UNIVATION MOTOR PHILIPPINES, INC. (FORMERLY NISSAN MOTOR PHILIPPINES, INC) v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION UNIVATION MOTOR CTA Case No. 9335 PHILIPPINES, INC. (fo rmerly , NISSAN MOTOR PHILIPPINES, INC .), Members: Petitioner, CASTANEDA, JR., Chairperson CAS ANOVA, and -versus- MANAHAN, JJ. Promulgated: COMMISSIONER OF INTERNAL REVENUE, APR 0 3 2018 ~ X A: --- Respondent. t X- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - DECIS I0 N I 1: 1-t> ~t; . ,. � MANAHAN, J.: This involves a Petition for Review1 filed on April 15, 2016 by petitioner Univation Motor Philippines, Inc., formerly Nissan Motor Philippines Inc., on the inaction of respondent Commissioner of Internal Revenue (CIR) , over its claim for refund or issuance of tax credit certificate of EIGHT MILLION SEVEN HUNDRED FOURTEEN THOUSAND TWO HUNDRED SEVENTY NINE PESOS (Php8,714,279. 00) representing the excess and unutilized credit able withholding taxes (CWT) for calendar year (CY) 2013 pursuant to Sections 204(C) and 229 of the 1997 National Internal Revenue Code, as amended. THE PARTIES Petitioner Univation Motor Philippines, Inc. is a corporation duly organized and existing under the laws of the Republic of the Philippines, with principal place of business at Nissan Technopark, Barangay Pulong, Sta. Cruz, Sta. Rosa, a..-. 1 Docket, CTA Ca s<" No . g33S, Vol. I, pp. 10-20.

DECISION CTA Case No. 9335 Laguna.2 It is also registered with the Large Taxpayers Service of the Bureau of Internal Revenue (BIR), with Taxpayer Identification No. 000-389-353-000. 3 Respondent CIR is vested with authority to carry out all functions, duties, and responsibilities of said office, including, inter alia, the power to act upon, decide and approve claims for refund and/ or tax credits of overpaid or erroneously paid or collected internal revenue taxes. 4 THE FACTS Petitioner is primarily engaged in buying, acqu1nng, manufacturing, assembling, producing, importing, holding, selling, disposing, distributing, dealing of motor trucks, cars, engines and other kinds of automobiles and mechanically propelled vehicles, means of transportation and industrial machinery, their bodies, spare parts, accessories, and repair, maintain, serv1ce, condition and/ or recondition of said products. 5 On July 30, 2015, petitioner filed with the BIR Large Taxpayers Excise Audit Division II (LTEAD II) an administrative claim for refund or issuance of tax credit certificate (TCC) in the amount ofP8,714,279.00 for alleged excess and unutilized CWT for CY 2013.6 Due to respondent's purported failure to act on the said administrative claim for refund, petitioner filed the instant Petition for Review7 before this Court on April15, 2016. Respondent filed his Answer8 on May 16, 20 16, interposing the following special and affirmative defenses: 4. Petitioner's alleged claim for refund is subject to administrative routinary investigation/examination by the Bureau.~ 2 Docket, Vol. I, Par. l, Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), p. 384. 3 Docket, Vol. I, Par. 4, Admitted Facts, JSFI, pp. 385. 4 Id. 5 Id. 6 Docket, Vol. I, Par. 5, Admitted Facts, JSFI, pp. 385. 7 Docket, Vol. I, pp. 10-20. s Docket, Vol. I, pp. 147- 152.

DECISION CTA Case No. 9335 5. The amount of P8,714,279.00, allegedly representing excess .and unutilized creditable withholding taxes for the calendar year ended 31 December 2013. 6. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund/ credit. XXX XXX XXX 8. The instant case involves a claim for refund of alleged excess and unutilized creditable withholding taxes for calendar year ended 31 December 2013. Thus, it is incumbent upon petitioner to discharge its burden of proving entitlement thereto, which basically must include the fact of withholding of taxes and its subsequent remittance to the BIR. 9. Petitioner must prove that it has complied with the following requisites as ruled by the Supreme Court and the Honorable Court in a number of cases, to wit: (a) the claim is filed with the Commissioner of Internal Revenue within the two-year period from the date of payment of the tax; (b) it is shown on the return of the recipient that the income payment received was declared as part of the gross income; and (c) the fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom. 10. Petitioner must likewise prove that it has not exercised the option to carry over any excess credits in the succeeding quarters as provided under Section 76 of the National Internal Revenue Code of 1997 (NIRC of 1997) which provides thus: XXX XXX XXX 11. Moreover, petitioner's failure to submit documents supporting its claim for refund makes its administrative claim for refund pro-forma. This pro- forma administrative claim should not be taken as a-.-

DECISION CTA Case No. 9335 proper compliance with the requirements of the law that an administrative claim for refund should have been filed prior to the institution of a judicial claim for refund. Thus, without a validly and duly filed administrative claim for refund, the Honorable Court is without jurisdiction to entertain the Petition for Review. Petitioner's failure to comply with a condition precedent prior to the institution of its petition for review makes it dismissible for absence of jurisdiction on the part of the Honorable Court. xxx The case was set for Pre-Trial Conference on June 23, 2016. 9 The Respondent's Pre-Trial BrieflO was submitted on June 7, 20 16; while the Petitioner's Pre-Trial Brief1 1 was filed on June 17, 2016. On July 11, 2016, the parties filed their Joint Stipulation of Facts and Issues. 12 Later, a Pre-Trial Order was issued by the Court on August 2, 2016, which approved the Joint Stipulation and Facts and Issues and deemed the pre-trial of the case terminated.13 During trial, petitioner presented Ms. Lourdes Y. Bautista, petitioner's General and Cost Accounting Department Head14 and Ms. Madonna Mia S. Dayego 15, the Court-commissioned Independent Certified Public Accountant (CPA), as its witnesses. After presentation, marking and identification, petitioner formally offered its documentary evidence on October 21, 2016, consisting of Exhibits "P-1" to "P-40-a", inclusive of sub- markings.16 These exhibits were later admitted as part of petitioner's evidence pursuant to the Resolutions dated January 13, 2017 17 and March 30, 20171s. ~ 9 Docket, Vol. I, pp. 153-154. 10 Docket, Vol. I, pp. 160-164. 11 Docket, Vol. I, pp. 165-177. 12 Docket, Vol. I, pp. 384-391. 13 Docket, Vol. I, pp. 407-412. 14 Docket, Vol. II, Minutes of the hearing held on August 10, 2016, p. 413; Docket, Vol. I, Exhibit "P-17", cludicial Affidavit of Ms. Lourdes Y. Bautista, pp. 347-357. 15 Docket, Vol. 11, Minutes of the Hearing held on September 21, 2016, p. 445; Judicial Affidavit of Ms. Madonna Mia S. Dayego, pp. 421-444. 16 Docket, Vol. II, Petitioner's Formal Offer of Evidence, pp. 452-485. 17 Docket, Vol. II, pp. 654-655. 18 Docket, Vol. II, pp. 673-674.

DECISION CTA Case No. 9335 When it was respondent's turn to present evidence, his counsel manifested that the case has no report of investigation. Thus, upon motion of both counsels, the parties were granted thirty (30) days to file their memoranda. 19 Respondent filed his Memorandum2� on May 3, 2017; while petitioner filed its Memorandum2 1 on May 22, 2017. Thereafter, the Court declared the case submitted for decision on May 26, 2017.22 ISSUE The parties submitted the following issue for this Court's resolution: Whether or not petitioner is entitled to the refund of or issuance of TCC for its excess and unutilized CWT for CY 2013 in the amount of P8,714,279.00.23 Petitioner's Arguments24 Petitioner argues that it filed its administrative and judicial claims for refund of excess and unutilized CWT for CY 2013 within the two-year prescriptive period and that the income from which the CWTs being claimed was reported as part of the gross revenues declared in its Annual Income Tax Return (ITR). Petitioner further asserts that said excess and unutilized CWTs for CY 2013 were duly substantiated by documentary evidence. Respondent's Counter-Arguments2s Respondent, on the other hand, argues that petitioner fell short of proving the claim for refund because the resulting figures in the Independent CPA Report were merely extracted from petitioner's accounting system or from the supporting c....-. 19 Docket, Vol. II, Minutes of the Hearing held on April3, 2017, p. 675. 2o Docket, Vol. II, pp. 677-681. 21 Docket, Vol. II, pp. 686-706. 22 Docket, Vol. II, Resolution dated May 26, 2017, p. 707. 23 Docket, Vol. !, Issues, JSFI, p. 386. 24 Docket, Vol. II, pp. 686-706. 2s Docket, Vol. II, pp. 677-681.

DECISION CTA Case No. 9335 documents it also prepared; hence, the evidence presented were hearsay. RULING OF THE COURT Petitioner's claim finds legal basis in Section 76 of the NIRC of 1997, as amended, which provides: 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 due 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 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 tax 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 tax credit certificate shall be allowed therefor. The above provision prescribes two options to a taxable corporation whose total quarterly income tax payment in a given taxable year exceeds its total income tax due. The taxpayer may either file a tax refund (either in the form of cash or tax credit certificate) or carry over the excess credit. However, once the carry-over option is taken actually or constructively, it becomes irrevocable for that taxable period.26 The phrase "for that taxable period" refers to the taxable year when the excess income tax, subject of the option, was acquired by the taxpayer. 27 ~ ------------- 26 PhilamAsset Management. Inc. us. CommissionerofinternalRevenue, G.R. Nos. 156637 and 162004, December 14, 2005; Systra Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 176290, September 21, 2007. 27 Commissioner of Internal Revenue vs. Bank of the Philippine Islands, G.R. No. 178490, July 7, 2009.

DECISION CTA Case No. 9335 amount of P8,714,279.00, or in the total amount of P16,817,026.00 unutilized as of December 31, 2013, as computed below:32 Prior year's excess credits p 10,192,457.00* 2,089,710.00 Less: Income tax due 8,102,747.00 -----�- 8,714,279.00 Balance of prior year'~-e~s;ess credits P16,817,026.00 Add: Creditable taxes_withheld during the year Unutilized Excess Tax Credits as of December 31, 2013 *Amount rounded-off Inasmuch as petitioner clearly indicated its intention to be issued a TCC by marking the box corresponding to the said choice in its Annual ITR33 for CY 2013 and only the prior year's excess tax credits of P8,102,747.00 were carried over in its Annual ITR34 for the succeeding year 2014, the unutilized CWT for year 2013 in the amount ofP8,714,279.00 may be the proper subject of a claim for the issuance of TCC under Section 76 of the NIRC of 1997, as amended. In addition to the requisites provided under Section 76 of the NIRC of 1997, as amended, the Supreme Court, in the case of Republic of the Philippines, represented by the Commissioner of Internal Revenue us. Team (Phils.) Energy Corporation (formerly Mirant (Phils.) Energy Corporationps, laid down the following requirements for entitlement of a corporate taxpayer to a refund or issuance of tax credit certificate involving excess withholding taxes: 1. That the claim for refund was filed within the two- year reglementary period pursuant to Section 229 of the NIRC; 2. When it is shown on the ITR that the income payment received is being declared part of the taxpayer's gross income; and 3. When the fact of withholding is established by a copy of the withholding tax statement, duly issued by the payor to the payee, showing the amount paid and income tax withheld from that amount. ~ 32 Docket, Vol. IT, E~xhibits "P-9" and "P-10", pp. 577 and 583; 590 and 595. 33 Docket, Vol. II, Exhibit "P-10", line 21, p. 590. 34 Exhibit "P-18-9". 35 G.R. No. 188016, January 14, 2015.

DECISION CTA Case No. 9335 As to the first requisite, Section 229 of the National Internal Revenue Code of 1997, as amended, provides: SEC. 229. Recovery of Tax Erroneously or fllegally 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 of 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. (Emphasis supplied) Significantly, in the case of ACCRA Investments Corporation us. Court of Appeals, et al.36 , the Supreme Court said that the reckoning of the two-year prescriptive period for the filing of a claim for refund or tax credit of excess income tax paid/withheld provided in the above-quoted provision should commence from the date of filing of the Final Adjustment Return. In this case, evidence shows that petitioner filed its Annual ITR37 for CY 2013 on April 15, 2014 through the BIR's electronic filing and payment system (eFPS), while Amended ITRs were later filed on April21, 2014, on April30, 2014, on May 5, 2014, and on August 15, 201438. Considering that petitioner filed its administrative and judicial claims for refund on July 30, 2015 and on April 15, 2016, respectively, it is clear that the said claims were filed within the two-year period required by law. Thus, the Court finds that petitioner complied with the first requisite. ~ 36 G.R. No. 96322, December 20, 1991. 37 Docket, Vol. II, Exhibit "P-3," pp. 504-508. 38 Docket, Vol. II, Exhibits "P-5" to "P-10," pp. 517-602.

DECISION CTA Case No. 9335 Moving on to the second and third requisites, the same are imposed by Section 2.58.3(B) of Revenue Regulations (RR) No. 2-98, as amended, which states: SECTION 2.58.3. Claim for Tax Credit or Refund.- XXX XXX XXX (B) Claims for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment has been declared as part of the gross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. (Emphasis supplied) To prove the fact of withholding of the subject CWT, petitioner presented the Schedule of Creditable Taxes Withheld39 and the related BIR Forms No. 230740 duly issued by the withholding agents for CY 2013, reflecting the CWT of P8,711,693.44 with related Income payments of P839,861 ,738.48. In the verification of the BIR Forms No. 2307, the Court- commissioned Independent CPA found that the one issued by S & J Motors (Nissan Iloilo) is dated from 00/01/00 to 00/00/00, which is considered as invalid information. Thus, the CWT of P2,585.45, relating to the sale of goods and services, was disallowed, to wit: 4 I Exhibit T Income Payments CWT p 8,714,278.89 "P-20" I ~ 840,120,284.53 -j--- 8,711,693.44 p 2,585.45 + "P-21" -- I 839,861 '738.48 p 258,546.05 1---------~- Difference Further examination discloses that both income payments and CWT declared in certain BIR Forms No. 2307 are altered without counter-signature. That being the case, the Court cannot verify the accuracy of the information declared therein. Hence, the following CWT in the total amount ofP7,157.85 shall likewise be disallowed:~ .39 Exhibits "P-20" to "P-21 ". 40 Exhibits "P-21-1" to "P-21-905". 41 Exhibit "P-39", par. 6, p. 7.

DECISION CTA Case No. 9335 Exhibit �-�-------~----�-~� Income Disallowed "P-21-338" Payment "P-21-371" ----~- ?ayo:r_ p 78,631.00 CWT "P-21-385" Nissan Commonwealth Inc. 145,643.00 "P-21-410" Nissan Commonwealth Inc. 144,972.00 p 786.31 "P-21-413" Nissan Commonwealth Inc. 35,480.38 1,456.43 "P-21-444" Nissan Commonwealth Inc. 125,456.00 1,449.72 "P-21-488" Nissan Commonwealth Inc. 45,960.00 354.80 Nissan Commonwealth Inc. 139,642.57 1,254.56 p 715,784.95 459.60 ---~- 1,396.43 Ponce Automobile_Corporation p 7,157.85 Total As regards the third requisite, the Independent CPA noted that the income payments of P839,861,738.48, except those of P2,132,977.37 with corresponding CWT of P21,349.64, were recorded in petitioner's general ledger, as summarized below:42 -T Per Summary of Income Payments Covered by BIR Form No. 2307 Traced to General Ledger r ", ;,:�~,J" CWTSupported jExhibit "P-26" and "P-28") Particulars by Original BIR 2011 2012 2013 Total Differenc Sales of goods !Form No. 2307 in I' 2,131,143 and services 85,492,838_96 I' 731,349,888-03 I' 833,816,807.57 Other income: the Petitioner's 1,833 Name Handling and p 2,132,977 delivery (Exhibit "P-2 1") charges ________ _ _ ' I' 835,947,951-54 ,307,651-58 I' Rental ---�-------~------t~ income Management _)_ fees Sale of fiXed I assets Grand Total 647,886_92 -~ 67,910.72 578,142.80 646,053.52 206,9]0_00 _________ J_ - 206,910.00 206 910.00 - ----1--- -t--~ 2,100,000_00 2,100,000.00 2 100,000.00 958,990~ ----~--~--L 958,990.02 958 990.02 p 839,861,738.48 1'_4,666,429.0<?,CJ 12,307,651.58 I' 85,560,749.68 I' 735,193,930.80 p 837,728,761.11 In ascertaining that the sales and other income per general ledger tally with those declared per tax returns, the Independent CPA prepared the following reconciliation:43 !-r-- Per Schedule of Computation of Particulars Exhibit+ Per GL Exhibit Taxable Income Difference 2013 ---~--- --~=------- "P-32" "P-33" Sales of goods "P-22 1, _'~!:'~___1_,41 o,:ll1,314.64 r 1,410,311,315.00 f> (0.36)* and services Other income �'P-2::>-1" _ _ 33,023,845.42 52,410,105.00 ll9,386,259.58t p 1,462 721,420.00 {0.06)* Total . . ~~~44:,335, 160.06 p (19,386 260.00) 2012 --r-- r 961,405,824.00 p 0.24* Sales of goods and services . �� P-2'2~�:_ -1I --t'__ ____\)()1,~105,824 24 96 424,846.00 (86 448,621.72) Other income Total .. "L:!_S-2:__.___~ 'J,<J7(>,224.28 p 1 057 830,670.00 p (86 448,623.00) 971,382,048.52 2011 Sales of goods I . "P-22-:1" 1,510,345,251.00 "P-34" p 1,510,345,251.00 p - and services 42 Exhibit "P-39", p. 9. 43 Exhibit "P-39", pp. 1 l -12.

DECISION CTA Case No. 9335 ��-----=~ 2010 ---- 2,151,388 ,315.77 "P-35" p 2,151,388,316.00 p (0.23)* Sales of goods and services . --� "P-22-4" *Due to roundzng-off The differences In Other Income were accounted for as follows: Particulars Amount 2013 (Exhibit "P-32") p 19,121,415.00 139,685.00 Taxable realized forej_gn exchange gain 125,160.00 Taxable miscel-l-a-n-e-o-u�s-�i-n-c�o-me p 19,386,260.00 Taxable interest income classified under separate account in GL ------------------- Total - --� 2012 (Exhiblt-"P-33") p 2,000 000.00 Non-taxable reversal of accrued benefits Non-taxable dividend income 297,257.00 -----�---~---- (80,819,255.00) Taxable realized fo_r:_t:ign exchange gain J5,243,343.00l Taxable interest income Other expense (2,683,282.00) Total p (86,448,623.00) Based on the foregoing, petitioner was able to prove that the income payments of P837,012,976.16, with corresponding CWT ofP8,683, 185.95, formed part of the gross income declared in its Annual ITRs, as shown below: ------------�-- ------- ---��---�-- ---- . ---- - ��-----~-- Income Pay_ments CWT ~ 840,120,284.53 ~ 8,714,278.89 Subject _Qf_!_h_e c:_~ai lTI ------��--�-- 258,546.05 2,585.45 Less: Disallowances 2,132,977.37 21,349.64 Perindependent CPA 715,784.95 7,157.85 p 837,012,976.16 p 8,683,185.95 report Certificate dated from 00/01LQO _t:_()_ OO_j_(O_QjOO Income pay1nent s not traced in the GL Per this Court's further verification Total Valid Claim In sum, out of the amount claimed for refund, which is P8,714,279.0044 , petitioner is only entitled to a refund of the reduced amount of P8,683, 185.95 representing its excess and unutilized CWT for CY 2013. WHEREFORE, premises considered, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent eHt.. 44 The amount P8,714,278.8CJ is rounded-off.

DECISION CTA Case No. 9335 is ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of P8,683,185.95, representing petitioner's excess and unutilized CWT for CY 2013. SO ORDERED. c~� 7 4-ttH?-1~ CATHERINE T. MANAHAN Associate Justice WE CONCUR: :J. ~" c. Q.Y-~0() CAES~SANOVA Associate Justice Jth(NITO C. CASTANEDA, JR. Associate Justice ATTESTATION I 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. ~~~C-~7>4/~� Jtf'ANITO C. CASTANEDA, JR. Associate Justice Chairperson

DECISION CTA Case No. 9335 CERTIFICATION Pursuant to Article VIII, Section 13 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. Presiding Justice