*
ING BANK N.V., engaged in banking operations in the
Philippines as ING BANK N.V. MANILA BRANCH,
petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
_______________
* SECOND DIVISION.
360
361
362
362 SUPREME COURT REPORTS ANNOTATED
ING Bank N.V. vs. Commissioner of Internal Revenue
363
LEONEN, J.:
Qualified taxpayers with pending tax cases may still
avail themselves of the tax amnesty program under
Republic Act No. 9480,1 otherwise known as the 2007 Tax
Amnesty Act. Thus, the provision in BIR Revenue
Memorandum Circular No. 19-2008 excepting “[i]ssues and
cases which were ruled by any court (even without finality)
in favor of the BIR prior to amnesty availment of the
taxpayer” from the benefits of the
_______________
364
364 SUPREME COURT REPORTS ANNOTATED
ING Bank N.V. vs. Commissioner of Internal Revenue
_______________
365
_______________
366
366 SUPREME COURT REPORTS ANNOTATED
ING Bank N.V. vs. Commissioner of Internal Revenue
_______________
16 Id., at p. 14.
17 Id., at pp. 14 and 98-111.
18 Id., at p. 42.
19 Id.
367
Both the Commissioner of Internal Revenue and ING
Bank filed their respective Motions for Reconsideration.21
Both
_______________
20 Id., at p. 419
21 Id., at pp. 422-450 (Petitioner ING Bank’s Motion for
Reconsideration) and 451-455 (Respondent Commissioner of Internal
Revenue’s Motion for Partial Reconsideration).
368
On December 8, 2004, ING Bank filed its appeal before
the Court of Tax Appeals En Banc.23 The Court of Tax
Appeals En Banc denied due course to ING Bank’s Petition
for Review and dismissed the same for lack of merit in the
Decision promulgated on April 5, 2005.24
Hence, ING Bank filed its Petition for Review25 before
this court. The Commissioner of Internal Revenue filed its
Comment26 on October 5, 2005 and ING Bank its Reply27
on December 14, 2005. Pursuant to this court’s Resolution28
dated January 25, 2006, the Commissioner of Internal
Revenue filed its Manifestation and Motion29 on February
14, 2006, stating that it is adopting its Comment as its
Memorandum, and ING Bank filed its Memorandum30 on
March 9, 2006.
_______________
22 Id., at p. 467.
23 Id., at p. 47.
24 Id., at p. 32.
25 The Petition was received by this court on May 25, 2005.
26 Rollo, pp. 623-646.
27 Id., at pp. 661-689.
28 Id., at pp. 691-692.
29 Id., at pp. 698-700.
30 Id., at pp. 703-765. On May 10, 2006 and September 19, 2007, this
court received petitioner ING Bank’s Supplemental Memorandum (Rollo,
pp. 769-784) and Supplement to Memorandum (Rollo, pp. 787-798),
respectively.
369
_______________
370
_______________
37 Id., at p. 803.
38 Id., at p. 860.
39 Id., at pp. 871-882. Respondent Commissioner of Internal Revenue’s
Comment was received by this court on April 25, 2008.
40 Id., at pp. 884-894. Petitioner ING Bank’s Reply was received by
this court on May 26, 2008.
41 Id., at p. 49.
42 Id., at p. 50.
43 Id.
371
44 Id., at p. 802.
45 Id., at pp. 876-879.
46 Id., at pp. 877-878.
372
_______________
47 Id., at p. 879.
48 Id., at p. 880.
49 Id., at p. 881.
50 Id.
51 Id., at pp. 886-888.
52 Id., at p. 890.
53 Id.
54 Id., at p. 889.
373
_______________
374
Respondent Commissioner of Internal Revenue contends
that petitioner ING Bank’s act of “claim[ing] [the] subject
_______________
61 Id., at p. 760.
62 Id., at p. 761.
63 Id., at pp. 642-643.
64 Id., at p. 643.
375
[N]either the law nor the implementing rules state that a court
ruling that has not attained finality would preclude the availment
of the benefits of the Tax Amnesty Law. Both R.A. 9480 and DOF
Order No. 29-07 are quite precise in declaring that “[t]ax cases
subject of final and executory judgment by the courts” are
the ones excepted from the benefits of the law. In fact, we have
already pointed out the erroneous interpretation of the law in
Philippine Banking Corporation (Now: Global Business Bank,
Inc.) v. Commissioner of Internal Revenue, viz.:
_______________
65 Id., at p. 644.
66 Id.
67 Id., at p. 645.
68 Supra note 2.
69 Id., at p. 634.
376
Moreover, in the fairly recent case of LG Electronics
Philippines, Inc. v. Commissioner of Internal Revenue,71 we
confirmed that only cases that involve final and executory
judgments are excluded from the tax amnesty program as
explicitly provided under Section 8 of Republic Act No.
9480.72
Thus, petitioner ING Bank is not disqualified from
availing itself of the tax amnesty under the law during the
pendency of its appeal before this court.
II
Petitioner ING Bank showed that it complied with the
requirements set forth under Republic Act No. 9480.
Respondent Commissioner of Internal Revenue never
questioned or rebutted that petitioner ING Bank fully
complied with the requirements for tax amnesty under the
law. Moreover, the contestability period of one (1) year
from the time of petitioner ING Bank’s availment of the tax
amnesty law on December 14, 2007 lapsed.
Correspondingly, it is fully entitled to the
_______________
377
378
Contrary to respondent Commissioner of Internal
Revenue’s stance, Republic Act No. 9480 confers no
discretion on respondent Commissioner of Internal
Revenue. The provisions of the law are plain and simple.
Unlike the power to compromise or abate a taxpayer’s
liability under Section 20473
_______________
379
_______________
380
_______________
381
_______________
382
_______________
383
1996 1997
Supporting document is under the
P1,849,040.70 P930,307.56
name of the employee
Supporting document is under the
1,630,292.14 7,039,976.36
name of the Bank
TOTAL P3,479,332.84 P7,970,283.92
1996 1997
Total Disallowed Accrued Bonus P3,879,407.85 P9,004,402.63
Less: Substantiated
Reimbursement of Expense 3,479,332.84 _7,970,283.92
Unsubstantiated P400,075.01 P1,034,119.43
Tax Rate _____26.48% _______27.83%
Basic Withholding Tax Due Thereon P105,939.86 P287,795.44
Interest (Sec. 249) _ 61,445.11 _109,362.26
Deficiency Withholding Tax on 78
P167,384.97 P397,157.70
Compensation
_______________
385
_______________
386
_______________
387
_______________
agent during such quarter or year, and the amount of the tax deducted
and withheld therefrom, simultaneously upon payment at the request of
the payee, but not later than the 20th day following the close of the
quarter in the case of corporate payee, or not later than March 1 of the
following year in the case of individual payee for creditable withholding
taxes. For final withholding taxes, the statement should be given to the
payee on or before January 31 of the succeeding year.
(d) Annual returns.—Every withholding agent required to deduct and
withhold taxes under Section [50] shall submit to the Commissioner of
Internal Revenue a reconciliation statement of quarterly payments and
list of payees and income payments. In the case of final withholding taxes,
the return shall be filed on or before January 31 of the succeeding year,
and for creditable withholding taxes, not later than March 1 of the year
following the year for which the annual report is being submitted. This
return, if made and filed in accordance with regulations approved by the
[Secretary] of Finance, shall be sufficient compliance with the
requirements of Section [61] of this Title in respect to the income
payments.
The Commissioner may, by regulations, grant to any withholding agent
a reasonable extension of time to furnish and submit the return required
in this subsection.
(e) Surcharge and interest for failure to deduct and withhold.—If the
withholding agent, in violation of the provisions of the preceding section
and implementing regulations thereunder, fails to deduct and withhold
the amount of tax required under said section and regulations, he shall be
liable to pay in addition to the tax required to be deducted and withheld, a
surcharge of fifty per centum if the failure is due to willful neglect or with
intent to defraud the Government, or twenty-five per centum if the failure
is not due to such causes, plus interest at the rate of fourteen per centum
per annum from the time the tax is required to be withheld until the date
of assessment.
(f) Income of recipient.—Income upon which any creditable tax is
required to be withheld at source under Section [50] shall be included in
the return of its recipient but any excess of the amount of tax so withheld
over the tax due on his return shall be refunded to him subject to the
provisions of Section [204]; if the income tax collected at source is less
than the tax due on his return, the difference shall be paid in accordance
with the provisions of Section [49].
388
Under the National Internal Revenue Code, every form
of compensation for personal services is subject to income
tax
_______________
(g) All taxes withheld pursuant to the provisions of this Code and its
implementing regulations are hereby considered trust funds and shall be
maintained in a separate account and not commingled with any other
funds of the withholding agent. Any violation of this provision shall be
subject to the surcharges and penalties prescribed in paragraph (b) of this
Section.
82 Pres. Decree No. 1158 (1977), Sec. 74, as amended, provides:
Section 74. Return and payment to the Government of taxes withheld.—
Taxes deducted and withheld hereunder by the employer on wages of
employees shall be covered by a return and paid to the collection agent of
the city or municipality in which the employer has his legal residence or
principal place of business, or, in case the employer is a corporation, in
which the principal office is located. The return shall be filed and the
payment made within twenty-five days from the close of each calendar
quarter. The taxes deducted and withheld by employers shall be held in a
special fund in trust for the Government until the same are paid to the
said collecting officers. The Commissioner of Internal Revenue may, with
the approval of the Secretary of Finance, require employers to pay or
deposit the taxes deducted and withheld at more frequent intervals, in
cases where such requirement is deemed necessary to protect the interest
of the Government. (As renumbered by Pres. Decree No. 1994 and Exec.
Order No. 273)
389
390
_______________
official or employee has been in the service of the same employer for at
least ten (10) years and is not less than fifty (50) years of age at the time
of his retirement: Provided, further, That the benefits granted under this
subparagraph shall be availed of by an official or employee only once. For
purposes of this Subsection, the term ‘reasonable private benefit plan’
means a pension, gratuity, stock bonus or profit-sharing plan maintained
by an employer for the benefit of some or all of his officials or employees,
wherein contributions are made by such employer for the officials or
employees, or both, for the purpose of distributing to such officials and
employees the earnings and principal of the fund thus accumulated, and
wherein its [sic] is provided in said plan that at no time shall any part of
the corpus or income of the fund be used for, or be diverted to, any purpose
other than for the exclusive benefit of the said officials and employees.
(b) Any amount received by an official or employee or by his heirs
from the employer as a consequence of separation of such official or
employee from the service of the employer because of death sickness or
other physical disability or for any cause beyond the control of the said
official or employee.
(c) The provisions of any existing law to the contrary notwithstanding,
social security benefits, retirement gratuities, pensions and other similar
benefits received by resident or nonresident citizens of the Philippines or
aliens who come to reside permanently in the Philippines from foreign
government agencies and other institutions, private or public.
(d) Payments of benefits due or to become due to any person residing
in the Philippines under the laws of the United States administered by
the United States Veterans Administration.
(e) Benefits received from or enjoyed under the Social Security
System in accordance with the provisions of Republic Act No. 8282.
(f) Benefits received from the GSIS under Republic Act No. 8291,
including retirement gratuity received by government officials and
employees.
(7) Miscellaneous Items.—
(a) Income Derived by Foreign Government.—Income derived from
investments in the Philippines in loans, stocks, bonds or other domestic
securities, or from interest on deposits in banks in the Philippines by (i)
foreign governments, (ii) financing institutions owned,
\
391
392
_______________
393
_______________
86 Id.
87 Study on Strengthening the Withholding Tax System on Individual
Taxpayers, NTRC Tax Research Journal, Vol. XXIII.2, March-April 2011
<http://www.ntrc.gov.ph/files/Study-on-Strengthening-the-Withholding-
Tax-System-on-Individual-Taxpayers_48tijve7.pdf> 3 (visited May 4,
2015), citing Consideration of House Bill No. 1127, Congressional Record,
2nd Cong., 1st Session, Vol. I, No. 74, May 10, 1950, p. 2227: “The
withholding tax system was first proposed on May 2, 1950 under House
Bill (HB) No. 1127. The two main justifications for the proposal were that:
‘first, it will provide a convenient manner for meeting the employee’s
income tax liability on wages and second, it will assure the Government of
the collection of the income tax on wages which otherwise would have
been lost or substantially reduced through failure of the employees
concerned to file the corresponding income tax returns.’ The proponents
deemed it necessary to put the system in place for the reason that there
are a large number of cases where an employee fails to file an income tax
return (ITR) and/or pay the income tax for the ‘simple reason that he/she
did not
394
_______________
set aside from his/her income sufficient amounts to meet his/her tax
liability payable the following year.’ Withholding of the tax on wages when
these are earned was seen as the solution to the problem.”
88 Pres. Decree No. 1158 (1977), as amended, Sec. 72(c) (Sec. 79[c] of
the 1997 Tax Code), provides:
SECTION 72. Income tax collected at source.—(a) . . .
(c) Refunds or credits.—(1) Employer.—When there has been an
overpayment of tax under this section, refund or credit shall be made to
the employer only to the extent that the amount of such overpayment was
not deducted and withheld hereunder by the employer.
(2) Employees.—The amount deducted and withheld under this
Chapter during any calendar year shall be allowed as a credit to the
recipient of such income against the tax imposed under Section 21(a) of
this Title. Refunds and credits in cases of excessive withholding shall be
granted under rules and regulations promulgated by the Minister of
Finance. Any excess of the taxes withheld over the tax due from the
taxpayer shall be returned or credited within three months from the
fifteenth day of April. Refunds or credits made after such time shall earn
interest at the rate of six percent (6%) per annum starting after the lapse
of the three-month period to the date the refund or credit is made.
Refunds shall be made upon warrants drawn by the Commissioner of
Internal Revenue or by his duly authorized representative without the
necessity of counter-signature by the Chairman, Commission on Audit or
the latter’s duly authorized representatives as an exception to the
requirement prescribed by Section 621 of the Revised Administrative
Code.
89 See 1997 Tax Code, Secs. 51 and 58(C) and (D).
90 1997 Tax Code, Sec. 79(C).
395
Sections 7 and 14 of Revenue Regulations No. 6-82,92 as
amended,93 relative to the withholding of tax on
compensation income, provide:
_______________
396
397
On the other hand, it is also true that under Section 45
of the 1997 National Internal Revenue Code (then Section
39 of the 1977 National Internal Revenue Code, as
amended), deductions from gross income are taken for the
taxable year in which “paid or accrued” or “paid or
incurred” is dependent upon the method of accounting
income and expenses adopted by the taxpayer.
In Commissioner of Internal Revenue v. Isabela
Cultural Corporation,94 this court explained the accrual
method of accounting, as against the cash method:
_______________
94 544 Phil. 488; 515 SCRA 556 (2007) [Per J. Ynares-Santiago, Third
Division].
398
399
Thus, if the taxpayer is on cash basis, the expense is
deductible in the year it was paid, regardless of the year it
was incurred. If he is on the accrual method, he can deduct
the expense upon accrual thereof. An item that is
reasonably ascertained as to amount and acknowledged to
be due has “accrued”; actual payment is not essential to
constitute “expense.”
Stated otherwise, an expense is accrued and deducted for
tax purposes when (1) the obligation to pay is already fixed;
(2) the amount can be determined with reasonable accuracy;
and (3) it is already knowable or the taxpayer can
reasonably be expected to have known at the closing of its
books for the taxable year.
Section 29(j) of the 1977 National Internal Revenue
Code96 (Section 34[K] of the 1997 National Internal
Revenue Code) expressly requires, as a condition for
deductibility of an expense, that the tax required to be
withheld on the amount paid or payable is shown to have
been remitted to the Bureau of Internal Revenue by the
taxpayer constituted as a withholding agent of the
government.
The provision of Section 72 of the 1977 National Internal
Revenue Code (Section 79 of the 1997 National Internal
Revenue Code) regarding withholding on wages must be
read and construed in harmony with Section 29(j) of the
1977 National Internal Revenue Code (Section 34[K] of the
1997 National Internal Revenue Code) on deductions from
gross income. This is in accordance with the rule on
statutory construction that an interpretation is to be
sought which gives
_______________
400
_______________
401
_______________
402
403