CTA grants San Miguel refund for stamp tax interest

MANILA — Was the tax ruling retroactively applied to the transaction? In the case of San Miguel Corp., the taxpayer can still be held in good faith and granted a reprieve from interests and surcharges.

The Court of Tax Appeals has ordered the government to refund SMC P28.88-million in interests and surcharges on its 2010 documentary stamp tax assessment, on the basis of good faith.

However, SMC was not granted a refund on the P41.89-million principal as the court upheld the Bureau of Internal Revenue’s taxation on “intercompany cash advances” made by SMC to its affiliates in 2010.

The BIR in 2013 imposed the 0.5 percent DST on the 2010 transactions, after the Supreme Court ruled in 2011 that inter-company advances counted as loan agreements that could be taxed.

The CTA rejected SMC’s contention that the high court’s decision and the Revenue Memorandum Circular No. 48-2011 adopting this ruling should not have been applied retroactively to the 2010 transactions.

The tax court explained that the high tribunal’s pronouncements were only prospective (applicable in the future) when the high court needs to overturn an old court doctrine.

The Supreme Court interpretation of the law formed part of it as of the date it was originally passed, the decision noted. Thus, the 2011 interpretation of Section 180 (now 179) of the National Internal Revenue Code already applied even when Republic Act No. 7660 was enacted in December 1994.

Still, the tax court acknowledged that SMC was following the prevailing jurisprudence at the time before intercompany advances were found to be taxable.

It noted that SMC relied on an August 8, 2008 BIR ruling stating that such advances were not subject to DST. This justified the non-imposition of interest and surcharges.

“The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax laws are sufficient justification to delete the imposition of surcharges and interest,” read the decision.

Justice Ma. Belen M. Ringpis-Liban penned the decision, with the concurrence of Justices Lovell R. Bautista and Esperanza R. Fabon-Victorino.  SFM