RR 2-98

Section 2.57(B) – CWT

Under the CWT system, taxes withheld on certain income payments are intended to equal or at least
approximate the tax due of the payee on said income. The income recipient is still required to file an ITR,
as prescribed in Sec. 51 and 52 of the NIRC, as amended, to report the income and/or pay the difference
between the tax withheld and tax due on the income. Taxes withheld on income payments covered by the
EWT and compensation income are creditable in nature.

Section 2.58.3 – Claim for Tax Credit or Refund

A. The amount of CWT shall be allowed as a tax credit against the income tax liability of the payee in the
quarter in which income was earned or received;

B. Claims for tax credit or refund of any creditable income tax which was deducted and withheld on
income payments shall be given due course only when:

 It is shown that the income payment has been declared as part of the gross income, and
 The fact of withholding is established by a copy of the WHT statement or certificate duly issued
by the payer to the payee showing the amount paid and the amount of tax withheld, known as
Certificate of Creditable Tax Withheld at Source or BIR Form No. 2307, showing the amount paid
and the amount of tax withheld therefrom.

Proof of remittance is the responsibility of the withholding agent.

C. Excess Credits – an individual or corporate taxpayer’s excess EWT credits for the taxable
quarter/year shall automatically be allowed as a credit against his income tax due for the taxable
quarters/years immediately succeeding the taxable quarters/years in which the excess credit arose,
provided he submits with his ITR, a copy of the first page of hit ITR for the previous taxable period
showing the amount of his excess WHT credits, and on which return he has not opted for a cash
refund or tax credit certificate.

1. If in lieu of the automatic application of his excess credit, the taxpayer wants a cash refund or a
tax credit certificate for use in payment of his other national internal revenue tax liabilities, he
shall make a written request therefor, within two years after the payment of the tax (Ref. Secs.
204(c) and 229 of the Code), provided however, that if the taxpayer has indicated in his income
tax return his option for either a cash refund or a tax credit certificate, such indication shall be
considered sufficient for the purpose. Upon filing of his request, the taxpayer's income tax return
showing the excess expanded withholding tax credits shall be examined. The excess expanded
withholding tax so determined, shall be refunded/credited to the taxpayer.

2. Sample computation of application of excess credits-ordinary

Taxable Period
1997 1998-QTR1 1998-QTR2 1998-QTR3
Tax Due 1,000 200 200 500
Less: Tax
Withheld (1,500) (500) (300) 0
Net Tax
Payable/
Creditable (500) (300) (100) 500

In the above illustration, there is an excess credit in 1997 that can be applied to the subsequent
quarter. And if the option to apply the excess credit is initiated in the first quarter of 1998, the
taxpayer cannot avail of a refund/tax credit certificate of the excess credit of P500 in 1997.
----

Common Causes for disallowance of CWT:

 Failure to establish that the related income had been declared in the ITR;
 CWTs not supported by certificates, or those supported by certificates which are not original copies;
 Lack of signature of the payer or its authorized representative;
 Incorrect or missing entries such as TIN, name, and address in the CWT certificates

----

A significant advantage of a denied claim for CWT refund is that it is allowed to be carried over back to
the income tax return as an excess CWT. According to the Supreme Court, when a taxpayer opted to file
a claim for CWT refund and the same is subsequently denied, he can opt to again carryover the denied
claim in its entirety as creditable tax (GR 205955, March 7, 2018).

----

According to existing jurisprudence [Commissioner of Internal Revenue (CIR) vs. Mirant], GR No. 171742,
in claiming a refund of excess and unutilized Creditable Withholding Tax (CWT), a taxpayer is required to:

1. File the claim with the Bureau of Internal Revenue (BIR) within the two-year period from the date
of payment of the tax;
2. Show on his income tax return (ITR) that the income received was declared as part of the gross
income; and
3. Establish the fact of withholding via a copy of the withholding tax certificate duly issued by the
withholding agent to the taxpayer showing the amount paid and the amount of tax withheld.

----

ITRs not required in CWT Refund

The burden of proof to establish entitlement to a refund lies with the claimant, who must positively show
compliance with the statutory requirements provided under the Tax Code.

According to existing jurisprudence [Commissioner of Internal Revenue (CIR) vs. Mirant], GR No. 171742,
in claiming a refund of excess and unutilized Creditable Withholding Tax (CWT), a taxpayer is required to:

1) File the claim with the Bureau of Internal Revenue (BIR) within the two-year period from the date
of payment of the tax;
2) Show on his income tax return (ITR) that the income received was declared as part of the gross
income; and
3) Establish the fact of withholding via a copy of the withholding tax certificate duly issued by the
withholding agent to the taxpayer showing the amount paid and the amount of tax withheld.

However, in a 2013 decision, the Court of Tax Appeals (CTA) ruled that, in addition to the three conditions
above, it is also essential for the taxpayer to present the quarterly ITRs of the succeeding year to prove
that the excess CWT was not carried over to the succeeding taxable quarters. For failure to present the
first, second and third quarterly ITRs for the succeeding year, the taxpayer’s claim for refund was denied
by the CTA due to non-substantiation of the CWT. This is despite the taxpayer having offered and
submitted the annual ITR/Final Adjustment Return (FAR) for the same year which indicates that the
refund claimed was not carried over.

On appeal, the Supreme Court overturned the CTA decision and granted the refund based on the
following reasons:

First, Section 76 of the Tax Code does not mandate the submission and presentation of the quarterly
ITRs of the succeeding quarters of a taxable year in a claim for refund. The law merely requires the filing
of the ITR/FAR for the preceding -- not the succeeding -- taxable year.

Second, Revenue Regulations (RR) No. 6-85 as amended by RR 12-94 merely provides that claims for
refund of income taxes deducted and withheld from income payments shall be given due course only (1)
when it is shown on the ITR that the income payment received is being declared part of the taxpayer’s
gross income; and (2) when the fact of withholding is established by a copy of the withholding tax
statement, duly issued by the payor to the payee, showing the amount paid and the income tax withheld
from that amount. Even the BIR’s own regulations do not require the presentation of the quarterly ITRs to
substantiate a claim for CWT refund.

Interestingly, the Supreme Court clarified that the case of Philam Asset Management, Inc. vs. CIR cannot
be cited as a precedent to hold that the presentation of the quarterly ITR is not indispensable in a CWT
refund claim. In that case, the quarterly ITRs for the succeeding year were presented when the taxpayer
filed an administrative claim for the refund of its excess taxes withheld in 1997.

The logic in not requiring quarterly ITRs of the succeeding taxable years remains true to this day. What
the Tax Code requires is proof that the claimant is entitled to the claim, including the fact of not having
carried over the excess credits to the subsequent quarters or taxable year. The law, however, does not
provide that to prove such a fact, succeeding quarterly ITRs are absolutely necessary.

The court did not make an absolute statement as to the indispensability of the quarterly ITRs in a claim for
refund for no court can limit a party to the means of proving a fact for as long as they are consistent with
the rules of evidence and fair play.

To reiterate, what the Tax Code merely requires is for the taxpayer to sufficiently prove that the excess
CWT being claimed for refund was not carried over.

A refund is in the nature of an exemption and must be construed against the entity claiming the refund
and in favor of the taxing authority. Be reminded, however, that once the requirements laid down by the
law have been met, the claimant should be considered successful in discharging its burden of proving its
right to the refund.

Thereafter, the burden of going forward with the evidence shifts to the opposing party (i.e., the BIR). It is
then the turn of the opposing party to disprove the claim by presenting contrary evidence and not burden
the claimant to present additional evidence.

Cherry Amor C. Venzon-Ongson is an assistant manager at the Tax Services Department of Isla Lipana
& Co., the Philippine member firm of the PwC network.

Source: https://phtaxation.blogspot.com/2015/06/itrs-not-required-in-cwt-refund.html

----