AYALA CORPORATION v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION AYALA CORPORATION, CTA CASE No. 9556 Petitioner, Members: - versus- CASTANEDA, JR., Chairperson, MINDARO- GRULLA, and COMMISSIONER OF BACORRO- VILLENA, JJ. INTERNAL REVENUE, Respondent. Promulgated: FEB Z6 20~ r7 ~.')6l� � x----- ---- -- ------------------------------------------------------x DECISION MINDARO- GRULLA, J.: Submitted for Decision on April 29, 20 19 is a Petition for Review 1 filed by petitioner Ayala Corporation (Ayala) on March 29, 2017, pu rsua nt to Section 7(a)(1 )2 of Republi c Act (RA) No. 1125,3 as am ended, as well as Secti on 3(a)(1)4 of 1 Docket , pp. 10- 19. 2 Sec. 7 . Jurisdiction . - The CTA shall exercise : (a) Exclusive appellate jurisdiction to review by appeal, as herein provided : ( 1) Decisions of the Comm issioner of Internal Revenue in cases involving di sputed assessm ents, refund s of internal revenue t axes, fees or other charges, penalti es in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administ ered by th e Bureau of Internal Revenu e; XXX 3 Act Creating the Court of Tax Appea ls. 4 Sec. 3. Cases w ithin the jurisdiction of the Court in Divi sion. - The Court in Division shall exercise: (a ) Exclusive o riginal over or appellate juri sdiction to revi ew by appeal t he following : L

Ayala Corporation vs. CIR Page 2 of 24 CTA Case No. 9556 DECISION Rule 4 and Section 4(a) 5 of Rule 8 of the Revised Rules of the Court of Tax Appeals, as amended, seeking for the issuance of a Tax Credit Certificate (TCC) in the amount of Sixty-Two Million Six Hundred Sixty Thousand Seven Hundred Seventy-Six Pesos (P62,660,776.00), representing its excess or unutilized creditable withholding taxes (CWTs) for calendar year (CY) 2014. Respondent is being sued in his official capacity as the CIR, having been duly appointed to exercise the powers and perform the duties of his office including, inter alia, the power to decide disputed assessments, refunds of internal revenue taxes, fees and other charges, penalties imposed in relation thereto, or other matters arising under the Tax Code. Respondent holds office and may be served with summons, notices and other processes of this Court at the 5th Floor, Bureau of Internal Revenue National Office Bldg, Bureau of Internal Revenue (BIR) Road, Diliman, Quezon City. Petitioner is a domestic corporation duly organized and existing under the Philippine laws with principal address at 3Yd floor, Tower One & Exchange Plaza, Ayala Triangle, Ayala Avenue, Makati City. Petitioner is registered with the Bureau of Internal Revenue (BIR) as a large taxpayer with Tax Identification (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. 5 Sec. 4. Where to appeal; mode of appeal.- (a) An appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally collected, the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal. /..

Ayala Corporation vs. CIR Page 3 of 24 CTA Case No. 9556 DECISION Number (TIN) 000153-610-000. 6 As a large taxpayer duly classified and notified by the BIR, petitioner is required to file its quarterly and annual income tax returns and other BIR forms through the Electronic Filing and Payment System (EFPS). On April 01, 2015, petitioner filed its Annual Income Tax Return (BIR Form 1702-RT) for CY ended December 31, 20147 through the EFPS showing overpayment of income tax due amounting to P78,261,625.00, computed as follows: Net taxable Income (loss) p (5,055,829,178.00) Tax Rate 30% Income Tax 0.00 MCIT Aggregate Income Tax Due p 17 694 834.00 Less: Tax Credits/Payments 17,694,834.00 Prior Year's Credits p 33,295,683.00 95,956,459.00 CWT 1st to 3'0 Quarters 26,226,649.00 p (78 261 625.00) CWT 4th Quarter 36 434 127.00 95,956,459.00 Total Total Overpayment On the same date, petitioner manually filed said Annual Income Tax Return (BIR Form 1702-RT) for CY ended December 31, 20148 with the BIR Large Taxpayer Service Office (LTSO) showing overpayment of income tax due amounting to P 78,261,625.00, computed as follows: Net taxable Income (loss) p (5,055 829 178.00) Tax Rate 30% Income Tax 0.00 MCIT Aqqregate Income Tax Due p 17,694,834.00 Less: Tax Credits/Payments 17 694 834.00 Prior Year's Credits p 33,295,683.00 95 956,459.00 CWT 1st to 3'a Quarters 26_L226,649.00 p (78,261,625.00) CWT 4th Quarter 36,434,127.00 95 956 459.00 Total Total Overpayment Petitioner then filed an administrative claim9 for the issuance of TCC for its unutilized CWT for CY 2014 in the total amount of P 62,660, 776.00. The administrative claim 6 Exhibit "P-1", Folder#l. 7 Exhibit "P-7-1 ", Folder# 1. 8 Exhibit "P-7-3", Folder# 1. 9 Exhibit "P-9-1", Folder#2. t.

Ayala Corporation vs. CIR Page 4 of 24 CTA Case No. 9556 DECISION was filed with the BIR LTSO on March 14, 2017 together with other supporting documents. Since the two-year prescriptive period 10 within which to apply for the issuance of TCC is about to expire, this Petition for Review was filed. On June 5, 2017, an Answer11 was filed by the CIR. Both parties' Pre-Trial Briefs12 were filed on August 17, 2017. The parties filed their Joint Stipulation of Facts and Issues (JSFI) 13 on September 13, 2017. On January 30, 2018, 14 the Court granted the commissioning of Madonna Mia S. Dayego as the Independent Certified Public Accountant (!CPA) in this case. Petitioner presented witnesses Maria Susana C. Babies on January 30, 2018 15 and Ms. Dayego on August 31, 2016. 16 Respondent presented no witness. 17 On August 8, 2018, petitioner filed its Formal Offer of Evidence. 18 Respondent filed its Commene9 on August 22, 2018. The Court issued a Resolution,Z0 admitting the exhibits except exhibits "P-17-1", "P-20-2", "P25-1 (1/1) to (1/5)", "P-27-1 (1/1) to (1/5)", "P-27-259", "P-27-261 to P-27- 263", "P-27-271", "P-27-273 to P-27275", "P-27-283", "P- 27-285", "P-27-287 to P-27-288"I "P30-4"f "P-30-8"I "P-30- 12", "9-30-14", "9-30-17 to 9-30-20", "P-30-22", "P-36-49", "P-36-53 to P-36-55" and "P-36-50 to P-36-52" for not being found in the records. 10 Section 229, National Internal Revenue Code of 1997, as amended. 11 Docket, pp. 90-97. 12 Ibid., pp. 154-164. 13 Docket, pp. 192-198. 14 Order, Ibid., pp. 255-256. 15 Ibid. 16 Order, Ibid., pp. 302-303. 17 Minutes of the Hearing, February 4, 2019, p. 400. 18 Docket, pp. 305-337, excluding the attachments. 19 Ibid., pp. 341-345. 20 Ibid., pp. 350-353. L

Ayala Corporation vs. CIR Page 5 of 24 CTA Case No. 9556 DECISION Petitioner filed its Manifestation and Motion21 to admit attached Amended Formal Offer of Evidence on November 5, 2018, to correct some errors in the markings of exhibits, which the Court admitted through a Resolution22 dated January 15, 2019 but nevertheless, denied the same exhibits previously not admitted for not being found in the records of the case. Petitioner's documentary exhibits are as follows: Exhibit Description Petitioner's Certificate of Registration issued by P-1 the Bureau of Internal Revenue (BIR) P-2 BIR Letter dated August 21, 1998 classifying the P-3-1 petitioner as a Large Taxpayer Petitioner's Amended Annual Income Tax (ITR) P-3-2 for Calendar Year (CY) 2005 duly filed through P-3-3 Electronic Filing and Payment System (EFPS) on April 11, 2006 at 3:07 PM P-3-4 Petitioner's Original Annual ITR for CY 2005 duly P-3-5 filed through EFPS on April 11, 2006 at 2:39 PM Petitioner's Annual ITR for CY 2005 manually filed P-3-6 with the Large Taxpayer Service Office (LTSO) on P-3-7 April 18, 2016 Petitioner's Amended Annual ITR for CY 2005 P-4-1 duly filed through EFPS on May 31, 2006 Filing Reference Number on the filing of: P-4-2 petitioner's Amended Annual ITR for CY 2005 ' P-4-3 filed through the EFPS Petitioner's Amended Annual ITR for CY 2005 P-4-4 manually filed with the LTSO on June 02, 2006 Independent Auditors' Report with comparative Financial Statements attached to petitioner's I Annual ITR for CY 2005 Petitioner's Annual ITR for CY 2011 manually filed with the LTSO on April 24, 2012 following the instruction in Revenue Memorandum Circular' (RMC_l No. 15-2012 BIR System-generated message dated April 16, 2012 addressed to an officer of the petitioner Independent Auditors' Report with comparative Financial Statements attached to petitioner's Annual ITR for CY 2011 Petitioner's Annual ITR for CY 2011 duly filed 21 Ibid., pp. 354-390. 22 Ibid., pp. 396-399. t.

Ayala Corporation vs. CIR Page 6 of 24 CTA Case No. 9556 DECISION P-4-5 under EFPS on August 24, 2012 Filing Reference Number on the filing of P-4-6 petitioner's Annual ITR for CY 2011 filed through P-4-7 the EFPS P-4-8 Line 35 of petitioner's Annual ITR for CY 2011 P-5-1 manually filed with the LTSO P-5-2 Line 37 of petitioner's Annual ITR for CY 2011 manually filed with the LTSO P-5-3 Line 37 of petitioner's Annual ITR for CY 2011 P-5-4 filed with through EFPS Petitioner's Annual ITR for CY 2012 duly filed P-5-5 through the EFPS on April 15, 2013 P-5-6 Filing Reference Number on the filing of P-6-1 petitioner's Annual ITR for CY 2012 filed through P-6-2 the EFPS Petitioner's Annual ITR for CY 2012 manually filed P-6-3 with the LTSO on April 26, 2013 P-6-4 Independent Auditors' Report with comparative Financial Statements attached to Petitioner's P-6-5 Annual ITR for CY 2012 P-6-6 Line 37 of petitioner's Annual ITR for CY 2012 P-6-7 manually filed with the LTSO P-7-1 Line 37 of petitioner's Annual ITR for CY 2012 P-7-2 filed with through EFPS Petitioner's Annual ITR for CY 2013 duly filed P-7-3 through the EFPS on April 10, 2014 P-7-4 Filing Reference Number on the filing of petitioner's Annual ITR for CY 2013 filed through the EFPS on April 10, 2014 Petitioner's Annual ITR for CY 2013 manually filed with the LTSO on April 22, 2014 Independent Auditors' Report with comparative Financial Statements attached to petitioner's Annual ITR for CY 2013 Lines 20 and 46 of petitioner's Annual ITR for CY 2013 manually filed with the LTSO Line 21 of petitioner's Annual ITR for CY 2013 manually filed with the LTSO Line 21 of petitioner's Annual ITR for CY 2013 filed with through EFPS Petitioner's Annual ITR for CY 2014 duly filed through the EFPS on April 01, 2015 Filing Reference Number on the filing of petitioner's Annual ITR for CY 2014 filed through the EFPS on April 01, 2015 Petitioner's Annual ITR for CY 2014 manually filed with the LTSO on April 01, 2015 Independent Auditors' Report with comparative t-.

Ayala Corporation vs. CIR Page 7 of 24 CTA Case No. 9556 DECISION P-7-5 Financial Statements attached to petitioner's P-7-6 Annual ITR for CY 2014 Signatures of the petitioner's Treasurer and P-7-7 Managing Director and Chief Finance Officer as shown in p_ag_e 1 of the ITR P-7-8 Petitioner's Quarterly Income Tax Return for the First Quarter of CY 2014 filed through the EFPS P-7-9 on May 29, 2014 Petitioner's Quarterly Income Tax Return for the P-7-10 First Quarter of CY 2014 manually filed with the LTSO on June 10, 2014 P-7-11 Petitioner's Quarterly Income Tax Return for the Second Quarter of CY 2014 filed through the P-7-12 EFPS on August 26, 2014 P-7-13 Petitioner's Quarterly Income Tax Return for the P-7-14 Second Quarter of CY 2014 manually filed with P-7-15 the LTSO on August 28, 2014 P-8-1 Petitioner's Quarterly Income Tax Return for the P-8-2 Third Quarter of CY 2014 filed through the EFPS on November 05, 2014 P-8-3 Petitioner's Quarterly Income Tax Return for the P-8-4 Third Quarter of CY 2014 manually filed with the P-8-5 LTSO on November 06, 2014 Line 34, page 2 of petitioner's Annual ITR for CY P-8-6 2014 manually filed with the LTSO P-8-7 Line 21, page 1 of petitioner's Annual ITR for CY 2014 manually filed with the LTSO Lines 30 to 33, page 2 of petitioner's Annual ITR for CY 2014 filed with through LTSO Line 21 of petitioner's Annual ITR for CY 2014 filed with through EFPS Petitioner's Annual ITR for CY 2015 duly filed through the EFPS on April 07, 2016 Filing Reference Number on the filing of petitioner's Annual ITR for CY 2015 filed through the EFPS on April 07, 2016 Page 6, Schedule 7, Line 1 of petitioner's Annual ITR for CY 2015 filed through the EFPS Petitioner's Annual ITR for CY 2015 manually filed with the LTSO on April 11, 2016 Independent Auditors' Report with comparative Financial Statements attached to Petitioner's Annual ITR for CY 2015 Page 6, Schedule 7, Line 1 of petitioner's Annual ITR for CY 2015 filed with LTSO Petitioner's Quarterly Income Tax Return for the First Quarter of CY 2015 filed through EFPS on May 29, 2015 L

Ayala Corporation vs. CIR Page 8 of 24 CTA Case No. 9556 DECISION P-8-8 Line 31A of petitioner's Quarterly Income Tax P-8-9 Return for the First Quarter of CY 2015 filed P-8-10 under EFPS P-8-11 Petitioner's Quarterly Income Tax Return for the P-8-12 First Quarter of CY 2015 manually filed with the P-8-13 LTSO on June 10, 2015 P-8-14 Line 30A of petitioner's Quarterly Income Tax P-9-1 Return for the First Quarter of CY 2015 filed with P-9-2 P-9-3 the LTSO P-10-1 P-10-2 Petitioner's Quarterly Income Tax Return for the P-10-3 P-10-4 Second Quarter of CY 2015 filed through the P-10-5 EFPS on August 24, 2015 P-10-6 Petitioner's Quarterly Income Tax Return for the P-10-7 Second Quarter of CY 2015 manually filed with P-10-8 the LTSO on August 27_~ 2015 P-11-1 Petitioner's Quarterly Income Tax Return for the P-11-2 Third Quarter of CY 2015 filed through the EFPS on November 25, 2015 Petitioner's Quarterly Income Tax Return for the Third Quarter of CY 2015 manually filed with the LTSO on December 02, 2015 Administrative Claim for issuance of TCC filed by petitioner on March 14, 2017 BIR Stamped Received dated March 14, 2017 appearing on the upper portion of Exhibit P-9-1 Signature of petitioner's Officer appearing on page 4 of Exh. P-9-1 CTA Decision in CTA Case No. 7754 dated March 16, 2011 Page 12 of CTA Decision in CTA Case No. 7754 Page 13 of CTA Decision in CTA Case No. 7754 I Page 11 of CTA Decision in CTA Case No. 7754 I Sworn Statement of Maria Susana C. Babies submitted in CTA Case No. 7754 consisting of 10 pages I Supplemental Sworn Statement of Maria Susana c. Babies submitted in CTA Case No. 7754 consisting of 3 pages Report submitted by the ICPA in CTA Case No. 7754 consisting of 11 pages excluding its annexes and supporting documents Sworn Statement of the ICPA Ma. Milagros F. Padernal submitted in CTA Case No. 7754 consisting of 16 pages CTA Second Division's Decision in CTA Case No. 8629 dated October 02, 2015 consisting of 32 pages CTA Second Division's Amended Decision in CTA- ~-- t

Ayala Corporation vs. CIR Page 9 of 24 CTA Case No. 9556 DECISION P-11-3 Case No. 8629 dated March 11, 2016 consisting P-11-4 of 9 paoes P-11-5 Judicial Affidavit of Maria Susana c. Babies P-11-6 submitted in CTA Case No. 8629 consisting of P-12-1 forty-three (43) pages P-12-2 P-12-3 The first binder of ICPA Report submitted in CTA Case No. 8629 consisting of twenty-three (23) P-12-4 pages excluding its annexes and supporting documents P-12-5 P-13 The second binder of ICPA Report submitted in the CTA Case No. 8629 consisting of lists and P-13-1 schedules from Exhibit P-16 to P-54 and their, P-14 sub-markinas P-14-1 Judicial Affidavit of the ICPA Ma. Milagros F. P-15 Padernal consisting 14 pages P-15-1 Judicial Affidavit of Maria Susana c. Babies P-15-2 submitted in CTA Case No. 9024 consisting of fifty-three (53) paqes Supplemental Judicial Affidavit of Maria Susana C. Babies submitted in CTA Case No. 9024 consistina of six (6) paoes The first binder of ICPA Report submitted in CTA Case No. 9024 consisting of twenty-nine (29) pages excluding its annexes and supporting documents The second binder of ICPA Report submitted in CTA Case No. 9024 consisting of lists and schedules from Exhibits P-17 to P-53 and their sub-markinas Judicial Affidavit of the ICPA Ma. Milagros F. Padernal submitted in CTA Case No. 9024 consistina twentv-one (21) paqes Judicial Affidavit of the ICPA Madonna Mia S. Daveao consistina of five (5) paoes Signature of Madonna Mia S. Dayego appearing on page 4 of Exhibit P-13-1 Judicial Affidavit of Maria Susana c. Babies submitted in this case on August 16, 2017 consisting of forty-seven (47) pages Signature of Maria Susana C. Babies appearing on page 46 of Exhibit P-14 The ICPA Report submitted by Madonna s. Dayego consisting of twenty-one (21) pages excludinq its annexes and supporting documents Signature of Madonna Mia S. Dayego appearing on Paae 21 of Exhibit P-15 USB File containing the ICPA Report and all the supportinq documents that were reviewed and (_

Ayala Corporation vs. CIR Page 10 of 24 CTA Case No. 9556 DECISION P-16 evaluated by the ICPA Summary of Annual ITR filed by petitioner with P-16-1 to BIR thru EFPS for CYs 2005 to 2015 P-16-5 Petitioner's Annual ITR filed with BIR thru EFPS for CYs 2006 (Amended), 2007, 2008, 2009 and P-17 2010 Summary of Annual ITR filed by petitioner with P-17-1 to BIR LTSO for CYs 2005 to 2015 P-17-5 Petitioner's Annual ITR filed with BIR LTSO for CYs 2006 (Amended), 2007, 2008, 2009 and P-18 2010 Schedule of Creditable Taxes Withheld (CTW) for P-19 CY 2014 Summary of CTW for CY 2014 supported by P-19-1 to Original Certificate of CWT at Source (BIR Form P-19-209 No. 2307) issued by Payor in the Petitioner's name P-20 Copies of Original Certificate of CTW at Source (BIR Form No. 2307) issued for CY 2014 P-20-1 to Summary of CTW for CY 2014 supported by P-20-4 Original Certificate of CWT at Source (BIR Form No. 2307) issued by payors not in the petitioner's P-21, P- name 21-1 (1/3) Copies of Original Certificate of CWT at Source to P-21-1 (BIR Form No. 2307) issued for CY 2014 by the payors not in the petitioner's name (3/3) Summary of Rental Income for CY 2014 and its P-22, P- general ledger 22-1 (1/4) to P-22-1 Summary of Directors' Fees for CY 2014 and its general ledger (4/4) P-23, P- Summary of Other Income for CY 2014 and its 23-1 (1/2) general ledger to P-23-1 Summary of Proceeds from Sales of Land CY (2/2) 2014 and its general ledger P-24, P- 24-1 (1/2) Summary of Miscellaneous Taxable Interest to P-24-1 Income for CY 2014 and its general ledger (2/2) Summary of Comparison between Summary of P-25, P- CTW supported by original certificate of CWT (BIR 25-1 (1/2) to P-25-1 (2/2) P-26 to P-26-1 t.

Ayala Corporation vs. CIR Page 11 of 24 CTA Case No. 9556 DECISION (1/1) to Form 2307) issued by Payor in petitioner's name (1/5) with SAP Customer Invoice (CI)-Printouts and P-26-1 to Summaries of Income Payments with Tax P-26-9 Withheld per General Ledger for CY 2014 1 P-27 to Copies of SAP CI-Printouts P-27-1 Summary of Comparison of Payor's Name and Amount of Income Payment between the (1/1) to Summaries of Rental Income, Directors' Fees, Other Income, Proceeds from Sale of Land and (1/5) Miscellaneous Taxable Interest Income and Petitioner's Official Receipts (OR)s Bank Credit 1 P-27-1 to Memo (BCM)s for CY 2014 Copies of the petitioner's Official Receipts P-27-258; P-27-260; Copies of petitioner's Bank Credit Memo P-27-264 Schedule of Computation of Taxable Income for to CY 2014 Schedule of CWT for CY 2005 consisting of two P-27-270; (2) pages P-27-272; Summary of CWT for CY 2005 supported by P-27-276 Original Certificates of CTW at Source (BIR Form No. 2307) issued by the Payor in petitioner's to name and stamped "Received" by BIR Large P-27-282; P-27-284; P-27-286; P-27-259, P-27-261 to P-27-263; P-27-271, P-27-273 to P-27- 275, P-27-283, P-27-287 to P-27-288 P-27-289 to P-27-291 P-28 P-29 P-30 t.

Ayala Corporation vs. CIR Page 12 of 24 CTA Case No. 9556 DECISION Taxpayers Assistance Division for CY 2005 consisting of two (2) oaaes P-30-1 to Copy of the Certificate of CTW at Source (BIR P-30-54 Form No. 2307) for CY 2005 P-32, Summary of Rental Income for CY 2005 and its P-32-1 general ledger (1/2) toP- 32-1 (2/2) P-33, P- Summary of Directors' Fees for CY 2005 and its 33-1 (1/2) general ledger to P-33-1 (2/2) P-34, Summary of Other Income for CY 2005 and its P-34-1 general ledger (1/2) toP- 34-1 (2/2) P-35 Summary of Comparison of Payor's name and Amount of Income Payment between Schedule of CTW at Source and Summaries of Rental Income, Director's Fees, Other Income for CY 2005 consistinq of two (2) oaaes P-36 Summary of Comparison of Payor's name and Amount of Income Payment between the Summaries of Rental Income, Director's Fees, Other Income and Petitioner's Official Receipts (OR), Bank Credit Memo and Bank Statements' (BS) for CY 2005 consistinq of three (3) pages � P-36-1 to Copy of petitioner's Official Receipts for CY 2005 P-36-48; P-36-57 to P-36-116; P-36-120 to P-36-131 P-36-49; Copy of petitioner's Bank Credit Memo for CY P-36-53 to 2005 P-36-55; P-36-117; P-36-118 P-36-50 to Copy of petitioner's Bank Statement for CY 2005 P-36-52; P-36-56; P-36-119 P-37 Schedule of Computation of Taxable Income for CY 2005 P-38 Judicial Affidavit of the ICPA Madonna Mia S. Daveao consistinq of 14 oaaes P-38-1 Signature of the !CPA Madonna Mia S. Daveao t...

Ayala Corporation vs. CIR Page 13 of 24 CTA Case No. 9556 DECISION I appearing on page 13 of the Judicial Affidavit The ICPA Report was filed by petitioner on March 1, 2018. 23 Respondent presented no evidence. The Memorandum24 for the CIR filed on April 5, 2019 and the Memorandum25 for petitioner filed on April 11, 2019 were both admitted and the case was considered submitted for decision on April 29, 2019. 26 The parties submitted the following issues27 for the Court's decision: Whether or not petitioner is entitled to the issuance of TCC in the total amount of P62,660,776.00 pertaining to its excess or unutilized CWTs for CY 2014. Relevant jurisprudence and BIR Revenue Regulations provide that in order for a taxpayer to be entitled to a refund or an issuance of TCC for excess/unutilized CWT, petitioner must satisfy the following requisites: 1. The claim for refund must be filed within the two- year prescriptive period as provided under Sections 204(C) and 229 of the NIRC of 1997, as amended; 2. The fact of withholding must be 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. The income upon which the taxes were withheld must be included in the return of the recipient. 23 Ibid., p. 263. 24 Ibid., pp. 415-426. 25 Ibid., pp. 427-447. 26 Ibid., p. 448. 27 Supra, note 13. /.._

Ayala Corporation vs. CIR Page 14 of 24 CTA Case No. 9556 DECISION Anent the first requisite, Sections 204(C) and 229 of the National Internal Revenue Code (NIRC) of 1997, as amended, provide that the administrative and judicial remedy of filing a claim for refund of erroneously or excessively paid tax must be done within two years from the date of payment of the tax. In actions for refund of excess corporate income tax, the Supreme Court ruled that the two-year prescriptive period should be counted from the filing of the Final Adjustment Return because it is only during that date that the exact tax liability or refundability of the tax can be determined. 28 The present claim covers CY 2014 for which petitioner filed its Annual ITR on April 1, 2015. 29 Counting two years from the said date, the last day for the filing of administrative and judicial claim for refund was on April 1, 2017. Hence, the administrative claim which was filed on March 14, 201730 and the Petition for Review which was filed on March 29, 2017 fell within the two-year prescriptive period. Clearly, petitioner satisfied the first requisite. As to the second and third requisites, Section 2.58.3(B) of Revenue Regulations (RR) No. 02-98, as amended, states: "Sec. 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." (Underlining supplied) 28 Commissioner ofInternal Revenue vs. TMX Sales, Inc. and the Court of Tax Appeals, G.R. No. 83736, January 15, 1992; ACCRA Investments Corporation vs. The Honorable Court ofAppeals, et. a!., G.R. No. 96322. December 20, 1991. 29 Supra, note 7. 30 Exhibit "P-9-2", Folder #2. t

Ayala Corporation vs. CIR Page 15 of 24 CTA Case No. 9556 DECISION In compliance with the second requisite, petitioner submitted the Schedule of Creditable Taxes Withheld31 for CY 2014, Summary32 of CWT for CY 2014 supported by Original Certificate of CWT at Source issued by Payor in petitioner's name, and the related Certificates of CWT at Source {BIR Form No. 2307). 33 Upon verification of these documents, the ICPA provided a summary of petitioner's claimed creditable withholding taxes for CY 2014 in the amount of P62,660,775.96, detailed as follows: 34 Amount Exhibit Income Equivalent No. Particulars Payments CWT Per Schedule of Creditable Taxes P-18 Withheld for CY 2014 (a) 1'489 715 417.92 1'62 660 775.96 Per Summary of CWT for CY 2014 Supported by Original BIR Form No. 2307 in the Petitioner's Name and Included in the Alphalist stamped "Received" by BIR's Large Taxpayers P-19 Assistance Division. 1'497 307 679.71 P62 520 568.77 Per Summary of Comparison of CWT for CY 2014 Supported by Original BIR Form No. 2307 in the Petitioner's Name with SAP CI - Printouts and Summaries of Income Payments with Tax Withheld per General Ledger for the CY 2014 .- Output VAT included as part of (8,272,678.43) income payments per BIR Form No. 2307 P-26 Excess income payments per BIR . (259 583.36) (792.81) P62 519 775.96 Form No. 2307 over GL - not (b) P488 775 417.92 [(a)-(bll 940,000.00 .. 141,000.00 claimed by the Petitioner Difference *Equivalent CWTs amounting to F1,227,949.70 were included in petitioner's claim, which were actually withheld from output VAT included as part of income payments per BIR Form No. 2307. Per !CPA's Report, the difference in the amount of P141,000.00 pertains to CWTs supported by an original BIR Forms No. 2307 but not in petitioner's name,35 thus, requiring a downward adjustment to the petitioner's claim. 36 31 Exhibit "P-18". 32 Exhibit"P-19". 33 Exhibits "P-19-1" to P-19-209", "P-20-1", "P-20-3", and "P-20-4". 34 Exhibit "P-15", p. 8, No. 6. 35 Exhibit "P-20". 36 Exhibit "P-15", p. 9, No. 6. t..

Ayala Corporation vs. CIR Page 16 of 24 CTA Case No. 9556 DECISION Upon further examination, income tax withheld amounting to P133,210.32 in CY 2014 shall be disallowed on petitioner's claim for the reasons stated as follows: Exhibit Period Amount of Amount of Income Taxes Reference Covered Name of Payor Payment Withheld I. Dated outside the period of claim p 414 642.87 p 20 732.14 Rental Income 48 000.00 7 200.00 Liveit Investments Ltd. P-19-42 12/31/13 - Philippine ROHQ Director's Fees 12/1/13 to BPI Globe Banko, P-19-123 12/31/13 Inc. 12/1/13 to BPI Globe Banko, P-19-124 12/31/13 Inc. 96,000.00 14 400.00 12/1/13 to BPI Globe Banko, P-19-125 12/31/13 Inc. 48 000.00 7 200.00 12/1/13 to BPI Globe Banko, P-19-126 12/31/13 Inc. 36,000.00 5 400.00 Other Income Bank of the P-19-166 12/17/13 Philippine Islands 382,000.00 57 300.00 Bank of the 31,168.79 698.18 P-19-167 12/27/13 Philippine Islands 14,000.00 280.00 P-19-172 12/1/13 to P1,069,811.66 P113,210.32 12/31/13 Honda Cars Makati, Inc. SUBTOTAL II. BIR Form No. 2307 not in petitioner's name Manila Peninsula P-19-147 Hotel Inc. p 200 000.00 p 20 000.00 200,000.00 p 20,000.00 SUBTOTAL p TOTAL P1,269,811.66 P133,210.32 Thus, petitioner was able to satisfy the second requirement and established the fact of withholding for CY 2014 but only in the amount of P62,386,565.64, as computed below: Per Schedule of Creditable Taxes Withheld p 62,660,775.96 for CY 2014 (Exhibit P-18) p 141 000.00! Less: 133,210.32 ! 1) Disallowances per ICPA 2) Disallowances per Court ' Valid CWT certificates for the taxable year P62,386,565.64 2014 f,

Ayala Corporation vs. CIR Page 17 of 24 CTA Case No. 9556 DECISION Anent the third requisite of proving that the income upon which the subject taxes were withheld was included and reported in its Annual ITR for CY 2014, petitioner presented its Schedule of Creditable Taxes Withheld for the CY 2014; 37 Summary of Certificate of Creditable Taxes Withheld at source supported by original Certificate of Creditable Tax Withheld at Source issued by Payor in petitioner's Name for the CY 2014; 38 Summaries39 of Rental Income, Directors' Fees, Other Income, Proceeds from Sale of Land and Miscellaneous Taxable Interest Income for the CY 2014, and the corresponding General Ledgers (GLs)40 for the CY 2014; Summary41 of Comparison of Summary of Creditable Taxes Withheld at Source supported by original certificate of creditable tax withheld at source issued by Payor in petitioner's name with SAP Customer Invoice (CI)- Printouts and Summaries of Income Payments with Tax Withheld per GL for the CY 2014; SAP CI-Printouts; 42 Summary43 of Comparison of Payors' Name and Amount of Income Payment Between Summaries of Rental Income, Directors' Fees, Other Income, Proceeds from Sale of Land and Miscellaneous Taxable Interest Income and petitioner's official receipts (ORs) and bank credit memo (BCM); 0Rs; 44 BCM; 45 and, Schedule of Computation of Taxable Income for the CY 2014. 46 The ICPA determined that the amounts of Rental Income, Directors' Fees, Other Income, Proceeds from Sale of Land, and Miscellaneous Taxable Interest Income per Summaries agree with the corresponding GL accounts for the CY 2014, to wit: 47 Per Summary of Income Payments (Exhibit No. P-21 to P-2S) Exhibit Per General Other I Per Summary of No. Ledaer Particulars transactions* Income Pavments 37 Exhibit "P-18". 38 Exhibit "P-19". 39 Exhibits "P-21", "P-22", ''P-23", "P-24", and "P- 25". 40 Exhibits "P-21-1"I "P-22-1"I "P-23-1"I "P-24-1"I and "P- 25-1"" 41 Exhibit "P-26". 42 Exhibits "P-26-1" to "P-26-9" 43 Exhibit "P-27". 44 Exhibits "P-27-1" to "P-27-258", "P-27-260", "P-27-264" to "P-27-270", "P-27-272", "P-27-276" to "P-27-282", "P-27-284", and "P-27-286". 45 Exhibits "P-27-289" to "P-27-291". 46 Exhibit "P-28". 47 Exhibit "P-15", p. 10, letter b. L

Ayala Corporation vs. CIR Page 18 of 24 CTA Case No. 9556 DECISION with Tax Withheld Rental Income P-21-1 p 115 807 647.88 p 150 000.95 I' 115 657 646.93 Directors' Fees P-22-1 42 617 839.44 9 140 000.00 33 477 839.44 Other income P-23-1 384 539 058.27 46 434 054.96 338 105 003.31 Proceeds from sale of land P-24-1 3 935 746.14 3 578 603.28 357 142.86 Miscellaneous taxable interest income P-25-1 1 288 984.79 111 199.41 1 177 785.38 Total P548 189 276.52 p 59 413 858.60 P488 775,417.92 *Income payments not related to the Petitioner's claim. Further, the amounts of Rental Income, Directors' Fees, Other Income, Proceeds from Sale of Land, and Miscellaneous Taxable Interest Income accounts per GL of the CY 2014 was accordingly traced to those reflected in the petitioner-prepared Schedule of Computation of Taxable Income for CY 2014, except for some rounding-off differences, as follows: 48 Exhibit Per General Per Schedule of Rounding-off No. Ledger Computation of Particulars Taxable Income differences Rental income P-21-1 p 115,807,647.88 (Financial Income) Directors' fees P-22-1 42,617,839.44 (Exhibit No. P-28) p (1.12) Other income P-23-1 p 115,807,649.00 Proceeds from sale of land P-24-1 384,539,058.27 0.44 3,935,746.14 42,617,839.00 Miscellaneous taxable P-25-1 0.27 interest income 384,539,058.00 0.14 Total 3,935, 746.00 1 288 984.79 1 288 984.79 - P548,189,276.52 P548,189,276.79 p (0.27) Moreover, the amount of gross revenue account reflected in the taxable income column of the petitioner- prepared Schedule of Computation of Taxable Income for the CY 201449 tally with the total amounts of Sales/Revenues/Fees, and Non-Operating and Other Income accounts reflected in the Annual ITR50 for the CY 2014 duly stamped "Received" by the BIR as follows: 51 Gross revenue reflected in the taxable income Amount column P1,212,600,456.00 per Schedule of Computation of Taxable 1,212 600,456.00 Income Gross revenue reflected in the Annual Income Tax Return 48 Exhibit "P-15", p. 12, letter e. 49 Exhibit "P-28". 50 Supra. Note 7. 51 Exhibit "P-15", p. 12, letter f. {.

Ayala Corporation vs. CIR Page 19 of 24 CTA Case No. 9556 DECISION p- duly stamped "Received" by the BIR Difference Based on the foregoing, and in compliance with the third requisite, petitioner was able to prove that the income payments of P487,505,606.2652, with corresponding CWT of P62,386,565.64, formed part of the income declared in its Annual ITR for CY 2014. Notwithstanding compliance with the aforesaid conditions, there is a need to determine whether the aforesaid CWT of P62,386,565.64 are unutilized and may be the proper subject of a claim for issuance of a TCC pursuant to Section 76 of the NIRC of 1997, as amended, which reads: "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 a tax credit certificate shall be allowed therefor." 52 P488,775,417.92 less P1,269,811.66. c..

Ayala Corporation vs. CIR Page 20 of 24 CTA Case No. 9556 DECISION Based on Section 76, in case of overpayment of income taxes, a taxable corporation has two options, it may file a claim for refund, either in the form of cash or TCC, or it may carry over the same to the succeeding taxable quarters/years until it is fully utilized. However, once the carry-over option is taken, actually or constructively it becomes irrevocable for that taxable period. 53 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. 54 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 carry over the excess credit or to claim a refund. To ease the administration of tax collection, these remedies are in the alternative and the choice of one precludes the other. 55 A scrutiny of petitioner's Annual ITR56 for CY 2014 shows that petitioner had total tax credits in the amount of P95,956,459.00 consisting of the (i) prior year's excess tax credits in the amount of P33,295,683.00, and (ii) CWT accumulated during the four (4) quarters of CY 2014 in the aggregate amount of P62,660, 776.00, as follows: Prior Year's Excess Credits Other p 33,295,683.00 Than MCIT CWT for CY 2014 P26,226,649.00 36,434,127.00 62,660'776.00 CWT from Previous Quarter/s P95,956,459.00 per BIR Form No. 2307 CWT per BIR Form No. 2307 for the 4th Quarter Total Tax Credits 53 Phi/am Asset Management, Inc., vs. Commissioner of Internal Revenue, G.R. Nos. 156637/162004, December 14, 2005; Systra Philippines, Inc., vs. Commissioner of Internal Revenue, G.R. No. 176290, September 21, 2007. 54 Commissioner of Internal Revenue vs. Bank of the Philippine Islands, G.R. No. 178490, July 7, 2009. 55 Philippine Bank of Communications vs. Commissioner of Internal Revenue, et a!., G.R. No. 112024, January 28, 1999. 56 Supra, note 7. ~

Ayala Corporation vs. CIR Page 21 of 24 CTA Case No. 9556 DECISION Petitioner claims that its minimum corporate income tax (MCIT) due for CY 2014 in the amount of P17,694,834.00 57 was paid using a portion of its prior year's excess credits of P33,295,683.00. This leaves the prior year's excess tax credits in the amount of P15,600,849.00 and creditable taxes withheld during the CY 2014 in the amount of P62,660,776.00 totaling P78,261,625.00 unutilized as of December 31, 2014, as shown below: Prior Year's Excess Credits other than MCIT P33,295,683.00 Less: Income Tax Due (MCIT) 17,694,834.00 Balance of Prior Year's Excess Credits p 15,600,849.00 Add: Creditable Taxes Withheld- CY 2014 62,660,776.00 Excess Creditable Taxes Withheld as of P78,261,625.00 December 31, 2014 Further, petitioner opted for the issuance of a TCC for its CWTs for the CY 2014 by marking the box corresponding to the option "To be issued a Tax Credit Certificate (TCC)"58 and as evidenced by petitioner's Annual 59 ITR and Quarterly60 ITRs for CY 2014, only the prior year's excess credits of P15,600,849.00 were carried over. Clearly the claimed CWTs for CY 2014 amounting to P62,660,776.00 were not carried over to the succeeding quarters or taxable year. Thus, the substantiated CWTs for CY 2014 in the amount of P62,386,565.64 may be refunded pursuant to Section 76 of the NIRC of 1997, as amended. Records, however, reveal that petitioner failed to prove that it has sufficient prior year's excess tax credits upon which the income tax due for the CY 2014 may be applied. As illustrated below, the prior year's excess credits reported in petitioner's 2014 Annual ITR, originated from the CWTs for the years 2005 to 2007: Taxable Prior Year's MCIT (Income Tax CWTfor EWT at the Exhibit Year Excess due Still Due)/ the year End of the Credits Balance of Prior Year's Year Excess Credits 57 Exhibit "P�7-1", Lines 16 and 44, Folder #1. 58 Exhibit "P-7-1", Line 21, Folder #1. 59 Exhibit "P-8-3", Folder # 1. 60 Exhibits "P-8-7"I "P-8-11"I and "P-8-13"I Line 31AI Folder #1 " t

Ayala Corporation vs. CIR Page 22 of 24 CTA Case No. 9556 DECISION (a) (b) lcl = Cal less lbl (d) lel = lcl + ldl P-3-4 2005 p 14 080 672.00 p 5 612 835.72 p 8 467 836.28 p 8 467 836.28 P-16-1 2006 P-16-2 2007 8 467 836.28 9 478 115.96 11 010 279.68\ p 34 133 265.00 33 122 985.32 P-16-3 2008 P-16-4 2009 33 122 985.32 10 269 099.44 22 853 885.88 33 769 015.00 56 622 900.88 P-16-5 2010 P-4-4 2011 56 622 900.88 8 908 985.78 47 713 915.10 47 713 915.10 P-5-1 2012 P-6-1 2013 47 713 915.10 11 306 546.70 36 407 368.40 36 407 368.40 36 407 368.40 11 879 600.62 24 527 767.78 24 527 767.78 24 527 767.78 7 222 902.33 17 304 865.45 39 557 207.66* 56 862 073.11 56 862 073.11 15 519 554.22 41,342 518.89 41 342 518.89 41,342,518.89 8,046,836.00 33,295,682.89 33J295,682.89 *under 'Other Credits~ described as "2005 CWTs not allowed for issuance of TCC by the CTA" per CTA Decision in CTA Case No. 7754. 61 Note that the total accumulated CWT for each of the CYs 2008 to 2013 were not presented as tax credits against the petitioner's income tax liabilities (MCIT due) in those years nor carried over to the 2014 Annual ITR since these pertain to petitioner's previous claims for issuance of TCC with this Court. To substantiate the CWTs from prior years, petitioner submitted in evidence various Certificates of Creditable Tax Withheld at Source (BIR Forms No. 2307) 62 but pertaining to CY 2005 only. Petitioner was able to substantiate the amount of P37,092,759.16 CWTs for CY 2005, as follows: Summary of CWTs supported by original Certificate of Creditable p 39,358 887.04 Tax Withheld at Source (BIR Form 2307) issued by the payor in the petitioner's name and stamped "received" by the BIR's Large Taxpayers Assistance Division for the CY 201563 Less: Exceptions (Denied Exhibits for not being found in the records/not supported by BIR Form No. 2307) Exhibit Pavor Amount No. of Taxes Withheld P-30-4 Honda Cars Alabanq P644 720.91 Honda Cars Pasig (A Branch of Honda 540,258.53 P-30-8 Cars Makati, Inc~) P-30-12 Honda Cars Makati Inc. 581 275.05 Isuzu Automotive Dealership, Inc. - 192.96 P-30-14 Isuzu Alabang Isuzu Automotive Dealership, Inc. - 62.427.25 P-30-17 Isuzu Alabanq Isuzu Automotive Dealership, Inc. - 77,155.04 P-30-18 Isuzu Alabanq P-30-19 Isuzu Automotive Dealership, Inc. - 81,674.18 61 Exhibit "P-4-4", Line 33 0/P, 2011 Annual ITR filed on August 24, 2012, Folder #1. 62 Exhibits "P-30-1" to "P-30-54". 63 Exhibit "P-30". t

Ayala Corporation vs. CIR Page 23 of 24 CTA Case No. 9556 DECISION 55 589.01 2,266 127.88 P37,092,759.16 Isuzu Alabang 49 045.11 Isuzu Automotive Dealership, Inc. - 313.94 P-30-20 Isuzu Alabang Isuzu Automotive Dealership, Inc. - 173,475.90 P-30-22 Isuzu Alabanq Sonoma Services, Inc. Sonoma Services Inc. Valid CWTs for CY 2005 However, the same is not sufficient to cover the total taxes due for the years 2005 to 2013, as shown below: Valid CWTs for CY 2005 p 5,612,835.72 p 37 092 759.16 Less: MCIT Due 9,478,115.96 88,244 476.77 CY 2005 10,269,099.44 p (51,151,717.61) CY 2006 8,908,985.78 CY 2007 CY 2008 11,306,546.70 CY 2009 11,879,600.62 CY 2010 CY 2011 7,222,902.33 CY 2012 15,519,554.22 CY 2013 Tax Still Due 8,046,836.00 Hence, a portion of the substantiated CWT in the amount of P62,386,565.64 for the CY 2014 shall be applied against the income tax liability of P17,694,834.0064 for the CY 2014. Consequently, petitioner's refundable excess CWTs for CY 2014 amount only to P44,691,731.64, computed as follows: Substantiated CWTs p 62,386,565.64 I Less: Income Tax Due CY 17,694,834.00 2014 Refundable excess P44,691,731.641 CWTs WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is ORDERED to issue a tax credit certificate in favor of petitioner in the reduced amount of P44,691,731.64, representing petitioner's excess and unutilized creditable withholding taxes for calendar year 2014. 64 Exhibit "P-7-1", Line 16, Folder #1. t.

Ayala Corporation vs. CIR Page 24 of 24 CTA Case No. 9556 DECISION ~o~�. M~Rc(~LA Associate Justice SO ORDERED. WE CONCUR: Q...,~c. ~~o4, g__ Jl.t(NIT-0 t. CASTANEDA/JR. Associate Justice .... ENA 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. ~~- ~a-~_,9... JU'ANITO C. CASTANEifA, JR. Associate Justice 2nd Division Chairperson 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's Division. ROMAN G. DEL 'ROSARIO Presiding Justice