REFUND OF TAXES (5) Value of unused stamps
a. Rendered unfit for use;
IN GENERAL
(1) Taxes which are erroneously or illegally
received by the government; or
(2) Tax penalties imposed without legal basis
Must be refunded by the CIR, upon a claim for
refund filed within two years from the time of
payment of such tax or penalty.
Modes. Refund can take the form of a tax refund
or a tax credit.
Legal basis. Tax refunds are based on the
principle of solutio indebiti.
Siga-an v Villanueva
This is a civil case filed against petitioner. The
respondent erroneously paid interest on a loan
when in fact no interest is due.
The Supreme Court held that the respondent is
entitled to refund of the overpayment. The
principle of solutio indebiti applies.
Said provision provides that if something is
received when there is no right to demand it,
and it was unduly delivered through mistake, the
obligation to return it arises. In such a case, a
creditor-debtor relationship is created under a
quasi-contract whereby the payor becomes the
creditor who then has the right to demand the
return of payment made by mistake, and the
person who has no right to receive such
payment becomes obligated to return the same.
TAX REFUND IN THE TAX CODE
SECTION 204 (C), PARAGRAPH 1. Instances
when taxes can be refunded:
(1) Taxes erroneously or illegally received by
the BIR;
(2) Penalties imposed without authority or
legal basis;
(3) Any sum alleged to be excessively or
wrongfully collected;
(4) Value of internal revenue stamps
a. Returned in good order by the
purchaser;
period reckoned from the time the tax or
penalty is actually paid.
b. Accompanied with a proof of
destruction;
c. Refund is based on the discretion
of the CIR;
(6) Excess income tax credits against
quarterly income taxes for the next taxable
year which were not used (Section 76 on
Final Adjustment Returns)
SECTION 204 (C), PARAGRAPH 2. Issuance of
Tax Credit Certificate
 Issued against any internal revenue tax
except withholding tax
 Conversion into a refund of unutilized tax
credits – allowed
o Original copy of tax credit
certificate must be surrendered to
the revenue officer;
o There can be no tax refund based
on availment of incentives if not
actually paid.
SECTION 204 (C), PARAGRAPH 3. Duty of the
Commissioner of Internal Revenue
 Submit a report to the Senate and House
of Representatives of –
o Names and addresses of
taxpayers subject to abatement or
compromise
o The amount involved
 For purposes of determining the validity of
the exercise of such power.
SECTION 229. Recovery of Tax Erroneously or
Illegally Collected
 There must be a claim of refund filed
before the Commissioner before a suit
can be maintained in court.
 The tax subject of refund must have been
actually paid;
o The suit will proceed regardless of
the fact that the payment was
made under protest.
 The refund must be filed before the
expiration of the two (2) year prescriptive
 Act of the commissioner – the
commissioner may grant a refund or credit
even without a written claim if:
o On the face of the return, it clearly
appears that the tax is
erroneously paid.
SECTION 76. Final Adjustment Returns
 Corporation pay quarterly taxes;
 On final adjustment of the taxable year, it
was found that the quarterly payments
less than or greater the annual income tax
due:
o If less than, corporation must pay
the balance;
o If greater than, the credit may be
carried over or a refund may be
claimed.
 The choice shall be
irrevocable.
NATURE OF TAX REFUNDS
Tax refunds are essentially tax exemptions.
Far East Bank and Trust v Court of Appeals
The petitioner in this case filed a case for refund
of taxes before the CTA. However, because it
failed to file its formal offer of evidence, the CTA
ruled in favor of the CIR.
The Supreme Court ruled that a tax refund is in
the nature of a tax exemption which must be
construed strictissimi juris against the taxpayer.
T
o stress, the taxpayer must present convincing
evidence to substantiate a claim for refund.
Without any documentary evidence on record,
petitioner failed to discharge the burden of
proving its right to a tax credit/tax refund.
Therefore, the CTA and CA correctly denied its
claim.
BPI Family Savings Bank v Court of Appeals
BPI suffered losses for its fiscal year ending
 1989. In 1991, it filed a claim for refund against
the CIR claiming that the refundable amount in
1989 due to business losses was not applied to
its 1990 tax liabilities because the business is
still at a loss.
CTA dismissed the petition on the ground that
petitioner bank failed to present as evidence its
1990 annual income tax return to prove that it
had not yet credited the amount.
While tax refunds are in the nature of the
exceptions and are to the construct strictissimi
juris against the claimant, under the facts of this
case, petitioner has established its claim.
Substantial justice equity, and fair play are on
the side of petitioner. Technicalities and
legalisms, however, exalted, should not be
misused by the government to keep money not
belonging to it and thereby enrich would be
better by allowing to appeal.
REQUISITES TO CLAIM TAX REFUND
(1) A written claim must be filed within the CIR
for any of the six (6) grounds
aforementioned;
(2) Application must be filed within two years,
regardless of any supervening causes.
(3) A tax return filed showing overpayment
shall be considered a written claim of
refund.
Far Est Bank v Court of Appeals
CLAIMANT OF TAX REFUND
DEFINITION OF ERREONEOUSLY PAID TAX
(A) Tax is paid under a mistake of fact; or
(B) The payment of tax is made under duress.
Internal Revenue v Philippine National Bank
PNB is claiming for a tax refund. The BIR
refused stating that the said income tax payment
from which the refund is being claimed is
voluntarily remitted by PNB. Thus, it is not of the
nature erroneous or illegal payment as it is not
based on an assessment.
The Court in this case held that a erroneous or
illegal tax is defined as tax levied without any
statutory authority. This case falls under that
definition. Thus, PNB is entitled to refund.
Coca-Cola Bottlers v Commissioner of
Internal Revenue
Petitioner claims that there is an erroneous
payment of VAT. Thus, it is claiming for refund.
The CIR denied the claim stating that the input
VAT from which the petitioner claims its refund
is not properly substantiated with invoice and
receipts.
The Court ruled in favor of the CIR declaring that
the undeclared input taxes cannot be refunded
as taxes erroneously paid. Since it was not
declared in the VAT Return, it cannot, therefore
be off-set with output VAT.
While the return cannot be amended after
issuing an LOA, it does not preclude the
taxpayer from presenting evidence to prove
refund due to:
(a) Zero-rated sales; or
(b) Cancellation of VAT Registration.
For failure to prove either case due to non-
declaration, the claim of refund must fail.
(a) The taxpayer himself;
(b) The statutory taxpayer;
(c) The withholding agent
Silkair Singapore v Commissioner of Internal
Revenue
Silkair is a Singapore corporation which filed an
application for refund claiming of excise taxes it
paid on the purchase of jet fuel from Petron
Corporation. The CTA denied the petition stating
that the excise tax was imposed upon Petron
and thus, the claim for refund should be filed by
Petron.
Excise tax is an indirect tax and the seller or
manufacturer has the option to shift the burden
of tax to the purchases. If shifted to the
purchaser, it becomes a part of the cost of
goods and not a tax liability.
The Supreme Court echoed the CIR stating that
the property party to seek refund of an indirect
tax is the statutory taxpayer even if he shifts the
burden thereof to another. In this case, since
petitioner is not the statutory taxpayer, it does
not have the personality to claim for the refund.
Philippine Airlines v Commissioner of
Internal Revenue
In this case, PAL’s franchise grants it an
exemption from both direct and indirect taxes on
its purchase of petroleum products.
Caltex sold jet fuel to PAL and charged PAL with
excise tax. Pursuant to the exemption granted in
its franchise, it filed a claim for refund before the
BIR, but it was denied because PA is not the
statutory taxpayer.
The Court ruled that the rule that only statutory
taxpayer can apply for refund does not apply in
cases where the party burdened with the
payment of tax is granted an exemption from
indirect taxes by law. In such a case, the party
who shouldered the burden of taxation is
allowed to claim a refund even if it is not the
statutory taxpayer.
Chevron Philippines v Commissioner of
Internal Revenue
Chevron filed a claim for refund of excise taxes it
paid on the sale of fuel to CDC. The Court
reiterated the ruling in PAL.
The general rule applies here because Chevron
did not pass on to CDC the excise taxes paid on
the importation of the petroleum products, the
latter being exempt from indirect taxes by virtue
of Section 24 of Republic Act No. 7916, in
relation to Section 15 of Republic Act No. 9400,
 not because Section 135(c) of the NIRC
exempted CDC from the payment of excise tax.
BURDEN OF PROOF
Commissioner of Internal Revenue v Tokyo
Shipping
Tokyo filed a claim for refund for erroneous
payment of pre-paid income taxes since no
receipt was realized in from its charter
agreement with NATSURA. One of the defenses
of the CIR is that Tokyo has the burden of proof
to show that no receipt was realized.
The Court held that while the burden of proof is
upon the respondent, it successfully discharged
such. The factual circumstances show that there
is no receipt of the goods.
OPTIONS TO CORPORATE TAXPAYER
(1) File a claim for refund;
(2) Avail of tax credit; or
(3) Carry over tax credit to the next taxable
periods
Each option is irrevocable once taken.
TAX CREDIT
A claim for refund which entitles that taxpayer to
use the money value of such the excess payment
of tax be used in payment of succeeding internal
revenue liabilities.
 May be claimed through tax credit
certificates issued by the BIR.
USE OF TAX CREDIT CERTIFICATES
 Valid for five (5) years
 Not assignable and may only be used by
the taxpayer.
DISTINCTION
 Tax refund is the actual reimbursement of
the overpaid tax, or illegally, erroneously
paid taxes.
 Tax credit is the amount resulting from
overpayment, illegal or erroneous payment
of tax which is recognized as payment of
internal revenue liabilities not yet due. And
may be applied to subsequent tax
liabilities.
PRESCRIPTIVE PERIOD
 Counted from the date the tax was paid;
 Counted from the date of last or final
installment;
 If tax is withheld from source, counted
from the end of the taxable year.
Commissioner of Internal Revenue v
Victoria’s Milling Co, Inc.
Victorias filed a claim for refund which was
partially denied by the CIR due to the fact that it
was filed after the lapse of the 2-year period.
The Supreme Court ruled that the claim already
prescribed.
Commissioner of Internal Revenue v Prieto
The inheritance tax and estate tax was paid by
the heirs on installment basis since the BIR kept
on reassessing the value of the estate.
Payments was made from periods March 1953
to December 1954. On January 1955, heirs filed
a claim for refund.
The SC held that the refund has not yet
prescribed because the 2-year period must be
reckoned from the date the last installment is
paid.
Commissioner of Internal Revenue v Palanca
The late Don Carlos Palanca, Sr. donated in
favor of his son, Carlos Palanca, Jr. shares of
stock in La Tondeña Inc.
The BIR considered the donation as transfer in
contemplation of death; consequently, the BIR
assessed against the respondent, Palanca Jr.,
the sum of P191,591.62 inclusive of the
delinquency charges. The respondent then filed
an amended income tax return, claiming an
additional deduction for the delinquency charge.
The SC held that the claim for refund has not yet
prescribed. It stated that the situation is akin to a
payment by installment. The delinquency was
paid on August 14, 1956 and the refund was
filed on August 13, 1958. Within the two-year
period.
Gibbs v Commissioner of Internal Revenue
A taxpayer, resident or non-resident, who
contributes to the withholding tax system, does
not really deposit an amount to the BIR
Commissioner, but, to perform or extinguish his
tax obligation for the year concerned. He is
paying his tax liabilities for that year.
Consequently, a taxpayer whose income is
withheld at the source will be deemed to have
paid his tax liability when the same falls due at
the end of the tax year
Commissioner of Internal Revenue v Court of
Appeals
For corporations, Two year is counted from the
date of filing of the final adjustment return.
CONDITIONS FOR REFUND/TAX CREDIT
(1) There must be an actual collection and
receipt of tax payment by the government.
(2) There is legal basis for the refund or credit
Any tax refund or credit may be forfeited
 Cash refund – if not drawn within five (5)
years from delivery;
 Tax credit – if not utilized within five (5)
years from the date of issues
REFUND OF VAT
 Claim must be made two (2) years from
the close of the taxable quarter.