COMMISSIONER OF INTERNAL REVENUE v. MIRANT (PHILIPPINES) OPERATIONS CORPORATION (formerly:Southern Energy Asia-Pacific Operations (Phils), Inc.,)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL EB No. 224 REVENUE, (CTA Case No. 6623) Present: Petitioner, ACOSTA, PJ. -versus- CASTANEDA JR., �lrnsTA MIRANT (PHILIPPINES) 'i!ASANOVA, and OPERATIONS CORPORATION (formerly: Southern Energy PALANCA-ENRIQUEZ, J.J. Asia-Pacific Operations (Phils.), Inc.), Promulgated: Respondent. 111 N 1 9 2007 11~�/'a;~ ..-v"v~~- x---------------------------------------------------X DECISION CASANOVA/ J: This is an appeal, by way of a Petition for Review, 1 filed by the petitioner- Commissioner of Internal Revenue (CIR) from the Decision2 (Assailed Decision) of the Court of Tax Appeals First Division ( CTA First Division) dated August 4, 2006 in CTA Case No. 6623 entitled, "Mirant {Philippines) Operations Corporation (Formerly: Southern Energy Asia-Pacific Operations (Phils.), Inc.,) vs. Commissioner of Internal Revenue," ordering petitioner to refund or issue a tax credit certificate to respondent in the amount of P69,562,412.00 representing unutilized tax credits for taxable year ended December 31, 2001 and from the$ - 1 CTA En Bane Rollo., pp. 8-23 . 2 CTA En Bane Roll o., pp. 25-34 .

CTA EB CASE NO. 224 (CTA CASE NO. 6623) DECISION Resolution3 (Assailed Resolution) dated November 8, 2006 denying petitioner's Motion for Reconsideration. The facts of the case, as culled from the records, are as follows: "Petitioner4 is a corporation duly organized and existing under and virtue of the laws of the Republic of the Philippines, with its principal office at Bo. Ibabang Pula, Pagbilao Grande Island, Pagbilao, Quezon Province. It is primarily engaged in the business of designing, constructing, erecting, assembling, comm1ss1oning, operating, maintaining, rehabilitating and managing gas turbine and other power generating plans and related facilities for the conversion into electricity of coal, distillate and other fu el provided by and under contract with the Government of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any government owned or controlled corporations or other entity engaged in the development, supply or distribution of energy. Respondent5, on the other hand, is the duly appointed Commissioner of Internal Revenue, charged with th e duty of enforcing the provisions of the National Internal Revenue Code, including the power to decide and approve administrative claims for refund . He holds office at the BIR National Building, Agham Road, Diliman, Quezon City. On April 30, 2001, petitioner secured with the Securities and Exchange Commission ("SEC') its Certificate of Filing of Amended Articles of Incorporation, reflecting its change of name from Southern Energy Asia -Pacific Operations (Phils.), Inc. to Mirant (Philippines) Operations Corporation. Prior to its use of the name Southern Energy Asia -Pacific Operations (Phils.), Inc., petitioner operated under the corporate names CEPA Operations (Philippines) Corporation, CEPA Tileman Project Management Corporation and Hopewell Til em an Project Management Corporation. The changes in petitioner's corporate nam e from CEPA Operations (Philippines) Corp. to Southern Energy Asia-Pacific Operations (Phils.) Inc., from CEPA Tileman Project Management Corporation to CEPA Operations (Philippines) Corp. and from Hopewell Tileman Project Management Corporation to CEPA Tileman Project Management Corp. were approved by the SEC on November 24, 2000, November 21, 1997 and July 29, 1994, respectively. Under its original corporate nam e, Hopewell Tileman Project Management Corp., petition er was registered with the Burea u of Interna~ 3 CTA En Bane Roll o., pp. 35-3 7. 4 Respondent here in . 5 Petiti oner herein .

CTA E:B CASE NO. 224 (CTA CAS~ NO. 6623) DECISION Revenue ("BIR") with Tax Identification No. 003-057-796 as shown by its original BIR Certificate of Registration issued on March 29, 1994. In line with its primary purpose, petitioner entered into Operating and Management Agreements with Mirant Pagbilao Corporation [MPC] (formerly Southern Energy Quezon, Inc.) and Mirant SuaI Corporation [MSC] (formerly Southern Energy Pangasinan, Inc.) to provide MPC and MSC with operation and maintenance services in connection with the operation, construction and commissioning of the coal-fired thermal power stations situated in Pagbilao, Quezon and Sual, Pangasinan, respectively. Payments received by petitioner from MPC and MSC relative to the said agreements were �allegedly subjected to creditable withholding taxes. On April 15, 2002, petitioner filed its 2001 income tax return with the BIR, reporting an income tax overpayment in the amount of P69,562,412.00 arising from unutilized creditable taxes withheld during the year, as follows: Sales/Revenues P9 22,569,303 .00 Less: Cost of Sales/Services 938,543,252.00 Gross Income from Operation (P15,973,949.00) Add: Non-Operating & Other Income 74,995,982.00 Total Gross Income P59,022,033.00 Less: Deductions 59,022,033.00 Taxable Income Tax Rate 32% Income Tax NIL Less: Tax Credits/Payments P27,784,217.00 Creditable Tax Withheld for the First Three Quarters 41,7 78,195.00 P69,562,412.00 Creditable Tax Withheld for the CP69. 562.4 12.00) Fourth Quarter Total Tax Credits/Payments Tax Payable/(Overpayment) Petitioner marked the appropriate box manifesting its intent to have the above overpayment refunded. On March 19, 2003, pursuant to Section 76 in relation to Section 204 of the National Internal Revenue Code (NIRC) of 1997, as amended, petitioner filed with the BIR, a letter requesting for the refund or issuance of a tax credit certificate corresponding to its reported unutilized creditable withholding taxes for taxable year 2001 in the amount of P69,562,412.00~

ITA EB CASE NO. 224 (ITA CASE NO. 6623 ) DECISION On March 27, 2003, just a few days later, petitioner filed this Petition for Review in order to toll the running of the two-year prescriptive period provided under Section 229 of the National Internal Revenue Code of 1997, as amended. After trial on the merits, the CTA First Division promulgated a Decision6 on August 4, 2006, the dispositive portion of which reads as follows: "WHEREFORE, the instant petition is hereby GRANTED. Accordingly, respondene is hereby ORDERED to RE FUND or ISSUE A TAX CREDIT CERTIFICATE in the amount of P69,562,412.00, representing unutilized tax credits for taxable year ended December 31, 2001. SO ORDERED." � Not satisfied with the above decision, respondent-OR (petitioner herein) filed a Motion for Reconsideration8 on August 25, 2006. An Opposition (To Respondent's Motion for Reconsideration)9 was filed by petitioner-Mirant (Philippines) Operations, Corporation (respondent herein) on September 18, 2006. In a Resolution 10 dated November 8, 2006, the CTA First Division denied respondent-OR's (petitioner herein) Motion for Reconsideration for lack of merit. On November 27, 2006, petitioner filed a Motion for Extension of Time to File Petition for Review11 with the CTA En Bane. In a Resolution 12 dated November 29, 2006, the Court En Bane granted the said motion thereby giving petitioner a final and non-extendible period of fifteen (15) days from November 29, 2006, or until December 14, 2006, within which to file a Petition for Review. On December 6, 2006, petitioner filed the instant Petition for Review13 with th~~ 6 Ibid. 7 Petitioner herein. 8 CTA First Division Rollo., pp. 466-475 . 9 CTA First Division Rollo., pp. 479-485. �1 CTA En Bane Rollo ., pp. 35-3 7. 11 CTA En Bane Ro ll o., p. l. 12 CTA En Bane Rollo ., p. 7. 13 Ibid . f

CfA E:B CASE NO. 224 (CfA CAS!,: NO. 6623) DECISION CTA En Bane, praying that the Decision dated August 4, 2006 and the Resolution dated November 8, 2006 in CfA Case No. 6623 entitled, "Mirant (Philippines) Operations Corporation (formerly: Southern Energy Asia-Pacific Operations (Phils.)/ Inc:/) vs. Commissioner ofInternal Revenue," be reversed and set aside and another one be rendered denying the claim for refund. Petitioner raised its sole issue in the instant Petition for Review, to wit: WHETHER OR NOT RESPONDENT IS ENTITLED TO A TAX REFUND/CREDIT IN THE AMOUNT OF P69,562,412 .00 ALLEGEDLY REPRESENTING UNUTILIZED CREDITABLE WITHHOLDING TAXES FOR CALENDAR YEAR ENDING 31 DECEMBER 2001. In support of this issue, petitioner submits that respondent is not entitled to the refund on the following grounds: A. Respondent failed to prove that the creditable withholding taxes amounting to P69,562,412.00 are duly supported by valid Certificates of Creditable Tax Withheld at Source. B. Respondent failed to prove actual remittance of the alleged withheld taxes to the BIR. C. Respondent failed to discharge its burden of proving its entitlement to a refund. The CfA En Bane promulgated a Resolution 14 on January 3, 2007, ordering the respondent to file a Comment on the said Petition for Review. On January 19, 2007, respondent filed a Motion for Extension of Time to File Commentl 5 which was granted by the Court in a Resolu tio n16 dated January 22, , 2007. Accordingly, respondent was given a final and non-extendible period of twenty (20) days from January 19, 2007, or until February 8, 2007 within wh ic~ 14 CTA En Bane Rollo ., p. 40 . 15 CTA En Bane Rollo,. pp. 42-43. 16 CTA En Bane Rollo. , p. 45.

CTA EB CASE NO. 224 (CTA CASE NO. 6623) DECISION to file a Comment. On January 29, 2007, respondent filed a Commenti7 (To Petitioner's Petition for Review) praying that judgment be rendered dismissi ng the Petition for Review for utter lack of merit. After a careful and thorough evaluation and consideration of the records of the case, the Court En Bane finds no new matters which have not yet been considered and passed upon by the CTA First Division in its assailed Decision and Resolution. Pertinent to the resolution of this case is Section 76 of the National Internal Revenue Code (NIRC) of 1997, in relation to Sections 204 (c) and 229 of the same Code, respectively quoted hereunder as follows: "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 du e 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 in its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the ta xable quarters of the succeeding taxa ble 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 irrevocabl e for that taxable period and no application for cash refund or issuance of a tax credit certificate sha ll be allowed therefor." .. "SEC. 204. Authority of the Commissioner to compromise/ abate and refund/credit taxes. -The Commissioner may ----?flt- xxx XXX XXX 17 CTA En Bane Rollo. , pp. 46-53 .

CfA EB CASE NO. 224 (CfA CASE NO. 6623) D,ECISION (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 tax credit or refund within (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 refund." 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 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." As correctly found by the CTA First Division in the Assailed Decision and We quote, to wit: "Based on Section 76 above quoted, the corporate taxpayer's excess tax credits or overpaid income tax in a given taxable year may either be refunded (either in the form of cash or tax credit certificate) or carried-over/applied to the succeeding taxable years. However, once the option to carry-over has been made, the same becomes irrevocable for that taxable period. As discussed earlier, petitioner's 2001 income tax return reflected an unutilized tax credit of P69,562,412.00. Petitioner opted to be refund (sic) for this unutilized tax cred it as shown by the "x" mark in the appropriate box of the return. Considering that petitioner did not carry- over the said unutilized tax credit of P69,562,412.00 in its 2002 incomk

CfA !:B CASE NO. 224 (CfA CASE NO. 6623) DECISION tax return, the same may be a proper subject of a claim for refund/tax credit certificate under Section 76 of the NIRC of 1997. The present claim for refund/tax credit of excess creditable withholding taxes is dependent on petitioner's compliance with the following basic requirements: 1. That the claim for refund (or issuance of a tax credit certificate) was filed within the two-year prescriptive period prescribed under Section 204(C), in relation to Section 229 of the NIRC of 1997; 2. That the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom; and 3. That the income upon which the taxes were withheld was included in the return of the recipient ( Citiban~ NA vs. Court of Appeals and CIR, 280 SCRA 459/ ACCRA Investments Corporation vs. Court of Appeals, 204 SCRA 957). In this case, this Court finds petitioner entitled to the refund/issuance of tax credit sought for, having complied with all these requirements. The reckoning of the two-year prescriptive period for the filing of a claim for refund/tax credit certificate of excess creditable withholding tax/quarterly income tax payment starts from the date of filing of the annual income tax return (ACCRA Investments Corporation vs. Court Appeals, supra; Commissioner ofInterval Revenue vs. TMX Sales, Inc., 205 SCRA 184 [1992]) because it is only from this time that the refund is ascertained (Commissioner of Internal Revenue vs. The American Life Insurance Co., 244 SCRA 446) Here, petitioner filed its income tax return for taxable year 2001 on April 15, 2002. Counting from this date, petitioner had until April 14, 2004 (2004 being a leap year) within which to file its claim for refund/tax credit certificate both administratively and judicially. Therefore, petitioner's administrative claim filed on March 19, 2003 and the Petition for Review filed on March 27, 2003, fall within the two-year period prescribed under Section 204(C) in relation to Section 229 of the NIRC of 1997 and as interpreted by the Supreme Court in the above cases. In compliance with the second requisite, petitioner submitted various Certificates of Creditable Tax Withheld at Source duly issued to it by MPC and MSC for taxable year 2001, showing creditable withholding taxes in the sum of P70,805,771.42~ . ' ...

CTA EB CASE NO. 224 (CTA CASE NO. 6623) DECISION Ex h. Period Covered Withholding Agent Tax Withheld R 1/31/01-3/31/01 Southern Energy Pangasinan, Inc. P7,541,393.62 s 4/1/01 -6/30/01 Mirant Pagbilao Corporation 5,231, 749.64 T 4/1/01-6/30/01 Mirant Sual Corporation 4,737,701.92 u 7/1/01 -9/30/01 Mirant Pagbilao Corporation 5,454,022.47 v 7/1/01 -9/30/01 Mirant Sual Corporation 4,819,349.82 w 10/1/01-12/31/01 Mirant Pagbilao Corporation 26,821,192.20 X 10/1/01-12/31/01 Mirant Sual Corporation 16.200,361.75 Total em 805 n1 42 The Court notes that there is a difference of P1,243,359.42 between the creditable withholding taxes of P70,805,771.42 as reflected in the certificates and the claimed creditable withholding taxes of P69,562,412.00. However, such discrepancy does not have a bearing on petitioner's claim because what is being claimed for refund/tax credit is the lower amount of P69,562,412.00. Anent the third requisite, the certificates show that the claimed creditable taxes of P69,562,412.00 were withheld on service fees received by petitioner from MPC and MSC for taxable year 2001 in the total amount of P985,899,888.90, broken down as follows: Exhibit Period Covered Withholding Agent Income Payment R 1/31/01-3/31/01 Southern Energy Pangasinan, Inc. P150,827,872.40 S 4/1/01-6/30/01 Mirant Pagbilao Corporation 104,634,992.80 T 4/1/01-6/30/01 Mirant Sual Corporation 94,754,038.40 U 7/1/01-9/30/01 Mirant Pagbilao Corporation 109,080,449.40 V 7/1/01-9/30/01 Mirant Sual Corporation 96,386,996.40 W 10/1/01-12/31/01 Mirant Pagbilao Corporation 268,211,922.00 X 10/1/01-12/31/01 Mirant Sual Corporation 162.003,617.50 Total _29_85.899.888.90 A comparison of the gross income of P985,899,888.90 per the certificates as against the gross income of P922,569,303.00 declared per petitioner's 2001 income tax return revea ls a discrepancy of P63,330,585.90. The commissioned auditing firm, SGV & Co. explained in its report that part of the discrepancy was due to the incentive fee of P58,192,117.00 declared by petitioner in its 2000 income tax return but the related cred itable tax in the amount of P2,909,605.00 withheld and the corresponding certificate issued only in the first quarter of 2001. The remaining difference in gross income amounting to P5,138,468.90 (P63,330,585.90 less P58,192,117.00) pertains to the difference between the foreign exchange rates (forex) used by petitioner's clients (withholding agents) at the time income payments were made to petitioner and the forex rates used at the time when petitioner recorded its income�.and the related tax credits (which occurred prior to actual income ~:ayments made by petitioner's clients). The difference of P5,138,468.9o formed part of petitioner's reported Realized Foreign Exchange Gain in taxable year 2001. In other words, petitioner complied .. ta._

CTA EB CASE NO. 224 (CTA CASE NO. 6623) DECISION with the third requisite as it declared the income related to the claimed creditable withholding taxes of P69,562,412.00." In addition, records show that the grounds mentioned by the petitioner in the instant Petition for Review are the same grounds that the petitioner stated in its Motion for Reconsideration 18 filed with the CTA First Division, which was extensively discussed by the Court in the Assailed Resolution dated November 8, 2006. As aptly ruled by the CTA First Division in the Assailed Resolution: "On thejirst ground, respondent (Petitioner herein) argues that petitioner (Respondent herein) failed to present the various withholding agentsjpayors to testify on the validity of the contents of the Certificate of Creditable Tax Withheld at Source Ccertificates"). Thus, the certificates presented by petitioner are not valid. And even assuming that the certificates are valid, this Court cannot entertain the claim for refund/tax credit certificates because the certificates were not submitted to the respondent. Respondent's arguments are untenable since the certificates presented (Exhibits "R", "S", "T", "U", "V", "W", and "X") were duly signed and prepared under penalties of perjury, the figures appearing therein are presumed to be true and correct. Thus, the testimony of the various agents/payors need not be presented to validate the authenticity of the certificates. In addition, that petitioner did not submit the certificates to the respondent is of no moment. The administrative and judicial claim for refund and/or tax credit certificates must be filed within the two-year prescriptive period starting from the date of payment of the tax (Section 229, NIRC). In the instant case, petitioner filed its judicial claim (after filing its administrative claim) precisely to preserve its right to the claim. Otherwise, petitioner's right to the claim would have been barred. Considering that this Court had jurisdiction over the claim, petitioner rightfully presented the certificates before this Court. Besides, any records that respondent may have on the administrative claim would eventually be transmitted to this Court under Section 5 (b), Rule 6 of the Revised Rules of the Court of Appeals. As for the second ground, this Court finds respondent's contention unmeritorious. The requirements for claiming a tax refund/tax credi ~ 18 lbid. �.. .. �

ITA EB CASE NO. 224 (gA CASE NO. 6623) DECISION certificates had been laid down in Citibank N.A. vs. Court of Appeals, G.R. No. 107434, October 10, 1997. Nowhere in the case cited is proof of actual remittance of the withheld taxes to the respondent required before the taxpayer may claim for a tax refund/tax credit certificates. With respect to the third ground, the same has already been exhaustively discussed in the Decision and a reiteration thereof is no longer necessary." In sum, the Court En Bane finds no cogent justification to disturb the findings and conclusion spelled out in the assailed Augu st 4, 2006 Decision and November 8, 2006 Resolution of the CTA First Division. What the instant petition seeks is for the Court En Bane to view and appreciate the evidence in their own perspective of things, which unfortunately had already been considered and passed upon. WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the August 4, 2006 Decision and November 8, 2006 Resolution of the CTA First Division are hereby AFFIRMED in toto. SO ORDERED. CAESAR A. CASANOVA Associate Justice WE CONCUR: L~ ~. l-u" y\_ ERNESTO D. ACOSTA aA.~y; c .asr~.r '9. . OOANITO C. CASTANEDA,'1R. Associate Justice

CTA EB CASE NO. 224 (CTA CASE NO. 6623) DECISION AEsR~~~t.iUceY CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. L~. ~ ERNESTO D. ALU!)IA Presiding Justice