Getting money back via input VAT refund
SUITS THE C-SUITE By Josenilo G. Mendoza
First Published in Business World (07/07/2014)
OVER the last few years, the process of claiming a tax refund or tax credit certificate (TCC) for unutilized input value added tax (VAT) related to VAT zero-rated sales has been the subject of many court decisions, many of the more recent of which dealt with the mandatory jurisdictional dates for filing claims for VAT refunds or TCCs with the court.
Very recently, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) No. 54-2014 dated June 11, 2014, which businessmen with zero-rated sales who are planning to claim VAT refunds or TCCs must pay attention to, lest the claim fall through the cracks.
The new RMC 54-2014 clarifies that:
• The administrative claim for VAT refund or TCC must be filed within two years from the close of the taxable quarter when the zero-rated sales and/or effectively zero-rated sales were made.
• The application for VAT refund must be accompanied by complete supporting documents as specifically enumerated in Annex A of the RMC. In addition, the taxpayer should attach a sworn statement/affidavit (i) attesting to the completeness of the submitted documents; (ii) stating that the attached supporting documents are the only documents which the taxpayer will present to support the claim; and, additionally, (iii) in the case of corporations or other juridical persons, there should be a sworn statement that the officer signing the affidavit (which should at the very least be the Chief Finance Officer) has been authorized by the company’s Board of Directors.
• Upon submission of the administrative claim and its supporting documents, the BIR shall process the claim, and no other documents shall be accepted or required from the taxpayer in the course of its evaluation. A decision shall be rendered by the Commissioner based only on the documents submitted by the taxpayer. The application shall be denied if the taxpayer fails to submit the complete supporting documents.
• The Commissioner shall have 120 days from the submission of the complete supporting documents within which to decide whether or not to grant the claim. If the claim is not acted upon by the Commissioner within the 120 days, such “inaction shall be deemed a denial” of the claim.
• If the Commissioner denies the claim, whether in full or in part, or if the Commissioner does not act on the claim within the 120-day period, the taxpayer should file a judicial claim with the Court of Tax Appeals (CTA) (i) within 30 days from receipt of the Commissioner’s decision denying the claim (whether in full or in part) within the 120-day period, or (ii) from the expiration of the 120-day period if the Commissioner does not act within the 120-day period. The taxpayer is required to observe the 120+30 day rule before lodging a petition for review with the CTA.
• In cases where the taxpayer has filed for a Petition for Review with the CTA, the Commissioner loses jurisdiction over the administrative claim. However, the processing office of the administrative agency shall still evaluate internally the administrative claim for purposes of intelligently opposing the taxpayer’s judicial claim.
• Failure to file a judicial claim with the CTA within 30 days from the expiration of the 120-day period renders the Commissioner’s decision or inaction “deemed a denial,” final and unappealable. This applies to all currently pending administrative claims for refund or tax credit.
RMC 54-2014 has overreaching implications on taxpayers with unutilized input VAT related to zero-rated or effectively zero-rated sales. For example:
• Taxpayers who filed an administrative claim but did not file a judicial claim with the CTA after the lapse of the 120-day period on the basis that the BIR would continue processing and evaluating the claim, now face the spectacle of having no further recourse or remedy to pursue the claim, because RMC 54-2014 now says that these claims are deemed to have been denied by the BIR. And since RMC 54-2014 says that it applies to all pending claims, some taxpayers may be left with no remedy at all, particularly where the 30-day period for filing the judicial claim with the CTA has also lapsed.
• Prior to the “deemed denial” rule in RMC 54-2024, the BIR would at least inform the taxpayer of the reasons for the denial (e.g., improper substantiation or non-compliance with invoicing requirements). This would normally provide the taxpayer with guidance on how these unutilized input taxes should be treated in the taxpayers’ books. With the deemed denial, the taxpayer is deprived of the opportunity to learn the reasons for what would have been disallowances, and therefore also deprived of the opportunity to correct whatever mistakes they have in their practices.
• On the other hand, there are also taxpayers who file a judicial claim for refund within 30 days from the end of the 120-day period, so that they can pursue both the administrative claim as well as the judicial claim. In fact, there have been instances where the BIR granted the taxpayer’s claim for input tax refund even if a judicial claim has already been filed in court. In such cases, the BIR only requires that the judicial claim be withdrawn before awarding the refund or TCC. Under RMC 54-2014, a taxpayer cannot now cover both BIR and CTA fronts, because once a judicial claim has been filed with the CTA, the RMC says that the BIR loses jurisdiction over the administrative claim. Taxpayers can no longer expect that the BIR will grant their application for refund, but will have to rely solely on the CTA to process their judicial claims.
• Taxpayers should also note that one of the requirements under the RMC is the submission of a sworn statement or affidavit stating that the required documents are complete and that these are the only documents which the taxpayer will present to support the claim. The RMC also states that the BIR will evaluate the claim for refund based only on the documents submitted. Thus, failure on the part of the taxpayer to submit all the required documents at the time of filing the claim may prove fatal to its claim. It is crucial that taxpayers get it right the first time, since they will neither be allowed to submit additional documents to support their claim nor will the BIR accept such documents.
Given the pace at which the BIR has been processing claims for refund or TCC, it is unlikely that the BIR will be able to act on the claims within the 120-day period. Hence, taxpayers will have no choice but to file a Petition for Review with the CTA, or risk losing their right to claim the refund or TCC. This means that taxpayers will need to incur additional costs (e.g., filing fees with the CTA, professional fees of independent CPA, legal fees, among others) to keep the remedy of the refund or TCC alive.
Moreover, for financial accounting purposes, taxpayers will now have to decide whether to accrue for additional provisions for disallowance in their books if these have not been fully provided for. Considering that the provisions of the RMC are applicable to all currently pending administrative claims, claims for refund which may have been pending for several years will be affected. This may result in recognition of huge amounts of expenses/losses in the taxpayers’ books.
With the issuance of RMC 54-2014, it is essential that taxpayers who wish to get back their money (or the TCC) know these rules and requirements — particularly the dates — and put in place the necessary systems or mechanisms within the company for triggering action on claiming input tax refunds or TCCs, because one wrong move could lead to either a deemed denial or an automatic denial of the claim.
Josenilo G. Mendoza is a Partner of SGV & Co.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. Views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.