Right timing

THERE is great truth in the biblical passage about there being a time for everything, and a season for every activity under the heavens. This also applies to tax refund claims in the Philippines.

Tax refunds are based on the general premise that taxes have either been erroneously or excessively paid. Though the Tax Code recognizes the right of taxpayers to request the return of such excess/erroneous payments from the government, they must do so within a prescribed period.

Not a few have expressed the sentiment that obtaining tax refunds from the Philippine government is a difficult and drawn-out process. Often, it leads to failure due to confusion in terms of the prescriptive period for filing such claims.

Take, for instance, the claim for refund of excessively paid input value-added taxes (input VAT). Cursorily, the relevant provision under Section 112(A) of the Tax Code seems simple enough. It states that "any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales."

The above is supplemented by Section 112(C) of the same Code, which provides that "the Commissioner shall grant a refund or issue the tax credit certificate within one hundred twenty (120) days from the date of submission of complete documents. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application, the taxpayer affected may, within thirty (30) days, appeal the decision or the unacted claim with the Court of Tax Appeals."

Easily, taxpayers can discern from reading Section 112 that the claim for excess input VAT should be filed within two years from the close of the taxable quarter when the sales were made; otherwise, the right to claim for refund becomes invalid. In the past, however, the two-year period was interpreted by the courts to cover both administrative and judicial claims. The evolution of case law, particularly Supreme Court decisions, in interpreting the prescriptive period has, in large part, added to the confusion on when and where to file the claim for refund.

To clarify the fundamental question of when to reckon the two-year prescriptive period, in a decision promulgated early last year, the Supreme Court already drew a distinction between claims for refund under Section 112(A) and Section 229 of the Tax Code. Generally, claims for excess input VAT would fall under Section 112(A). The input VAT covered under that section is the correct and proper amount. However, it contemplates a situation where the input VAT available as credit exceeds the output VAT payable. Thus, Section 112(A) applies in the case of a taxpayer who is engaged in zero-rated or effectively zero-rated sales. By contrast, Section 229 may still apply to a refund of input VAT, but only in cases where the amount is excessively or wrongfully collected. This means that the taxpayer paid more than what is legally due.

Proceeding from the foregoing discussion, the prescriptive period for filing a judicial claim for refund for erroneously paid tax (including erroneously paid input VAT, if applicable) under Section 229 is two years from the date of the erroneous payment. In contrast, the two-year period under Section 112(A) covers only the administrative claim filed with the BIR; it excludes the judicial claim. This two-year period is reckoned from the close of the taxable quarter when the zero-rated sales were made. Consequently, an appeal or judicial claim before the Court of Tax Appeals ("CTA") may still be filed outside of the two-year period.

For judicial claims filed under Section 112(A), the taxpayer may file an appeal to the CTA under two scenarios, i.e., in case of a denial of the claim for refund or due to inaction by the BIR Commissioner. The Supreme Court also explained the remedies of a taxpayer as consisting of: 1) filing a judicial claim with the CTA within 30 days from receipt of the denial by the BIR Commissioner, or (2) filing the judicial claim within 30 days from the expiration of the 120-day period in case of inaction by the BIR Commissioner.

The 30-day period mentioned under the two scenarios is mandatory and jurisdictional; this means that the filing of the appeal with the CTA beyond this prescribed period is fatal to the claim. In the same manner, filing of an appeal before the expiration of the 120-day period in the second scenario is likewise prejudicial to the claim.

The above doctrine was reiterated by the Supreme Court in another decision promulgated early this year.

Hopefully, the consistency of these last two decisions can be taken as a sign of stability in the application of the prescriptive periods in claiming input VAT refunds. Consistency in interpreting Tax Code provisions is an important attribute inherent in the right to claim tax refunds. Otherwise, it would just negate the fundamental principle of fairness in taxation.

The author is a senior manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PwC network. Readers may call (02) 845-2728 or e-mail the author at susan.m.aquino@ph.pwc.com for questions or feedback. The views or opinions presented in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.