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METROPOLITAN BANK v. CIR

FACTS:

Metropolitan Bank & Trust Company (Metrobank) and Solidbank Corporation (Solidbank) entered into an agreement, wherein Solidbank provided a foreign currency denominated loan to Luzon Hydro Corporation (LHC). Metrobank acquired Solidbank later on. LHC made payments to Metrobank in accordance with the agreement, withholding ten percent (10%) final tax on the interest portions and remitting it to the Bureau of Internal Revenue (BIR). LHC remitted a total of US$106,178.69 or its Philippine Peso equivalent of P5,296,773.05. However, Metrobank mistakenly remitted the same amounts to the BIR when it included them in its own Monthly Remittance Returns of Final Income Taxes Withheld for March 2001 and October 2001. Metrobank filed a letter requesting a refund from the BIR, but received no response. Consequently, Metrobank filed a petition for review before the Court of Tax Appeals (CTA) after its claim was denied. The CTA Division and CTA En Banc both affirmed the denial of the claim. Metrobank contends that its claim had not yet prescribed.

ISSUES:

  1. Whether Metrobank's filing of administrative and judicial claims for refund were within the two-year prescriptive period.

  2. Whether the prescriptive period for claiming a refund should be reckoned from the date of remittance or from the date of filing the Final Adjustment Return or Annual Income Tax Return.

  3. Whether the two-year prescriptive period for filing a claim for refund of final withholding tax starts from the time the tax was paid or from the discovery of the erroneous or excessive payment of taxes.

  4. Whether the principle of solutio indebiti can be applied to tax refund cases.

RULING:

  1. Metrobank's filing of administrative and judicial claims for refund were NOT within the two-year prescriptive period.

  2. The prescriptive period for claiming a refund should be reckoned from the date of remittance, not from the date of filing the Final Adjustment Return or Annual Income Tax Return.

  3. The two-year prescriptive period for filing a claim for refund of final withholding tax starts from the time the tax was paid, specifically from the date such tax was paid, and not from the discovery by the taxpayer of the erroneous or excessive payment of taxes.

  4. The principle of solutio indebiti does not apply to tax refund cases. The application of solutio indebiti requires that payment is made when there exists no binding relation between the payor and the person who received the payment and that the payment is made through mistake, and not through liberality or some other cause. However, in tax refund cases, there is a binding relation between the taxing authority and the withholding agent, and the Tax Code provides for a mandatory period for claiming a refund for taxes erroneously paid.

PRINCIPLES:

  • Section 204 of the National Internal Revenue Code provides the Commissioner of Internal Revenue (CIR) with the authority to grant tax refunds.

  • Section 229 of the National Internal Revenue Code requires that a claim for refund or credit must be duly filed with the CIR before a suit or proceeding for the recovery of tax can be brought in court.

  • The administrative claim for refund must be filed within the two-year prescriptive period.

  • The judicial claim for refund can be filed even without waiting for the resolution of the administrative claim, in order to prevent the claim from being forfeited by prescription.

  • The prescriptive period for claiming a refund is computed from the date of payment of the tax, not from the date of filing the Final Adjustment Return or Annual Income Tax Return.

  • The two-year prescriptive period for claiming a refund does not apply to corporate income tax payments, which are treated as "advance payments" and subject to adjustment at the end of the taxable year.

  • Final withholding taxes are considered as full and final payment of the income tax due and are not subject to any adjustments.

  • The two-year prescriptive period for filing a claim for refund of final withholding tax starts from the time the tax was paid, specifically from the date such tax was paid, and not from the discovery by the taxpayer of the erroneous or excessive payment of taxes.

  • The principle of solutio indebiti does not apply to tax refund cases.