VAT refund claims under the TRAIN Law

Taxpayers are sometimes reluctant to file VAT refund claims because it triggers a mandatory VAT audit, not to mention the need to submit voluminous of documents and the uncertainty of when the processing will be completed. Any delay in the processing of a VAT refund claim may cause cash flow problems to the claimant because the input VAT remains unutilized when it could have been invested or used as working capital.

The recently enacted TRAIN Law, which aims to make the Philippines a more competitive investment destination, shortened the period within which the BIR is supposed to process VAT refund claims.

To implement the amendments introduced by the TRAIN Law, the BIR issued Revenue Memorandum Circular (RMC) No. 47-2019, providing revised guidelines and requirements for VAT refund claims within a 90-day period. The introduction of the 90-day period for applications lodged after the TRAIN Law took effect on Jan. 1, 2019, effectively removing the “deemed denied” provision under RMC No. 54-2014, which clarified the issues on the application for VAT refund under Section 112 of the Tax Code.

The standing rule is that the BIR must decide on the claim within 90 days from the filing of the application. If the 90 days lapse without a decision, the review shall continue and will not invalidate the belatedly issued report and findings of the BIR. However, the BIR examiner may be subject to administrative penalties, if warranted.

Nevertheless, however noble the intention of the legislature, one cannot discount the possibility that the imposition of sanctions is a two-edged sword. While it may in fact hasten the processing of VAT claims, BIR examiners may also be constrained to just deny the claim in order to comply with the 90-day deadline.

Notably, this is not the first issuance of the BIR that seeks to implement the 90-day processing of VAT refund claims. The BIR previously issued RMC No. 17-2018, effectively amending the provisions of RMC Nos. 89-2017 and 54-2014 on the processing of claims for the issuance of a tax refund/tax credit certificate, except for claims processed under the jurisdiction of the Legal Service.

CONSULARIZED DOCUMENTS
RMC No. 17-2018 has provided the list of requirements to prove the VAT zero-rating of sales of services to non-resident foreign corporations (NRFCs) covered under Sec. 108 (B) (2). The key is to prove that the NRFC-buyer of the services is not doing business in the Philippines, as certified by an authorized official of the NRFC. These requirements were reiterated in RMC No. 47-2019 and are as follows:

a. Original copy of the certification from the SEC that the NRFC buyer is not a registered corporation in the Philippines; and,

b. Consularized copy of the certificate of foreign registration/incorporation/association of the NRFC.

The BIR acknowledged the inherent difficulty in securing consularized documents. As such, the taxpayer-claimants are required to submit the original copies of the consularized documents on the first claim. The documents will be kept by the processing office on a separate file, a copy of which shall be attached to the docket of succeeding claims with a duly-signed notation by the head of the processing office that the documents are faithful reproductions of the original documents on file.

However, this RMC (issued on April 16, 2019) may have been effectively amended by the Apostille Convention, an international treaty drafted by the Hague Conference on Private International Law. The Apostille Convention abolishes the requirement of double verification of foreign public documents by both the originating and receiving country, and simplifies the procedure of authentication. Starting May 14, 2019, public documents executed in 117 Apostille-contracting countries and territories (except for Austria, Finland, Germany and Greece) no longer have to be authenticated by the Philippine Embassy or Consulate General once Apostilled for them to be used in the Philippines. For countries and territories that are not Apostille-contracting parties, the previous process of authentication applies.

Since this is a relatively new development, the BIR has yet to issue a clarification on the possible suspension of the consularization requirement for Apostille-contracting parties.

OTHER VAT REFUND CLAIM REQUIREMENTS
As to the verification requirement of the BIR, RMC No. 16-2019 clarified that the inter-office Request for Certification on Outstanding Tax Liability of Taxpayer and Certification on the Status of Cases Pending Legal or Judicial Resolution, for the specific purpose of satisfying the requirements of claims for VAT refund, shall now be valid for six months. As it is, all concerned revenue offices are ordered to indicate clearly in the Certification to be issued that the Certification validity is six months from the date of issuance.

It is a long-standing rule that tax refunds, like tax exemptions, are construed strictly against taxpayer-claimants. Thus, taxpayers should ensure the completeness and authenticity of the documentary requirements upon filing of the application for VAT refund. Failure to submit the complete documents in support of the claim shall result in non-acceptance of the application.

Moreover, due to the very limited time for processing the VAT refunds, the BIR clarified under RMC No. 47-2019 that no additional documents shall be subsequently requested from the taxpayer-claimant. Any unsupported claim shall be disallowed outright, in full or in part as the case may be.

While there is certainly still much room for improvement in the processing of VAT refund claims, this is a good first step taken by government to help exporters ease their cash flow issues caused by input VAT accumulation.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

Karen Mae Calam-Ibañez is a Director of Business Tax Services of SGV & Co.