Property developer to get back P359.6B tax overpayment after SC ruling

MANILA, Philippines—The Supreme Court ordered the Bureau of Internal Revenue to refund real property developer Fort Bonifacio Development Corp. (FBDC) a P359.65 million overpayment of output value-added tax (VAT) for the first quarter of fiscal year 1997 in connection with the sale and lease of lots in Taguig.

In a 17-page decision dated September 4, the high court, through Associate Justice Mariano del Castillo reversed the 2006 decision of the Court of Appeals agreeing with the Court of Tax Appeals in denying the company’s claim for tax refund.

The high court, voting 9-5, said FBDC is entitled to recover the amount it erroneously paid as output VAT since transitional input tax credit of P5.69 billion is more than enough to cover its out VAT liability for the said period.

It further pointed out that prior payment of taxes is not required to avail of the transitional input tax credit. Instead, what is required is for the taxpayer to file with the BIR a beginning inventory.
The transitional input tax credit is not a tax refund per se but a tax credit, which is defined as an amount subtracted directly from one’s total tax liability, it added.
“Contrary to the view of the CTA and the CA, there is nothing [in Sec. 105 of the National Internal Revenue Code]… to indicate that prior payment of taxes is necessary for the availment of the 8% transitional input tax credit,” the decision read.

The high court further pointed out that to require prior payment of taxes in this case is tantamount to both committing judicial legislation and rendering invalid Sec. 105 of the NIRC, which states that the transitional input tax credit shall be “8% of the value of the [beginning] inventory of the actual [VAT] paid on such goods, materials, and supplies, whichever is higher.”

On Feb.8, 1995, FBDC bought from the national government a portion of the Fort Bonifacio reservation, now known as the Bonifacio Global City (BGC) in the city of Taguig.

When Republic Act 7716 (e-VAT law) took effect in 1996, it extended the coverage of VAT to real properties held primarily for sale to customers or held for lease in the ordinary course of trade or business.

In September 1996, FBDC submitted to the BIR an inventory of all its real properties, the book value of which aggregated P71.23-billion. Based on this value, petitioner claimed that it was entitled to a transitional input tax credit of P5.7-billion, pursuant to Section 105 of the National Internal Revenue Code.

Then, it proceeded with the sale of lots in October that same year.

For the first quarter of 1997, it generated P3.68-billion from its sales and lease of lots, on which the output VAT payable was P368.54 million. Petitioner paid the output VAT by making cash payments to the BIR totaling P359.65 million, and crediting its unutilized input tax credit on purchases of goods and services of P8.88 million.

Realizing that its transitional input tax credit was not applied in computing its output VAT for the first quarter of 1997, FBDC on Nov. 17, 1998, filed with the BIR a claim for refund in the amount P359.65 million erroneously paid as output VAT for that period.

Due to the inaction of the BIR, petitioner elevated the matter to the Court of Tax Appeals, which on October 2000 denied the claim for refund.

The CA affirmed the CTA ruling upon the FBDC’s filing of a petition for review prompting the company to elevate the case to the Supreme Court.

Concurring with the decision were Associate Justices Presbitero Velasco, Jr., Teresita Leonardo-De Castro, Diosdado Peralta, Lucas Bersamin, Roberto Abad, Martin Villarama, Jr., Jose Perez and Jose Mendoza.

Associate Justice Antonio Carpio dissented and was joined by Chief Justice Maria Lourdes Sereno and Associate Justices Arturo Brion, Bienvenido Reyes and Estela Perlas-Bernabe.