News & Updates

Supreme Court rules that no prior confirmatory ruling is required for tax exemption or refund (CIR v. Co, et al.)

The Supreme Court recently affirmed that no prior confirmatory ruling from the Bureau of Internal Revenue (“BIR”) is needed before a taxpayer can file a claim for tax exemption or refund.


In Commissioner of Internal Revenue v. Lucio L. Co, et al., G.R. No. 241424 (26 February 2020), the respondents filed a claim for tax refund pursuant to an exchange of stocks entered into where their stockholdings in Puregold Price Club, Inc. increased from 66.5720% to 75.8329%, alleging that the transaction was a tax-free exchange under the National Internal Revenue Code (“NIRC”).


While the Supreme Court ultimately ruled that the transaction was a tax-free exchange under Section 40(C)(2) of the NIRC, the Commissioner of Internal Revenue (“CIR”) insisted that the tax refund claim filed by respondents should be denied because they failed to secure a prior confirmatory ruling that the subject transaction qualifies as a tax-free exchange. According to the CIR, the certification or ruling is important to confirm that the transaction satisfies the conditions set by law, and the authority to do so is vested upon the BIR.


The Supreme Court, however, ruled that the CIR was mistaken as “there is nothing in Section 40(C)(2) of the NIRC of 1997, as amended, which requires the taxpayer to first secure a prior confirmatory ruling before the transaction may be considered as a tax-free exchange. The BIR should not impose additional requirements not provided by law, which would negate the availment of the tax exemption. Instead of resorting to formalities and technicalities, the BIR should have made its own determination of the merits of respondents’ claim for exemption in respondents’ administrative application for refund.”