BUSSINESS PROCESS OUTSOURCING INTERNATIONAL INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OFTAX APPEALS QU EZON CITY THIRD DIVISION BUSINESS PROCESS OUTSOURCING INTERNATIONAL, INC., Petition er, CTA CASE NO. 7605 \ - v e rsu s- Members: BAUTISTA, Chairperson PALANCA-ENRIQUEZ, and COTANGCO-MANALASTAS, JJ COMMISSIONER OJ:<~ INTERNAL Promulgated: REVENUE, MAY 18 2011 Respondent. ~ Oi)e.r~~~- 9.�/..r.:::~.- x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x DECISION COTANGCO-MANALASTAS, ./. : TH.E CASE This case is a Petition for Review fil ed by Business Process Outsourcing International, Inc. on April 13, 2007, pursuant to Section II ofRepublic Act No. 11 25 (R.A. ll25), as amended by Section 9 of R.A. No. 9282, and Section 3(a), Rule 8 ofthe 2005 Revised Rules ofthe Court ofTax Appeals (RRCTA), prayin g for a refund or the issuance of a tax credit certificate (TCC) in the amount of P1 3,253,645.00 i...__-

DECISION Page 2 of l 9 CTA Case No. 7605 Business Process Outsourcing International, Inc. vs. CIR representing its excess/unutilized creditable withholding income taxes for the taxable years ended December 3 1, 2004 and 200 5.1 THE PARTIES Petitioner Business Process Outsourcing International , Inc. (hereinafter "BPOI" for brevity) is a corporation organized and ex isting under and by virtue of Philippine laws, with principal offi ce at 675 8 Ayala Avenue, 1226 Makati City.2 Respondent, on the other hand, is the dul y-appointed Commi ssioner of Internal Revenue (CIR) who is empowered to perform the duties of his offic e, including among others, the duty to act upon and approve claims for refund or tax credit as provided by law, with office address at the BIR National Office Building, Agham Road, Diliman, Quezon City.3 THE FACTS The factual milieu of the case, as cull ed from the records, and as agreed upon by the parties in their Jo int Stipulation of Facts and Issues4 (JSFI) fil ed on August 24, 2007, are as follows: BPOI was organized primarily to engage in the business of providing, design, supply, impl ement and operate all forms of outsourced business processes and services to enable clients to sharpen their strategic business focus and to assist clients in running their businesses, including their accounting units, by providing people and/or systems and outer outsourced services. On March 10, 2006, petitioner BPOI fil ed its Final Corporate Annual Income Tax Return5 (ITR) for the taxabl e year ended December 31, 2004, refl ecting therein a�..--- 1 Docket, pp. 1-7, Petiti on for Review. 2 Docket, p. 83of th e Jo int Stipul ati on of Facts & Issues (J SF I). 3 Docket, p. 811 of JSFI. 4 Docket, pp. 83-87. 5 Exhibit "B".

DECISION Page 3 of 19 CTA Case No. 7605 Business Process Outsourcing International, In c. vs. CIR taxable income of P12,928,3 53.55 , which resulted in an income tax due amounting to P4,137,073.00 . The income tax due was offset against the P13 ,519,311 prior year's excess credits and creditable taxes for all the quarters of 2004, thereby leaving an excess tax credit or overpayment ofP9,382,238.00, as shown below: Income Tax Due (for the year 200-1) 4, 13 7,073.00 Less: 72 0,2 68.00 10,-183 ,919.00 Prior Year's Excess Credits 2,315 , 12-1 .00 13 ,519,311.00 Creditable Tax Withheld for the First Three Quatiers (9,3 82,23 8.00) Creditable Tax Withheld Per BIR Form No. 23 07 for the Fourth Quarter Tax Payable/(Overpayment) For the P9,3 82,238.00 overpayment, BPOI opted "To be refunded. " For the taxable year ended December 31, 2005 , petitioner BPOI filed its Final Corporate Annual Income Tax Return on May 2, 2006 where it declared a taxable income of P18,646,884.00, which resulted in an income tax due amounting to P6,060,23 7. After deducting from its income tax due against its creditable taxes for all the quarters of 2005 , BPOI was left with a total tax credit or overpayment of P3 ,871 ,407.00 detailed as follows: Income Tax Due (for the year 2005) 6,060,23 7.00 Less: 7,555 ,029.00 Creditable Tax Withheld for the First Three 2,376,6 15.00 9,931,6-1-1.00 Q uarters Creditable Tax Withheld Per BIR Form No. (3 ,871 ,407.00) 23 07 for the Fourth Quarter Tax Payable/(Overpayment) l-- Again, BPOI chose "To be refunded' for its P3 ,871 ,407.00 overpayment.

DECISION Page 4 of 19 CTA Case No. 7605 Business Process Outsourcing International, Inc. vs. CIR On March 30, 2007, petitioner, through its tax counsel, filed with respondent CIR, through Revenue District Office No. 47, a written claim for the refund of or the issuance of a TCC for the excess/unutilized creditable withholding taxes for the taxable years ended December 31, 2004 and 2005 in the aggregate amount of P13 ,253 ,645.00, broken down as follows: Unutilized balance from taxable year P9 ,382 ,238.00 - 2004 after offsetting against 2004 tax 3,871 ,407 .00 Unutilized balance from taxab le year 2005 P1 3,253,645.00 after offsetting against 2005 tax TOTAL According to petitioner, to date, respondent has not yet acted with finality on the subject claim for refund. Hence, petitioner elevated its claim to this Court by filing a Petition for Review on April 13, 2007 for the purpose of staying the running the two-year prescriptive period and to preserve the right of BPOI to claim, by judicial action, the reftmd of or issuance of a tax credit certificate for its excess/unutilized creditable withholding income taxes for the taxable years 2004 and 2005 pursuant to Section 229 of the National Internal Revenue Code (NIRC) of 1997 in relation to Section 204 of the same Code. 6 In this present Petition for Review, BPOI maintains that during the taxable year of 2004, it had creditable income taxes withheld/paid in the aggregate amount of P12,799,043.00, and that after off-setting its 2004 income tax due from the prior year' s excess credits and a portion of the 2004 tax credits, it still had excess/unutilized creditable withholding income taxes from 2004 in the amount of P9,382,238.00. Petitioner further pointed out that, on the face of its 2004 Corporate Annual Income/_-- 6 Docket, pp. 4-5 .

DECISION Page 5 of 19 CTA Case No. 7605 Business Process Outsourcing International, Inc. vs. C1R Tax Return, it indicated its intention of filing a claim for refund for such excess/unutilized creditable withholding income taxes. Likewise, for the taxable year of 2005 , petitioner BPOI claims that it had creditable income taxes withheld/paid in the aggregate amount of P9,931 ,644.00, and that after off-setting its 2005 income tax due from a portion of the 2005 tax credits, it still had excess/unutilized creditable withholding income taxes from 2005 in the amount of P3 ,871 ,407.00. Also, petitioner emphasized that it indicated on the face of its 2005 Corporate Annual Income Tax Return its intention of filing a claim for refund for such excess/unutilized creditable withholding income taxes. Furthermore, BPOI included in its discussion its assertion that the right to seek for the refund or the issuance of a TCC of the amount of excess/unutilized creditable withholding income taxes for the taxable years ended December 31, 2004 and 2005 finds legal authority under Sections 76 and 204 of the NIRC of 1997; respondent CIR is the appropriate party to whom the instant claim for refund or issuance of a TCC is directed pursuant to Section 204 of the NIRC; this Court has the exclusive appellate jurisdiction to review the instant Petition for Review in accordance with Republic Act No. 1125, as amended by Republic Act No . 9282. On June 12, 2007, respondent filed his Answer7 and alleged by way of special and affirmative defense, that: XXX "6. Granting but without admitting that Petitioner filed a claim for refund, the same is still subject to investigation by the Bureau of Internal Revenue; V 7. Petitioner failed to demonstrate that the tax, which is the subject of this case, was erroneously or illegally collected; "/ Docket, pp. 54-56.

DECISION Page 6 of 19 CTA Case No. 7605 Business Process Outsourcing International, Inc. vs. CIR 8. Taxes paid and collected are presumed to be made in accordance with the laws and regulations, hence, not creditable or refundable; 9. It is incumbent upon the Petitioner to show that it has complied with the provision of Sections[sic) 204(C) in relation to Section 229 of the 1997 Tax Code, as amended; 10. In an action for tax credit or refund, the burden is upon the taxpayer to prove that it is entitl ed thereto, and failure to di scharge the said burden is fatal to the claim (Em manuel & Zenaida Aguilar v. Commissioner, C"'A -GR No. Sp. 16432, March 30, 1990 cited in A ban, Law of Basic Taxation in the Philippines, I s' Edition p . 206) ; 11 . Claims for refund are construed strictly against the claimant, the same partake the nature of exemption from taxation (Co mmissioner ofInternal Revenue vs. Ledesma, 3I SCRA 95) and as such, they are looked upon with di sfavor. (Western Minolco Corp. vs. Commissioner ofInternal Revenue I 24 SCRA I 2I). " Pre-tri al ensued. Petiti oner fil ed its pre-trial bri eF on Jul y 23, 2007, while respondent' s pre-trial bri ef was received by thi s Court on Jul y 24, 2007. On August 24, 2007, the parti es fil ed their Joint Stipulation of Facts and Issues10, which was approved by this Court in a Resolution dated September 5, 2007. Consequentl y, the pre-trial was terminated and the parties we re ordered to proceed with the trial on the merits. A Motion for Leave of Collli for the Commi ssioning of an Independent Certified Public Accountant (CPA) 11 was fil ed by petitioner praying that Ms. Nila N. Mendi ola of N ila N . Mendi ola and Company be commi ssioned as Independent CPA to conduct the actual examinati on, evaluation and audit of the vo luminous documents to be offered and presented by petitioner in the instant case. During the hearing held l.-- on September 24, 2007, the Court commi ssioned Ms. Nila N. Mendiola as the 8 Docket, pp. 58-69. 9 Docket, pp. 70-72 . 10 Docket, pp . 83 -87. 11 Docket, pp. 92-94.

DECISION Page 7 of 19 CI A Case No. 7605 Business Process Outsourcing international, i nc. vs. CiR Independent CPA for thi s case.12 A fin al and consolidated report dated May 26, 2008 was submitted by the Collli commi ssioned Independent CPA, Ms. Nita N. Mendiola, on May 27, 2008. On August 7, 2008 , petitioner fil ed its Formal Offer of Evidence 13 with a prayer that the attached Exhibits, as well as those appended to the records of the Court and the pre-marked photocopi es of original documents verified by the Independent CPA be admitted as ev idence for petitioner. In a Reso lution14 dated October 6, 2008 , the Exhibits "A" to "HH", inclusive of their submarkings, were admitted subj ect to this Court 's fin al evaluation and/or appreciation of their purposes, materiality, relevancy, and probati ve value to the issues invo lved in thi s case. Respondent CIR fil ed its Formal Offer of Exhibits 15 on June 15, 2009. A Resoluti on16 was issued by thi s Court on February 3, 2010 wherein Exhibits " I ", " 1- a", " 1-b", " 1-c", "2", "4", "5", "6", "7", " 8", "9", " 10", " 11 ", " 11-a", and " 11-b" were admitted subj ect to thi s Collli 's final evaluation and/or appreciation of their purposes, materiality, relevancy, and probati ve value to the issues involved in thi s case. Initi ally, Exhibits "3", "3-a" and "3 -b" were deni ed fo r respondent's failure to submit the originals thereof for compari son, however, findin g merit in respondent' s Motion for Reconsideration, another Reso luti on 17 was issued by thi s Court on May 12, 2010 admitting the said exhibits. In the same resoluti on, the parti es were ordered to fil e their respective Memoranda, within thirty (3 0) days from receipt of resolution, V afterwhi ch, the case shall be deemed submitted for decision. 12 Minutes of th e Heari ng held on September 211 , 2007, Docket, p. Ill . 13 Docket, pp. 269-288. 14 Docket, pp. 11 05-11 06. 15 Docket, pp. 11 59-1162. 16 Docket, pp. 11 77-1178 . 11 Docket, pp. 487-488 .

DECISION Page 8 of 19 CIA Case No. 7605 Business Process Outsourcing international, inc. vs. CiR Considering the report of the Records Division dated June 21 , 2010 that the parties failed to file their respective Memorandum within the prescribed period, the present petition was declared submitted for deci sion. THE ISSUES The parties, m their Joint Stipulation of Facts and Issues, submitted the followin g issues for this Court's resolution, to wit: " 1. Whether Petitioner' s claim for refund was filed within the two- year prescriptive period as prescribed under Sections 204 and 229 of the NIRC; 2. Whether the creditable withholding taxes for the taxable years 2004 and 2005 are duly substantiated by the necessary statements issued by the withho lding agents to Petitioner, showing the amount paid and the amount oftax withheld therefrom; 3. Whether the income upon which the creditable taxes were withheld were included and reported as income in the income tax returns of Petitioner; 4. Whether Petitioner is entitled to the refund and/or credit of the amount of P1 3,253 ,645 .00 representing its excess/unutilized creditable withholding income taxes for the taxable years ended December 3 1, 2004 and 2005; 5. Whether Petitioner has excess and unutilized creditable withholding tax for the year 2004 and 2005 in the aggregate amount ofP13 ,253 ,645.00; 6. Whether Petitioner had carried over to the succeeding taxable years the alleged excess creditable withholding tax for the year(s) 2004 and 2005." THE RULING O.F THE COURT The Petition for Review is hinged principally on Section 76 of the NIRC of 1997, in relation to Sections 204 and 229 ofthe san1e Code. Section 76 of the NIRC V of 1997 is hereunder quoted for ready reference:

DECISION Page 9 of 19 CTA Case No . 7605 Business Process Outsourcing International, Inc. vs. CIR XXX "SEC. 76. - Final Adjustment Return. - Every co rporation li able to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fi scal year. If the sum of the quarterly tax pay ments mad e durin g the sa id taxab le year is not eq ua l to the tota l tax du e on the entire taxab le income of that year, the corporation shall either: (A) Pay the balan ce of tax still du e; or (B) Carry-over the excess credit; or (C) Be credi ted or refun ded with the excess amo unt paid, as the case may be. In case the corporati on is entitled to a tax credit or refund of th e excess estim ated quarterly in come taxes paid, the excess amount shown on its fina l adju stment return may be carried over and credited against th e estimated qu arterly income tax liabilities for the taxa ble quarters of the succeeding taxab le years. Once the option to carry-over and app ly the excess quarterly income tax against inco me tax due for the taxab le q uarters of the succeed ing taxable years has been made, such option shall be considered irrevocable for that taxab le period and no app li cati on for cash refun d or iss uance of a tax credit ce rtifi cate sha ll be a ll owed therefor." XXX It is readily apparent from the above-cited provision that two (2) options are available to any corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid: [1] to carry over the excess credit or [2] to be credited or refunded with the excess amount paid . Also provided in the last sentence of Section 76 is the "irrevocability rule", where it is provided that once the option to carry over the excess credits has been made, the same shall be considered irrevocable for that taxable period. "In exercising its option, the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to catTy over the excess credit or to claim a refund. To facilitate tax collection, these remedies are in the alternative and the choice of one precludes the L other. " 18 It is significant to note, however, that "failure of the taxpayer to make an 18 Systra Philip ines, Inc., vs. Commissioner of i nternal Revenue, G.R. No. 176290, September 2 1, 2007.

DECISION Page 10 of 19 CTA Case No. 7605 Business Process Outsourcing International, Inc. vs. CJR approp riate marking of its opti on in the ITR does not automati cally mean that the taxpayer has opted for a tax credit." 19 In the cases of Citibank, N.A. v. Court of Appeals 20 and Banco Filipino Savings and Mortgage Bank vs. Court ofAppeals, et a/. 21 the Supreme Court had the occasion to pronounce the three conditions for the grant of a claim for refund of creditable withholding tax, to wit: 1) the claim is fil ed with the CIR within the two-year period fro m the date of payment of the tax; 2) the fact of withholding is establi shed by a copy of a statement dul y issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom. The seco nd conditi on is specifically imposed under Secti on 10 of Revenue Regul ation No. 6-85 (as amended), viz: Sec. 10. Claim for tax credit or refund . ~ (a) Claims for Tax Credit or Refund of in co me tax dedu cted and w ithhe ld on income pay ments sha ll be give n due co urse onl y when it is shown on th e return th at the in come pay ment received has been declared as part of the gross income and the fact of w ithh o ldin g is establi shed by a co py of th e Withho ldin g Tax Statement dul y iss ued by th e payor to th e payee show in g the amo unt paid and th e amo unt of tax w ithheld therefrom xxx. (Emphasis supplied) 3) it is shown on the return of the recipient that the income payment received fr---- was declared as part of the gross income 19 Commissioner of Internal Revenue vs. Bank ofthe Philipp ine, Islands, G.R. No. 1781190, Jul y 7, 2009 citi ng Phi/am Asset Management, Inc. v. Commissioner of Internal Revenue, G. R. No. 156637, December 111 , 200 5. 20 G .R. No. 10711 311 , October 10, 1997,280 SC RA 11 59. 21 G. R. No. 155 682, March 27, 2007 citing Jose C. Yitug and Ern esto D. Acosta, Tax Law and Juri sprudence, 329 (2006), ci ting Gihb v. Collector, I07 Phi l. 230 ( 1960); Ca lamba Stee l Center, Inc. v. Commissioner on Internal Revenue, G .R. No. 15 185 7, April 28, 2005 , 457 SCRA 482.

DECISION Page 11 of 19 CTA Case No. 7605 Business Process Outsourcing i nternational, i nc. vs. CiR After having di scussed the establi shed and prevailing laws, rules, and enunci ated jurisprudential principl es in thi s jurisdiction, applicable to the grant of a claim for refund of creditabl e withholding tax, thi s Court shall now proceed in determining whether petitioner was able to sati sfactoril y meet the terms or the three conditions for the grant of a claim for refund of creditabl e withholding tax. First, a perusal of the records of this case shows that petitioner meets the first condition. Pertinent to the first requisite are Sections 204(C) and 229 of the NIRC of 1997, which read as fo llows: XXX "SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes . - The Commiss ioner may XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed with out auth ority, refund th e value of intern al revenue stamps when they are returned in good condition by the purchase r, and , in hi s di scretion, redeem or change unu sed stamps that have been rendered unfit fo r use and refund th e ir va lue upon proof of destru cti on. No credit or refund of taxes or penalti es shall be a ll owed unl ess the taxpayer files in writing with the Commissione1� a claim for credit o1� refund within two (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 uedit or ��efund." (Emphasis supplied) XXX "SEC. 229. Recovery of Tax E rroneously or Illegally Collected. - no suit or proceedin g shall be maintained in any comt for the recovery of any nati onal intern al revenu e tax hereafter all eged to have been erroneo usly or illega lly assessed or coll ected, or of any penalty claimed to have been co llected w ithout authority, of any sum alleged to have been excessive ly or in any manner wrongfully co llected without authority, or of any sum alleged to have been excess ive ly or in any mann er wrongfull y co ll ected, until a claim for refund or credit has been duly fil ed with the Commi ssioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been pa id und er protest or du ress . In any case, no such suit or proceedin g sha ll be fil ed after th e expirati on of L two (2) years from th e date of payment of th e tax or penalty regard less of any supervening cause that may arise after payment: Provided, however, That the

DECISION Page 12 of 19 CTA Case No . 7605 Business Process Outsourcing International, Inc. vs. CIR 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." Relative to the foregoing provisions, noteworthy 1s the case of ACCRA Investments Corporation vs. The Honorable Court of Appeals, et a!. n where the Supreme Court held that the two-year prescriptive period for the filing of a claim for refund or tax credit of excess income tax paid/withheld should be reckoned from the date of filing of the final adjustment retmn. In the instant case, petitioner is claiming for the refund or the issuance of a TCC for its excess/ unutilized creditable withholding income taxes for the taxable years 2004 and 2005. For the taxable years ended December 31 , 2004 and 2005, petitioner filed its Final Corporate Annual Income Tax Returns on March 10, 2006 and May 2, 2006, respectively. Petitioner filed its administrative claim for refund for the taxable years 2004 and 2005 on March 30, 2007 ; while its judicial claim via the instant Petition for Review was filed with this Court on April 13 , 2007. Clearly, both filings of claim for refund and Petition for Review were made within the two-year prescriptive period. Anent the second requisite, Petitioner submitted Schedule of Certificate of Taxes Withheld at Source/BIR Forms 2307,/.3 and Certificates of Taxes Withheld at Somce/BIR Forms 2307 /.4 which were examined by the Court-commissioned Independent CPA, Ms. NilaN. Mendiola. V ' 22 G.R. No. 963 22, December 20, 1991 . 23 Exhibit J- 1 to J-11 5. 24 Exhibits N-1 to N-983.

DECISION Page 13 of 19 CTA Case No. 7605 Business Process Outsourcing International, Inc. vs. CIR In her report dated May 26, 2008, Ms. Mendi ola found that of the P1 3,253 ,645.00 creditabl e taxes, Petiti oner may validly claim onl y P1 2,667,730.33 , computed as fo llows:r) Amount of disa ll owed creditabl e taxes with held in 7. 004 and 7.005 per audit p 585 ,9 14.67 Amount of excess creditable taxes withheld whi ch arc being claimed for iss uance 13 ,25 3 ,64 5 .00 of tax credit certificates per Petition for Rev iew p 12,667,730.33 Should-be excess cr editable tax es withheld for th e iss uan ce of tax cred it ce rtificates based on audit findin gs and verilica tion The di fference of P585,914.67 represents recorded or claimed creditabl e taxes withheld at source w ithout the corresponding Certificates of Taxes Withheld or BIR Forms 2307 as summari zed in Exhibit K- 1.26 Upon further examinati on of the documents submitted in suppot1 of Petitioner' s claim, the undersigned fo und that Certifi cates of Taxes Withheld at Source (BIR Forms 23 07) presented as evidence and marked as Exhibits N -1 to N- 983 cover onl y the four quarters of 2004 and the first quarter of 2005 , supporting creditable withholding taxes in the amount of P1 5,437,244. 62. Thus, creditable taxes in the amount of P6,707,527.7 1, as computed hereafter, should likewise be di sallowed for being unsupported w ith documentary evidence. CWT p 17.,559,398 .03 p 9,5 85 ,374.3 0 p 7.7., 144,772.33 Per Schedu le o f Certifi ca te of Taxes Withheld at 12,559,398 .03 2,877, 846.59 15,437,244 .62 Source!l3TR Forms 7.307 (Exh. J-?.0 and J- 45) p p 6,707,527.71 p 6,707,527.7 1 With FOE of supporting doc um ents (bh. N .J toN '/63 and N '/64 to 983/ 7 CWT without FOE of suppor�tin g doc um ents Furthermore, additi onal di sall owances amounting to P849,167. 61 were found by the Court, itemi zed as follows: P eriod Covered 1) No signature ofauthorized representative ofpayor N-7 Jan-04 Australia and New Zealand Banking Group Ltd. 1' 700 .00 N-8 fcb -04 Australi a and New Zea land Banking Group Ltd. 700 .00 N-9 M ar-04 Australia and New Zealand Bank ing Group Ltd. L - 700.00 N-1 7. Jan-Mar 7.00tl Aya la Corporati on 7., 300 .00 25 Ex hibit FF, Page 6 . 26 Ex hi bit FF, Page 7. 27 See Ex hi b its J- 1 to J-20 and Ex hi bits N-764 to 983 fo r detail s of CWT w ith FOE of sup porting doc uments for the year 2004 and Annex A of this Repo rt for the year 2005.

DECISION Page 14 of 19 CTA Case No. 7605 Business Process Outsourcing International, Inc. vs. CIR I,258. 36 6 1.60 N -34 Jan-Mar 7.0011 Cal yon Corporate and Investm ent B ank 6 1.60 N-57 Feb-04 Finaeor Finance Corporati on N-58 Mar-04 Finacor Finance Corporation 565.00 N-77 J an - 04 Japan J'NB Leas ing&. Finan ce Corp. 565.00 N-78 Feb-04 Japan l'NB Leas ing&. Finance Corp. 565 .00 N -79 M a r-04 Japan PN B Leasin r, &. Finance Corp. 14 ,4 7 1 . 5 0 N-80 Jardine D avies, Inc. I ,5 00.00 N-11 6 Jan-Mar 7. 004 Parar,on Trave l Ltd. 459.00 N- 11 7 Jan-Mar 7.0011 Perfetti Van Me ll e Phi is. In c. 450.00 N- 127 Jan-Mar 7.0011 PIT l'h i1s., lnc. 1, 150.00 N- 154 Jan-Mar 2004 i\BN i\nu�o Hank, lnc. 5 ,22 9 .00 N-767 Jan -J un 2004 Duracom Mobile Power Corporation 5, 103.00 N - 77 0 i\pr-Jun 2005 East i\sia Dieselpower Corporation I,297..00 N- 77 8 i\p r-Jun 2005 Aya la Av iation Corporation 90 1.00 N-808 Jan-Mar 7.005 Ca lyon Corporate and Investm ent B ank 1, 177.40 N-8 16 Jan-Mar 7.005 CitiFin ancial Corp. 3, 87. 0 .00 N -8 38 Jan-Mar 7.005 eTeleca re Globa l Soluti ons, Inc. (PTT) N- 84 3 Jan-Mar 7.005 Finacor Finance Co rporati on 62 .70 N- 898 Meridi an Telekoms, lnc. 4,068.00 N-94 6 M ar -0 5 Quezon Power (Phils.) 1Jd . Company 5,602.26 N-952 Jan-Mar 2005 Sehering Plough i\nimal Health, lnc. 1,377.60 N -95 9 Jan-Mar 2005 Sykes Asia, Inc. 3,7 80 .00 N-960 Jan -Mar 2005 Synr,enta Phil ipp ines, Inc. 7. ,460 .00 Jan-Mar 7.005 Sub-total p 60,380.02 Jan-Mar 7.005 2) CWT claimed twice or CWT claimed pertain to one supporting documen t only N-45a Jan-Mar 2004 Da1i (Pbi1s. ) ln c. p 533 .80 N-49a Jan-Mar 2004 Duracom Mobile Power Corporation 2, 98 5. 00 N- 120 Jan-Mar 2004 l'hi lip Morri s Philippines Mfg., lnc. 63 ,604 .08 N-1 7.3a Jan-Mar 7. 004 Procter &. Ga mhie As ia Pte. Ltd. 40, 17.9 .78 N-1 7.3b Jan-M ar 7.004 Procter &. Gamble As ia Pte. Ltd . 40, 17. 9.78 N-1 7.3c Jan-Mar 7. 004 Procter & Ga mble As ia Pte. Ltd . 40, 129.78 N-1 7.4a Jan-Mar 7.004 Procter & Ga mble Distributin r, 7., 477. 98 N- 124 b Jan-Mar 2004 Procter &. Gamb le Distributing 2,477.98 N- 124c Jan-Mar 2004 Procter &. Gamb le Distributing 2, 477.98 N- 150a Jan-Mar 2004 TrustiJ1ternati onal l'aper Corp . 2,01 6. 00 N- 15 l a Dec. 28, 2003 -Mar. 27, 2004 Tupperware Pbi ls., in c. 6,3 11. 65 N-1 56a Jan-Ma r 7.0011 Vi steon Phil s., ln c. 3,3 15.00 N - 774 a Jan-Mar 7.005 AAC I Transport, Inc. 7. 17.00 N - 786a Jan-Mar 7.005 Bank of Ameri ca 1, 100.00 N -8 /.&a Jan-Mar 7.005 Dura com Mobi le Power Corporation 5,974. 50 N-829a Jan-Mar 2005 East i\sia Diesclpower Corporation 5,836.5 0 N-853a Jan-Mar 2005 Grand Pl aza Hote l Corporati on 2,3 09.00 N-883a Jan-Mar 2005 L'Oreal Philippines, 1J1c. 6, 84 9.75 N-9 19a Jan-Mar 2005 Perfetti Van Mell e Pbils. lnc. 72 0 .0 0 N -97./.a Jan-Mar 7.005 Phi lex Minin r, Co rporatio n 3 ,600 .00 N-94 1a Jan-Mar 7.005 Procter & Ga mb le Distributin r, 18 1,67 1.05 N-94 1b Jan-Mar 7.005 Procter & Ga mbl e Distributi ng 18 1,67 1.05 N-94 1c Jan-Mar 7.005 Procter & Gamb le Distributin g 18 1,67 1.05 N-942a Jan-Mar 2005 Procter &. Gamb le Distributing 2,532.36 N-942b Jan -Mar 2005 Procter &. Gamble Distributing 2,532 .36 N-942c Jan -Mar 2005 Procter &. Gamb le Distributing 2,532.36 Sub total p '/85,80). '/9 3) Name ofpayee not indicated in certificate oftax withheld N-11 5 Jan-Mar 7.004 Dart (Phi ls. ) In c. p 533.80 Sub -total p 1-- 533.80

DECISION Page 15 of 19 CTA Case No. 7605 Business Process Outsourcing international, Inc. vs. CJR 4) No supporting documents N-2 1a Jan-Mar 2004 Baxter Healthcarc l'hi1s. in c. 1' 2,448 .00 Sub total p 2,448.00 TOTAL p 849,167.61 In sum, Petitioner was able to substantiate its creditable withholding taxes for the years 2004 and 2005 in the amount ofP14,588,077.01 , computed as follows: Creditabl e tax withheld: p 17.,799,043 .00 p 7.7., 730,687.00 7. 00!1 9,93 1,644.00 7.005 p 585 ,9 14.67 8, 142,609.99 Less: Disa llowances 6,707,527 .7 1 p 14,588,077.01 Per !C PA Findinr,s 849, 167.6 1 CWT without FOE of supporting documents Additional di sall owance per thi s Co urt 's findin gs Substa ntiated CWT fo �� 2004 and 2005 Finally, petitioner, however, failed to prove that it complied with the third requisite. A comparison of Petitioner's gross revenues declared in its Annual Income Tax Returns for the taxable years 2004 and 2005 with the total income payments for the same period per BIR Forms No. 23 07 showed the following discrepancies: G��oss income I' 172,030,077. 01 1' 176,37 4,092.11 Per Schedul e of Certificate of Taxes Withheld at Source/13TR 139,784 ,3 25 .00 152327,084.00 p 32,245,752.01 p 24,047,008.11 Forms 2307 (Exh. J 20 and J 4J) Gross revenue per ITR Diffe��ence The independent CPA found that Petitioner' s several invoices/income pertaining to the taxes withheld at source being claimed for tax credits formed part of its gross income in previous years, to wit:n (1) 2003 2004 (a) 84,5 18,533 .00 (2) (a) 11 , 188,83 9.00 p 84,518,533.00 (3) (a) 11 ,698,273.00 (4) (b) I,256,342.00 (a) 72,234,545.00 Tota l fo �� th e yea �� p 12,445,181.00 p 83,932,818.00 No te: ( Ia) 7.003 invoices collected in 7.0011. (2a) 2004 invoices collected in 2005 . (3a) 2004 invoices collected in 2004 . V (3b) 7.003 in vo ices collected in 7.005. (4a) 7.005 invo ices collected in 7.005. 28 Exhibit FF, Page 7

DECISION Page 16 of 19 CIA Case No. 7605 Business Process Outsourcing International, Inc. vs. CIR Even so, the discrepancies of P32,245 ,752.01 and P24,047,008.11 are still not fully accounted for. Thus, for failure to prove that the income from which the taxes were withheld were included in the return of the recipient, Petitioner cannot claim for refund the unutilized excess creditable withholding taxes for the taxable years 2004 and 2005. Moreover, based on Section 76 of the National Internal Revenue Code (NIRC) of 1997, as amended, 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. Petitioner' s claim of P13 ,253,645.00 consists of the following: Excess cred its in 2004 p 9,382,238.00 Excess credits in 2005 3,871 ,407.00 lc:xcess Tax Cred its Claimed for Refund p 13,253,645.00 A perusal of Petitioner' s amended and original Annual Income Tax Return for taxable years 200429 and 2005,30 respectively, shows the fo llowing: income tax due for tl1c taxable year 2004 2005 Less: Tax credits l' 4,137,073.00 l' 6,060,237.00 Prior year's excess credits l' 720,268.00 l' Creditable tax witl1hcld for ilic first tlrrcc quarters 10,483 ,9 19.00 7,555,029.00 Creditable tax witl1hcld for the fourth qurutcr 2,3 15, 124.00 2,376,6 15.00 Total tax credits l' ( 13,5 19,3 11.00) l' (9,931 ,644.00) Tax ove ��pay ment P(9,3S2,23S.OO) P(3,871 ,407.00) Petitioner marked the option "To be refunded" in the face of its Annual Income Tax Returns for the taxable years 2004 and 2005. However, Petitioner did not present its originally filed 2006 and 2007 Annual Income Tax Returns showing that it t--- did not catTy over the excess CWT of the previous taxable years. The Court cannot 29 Ex hibit " B" 30 Exhibit "C"

DECISION Page 17 of 19 CIA Case No. 7605 Business Process Outsourcing International, i nc. vs. CJR ascertain whether or not Petitioner ori ginall y carri ed over the claimed excess creditable withholding taxes. In the case of Commissioner of Internal Revenue vs. Bank of Philipp ine Islands,31 the Supreme Court cl arifi ed and expounded the irrevocability rul e through the following p ronouncements: XXX The Co urt categori cally declared in Phi lam th at: "Secti o n 76 rema ins c lear and un equi vocal. Once th e carry-over option is taken, actuall y or constru ctively, it becomes irrevoca ble." It menti oned no exception or qua lifi cati on to the irrevocability rul e. 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 co uld no longe r make anoth er one. Consequentl y, after th e taxpayer opts to carry-over its excess tax credit to the fo llowing taxable peri od, the question of w hether or not it actu ally gets to apply said tax credit is irre levant. Section 76 of th e NIRC of 1997 is explic it in statin g th at once th e opti on to carry over has been made, "no applicati on fo r tax refund or iss uance of a tax credit cett ifica te shall be allowed therefor". XXX Phi/am reveals a met icul ous consideration by the Court of the ev idence submitted by th e parti es and th e c ircum stances surro undin g th e taxpayer's opti on to carry over or c la im for refund . Wh en c ircum stan ces show that a choice has been made by th e taxpayer to carry over the excess in come tax as credit, it should be respected; but when indubitable c ircum stances c learl y show th at anoth er choice - a tax refund - is in o rder, it should be granted. "Techni calities and legalisms, however exalted, should not be misused by the government to keep money not be longing to it and th ereby enri ch itself at th e expense of its law-abiding c iti zens. " T herefore, as to whi ch option the taxpayer chose is generally a matter of ev idence. It is ax iomati c that a c la imant has th e burden of proof to establi sh th e fa ctual bas is of hi s or her claim fo r tax credit or refund . Tax refunds, like tax exemptions, are constru ed strictly against the taxpayer. (Paseo Realty and Development Corporation v. Court of Appeals, G.R. No. 11 92 86, 13 October 20011 , !J!J OSC RA 235 , 2!J 7.) xxx T here can be no do ubt that BPI opted to carry over its excess in come tax credit fro m 1998; it only subsequentl y changed its mind - whi ch it was barred from doing by the irrevocability rule." ~ XXX 31 G.R. No . 178490, July 7, 2009.

DECISION Page 18 of 19 CTA Case No . 7605 Business Process Outsourcing International, In c. vs. CIR WHEREFORE, premises considered, petitioner's claim for refund or the issuance of a tax credit certificate in the amount of P13 ,253 ,645 .00, representing its exL:ess/unutilized creditable withholding income taxes for the taxable years ended December 31, 2004 and 2005, is hereby DENIED. SO ORDERED. WE CONCUR: ~Mb&~~EZ Associate Justice ATTESTATION 1 attest 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' s Division. riSTA

DECISION Page 19 of 19 CIA Case No. 7605 Business Process Outsourcing International, In c. vs. CIR CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson' s Attestation, 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 v .~ ERNESTO D. ACOSTA Presiding Justice