Irrevocability rule on excess creditable withholding tax

Under Section 76 of the Tax Code, a corporation that has incurred excess income tax payments is given the option to: (a) refund in the form of cash or tax credit certificate; or (b) carry over the excess amount against the income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable year and no application for cash refund or issuance of tax credit certificate shall be allowed.

Citing recent cases decided by the SC, the Court of Tax Appeals (CTA) held that he irrevocability rule under Section 76 applies only to the option to carry over excess income tax payments, and not the option of a refund. Thus, under the irrevocability rule, only in the event that the corporate taxpayer elects the option to carry over shall the option become irrevocable for that taxable period, and no application for refund or tax credit certificate shall be allowed.

In its annual income tax return, the taxpayer-refund claimant chose the option to be issued a tax credit certificate for its excess creditable withholding tax (CWT). The taxpayer’s annual income tax returns for the succeeding taxable year reflected that the excess CWT, which the taxpayer sought to be refunded, was not carried over to the succeeding taxable years.

Although the taxpayer’s annual income tax returns for the succeeding taxable years showed that it did not carry over its excess CWT, it nevertheless carried over the excess amount in its quarterly income tax returns for the first, second, and third quarters of the said taxable year.

According to the CTA, the option made by the taxpayer in its annual income tax return to be refunded is defeated by its act of carrying over its excess tax credits to the succeeding taxable quarters. Hence, having exercised the option to carry over its claimed excess tax credits, the taxpayer is already barred from claiming refund for the covered period.

(Stablewood Philippines, Inc. v. Commissioner of Internal Revenue, CTA EB 751 re CTA Case No. 7705, September 17, 2012)

Tax Brief – October 2012

Punongbayan and Araullo