Tax Articles

CWT Refund Process

By: Atty. Mabel L. Buted

Mabel L. Buted Partner   +632 8403-2001 loc.160 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

Taxpayers oftentimes incur excess creditable withholding taxes (CWT) at the end of their taxable year. In such situation, there are two ways to recover the excess taxes paid. One way is to carry over the excess amount and utilize it as payment of the income taxes due in the succeeding years. Taxpayers can carry over the excess tax credits in subsequent periods until these are fully consumed. The other way is to claim for a refund or a tax credit certificate.

In the past, taxpayers have been experiencing challenges in claiming refunds, because of various issues like the timing of filing the claim with the tax authority and with the courts as well as the lack of clear guidelines on the specific documents to be submitted. Because of this, the process was reformed last year under the Ease of Paying Taxes Act (EOPT). The EOPT Act addressed some of these issues. Here is an outline of the present rules in claiming for refunds of excess and unutilized CWTs under EOPT.
The claim for refund must be filed first administratively with the BIR within a period of two years from the date of payment of the tax. Thereafter, the BIR has 180 days from the taxpayer’s submission of complete documents in support of the application to decide on the claim. In case the BIR decides on the claim within the 180-day period, the taxpayer may appeal within 30 days from receipt of the decision to the Court of Tax Appeals. The same remedy of appeal is also available to the taxpayer in case the BIR fails to decide on the application within the prescribed period. In such case, the 30-day period to appeal with the tax court commences from the lapse of the 180-day period.

The claim will be granted only when it is shown that the income payment has been declared as part of the gross income and the fact of withholding the tax is established.

Under existing procedures, the BIR mandates certain documents to be submitted in the application for refund. These include copies of the withholding tax certificates (BIR Form No. 2307 or BIR Form No. 1606, whichever is applicable) and a summary of the revenues/income declared in the Income Tax Return (ITR) and the corresponding taxes withheld per BIR Form No. 2307/1606, that is prepared in the format prescribed under the revenue circular.

The withholding tax certificates serve to prove the fact of withholding. Original copies of these need not be submitted. The BIR now admits scanned copies, photocopies or certified true copies of the certificates.

Based on the rules, it can be noted that proofs of remittances of the taxes withheld are not required to be submitted upon filing. However, while this is the case, the BIR, as part of its procedures, will compare the amount claimed by the taxpayer with the amount remitted by the withholding tax agents. This comparison is the BIR’s way of validating the authenticity and veracity of the withholding tax certificates submitted by the taxpayer. In effect, the BIR will still check the fact of remittance of the taxes withheld on the income of the claimant.

Further, to check that the income upon which the taxes were withheld were included in the gross income in the taxpayer’s Annual ITR, the BIR will compare the aggregate amount of income shown in the withholding tax certificates, on the one hand, and the amount of income shown in the summary of revenues/income declared per Annual ITR, on the other.

These procedures of the BIR might not align with previous court pronouncements, and these can unfavorably affect the claims of the taxpayers. It has been held in numerous court decisions that, in a claim for refund, only the fact of withholding, and not the fact of remittance, must be proven. Likewise, in one case, the court held that, the claim for CWT for a taxable year is valid even if the related revenue was reported and subjected to tax in a different taxable year, provided that the CWT was not already claimed in the year when the corresponding income was declared.

With this, I hope that the BIR would admit alternative procedures for taxpayers to further prove their claims, such as submitting reconciliations to explain possible timing differences in claiming the CWT and in reporting the corresponding income, and presenting the original copies of the withholding tax certificates, if needed, in lieu of submitting the remittance/payment forms of the withholding tax agents.

In the meantime, the taxpayers must note these underlying procedures of the BIR in preparing and processing their claims for refund.