How burdensome is the burden of proof?

“It is wrong, always, everywhere, and for anyone, to believe anything upon insufficient evidence.”
These words are from the influential essay “The Ethics of Belief” by the English mathematician and philosopher William Kingdon Clifford. In the essay, he argued that believing something based on inadequate evidence is like stealing from society.
In courts of law, it is necessary to not only present an argument but also support such contentions with valid evidence based on the provisions of the law. Without such valid evidence, the argument cannot stand on its own.
This requirement applies to tax refund claims in the Philippines which are in the nature of an exemption and must be construed against the taxpayer claiming the refund. The burden of proof to establish the right to a refund lies with the taxpayer-claimant who must show compliance with the statutory requirements of the Tax Code and existing jurisprudence.
Claims for a refund of excess and/or unutilized creditable withholding tax (CWT) finds legal basis in Section 76 of the Tax Code, where a corporation is given an option to carry over or refund such unutilized CWT if the sum of the quarterly tax payments exceeds the total tax due on its entire annual taxable income.
Section 2.58.3 of Revenue Regulations No. 2-98 implemented the following requisites:

1. The claim for refund must be filed with the Commissioner of Internal Revenue within two years from the date of payment of the tax, as prescribed under Section 204(C), in relation to Section 229 of the Tax Code;

2. It must be shown in the return that the income payment received was declared as part of the gross income of the taxpayer; and

3. The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom.

While each of the requisites are equally consequential, let me draw your attention to the third requisite which entails the need to show evidential proof of withholding of taxes.
Being the withholding tax agent, the payor should issue a Certificate of Creditable Tax Withheld at Source (BIR Form No. 2307) to the payee to show that the applicable tax was withheld as an advance collection on behalf of the government.
But is the CWT certificate sufficient evidence to prove the fact of withholding and consequently, entitle the taxpayer-claimant to the tax refund?
In a recent tax refund case (CTA EB No. 1666 dated Nov. 23, 2018), the Court of Tax Appeals reiterated the well-settled rule that the CWT certificate is sufficient evidence to prove that taxes were indeed withheld. The decision is anchored on a myriad of Supreme Court cases that have affirmed that it is not necessary for the testimony of the person who executed and prepared the CWT certificates to be offered as proof of the authenticity of the certificates.
However, while the courts give credence to the CWT certificates as adequate proof for refund of unutilized tax credits, the burden of proof remains a question of fact at the BIR level. Thus, aside from the CWT certificates, a taxpayer is still required to offer additional documents to the BIR as evidence that the applicable withholding taxes were actually remitted to the tax authority for the claim to be granted.
Without the additional documents, such as the certification from the BIR’s Revenue Accounting Division showing the fact of remittance of the taxes supposedly withheld, or even BIR Form No. 1604-E with the Monthly Alphalist of Payees of the claimant’s customers, among others, the tax refund claim will likely be denied at the BIR level. In which case, the taxpayer-claimant is constrained to appeal the refund claim to the courts, which will entail additional cost, time, and effort.
Our tax bureau faces the arduous task of checking all the actual withholding tax remittances with limited resources and manpower. From the point of view of the taxpayers, the government should find ways to rationalize claims processes and refund mechanisms. At the end of the day, foreign investors are more likely to invest in a country that values ease of doing business, where the burden of producing evidence in refund claims is reasonably alleviated to benefit taxpayers who should rightfully recover what is due them.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.
 
Yener C. Cabalida is a senior consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
+63 (2) 845-2728
yener.c.cabalida@ph.pwc.com