RP tax court gives firm P50-M tax refund for patented goods

MANILA, Philippines - The country's Court of Tax Appeals has ordered the Bureau of Internal Revenue (BIR) to refund cosmetic manufacturer Splash Corp. close to P50 million for income taxes erroneously paid for patented products in 2002. In a 15-page decision penned by Associate Justice Lovell R. Bautista, the tax court rejected BIR claims that the amount represented taxes before the products were entitled to an exemption. Under the Inventors and Invention Incentives Act, income that a company or person gets from the sale of patented products is exempt from tax for 10 years from the products’ first sale. But BIR Revenue Regulation 9-93 provides that tax exemption will only start on the date of the approval of the application for exemption. The government approved Splash’s exemption application for Extraderm Plus, Extraderm Extract and Maxipeel on Sept. 28, 2004. But the products were sold as patented products as early as 2001, 1997 and 1999, respectively. Following the tax exemption from BIR, it sought a refund for P47.47 million in income taxes it had paid in 2002. The tax court noted that under the law, the 10-year period is reckoned from the date a patented product is first sold commercially. "It is well settled that all administrative issuances must not override, but must remain consistent and in harmony with the law they seek to apply and implement," it said. "We reiterate the ancient principle that no one, not even the state, shall enrich oneself at the expense of another. In the field of taxation where the state exacts strict compliance upon its citizens, the state must likewise deal with taxpayers with fairness and honesty," it added. - Ira P. Pedrasa, BusinessWorld