G.R. No. 226592 - Commissioner of Internal Revenue vs. Carrier Air Conditioning Philippines, Inc.

In a special board meeting on November 23, 2009, Carrier Air Conditioning Philippines, Inc. declared cash dividends drawn from its unrestricted retained earnings as of October 31, 2009.
The total declared dividend amounted to P871,084,418.00, payable in two installments:

The dividends were paid to its non-resident foreign parent company on November 24, 2009 and December 22, 2009, with a 10% final withholding tax withheld and remitted to the Bureau of Internal Revenue (BIR).

An independent audit for the year 2009 revealed that the unrestricted retained earnings were insufficient to support the dividend amount declared.
It was determined that there was an over-declaration amounting to P113,955,742.00.
Despite the over-declaration, the cash dividends had already been paid; the excess was recorded as receivables from the foreign parent company in both the 2009 and 2010 Audited Financial Statements.

On November 2, 2011, Carrier declared a new cash dividend of P150,333,970.00 for the year 2011, deducting the previous overpaid dividend receivables, resulting in a net dividend of P21,344,381.00.
This net dividend was remitted to the foreign parent on November 23, 2011, and corresponding final withholding taxes (P15,033,397.00) were remitted on December 6, 2011.

Carrier filed an administrative claim on November 29, 2011 for the refund or issuance of a tax credit certificate, amounting to P11,395,574.20 – representing the withheld tax on the 2009 overpaid dividends.
Subsequently, on December 9, 2011 (ten days after the administrative claim), Carrier filed a judicial claim for refund before the Court of Tax Appeals (CTA).

The CTA’s Second Division, and later the CTA En Banc, ruled in favor of Carrier, granting the refund or issuance of a tax credit certificate for the stated amount.
The Commissioner of Internal Revenue (CIR) contested that Carrier’s filing of the judicial claim was premature and in violation of the doctrine of exhaustion of administrative remedies.
The CIR further argued that, under the applicable statutes, the CTA only had appellate jurisdiction once the CIR had acted on the administrative claim.

Sections 204 and 229 of the 1997 National Internal Revenue Code (NIRC) set the conditions for refund or credit claims:

Section 204 authorizes the Commissioner to refund or credit erroneously paid taxes provided that a written claim is filed within two years of payment.
Section 229 requires that prior to filing a judicial suit, an administrative claim must have been filed, with both filings occurring within the same two-year period.

Prior case law (including CBK Power Company Limited and P.J. Kiener Co., Ltd. v. David) was cited to underscore that the statutory scheme does not compel the taxpayer to await the CIR’s decision before proceeding judicially.

Whether Carrier’s administrative and subsequent judicial claims, both filed within the two-year prescriptive period, satisfy the requirements of Sections 204 and 229 of the NIRC.
Whether the mere filing of an administrative claim (without awaiting the Commissioner’s resolution) is sufficient to trigger the taxpayer’s right to pursue a judicial remedy.

Whether filing a judicial claim within ten days after the administrative claim—without the CIR having rendered a decision—violates the principle of exhausting administrative remedies.
Whether the judicial claim was premature and should be dismissed on the ground that the taxpayer failed to allow the administrative agency adequate time to act.

Whether the CTA’s exercise of appellate jurisdiction is proper in cases where no final decision has been rendered by the CIR on the administrative claim.
Whether the statutory requirement in Section 229 is satisfied merely by filing an administrative claim in due time, irrespective of the CIR’s subsequent action or inaction.

The precise meaning of “filing” an administrative claim under Section 229 and whether it mandates waiting for the agency’s ruling prior to judicial recourse.
How prior jurisprudence informs the construction of the relevant statutory provisions and the timing requirements for refund claims.