Last month, there was a long, funny Twitter thread that reimagined “The Office” in the COVID-19 era. There can be no doubt about it — the pandemic has ushered in a new reality of work. For one, reconfigurations in the office have become so common as to become the norm.
Our firm opened a new satellite office at Vertis North in Quezon City to be more accessible to employees and clients with offices in that area. Others have downsized their office space, with some shifting to virtual offices instead. There are also others that moved out of PEZA zones to be able to implement a 100% work-from-home arrangement.
In the Philippines, moving to new offices or changing business addresses is no mean feat. It requires updating various government registrations, such as those with the Securities and Exchange Commission, local government units, and various social welfare agencies. Arguably, the most important and tedious step is updating the company’s records with the Bureau of Internal Revenue (BIR).
Updating BIR records can be tricky if the move is from one Revenue District Office (RDO) to another. There will be a need to deregister with the old RDO, and request for migration or transfer to the new RDO. Original BIR documents, including unused invoices and receipts, would have to be surrendered to the old RDO. The taxpayer would then need new invoices and receipts, for which it has to secure an Authority to Print (ATP) from the new RDO, prior to actual printing.
Sometimes, amidst all the ruckus, the new ATP gets delayed. Hence, there can be an intervening period — from surrender of old invoices or receipts to the old RDO to issuance of a new ATP by the new RDO — when the taxpayer does not have invoices or receipts in its possession. It can happen that only after the ATP is issued and the new invoices or receipts are printed that the taxpayer can issue invoices or receipts for sales made during the intervening period.
An unfortunate, overlooked consequence of this is that it can be grounds for denial of value-added tax (VAT) refund applications. That is, whenever the date of the ATP on the invoices or receipts is later than the date of the transactions covered by the VAT refund, the BIR denies the application. It cites the case of Silicon Philippines, Inc. (Formerly Intel Philippines Manufacturing, Inc.) vs. Commissioner of Internal Revenue (G.R. No. 172378, January 17, 2011) which held that a claimant for unutilized input VAT on zero-rated sales is required to present proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts. In the case, the ATP was not indicated in the invoices or receipts and the taxpayer was also unable to present the ATP, and so the Supreme Court ruled that without this proof, the invoices would have no probative value for the purpose of a refund.
It is to be conceded that the Tax Code expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or receipts. However, unlike the situation cited in the Intel case, taxpayers moving to new offices had already secured a prior ATP. It’s just that at the time of the sale, the invoices or receipts printed under that ATP were surrendered to the old RDO. The facts are not really entirely the same to warrant the application of the Intel ruling.
In theory, it does sound simple enough — the new ATP should be dated prior to the date of the transactions. But the reality is that applying for RDO transfer can sometimes take a while — and it is not always the fault of the taxpayer. The BIR system tends to capture open cases from so long ago (sometimes, beyond the retention period set by the rules), such that settling the open cases can be a challenge. Delinquency verification can take some time too. Meanwhile, the taxpayer can only wait before it can file an application for ATP with the new RDO.
Some companies transferring business addresses may retain a booklet or so of their invoices or receipts, and request permission from the BIR to allow them to use the old invoices or receipts until the new ATP is issued. However, this work-around is not explicit in regulations and an ordinary taxpayer may not be able to get the necessary work-around permissions from the BIR.
It is a fact that VAT refunds in the Philippines are a difficult process. The proper substantiation of sales (output tax) and purchases (input tax) is critical, including compliance with invoicing requirements. However, does a delayed ATP bearing the new address really translate to non-compliance with invoicing requirements?
If it is, then it would make a VAT refund almost unattainable for those who transferred offices or changed their business addresses. Delayed ATP is very common. This will then make denials of VAT refunds all the more common too. Really, our hope is for this issue to be further clarified by the BIR. Clearer and simpler rules need to be provided to guide both the BIR and taxpayers to ensure that business is not unnecessarily disrupted due to transfer of business address.
VAT zero-rating is a tax characterization of the transaction based on the law relied upon by the investors. When we initially enticed them to do business in the Philippines, they were basically promised to get back the VAT they paid on their purchases to produce the zero-rated or effectively zero-rated sales. If their VAT refund applications are denied, the VAT becomes a real cost affecting not just their cash flows, but their P&L and financial ratios.
More importantly, capricious denials affect investor confidence in doing business in the Philippines. Before we know it, they might be packing up and moving offices not from one RDO to another, but out of the Philippines. Now, let’s admit that when Michael Scott left Dunder Mifflin, we were saddened. The Office was never quite the same.
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.
As published in BusinessWorld, dated 28 September 2021