CIR v Smart Communications, Inc.; G.R. Nos. 179045-46; 25 Aug 2010

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Respondent on 25 May 2001 entered into three agreements for programming and consultancy services with Prism Transactive (M) Sdn. Bhd., a Malaysian corporation. On 25 September 2001, it filed its Monthly Remittance Return of Final Income Taxes Withheld for the Month of August 2001, including the 25% royalty tax it withheld from its payment to Prism.

On 24 September 2003, respondent filed with the BIR, through the latter’s International Tax Affairs Division, an administrative claim for refund.

Whether or not a withholding agent has a legal right to file a claim for tax refund.

YES. First, a withholding agent is considered a “taxpayer” under the NIRC as he is personally liable for the withholding tax as well as for deficiency assesments, 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.

It is 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 refun.

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