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III.

DEF Corporation is a wholly owned subsidiary of DEF, Inc., California, USA. Starting December 15, 2004, DEF Corporation paid annual royalties to DEF, Inc., for the use of the latter’s software, for which the former, as withholding agent of the government, withheld and remitted to the BIR the 15% final tax based on the gross royalty payments. The withholding tax return was filed and the tax remitted to the BIR on January 10 of the following year. On April 10, 2007, DEF Corporation filed a written claim for tax credit with the BIR, arising from erroneously paid income taxes covering the years 2004 and 2005. The following day, DEF Corporation filed a petition for review with the Court of Tax Appeals involving the tax credit claim for 2004 and 2005.

a) As a BIR lawyer handling the case, would you raise the defense of prescription in your answer to the claim for tax credit? Explain. (4%)

b) Can the BIR lawyer raise the defense that DEF Corporation is not the proper party to file such claim for tax credit? Explain. (3%)

Before answering this question, I pause for almost 10 minutes because the facts do not give information as to where you are going to reckon the two years prescriptive period. This question is quite tricky because at first glance you might as well think that the period of two years had already elapsed from year 2004 to 2007, (the year when DEF Corporation filed its claim for tax credit). Anyway this is how I answered this question.

I11.a

No, the tax credit claimed by DEF Corporation for the year 2004 and 2005 will prescribe on April 15, 2007 and April 15, 2008 respectively. DEF Corporation seasonably filed its claim for tax credit on April 10, 2007; 5 days shy away from the last day of its two year prescriptive period. DEF Corporation is actually claiming for tax refund on its erroneous income tax returns for the years 2004 and 2005 which can be granted to it by the government in two ways, either as tax credit or in the form of actual cash refund. In the absence of information as to when DEF Corporation filed its income tax return for the year 2004, it is assumed to have been filed on the last day of filing which is April 15, 2005. Counting therefore from said date of filing up to April 10, 2007, the two years prescriptive period had not yet elapsed. The January 10, 2005 remittance of withholding tax is of no consequence and bears no significance in counting the period of prescription because this date refers to the remittance by DEF Corporation of the withholding tax in its capacity as withholding agent. Further, this is not the main issue from where said corporation based its claim for tax credit. The facts clearly state that the claim for tax credit is based on the erroneous filing of income tax return and not on withholding tax. Therefore as a BIR lawyer, I cannot raise in this case the defense of prescription.

III.b

No, the claim for tax credit of DEF Corporation is founded on its erroneous filing of income tax returns and not on the 15% final withholding tax on royalty remitted to its mother company based in California USA. Had DEF Corporation filed its claim on the basis of said final withholding tax, the BIR lawyer may have raised such defense of not being the proper party to such claim. The facts however are clear; DEF Corporation has filed its claim by virtue of its capacity as an income taxpayer. This situation therefore leaves no doubt that the said corporation is the proper party that can file such claim for tax credit. The BIR lawyer therefore cannot raise such defense of not a proper party against DEF Corporation.

withholding tax payment prescription is counted on a monthly basis within the period of two years. Hence, 2004 is already expire while for 2005 april to december can still be refunded because 2005 payments will expire on january 2008. The april 15 deadline to compute for proper prescriptive period is used only for income tax purposes and not for withholding taxes. SC Decision.



The local Company is the agent of the foreign company therefore BIR cannot invoke that the local company is not the proper party

hello howierd

Please do introduce yourself at the GTKY section. all members are required to do so so that the other members can get to know something about the other.

looking forward to your introduction. thanks!

"On April 10, 2007, DEF Corporation filed a written claim for tax credit with the BIR, arising from erroneously paid income taxes covering the years 2004 and 2005. The following day, DEF Corporation filed a petition for review with the Court of Tax Appeals involving the tax credit claim for 2004 and 2005."

The above phrases may somehow explain that the prescriptive period refers to the tax credit arising from income tax return and not on withholding tax, thereby choosing between the two taxes involve in the question, would it not be safer to assume that it refers to the prescriptive period on income tax. This is just my analysis; views of others will be respected.

The above case will happen in actual preparation of your income tax return. This is in a situation wherein your creditable withholding taxes will exceed your income tax liability, thereby leaving an amount now being referred to as INCOME TAX CREDIT. Prescriptive period therefore on withholding tax may hold no application insofar as the claim for tax credit is concerned.