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

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS Quezon City SPECIAL FIRST DIVISION MCKINSEY & CO. (PHILS.), CTA CASE NO. 10281 Petitioner, Members: -versus- DEL ROSARIO, P.J. & Chairperson, COMMISSIONER OF MANAHAN, and INTERNAL REVENUE, REYES-FAJARDO, JJ. Respondent. Promulgated: X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - RESOLUTION DEL ROSARIO, P.J.: This resolves respondent's Motion for Partial Reconsideration filed via registered mail on June 29, 2023, with petitioner's Comment/Opposition (Re: Motion for Partial Reconsideration dated 29 June 2023) with Motion to Expunge fil ed on July 17, 2023, which was submitted for resolution in the Minute Resolution dated July 26, 2023. Respondent seeks the partial reconsideration of the Court's Decision promulgated on May 30, 2023 (assailed Decision), the dispositive portion of which reads: "WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED. Accordingly, respondent Commissioner of Intern al Revenue is ordered to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner McKinsey & Co. (Phils.) in th e total amount of �>66,027,287.10, representing its excess and unutilized Creditable Withh olding Taxes for ca lendar years 2017 and 2018, respectively. SO ORDERED. ~

Resolution McKinsey & Co. (Phils.) vs. Commissioner of Internal Revenue CTA Case No. 10281 Page 2 of5 Respondent faults the Court in granting the partial refund in favor of petitioner in the amount of P66,027,287.10. Respondent argues the following: 1. The Court has no jurisdiction to take cognizance of petitioner's judicial claim for refund for calendar year (CY) 2017 as petitioner filed its claim for refund beyond the prescriptive period ; and, 2. Assuming that the Petition for Review is timely filed , petitioner is not entitled for a refund of creditable withholding tax (CWT) for CY 2017 due to following reasons: (i) The CWT in the amount of ~9 , 921 ,287.10 from income payment of ~66 , 141 ,914.00 was not mentioned nor discussed in the Judicial Affidavit of Ms. Elena Cabahug as being part of the amount of ~1 04,000,000.00. Considering that petitioner failed to show that the income in the amount of ~66 , 141 ,914.00 from which the withholding of the amount of ~9 , 921 ,287.1 0 was made was declared as part of the gross income for CY 2017 or CY 2016, the same CWT in the amount of ~9 , 921 ,287.1 0 must be disallowed ; and , (ii) The Annual Income Tax Returns (Annual ITR) and the Certificates of Creditable Tax Withheld at Source [or BIR Form No.] 2307 for CYs 2017 and 2018 failed to show that they were executed under the pain of perjury and made under oath . In its Comment/Opposition, petitioner prays for the Court to expunge or to deny respondent's motion. It counter-argues the following: 1. The Motion for Partial Reconsideration should be dismissed as it is a pro forma motion; 2. The Court has jurisdiction to take cognizance of petitioner's judicial claim for refund ; 3. The Court correctly ruled that petitioner is entitled to the claim for refund ; 4 . The Court explained the basis of the refund of CWT in the amount of ~9.921 ,287.1 0. The Court's assailed Decision is based on available evidence; and , 5. The Annual ITR and the Certificates of Cred itable [Tax Withheld at Source] (Exhibits P-5 to P-39) were executed under pain of perjury .~

Resolution McKinsey & Co. (Phils.) vs. Commissioner of Internal Revenue CTA Case No. 10281 THE COURT'S RULING The first argument raised by respondent is a mere reiteration of his previous argument in his Memorandum filed on November 7, 2022 which was squarely addressed and settled on pages 6-10 of the assailed Decision.1 There is no need to discuss the same argument again in resolving the present motion. Respondent's contention questioning the refund of CWT in the amount of P9,921 ,287.10, as granted by the Court, is bereft of merit. A judicious re-evaluation of the evidence presented by petitioner reveals that the income payment of P66,141 ,914.00 is derived by cross-referencing the appurtenant statements of Ms. Cabahug in her Judicial Affidavif with the 2016 reconciliation schedule3 presented therein and petitioner's 2016 General Ledger Transaction Detail (GLTD).4 In her Judicial Affidavit,5 Ms. Cabahug discussed that for CY 2016, the audited Consultancy Services of P301 ,573,014.00 is reconciled with the CWT balance by: (1) deducting the total amount of P161 ,931 ,100.00 which comprises petitioner's accrued income in CY 2016 that was only collected in CY 2017 and CY 2016 income without CWT; and (2) adding back petitioner's income in CY 2015 amounting to P91 ,051 ,686.00 but was only collected in CY 2016 and forex adjustments amounting to P580,119.50 , or for a total amount of P91 ,631 ,805.50, viz: "Q85: Can you illustrate how the amount of Php104,818,843.00 was included in the amount of Php301 ,573,014.00, which represents revenue for Consultancy Services? A85 : Yes. From the amount of revenue from Consultancy Services per audited financial statements of Php301 ,573,014.00 , we added the revenue accrued in 2015 but collected in 2016 in the total amount of Php91 ,051 ,686.00. We also added the foreign exchange adjustments in the total amount of Php580,119.50. Then we deducted the amount of Php113,937 ,600.00 which represents income accrued in 201 6 but collected in 2017. We also deducted the amount of Php47,993,500.00, which represents income collected but without the corresponding CWT ce rtifi ca tes . 1 CTA Docket, Vol. II , pp. 1170-1174. 2 Exhibit "P-153", CTA Docket, Vol. II , pp. 419-461 . 3 Exhibit "P-153", CTA Docket, Vol. II , p. 438. (1'] 4 Exhibit "P-52", CTA Docket, Vol. II, p. 637. 5 Exhibit " P- 153", CTA Docket, Vol. II , pp. 437-438.

Resolution McKinsey & Co. (Phils.) vs. Commissioner of Internal Revenue CTA Case No. 10281 Page 4 of5 This is illustrated below: Revenue reported in Tax Returns 53, 193,600.00 301 ,573,014.00 and Financial Statements 91,631,805.50 Add : 37,858,086 .00 580 ,119 .50 20 15 revenue collected in 2016 104 ,000,000 .00 Accrued revenue in 2015 9 ,937 ,600.0 0 pertaining to several invoices, collected in 2016 Forex adjustments Less: 2016 revenue collected in 2017 Invoice 1552 Accrued Revenue - ADB 2016 Income without cwr 6,250 ,000 .00 (161 ,931 ,100.00) 13,993,500 .00 Php231 ,273,719.186 Invoice 1543 Invoice 1542 1,250 ,000 .00 Invoice 1548 2,500,00 0. 0 0 Invoice 1546 24 ,000,000.00 Invoi ce 1538 As can be gleaned from the above reconciliation, petitioner recorded P1 04,000 ,000.00 of accrued income from PLOT, Inc. in CY 2016. However, the Court noted that when cross-referenced with petitioner's GLTD for CY 2016,7 the amount of P37,858,086.00 was deducted from P1 04 ,000 ,000.00 as the former was already recognized as accrued revenue in CY 2015 but was only collected in CY 2016: Accounting Client Invoice Invoice No. Amount in PHP Date Name Date 104,000,000.00 PLOT PHD0161552 1 2/ 3 1 / 2 0 1 6 PLOT 12/23/2016 Accrued Revenue (37 ,858,086.00) PLOT Accrued Revenue 66,141 ,914.00 12/3 1/2016 PLOT 12/3 1/2 016 Accrued Revenue 12/31/2016 12/31/2016 12/31/2016 12/31/2016 Total Thus, the Court was able to verify that the amount of P66, 141,914.00 is that portion of P1 04,000,000.00 income payment which pertains to accrued revenue in CY 2016. With respect to the P9,921 ,287.10 amount of refund granted to petitioner for CY 2017, the same is derived by multiplying the traceable 6 With f>0.32 difference. 7 Exhibit "P-52", CTA Docket, Vol. II , p. 637. ~

Resolution McKinsey & Co. (Phils.) vs. Commissioner of Internal Reven ue CTA Case No. 10281 Page 5 of5 income payment of P66,141 ,914.00 to the CWT rate of 15% as used in the corresponding Certificate of Creditable Tax Withheld at Source.8 The CWT rate of 15�/o represents tax withheld to the income payments for professional fees to consultants who are ju ri dical entities and whose gross income for the current year exceeds P720,000.00. 9 Such fact is duly stated in the pertinent Certificate of Creditable Tax Withheld at Source. The last argument of respondent that the Annual ITR and the Certificates of Creditable Tax Withheld at Source failed to show that they were executed under the pain of perjury and made under oath is belied by the records of this case . As correctly pointed out by petitioner, the concerned Annual ITR and Certificates of Creditable Tax Withheld at Source10 were executed under pain of perjury. All told , the Court finds no cogent reason to warrant a modification or reversal of the assailed Decision. WHEREFORE, premises considered , respondent's Motion for Partial Reconsideration is DENIED for lack of merit. SO ORDERED. Presiding Justice WE CONCUR: � IVY~f.J~Ef YE~ �-F~r~R~DO LJ~~ MARIAN CATHERINE T. MANAHAN Associate Justice Associate Justice 8 Exhibit "P-6", CTA Docket, Vol. II , p. 512. 9 Revenue Regu lations (RR) No. 02-98, as amended RR No. 30-03 provides: "Sec. 2.57.2 . Income payments subject to creditable wi thholding tax and rates prescribed thereon. - xxx (B) Professional fees, talent fees, etc., for services of taxable juridical persons.- On the gross professional, promotional and talent fees, or any other form of remuneration enumerated in the preceding subparagraph for the services of taxable juridical persons - Fifteen percent (15%), if the gross income for the current year exceeds P720,000; and Ten percent (10%), if otherwise[.] 10 Exhibits "P-4" to "P-39", CTA Docket, Vol. II, pp. 503-554.