It is well-settled in our jurisdiction that taxation is the rule and exemption is the exception. Laws granting tax exemptions are construed strictly against the taxpayer and liberally in favor of the taxing authority. Tax refunds are in the nature of tax exemptions and are regarded as a derogation of sovereign authority and to be construed in strictissimi juris against the taxpayer claiming the exemption. Taxpayers claiming refunds have the burden of proving their entitlement to tax refunds.
VAT-registered taxpayers whose sales are zero-rated or effectively zero-rated accumulate input VAT arising from their purchases of goods and services as well as in their importation. In this case, the accumulated input VAT has no output VAT to credit against with. Hence, our Tax Code, as amended, provides remedy by which a VAT-registered taxpayer may recover such unutilized input VAT through VAT refund/tax credit.
In claiming VAT refund/tax credit, taxpayers are required to comply with certain requirements set forth by law. One of these requirements is the timely filing of the administrative and judicial claims for VAT refund/tax credit. Through the years, however, conflicting interpretations were made on the matter.
For instance, with regard to the filing of an administrative claim, the Supreme Court held in Atlas Consolidated Mining and Development Corp. vs. CIR (G.R. Nos. 141104 & 148763 dated June 8, 2007), that the two-year prescriptive period for the filing of an administrative claim for an input VAT refund or credit is to be reckoned from the date of the filing of the corresponding quarterly VAT return and payment of the tax. On the contrary, CIR vs. Mirant Pagbilao Corporation (G.R. No. 172129 dated Sept. 12, 2008), fixed the reckoning date of the two-year prescriptive period for the application for refund or credit of unutilized input VAT at the close of the taxable quarter when the relevant sales were made.
On the other hand, as to the filing of judicial claim, in BIR Ruling No. DA-489-03, dated Dec. 10, 2003, the deputy commissioner of the Bureau of Internal Revenue (BIR) ruled that a taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the Court of Tax Appeals (CTA). The 120-day period is the period within which the Commissioner of Internal Revenue (CIR) has to grant a refund or issue tax credit certificate. Such 120-day period is to be counted from the submission of complete documents in support of the claim filed. In addition, Section 112(C) of our Tax Code, as amended, provides that in case of full or partial denial of the claim for refund or tax credit, or inaction of the CIR, the taxpayer may, within 30 days from the receipt of the decision denying the claim or after the expiration of the 120-day period, appeal the decision or the unacted claim with the CTA.
Further, the deputy commissioner stated in the ruling that neither is it required that the CIR should first act on the claim of a particular taxpayer before the CTA may acquire jurisdiction, particularly if the claim is about to prescribe. It was likewise emphasized by the Supreme Court in the Atlas case above that if the two-year prescriptive period is about to expire but the BIR has not yet acted on the application for refund, the taxpayer may interpose an appeal before the CTA within the two-year period.
However, in CIR vs. Aichi Forging Company of Asia, Inc. (G.R. No. 184823 dated Oct. 6, 2010), the Supreme Court held that the 120+30 day periods are mandatory and jurisdictional based on Section 112(C) of our Tax Code.
Then again, in CIR vs. Mindanao II Geothermal Partnership (G.R. No. 191498 dated Jan. 14, 2014), a more recent decision, the Supreme Court stressed that the law does not make the 120+30 day periods optional just because the law uses the word “may.” The word “may” simply means that the taxpayer is given the option to appeal the decision of the CIR within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period.
In order to elucidate the issue on the prescriptive periods within which an administrative claim and a judicial claim for input VAT refund/tax credit under Section 112 of our Tax Code, as amended, shall be made, the BIR recently issued Revenue Memorandum Circular (RMC) No. 54-2014.
The RMC restated Section 112(A) of the Tax Code, as amended, revalidating that the prescriptive period for filing an administrative claim for VAT refund/tax credit attributable to zero-rated sales shall be made within two (2) years after the close of the taxable quarter when the sales were made. It is worthy to note that this two-year period does not include judicial claims.
The said issuance also maintained that the 120+30 day periods for filing a judicial claim under Section 112(C) of the Tax Code, as amended, are mandatory and jurisdictional. The taxpayer/claimant is required to observe the 120+30 day rule before lodging a Petition for Review with the CTA. In other words, the CTA does not acquire jurisdiction over a judicial claim that is filed before the expiration of the 120-day period. In addition, RMC No. 54-2014 cited two (2) scenarios for filing judicial claims. First, filing the judicial claim with the CTA within 30 days from the receipt of the denial by the CIR within the 120-day period; or second, filing the judicial claim with the CTA within 30 days from the expiration of the 120-day period as a result of the inaction of the CIR.
In view of the foregoing discussion, it can be gleaned that RMC No. 54-2014 fortifies our Tax Code provisions concerning the application of the prescriptive periods in claiming VAT refund/tax credit.
Uniformity in the interpretation of the Tax Code provisions as well as knowledge of the laws, rules and regulations are essential to ensure that taxpayers do not lose their right to claim tax refunds/credits.
Hopefully, this RMC as well as the most recent Supreme Court decisions can aid taxpayers in understanding the nuances of filing an administrative and judicial claim for input VAT refund/tax credit.
Chandine Kaye P. Villegas is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email ph-kpmgmla@kpmg.com or rgmanabat@kpmg.com.
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