Friday, October 21, 2016

Philippine National Bank vs. Commissioner of Internal Revenue, G.R. No. 206019, March 18, 2015


Gotesco entered into a loan agreement with PNB on April 7, 1995. The loan was secured by a real estate mortgage of a six-hectare property known as Ever Ortigas Commercial Complex. Gotesco subsequently defaulted on its loan obligations and PNB foreclosed the mortgaged. On October 20, 2000, Gotesco filed a civil case against PNB before the RTC of Pasig, Branch 168 for the annulment of the foreclosure proceedings, specific performance and damages with prayer for temporary restraining order (TRO) and/or preliminary injunction.

As PNB prepared to consolidate its ownership over the foreclosed property, PNB withheld and remitted to the BIR withholding taxes amounting to P74,400,028.49, or 6% of the bid price.

Realizing that it made a mistake, PNB filed an administrative claim for refund of excess withholding taxes on October 27, 2005. The next day, PNB filed its petition for review for the claim for refund before the tax court.

PNB claimed that it inadvertently applied the 6% creditable withholding tax rate on the sale, when it should have applied the 5% creditable withholding tax rate on the sale of ordinary asset under Section 2.57.2(J)(B) of RR No. 2-98, as amended by RR No. 6-01. PNB claimed that it erroneously withheld and remitted an excess P12,400,004.71.

The Court of Tax Appeals First Division denied PNB’s claim for the refund of excess creditable withholding tax for insufficiency of evidence. The CTA division agreed that the applicable rate is 5% and not 6% but it held that PNB failed to produce evidence that Gotesco did not utilize or credit the withheld taxes from its tax liabilities. PNB filed an MR with the division attaching Gotesco’s 2003 Income Tax Return and the schedule of prepaid taxes.

The CTA Division, however, denied the MR because PNB should have presented  the Certificates of Creditable Tax Withheld at Source (BIR Form No. 2307) issued to Gotesco as supporting documents to breakdown the creditable taxes withheld in Gotesco’s 2003 income tax return. The CTA division stated that BIR Forms No. 2307 will confirm whether or not that the amount being claimed by PNB was indeed not utilized by Gotesco to offset its taxes.

PNB appealed the decision through a petition for review before the CTA En Banc which was also denied.


Whether or not PNB is entitled to the refund of creditable withholding taxes erroneously paid to the BIR. Subsumed in this main issue is the evidentiary value under the premises of BIR Form No. 2307.


The Supreme Court held that although PNB was not able to submit Gotesco’s BIR Form No. 2307, PNB submitted evidence sufficiently showing Gotesco’s non-utilization of the taxes withheld subject of the refund.

Gotesco had continued to assert ownership over the Ever Ortigas Commercial Complex as evidenced by the following: (1) it challenged the validity of the foreclosure sale which was the transaction subject to the creditable withholding tax; (2) its 2003 Audited Financial Statements declared the property as still owned by Gotesco.

The SC held that Gotesco’s relentless refusal to recognize PNB’s ownership over the property constitutes proof that Gotesco will not do any act inconsistent with its claim of ownership over the property, including claiming the creditable tax imposed on the sale.

Other pieces of evidence also supported Gotesco’s non-utilization of the claimed creditable withholding tax. The detailed breakdown of the withholding taxes claimed by Gotesco in its 2003 income tax return amounting to P6,014,433 showed that the creditable taxes came from rental payments of Gotesco’s tenants and not from the foreclosure sale. Also, Gotesco’s former accountant testified that the tax credits claimed for 2003 did not include any portion of the amount claimed by PNB for refund.

All in all, the evidence presented by PNB sufficiently proved its entitlement to the claimed refund. There is no need for PNB to present Gotesco’s BIR Form No. 2307 because the information contained in the said form may be very well gathered from other documents already presented by PNB, such as BIR Form 1606.

BIR Form 2307 is basically a statement showing the amount paid for the subject transaction and the amount of tax withheld. The probative value of BIR Form 2307 is to establish only the fact of withholding of the claimed creditable withholding tax.  There is nothing in BIR Form No. 2307 which would establish either utilization or non-utilization, as the case may be, of the creditable withholding tax.

While perhaps it may be necessary to prove that the taxpayer did not use the claimed creditable withholding tax to pay for his/its tax liabilities, there is no basis in law or jurisprudence to say that BIR Form No. 2307 is the only evidence that may be adduced to prove such non-use.

In sum, PNB was able to establish that Gotesco did not use the claimed creditable withholding taxes, to reiterate: (1) Gotesco’s 2003 Audited Financial Statements proved that Gotesco did not recognize the foreclosure sale and the payment of PNB of the creditable withholding taxes; (2) Gotesco’s 2003 ITRs show that the withholding tax claimed for refund was not used by Gotesco; (3) the testimony of Gotesco’s former accountant proving that Gotesco did not use the creditable withholding taxes claimed by PNB; and (4) The Withholding Tax Remittance Returns (BIR Form 1606) proving that the amount was withhenld and paid by PNB.

Ergo, the evidence on record sufficiently proves that the claimed creditable withholding tax was withheld and remitted to the BIR, that such withholding and remittance was erroneous, and that the claimed creditable withholding tax was not used by Gotesco to settle its tax liabilities.