G.R. Nos. 193383-84, January 14, 2015 CBK POWER COMPN! "#M#$E% "#M#$E%,, Petitioner , v. COMM#&&#ONER O' #N$ERN" RE(EN)E, Respondent. *G.R. NO&. 19340+-08 COMM#&&#ONER O' #N$ERN" RE(EN)E, RE(EN)E, Petitioner , v. CBK POWER COMPN! "#M#$E%,, Respondent . "#M#$E% %EC#&#O N PER"&-BERNBE, J. PER"&-BERNBE, J. Assailed in these consolidated petitions for review on certiorari 1 are the Decision 2 dated March 29, 2010 and the Resolutio Resolution n 3 dated August 16, 2010 of the ourt of !a" Appeals #!A$ En Banc in in .!.A. %.&. 'os. ( (69 and (9(, which affir)ed the Decision dated August 2*, 200*, the A)ended Decision + dated e-ruar 12, 2009, and the Resolution6 dated Ma /, 2009 of the !A irst Division in !A ase 'os. 6699, 6**(, and /166 granting & ower o)pan i)ited #& ower$ a refund of its e"cess final withholding ta" for the ta"a-le ears 2001 to 2003. cralawred
$/ 'as & ower is a li)ited partnership dul organied and e"isting under the laws of the hilippines, and pri)aril engaged in the develop)ent and operation of the aliraa, &otocan, and alaaan hdroelectric power generating generating plants in aguna #& ro4ect$. 5t is registered with the &oard of 5nvest)ents #&5$ as engaged in a preferred pioneer area of invest)ent under the )ni-us 5nvest)ent ode of 19*/./ chanRo-lesvirtual awli-rar
!o finance finance the & ro4ect, & ower o-tained in August 2000 a sndicated loan fro) several foreign -an7s,* i.e. i.e.,, &' ari-as, Dai8ichi ango &an7, i)ited, 5ndustrial &an7 of apan, i)ited, and :ociete ;eneral #original #original lenders$, acting through an 5nter8reditor 5nter8reditor Agent, Dai8ichi ango ango &an7, a apanese -an7 that su-se
ertain portions of the loan were su-seentral &an7 sterreich A; #Raiffesen &an7$. ortis8'etherlands, ortis8'etherlands, in turn, assigned its portion of the loan to ortis &an7 :.A.?'.= :.A.?'.=.. #ortis8&elgiu)$, a resident of &elgiu). ortis8'etherlands ortis8'etherlands and Raiffesen &an7, on the other hand, are residents of 'etherlands and Austria, respectivel. 10 chanRo-lesvirtual awli-rar
5n e-ruar 2001, & ower -orrowed )one fro) 5ndustrial &an7 of apan, ortis8'etherlands, ortis8'etherlands, Raiffesen &an7, ortis8&elgiu), ortis8&elgiu), and Miuho &an7 for which it re)itted interest pa)ents fro) Ma 2001 to Ma 2003.11 5t allegedl withheld final final ta"es fro) said pa)ents -ased -ased on the following rates, and paid the sa)e to the Revenue District ffice 'o. ++ of the &ureau of 5nternal Revenue #&5R$@ #a$ fifteen percent #1+$ for ortis8&elgiu ortis8&elgiu), ), ortis8'etherlands, and Raiffesen &an7B and #-$ twent percent #20$ for 5ndustrial &an7 of apan and Miuho &an7. 12 chanRo-lesvirtual awli-rar
Cowever, according to & ower, un/r / r//an a r/a6/s -etween r/a6/s -etween the hilippines and the respective countries in which each of the -an7s is a resident, the interest inco)e derived - the afore)entioned -an7s are su-4ect onl to a 7r//r/n6a a ra/ o 10, viz .@ .@13 chanRo-lesvirtual awli-rar
BNK
CO)N$R! O' RE&#%ENCE
ortis &an7 :.A.?'.=.
&elgiu)
PRE'EREN$#" R$E )N%ER $:E RE"E(N$ $; $RE$! 10 #Article 11 1, R8&elgiu) !a" !reat$
5ndustrial &an7 of apan Raiffesen >entral &an7 sterreich A; Miuho orporate &an7
apan Austria apan
10 #Article 113, R8apan !a" !reat$ 10 #Article 113, R8Austria !a" !reat$ 10 #Article 113, R8apan !a" !reat$
Accordingl, on April 1(, 2003, & ower filed a clai) for refund of its e"cess final withholding ta"es allegedl erroneousl withheld and collected for the ears 2001 and 2002 with the &5R Revenue Region 'o. 9. !he clai) for refund of e"cess final withholding ta"es in 2003 was su-se
!he o))issioner of 5nternal Revenues #o))issioner$ inaction on said clai)s pro)pted & ower to file petitions for review -efore the !A, viz .@1+ chanRo-lesvirtual awli-rar
#1$ C$ Cas/ No. <<99 was filed - & ower on une 6, 2003 see7ing the refund of e"cess final withholding ta" in the total a)ount of P<,393,2<+.20 covering the ear 2001 with respect to interest inco)e derived - Eortis8&elgiu)F, 5ndustrial &an7 of apan, and ERaiffesen &an7F. An Answer was filed - the o))issioner on ul 2+, 2003. #2$ C$ Cas/ No. <884 was filed - & ower on March +, 200( see7ing for the refund of the a)ount of P8,13<,1+4.31 covering EtheF ear 2002 with respect to interest inco)e derived - Eortis8&elgiu)F, 5ndustrial &an7 of apan, E Miuho &an7F, and ERaiffesen &an7F. !he o))issioner filed his Answer on Ma /, 200(. """" #3$ C$ Cas/ No. +1<< was filed - & EowerF on March 9, 200+ see7ing for the refund of Ethe a)ount ofF P1,143,51+.21 covering EtheF ear 2003 with respect to interest inco)e derived - Eortis8 &elgiu)F, and ERaiffesen &an7F. !he o))issioner filed his Answer on Ma 9, 200+. #%)phases supplied$ !A ase 'os. 6699 and 6**( were consolidated first on une 1*, 200(. :u-se
$/ C$ '6rs %66s6on Ru6n=s 5n a Decision1/ dated August 2*, 200*, the !A irst Division =ran/ the petitions and ordered the refund of the a)ount of P15,<+2,958.42 upon a finding that the relevant ta" treaties were applica-le to the case. 1* 5t cited DA85!AD Ruling 'o. 099803 19 dated ul 16, 2003, issued - the &5R, confir)ing & owers clai) that the interest pa)ents it )ade to 5ndustrial &an7 of apan and Raiffesen &an7 were su-4ect to a final withholding ta" rate of ony 10 of the gross a)ount of interest, pursuant to Article 11 of the Repu-lic of the hilippines #R$8Austria and R8apan ta" treaties. Cowever, in DA85!AD Ruling 'o. 12680320 dated August 1*, 2003, also issued - the &5R, interest pa)ents to ortis8&elgiu) were li7ewise su-4ected to the sa)e rate pursuant to the rotocol A)ending the R8&elgiu) !a" !reat, the provisions of which appl on inco)e derived or which accrued -eginning anuar 1, 2000. Hith respect to interest pa)ents )ade to ortis8'etherlands -efore it assigned its portion of the loan to ortis8&elgiu), the !A irst Division li7ewise granted the preferential rate. 21 chanRo-lesvirtualaw li-rar
!he !A irst Division categoricall declared in the August 2*, 200* Decision that the re/n/ its earlier decision - reducing the a)ount of the refund fro) 1+,6/2,9+*.(2 to P14,835,+20.39 on the ground that & ower failed to o-tain an 5!AD ruling with respect to its transactions with ortis8'etherlands. 2( 5n its A)ended Decision 2+ dated e-ruar 12, 2009, the !A irst Division adopted 26 the ruling in the case of Mirant (Philippines) Operations Corporation (formerly !outhern Ener"y #sia$Pacific Operations %Phils.&' nc.) v. Commissioner of nternal Revenue (Mirant),2/ cited - the o))issioner in his )otion for reconsideration, where the ourt categoricall pronounced in its Resolution dated e-ruar 1*, 200* that an 5!AD ruling )ust -e o-tained prior to availing a preferential ta" rate. & ower )oved for the reconsideration 2* of the A)ended Decision dated e-ruar 12, 2009, arguing in the )ain that the Mirant case, which was resolved in a )inute resolution, did not esta-lish a legal
precedent. !he )otion was denied, however, in a Resolution 29 dated Ma /, 2009 for lac7 of )erit. Indaunted, & ower elevated the )atter to the !A En Banc on petition for review,30 doc7eted as .!.A %.&. 'o. (9(. !he o))issioner li7ewise filed his own petition for review, 31 which was doc7eted as .!.A. %.&. 'o. (69. :aid petitions were su-se
& ower raised the lone issue of whether or not an 5!AD ruling is re
$/ C$ En Banc Ru6n= 5n a Decision3( dated March 29, 2010, the !A En Banc a6r>/ the ruling of the !A irst Division that a prior application with the 5!AD is indeed re
555. olicies@ """" 2.
An avail)ent of the ta" treat relief shall -e preceded - an application - filing &5R or) 'o. 0901 #Application for Relief fro) Dou-le !a"ation$ with 5!AD at least 1+ das -efore the transaction i.e. pa)ent of dividends, roalties, etc.' acco)panied - supporting docu)ents 4ustifing the relief. " " ".
!he !A En Banc further held that & owers petitions for review were filed within the two8ear prescriptive period provided under :ection 229 3/ of the 'ational 5nternal Revenue ode of 199/3* #'5R$, and that it was proper for & ower to have filed said petitions without awaiting the final resolution of its ad)inistrative clai)s for refund -efore the &5RB o therwise, it would have co)pletel lost its right to see7 4udicial recourse if the two8ear prescriptive period lapsed with no 4udicial clai) filed. & owers )otion for partial reconsideration and the o))issioners )otion for reconsideration of the foregoing Decision were -oth /n6/ in a Resolution 39 dated August 16, 2010 for lac7 of )eritB hence, the present consolidated petitions. $/ #ssu/s B/or/ / Cour 5n G.R. Nos. 193383-84, & ower su-)its the sole legal issue of whether the &5R )a add a re
n the other hand, in G.R. Nos. 19340+-08, the o))issioner )aintains that & ower is not entitled to a refund in the a)ount of 1,1(3,+1/.21 for the period covering ta"a-le ear 2003 as it allegedl failed to e"haust ad)inistrative re)edies -efore see7ing 4udicial redress. (1 chanRo-lesvirtual awli-rar
$/ Cour?s Ru6n= !he ourt resolves the foregoing in seriatim. . G.R. Nos. 193383-84 !he hilippine onstitution provides for adherence to the general principles of international law as part o f the law of the land. !he ti)e8honored international principle of pacta sunt servanda de)ands the perfor)ance in good faith of treat o-ligations on the part of the states that enter into the agree)ent. 5n this 4urisdiction, treaties have the force and effect of law. (2 chanRo-lesvirtu alawli-rar
!he issue of whether the failure to strictl co)pl with RM 'o. 182000 will deprive persons or corporations of the -enefit of a ta" treat was s
that / o@6=a6on o o>7y A6 a a r/ay >us a/ 7r///n/ o/r / o@/6/ o RMO No. 1-2000, viz .@ chanro-lesvirtuallaw li-rar
He recognie the clear intention of the &5R in i)ple)enting RM 'o. 182000, -ut the !As outright denial of a ta" treat relief for failure to strictl co)pl with the prescri-ed period is not in har)on with the o-4ectives of the contracting state to ensure that the -enefits granted under ta" treaties are en4oed - dul entitled persons or corporations. &earing in )ind the rationale of ta" treaties, the period of application for the avail)ent of ta" treat relief as re/n o / r/6/ as it would constitute a 6oa6on o / uy re7a6r / au/ of the ta" treat. At )ost, the application for a ta" treat relief fro) the &5R should >/r/y o7/ra/ o on6r> the entitle)ent of the ta"paer to the relief. $/ o@6=a6on o o>7y A6 a a r/ay >us a/ 7r///n/ o/r / o@/6/ o RMO No. 1-2000. ogicall, nonco)pliance with ta" treaties has negative i)plications on international relations, and undul discourages foreign investors. Hhile the conse7y A6 an a>6n6sra6/ 6ssuan/ r/Du6r6n= 7r6or a776a6on or a r/ay r/6/.(( #%)phases and underscoring supplied$ !he o-4ective of RM 'o. 182000 in reoo 6n r/un as/s G as in the present case G where the ver -asis of the clai) is /rron/ous or /r/ 6s //ss6/ 7ay>/n arising fro) the non8avail)ent of a ta" treat relief at the first instance. ust as Deutsche &an7 was not faulted - the ourt for not co)pling with RM 'o. 182000 prior to the transaction, (6 so should & ower. 5n parallel, & ower could not have applied for a ta" treat relief 1+ das prior to its pa)ent of the final withholding ta" on the interest paid to its lenders 7r/6s/y @/aus/ 6 /rron/ousy 7a6 sa6 a on the -asis of the regular rate as prescri-ed - the '5R, and not on the preferential ta" rate provided under the different treaties. As stressed - the ourt, the prior application re
'ot onl is the re
5t -ears reiterating that the application for a ta" treat relief fro) the &5R should >/r/y o7/ra/ o on6r> the entitle)ent of the ta"paer to the relief. (9 :ince & ower had re/ su@san6a o>76an/ with RM 'o. 182000, as in eutsche Ban*. !o rule otherwise would defeat the purpose of :ection 229 of the '5R in providing the ta"paer a re)ed for erroneousl paid ta" solel on the ground of failure to )a7e prior application for ta" treat relief. +1 As the ourt e"horted in Repu,lic v. +!- Philippines' nc.,+2 while the ta"paer has an o-ligation to honestl pa the right ta"es, the govern)ent has a corollar dut to i)ple)ent ta" laws in good faithB to discharge its dut to collect what is due to itB and to usy r/urn Aa as @//n /rron/ousy an //ss6/y =6/n o 6.+3 chanRo-lesvirtual awli-rar
5n view of the foregoing, the ourt holds that the !A %n &anc co))itted reversi-le error in affir)ing the reduction of the a)ount of refund to & ower fro) 1+,6/2,9+*.(2 to 1(,*3+,/20.39 to e"clude its transactions with ortis8'etherlands for which no 5!AD ruling was o-tained. +( & owers petition in ;.R. 'os. 1933*38*( is therefore =ran/. !he opposite conclusion is, however, reached with respect to the o))issioners petition in ;.R. 'os. 193(0/80*. B. G.R. Nos. 19340+-08 !he o))issioner la)ents ++ that he was deprived of the opportunit to act on the ad)inistrative clai)
for refund of e"cess final withholding ta"es covering ta"a-le ear 2003 which & ower filed on March (, 200+, a rida, then the following Hednesda, March 9, 200+, the latter hastil elevated the case on petition for review -efore the !A. Ce argues +6 that the failure on the part of & ower to give hi) a r/asona@/ 6>/ to act on said clai) is violative of the doctrines of e"haustion of ad)inistrative re)edies and of pri)ar 4urisdiction. or its part, & ower )aintains +/ that it would -e pre4udicial to wait for the o))issioners ruling -efore it files its 4udicial clai) since it onl has 2 ears fro) the pa)ent of the ta" within which to file -oth its ad)inistrative and 4udicial clai)s. !he ourt rules for & ower. :ections 20( and 229 of the '5R pertain to the refund of /rron/ousy or illegall collected ta"es. :ection 20( applies to ad)inistrative clai)s for refund, while :ection 229 to 4udicial clai)s for refund. 5n -oth instances, the ta"paers clai) )ust -e filed within two #2$ ears fro) the date of pa)ent of the ta" or penalt. Cowever, :ection 229 of the '5R further states the condition that a 4udicial clai) for refund )a not -e )aintained until a clai) for refund or credit has -een dul filed with the o))issioner. !hese provisions respectivel read@ chanro-lesvirtuallaw li-rar
:%. 20(. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. G !he o))issioner )a 8 """" #$ redit or refund ta"es erroneousl or illegall received or penalties i)posed without authorit, refund the value of internal revenue sta)ps when the are returned in good condition - the purchaser, and, in his discretion, redee) or change unused sta)ps that have -een rendered unfit for use and refund their value upon proof of destruction. 'o credit or refund of ta"es or penalties shall -e allowed unless the ta"paer files in writing with the o))issioner a clai) for credit or refund within two #2$ ears after the pa)ent of the ta" or penalt@ rovided, however, !hat a return filed showing an overpa)ent shall -e considered as a written clai) for credit o r refund. """" :%. 229. Recover of !a" %rroneousl or 5llegall ollected. G 'o suit or proceeding shall -e )aintained in an court for the recover of an national internal revenue ta" hereafter alleged to have -een erroneousl or illegall assessed or collected, or of an penalt clai)ed to have -een collected without authorit, of an su) alleged to have -een e"cessivel or in an )anner wrongfull collected without authorit, or of an su) alleged to have -een e"cessivel or in an )anner wrongfull collected, until a clai) for refund or credit has -een dul filed with the o))issionerB -ut such suit or proceeding )a -e )aintained, whether or not such ta", penalt, or su) has -een paid under protest or duress. 5n an case, no such suit or proceeding shall -e filed after the e"piration of two #2$ ears fro) the date of pa)ent of the ta" or penalt regardless of an supervening cause that )a arise after pa)ent@ " " ". #%)phases and underscoring supplied$ 5ndu-ita-l, & owers ad)inistrative and 4udicial clai)s for refund of its e"cess final withholding ta"es covering ta"a-le ear 2003 were 6/ A66n / Ao-y/ar 7r/sr676/ 7/r6o, as shown - the ta-le -elow@ +* chanRo-lesvirtual awli-rar
W:EN W:EN "&$ %! O' W:EN W:EN '#N" REM#$$NC $:E 2-!ER PE$#$#O #NCOME E %M#N#&$R$#(E N $;E& RE$)RN PRE&CR#P$#(E C"#M W& 'OR WERE '#"E% PER#O% '#"E% RE(#EW W#$::E" W& % '#"E% e-ruar 03?10?03 03?10?0+ March (, 200+ 03?09?0+ 2003 Ma 2003 06?10?03 06?10?0+ March (, 200+ 03?09?0+
Hith respect to the re)ittance filed on March 10, 2003, the ourt agrees with the ratiocination of the !A En Banc in de-un7ing the alleged failure to e"haust ad)inistrative re)edies. Cad & ower awaited the action of the o))issioner on its clai) for refund prior to ta7ing court action 7nowing full well that the prescriptive period was a-out to end, it would have lost not onl its right to see7 4udicial recourse -ut its right to recover the final withholding ta"es it erroneousl paid to the govern)ent there- suffering irrepara-le da)age. +9 chanRo-lesvirtual awli-rar
Also, while it )a -e argued that, for the re)ittance filed on une 10, 2003 that was to prescri-e on une 10, 200+, & ower could have waited for, at the )ost, three #3$ )onths fro) the filing of the ad)inistrative clai) on March (, 200+ until the last da of the two8ear prescriptive period ending une 10, 200+, that is, if onl to give the &5R at the ad)inistrative level an opportunit to act on said clai), the ourt cannot, on that -asis alone, den a legiti)ate clai) that was, for all intents and purposes, ti)el filed in accordance with :ection 229 of the '5R. !here was no violation of :ection 229 since the law, as worded, onl re
!he controvers centers on the construction of the afore)entioned section of the !a" ode which reads@ :%. 306. Recover of ta" erroneousl or illegall collected. J 'o suit or proceeding shall -e )aintained in an court for the recover of an national internal revenue ta" hereafter alleged to have -een erroneousl or illegall assessed or collected, or of an penalt clai)ed to have -een collected without authorit, or of an su) alleged to have -een e"cessive or in an )anner wrongfull collected, until a clai) for refund or credit has -een dul filed with the ollector of 5nternal RevenueB -ut such suit or proceeding )a -e )aintained, whether or not such ta", penalt, or su) has -een paid under protest or duress. 5n an case, no such suit or proceeding shall -e -egun after the e"piration of two ears fro) the date of pa)ent of the ta" or penalt. !he preceding provisions see) at first -lush conflicting. 5t will -e noticed that, whereas the first sentence re
!o this end, and -earing in )ind that the egislature is presu)ed to have understood the language it used and to have acted with full idea of what it wanted to acco)plish, it is fair and reasona-le to sa without doing violence to the conte"t or either of the two provisions, that - the first is )eant si)pl that the ollector of 5nternal Revenue shall -e given an opportunit to consider his )ista7e, if )ista7e has -een co))itted, -efore he is sued, -ut not, as the appellant contends that pending consideration of the clai), the period of two ears provided in the last clause shall -e dee)ed interrupted. NoA/r/ an 6n no A6s/ o/s / aA 6>7y a / Co/or o #n/rna R//nu/ >us a u7on / a6>, or a / a7ay/r sa no =o o our @/or/ / 6s no66/ o / Co/or?s a6on. " " ". W/ un/rsan / 66n= o / a6> A6 / Co/or o #n/rna R//nu/ o @/ 6n/n/ 7r6>ar6y as a no6/ o Aarn6n= a un/ss / a or 7/nay a/=/ o a/ @//n o// /rron/ousy or 6/=ay 6s r/un/, our a6on A6 ooA. " " ".61 #%)phases supplied$ !hat -eing said, the foregoing refund clai)s of & ower should all -e granted, and, the petition of the o))issioner in ;.R. 'os. 193(0/80* -e denied for lac7 of )erit. chanro-leslaw
W:ERE'ORE, the petition in ;.R. 'os. 1933*38*( is GRN$E%. !he Decision dated March 29, 2010 and the Resolution dated August 16, 2010 of the ourt of !a" Appeals #!A$ %n &anc in .!.A. %.&. 'os. (69 and (9( are here- RE(ER&E% and &E$ &#%E and a new one entered RE#N&$$#NG the Decision of the !A irst Division dated August 2*, 200* ordering the refund in favor of & ower o)pan i)ited the a)ount of 1+,6/2,9+*.(2 representing its e"cess final withholding ta"es for the ta"a-le ears 2001 to 2003. n the other hand, the petition in ;.R. 'os. 193(0/80* is %EN#E% for lac7 of )erit. &O OR%ERE%.
cralawlawli-rar
!ereno' C..' (Chairperson)' 0eonardo$e Castro' Bersamin' and Perez' ., concur.
