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Withholding Agent’s Right to File a Claim for Tax Refund

Posted by lexforiphilippines on September 21, 2010

In Commissioner of Internal Revenue vs. Smart Communications, Inc. (G.R. No. 179045-46; 25 August 2010), the Supreme Court held that the person entitled to claim a tax refund is the taxpayer [Sections 204(c) and 229 of the National Internal Revenue Code (NIRC)], but in case the taxpayer does not file a claim for refund, the withholding agent has the right to file the claim, even when it is unrelated to, or is not a wholly owned subsidiary of, the principal taxpayer.  The High Court cited two reasons: (1) “(the withholding agent) 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,” and (2) “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.”  The Supreme Court stressed, however, that 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.

To know more about said case and the Supreme Court’s ruling, click on Digested Cases under Tools.


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