Tax Articles

New VAT Refund Rules

By: Atty. Irwin C. Nidea Jr.

It remains a challenge for the government to grant VAT refund claims. As a result, companies are left with paper assets and are deprived of much need fund to expand and finance their operations. The BIR has recently issued a circular mandating new requirements and procedures in claims for VAT refund. As these requirements evolve, so does the burden given to taxpayers to prove what they are entitled to. Among the new features of RMC 47-2019 are as follows:

a. If there is a cessation or change in the status of an entity, a claim for refund must be filed within two (2) years form the date of cancellation of registration. But to be entitled to the claim, the taxpayer must have no internal revenue tax liabilities;

The claim can only be filed after the completion of the mandatory audit of all internal revenue tax liabilities covering the immediately preceding year and the issuance of a tax clearance. In other words, the government will hold hostage the VAT claim until it is found that the taxpayer has no tax liability.

b. A taxpayer can only file a claim for refund if he has no outstanding tax liability as a result of self-assessed tax liability or a deficiency assessment issued by the BIR, which has become final and executory.

c. This time the BIR allows for an offsetting. Thus, any outstanding VAT liability with the BIR may be deducted from the approved refund on the BIR portion. However, if the claim includes a refund of input VAT on importations which necessitates endorsement to BOC for processing of the payment, the VAT liability with the BIR must first be settled before filing the application for VAT refund with the BIR.

d. Once a claim for refund is filed, no additional document/s shall be subsequently requested/required from the taxpayer-claimant. Any unsupported claim shall be outrightly disallowed, resulting in full/partial denial of the claim.

e. This time, the original copies of invoices/receipts for sales and purchases are required to be presented together with the photocopies for validation by the assigned Revenue Officers, which shall be returned to the taxpayer-claimant after stamping “VAT Refund Claimed” thereto. If the original documents are voluminous, the validation and stamping may be performed at the registered address of the taxpayer-claimant. But who will stamp “VAT Refund Claimed” in every receipt or invoice? Some companies have thousands of receipts and invoices in support of their claim. Given the 90 day deadline given to the BIR to process and release a claim for VAT refund, revenue officers will be hard pressed to beat the deadline when they have to stamp all documents submitted to them.

Also, for quarterly claims where an annual Financial Statements (FS) has not yet been issued, an interim FS must be presented.

f. If a claim involves importation, claims for refund shall be supported with a “VAT Payment Certification” issued by the RAD of the BOC, including the supporting Import entry and Internal Revenue Declarations and/or Single Administrative Document, Statement of Settlement of Duties and Taxes. Only the duly authenticated copies of documents by the BOC shall be accepted for processing and considered in the computation of refundable amount. 

g. For export sale of services, the following documents are valid proofs to establish that the nonresident foreign corporation (NRFC) buyer is not engaged in business in the Philippines:

i. Original copy of the certification from the SEC that the NRFC buyer is not a registered corporation in the Philippines; and
ii. Consularized copy of the certificate of foreign registration / incorporation / association of the NRFC. But with the accession of the Philippines to the Apostille Convention, there will be no need to consularize the certificatie of registration or any other document from almost all countries.

h. For VAT refund claims to be filed on June 1, 2019 onwards, all documents as required in the Circular (RMC No. 47-2019) shall be submitted upon filing.

The government always preaches that it wants to simplify claims for VAT refund. But the above list will force taxpayers to look at the heavens and wish for a falling star.