Excise Tax Refunds: Only the Statutory Taxpayer Can Claim, Not the One Who Bears the Burden

Exxonmobil Petroleum and Chemical Holdings, Inc. – Philippine Branch vs. Commissioner of Internal Revenue, G.R. No. 180909, January 19, 2011

Imagine an international airline purchasing jet fuel in the Philippines. Excise taxes are levied on petroleum products, but international carriers are often exempt. If the airline doesn’t buy directly from the manufacturer, who can claim the refund for those taxes? This seemingly simple question has significant implications for businesses involved in the sale and distribution of petroleum products. In this case, ExxonMobil sought a refund for excise taxes on fuel sold to international carriers, taxes initially paid by the manufacturers and passed on to ExxonMobil. The Supreme Court clarified that only the statutory taxpayer, the entity directly liable for the tax, can claim a refund, even if the economic burden is shifted to another party.

Understanding Excise Taxes and Exemptions

Excise taxes are imposed on specific goods manufactured or produced in the Philippines for domestic sale or consumption, as stated under Title VI of the National Internal Revenue Code (NIRC). These taxes are levied when two conditions are met: the goods belong to the categories listed in Title VI, and they are intended for domestic sale or consumption, excluding exports. However, Section 135 of the NIRC provides exemptions, particularly for petroleum products sold to international carriers. The specific provision states:

SEC. 135. Petroleum Products Sold to International Carriers and Exempt Entities or Agencies. – Petroleum products sold to the following are exempt from excise tax:

(a) International carriers of Philippine or foreign registry on their use or consumption outside the Philippines: Provided, That the petroleum products sold to these international carriers shall be stored in a bonded storage tank and may be disposed of only in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner;

This exemption aims to support international trade and transportation by reducing the tax burden on international carriers. However, the application of this exemption becomes complex when the products pass through multiple parties before reaching the international carrier.

The ExxonMobil Case: A Detailed Breakdown

ExxonMobil, a foreign corporation operating in the Philippines, purchased Jet A-1 fuel from Caltex and Petron, who paid the excise taxes. These taxes were then passed on to ExxonMobil as part of the purchase price. ExxonMobil subsequently sold this fuel to international carriers, claiming an exemption from excise taxes for these sales. The company then sought a refund of the excise taxes, leading to a dispute with the Commissioner of Internal Revenue (CIR).

• Initial Claim: ExxonMobil filed administrative claims for a refund of Php105,093,536.47 with the BIR.
• CTA Petition: When the BIR didn’t act, ExxonMobil filed a petition for review with the Court of Tax Appeals (CTA).
• CIR’s Motion: The CIR moved to resolve first whether ExxonMobil was the proper party to claim the refund.
• CTA Ruling: The CTA ruled against ExxonMobil, stating that only the manufacturer or producer of the petroleum products could claim the refund.

The Supreme Court upheld the CTA’s decision, emphasizing that excise taxes are indirect taxes. The court quoted:

“[I]ndirect taxes are those that are demanded, in the first instance, from, or are paid by, one person to someone else… When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser, as part of the goods sold or services rendered.”

The court further reasoned that:

“Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.”

Therefore, because ExxonMobil was not the statutory taxpayer (Caltex and Petron were), it was not entitled to claim the refund.

Practical Implications of the Ruling

This case clarifies that only the entity directly liable for paying the excise tax to the government can claim a refund, even if the economic burden is shifted to another party. This has significant implications for businesses involved in the supply chain of goods subject to excise taxes. Businesses that purchase goods and then sell them to exempt entities cannot claim refunds for excise taxes already paid by the manufacturer.

Key Lessons:

• Statutory Taxpayer: Only the statutory taxpayer can claim excise tax refunds.
• Indirect Taxes: The burden of indirect taxes can be shifted, but the liability remains with the original taxpayer.
• Supply Chain Implications: Businesses in the middle of the supply chain cannot claim refunds for taxes paid by manufacturers.

For example, if a trading company buys alcohol from a distillery and sells it to a duty-free shop, the trading company cannot claim a refund for the excise tax paid by the distillery. The distillery, as the manufacturer and statutory taxpayer, is the only party eligible to claim the refund.

Frequently Asked Questions

Q: What is an excise tax?

A: An excise tax is a tax imposed on specific goods manufactured or produced in the Philippines for domestic sale or consumption, or imported goods.

Q: Who is the statutory taxpayer for excise taxes?

A: The statutory taxpayer is the person or entity legally obligated to pay the excise tax to the government, typically the manufacturer or producer.

Q: Can I claim a refund for excise taxes if I purchased goods and paid a higher price due to the tax?

A: No, only the statutory taxpayer (usually the manufacturer) can claim the refund, even if you bore the economic burden of the tax through a higher purchase price.

Q: What is the significance of Section 135 of the NIRC?

A: Section 135 provides exemptions from excise tax for petroleum products sold to international carriers and certain exempt entities.

Q: What is an indirect tax?

A: An indirect tax is a tax where the liability for payment falls on one person, but the burden can be shifted to another, such as when a manufacturer passes the tax on to the consumer through a higher price.

Q: Does this ruling affect existing bilateral agreements with other countries?

A: No, the court clarified that this ruling does not unilaterally amend existing bilateral agreements. The exemption from excise tax for international carriers remains in effect.

Q: What should businesses do to ensure compliance with excise tax regulations?

A: Businesses should carefully review their supply chain and identify the statutory taxpayer for excise taxes. They should also ensure they have proper documentation to support any claims for exemptions or refunds.

ASG Law specializes in tax law and regulatory compliance. Contact us or email hello@asglawpartners.com to schedule a consultation.