Wednesday, April 22, 2015

Word ‘zero-rated’ required to be imprinted on VAT invoices/ORs supporting VAT zero-rated transactions

TAXPAYERS engaged in the sale of goods or services which are subject to value-added tax (VAT) at zero percent are not liable to output taxes on said sales. Nonetheless, they incur input taxes passed on by their suppliers. If there are no other sales subject to output taxes, the input taxes remain unutilized. These may remain in the taxpayer’s returns until they are utilized in the future. Also, one of the options available to the taxpayer is to recover the same in the form refund.
However, recovery of input taxes through refund is not an easy process. First and foremost, a taxpayer must be able to substantiate the fact that it sales are really VAT “zero-rated.” And there are specific requirements to be indicated in the sales invoices or official receipts for the sales to qualify as zero-rated.
Recently in G.R 185115, February 18, 2015, the Supreme Court (SC) was again faced with the issue of whether the word zero-rated should be printed in VAT invoices or official receipts in order that a claim for refund of unutilized input taxes may prosper. It may be recalled that Section 113 (B)(2)(C) of the National Internal Revenue Code of 1997 expressly requires that the term zero-rated sale shall be written or printed prominently on the VAT invoice or official receipt if the sale is subject to zero-percent VAT. In a case involving an entity engaged in the production and sale of electricity, the Court of Tax Appeals found that taxpayer failed to substantiate its claim for refund and to strictly follow the invoicing requirements as set in Section 113 (B) (2) (C) of the National Internal Revenue Code of 1997 and the implementing regulations which require the imprinting of the term zero-rated. However, a dissenting opinion was entered into opining that the word zero-rated need not be imprinted on the face of the receipt or invoice. The opinion mentioned that the absence of the word zero-rated does not affect the admissibility and competence of the receipt or invoice as evidence to support the claim for refund. Thus, when the case was elevated to the SC, the issue of whether failure to print the word zero-rated on VAT invoices/official receipts is fatal to claim for refund was raised.
In resolving the issue, the SC emphasized that this matter had already been settled by the High Court in a number of cases. The High Court held that the invoicing requirements set forth in the law are intended for the efficient enforcement of the Tax Code. The Court also said that the provision on invoicing requirements is reasonable and is in accord with the efficient collection of VAT from the covered sales of goods and services. Finally, the High Court stressed that it is fatal in claims for refund or credit of input VAT on zero-rated sales if there was failure to write or print prominently the term zero-rated on the VAT invoice or official receipts. The Court even emphasized that the same rule applies even if the claims were made prior to the effectivity of Republic Act 9337.
The invoice or official receipt required to be issued for sales of goods or services is not just a matter of form. It also affects the substance and nature of the transactions. This is especially true with respect to zero-rated sales or receipts where its zero-rated character may not be acceptable if not properly labeled or described as zero-rated with the imprinting of the word zero-rated. Taxpayers, therefore, are obliged to comply with the mandatory information required to be indicated in the invoices and receipts.
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The author is a junior associate of Du-Baladad and Associates Law Offices (BDB Law), a member firm of World Tax Services (WTS) Alliance.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice.  If you have any comments or questions concerning the article, you may e-mail the author at ayesha.matanog@bdblaw.com.ph or call 403-2001 local 170.
source:  Business Mirror

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