G.R. No. 175772 June 5, 2017
MITSUBISHI CORPORATION – MANILA BRANCH, Petitioner vs COMMISSIONER OF INTERNAL REVENUE, Respondent

FACTS

Petitioner Mitsubishi Corporation – Manila Branch, a Japanese contractor, completed the Calaca II Coal-Fired Thermal Power Plant Project for the National Power Corporation (NPC). The project was funded by loans from the Japanese government through the Overseas Economic Cooperation Fund (OECF). An Exchange of Notes between the Philippine and Japanese governments, and the subsequent Contract with NPC, contained a tax assumption clause. This clause obligated the Philippine Government, through NPC as its executing agency, to assume all fiscal levies or taxes imposed on Japanese contractors in connection with the project. Despite this assumption agreement, petitioner, for the fiscal year ending March 31, 1998, paid income tax and Branch Profit Remittance Tax (BPRT) to the Bureau of Internal Revenue (BIR) amounting to P52,612,812.00, which corresponded to its income from the OECF-funded portion of the project.
Petitioner subsequently filed an administrative and then a judicial claim for refund with the Court of Tax Appeals (CTA), arguing the payments were erroneous since its tax liabilities were assumed by the NPC under the Exchange of Notes and the Contract. The CTA Division granted the refund. However, the CTA En Banc reversed, holding that the proper remedy for petitioner was to claim reimbursement directly from NPC, not a tax refund from the Commissioner of Internal Revenue (CIR). The En Banc relied on Revenue Memorandum Circular (RMC) No. 42-99, which stated that for Japanese contractors where taxes were assumed by the Philippine government, the claim for recovery should be filed with the concerned government agency.

ISSUE

Whether petitioner is entitled to a refund or credit of the erroneously paid income tax and BPRT from the CIR under Section 229 of the National Internal Revenue Code.

RULING

Yes, the Supreme Court granted the petition and reinstated the CTA Division’s decision ordering a refund. The Court clarified that the tax assumption clause in the Exchange of Notes and the Contract did not grant petitioner a tax exemption. Instead, it created an obligation on the part of the NPC, as the government’s executing agency, to pay petitioner’s tax liabilities directly to the BIR. Consequently, when petitioner paid the taxes itself, it made payments for which it had no statutory liability; these were erroneous payments under Section 229 of the Tax Code.
The Court ruled that RMC No. 42-99, which directs claims to be filed with the government agency, does not apply to petitioner. The circular was issued on June 2, 1999, while petitioner filed its tax return and paid the taxes on July 15, 1998. Laws and administrative issuances have no retroactive effect unless expressly declared. Since the circular was not in effect at the time of payment, petitioner correctly availed itself of the statutory remedy of a claim for refund with the CIR. The obligation to pay the tax was primarily NPC’s, and petitioner’s direct payment to the BIR did not extinguish NPC’s liability to the government. Therefore, petitioner is entitled to recover its erroneous payment from the CIR, after which the government may seek collection from the NPC.