A basic rule in taxation is that tax refunds take on the nature of tax exemptions, which are construed strictissimi juris against the taxpayer. This principle, I think, is the moral of the decision in Court of Tax Appeals En Banc (CTA EB) No. 2166, initially docketed as CTA Case No. 9435. Sitting en banc to review a significant issue, the CTA denied a claim for refund due to the claimant’s non-compliance with the prior filing requirement. The CTA ruled that failure to file the administrative claim with the Bureau of Internal Revenue (BIR) before filing the claim for refund with the courts of law is a procedural error.

For context, the taxpayer-claimant paid excise taxes on Aug. 22, 2014 on its imports of various cigarette and alcohol products constituting its commissary and catering supplies. Believing that it is exempt from payment of all import taxes, duties, fees, and other charges on its commissary and catering supplies pursuant to its franchise, the claimant filed a written request for a refund of excise taxes on Aug. 22, 2016 with the Commissioner of Internal Revenue (CIR). Later within the same day, the claimant filed a Petition for Review with the CTA, seeking a refund or the issuance of a tax credit certificate covering the excise taxes it erroneously paid on Aug. 22, 2014.

In cases of recovery of erroneously or illegally collected taxes, the chief governing provision under the Tax Code is Section 229. The provision states that for a claim for refund of erroneously or illegally collected taxes to be valid, it is required that the claimant must first file an administrative claim with the CIR before filing the judicial claim with the courts. Further, both administrative and judicial claims must be filed within the two-year reglementary period, counted from the date of tax payment.

While there is no question that both claims were filed within the two-year prescriptive period for tax payments, the crux of the controversy is whether or not the claimant complied with the prior filing requirement with the BIR before elevating the refund claim to the CTA.

From a layman’s point of view, taking into account the meaning of the word prior, which means preceding in time or order or taking precedence, it seems that the claimant had satisfied the prior filing requirement. It filed its written claim for refund with the BIR before going to the CTA. As proof, it attached an original copy of the claim with the BIR in its Petition before the CTA.

However, from a legal perspective, the tax court found the claims to be procedurally defective. The CTA Division and En Banc both held that the filing of the administrative claim and judicial claim on the same day, even if the administrative claim was filed first, does not comply with the requirements of Section 229 of the Tax Code. While, admittedly, the BIR administrative claim was filed prior to the judicial claim with the CTA, the claimant overstretched its interpretation of what constitutes prior filing.

The CTA explained that the prior filing requirement serves to give notice or warning to the CIR that court action would follow unless the alleged erroneous or illegally collected tax or penalty is refunded, citing the Supreme Court case of Commissioner of Internal Revenue vs. Goodyear Philippines, Inc., G.R. No. 216130. Thus, the same-day filing of both the administrative claim and judicial claim for refund is akin to the concurrent filing of the subject claims, which denies the CIR an opportunity to act on the claim. One might ask, how much time is needed to satisfy the requirement of giving the BIR an opportunity to act on the refund claim?

In the Goodyear case, the administrative and judicial claims were filed only 13 days apart. There are also CTA En Banc decisions promulgated in 2019 and late 2021 where the refund claims were granted notwithstanding the fact that the judicial claims were filed only six or nine days from the filing of the administrative claim.

While there is no hard and fast rule on the timeframe between the filing of the administrative claim and the judicial claim for refund, what is important is that the BIR was given notice or warning that a judicial action will follow in case the refund claim is not acted upon. Further, in the Goodyear case, the Supreme Court clarified that the taxpayer need not wait for the final resolution of the administrative claim for refund before proceeding to the CTA since doing so would be tantamount to the forfeiture of such taxpayer’s right to seek judicial recourse should the two-year prescriptive period expire without the appropriate judicial claim being filed.

With the foregoing pronouncement from the SC, I just wonder if the taxpayer’s refund claim would have been granted had it filed the judicial claim for refund at least a day after the administrative claim was filed with the BIR. After all, the required notice or warning to the BIR, which is crucial in the prior filing requirement under Section 229 of the Tax Code, would have been met.

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.

Rachel D. Sison is a senior manager at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

rachel.d.sison@pwc.com