COMMISSIONER OF INTERNAL REVENUE v. MCKINSEY & CO. (PHILS)

REPUBLIC OF THE PHILIPPINES COU RT OF TAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL CTA EB NO. 2809 REVENUE, (CTA Case No. 10281) Petitioner, -versus- P res ent: Del Rosario, P.J. , Ringpis-Liban, Manahan, Bacorro-Villena, Modesto-San Pedro, Reyes- F a jard o, Cui-David, Ferrer-Flores, and Angeles, Jl MCKINSEY & CO. (PHILS.), P ro mulgat ed: Respondent. X---------------------------------------------------------------------------------- ------------X DECISION RINGPIS-LIBAN, 1; T his is a Petition for Review1 ftled on November 16, 2023 under Section 18 of Republic Act (RA) No. 1125, as amended, in relation to Sections 3(b), Rule 8 of the Revised Rules of the Court o f Tax Appeals (RRCTA), challenging the D ecision2 dated May 30, 2023 ("Assailed Decision") and the Resolution3 dated October 3, 2023 ("Assailed Resolution") both promulgated by the Court of Tax Appeals -Special First Division (Court in Division) in CTA Case No. 10281. T he respective dispositive portions of the Assailed D ecision and Assailed Resolution are quoted hereunder:/ I Court En Bane Docket, pp. 6-18. 2 !d., pp.l9-41. 3 !d., pp. 42-46.

DECISION CfA EB No. 2809 (CfA Case No. 10281) Assailed Decision: "WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED. "\ccordingly, respondent Commissioner of Internal Re\�enue is ordered to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner Mci<insey & Co. (Phils.) in the total amount of :1'66,027,287.10, representing its excess and unutilized Creditable Withholding Taxes for calendar years 2017 and 2018, respectively. SO ORDERED." Assailed Resolution: "WHEREFORE, premises considered, respondent's Motion for Partial Reconsideration is DENIED for lack of merit. SO ORDERED." THE FACTS As narrated by the Court in Division 1n the Assailed Decision, the undisputed facts of the case are as follows A "On April 15, 2018, petitioner filed its Annual Income Tax Return (ITR) for CY 2017. On April 14, 2019, petitioner filed its Annual ITR for CY 2018. On April 13, 2020, petitioner ftled before the Bureau of Internal Revenue (BIR) its letter - claim for refund of excess CWT for CY 2017 and 2018, with attached BIR Forms No. 1914 or the Applications for Tax Credits/Refunds for its claimed excess and unutilized CWTs in the amounts of P39,613,320.00 and :1'62,813,748.00 for CYs 2017 and 2018, respectively. Alleging inaction on its claims for refund, petitioner flied the present Petition for Review on June 17, 2020, invoking Section 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, and Supreme Court Administrative Circular No. 39-2020 to preserve its right to claim for refund of its excess and unutilized CWT for CYs 2017 and 2018./ 4 !d., pp. 20-21.

DECISION CfA EB No. 2809 (CfA Case No. 10281) In the Resolution dated July 7, 2020, petitioner was directed to make the necessary amendments to its Petition for Review to conform to the provisions of the 2019 Amendments to the Revised Rules of Procedure which took effect on May 1, 2020, within five (5) days from notice. On July 21, 2020, pennoner ftled its Compliance/Submission (Re: ,\mended Petition for Review), with attached Amended Petition for Review. In the Resolution dated August 3, 2020, the aforesaid Compliance/Submission (Re: Amended Petition for Review) and the Amended Petition for Review were noted. Summons was issued to respondent on August 25, 2020. On September 26, 2020, respondent ftled a Motion for Extension of Time to File Answer. In the Resolution dated October 16, 2020, the said motion was granted and respondent was given until October 25, 2020 to ftle his ,\nswer. Respondent timely filed his Answer To Petitioner's "Amended Petition for Review" on October 26, 2020. In his Answer, respondent raised the following Special and Affirmative Defenses, viz.: 1. The judicial claim for refund of CWT for CY 2017 was filed out of time; 2. Petitioner failed to show that the income covered by Certificates of Creditable Tax Withheld at Source were declared as part of petitioner's income for CYs 2017 and 2018; 3. Petitioner's claims should be dismissed for manifest insufficiency of evidence even in the administrative level; and, 4. A claim for tax refund is strictly construed against the taxpayer for the same partakes the nature of tax exemption." Trial then ensued. On May 30, 2023, the Court in Division rendered the Assailed Decision/

DECISION CTA EB No. 2809 (CTA Case No. 10281) On June 29, 2023, petitioner ftled via registered mail his Motion for Partial Reconsideration which the Court in Division denied in the Assailed Resolution. Aggrieved, petitioner filed the present Petition for Review on November 9, 2023 within the extended period granted by the Court En Banc5 In a l\Iinute Resolution dated December 12, 2023,6 the Court En Bane directed the respondent to file its Comment within ten (10) days from notice. On January 4, 2024, respondent flied its Comment (Re: Petition for Review dated 8 November 2023) 7 In a Minute Resolution dated January 16, 2024,8 the Court En Bane submitted the present Petition for Review for decision. THE ISSUES In its Petition for Review, petitioner has raised the following assignment of errors:9 "IV. ASSIGNMENT OF ERRORS: THE FIRST DIVISION OF THIS HONORABLE COURT ERRED IN P},RTL\LLY GR.ANTING RESPONDENT'S CLAIM FOR T.-\X REFUND BY ORDERING THE PETITIONER TO REFUND OR ISSUE}, TAX CREDIT CERTIFICATE IN THE ,\MOUNT OF SIXTY-SIX MILLION TWENTY-SEVEN THOUS,\ND TWO HUNDRED TO MCKINSEY & CO. (PHILS), REPRESENTING ITS EXCESS ,\ND UNUTILIZED INPUT CREDITA.BLE WITHHOLDING TAX FOR YEARS 2017 AND 2018. THE 1-IONO~\BLE COURT'S riRST DIVISION ERRED IN GIVING CREDENCE ON THE TESTIMONY OF MS. ELENA CAK\HUG, RESPONDENT'S "\CCOUNT,\NT FOR BEING SELF-SERVING. THE HONO~\BLE COURT'S FIRST DIVISION ERRED THAT INCOME T,\X RETURN .\ND CERTIFICATE OF WITHHOLDING TAXES HELD AT SOURCE WERE SIGNED BY RESPONDENT UNDER THE PAINS OF PERJURY[./ 5 !d., p. 6. 6 Jd, p. 54. 7 !d., pp. 55-65. 8 !d., p. 66. 9 !d. p. 10.

DECISION erA EB No. 2809 (erA Case No. 10281) PETITIONER'S ARGUMENTS In the present Petition for Review, the CIR challenges the Court in Division's ruling in CTA Case No. 10281 partially granting respondent's claim for refund of its unutilized creditable withholding tax (CWT) for taxable years (TY) 2017 and 2018 on the basis of the following arguments: 1. Respondent's CWT refund claim forTY 2017 and 2018 was filed out of tlme. 2. Respondent is not entitled to a CWT refund as it failed to show that the income it received was declared as part of its gross income. THE COURT EN BANCS RULING After thorough evaluation of the factual antecedents of the present case, the arguments presented, as well as the relevant laws and jurisprudence on the matter, the Court En Bane finds that the present Petition for Review must be denied for lack of merit. The Court En Bane finds no compelling reason to disturb the Court in Division's findings in the Assailed Decision and Resolution. On the issue of jurisdiction and/ or timeliness of the filing of the administrative and judicial claims for refund, the Court En Bane fully concurs with the findings of the Court in Division that the administrative and judicial claims were both timely filed. The Court En Bane thus quotes with approval the meticulous discussion of the Court in Division on this matter, to wit: "The administrative and judicial claims were timely filed A refund of tax paid by the taxpayer, which was erroneously or illegally collected by the BIR is sanctioned by the NIRC of 1997, as amended. Sections 204 and 229 thereof provide: 'SEC. 204. Authority ofthe Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may XXX XXX XXX (C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the ,�alue 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/

DECISION CfA EB No. 2809 (CfA Case No. 10281) No credit or refund of taxes or penalties shall be allowed unless the taxpayer ftles in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: !'miNded, hoMm; That a return ftled showing an m�erpayment shall be considered as a written claim for credit or refund.' XXX XXX XXX 'SEC. 229. RecovefJ' of Tax Erroneously or Illegally CoJJected - 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 of any penalty claimed to have been collected without authority, or of any sutn alleged to have been excessively or in any manner wrongfull1� collected, until a claim for refund or credit has been dull' 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: Pro!Jided, boweJJer, 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.' Section 204 of the NIRC of 1997, as amended, applies to administrative claims for refund, while Section 229 of the same Code pertains to judicial claims for refund. ,-\ claimant must first file an administrative claim for refund before the CIR, prior to filing a judicial claim before the CTA. Notably, both the administrative and judicial claims for refund should be filed within the two (2)-year prescriptive period as provided in Sections 204 (C) and 229 of the NIRC of 1997, as amended, and that the claimant is allowed to file the latter even without waiting for the resolution of the former in order to prevent the forfeiture of its claim through prescription. The primary purpose of filing an administrative claim is to serve as a notice of warning to the CIR that court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded. \'Vhile the law provides that the two (2)-year period is counted from the date of payment of the tax, the Supreme Court clarified in ACCRA Investments Corporation vs. Court of Appeals, et a/., that the two (2)-year prescriptive period for claiming a refund of overpaid income tax/ C\'{IT commences to run on the date of filing of the Final "\djustment Return. This was reiterated in Commissioner of Internal Revenue vs. Univation Motor Philippines, Inc. (formerly Nissan Motor Philippines, Inc.), where it was held that the two (2)-year prescriptive period is reckoned from the filing of the final adjustment return. It is only when the Final "\djustment Retur.(v'

DECISION CTA EB No. 2809 (CTA Case No. 10281) covering the whole year is filed that the taxpayer would know whether a tax is still due or a refund can be claimed based on the adjusted and audited figures. In the present case, the following are the dates relative to the filing of petitioner's "\nnual ITRs for CYs 2017 and 2018, the corresponding deadline for petitioner to file its administrative and judicial claims, and the dates of filing of petitioner's administrative and judicial claims, viz.: CY Filing of Deadline to File Date of Filing of Date of Filing Annual ITR Administrative Administrative o f Judicial Claim and Judicial Claim Claims 2017 April 15, 2018 ""'>.pril 15,2020 April13, 2020 June 17, 2020 2018 April14, 2019 April 14, 2021 April13, 2020 june 17, 2020 Based on the foregoing, the filing of petitioner's administrative claim on April 13, 2020, and petitioner's judicial claim for CY 2018 on June 17, 2020 were made within the two (2)-year prescriptive period prm�ided under Sections 204 (C) and 229 of the NIRC of 1997, as amended. "\nent the timelines of petitioner's judicial claim for CY 2017, as aforesaid, petitioner had until April15, 2020 to file the same. In view, however, of the threat of COVID-19 infection and the correlated imposed quarantine restrictions, the Supreme Court issued the following Administrative Circulars in 2020, viz.: Issuance Contents Administrati,�c Circular No. 31- The filing of petitions and appeals, complaints, 2020 dated /\larch motions, pleadings and other court submissions 16,2020 that fall due during the period from 15 March 2020 until 15 April 2020 is extended for thirty (30) calendar days counted from 16 April2020. Administrative The filing of petitions and appeals, complaints, Circular No. 34-2020 motions, pleadings and other court submissions dated April 8, 2020 that fall due up to 30 April2020 is extended for 30 calendar days, counted from 1 May 2020. Administrative The filing of petitions, appeals, complaints, Circular No. 35-2020 motions, pleadings and other court submissions dated April 27, 2020 that fall due up to 15 May 2020 in the ECQ areas is extended for 30 calendar days, counted Administrati,�e from 16 May 2020. Circular No. 36-2020 The filing of petitions, appeals, complaints, dated April27, 2020 n1otions, pleadings and other court submissions that fall due up to 15 May 2020 in the GCQ areas is extended for 30 calendar days, counted from 16 May 2020.

DECISION CfA EB No. 2809 (CfA Case No. 10281) Administrative The filing of petitions, appeals, complaints, Circular No. 39-2020 motions, pleadings and other court submissions dated 1\Iay 14, 2020 that fall due up to 31 May 2020 in the MECQ areas is extended for 30 calendar days, counted from 1 June 2020. Administrati,�e The filing of petitions, appeals, complaints, Circular No. 40-2020 motions, pleadings and other court submissions dated l\Iav 15, 2020 that fall due up to 31 May 2020 in the GCQ areas is extended for 30 calendar days, counted from 1June 2020. Administrative All courts nationwide \Vere directed to be in full operation starting June 1, 2020. The same Circular No. 41-2020 Administrative Circular declares that there shall dated May 29, 2020 no longer be extensions in the filing of petitions, appeals, complaints, motions, pleadings and other court submissions that will fall due beginning June 1, 2020. In view of the foregoing, the filing of petitioner's judicial claim for refund was extended from .\pril 15, 2020 to June 30, 2020. Thus, the filing of petitioner's judicial claim for CY 2017 on June 17, 2020 was made within the extended period. "\s the present Petition for Review covering petitioner's judicial claims for CYs 2017 and 2018 have been seasonably filed on June 17, 2020, the Court has acquired jurisdiction to take cognizance of the same." (CitationJ omitted) In his Petition for Review, petitioner assails the Court in Division's ruling allowing the refund of CWT in the amount of !'9,921,287.10 from the income payment made to respondent amounting to !'66,141,914.00. Petitioner specifically opposes the use of 1\Is. Elena Cabahug's testimony as contained in her judicial affidavit in relation to respondent's 2016 Reconciliation Schedule and 2016 General Ledger Transaction Detail (GLTD) as basis for allowing such refund. A.ccording to petitioner: "x x x Other than the values discussed that were properly represented by documentary evidence, statement in said documents that purport reconciliation of values that were not substantiated by documentary evidence i.e. accrued revenue, forex adjustments should be treated as mere statements made to establish self-serving facts fitting for the said claims. Hence, it could not have shown that Php66,141,914.00 was declared to form part of the gross income of the respondent for the subject calendar years. 24. Thus, such declaration should not have been relied on since 'a self-serving declaration' is a statement favorable to the interest of the declarant. It is not admissible in evidence as proof of the facts asserted." (Boldfacing suppliedy

DECISION CTA EB No. 2809 (CTA Case No. 10281) Petitioner's position is untenable. Self-serving statements are those made by a party out of court advocating his own interest10 In People v. Omidin, 11 the Supreme Court held that the common objection known as "self-serving" is not correct because all testimonies are self-serving and the proper objection for such statement is that it is "hearsay". In Hernandez v. Comt ofAppeafs,12 the Supreme Court aptly ruled: "Self-serving statements are inadrnissible because the adverse party is not given the opportunity for cross-examination, and their admission would encourage fabrication of testimony. This cannot be said of a party's testimony in court made under oath, with full opportunity on the part of the opposing party for cross-examination." In light of the foregoing, Ms. Elena Cabahug's testimony as contained in her judicial affidavit in relation to respondent's 2016 Reconciliation Schedule and 2016 General Ledger Transaction Detail (GLTD) cannot be considered objectionable as self-serving or hearsay given that it was made in court under oath with the petitioner duly given the full opportunity for cross-examination. In this regard, the Court En Bane likewise agrees with the Court in Division's ruling where it partially granted the Petition for Review as the Court En Bane finds no compelling reason to modify much less reverse the same. It is a settled rule that in the absence of proof of gross error, abuse or improvident exercise of authority, conclusions reached by this Court supported by substantial evidence shall not be disturbed on appealY Finally, petitioner takes exception to the finding in the Assailed Resolution that the Annual Income Tax Returns (ITR) and the Certificates of Creditable Tax \'Vithheld at Source (BIR Form 2307) were executed under pain of perjury, as follows: "25. Further, the Honorable Court stated that the Income Tax Returns and the BIR Form 2307 were signed under the pains of perjury. Petitioner beg to disagree. Such signatures should have been made under oath before a person with a proper authority to administer oathi/ " Natk;nal Development Company v. Workmen's Compensation Commission, G.R. No. L-21724, April 27, 1967. 11 G.R. No. 188130, July 26, 2010. 12 G.R. No. 104874, December 14, 1993 13 Fortune Tobacco Corporation v. Commissioner of Internal Revenue, G.R. No. 192024, July 1, 2015; Commissioner of Internal Revenue v. Philippine Daily Inqwrer; Inc, G.R. No. 213943, March 22, 2017; Commissioner ofInternal Revenue v. T Shuttle Services, Inc, G.R. No. 240729, August 24, 2020.

DECISION CTA EB No. 2809 (CTA Case No. 10281) 26. To be liable for perjury a statement must be made under oath and such statement was proved to be false. To sign without the presence of a competent authority to administer oath is not one made under the pains of perjury, thus not [in] compliance with the requirements of the law." Truth be told, the above argument is too preposterous as to properly merit any consideration by this Court. Nevertheless, it must be pointed out that even a cursory examination of the documents in question will readily belie petitioner's contention. The forms, which the BIR itself had prepared, explicitly included a pre-printed statement to the effect that in executing the same, the signatory thereof declares under pain of perjury that the forms were made in good faith, verified, and the information supplied therein are true and correct to the best of the signatory's knowledge and belief. For reference, the screenshots of the relevant portions of the subject BIR Form 2307 and Annual ITR as offered and admitted as evidence are indicated below: BIR Form 2307� I I I '~' I ! ' penalti�n ol pe~ury, We did�1, und1r lh'- Cl!rl>futa hu beo!n made in l)ood iellh, ,...mOld by,.,., and to 11'.- but ol my l<.n(rMedge lnd t.De!. l:!llrua lind c:orrKl. PllrJ.uanl lOth� � IVIlnul Code, al ..,.lfldtd. lnd U... rto]Ubliono ouued ...,c., authority t.e......r I ~~ o~J. ntt..~PIO ' f P'yoti'Payor�~ l~ d ep<ne~~~Au.ltd�led Tax Agent 2~169--471 1 >1!1 PMted ~�me) SENIOI:U,W�IAGER; nN ol Slg"-IOIY Ta� /\;lent Aated<\1~ JAIIome'($ ~No. (il&p~\�obl&) I n~r:>,~toty I Dated lnua......, oe~.eo of E>.plly Co<'>IO<lflt. liN ol SiQ!'IItory T~ ol SiQn;o\ory ~t1S~gned I P~eel?l)let'l .\utt\ollzed R.t.?fdS&nl.ab\la/AccreOited Tax AgaM (S19nature Over Ptinled Name) 11 T�� Agen\Aatldll.llt'on 1-!o.J,i.Jtomey'� Ron No.{~ aooliuhlo) 0~\a cl luu:~nce ~~� oi.Elcplry WHEREFORE, the present Petition for Review is DENIED for lack of merit./

DECISION CTA EB No. 2809 (CTA Case No. 10281) SO ORDERED. ~.~~ MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR� Presiding Justice c~ ,.d,.ct.."---- CATHERINE T. MANAHAN Associate Justice ,..,....AL MARIA ROW~ Mt~tii~sfo-SAN PEDRO i As so i te J stice ~ 9P..r ~ ~. fa:1~ MARIAN IvY~ REYES-<'.fAJARbO i\ssociate Justice LANEE S. CUI-DAVID Associate Justice

DECISION CfA EB No. 2809 (CfA Case No. 10281) HENR/&NGELES Associate Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court. Presiding Jus rice