In this case, the taxpayer purchased a parcel of land from an entity registered with the Philippine Economic Zone Authority (PEZA) in January 2008. The seller passed on 12% VAT to the taxpayer because the sale did not form part of its PEZA-registered activities. In the same month, the taxpayer entered into a lease agreement with the seller for the same property. For VAT purposes, the taxpayer treated the lease as a “zero-rated sale of services”. This sale-and-leaseback arrangement resulted in a net VAT overpayment in the 2008 and 2009 quarterly VAT returns of the taxpayer.
In 2010, the taxpayer sought to recover the accumulated input VAT it paid on the purchase of the property by filing a judicial claim before the CTA. In its second amended decision, the CTA reiterated the following requisites for refund claims of input VAT attributable to zero-rated sales:
• The taxpayer must be VAT-registered;
• The taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
• The claim must be filed within two years after the close of the taxable quarter when such sales were made; and
• The creditable input VAT must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax.
With regard to the second requisite, the CTA declared that the taxpayer must prove its compliance with the substantiation requirements provided under the Tax Code. Of particular note in this case is the requirement under Section 238 requiring all persons engaged in business to secure authority to print (ATP) receipts or sales or commercial invoices from the BIR before a printer can print the billing documents.
The taxpayer was able to present official receipts to support its zero-rated sale transaction, i.e., the lease of the land. However, though the official receipts were dated 2009 (based on the lease transactions), the ATP as reflected in such documents was issued only in 2011.
From the taxpayer’s perspective, what is important is that the ATP was secured and that the invoices or receipts were duly registered. In a claim for input VAT refund attributable to zero-rated sales, what should be closely scrutinized is the documentary substantiation of the input VAT rather than the supporting documents for the zero-rated sales. Considering that the ATP was duly secured, the taxpayer argued that its official receipts are duly registered with the BIR.
However, the CTA ruled otherwise. Since the ATP was secured only in 2011, the taxpayer had no “duly registered official receipts at the time of the transaction” in 2009. The court said that the failure of the taxpayer to issue a duly registered official receipt warrants the denial of its claim for refund, for it failed to substantiate its zero-rated sales. The CTA explained that the foundation for requiring the presentation of official receipts in sales of services is to avoid a situation where the government could end up refunding a tax which was not even paid. According to the court, the seller will only become liable to pay output VAT upon receipt of the payment from the purchaser. If the seller is not paid on the transaction, legally, it would not have to pay output tax while the purchaser may legally claim the input tax credit thereon. In such a scenario, the government ends up refunding a tax which has not been paid at all. Hence, to avoid this, an official receipt for the sale of services is an absolute requirement.
Following this decision, in claims for VAT refund attributable to zero-rated sale of services, it is not enough that VAT zero-rated official receipts are issued; such documents must also be “duly registered at the time of the transaction” as evidenced by the timely issuance of the ATP by the BIR.
The case at hand did not shed light on the reasons for the belated issuance of the ATP and official receipts. It is possible that the delay could have been beyond the control of the taxpayer. If such were the case, it may be reasonable for the BIR to allow some flexibility in the application of this rule. If the ATP was issued late for valid reasons, perhaps the belated issuance of the official receipts which reflect the actual transaction dates should not be viewed as a violation, but simply as documentation of past transactions in the regular course of business.
As regards the rationale on the presentation of official receipts as explained by the CTA, it should be pointed out that in the case of sale of services, the recognition of output VAT by the seller and input VAT by the purchaser shall be upon payment of the latter as evidenced by the official receipt to be issued by the former. Hence, there should be no instance where the seller has not yet remitted the output VAT but the buyer may already claim the related input VAT, simply because there will be no official receipt to support the buyer’s claim.
In the sale-leaseback transaction in this case, the taxpayer entered into two transactions -- (1) purchase of land, which gave rise to the recognition of input VAT; and (2) lease of land, from which the zero-rated sale of services arose. If the court is trying to avoid the situation where the government could end up refunding a tax that was not even paid, it should have been satisfied by the presentation of the sales invoice supporting the amount of input VAT from the first transaction or when the land was purchased. It is at the issuance of such document that the seller would recognize its liability to the BIR. It would also show the amount of input VAT claimed by the taxpayer. While presentation of the zero-rated official receipts on the lease of the land may prove that there were in fact zero-rated sales of services which would qualify the taxpayer to a refund, such would not be useful in validating whether the VAT, which is what the taxpayer is seeking to recover from the first transaction, has been remitted to the BIR.
The author is a manager at the tax services department of Isla Lipana & Co., the Philippine member firm of the PwC network. Readers may send inquiries or feedback to eileen.flor.l.chavez@ph.pwc.com. 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.
SOURCE: Businessworld
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