University of the Philippines College of Law

CPE, 1-D

Topic ORGN & FXNS OF THE BIR

Case No. G.R. No. 175772
Case Name MITSUBISHI CORP.-MANILA BRANCH v. CIR
Ponente PONENTE, j.

DOCTRINE

The NIRC vests upon the CIR, being the head of the BIR, the authority to credit or refund taxes which are
erroneously collected by the government. This specific statutory mandate cannot be overridden by averse
interpretations made through mere administrative issuances, such as RMC No. 42-99, which - as argued by the
CIR - shifts to the executing agencies (particularly, NPC in this case) the power to refund the subject taxes. A
revenue memorandum circular is an administrative ruling issued by the CIR to interpret tax laws and is generally
accorded great respect by the courts. However, such interpretation is not conclusive and will be disregarded if
judicially found to be incorrect. Verily, courts will not tolerate administrative issuances that override, instead of
remaining consistent and in harmony with, the law they seek to implement, as in this case. Thus, Item B (3) of
RMC No. 42-99, an administrative issuance directing Mitsubishi to claim the refund from NPC, cannot prevail
over Sections 204 and 229 of the NIRC, which provide that claims for refund of erroneously collected taxes must
be filed with the CIR.

RELEVANT FACTS

 PH and Japan entered into an exchange of notes whereby Japan agreed to extend a loan for the
implementation of the Calaca Power Plant Project. PH undertook to assume all taxes imposed by PH on
the Japanese contractors engaged in the project.
 Napocor, as the executing government agency, entered into a contract with Mitsubishi Corp. for civil
works regarding the project. In accordance with PH’s undertaking, Napocor also undertook to pay any
and all taxes directly imposable under the contract.
 After Mitsubishi completed the project in 1998, it filed its ITR which included in its income tax due P
44M and P8.3M for its branch profits remittance tax. It filed a claim for refund for both. Mitsubishi later
filed a case with the CTA for the claim, saying that its tax payments were erroneous since the PH
government bound itself to assume its tax obligations. CTA division ruled in favor of Mitsubishi. But CTA
en banc reversed, saying that the CIR has no power to grant a refund under Section 229 of the NIRC
absent any tax exemption, and that the PH government’s undertaking does not partake of a tax
exemption.

ISSUE AND RATIO DECIDENDI

Issue Ratio
W/N Mitsubishi is entitled to YES.
a tax refund?
Sections 204 (C) of the NIRC grants the CIR the authority to credit or refund
taxes which are erroneously collected by the government. It is fairly apparent
that the subject taxes in the amount of ₱52.6M was erroneously collected
from Mitsubishi, considering that the obligation to pay the same had already
 University of the Philippines College of Law
CPE, 1-D

been assumed by the PH Government.

The PH Government, through its executing agencies (NPC in this case)

particularly assumed "all fiscal levies or taxes imposed in the Republic of the
Philippines on Japanese firms and nationals operating as suppliers,
contractors or consultants on and/or in connection with any income that may
accrue from the supply of products of Japan and services of Japanese
nationals to be provided under the OECF Loan." The Philippine Government's
assumption of "all fiscal levies and taxes," which includes the subject taxes, is
clearly a form of concession given to Japanese suppliers, contractors or
consultants in consideration of the OECF Loan, which proceeds were used for
the implementation of the Project.
Notwithstanding, Mitsubishi included in its income tax due the amount of
₱44M representing income from the OECF-funded portion of the Project, and
further remitted ₱8.3M as BPRT for branch profits remitted to its head office
in Japan out of its income for 1998. These taxes clearly fall within the ambit of
the tax assumption provision under the undertaking, which was further
fleshed out in the Contract. Hence, it is the PH Government, through the NPC,
which should shoulder the payment of the same. The CIR had also already
acknowledged, through its administrative issuances, that Japanese
contractors involved in the Project are not liable for the subject taxes. As
such, Mitsubishi is entitled to a refund.

The NIRC vests upon the CIR, being the head of the BIR, the authority to credit
or refund taxes which are erroneously collected by the government. This
specific statutory mandate cannot be overridden by averse interpretations
made through mere administrative issuances, such as RMC No. 42-99, which -
as argued by the CIR - shifts to the executing agencies (particularly, NPC in
this case) the power to refund the subject taxes. A revenue memorandum
circular is an administrative ruling issued by the CIR to interpret tax laws and
is generally accorded great respect by the courts. However, such
interpretation is not conclusive and will be disregarded if judicially found to
be incorrect. Verily, courts will not tolerate administrative issuances that
override, instead of remaining consistent and in harmony with, the law they
seek to implement, as in this case. Thus, Item B (3) of RMC No. 42-99, an
administrative issuance directing Mitsubishi to claim the refund from NPC,
cannot prevail over Sections 204 and 229 of the NIRC, which provide that
claims for refund of erroneously collected taxes must be filed with the CIR.

RULING

WHEREFORE, the petition is GRANTED. The Decision dated May 24, 2006 and the Resolution dated December 4,
2006 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 5 are hereby REVERSED and SET ASIDE. The
Decision dated December 17, 2003 of the CTA in C.T.A. Case No. 6139 is REINSTATED.