It has been more than a month since Republic Act (RA) No. 11976, otherwise known as the Ease of Paying Taxes (EoPT) Act, was signed into law, taking effect on Jan. 22. This law was considered a significant milestone in modernizing the tax system. The EoPT law further amends the National Internal Revenue Code of 1997, also known as the Tax Code, in a manner that impacts taxpayers and stakeholders seeking tax refunds, among others. In February, the Bureau of Internal Revenue (BIR) conducted public consultations with the private sector to discuss the draft implementing rules and regulations (IRR) of the EoPT Act.
One significant amendment introduced by the EoPT Act affects Section 112 (C) of the Tax Code, as amended, which reverts the taxpayer’s statutory right to appeal to the Court of Tax Appeal (CTA) within 30 days after the lapse of 90 days from the date of the submission of invoices and other documents in support of the application for refunds of input tax.
Prior to the Tax Reform for Acceleration and Inclusion Act, or TRAIN Law, the Tax Code, as amended (RA 8424) provides that the taxpayer’s can appeal to the CTA within 30 days from the full or partial denial or inaction of the CIR after the lapse of 120 days from the receipt of the application for such a refund. However, in 2018, the TRAIN law removed the taxpayer’s right to appeal to the CTA within 30 days from the lapse of the 90-day period of the CIR to decide, but imposed an administrative penalty for the failure on the part of any official, agent, or employee of the BIR to act on the application. With the effectivity of the EoPT Act, the taxpayer’s right to appeal to the CTA within 30 days from CIR inaction was restored. Taxpayers can now file an appeal to the CTA within 30 days from the lapse of the 90-day period of the CIR to act on the claim for refund.
This development brings to mind the San Roque Doctrine, or the Consoidated Supreme Court tax case (G.R. Nos. 187485, 196113, and 197156), which was promulgated on Feb. 12, 2013. The San Roque Doctrine emphasized that compliance with the 120-day (now 90-day) waiting period is mandatory and jurisdictional. Based on the jurisprudence, the taxpayers prematurely filed their refund application for input tax with the CIR without observing the 120-day + 30-day period as provided for by the Tax Code, as amended. The law states that the taxpayer may apply with the CIR for a refund or credit “within two years,” which means at any given time within two years. However, the 30-day period to appeal need not necessarily fall within the two-year prescriptive period if the administrative claim is filed within the two-year prescriptive period. Thus, the two-year prescriptive period does not refer to the filing of the judicial claim with the CTA but to the filing of the administrative claim with the CIR. Thus, failure to observe the 90-day period prior to the filing of a judicial claim is not mere non-exhaustion of administrative remedies, it is likewise considered jurisdictional. Such the 90-day period is a prerequisite for the 30-day period to appeal to the CTA.
With the EoPT Act, the taxpayer applying for a tax refund of input taxes pursuant to Sec. 112 of the Tax Code, as amended, has an opportunity to appeal the refund/tax credits unutilized input tax claim to the CTA within 30 days after the lapse of the 90-day period to act by the CIR. However, the EoPT Act retains Sec. 269 (j), which penalizes government officials who deliberately fail to act on the application for refunds within the prescribed period provided under Secs. 112 and 204 of the tax code, as amended. By adopting the amended provision, the law strengthens the statutory privilege of taxpayers to appeal the VAT refund application to the CTA.
In the BIR’s draft implementing RR, the BIR provided guidelines on taxpayers with applications for VAT refund/tax credits under Sec. 112, particularly on the recourse of the taxpayer in case the 90-day processing period expires without a BIR’s decision on the claim. The taxpayer claimant may opt to appeal to the CTA within the 30-day period after the expiration of the 90-day period required by law to process the claim or await the final decision of the CIR. However, the coverage of the draft may include claims filed starting July 1, 2024.
In jurisprudence, CIR v. CE Casecnan Water and Energy Co., Inc. (G.R. No. 212727, Feb. 1, 2023), the Supreme Court held that all claims for refunds/tax credit certificates filed prior to Jan. 1, 2018, should be governed by the 120-day processing period which was the prevailing rule prior to the TRAIN law. By analogy, it can be said that for all claims before the EoPT law, the provisions of the TRAIN Law will apply. This means that the right to appeal the CIR’s inaction is no longer available. With the introduction of the EoPT Act, the statutory right to appeal has been restored in favor of the taxpayer subject to the issuance of the IRR. Thus, for VAT refund claims after the EoPT Act but before the issuance of the IRR of the EoPT Act, the question that needs clarity regards the options available to taxpayers. Do the taxpayers have the right to appeal to the CTA within 30 days from the lapse of the 90-day period or do taxpayers need to wait for the actual decision of the CIR? This is a crucial question as taxpayers who wish to file a claim for refund may just have to wait for the Implementing rules of the EoPT to ensure that the statutory right to appeal may be exercised. Thus, even though the statutory right to appeal under the amended Sec. 112 (C) of the EoPT has been restored in favor of the taxpayer, it is conservative to assume that the right may not be exercised outright without the IRR.
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.
Mark Ebenezer A. Bernardo is a senior associate from the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.
