Denial of creditable withholding tax refunds
By: Atty. Kaeth Louis C. Estrada on September 17, 2026
CERTAIN payers for goods and services in the Philippines are required to withhold creditable withholding taxes (CWT) from their payments made to certain payees. The amount withheld is remitted to the Bureau of Internal Revenue (BIR) as an advance payment on the payee’s income tax due and is creditable against the payee’s income tax liability.
The withholding agent issues BIR Form 2307, or Certificate of Creditable Tax Withheld at Source (CWT Certificate), as proof of withholding.
The obligation to withhold taxes is mandated under Section 57(B) of the National Internal Revenue Code (Tax Code), as amended. It provides that the Secretary of Finance may, upon the recommendation of the Commissioner of Internal Revenue, require the withholding of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by payor-corporation or persons, at the rate of not more than 15 percent thereof, which shall be credited against the income tax liability of the taxpayer for the taxable year.
The taxpayers or payees whose income was subject to CWT have the option to carry over the excess or unutilized CWT to succeeding taxable years or claim a refund or tax credit certificate (TCC) for the excess and unutilized CWT (Tax Code, secs. 76 and 84). The option, once exercised, is irrevocable for that taxable year. Thus, once a taxpayer opts to carry over its excess creditable tax, it may not subsequently elect a refund or the issuance of TCC.
A claim for refund of unutilized CWT, however, has the following requisites: the claim for refund must be filed within the two-year prescriptive period as provided under Sections 204(C) and 229 of the Tax Code; the fact of withholding must be established by a copy of the CWT Certificate duly issued by the payor or withholding agent; and the income upon which the taxes were withheld must be included in the return of the recipient.
As shown above, it is required that the income from which CWT was withheld be reported in the annual income tax return (AITR) of the income payee-refund claimant. This is a question of fact that must be duly established by the taxpayer.
In the recent case of Ford Group Philippines Inc. vs Commissioner of Internal Revenue (Ford Case), the Court of Tax Appeals (CTA) reiterated the long-standing rule that the failure to prove that the income payments from which the substantiated CWTs were withheld were declared as part of the Company’s gross income per its AITR shall cause the denial of the claim for refund.
In the Ford Case, the CTA noted that while the taxpayer submitted its general ledger entries, it did not submit detailed transaction records supporting the reported revenue or net sales account balances; thus, the CTA held that it could not trace or verify whether the income payments associated with the claimed CWTs indeed formed part of the sales reported in its AITR.
The CTA rejected the taxpayer’s claim that since the total amount of income payments declared per CWT Certificates was smaller than the total amount of revenues reported in its AITR, the income related to the claimed CWTs formed part of the total sales declared in its AITR.
The claimant must also establish the fact of withholding for the claimed CWTs by presenting a copy of the CWT Certificate duly issued by the payor or withholding agent to the payee. The CWT Certificate must clearly indicate the names of the payor and payee, the income payment amount, and the corresponding tax withheld.
It is important to note that the proof of actual remittance by the withholding agent of the CWT is not a condition to claim for a refund by the taxpayer-payees of unutilized CWT. The CWT Certificate, when complete with all relevant details, constitutes competent proof to establish that taxes were withheld.
If withholding agents do not properly remit the taxes so withheld, such act shall not prejudice the payee who has been duly withheld taxes by the withholding agents.
It is also noteworthy that the failure to submit at the administrative level the documents stated in Revenue Memorandum Order (RMO) 53-98 (prescribing the documents to be presented by a taxpayer upon audit of his tax liabilities) and Revenue Regulations (RR) 2-2006 (prescribing mandatory attachments of the summary alpha list of withholding agents of income payments subjected to tax withheld at source) is not a ground to deny the CWT claim for refund.
The said regulations were never intended to serve as the benchmark for assessing whether a taxpayer’s submitted documents are sufficiently complete to support a claim for a CWT credit or refund.
It is thus clear that taxpayers claiming refunds for excess or unutilized CWTs must prove the requisites mentioned, including the submission of proper and detailed transaction records that demonstrate the inclusion of income subjected to withholding in their reported taxable income. Failure to submit these records exposes the taxpayer to risk of CWT claim denials.
Tax refunds partake of the nature of tax exemptions, which are construed strictissimi juris (according to the strictest interpretation of the law) against the taxpayer, and evidence in support of a claim is likewise strictly scrutinized and duly proven.
Kaeth Louis C. Estrada is an Associate of Mata-Perez, Tamayo & Francisco (MTF Counsel). This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at info@mtfcounsel.com or visit MTF website at www.mtfcounsel.com
The article was published at the More to Follow Column at The Manila Times on September 17, 2026. Please see this link.
#MTFCounsel, CreditableWithholdingTax, CWTRefund, PhilippineTaxation, TaxUpdatesPH