Checkpoints on the VAT refund maze

Our hoped-for radical changes in the processing of claims for value-added tax (VAT) refund filed with the Bureau of Internal Revenue (BIR) have seen the light of the day. Gone are the days when taxpayers would wait in vain for the acceptance or denial of their VAT refund application. Looking back, many have seen this as just a prerequisite to the true refund battle in the Court of Tax Appeals.

This year, the BIR issued Revenue Memorandum Circular No. 47-2019, which prescribes the revised guidelines and mandatory requirements for processing and granting VAT refund claims; and Revenue Memorandum Order (RMO) No. 25-2019, which prescribes the policies and procedures for implementing the 90-day period for processing and granting claims for VAT refund/credit. With the shortened processing time, criminal liability provisions in case of non-observance by the concerned revenue officers/officials (ROs) of the prescribed timeframe, and the requirement for the Commissioner of Internal Revenue to state in writing the legal and factual basis in case of denial of the claim, we are actually seeing a milestone in the VAT refund process. This news has brought hope to many, but the real question now is this: Would you be able to substantiate your claim fully?

The requirements for the VAT refund process are more stringent than before. If you are considering applying for a VAT refund in relation to Sec 112(A) of the Tax Code, as amended, refunds or tax credits of input tax on Zero-rated or Effectively Zero-rated Sales, read on for some checkpoints to know whether this pursuit is worth your while.

DO YOU HAVE ANY OUTSTANDING DELINQUENT TAX LIABILITIES?
RO/s will not accept applications where the taxpayer claimant has outstanding delinquent tax liabilities. As defined in RMO No. 11-2014, delinquent tax liabilities refer to a tax liability resulting in dishonored check, failure to pay taxes due on return filed, nonpayment of second installment due from individual taxpayers who availed of installment payments of income tax, and deficiency assessment issued by the BIR that became final and executory. However, if the tax liability pertains solely to VAT, the claim may still be accepted.

HOW MUCH TIME DO YOU HAVE BEFORE THE DEADLINE?
Taxpayers may file their VAT refund claims within two years after the close of the taxable quarter when the sales to which the input taxes being refunded are attributable were made. It is important to determine the volume of transactions and to project a timeline on the completion of requirements set forth under the revised checklist of mandatory requirements per RMC 47-2019. Among the requirements are various certifications to be requested from the BIR and Department of Finance, and authenticated documents from the Bureau of Customs in case of refund of VAT on importations. The processing time for these documents may take weeks or even months, depending on the additional requirements of the said government agencies.

WOULD YOU BE ABLE TO SECURE A CERTIFICATE OF REGISTRATION/INCORPORATION/ASSOCIATION FROM FOREIGN CLIENTS?
Some taxpayers decide to file refunds months before the deadline. In this case, the transactions may include sales to buyers that are no longer on the current client/customer list. This poses a challenge in terms of communicating with non-resident foreign corporation (NRFC) buyers to request for a consularized copy of their certificate of foreign registration/incorporation/association, which is one of the requirements to prove that NRFC buyers are not engaged in business in the Philippines.

ARE THE ORIGINAL COPIES OF THE OFFICIAL RECEIPTS AND INVOICES PROPERLY STORED AND COMPLETE?
If the period being applied for refund involves transactions from two years back at most, there might be a need to pull out some documents from the warehouse, as the original copies are required to be presented together with the photocopies of the invoices/receipts for sales and purchases. The assigned RO/s will validate the photocopies against the originals, and return the same after stamping “VAT Refund/Credit Claimed” thereto. Subject to the approval of the chief/head of the processing office, the assigned RO/s may perform the validation and stamping at the registered address of the taxpayer/claimant, if it is logistically impossible for the taxpayer- claimant to bring the original documents to the processing office.

WOULD YOU BE ABLE TO PRESENT YOUR BOOKS OF ACCOUNTS AND ACCOUNTING RECORDS?
The taxpayer claimant may be required to present its books of accounts and accounting records upon request of the assigned RO/s. Be prepared to pay administrative penalties in case the books of accounts or computerized accounting system used is not registered with the BIR.

It is worthy to note as well that taxpayers with claims for VAT refund are subject to mandatory audit by the BIR.

Submission of incomplete documents shall result in non-acceptance of the application, while failure to present books of accounts and accounting records is a ground for the denial of the claim. As a transitory provision, a taxpayer-claimant whose VAT refund claim has been filed before June 1, 2019 may submit certain documents and certifications within 30 days from the date of filing. Thereafter, no grace period will be given.

The application for VAT refund claim is a rather tedious task, and often takes a lot of time and resources. The difference now, though, is that the BIR gives us reassurance that our applications for refund will be acted upon, and that proper sanctions will be imposed on erring revenue officials. If you are positive that you can fully substantiate your claim for refund, pursue the application and plan it well. Who knows, just 90 days after filing, the unutilized input taxes in your books will finally be refunded.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.

Ma. Anneth Soledad Mirano is a senior from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

As published in BusinessWorld, dated 28 May 2019