Basis of tax refunds

CIR vs. Acesite Phils. (GR No. 147295, February 16, 2007)
Tax refunds are based on the principle of quasi-contract or solutio indebiti and the pertinent laws governing this principle
are found in Arts. 2142 and 2154 of the Civil Code, which provide, thus:

Art. 2142. Certain lawful, voluntary, and unilateral acts give rise to the juridical relation of quasi-contract
to the end that no one shall be unjustly enriched or benefited at the expense of another.

Art. 2154. If something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises.

When money is paid to another under the influence of a mistake of fact, that is to say, on the mistaken supposition of the
existence of a specific fact, where it would not have been known that the fact was otherwise, it may be recovered. The ground upon
which the right of recovery rests is that money paid through misapprehension of facts belongs in equity and in good conscience to the
person who paid it.[9]

The Government comes within the scope of solutio indebiti principle as elucidated in Commissioner of Internal Revenue v. Firemans
Fund Insurance Company, where we held that: Enshrined in the basic legal principles is the time-honored doctrine that no person
shall unjustly enrich himself at the expense of another. It goes without saying that the Government is not exempted from the application
of this doctrine.

Taxpayer/withholding agent
CIR vs. Procter & Gamble (204 SCRA 377)

Since the claim for refund was filed by P&G-Phil., the question which arises is: is P&G-Phil. a "taxpayer" under Section 309 (3) of
the NIRC? The term "taxpayer" is defined in our NIRC as referring to "any person subject to taximposed by the Title [on Tax on
Income]." 2 It thus becomes important to note that under Section 53 (c) of the NIRC, the withholding agent who is "required to deduct
and withhold any tax" is made " personally liable for such tax" and indeed is indemnified against any claims and demands which the
stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with the
provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable 3 for the correct amount of the tax that
should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable 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.

A "person liable for tax" has been held to be a "person subject to tax" and properly considered a "taxpayer." 4 The terms liable for
tax" and "subject to tax" both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually impossible, to
consider a person who is statutorily made "liable for tax" as not "subject to tax." By any reasonable standard, such a person should
be regarded as a party in interest, or as a person having sufficient legal interest, to bring a suit for refund of taxes he believes were
illegally collected from him.

In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, 5 this Court pointed out that a withholding agent is in
fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary government agent:

The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the
withholding agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as
well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the
withholding agent is constituted the agent of both the Government and the taxpayer. With respect to the collection and/or
withholding of the tax, he is the Government's agent. In regard to the filing of the necessary income tax return and the
payment of the tax to the Government, he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary
government agent especially because under Section 53 (c) he is held personally liable for the tax he is duty bound to
withhold; whereas the Commissioner and his deputies are not made liable by law.
If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends with respect
to the filing of the necessary income tax return and with respect to actual payment of the tax to the government, such authority may
reasonably be held to include the authority to file a claim for refund and to bring an action for recovery of such claim. This implied
authority is especially warranted where, is in the instant case, the withholding agent is the wholly owned subsidiary of the parent-
stockholder and therefore, at all times, under the effective control of such parent-stockholder. In the circumstances of this case, it
seems particularly unreal to deny the implied authority of P&G-Phil. to claim a refund and to commence an action for such refund.

CIR vs. Smart Communications, Inc. (GR Nos. 179045-46, August 25, 2010)
Pursuant to the foregoing, 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.

In Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation,[40] a withholding agent was considered a
proper party to file a claim for refund of the withheld taxes of its foreign parent company. Pertinent portions of the Decision read:

The term taxpayer is defined in our NIRC as referring to any person subject to tax imposed by the Title [on Tax on Income]. It
thus becomes important to note that under Section 53(c)[41] of the NIRC, the withholding agent who is required to deduct and
withhold any tax is made personally liable for such tax and indeed is indemnified against any claims and demands which the
 stockholder might wish to make in questioning the amount of payments effected by the withholding agent in accordance with
the provisions of the NIRC. The withholding agent, P&G-Phil., is directly and independently liable for the correct amount of the
tax that should be withheld from the dividend remittances. The withholding agent is, moreover, subject to and liable 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.

A person liable for tax has been held to be a person subject to tax and properly considered a taxpayer. The terms
liable for tax and subject to tax both connote legal obligation or duty to pay a tax. It is very difficult, indeed conceptually
impossible, to consider a person who is statutorily made liable for tax as not subject to tax. By any reasonable
standard, such a person should be regarded as a party in interest, or as a person having sufficient legal interest, to
bring a suit for refund of taxes he believes were illegally collected from him.

In Philippine Guaranty Company, Inc. v. Commissioner of Internal Revenue, this Court pointed out that a withholding
agent is in fact the agent both of the government and of the taxpayer, and that the withholding agent is not an ordinary
government agent:

The law sets no condition for the personal liability of the withholding agent to attach. The reason is to compel the withholding
agent to withhold the tax under all circumstances. In effect, the responsibility for the collection of the tax as well as the payment
thereof is concentrated upon the person over whom the Government has jurisdiction. Thus, the withholding agent is constituted
the agent of both the Government and the taxpayer. With respect to the collection and/or withholding of the tax, he is the
Governments agent. In regard to the filing of the necessary income tax return and the payment of the tax to the Government,
he is the agent of the taxpayer. The withholding agent, therefore, is no ordinary government agent especially because under
Section 53 (c) he is held personally liable for the tax he is duty bound to withhold; whereas the Commissioner and his deputies
are not made liable by law.

If, as pointed out in Philippine Guaranty, the withholding agent is also an agent of the beneficial owner of the dividends
with respect to the filing of the necessary income tax return and with respect to actual payment of the tax to the
government, such authority may reasonably be held to include the authority to file a claim for refund and to bring an
action for recovery of such claim. This implied authority is especially warranted where, as in the instant case, the withholding
agent is the wholly owned subsidiary of the parent-stockholder and therefore, at all times, under the effective control of such
parent-stockholder. In the circumstances of this case, it seems particularly unreal to deny the implied authority of P&G-Phil. to
claim a refund and to commence an action for such refund.

xxxx

We believe and so hold that, under the circumstances of this case, P&G-Phil. is properly regarded as a taxpayer within the
meaning of Section 309,[42] NIRC, and as impliedly authorized to file the claim for refund and the suit to recover such
claim. (Emphasis supplied.)

Petitioner, however, submits 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.
We do not agree.
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 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.

In this connection, it is however significant to add that while the withholding agent has the right to recover the taxes erroneously or illegally
collected, he nevertheless has the obligation to remit the same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return 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.

Honda Cars Philippines, Inc. vs. Honda Cars Technical Specialist and Supervisors Union (GR No. 204142 dated November
19, 2014)

Under the withholding tax system, the employer as the withholding agent acts as both the government and the taxpayer’s agent.
Except in the case of a minimum wage earner, every employer has the duty to deduct and withhold upon the employee’s wages a
tax determined in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon the CIR’s
recommendation.19 As the Government’s agent, the employer collects tax and serves as the payee by fiction of law. 20 As the
employee’s agent, the employer files the necessary income tax return and remits the tax to the Government.21

Based on these considerations, we hold that the union has no cause of action against the company.1âwphi1 The company merely
performed its statutory duty to withhold tax based on its interpretation of the NIRC, albeit that interpretation may later be found to be
erroneous. The