Basic Taxation Law: Taxpayer's Remedies

Tax Remedies

III. Taxpayer's Remedies

There are two remedies accorded to the taxpayer under the Tax Code:

administrative protest which is a protest against the assessment and is filed before payment; and
claim for refund filed with the Commissioner of Internal Revenue after payment.

A. Protest Against Assessment

Sec. 28 Protesting of Assessment.

When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a pre-assessment notice shall not be required in the following cases: MDC-EA

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

IR-IF-DL

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice.
If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within:

thirty (30) days from receipt of the said decision, or
from the lapse of one hundred eighty (180)-day period;

otherwise, the decision shall become final, executory and demandable.

30-60-30-180

Request for Reconsideration Distinguished from Request for Reinvestigation

Request for reconsideration

It is a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence.
It involves question of fact or law or both.

Request for reinvestigation

It refers to a plea for a re-evaluation of an assessment on the basis of newly-discovered evidence or additional evidence.
It involves either question of fact or law or both.

Main Difference

The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence.

Toll the Running of Prescriptive Period

❌ A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescriptive period for the collection of an assessed tax.
✅ Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR.

The distinction between a request for reconsideration and a request for reinvestigation is significant. It bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend the statute of limitations on the collection of an assessed tax.

If both types of protest can effectively interrupt the running of the statute of limitations, an erroneous assessment may never prescribe.
If the taxpayer fails to file a protest, then the erroneous assessment would become final and unappealable.
On the other hand, if the taxpayer does file the protest on a patently erroneous assessment, the statute of limitations would automatically be suspended and the tax thereon may be collected long after it was assessed.

Procedural Steps
The procedural steps in protesting an assessment may be outlined as follows: NI30-PR15-IF30-DL180

Notice for Informal Conference (NIC) shall be served upon the taxpayer informing him or her of the discrepancy or discrepancies in the taxpayer's payment of his or her internal revenue taxes, for the purpose of "Informal Conference" in order to afford the taxpayer with an opportunity to present his or her side of the case.

The Informal Conference shall in no case extend beyond thirty (30) days from receipt of the notice for informal conference.

Issuance of a pre-assessment notice by the BIR informing the taxpayer that taxes ought to be assessed against him, except under the circumstances enumerated in paragraphs [a] to [e] of Section 228.

The taxpayer is given 15 days from receipt of the pre-assessment notice within which to respond to the pre-assessment notice.

If the taxpayer fails to respond, or despite the response, the BIR still opines that the taxpayer ought to be assessed for deficiency taxes, the BIR will issue the assessment notice.
The taxpayer may file an administrative protest against the assessment within 30 days from receipt of the assessment.

Within 60 days from filing the protest, all the relevant documents should be submitted; otherwise, the assessment shall become final and unappealable.

From the receipt of the adverse decision of the Commissioner, or from the lapse of the 180 days from the submission of the documents, the taxpayer may appeal to the Court of Tax Appeals within 30 days; otherwise, the decision or the assessment shall become final.

Failure or Inaction of the Authorized Representative of the CIR May Only Be Appealed to the CTA

A textual reading of Section 3.1.5 of Revenue Regulations 12-99 gives a protesting taxpayer only three options: BC-C-C

If the protest is wholly or partially denied by the CIR or his authorized representative, then the taxpayer may appeal to the CTA within 30 days from receipt of the whole or partial denial of the protest;
If the protest is wholly or partially denied by the CIR's authorized representative, then the taxpayer may appeal to the CIR within 30 days from receipt of the whole or partial denial of the protest;
If the CIR or his authorized representative failed to act upon the protest within 180 days from submission of the required supporting documents, then the taxpayer may appeal to the CTA within 30 days from the lapse of the 180-day period;

To further clarify the three options:

A whole or partial denial by the CIR's authorized representative may be appealed to the CIR or the CTA.

CIR Authorized Representative ➡ CIR or CTA

A whole or partial denial by the CIR may be appealed to the CTA.

CIR ➡ CTA

The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA.

CIR or Authorized Representative ➡ CTA
There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized representative.

What may be the subject of a judicial review is the decision of the Commissioner on the protest against assessment, not the assessment itself

CIR v. Villa 22 SCRA 3

The spouses Villa filed joint income tax returns for the years of 1951, 1952, 1953, 1954, 1955 and 1956 on April 2, 1952, March 30, 1953, February 26, 1954, March 31, 1955, April 2, 1956 and March 23, 1957, respectively.
Using the networth method, the Bureau of Internal Revenue determined the income of the Villa spouses and accordingly issued on February 23, 1961 assessments for deficiency income tax for the years 1951 to 1956 and residence tax for 1951 to 1957.
The husband received the assessments on April 7, 1961.
Without contesting the said assessments in the Bureau of Internal Revenue, he filed on May 4, 1961 a petition for review in the Court of Tax Appeals.
The CTA took cognizance of the appeal, tried the case on the merits and rendered judgment holding the spouses liable only for residence taxes. From this judgment, the BIR appealed to the Supreme Court.
HELD:

The word "decisions" in paragraph 1, Section 7 of Republic Act No. 1125 has been interpreted to mean the decision of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments.
Definitely, said word does not signify the assessment itself. x x x
Since in the instant case the taxpayer appealed from the assessment of the Commissioner of Internal Revenue without previously contesting the same, the appeal was premature and the Court of Tax Appeals had no jurisdiction to entertain said appeal.
For as stated, the jurisdiction of the Tax Court is to review by appeal the decisions of the Commissioner of Internal Revenue on disputed assessments.
The tax court is a court of special jurisdiction.
As such, it can take cognizance only of such matters as are clearly within its jurisdiction.

The Sending of a Preliminary Assessment Notice (PAN) to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of a Deficiency Tax Assessment, the absence of which renders nugatory any assessment made by the tax authorities

CIR v. Metro Star Superama, Inc., 637 SCRA 633:

The use of the word "shall" in subsection 3.1.2 of Revenue Regulations 12-99 describes the mandatory nature of the service of a PAN.
The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star's right to due process.
Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of Republic Act No. 8424, the assessment made by the CIR is void.

The BIR must prove by competent evidence that the Final Assessment Notice (FAN) was duly received by the taxpayer

If the taxpayer denies having received an assessment from the BIR, it then becomes incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee.
Here, the onus probandi has shifted to the BIR to show by contrary evidence that the taxpayer indeed received the assessment in the due course of mail.
CIR v. GJM Philippines Manufacturing, Inc., 785 SCRA 253:

It has been settled that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion, the direct denial of which shifts the burden to the sender to prove that the mailed letter was, in fact, received by the addressee.

To prove the fact of mailing, it is essential to present the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the taxpayer or its authorized representative.
And if said documents could not be located, the CIR should have, at the very least, submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document executed with its intervention.

The Court does not put much credence to the self-serving documentations made by the BIR personnel, especially if they are unsupported by substantial evidence establishing the fact of mailing.
While it is true that an assessment is made when the notice is sent within the prescribed period, the release, mailing, or sending of the same must still be clearly and satisfactorily proved.

Mere notations made without the taxpayer's intervention, notice or control, and without adequate supporting evidence cannot suffice.
Otherwise, the defenseless taxpayer would be unreasonably placed at the mercy of the revenue offices.

The assessment notice and the demand letter should state the facts and the law on which they are based; otherwise, they are deemed void

While administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process.
On this score, the assessment should state the facts and the law on which it is based.
The rationale behind this requirement was to ensure that taxpayers would be duly apprised of and could effectively protest the basis of tax assessments against them.
A void assessment renders any subsequent proceedings invalid and any order emanating from it could never attain finality.

Presumption of correctness in case of taxpayer's failure to protest the assessments

Tax assessments by tax examiners are presumed correct and made in good faith.

The taxpayer has the duty to prove otherwise.
In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed.
All presumptions are in favor of the correctness of tax assessments.

St. Stephen's Association and St. Stephen's Chinese Girl's School v. Collector of Internal Revenue, 104 Phil. 314

The Supreme Court held that where a taxpayer questions an assessment, and asks the Collector to reconsider or cancel the same because he believes he is not liable therefor, the assessment becomes a "disputed assessment" that the Collector must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the decision of the Collector on the disputed assessment.

Dayrit v. Cruz, 165 SCRA 571:

The act of the Commissioner in filing an action for allowance of the claim for estate and inheritance taxes may be considered an outright denial of the request for reconsideration.
The taxpayer' remedy is to appeal to the Court of Tax Appeals within thirty (30) days from the date he is notified thereof.

As a rule, the warrant of distraint and levy is proof of the finality of the assessment and renders hopeless a request for reconsideration, being tantamount to an outright denial thereof and makes the said request deemed rejected.

The receipt of the warrant therefore commences the running of the thirty (30)-day period to appeal.

The case of CIR v. Algue, Inc., 158 SCRA 9, takes exception to this rule.

In the said case, the proven fact is that four days after the private respondent received the BIR's notice of assessment, it filed its letter of protest.
This was apparently not taken into account before the warrant of distraint and levy was issued. It could not be located in the office of the Commissioner and it was only after the taxpayer's counsel gave the BIR a copy of the protest that it was considered by the authorities.
The protest not being pro forma, it had the effect of suspending the 30-day reglementary period, which started to run again when the taxpayer was definitely informed of the implied rejection (in this case an information that the BIR was not taking any action on the protest) of the protest and the warrant was finally served.

Advertising Associates, Inc. v. Court of Appeals, 133 SCRA 766:

In the same vein, the Supreme Court held that the reviewable decision of the BIR Commissioner is that letter where he clearly directed the taxpayer to appeal to the Court of Tax Appeals, and not the warrant of distraint and levy.
The directive is in consonance with the dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment.
That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action.

CIR v. Batangas Trans. Co., et al., 102 SCRA 822:

The Collector of Internal Revenue, after appeal from his decision to the Court of Tax Appeals has been perfected, and after the Tax Court has acquired jurisdiction over the appeal, but before the answer is filed with the court, may still modify his assessment, subject of the appeal, by increasing the same.

Commissioner v. Guerrero, 19 SCRA 205:

In a much recent case however, the Supreme Court ruled that an amended assessment would no longer be proper before the Court of Tax Appeals, not being the "disputed assessment" appealed from.

The former appears to be a much better view as it avoids multiplicity of suits.
Meralco Securities Corporation v. Savellano, 117 SCRA 805:

Mandamus does not lie to compel the Commissioner of Internal Revenue to impose a tax assessment not found by him to be proper.
A judge of a regular court has no jurisdiction to take cognizance of a mandamus case raising the question of whether or not to impose a deficiency tax assessment.
This undoubtedly comes within the purview of the words "disputed assessment" or "of other matters arising under the National Internal Revenue Code," thus belonging to the jurisdiction of the Court of Tax Appeals.

The requirement of Section 228 is substantially complied with if there is an exchange of correspondence and documents between the parties

Samar-I Electric Cooperative v. CIR, 744 SCRA 459:

The above information provided to petitioner enabled it to protest the PAN by questioning respondent's interpretation of the laws cited as legal basis for the computation of the deficiency withholding taxes and assessment of minimum corporate income tax despite petitioner's position that it remains exempt therefrom.
In its letter-reply dated May 27, 2002, respondent answered the arguments raised by petitioner in its protest, and requested it to pay the assessed deficiency on the date of payment stated in the PAN.
A second protest letter dated June 23, 2002 was sent by petitioner, to which respondent replied (letter dated July 8, 2002) answering each of the two issues reiterated by petitioner:

validity of EO 93 withdrawing the tax exemption privileges under PD 269; and
retroactive application of RR No. 8-2000.

The FAN was finally received by petitioner on September 24, 2002, and protested by it in a letter dated October 14, 2002 which reiterated in lengthy arguments its earlier interpretation of the laws and regulations upon which the assessments were based.
Although the FAN and demand letter issued to petitioner were not accompanied by a written explanation of the legal and factual bases of the deficiency taxes assessed against the petitioner, the records showed that respondent in its letter dated April 10, 2003 responded to petitioner's October 14, 2002 letter-protest, explaining at length the factual and legal bases of the deficiency tax assessments and denying the protest.
Considering the foregoing exchange of correspondence and documents between the parties, the requirement of Section 228 was substantially complied with.
Respondent had fully informed petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which enabled the latter to file an "effective" protest.
Petitioner's right to due process was thus not violated.

When a Final Decision on Disputed Assessment (FDDA) is declared void, it, however, does not extend to the nullification of the entire assessment

Section 228 of the NIRC provides that an assessment shall be void if the taxpayer is not informed in writing of the law and the facts on which it is based.

It is, however, silent in regard to a decision on a disputed assessment by the CIR which fails to state the law and facts on which it is based.

This void is filled by RR No. 12-99 (Now RR 18-2013) where it is stated that failure of the FDDA to reflect the facts and law on which it is based will make the decision void.

It, however, does not extend to the nullification of the entire assessment.

A "decision" differs from an "assessment" and failure of the FDDA to state the facts and law on which it is based renders the decision void — but not necessarily the assessment.

Tax laws may not be extended by implication beyond the clear import of their language, nor their operation enlarged so as to embrace matters not specifically provided.

B. Claim for Refund

Sec. 229. Recovery of Tax Erroneously or Illegally Collected.

No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In any case, no such suit or proceeding shall be filed unless there is a full or partial denial of the claim for refund or credit by the Commissioner or there is a failure on the part of the Commissioner to act on the claim within the one hundred eighty (180)-day period under Section 204 of this Code; Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.
In case of full or partial denial of the claim for tax refund, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred eighty (180)-day period, appeal the decision with the Court of Tax Appeals.

Two-fold Purpose of Tax Refund

The law clearly stipulates that after paying the tax, the taxpayer must submit a claim for refund before resorting to the courts.

The idea probably, is:

first, to afford the collector an opportunity to correct the action of subordinate officers; and
second, to notify the Government that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure.

Previous objections to the tax may not take the place of that claim for refund, because there may be some reason to believe that, in paying, the taxpayer has finally come to realize the validity of the assessment.
Anyway, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied here and in the United States.

Tax Refunds Are Not Founded Principally on Legislative Grace

Tax refunds (or tax credits) are not founded principally on legislative grace but on the legal principle which underlies all quasi-contracts abhorring a person's unjust enrichment at the expense of another.

The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract, solutio indebiti, which covers not only mistake in fact but also mistake in law.

Under the Tax Code itself, apparently in recognition of the pervasive quasi-contract principle, a claim for tax refund may be based on the following: EIA-PWA-EWC

erroneously or illegally assessed or collected internal revenue taxes;
penalties imposed without authority; and
any sum alleged to have been excessive or in any manner wrongfully collected.

Tax Refund and Tax Credit Distinguished.

Tax Refund

There is actual reimbursement of the tax;

Tax Credit

The reimbursable amount is applied against the sum that may be due or collectible from the taxpayer.

Under the aforecited provision, tax refund covers:

erroneously or illegally assessed or collected internal revenue taxes;
penalties imposed without authority; and
any sum alleged to have been excessive or in any manner wrongfully collected.

A. Requirements for Refund Claims.

A claim for refund partakes of the nature of an exemption which cannot be allowed unless granted in the most categorical language.
This being so, a claim for refund must be strictly construed against the claimant and such claimant has the burden of proving that the following requirements were met:

There must be a written claim for refund filed by the taxpayer with the Commissioner.
The claim for refund must be a categorical demand for reimbursement.
The claim for refund must be filed within two years from date of payment of the tax or penalty regardless of any supervening cause.

W-C-F

There must be a written claim for refund filed by the taxpayer with the Commissioner.

This is a mandatory requirement; in the absence of this requirement, the Commissioner is without any authority to refund.
As regards indirect taxes, recent jurisprudence holds that the proper party to question, or seek a refund of, the tax is the statutory taxpayer, the person on whom the tax is imposed by law and paid the same even if he shifts the burden thereof to another.
Silkair [Singapore] PTE, LTD. u. CIR, 544 SCRA 100:

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.

This revoked the ruling in CIR v. American Rubber Co., 18 SCRA 842, insofar as:

It held that the refunded taxes should constitute a trust fund in favor of the paying customers who advanced payment thereof.

Contex Corporation v. CIR, 433 SCRA 376:

The Supreme Court held that petitioner (Contex), a non-vat registered taxpayer, is not the proper party to claim VAT refund.

However, in CIR v. Seagate Technology (Phils.), 451 SCRA 132:

The Court ruled that respondent (Seagate), a VAT registered enterprise is entitled to VAT refund.
As pointed out by the Court, the distinction between the two cases (Contex and Seagate) is that:

Contex was registered as a NON-VAT taxpayer while
Seagate was a VAT-registered.

In case the taxpayer is a foreign company, may its withholding agent file a written claim for refund?
Interestingly, the Supreme Court answered this question differently in two cases promulgated on the same day, April 15, 1988.

CIR v. Procter and Gamble PMC, 160 SCRA 560:

PMC-Phil., as a wholly-owned subsidiary of Procter & Gamble, U.S.A. filed for a refund or tax credit representing the alleged overpaid withholding tax on the dividend it declared in favor of its parent corporation for the taxable years 1974 and 1975.
The Second Division of the Supreme Court held that PMC-Phil. is but a withholding agent of the government and therefore cannot claim reimbursement of the alleged overpaid taxes, the real party-in-interest being the mother corporation in the United States, and should have been the claimant of the tax refund.

CIR v. Wander Philippines, Inc., 160 SCRA 573:

Presented almost the same factual milieu and raised the same issue, the Third Division of the Supreme Court ruled otherwise.
It said that Wander Philippines is first and foremost a wholly owned subsidiary of the parent foreign company, and the fact that it became a withholding agent of the government which was not by choice but by compulsion under the Tax. Code, cannot by any stretch of imagination, be considered as an abdication of its responsibility to its mother company. It went on to say that Wander may in fact be assessed for deficiency withholding tax at source.
As the Philippine counterpart, it is therefore the proper entity who should claim for the refund.

It is believed that the ruling in Wander case is the better view.

It reiterates the ruling in Phil. Guaranty Co., Inc. v. Commissioner, 15 SCRA 5, "the withholding agent is constituted the agent of both the Government and the taxpayer."
With respect to the collection and/or withholding of the tax, he is the Government's agent, and in regard to the filing of the necessary income tax and the payment of the tax to the Government, he is the agent of the taxpayer.

The claim for refund must be a categorical demand for reimbursement.

While payment under protest is not necessary, the claim for refund must categorically demand for the reimbursement of the overpaid amount.

The claim for refund must be filed within two years from date of payment of the tax or penalty regardless of any supervening cause.

CIR v. Insular Lumber Company and Court of Tax Appeals, 21 SCRA 237:

If the tax sought to be recovered was paid legally but becomes refundable upon the happening of a supervening cause, the reckoning of the two-year period commences from the happening of the supervening cause, no longer finds application under the present law.
The two-year period is always to be reckoned from the date of the payment regardless of any supervening cause.

The two-year period applies only to suits or proceedings for the recovery of taxes or penalties erroneously, excessively, illegally or wrongfully collected. EEIW
Accordingly, an ordinary claim for tax credit would prescribe in 10 years under Article 1144 of the Civil Code.
In claims for refund, it is necessary that the tax be paid in full, and that the claim for refund in the Bureau of Internal Revenue as well as the proceeding in the Court of Tax Appeals be commenced within two (2) years counted from the payment of the tax.
Unlike in administrative protest cases under Section 228 where from the lapse of 180 days of inaction on the part of the BIR, the taxpayer is given a period of 30 days within which to appeal to the CTA, in claims for refund, the 30-day period to appeal should be within the two-year prescriptive period.
Gibbs v. Collector of Internal Revenue and Court of Tax Appeals, No. L-13453, February 29, 1960:

A taxpayer who has paid the tax, whether under protest or not, and who is claiming a refund of the same, must comply with the requirements of both Section 306 (now Section 229) of the National Internal Revenue Code and Section 11 of Republic Act No. 1125; that is, he must file a written claim for refund with the Collector of Internal Revenue within 2 years from the date of his payment of the tax, as required under Section (306) of the National Internal Revenue Code, and appeal to the Court of Tax Appeals within 30 days from receipt of the Collector's decision or ruling denying his claim for refund, as required by said Section 11 of Republic Act No. 1125.
If, however, the Collector takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of the two-year period without awaiting the decision of the Collector.
This is so because of the positive requirement of Section (306) and the doctrine that delay of the Collector in rendering decision does not extend the peremptory period fixed by the statute."

Prior payment of taxes is not required to avail of the transitional input tax credit because it is not a tax refund per se but a tax credit.
Tax credit is not synonymous to tax refund.

Tax refund

It is defined as the money that a taxpayer overpaid and is thus returned by the taxing authority.

Tax credit

It is an amount subtracted directly from one's total tax liability.
It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment.

Thus, unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a tax credit.

Computation of the Two (2)-Year Period

When a tax is paid in installments, the prescriptive period of two years should be counted from the date of the final payment.
In case of payments effected through the withholding tax system, the tax liability is deemed paid when the same falls due at the end of the tax year.

This is because a taxpayer, resident or non-resident, who contributes to the withholding tax system, does not really deposit an amount to the Commissioner of Internal Revenue, but, in truth, performs and extinguishes his tax obligation for the year concerned.

It is from the end of the taxable year then, or when the tax liability falls due, that the two-year prescriptive period starts to run.
This ruling has been explained in a case involving corporate quarterly income tax in ACCRA Investment Corporation v. Court of Appeals, 204 SCRA 957:

The aforequoted ruling presents two alternative reckoning dates, i.e.,

the end of the tax year; and
when the tax liability falls due.

In the instant case, it is undisputed that the petitioner corporation’s withholding agents had paid the corresponding taxes withheld at source to the Bureau of Internal Revenue from February to December 1981.
In having applied the first alternative date — "the end of the tax year" in order to determine whether or not the petitioner corporation’s claim for refund had been seasonably filed, the respondent appellate court failed to appreciate properly the attending circumstances of this case.
The petitioner corporation is not claiming a refund of overpaid withholding taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the refundable or creditable amount determined upon the petitioner corporation’s filing of the its final adjustment tax return on or before 15 April 1982 when its tax liability for the year 1981 fell due. The distinction is essential in the resolution of this case for it spells the difference between being barred by prescription and entitlement to a refund.
xxx
The petitioner corporation’s taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return.
Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund.

CIR v. CA, 301 SCRA 435:

The Supreme Court held that private respondent BPI's claim for refund was barred by prescription. It having filed its corporate annual tax return on April 2, 1986, the two (2)-year period of prescription for filing tax refund should be counted from the payment of tax.
Hence, the written claim for refund filed on April 14, 1988 was considered filed out of time.

BPI v. CIR, 363 SCRA 840:

The Court held that in corporate dissolution, the two (2)-year prescriptive Period should be counted thirty (30) days from the approval by the SEC of its plan for dissolution.
Since the FBTC's plan for dissolution was approved by SEC on July 1, 1985 (the two [2]-year period of prescriptive ended on July 31, 1987), the BPI's claim for tax refund filed on December 29, 1987 was barred by prescription.
As regards income subject to withholding tax system, a taxpayer will be deemed to have paid his tax liability when the same falls due at the end of the taxable year.
It is from this latter date then or when the tax liability falls due that the two-year period in Section 292 (now Sec. 229 of the NIRC, as amended) starts to run.

This settled rule was reiterated in the recent case of Citibank, N.A. v. CA, 280 SCRA 459:

The Court held that creditable withholding taxes are subject to adjustment upon determination of the correct income tax liability after the filing of the corporate tax return, as at the end of the taxable year.

In the recent case of Banco Filipino Savings and Mortgage Bank v. CA, 519 SCRA 93:

The Supreme Court ruled that there are three conditions for the grant of a claim for refund of creditable withholding tax: F-RDGI-CS

the claim is filed with the Commissioner of Internal Revenue within the two-year period from the date of payment of the tax;
it is shown on the return of the recipient that the income payment received was declared as part of the gross income; and
the fact of withholding is 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.

Deadline for filing a judicial claim for refund for any excess or erroneous taxes paid

Final withholding tax

The judicial claim for refund should be filed within two (2) years:

from the date of actual remittance of the tax or
from the last day of the month following the close of the quarter during which withholding was made

whichever comes first.

Creditable withholding tax

The filing of the judicial claim is within two (2) years:

from filing of the final income tax return of the payee, or
last day for its filing

whichever comes first.

It is only upon filing of the final income tax return can it be determined with certainty whether there is a refundable amount.

The taxpayer need not await the final resolution of the administrative claim for refund before resorting to appropriate judicial claim

The primary purpose of filing an administrative claim is to serve as notice of warning to the CIR that court action would follow unless the tax or penalty alleged to have been collected erroneously or illegally is refunded.
To clarify, Section 229 of the Tax Code, however, does not mean that the taxpayer must await the final resolution of its administrative claim for refund, since doing so would be tantamount to the taxpayer's forfeiture of the right to seek judicial recourse should the two-year prescriptive period expire without the appropriate judicial claim being filed.

The two-year prescriptive period for the filing of tax refund is reckoned from the filing of the final adjusted return.

How should the two-year period be computed?
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter — the computation of legal periods.

Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year.
Under the Administrative Code of 1987, however, a year is composed of 12 calendar months.

Needless to state, under the Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of computing legal periods under the Civil Code and the Administrative Code of 1987.

For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods.
Lex posteriori derogat priori.

The claim for a refund of erroneously paid Documentary Stamp Tax (DST) must be filed within two years from the date of payment of the DST

A Documentary Stamp Tax (DST) is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto.

The DST is actually an excise tax because it is imposed on the transaction rather than on the document.
On this score, the liability for the payment of the DST falls due only upon the occurrence of a taxable transaction.
It is only then that payment may be considered for the purpose of filing a claim for refund or tax credit.

PBCom v. CIR, 794 SCRA 34:

Since actual payment was already made upon loading/reloading of the DS metering machine and the filing of the DST Declaration Return, the date of imprinting the documentary stamp on the taxable document must be considered as the date of payment contemplated under Section 229 of the NIRC.

Claim for refund for unutilized input VAT payments must be made within two (2) years from the close of the taxable quarter

Section 112(A), NIRC clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two (2) years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not.

Prescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued.

Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT.

The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid.

CIR v. Mirant Pagbilao Corporation, 565 SCRA 154:

MPC cannot avail itself of the provisions of either Section 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor.
Notably, the said provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit.
Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.

Application for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to zero-rated sales must be filed with the Commissioner of Internal Revenue within two years after the close of the taxable quarter.

Subsection (A) of Section 112 of the NIRC states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales."

The phrase "within two (2) years x x x apply for the issuance of a tax credit certificate or refund" refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA.
This is of the same provision, which states that the CIR has "120 days from the submission of complete documents in support of the application filed in accordance with Subsections (A) and (B)" within which to decide on the claim.

In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) (now Sec. 112[C]) of the NIRC), which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR.
The second paragraph of Section 112(C) of the NIRC, as amended, envisions two scenarios:

when a decision is issued by the CIR before the lapse of the 120- day period; and
when no decision is made after the 120-day period.

In both instances, the taxpayer has 30 days within which to file an appeal with the CTA. Indeed, the 120-day period is crucial in filing an appeal with the CTA.

Requisites for Claiming Unutilized/Excess Input VAT

Pursuant to Section 112 of the National Internal Revenue Code (NIRC) of 1997, the requisites for claiming unutilized/excess VAT, except transitional input VAT, are as follows:

The taxpayer-claimant is VAT-registered;
The taxpayer-claimant is engaged in zero-rated or effectively zero-rated sales;
There are creditable input taxes due or paid attributable to the zero-rated or effectively zero-rated sales;
This input tax has not been applied against the output tax;
The application and claim for a refund have been filed within the prescribed period.

Compliance with the 120-Day Waiting Period is Mandatory and Jurisdictional

Section 112(C) provides that the Commissioner shall decide the application for refund or credit "within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A)."
The reference in Section 112(C) of the submission of documents "in support of the application filed in accordance with Subsection (A)" means that the application in Section 112(A) is the administrative claim that the Commissioner must decide within the 120-day period.

In short, the two-year prescriptive period in Section 112(A) refers to the period within which the taxpayer can file an administrative claim for tax refund or credit.
Stated otherwise, the two-year prescriptive period does:

❌ not refer to the filing of the judicial claim with the CTA but to the
✅filing of the administrative claim with the Commissioner.

The taxpayer will always have 30 days to file the judicial claim even if the Commissioner acts only on the 120th day, or does not act at all during the 120-day period.

With the 30-day period always available to the taxpayer, the taxpayer can no longer file a judicial claim for refund or tax credit of unutilized excess input VAT without waiting for the Commissioner to decide until the expiration of the 120-day period.
Failure to comply with the 120-day waiting period violates the doctrine of exhaustion of administrative remedies and renders the petition premature and thus without a cause of action, with the effect that the CTA does not acquire jurisdiction over the taxpayer's petition.

The taxpayer can file the appeal in one of two ways:

file the judicial claim within 30 days after the Commissioner denies the claim within the 120-day period; or
file the judicial claim within 30 days from the expiration of the 120- day period if the Commissioner does not act within the 120-day period.

The 120-day mandatory period may extend beyond the two-year prescriptive period for filing a claim for refund/ tax credit under Section 112(A) of the NIRC.
Consequently, the 30-day period given to the taxpayer-claimant likewise need not fall under the two-year prescriptive period.
What matters is that the administrative claim for refund / tax credit of unutilized input VAT is filed with the BIR within the two-year prescriptive period.

Summary of Rules on Prescriptive Periods involving VAT

The rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT are as follows: AC2-D120-JC30

An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero- rated sales were made.
The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to decide whether to grant a refund or issue a tax credit certificate.

The 120-day period may extend beyond the two-year period from the filing of the administrative claim if the claim is filed in the later part of the two-year period.
If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered to be denied by inaction.

A judicial claim must be filed with the CTA within 30 days from the receipt of the CIR's decision denying the administrative claim or from the expiration of the 120-day period without any action from the CIR.
All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its issuance on December 10, 2003 up to its reversal by this Court in AICHI on October 6, 2010, as an exception to the mandatory and jurisdictional 120+30 day periods.

The taxpayer claiming tax credit or refund of unutilized VAT must completely submit supporting documents at the time of the filing thereof.

The application for VAT refund/tax credit must be accompanied by complete supporting documents as enumerated in RMC 54-2014. In addition, the taxpayer shall attach a statement under oath attesting to the completeness of the submitted documents.

The affidavit shall further state that said documents are the only documents which the taxpayer will present to support the claim.

In light of the directive of RMC 54-2014, the 120-day period should be counted from the filing of an administrative claim.

After all, the 120-day period granted to the CIR to decide the administrative claim under Section 112 of the NIRC is primarily intended to benefit the taxpayer, to ensure that his claim is decided judiciously and expeditiously.

Exceptions to the 120-Day Period

In the case of Taganito Mining Corporation v. CIR, 726 SCRA 637:

The Supreme Court held that based on equitable estoppel, the 120-day period does not apply to:

BIR specific ruling which misleads a particular taxpayer to prematurely file a judicial claim with the CTA; and
General interpretative rule such as BIR Ruling DA-489-03, which misleads all taxpayers into filing prematurely judicial claims with the CTA.

In these cases, the CIR cannot be allowed to later on question the CTA's assumption of jurisdiction over such claim since equitable estoppel has set it.

The Commissioner of Internal Revenue shall grant a refund for creditable input taxes within 90 days from the date of submission of the official receipts or invoices and other documents in support of the application therefor

R.A. No. 10963 amended Section 112 in this wise:

Sec. 112. Refunds or Tax Credits of Input Tax. -

1. The prescriptive period within which the
(A) x x x
(B)xxx
(C) Period within which Refund of Input Taxes shall be made.

In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application filed in accordance with Subsections (A) and (B) hereof:

Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial.

In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the daim, appeal the decision with the Court of Tax Appeals:

Provided, however, That failure on the part of any official, agent, or employee of the BIR to act on the application within the ninety (90)-day period shall be punishable under Section 269 of this Code.

The foregoing proviso enunciates the following new rules:

The prescriptive period within which the CIR shall grant a refund for creditable input taxes is ninety (90) days from the submission of the official receipts or invoices and other documents in support of the application therefor;
In case the CIR finds the refund improper, he must state in writing the legal and factual basis for the denial;
The taxpayer aggrieved may within thirty (30) days from receipt of the CIR decision denying the claim, appeal the decision with the Court of Tax Appeals;
Any official, agent, or employee of the BIR who fails to act on the application within the ninety (90)-day period shall be punishable under Section 269 which states:
- Sec. 269. Violations Committed by Government Enforcement Officers.

Rivetingly, the phrase "or failure on the part of the Commissioner to act on the application within the period prescribed above" has been deleted.
The amended provision merely provides that failure on the part of any official, agent, or employee of the BIR to act on the application within the 90-day period shall be punishable under Section 269 of the Code.

Corporate Taxpayer Has Two Alternative Options

Section 76 offers two options:

filing for tax refund; and
availing of tax credit.

The two options are alternative and the choice of one precludes the other.
However, in Philam Asset Management, Inc. v. CIR, 447 SCRA 772:

The Court ruled that failure to indicate a choice, however, will not bar a valid request for a refund, should this option be chosen by the taxpayer later on.

The requirement is only for the purpose of easing tax administration particularly the self-assessment and collection aspects.

Section 76 remains clear and unequivocal.

Once the carry-over option is taken, actually or constructively, it becomes irrevocable.
It mentioned no exception or qualification to the irrevocability rule.

The last sentence of Section 76 of the NIRC of 1997 reads:

Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for tax refund or issuance of a tax credit certificate shall be allowed therefor.

The phrase "for that taxable period" merely identifies the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer.
This has been construed to mean that the taxpayer may apply the unutilized excess income tax payments as a tax credit to the succeeding taxable years until such has been fully applied pursuant to Section 76 of the NIRC.

The Irrevocability Rule Applies Only to the Option of Carry-over

University Physicians Services, Inc. v. CIR, 858 SCRA 1:

The Supreme Court, passing upon a novel issue, held that the irrevocability rule is limited only to the option of carry-over such that a taxpayer is still free to change its choice after electing a refund of its excess tax credit.
But once it opts to carry over such excess creditable tax, after electing refund or issuance of tax credit certificate, the carry-over option becomes irrevocable.
Accordingly, the previous choice of a claim for refund, even if subsequently pursued, may no longer be granted. xxx

Sections 76 and 228, paragraph (c) of the NIRC, as amended, unmistakably evince that choice of refund or tax credit certificate is not irrevocable.

The Proper Party to Seek a Refund of Indirect Tax Is the Statutory Taxpayer

The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another.
Section 130(A)(2) of the NIRC provides that "unless otherwise specifically allowed, the return shall be filed and the excise tax paid by the manufacturer or producer before removal of domestic products from place of production.
Silkair [Singapore] Pte. Ltd. v. CIR, 544 SCRA 100:

Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore.

Silkair nevertheless argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption "from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party."

It invokes Maceda v. Macaraig, Jr. which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes.

Silkair's argument does not persuade.

In Commissioner of Internal Revenue v. PLDT, the Court clarified that xxx an exemption from "all taxes" excludes indirect taxes unless the exempting statute, like the NPC's charter, is so couched as to include indirect tax from the exemption.

The exemption granted under Section 135(b) of the NIRC of the 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes.
Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, and if an exemption is found to exist, it must not be enlarged by construction.

Petron Corporation is the proper party to seek a refund even if it passed on the indirect tax to Silkair

When Petron removes its petroleum products from its refinery in Limay, Bataan, it pays the excise tax due on the petroleum products thus removed.

Petron, as manufacturer or producer, is the person liable for the payment of the excise tax as shown in the Excise Tax Returns filed with the BIR.
Stated otherwise, Petron is the taxpayer that is primarily, directly and legally liable for the payment of the excise taxes.
However, since an excise tax is an indirect tax Petron can transfer to its customers the amount of the excise tax paid by treating it as part of the cost of the goods and tacking it on to the selling price.

Even if the consumers or purchasers ultimately pay for the tax, they are not considered the taxpayers.

The fact that Petron, on whom the excise tax is imposed, can shift the tax burden to its purchasers does not make the latter the taxpayers and the former the withholding agent.
Silkair, as the purchaser and end-consumer, ultimately bears the tax burden, but this does not transform its status into a statutory taxpayer.

The person entitled to claim a tax refund is the statutory taxpayer. Section 22(N) of the NIRC defines a taxpayer as "any person subject to tax."

CIR v. Procter and Gamble Phil. Mfg. Corp., 204 SCRA 377:

The Court ruled that: A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer."
The terms "liable for tax" and "subject to tax" both connote a legal obligation or duty to pay a tax.

Even if the tax is shifted by Petron to its customers and even if the tax is billed as a separate item in the aviation delivery receipts and invoices issued to its customers, Petron remains the taxpayer because the excise tax is imposed directly on Petron as the manufacturer.

Hence, Petron, as the statutory taxpayer, is the proper party that can claim the refund of the excise taxes paid to the BIR.

The Word "Zero-Rated" Must Be Indicated in the Invoices and Receipts

The absence of the word "zero-rated" on the invoices and receipts of a taxpayer will result in the denial of the claim for tax refund.
Panasonic Communications Imaging Corporation of the Philippines v. CIR, 612 SCRA 28:

The Supreme Court affirmed the decision of the CTA denying a claim by petitioner for refund on input VAT attributable to zero-rated sales for its failure to print the word "zero-rated" on its invoices.

Eastern Telecommunications Philippines, Inc. v. CIR, 679 SCRA 305:

Eastern Telecommunications Philippines, Inc. (ETPI) should be reminded of the well-established rule that tax refunds, which are in the nature of tax exemptions, are construed strictly against the taxpayer and liberally in favor of the government.
Thus, the burden of proof is upon the claimant of the tax refund to prove the factual basis of his claim.
Unfortunately, ETPI failed to discharge this burden.

Photocopied Documents Are Insufficient to Prove Claim for Refund

The Rules of Court shall apply suppletorily in the proceeding before the CTA.
In this regard, Section 3 of Rule 130 of the Rules of Court laying down the Best Evidence Rule with respect to the presentation of documentary evidence must be observed.
Fortune Tobacco Corporation v. CIR, 761 SCRA 173:

The taxpayer should proffer a plausible reason as to why the original copies of the documents presented could not be produced before the CTA or any reason that the application of any of the exception to the best evidence rule could be justified.

Creditable value-added tax (VAT) withheld from a taxpayer in excess of its output VAT liability may be the subject of a tax refund in place of a tax credit

Excess creditable VAT withheld is much unlike excess income taxes withheld.
In the latter case, Sections 76 and 58(D) of the NIRC specifically make the option to seek a refund available to the taxpayer. x x x
The ruling in Citibank N.A. v. Court of Appeals, while dealing with excessive income taxes withheld, is also applicable to this case:

Consequently and clearly, the tax withheld during the course of the taxable year, while collected legally under the aforesaid revenue regulation, became untenable and took on the nature of erroneously collected taxes at the end of the taxable year.

CIR v. Ironcon Builders and Development Corporation, 612 SCRA 39:

Even if the law does not expressly state that Ironcon's excess creditable VAT withheld is refundable, it may be the subject of a claim for refund as an erroneously collected tax under Sections 204(C) and 229.
It should be clarified that this ruling only refers to creditable VAT withheld pursuant to Section 114 prior to its amendment.
After its amendment by Republic Act No. 9337, the amount withheld under Section 114 is now treated as a final VAT, no longer under the creditable withholding tax system.

The Two (2)-Year Period Is Not Jurisdictional

CIR v. Philamlife, 244 SCRA 446:

The Supreme Court held that even if the two-year period had already lapsed, the same is not jurisdictional and may be suspended for reasons of equity and other special circumstances.

This has been echoed in the case of CIR v. PNB, 474 SCRA 303.

Founded on moral and equitable grounds, the following circumstances may stay the two-year period:

Assurance on the part of the BIR that steps were being taken to credit taxpayer with the amount sought to be refunded.
An agreement or understanding with the BIR that they await the result of a pending case involving similar issue raised in the claim for refund.

Deficiency assessment is not a bar to a claim for refund

In ruling that deficiency tax assessment cuts no ice with the claim for refund, the Supreme Court in the case of CIR v. Citytrust Banking Corporation , 499 SCRA 477, 482, gave imprimatur to the following well-reasoned discourse of the Court of Tax Appeals:

It is of common knowledge that the laws or rules governing claims for refund are separate and distinct from those applicable to assessment appeals.

The period of time to appeal a refund case is within two (2) years from the date of payment, while the filing of an assessment appeal requires the observance of thirty (30) days from the date of receipt of denial of protest.

Let us take a taxpayer who has an erroneously paid capital gains tax in August 1992.

Sometime in August 1994, an assessment was issued against him for deficiency income tax for the same taxable year.
Supposing, he immediately protested the said assessment but the BIR did not immediately act on his protest, will he still wait for the [BIR's] decision before he can go to [the CTA] to file his claim for refund?
What about if the two-year period to appeal his refund is [nearing expiration], will he still wait indefinitely for the decision on his protest, so he can file both suits simultaneously with the Court? Of course, the answer will be No.

Now, let us reverse the scenario. Supposing, the BIR's assessment came first but this time no protest was made by the taxpayer.

Hence, the assessment became final and executory and so, the BIR filed a collection case in the regional trial court.
During the pendency of the collection suit, taxpayer discovered that he made an erroneous payment of a different kind of tax.
To avoid multiplicity of suits, will the BIR allow the taxpayer to ventilate his claim for refund in the same collection case?
Of course, the BIR will object on the ground of jurisdiction.

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