Tax planning your excess tax credits

(Part II)

With the issuance of RR No. 14-11, taxpayers are now faced with the concerns on how to manage one’s excess tax credits. This is where tax planning comes in. An accurate tax planning would mean fewer instances where a claim for refund or issuance of a TCC is necessary and/or that TCCs already issued will be fully utilized.

In planning to lessen the instances of claiming TCCs or refund, a taxpayer may opt to strengthen its tax compliance practices. For instance, a taxpayer may improve its diligence in checking that it gets from its customer in a timely manner the support for the taxes withheld from income payments to it are appropriate, perhaps by requiring certificates of tax withheld from its withholding agents/clients. This is for easier matching of timing of withholding by the customers and the taxpayer’s claim of tax credits for purposes of the income tax. It also makes sense for a taxpayer to do regular forecasting of quarterly and annual income tax payment, taking into consideration not only the possible withholding tax credits but also other tax attributes such as the Net Operating Loss Carry Over credits and excess Minimum Corporate Income Tax credits. The forecasting should consider future transactions such as restructuring activities where the taxpayer is expected to pay income taxes against which the withholding tax credits may be offset.

The taxpayer could also check if the taxes withheld by its customers from income payments to it are at the proper tax rate and base. The breakdown of its charges to the customers may also be reviewed. 

A taxpayer having zero-rated sales may also opt to fine-tune its business operations, specifically to lessen excess input VAT. For example, it may look into the option of locating within an economic zone and availing of the applicable incentives. Generally, such locators are entitled to the zero-rating on the purchases. It can also opt to merely spin-off its export activities that will be undertaken within the economic zone. This will avoid unwanted accumulation of input tax. Another option for a taxpayer is to review and evaluate the forecasting of sales and purchases in its business to ensure that there are no unwanted accumulation of excess input taxes. The taxpayer may also study the option of getting a confirmatory ruling from the BIR to factor in its supposedly input tax as cost/expense which may be later claimed as a deduction for purposes of the income tax.

To fully utilize the already issued TCCs, the taxpayer may look into studying and planning its tax obligations, where the available TCCs may be used. Again, the TCCs may be used against practically all internal revenue liabilities except those specifically prohibited. The correct matching of the taxpayer’s TCC to its tax payables would prevent the waste of tax credits.

But then again, a taxpayer still has the option of filing for cash refund or encashing its TCCs. The downside of this option, however, is that it is dependent on the availability of funds allotted by the government and the conversion requests are on a “first come, first served” basis.

Arguments on the validity of RR No. 14-11 aside, it is clear that the revocation of the transferability of the TCCs is not an end-all situation for taxpayers. The BIR may have restricted the remedies granted by law to taxpayers, but a careful tax planning will curtail any negative impact the revocation may have. Vigilance is the key.

Katrina Monserrat F. Aznar is a Supervisor of tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email [email protected]or [email protected].