



Decision 7 G.R. No. 168331

been made, such option shall be considered irrevocable for that taxable
period and no application for tax refund or issuance of a tax credit
certificate shall be allowed therefore.” The phrase “for that taxable
period” merely identifies the excess income tax, subject of the option,
by referring to the taxable period when it was acquired by the
taxpayer. In the present case, the excess income tax credit, which BPI
opted to carry over, was acquired by the said bank during the taxable year
1998. The option of BPI to carry over its 1998 excess income tax credit is
irrevocable; it cannot later on opt to apply for a refund of the very same
1998 excess income tax credit.

The Court of Appeals mistakenly understood the phrase “for that
taxable period” as a prescriptive period for the irrevocability rule x x x.
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 interpretation of the Court of Appeals only delays
the flip-flopping to the end of each succeeding taxable period.9

Plainly, petitioner’s claim for refund for 1998 should be denied as its

option to carry over has precluded it from claiming the refund of the excess

1998 income tax payment. [u]

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%) -

-advice the client that the previous action of indicating an excess carry over in the 1st tax return is already irrevocable once previously exercised.
- cite the provisions of law as mentioned in the case of united international pictures.(section 76 NIRC 1997)

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 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 therefore. (Emphasis supplied)


b)
Should the petition for review filed with the CTA on the
basis of the amended tax return be denied by the SIR
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.
(5%)

- the corporation may still carry over excess payment of income tax in succeeding years.

- case of Commissioner of Internal Revenue vs. BPI (592 scraa 219 2009 case), Asiaworld Properties Philippine Corporation vs. CIR (626 Scra 172 - 2010 case) and the case of CIR vs. McGeorge Good Industries Inc. GR no. 174157 october 20, 2010.

" the unutilized excess tax credit will remain in the taxpayer's account and will be carried over and applied against the taxpayer's income tax liabilities in the succeeding taxable years UNTIL FULLY UTILIZED.

Put it in another way, the taxpayer's decision to apply its over=current payment to future tax liability continues until the overpayment has been FULLY APPLIED, NO MATTER HOW MANY CYCLES IT TAKES.


****ANOTHER CASE: THE AMOUNT BEING CLAIMED for refund WOULD REMAIN in its account until utilized in succeeding taxable years SINCE THERE IS NO PRESCRIPTIVE PERIOD FOR CARRY OVER OF THE SAME unlike the option for refund of excess income taxes which prescribes after two years from the filing of the final adjustment return.



-

[u][u]

taxconsultantdavao wrote: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%) -

-advice the client that the previous action of indicating an excess carry over in the 1st tax return is already irrevocable once previously exercised.
- cite the provisions of law as mentioned in the case of united international pictures.(section 76 NIRC 1997)

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 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 therefore. (Emphasis supplied)


b)
Should the petition for review filed with the CTA on the
basis of the amended tax return be denied by the SIR
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.
(5%)

- the corporation may still carry over excess payment of income tax in succeeding years.

- case of Commissioner of Internal Revenue vs. BPI (592 scraa 219 2009 case), Asiaworld Properties Philippine Corporation vs. CIR (626 Scra 172 - 2010 case) and the case of CIR vs. McGeorge Good Industries Inc. GR no. 174157 october 20, 2010.

" the unutilized excess tax credit will remain in the taxpayer's account and will be carried over and applied against the taxpayer's income tax liabilities in the succeeding taxable years UNTIL FULLY UTILIZED.

Put it in another way, the taxpayer's decision to apply its over=current payment to future tax liability continues until the overpayment has been FULLY APPLIED, NO MATTER HOW MANY CYCLES IT TAKES.


****ANOTHER CASE: THE AMOUNT BEING CLAIMED for refund WOULD REMAIN in its account until utilized in succeeding taxable years SINCE THERE IS NO PRESCRIPTIVE PERIOD FOR CARRY OVER OF THE SAME unlike the option for refund of excess income taxes which prescribes after two years from the filing of the final adjustment return.



-

[u][u]

COMMISSIONER OF INTERNAL REVENUE,
Petitioner,

- versus -
PL MANAGEMENT INTERNATIONAL PHILIPPINES, INC.,

Respondent.


G.R. No. 160949





Inasmuch as the respondent already opted to carry over its unutilized creditable withholding tax of P1,200,000.00 to taxable year 1998, the carry-over could no longer be converted into a claim for tax refund because of the irrevocability rule provided in Section 76 of the NIRC of 1997. Thereby, the respondent became barred from claiming the refund.

However, in view of it irrevocable choice, the respondent remained entitled to utilize that amount of P1,200,000.00 as tax credit in succeeding taxable years until fully exhausted. In this regard, prescription did not bar it from applying the amount as tax credit considering that there was no prescriptive period for the carrying over of the amount as tax credit in subsequent taxable years.[14][u]

KAYO NA ANG BAHALA MAG ANSWER SA QUESTIONS BASE SA SUPREME COURT DECISION NA NAPASTE KO.