UNITED INTERNATIONAL PICTURES AB v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY UNITED INTERNATIONAL PICTURES AB, C.T.A. CASE NO. 6027 Petitioner, Promulgated: - versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. X-----------------------------------------------------------X DECISION The instant petition seeks the refund or issuance ofa tax credit certificate in the amount of P6,327,243 .00, alleged ly representing excess creditable income taxes withheld for the calendar year ended December 31, 1997. The factual backdrop of the case are as follows: Petitioner is the Philippine branch of United International Pictures AB, a corporation dul y organized and existing under the laws of Sweden. It is li censed to engage in business in the Philippines, with office address at the 4111 Floor, Ramon Magsaysay Center, 1680 Roxas Blvd ., Malate, Manila. On March 16, I 998, Petitioner filed its Annua l Inconie Tax Return for the ca lendar year ended December 31, 1997 (Annex A, Petition for Review), reflecting a refundable amount of P 10,369,768 .00, detailed as follows: Taxable income p 4,996,197.00 Tax due 1,748,669.00 Less: Tax Credits/Payments Prior Year's Excess Credit P5,791 ,1 94.00

/ DECISION- CTA CASE NO. 6027 PAGE2 Creditable Tax Withheld 6,327,243.00 12, 118,437.00 PI 0.369.768.00 On April 14, 1998, Petitioner filed with this Court a Petition for Review docketed as CTA Case No. 5618, claiming for the refund or tax credit of the aforestated prior year's excess credit ofP5,791,194.00. During the pendency of the said case, or on June 23, 1998, Petitioner filed with Revenue District Office No. 34 of the Bureau of Internal Revenue (BIR) another administrative claim for refund or tax credit for P4,578,574.00 (Annex B, Petition for Review), which amount was arrived at after deducting from the total creditable tax es withheld from Petitioner in 1997 in the amount of P6,327,243.00 its income tax liability for the said year amounting to P1 , 74~,669 .00. In support of its claim. Petitioner cited the following provisions of the Tax Code: "Section 76. Final Adjustment Return.- Every corporation li able 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 th e total tax due on the entire taxable income of that year, the corporation shall either: (A) Pay the balance of tax still clue; or (B) Carry-over the excess credit; or (C) Be credited or refunded with the excess amount paid, as th e case may be. In case the corporation is entitled to a t7x 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 yea rs 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. O(

DECISION- CTA CASE NO. 6027 PAG E 3 Section 229. Recovery of Tax Erroneously or Illegally Collected.- No suit or proceeding shall be maintained in any co urt for the recovery of any national intern al revenue tax hereafter alleged to have been erroneo usly or ill ega ll y assessed or collected, or of any penalty claimed to have been collected without a uthority, or of any sum all eged 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 o r proceeding may be maintained, whether or not such tax , penalty, or sum has been pa id under protest or duress. In any case, no such suit or proceeding shall be fil ed after the expiration of two (2) yea rs from the date of payment of the tax o r penalty regardl ess of any supervenin g cause that may ari se after payment: Provided. however, That the Commi ss ioner may, even without a written claim therefor. refund or credit any tax, where on the face of th e return upon w hi ch payment was made, such paymen~ appears cl earl y to have been erron eo usly paid ." On October 1, 1999, thi s Court rendered its deci sion in CTA Case No. 56 18 in favor of herein Petitioner and ordered th e refund or iss uance of a tax credit certificate but in the redu ced a mou nt of P4,007,357.87. In grantin g the refund, the PL748 ,669.00 tax li ability of Pe titione r for th e yea r 1997 was charged aga inst its prior year's excess credit of P5 ,791 , 194.00. However, since Petiti one r's claim filed before the BIR on April 14, 1998 was already net of its 1997 tax li ab ility, it f-il ed a revised administrative claim on December 2 1, 1999 (A nnex C, Petiti on fo r Review) adding back the Pl,748,669 .00 previously deducted from its claim or a tota l of P6,327,243.00. There being no acti on on the part of the Respondent and the two-year prescriptive period was about to lapse, Petitioner elevated its case before Us on March 15. 2000. In hi s Answer fil ed on April 7, 2000, Respo ndent rai sed th e followin g Special an d Aff-irmati ve Defenses : "5. Assuming but without admitting that petitioner filed an application for refund and/or tax credit with the respondent, the same is subject

DECISION- CTA CASE NO. 6027 PAGE4 to administrative investigati on and reso lution (San Carlos /11/illing vs. Co mm. (~llnternal Revenue), Thus, (si ;) petition is premature . 6. Taxes are presumed to have been collected in accordance with law. l-Ienee, petitioner must prove that the taxes sought to be refunded were erroneously or ill egall y collected. 7. Pe titioner must show that it has complied with the provision (sic)of Section 51 (e) and (f) of the Tax Code, as amended, as enunciated in City Trust Finance Corporation vs. CTA, to wit: a) That the claim is fil ed with the Commissioner of Internal Revenue within 2-year period from the date of payment; b) It must be shown on the return of the recipient that the income payment received was declared as part of gross m c o m e; c) The fact of the withholding is est~blished by a copy of the statement duly iss ued by the payor to payee showing the atnount paid and the amount of tax withheld therefrom . 8. Petitioner must show that it has complied with the provi sion (sic) of Section 204 (3) and 230 of the Tax Code. 9. Claims for refund of taxes are construed strictly against the claimants, the same being in the nature of an exemption from taxation (Manila Electric Co. vs. CIR 67 SCRA 351 )." In their "Joint Stipulation of Facts and Restatement of Iss ues" filed on June 28, 2000, the parti es submitted th e foll owing iss ues for reso lution: "(a) Whether or not th ere were excess creditable income taxes withheld from Petitioner for the yea r e nded Decem'ler 31, 1997, and (b) Whether or not the Petitioner is e ntitled to the refund or tax credit in the amount of P6,327,243.00 representing its unapplied or excess creditable income taxes withheld from the calendar year ended December 31, 1997." To support its claim, Petitioner presented its Corporate Annual Income Tax Returns for the years 1996, 1997 and 1998 (Exhibits B, A and C, respectively) as we ll as a '( 10

DEC ISION - CT A CA SE 1\iO. 6027 PAGE 5 Certificate of Creditabl e Income Tax Wi thheld for the year ended December 3 1, 1997 (Exhibit B-2). On the other hand , Respond ent failed to present any co ntrovert ing evidence and submitted hi s case based on the pl eadin gs (p . 86, CTA Records) . Afte r a careful examinati on o f the ev idence adduced so lely by Petiti oner, We rule in its favo r. With reference to the first issue, Petitioner's 199 7 annual Incom e Tax Return (IT R) showed tax credits totalling P1 2, 11 8,437.00 which consisted of its pri or yea r's excess credits of P5,79 1, 194. 00 and creditabl e taxes wi�'hheld in 1997 of P6,327,243. 00 (Exh . A-2). As stated earli er, since Petiti oner ' s 1997 income tax li ability of Pl ,748 ,669.00 was dedu cted from its pri or year' s excess credits of P5 ,79 1, 194.00 when thi s Court rendered its dec ision in CTA Case No. 56 18, the entire amoun t of P6,327,243.00 cred itab le taxes w ithheld in 1997 was left unutili zed as o f December 3 L 1997 and appears to be refund abl e in acco rd ance w ith Secti on 69 (now Section 76) of the Tax Code. We proceed to the second issue. In ord er to be entitl ed to a refund of ex cess credita bl e withho lding taxes, thi s Co urt has consisler1tl y held in a number of cases involving cl aim s for refund th at Petiti oner must prove compliance with the fo ll owing bas ic requirements provided for under Revenue Reg ul ati ons No. 12-94: 1.) That the claim for re fund was fil ed within the two-yea r prescri pti ve period provided under Sec ti on 23 0 (now Secti on 22 9) of the Tax Code; ll .l.

DECtSION- CTA CASE NO. 6027 PAGE6 2.) That the fact of withholding is 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.) That the income upon which the tax es were withheld were included in the return of the recipient [Revenue Reg ulations No. 12-94 (amending Revenue Regulalions No . 6-85): Citihank, NA vs. Co w~t ofAppeals and CJR, 280 SCRA 459: ACCRA investment Corporation vs. CA. 20-1 SCRA 95 7}. The excess creditable withholding taxes subject of the instant Petition were for taxable year ended December 31, 1997 for which Petitioner filed its annual ITR on March 16, 1998 (Exh. A). Counting from this latter elate, Petitioner's original and amended administrative claims for refund filed on .June 23, 1998 and December 21, 1999 (.Joint Stipulation of Facts, p. 35 , CTA Records) as well as the Petition for Review filed on March 15, 2000 fall within the two-year prescriptive period under Section 230 (now Section 229) ofthe Tax Code. The fact of withholding was also established through Petitioner's presentation of the Certificate of Creditable Tax Withhe ld at Source iss ued by Warner Bros. (F . E.). Inc. to Petitioner for the year 1997 (Exh. B-2). However, the Court noted that the amount of tax withheld of P6,360,830.59 indicated in the certificate is greater by P33,587.59 when compared with the creditable withholding tax of P6,32 7,243 .00 reflected in the 1997 Income Tax Return (Exh. A-2). As to the third requirement, Petitioner's 1997 ITR showed that out of the gross I income from film rentals of P 127,2 16,6 11.80 from which the creditable withholding

/ DECISION- CTA CASE NO. 6027 PAGE 7 taxes of P6 ,360.830.59 shown in the certifi cate were withheld, only th e amount of Pl25,717,741.00 was declared, or a diffe re nce of P1 ,498,770.00. Thus, th e cred itab le w ithh olding taxes related to th e income of P 125,7 17,74 1.00 reported in the 1997 Income Tax Return amounted o nl y to P6,285,892.05 co mputed as fo llows: Creditable taxes withheld in 1997 by Warner Bros. (Exh . B-2) p 6,360,830 .59 Less : Creditable taxes withh eld pertain ing to the Discrepancy in 1997 gross income as reflected in the ITR and in the certificate Gross income (film rentals) per certificate (Exh. B-2 ) P127 ,216,611 .80 74 938 .54 Gross income (film rental s) per 1997 ITR (Exh. A-3) 125 717 841 .00 Discrepa ncy in 1997 gross income (film rentals) % of Discrepancy to gross income (film rentals) per p 1 498... 770.80 Certificate Multiplied by creditable ta xe s withheld per certificate 1.178125% p 6.360.830.59 Creditable taxes withheld in 1997 pertaining to the income p 6,285 ,892 .05 Declared in the 1997 ITR Moreover, since in thi s case Petiti oner is seeki ng for the refund of its excess creditable taxes withheld in 1997, it submitted its 1998 Income Tax Return to prove that the same were not applied or carried over to th e succeeding yea r (Exh. C-1 ). C learly from the forego in g, Petiti oner was ab le to prove that it complied with all th e requirements for the refund o r excess c redi tabl e withho lding tax es but in th e red uced amount of P6,285,892.05 . In his Memorandum, Respondent a rgued that the .certificate iss ued by Wa rne r Bros. has no evidentiary value as it v;as not duly sta mped as " RECE IVED" by the BIR and not supported by official receipts issued by th e BlR acc redited bank. According to Respond ent, the BIR prooti'date of receipt is necessary to ascertain the timeliness of the

/ DEC IS ION - CTA CASE NO. 6027 PAGE 8 filin g of the certifi cate whil e the offi cial receipts issued by the BIR accred ited banks are essenti al in determi ning the withholding and remittance of the corresponding taxes. We do not ag ree. The fact that the certifi cate was not dul y stamped as "Received" by the BIR and not supported by official rece ipts issued by the BIR accredited bank does not reduce it to a mere scrap of paper. On the co ntrary, the certifica te prov ides sufficient proof of the creditabl e income taxes withheld by Warner Bros. from its income pay ments to Petitioner in 1997. The said certificate, bein g a statement dul y issued by the payor/withholding agent (Warner Bros) to the payee (Peti tioner) showing the amount of income pai d and the correspondin g tax withheld therefl�o m, is the doc um ent specific all y req ui red by Reven ue Regul ations No. 12-94 in claiming for the refund of excess creditable withho lding taxes. Thus, the submi ss ion of offi cial rece ipts issued by the BlR accredited bank evidencing the remittance of the cred itab le withholding taxes to the BIR is not necessary. Pursuant to Secti ons SO(b) & 5 1 [now Secti ons 57(8) & 581 of the Tax Code, the wi th holding of creditable income taxes and the remittance thereof to the BIR is the responsibility of the payo r/withholding agent (Warner Bros.) and not the payee (Petiti oner). Consequently, the fa ilure to withhold and make the necessary remittance will make the payor/withholding agent (Warner Bros.) liab le and not the payee (Petitioner). In the case of Citibank, N.A. vs. Court of App eals and Commissioner oflnternal Revenue. G.R. No. I 07434, dated October I 0. 1997, the Supreme Court held that a refu nd claimant, aside from complyin g wi th the two-year prescri pti ve period, need onl y to prove the inclusion of the income pay ments which we re the basis of the withholding taxes and the .fete/ of

(- DECISION- CTA CASE NO. 6027 PAGE9 withholding. As to the q uestioned BIR proof/date of receipt of the certificate. Petitioner's witness, Ms. Belina Almeria. during the A ugust 9, 2000 sess ion, testifi ed that not all the time do the BIR accredited agent ba nks stamp all th e attachments of the Income Tax Returns filed (TSN, August 9, 2000, pp. 32-33). Respondent also contends that Petitioner's w i ~ness , Ms. Belina Almeria, was incompetent to testify on the 1997 ITR since it �was Mr. Tristan Levcriza, Petitioner's general manage r, w ho affixed hi s signature on the 1997 ITR, thereby making th e said return inadmi ssible as evidence. Again, We rule otherwise. In he r testimony during the August 9, 2000 hearing of the ins tant case, Ms. Bel ina Almeria slated that pursuant to the sub-di stribution agreement between Warner Bros. and he rein Petitioner, it is among her duti es and respo nsibilities to prepare and file the financial statements a nd income tax returns of Petiti oner She also me nti oned in th e same hea ring that she prepared Petiti oner's I997 ITR in coo pera tion with the Petitioner's tax lawyer (TSN, August 9, 2000, pp. 6-7, 29-30). It likewise bears stress ing that in hi s Comment/Objection to Petitioner's Formal Offer of Evide nce, Respondent did no t object to th e ad mi ss ion of the 1997 lTR (Exhs. A to A-4, inclusive) . Conseq uentl y, he is estopped from questioning the inadmissibility of th e 1997 ITR as Petitioner's ev idence. Finally, as re gards Res ponde nt 's all egation th at Pe titioner's claim for refund is und er BIR investigation the re by makin g the instant Peti tion premature, We cite th e case of Commissioner vflnternal Revenue, vs. Bank r~fthe Philippine Island~�. as Liquidator .~ �- ' .:.. �~1

/ DECISION- CTA CASE NO. 6027 PAGEIO of Paramount Acceptance Corporation and the Court of Tax Appeals, CA-G.R. SP No. 34102, dated Septemb erl9. 1994. In the said case, the Court of Appeals ru led: " It is clear that a claim for refund should be fil ed with th e Co mmi ss ioner of Intern al Revenue as a prerequisite before court action on tax refund cases can be commenced and that th e suit for refund must be fil ed within two years fi�om the date of payment of the tax . It is also clear from Section 204 that the cl aim fo r refund must be fil ed wi th the Commission within two yea rs from pay ment of th e tax. When the two- year peri od is abo ut to prescribe and the c!aim for refund w ith the Commissioner of Internal Revenue has not been acted upon by him , for the protection of the interest of the taxpayer, he should fil e a petition for a review with the Court of Tax Appeals w ithin the said two-year period; otherwise, if the decision of the Commi ss ioner is adverse to the taxpayer and it was made after the two-year period he can no longer appeal the same to the Court of Tax Appeals (Go nza les and Gon za les, Nat ional Internal Revenue Code, I988 ed., p. 384, ci tin g Gibbs vs. Co ll ector of Inte rnal Revenue and Co urt of Tax Appeals, 107 Phil. 232; Johnston � Lumber Co. vs. CTA, 10 I Phil. 15 1). Accordingly, We do not agree w ith ap pellant that it is necessary for the Commi ssioner of Internal Revenue to act unfavo rably on the claim for refund before the Court of Tax Appeals may acq uire jurisdicti on. This is so because of th e positive req uirement of Sect io n 230 and the doctrine that delay of the Commi ss ioner in re nderin g decision does not extend the peremptory period fixed by statute." '� Additionally, the Supreme Court in the case of Commissioner ql internal Revenue vs. Victorias Afilling Co., inc. and the Court l~f'Tax Appeals, 22 SCRA 12, al so passed upon the same issue, thus: "x X X The claim for refund wi th the Bureau or Internal Revenue and the subsequent appeal to th e Co urt of Tax Appeals must be fil ed within the two- year period. If, ho wever. the collector takes time in decidin g the claim, and the period of two years is about to end , the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period wit hou t awa iting th e decision of said Co llector. " r�t ' .,! U""'

DEC ISION- CTA CASE NO. 6027 PAGE I I WHEREFORE, in v iew of a ll the fo rego ing, thi s Court f-ind s the instant Pe titi on meritorious and in acco rd ance w ith law. Responde nt is hereby ORD ERE D to REFU ND or to ISSUE A TAX CREDIT CERTIFICATE in favor of Peti tioner the red uced amo unt o f P6.285,892 .05 represe ntin g excess credit able taxes withh eld fo r the ca lend a r year end ed December 3 1, 1997. SO ORDERED. 7~~ Associate Judge I CONCUR: ~ LR . �C~ ERNESTO D. ACOSTA Presiding Judge CERTIFICATION I hereby certify th at th e above dec ision was reached after due cons ultation with the members of the Court of Tax Ap pea ls in acco rd ance w ith Secti on 13, Artic le VIII of the Constitution. ~ �h -~ ERNESTO D. ACOSTA Pres iding Judge