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VAT refunds from this day forward

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Taxwise Or Otherwise

MOST PEOPLE are delighted to jump-start 2018 with their new set of bucket lists such as #travelgoals, #fitnessgoals, and of course, #relationshipgoals.

On the corporate side, retailers are hustling to unload last season’s collections to give way to new arrivals; gym owners excitedly welcome back existing members as well as new joiners who wish to unload excess inches gained over the holidays; and auditors embark on another busy season with the aim of finishing the audit of their clients’ financial statements in time for the April 15 deadline of the Bureau of Internal Revenue (BIR).

It is essential for companies reporting a VAT-refundable position to consider the following relevant points of Revenue Memorandum Circular (RMC) 89-2017 issued by the BIR in November to amend the provisions of RMC 51-2007 in relation to the processing of requests for refund or Tax Credit Certificate (TCC) of excess input VAT.

AVENUE FOR FILING REFUND/TCC
Previously, taxpayers seeking to secure a refund/TCC of their excess input VAT from the government filed their applications with the Revenue Office where they are registered. Direct exporters, on the other hand, had the option to file such applications with the VAT Credit Audit Division (VCAD) of the National Office (pursuant to Revenue Administrative Order No. 2-2014). Under the new RMC, the BIR now requires direct exporters to submit their refund applications to VCAD. However, if the direct exporter is registered as a large taxpayer, it has still the option to file claims with the LT Division having jurisdiction over the claimant.

Moreover, VAT refund/TCC claims filed by indirect exporters, i.e., those supplying goods and services to direct exporters registered with the Board of Investments (BoI), Philippine Economic Zone Authority (PEZA), and the Subic Bay Metropolitan Authority (SBMA) among others, as well as claims for other tax types (e.g., income tax) shall still be processed by the concerned Revenue Office.

AUTHORIZED APPROVING OFFICIAL
The circular also designated the approving BIR official depending on the amount sought for refund. Claims amounting to P75 million and below shall be approved by the Assistant Commissioner — Assessment Service (ACIR-AS), while those in excess of P75 million but not more than P150 million shall be authorized by the Deputy Commissioner — Operations Group (DCIR-OG). Claimants seeking refunds/TCCs of more than P150 million need the approval of the Commissioner of Internal Revenue (CIR).

With regard to the claims filed with the RDO amounting to P10 million or below, the Regional Director shall be authorized to recommend the issuance of the refund or TCC.

TIMELINE
Until last year, the BIR had 120 days to process VAT refund/TCC claims counted from the date of filing of the application pursuant to Section 112(C) of the Tax Code. Following this provision, the RMC also provides the timeline for processing VAT refund claims, which basically formalized the existing practice of the BIR prior to the issuance of the new RMC.

Under the RMC, all claims processed by VCAD and claims amounting to more than P10 million filed with the RDO shall be forwarded to the Tax Audit Review Division (TARD) within 80 days from the date of application for further review. The TARD, on the other hand, shall process and forward such claims to the approving official within 100 days from the date of application. Lastly, the approving official shall issue the BIR’s decision on the refund/TCC claim within the 120-day period.

For dockets that will be transmitted to the National Office after the 80-day period, the TARD shall no longer have the authority to accept and process these claims except for justifiable reasons.

However, with the enactment and implementation of the Republic Act No. 10963, also known as the Tax Reform for Acceleration and Inclusion (TRAIN), effective January 2018, the period for the BIR to grant a refund or issue a TCC was shortened to 90 days. While there is a need for the BIR to issue a clarification as to the timeframe moving forward, the author is hopeful that the 30-day reduction under the TRAIN will not affect the feasibility of meeting the 90-day timeline given the BIR’s current practice. Of course, actual results depend largely on the volume of the application and the BIR’s existing human resources.

In case the BIR is not able to issue its decision (i.e., whether to grant or deny the request for refund/TCC) within the prescribed period, the claim is “deemed denied” and the only remedy available in this type of situation is to seek judicial cure by way of elevating the claim to the Court of Tax Appeals (CTA).

It would be worthwhile to know that refund claims filed with the Courts undergo a more tedious process; it takes two to three years before an appeal is decided. Further, this course of action entails additional costs like filing fees, professional fees for legal and Independent Certified Public Accountant (ICPA) services (as needed), and other incidental expenses. Prudence would suggest that monitoring and timely coordination with the BIR (considering the stringency of the new RMC as to the timeline of processing VAT refund claims) as regards the requirements and resolution of any issues that may be noted during the review of the application should be undertaken by the claimant not only to expedite the processing of refund/TCC claims but also to prevent the incurrence of such additional legal costs.

The success of a refund claim largely depends on the compliance of the claimant to the requirements set by the tax laws and regulations. But more important, planning personal events and corporate agendas and deadlines in an orderly fashion and ahead of time is a sure prescription for a worry-free 2018.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

Ranier C. Matriano is a Senior Consultant at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of PwC global network.

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ranier.c.matriano@ph.pwc.com