Proper Party to File Claim for Refund or Tax Credit | Recovery of Tax Erroneously or Illegally Collected | Taxpayers Remedies | Tax Remedies | NIRC | TAXATION LAW

Under Philippine taxation law, specifically under the National Internal Revenue Code (NIRC) of 1997 as amended by the TRAIN Law (Republic Act No. 10963) and supplemented by the Ease of Paying Taxes Act (Republic Act No. 11976), a taxpayer has specific remedies for the recovery of taxes that were erroneously or illegally collected. Here, we will focus on the "Proper Party to File Claim for Refund or Tax Credit" under the section on taxpayer remedies.

1. Legal Basis for Claims for Refund or Tax Credit

The NIRC, particularly Sections 204(C) and 229, provides the basis for a taxpayer's right to claim a refund or tax credit for taxes that were erroneously or illegally collected. These provisions state that a taxpayer may file a claim with the Bureau of Internal Revenue (BIR) to recover such taxes. For VAT-related claims, Section 112 of the NIRC governs refund or credit, particularly for those who erroneously paid or excessively paid VAT.

2. Who May File a Claim for Refund or Tax Credit

To be the proper party for filing a claim for a tax refund or credit, the claimant must have a direct, personal interest in the matter. The Supreme Court of the Philippines has established principles in various cases that set the guidelines for identifying the proper party in these claims:

a. The Taxpayer Who Paid the Tax

The primary party entitled to file a claim for a tax refund or credit is the taxpayer who directly paid the tax. This is generally applicable for individuals, corporations, or other legal entities that bear the burden of tax payment. Since they have a direct interest in the recovery of any tax erroneously collected, they are the appropriate parties to seek redress.

b. Withholding Agent

In the case of withheld taxes, such as withholding tax on compensation or final withholding tax, the withholding agent may file a claim for a tax refund if they are able to prove that the tax was erroneously withheld or remitted. While the withholding agent does not pay the tax out of their own funds, they act on behalf of the taxpayer in collecting and remitting taxes to the BIR. The Supreme Court has ruled that, in cases where there is erroneous or excessive withholding, the withholding agent may file for a refund on behalf of the taxpayer.

c. Authorized Representatives

A taxpayer may authorize a representative, such as an accountant or tax lawyer, to file a claim on their behalf. However, this representative must have a valid authorization, such as a Special Power of Attorney (SPA), that expressly allows them to file and pursue the claim. Without proper authorization, a claim may be rejected on the grounds that the claimant is not the proper party.

d. Corporate Entities and Subsidiaries

In cases where corporate tax payments are concerned, it is essential to establish whether the entity filing the claim is the same entity that paid the tax. For instance, a parent company cannot file a claim for a tax refund on behalf of its subsidiary unless there is clear evidence of financial consolidation or interdependence that justifies such a claim. The NIRC and relevant Supreme Court rulings strictly apply the "person directly liable for tax" principle, which typically requires the corporation that made the payment to be the claimant.

e. Successors-in-Interest or Assignees

In some cases, a taxpayer may transfer its right to a refund to another party, such as in the case of business acquisitions, mergers, or sales of tax credit certificates. In these instances, the successor-in-interest or assignee may file a claim for a refund or tax credit. However, this requires clear and documented proof of the assignment or succession of rights, which must be presented to the BIR along with the claim.

3. Procedural Requirements for Filing Claims

To properly file a claim, the taxpayer or authorized party must adhere to the procedural requirements set by the NIRC and related administrative issuances by the BIR:

a. Filing Period

Claims for refund or credit must generally be filed within two years from the date of payment of the tax, as provided in Section 229 of the NIRC. For VAT-related claims, the period is two years from the close of the taxable quarter when the sale was made, as stipulated in Section 112 of the NIRC.

b. Complete Documentation

A claim must be substantiated with supporting documents. For instance, in VAT refund claims, the taxpayer must provide proof of zero-rated or effectively zero-rated transactions, sales invoices or receipts, and official BIR rulings if applicable. Failure to provide complete documentation may result in denial of the claim.

c. Submission to Proper Office

The claim must be filed with the appropriate BIR office. For regular tax refunds, claims are generally filed with the Regional District Office (RDO) where the taxpayer is registered. VAT refund claims of large taxpayers, on the other hand, are filed with the BIR Large Taxpayers Service (LTS).

d. Administrative and Judicial Remedies

If the BIR denies the claim, the taxpayer may file an appeal with the Court of Tax Appeals (CTA) within 30 days of receiving the denial or upon the lapse of the 120-day period the BIR has to act on the claim. This is based on the principle of exhaustion of administrative remedies before resorting to judicial action.

4. Legal Presumptions and Burden of Proof

The taxpayer, as the claimant, bears the burden of proving that the tax was erroneously or illegally collected. In cases where there is ambiguity as to the eligibility for a refund, the courts tend to interpret the law strictly against the taxpayer. This principle is rooted in the general rule that tax refunds are in derogation of the government’s sovereign right to collect revenue.

5. Judicial Precedents on Proper Party in Tax Refund Cases

Several Supreme Court rulings have clarified who the proper party is to file a tax refund claim:

• CIR v. Procter & Gamble: It was established that the proper party to claim a refund or credit is the taxpayer directly affected by the tax payment.
• Asia International Auctioneers, Inc. v. Commissioner of Internal Revenue: The Court ruled that only the entity that actually bore the burden of tax can file for a refund or credit.
• Commissioner of Internal Revenue v. San Roque Power Corporation: Here, the Court upheld the importance of compliance with statutory periods and procedural requirements, reinforcing that only the taxpayer who directly paid the tax can claim a refund.

6. Special Considerations for Tax Refund Claims under the TRAIN and Ease of Paying Taxes Act

The TRAIN Law and Ease of Paying Taxes Act introduced streamlined processes for taxpayer claims, including provisions for electronic filing and shorter processing periods. The Ease of Paying Taxes Act, specifically, aims to enhance the taxpayer's experience with the BIR, potentially simplifying the documentation and procedural requirements for refund claims. However, as of the latest rules, these procedural changes do not alter the fundamental requirement that only the taxpayer or a duly authorized representative with direct interest in the tax payment can be the proper party to claim a refund.

Summary

To conclude:

1. The proper party to file a tax refund or credit claim is typically the taxpayer who paid the tax, the withholding agent, or an authorized representative with sufficient documentation.
2. Claims must be filed within specific statutory periods, supported by complete documentation, and comply with the procedural rules of the BIR.
3. Recent legislative reforms seek to ease the procedural burden but do not change the requirement that the claimant must have a direct interest in the recovery of the erroneously or illegally collected tax.

This detailed understanding of the process and requirements ensures that a taxpayer can effectively pursue their legal remedies in recovering taxes erroneously paid, in strict compliance with Philippine tax law.