On May 10, 2011, the final withholding tax for certain income payments to W Corp. was withheld and remitted to the Bureau of Internal Revenue (BIR), and the corresponding return therefor was concomitantly filed on the same date. Upon discovering that the amount withheld was excessive, W Corp. filed with the BIR a claim for refund for erroneously withheld and collected final withholding income tax on May 3, 2013. A week after, and without waiting for any decision from the Commissioner of Internal Revenue (CIR), W Corp. filed a petition for review before the Court of Tax Appeals (CTA) to make sure that the petition was filed within the two (2)-year period for claiming refunds.
In resisting the claim, the BIR contended that the claim must be dismissed by the CT A on the ground of non-exhaustion of administrative remedies because it did not give the CIR the opportunity to act on the claim of refund.
(a) Is the BIR’s contention meritorious? Explain. (2.5%)
(b) Assuming that the claim for refund filed by W Corp. is for excess and/or unutilized input VAT for the second quarter of 2011, and for which the return was timely filed on July 25, 2011, would your answer be the same? Explain. (2.5%)
Suggested answer only. Not an official answer and not legal advice.
**Answer:** The BIR's contention is unmeritorious in (a), but the answer in (b) would be different as the BIR's contention would be meritorious. **Legal Basis:** Under Section 229 of the NIRC, both administrative and judicial claims for refund must be
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Quick check
Under Section 229 of the Tax Code, within what period must both administrative and judicial claims for tax refund be filed?
Section 229 mandates that both administrative and judicial claims for refund of erroneously paid taxes be filed within two years from tax payment.
Why is a judicial appeal to the CTA under Section 229 valid even if the CIR has not yet decided the administrative claim?
Both administrative and judicial remedies under Section 229 must be exercised within two years from payment, so awaiting CIR action cannot extend the period.
For input VAT refund claims under Section 112, to what process does the two-year prescriptive period apply?
Under Section 112, the two-year prescriptive period applies solely to the administrative claim filed with the CIR.
What is the legal effect of filing a CTA petition for an input VAT refund before the expiration of the statutory CIR period?
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How does Section 229 differ from Section 112 regarding judicial claims for tax refund?
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Learn more about these topics
1. Final Tax Refund
Under Section 229 of the National Internal Revenue Code, both administrative and judicial claims for refund or tax credit of erroneously or excessively collected internal revenue taxes must be filed within two years from the date of payment. In contrast to input VAT refund claims, the statutory two-year period applies to both the administrative claim before the Bureau of Internal Revenue and the judicial appeal before the Court of Tax Appeals. Consequently, a taxpayer must file its judicial petition within the two-year prescriptive period regardless of whether the Commissioner of Internal Revenue has acted upon the administrative claim.
2. Input VAT Refund
Under Section 112 of the Tax Code, a taxpayer claiming a refund or tax credit of unutilized input Value-Added Tax must file an administrative claim with the Commissioner of Internal Revenue within two years after the close of the taxable quarter when the sales were made. Upon filing, the Commissioner is granted a mandatory statutory period to decide the administrative claim. The taxpayer cannot file a judicial appeal before the Court of Tax Appeals without waiting for the Commissioner's decision or the expiration of the statutory period, as compliance with this timeframe is mandatory and jurisdictional.
3. Non-Exhaustion Doctrine
The doctrine of exhaustion of administrative remedies does not strictly apply to tax refund claims filed under Section 229 of the Tax Code when the two-year prescriptive period is about to expire. Because the two-year statutory period under Section 229 limits both administrative and judicial remedies, insistence on prior exhaustion would result in the forfeiture of the taxpayer's right to judicial review. Therefore, when the two-year period is expiring, a taxpayer may validly file a petition for review with the Court of Tax Appeals even if the Commissioner of Internal Revenue has not yet decided the administrative claim.