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    CIR vs. Smart Communications

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    corky01
    Smart Communications withheld taxes from payments to Prism, a Malaysian company, thinking the payments were royalties. Smart filed a claim for a refund of the withheld taxes, arguing the payments were business profits not subject to withholding. The CIR argued Smart could not file the claim. The court ruled that as the withholding agent, Smart had a legal right to file the claim. As withholding agent, Smart is personally liable for taxes withheld and has implied authority to file returns and claims on behalf of the taxpayer. Any refund recovered must be returned to the taxpayer.

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    CIR vs. Smart Communications

    Uploaded by

    corky01
    458 views1 page
    Smart Communications withheld taxes from payments to Prism, a Malaysian company, thinking the payments were royalties. Smart filed a claim for a refund of the withheld taxes, arguing the payments were business profits not subject to withholding. The CIR argued Smart could not file the claim. The court ruled that as the withholding agent, Smart had a legal right to file the claim. As withholding agent, Smart is personally liable for taxes withheld and has implied authority to file returns and claims on behalf of the taxpayer. Any refund recovered must be returned to the taxpayer.

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    Smart Communications withheld taxes from payments to Prism, a Malaysian company, thinking the payments were royalties. Smart filed a claim for a refund of the withheld taxes, arguing the payments were business profits not subject to withholding. The CIR argued Smart could not file the claim. The court ruled that as the withholding agent, Smart had a legal right to file the claim. As withholding agent, Smart is personally liable for taxes withheld and has implied authority to file returns and claims on behalf of the taxpayer. Any refund recovered must be returned to the taxpayer.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    458 views1 page

    CIR vs. Smart Communications

    Uploaded by

    corky01
    Smart Communications withheld taxes from payments to Prism, a Malaysian company, thinking the payments were royalties. Smart filed a claim for a refund of the withheld taxes, arguing the payments were business profits not subject to withholding. The CIR argued Smart could not file the claim. The court ruled that as the withholding agent, Smart had a legal right to file the claim. As withholding agent, Smart is personally liable for taxes withheld and has implied authority to file returns and claims on behalf of the taxpayer. Any refund recovered must be returned to the taxpayer.

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    of 1

    9.

    WITHOLDING TAX
    1. CIR vs. Smart Communications, Inc. (G.R. No. 179045-46. August 25, 2010)
    Smart Communications, Inc. (Smart) entered into 3 agreements with Prism Transactive (M) Sdn. Bhd. (Prism), a
    non-resident Malaysian corporation, under which Prism would provide programming and consultancy services
    for the installation of the Service Download Manager (SDM Agreement) and the Channel Manager (CM
    Agreement), and for the installation and implementation of Smart Money and Mobile Banking Service SIM
    Applications and Private Text Platform (SIM Application Agreement). Prism billed Smart US$547,822.45.
    Thinking that the amount constituted royalties, Smart withheld from its payments to Prism the amount of
    US$136,955.61 or P7,008,840.43, representing the 25% royalty tax under the RP-Malaysia Tax Treaty. Within
    the 2-year period to claim a refund, Smart filed an administrative claim with the Bureau of Internal Revenue (BIR)
    for the refund of the withheld amount (P7,008,840.43). Smart averred that its payments to Prism were not
    royalties but business profits, as defined in the RP-Malaysian Tax Treaty, which were not taxable because
    Prism did not have a permanent establishment in the Philippines. The CIR countered that Smart, as a
    withholding agent was not a party-in-interest to file the claim for refund, and even if it were the proper party. The
    contention of the CIR is erroneous.
    The person entitled to claim a tax refund is the taxpayer. However, in case the taxpayer does not file a claim for
    refund, the withholding agent may file the claim. Thus, in CIR v. Procter & Gamble (1991), a withholding agent
    was considered a proper party to file a claim for refund of the withheld taxes of its foreign parent
    company. The CIR was incorrect in saying that this ruling applies only when the withholding agent and the
    taxpayer are related parties, i.e., where the withholding agent is a wholly owned subsidiary of the taxpayer.
    Although such relation between the taxpayer and the withholding agent is a factor that increases the latters legal
    interest to file a claim for refund, there is nothing in the decision in said case to suggest that such relationship is
    required or that the lack of such relation deprives the withholding agent of the right to file a claim for refund.
    Rather, what is clear in the decision is that a withholding agent has a legal right to file a claim for refund
    for two reasons. First, he is considered a taxpayer under the NIRC as he is personally liable for the
    withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount of
    the tax withheld be finally found to be less than the amount that should have been withheld under law.
    Second, as an agent of the taxpayer, his authority to file the necessary income tax return and to remit
    the tax withheld to the government impliedly includes the authority to file a claim for refund and to bring
    an action for recovery of such claim. Silkair v. CIR cited by the CIR, was inapplicable as it involved excise
    taxes, not withholding taxes. In that case, it was ruled that 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. As an agent of the taxpayer, it is the duty of the withholding
    agent to return to the principal taxpayer what he has recovered. Otherwise, he would be unjustly
    enriching himself at the expense of the principal taxpayer from whom the taxes were withheld, and from
    whom he derives his legal right to file a claim for refund.

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