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By: Atty. Euney Marie Mata-Perez on January 28,2021.

To claim a refund for an erroneously or illegally collected tax, Section 229 of the National Internal Revenue Code, as amended (Tax Code), provides that the claimant must first file an administrative claim with the commissioner of Internal Revenue (CIR). This claim must be filed within two years from the date of the tax’s payment. Also, the taxpayer must file a suit or proceeding before a court (in this case, the Court of Tax Appeals, or CTA) within those two years. In other words, both the judicial and administrative claims must be filed within the given reglementary period. However, the administrative claim must be filed prior to the judicial claim. These requirements are based on the aforementioned section, which states:

“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. […]”

In Commissioner of Internal Revenue vs. Goodyear Philippines Inc. (GR 216130 [2016]) (Goodyear case), the Supreme Court declared that the primary purpose of filing the administrative claim first was to give notice to or warn the CIR that a court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded. It also clarified that there was no need for the taxpayer to wait for the final resolution of its administrative claim for refund with the CIR before going to court. The high court, in a plethora of cases, also declared that, as worded, Section 229 only required that an administrative claim be filed prior to the judicial claim for refund. It does not imply that the CIR must first act on the taxpayer’s claim and notify it of such action before the latter can go to court. (CBK Power Company Limited v. CIR (GR 193383-84 [2015]) (CBK Power case).

In Philippine Airlines Inc. v. Commissioner of Internal Revenue (CTA EB 2166, December 11, 2020) (Philippine Airlines case), the CTA en banc declared that an administrative claim and a judicial claim filed on the same day is akin to both being filed concurrently, and thus falls short of fulfilling its primary purpose, which is to give the CIR an “opportunity to act” on the first claim. The CTA en banc also ruled that the CTA division correctly held there was a failure to comply with the requirement of filing the administrative claim first before the judicial claim. Accordingly, the CTA en banc declared, in effect, that the commissioner must be given the chance to act on the administrative claim before the taxpayer can go to court.

In Service Resources Inc. v. CIR, (CTA Case 9778, January 4, 2021) (Service Resources case), the CTA held that the filing of the petition for review with the tax court was not premature, given that the CIR in this case was given almost 16 months to decide on the administrative claim. It is worth noting in this case that the CIR argued that the claim for refund was still subject to administrative investigation or examination, resulting in the premature filing of the petition for review. The CTA disagreed with this position by citing the Goodyear and CBK Power cases and declaring that Section 229 only required that an administrative claim be filed first with the primary purpose of serving as a warning to the CIR.

If one further expounds on the Supreme Court’s ruling in the Goodyear case, it can be gleaned that the CIR is required to be given notice only of the potential judicial claim for refund. The Supreme Court clarified that the requirements laid out by Section 229 does not mean the taxpayer must wait for the final resolution of its administrative claim for refund, since doing so would be tantamount to the forfeiture of its right to seek judicial recourse should the two-year prescriptive period expire without the appropriate judicial claim being filed.

The Philippine Airlines and Service Resources cases were only decided weeks apart. However, it is apparent that the former seeks to establish the rule that the filing of administrative and judicial claims on the same day is akin to their concurrent filing and falls short of the requirements under Section 229, implying that this section requires the filing of the administrative claim prior to that of the judicial claim to give the CIR an opportunity to act on the former.

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