Pre-clearance on tax refund or cash conversion of TCC

It is a settled rule that laws granting exemption from tax liabilities are strictly construed against the taxpayers. Since a claim for tax refund or issuance of tax credit certificates (TCC) is akin to a tax exemption, strict construction or interpretation of the laws granting the same applies.

In applying the above-mentioned rule, the Bureau of Internal Revenue (BIR) has issued rules and regulations implementing tax laws on tax refunds. These issuances provide for the guidelines in the application for tax refund/issuance of TCC, including the list of documentary requirements to be submitted along with the application.

Common documentary requirement in support of the claim for refund/issuance of TCC, as well as application for cash conversion/monetization of Value Added Tax (VAT) TCC, is the certification on outstanding tax liabilities or delinquency verification slip. This certificate/verification slip enables the revenue office processing the application for refund to determine whether the taxpayer is clear of any tax liabilities before granting or processing his application. “Delinquent account” is defined as an outstanding tax liability of a taxpayer arising from a tax assessment or any unpaid delinquent account which is considered final, executory and demandable. “Stop filer case”, on the other hand, pertains to a case created by the Returns Compliance System (RSC) of the BIR involving a registered taxpayer who is identified to have failed to file the required tax return within the prescribed due date.

Last Aug. 18, 2014, the BIR issued Revenue Memorandum Circular (RMC) No. 70-2014 which clarifies the requirements for the issuance of certifications on outstanding tax liabilities/delinquency verification slips for purposes of processing the payment of claims for tax refund, cash conversion of TCCs and VAT monetization under Executive Order (EO) Nos. 68 and 68-A. Said RMC aims to protect the interest of the government by ensuring that tax refunds, cash conversion of TCCs and VAT monetization are not granted to delinquent taxpayers.

According to the RMC, in case the taxpayer has “stop-filer cases”, the validity of the same shall be determined by the concerned revenue offices, which may pertain to Revenue District Offices (RDOs), Regional Collection Divisions, concerned offices of the Large Taxpayers Services, Accounts Receivable Monitoring Division or other revenue offices of the BIR. The certifications/verification slips must indicate valid “stop-filer cases”. The processing of payment of claims for tax refund, cash conversion of TCCs and VAT monetization (applications) shall be held in abeyance pending the resolution of the stop-filer cases.

The RMC requires that the certifications/verification slips indicate whether or not the assessment cases against the taxpayer are already final and executory. Accordingly, if the assessment cases are not yet final and executory, the processing of payment of the said applications shall proceed. Otherwise, the processing of the said applications shall be discontinued and the entire docket of the application shall be returned to the concerned revenue office having jurisdiction over the taxpayer for the issuance of the written denial of the application, subject to the re-filing thereof after settlement of the delinquency account.

Moreover, for certifications/verification slips covering for delinquent accounts whose dockets were referred to other revenue offices for resolution of certain legal issues or for review and approval of certain actions pertinent thereto, the certifications/verification slips shall indicate the existence of the delinquency account, as well as the name of revenue office where the docket of the case was referred to, date of transmittal of the docket and the reason for the referral thereof.

The RMC provides for one month validity from date of issuance of the certifications/verification slips. In case the concerned revenue office requires updated certifications/verification slips, it shall be the duty of the requesting revenue office to send a written request for the same, instead of requiring the same from the taxpayer. The concerned issuing-revenue office shall issue the requested certifications/verification slips within 24 hours from receipt of the written request.

It is to be noted that the existence of delinquent accounts or outstanding tax liabilities of taxpayers does not mean that their application will be automatically denied. Said application may only be held in abeyance depending on reasons stated in the certifications/verification slips, until settlement of the delinquent account or resolution of the stop-filer case. The only reason that the same will be denied is when there is an assessment against the taxpayer which is already final and executory. Such denial, however, is subject to re-filing of the application.

In line with its campaign to raise the revenue of the government, the BIR has also been proactive in the assessment and collection of taxes and in the implementation of its issuances. This includes strict implementation of its issuances relating to tax refund/issuance of TCC. There is only one justification for the rigid requirements imposed by the BIR on claims for refund/issuance of TCC (including the cash conversion of the same) – that the taxes are the lifeblood of the nation, without which, the government cannot perform its mandate of promoting the general welfare of the people. Thus, it is imperative for the taxpayers to strictly comply with the requirements for tax refund/issuance of TCC and for the government to ensure that tax refunds and cash conversion of TCCs are not granted to delinquent taxpayers.

Beverly I. Mendoza 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 views 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 [email protected] or [email protected].

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