Year 2010 is almost over! For a corporation adopting the calendar year accounting period, it is time to start thinking about the annual income tax return (BIR Form 1702).
The Annual Income Tax Return is a final adjustment tax return that covers the corporation’s total taxable income for the preceding calendar year. It is a summary of the quarterly income tax payments made by the corporation during the said year.
Under the Tax Code, if the sum of the quarterly income tax payments exceeds the corporation’s total tax due, the
corporation has the option to carry-over the excess tax payments to the succeeding taxable quarters of the succeeding taxable years. The option to carry over the excess tax payments, however, carries with it the irrevocability rule. The Tax Code provides that once the corporation chooses to carry-over the excess tax payments, the choice is considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed.
What exactly is the period contemplated by the irrevocability rule within which the choice to carry over the excess tax payments cannot be changed? Or, what does the phrase “irrevocable for that taxable period” mean?
In the case of Commissioner of Internal Revenue vs. Bank of the Philippine Islands (G.R. No. 178490, dated July 7, 2009), the bank opted to carry over its 1998 excess tax payment to the succeeding taxable year. In taxable year 1999, however, the bank ended up with a net loss and therefore its 1998 tax credit remained unutilized. The bank opted to carry over the excess tax payments to the following taxable year. Come taxable year 2000, the bank declared in its annual ITR zero taxable income, hence, its 1998, 1999 and 2000 tax payments were not utilized. This time, however, the bank did not indicate in the 2000 ITR its choice whether to carry over the excess tax credits or to claim the refund of, or issuance of a tax credit certificate for the excess tax payments. In 2001, the bank filed a claim for refund for its excess income tax payments for 1998.
The Court of Tax Appeals (CTA) ruled that the bank can no longer claim for a refund of its 1998 excess tax because the Bank already opted to carry it over to taxable year 1999 and 2000. The Court of Appeals (CA) reversed the decision of the CTA and held that BPI is not barred from claiming a tax refund on the ground that “the phrase ‘for that taxable period’ qualified the irrevocability of the option to carry over the excess tax credit only to the following taxable period; such that, when the 1999 taxable period expired, the irrevocability of the option to carry over the 1998 excess tax also expired.”
However, the Supreme Court (SC) did not agree with the decision of the CA. It held that the phrase “for that taxable period” refers to the taxable period when the excess income tax was acquired by the taxpayer. Thus, since the bank opted to carry the 1998 excess income tax payment to the succeeding taxable year, the bank can no longer apply for a refund of the very same 1998 excess income tax.
The phrase “for that taxable period” was again discussed in the case of Asiaworld Properties Philippine Corporation vs. Commissioner of Internal Revenue (G.R. No. 171766, dated July 29, 2010). In this case, the Supreme Court held that the phrase “for that taxable period” refers to the period comprising the succeeding taxable years such that once an option is exercised, it becomes irrevocable for the succeeding taxable years.
Despite the differences in the interpretation of the phrase “for that taxable period”, the rule is now clear with regard to the carrying-over of excess income tax payments. Once the corporate taxpayer opts to carry over its excess income tax to the succeeding taxable year, the taxpayer can no longer recover the excess income tax by way of refund. The excess income tax will thus remain in the taxpayer’s books until fully utilized.
(Mary Karen E. Quizon is a manager of Tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email manila@kpmg.com or mquizon @kpmg.com)