Taxwise or Otherwise
By Jocelyn T. Tsang, 5 January 2017
“Show me the money!” -- Rod Tidwell, Jerry Maguire.
The catchphrase made famous by actor Cuba Gooding Jr. seems to perfectly capture the constant pressure received by consultants like me who assist taxpayers in the recovery of their excess or unused input taxes remitted to the Philippine tax authority.
To put things in context, let us revisit the basic principles surrounding the Philippine value-added tax (VAT) system. Briefly, except for certain specific transactions or taxpayers that are exempt, any person who sells, leases or exchanges goods or services in the Philippines is subject to VAT at the rate of either 0% or 12%. However, being an indirect tax, the amount of VAT due from the seller is shifted or passed on to the buyer of the goods and/or services sold. The buyer then becomes entitled to claim the VAT paid as input tax credit against his output tax liabilities. As such, a taxpayer shall only pay the difference between the VAT on his own sales (output tax) and the VAT from his purchases (input tax).
In most cases, the amount of output tax will be more than the input tax, resulting in a VAT remittance to the government. However, there are instances when the opposite is true, particularly if the buyer’s own sales transactions are subject to 0% VAT (such as in the case of export sales). In such cases where the input VAT credits of a taxpayer exceed his output VAT liabilities, the Philippine Tax Code allows the taxpayer to carry over such excess to the succeeding quarters, or apply for a refund or issuance of a tax credit certificate (TCC).
For this article, let’s discuss the “who, what, where, when and how” with regard to the refund of excess or unused input taxes attributable to a taxpayer’s sales which are subject to 0% VAT.
Who? Any VAT-registered taxpayer claiming a refund of excess or unutilized input tax credits.
What? An application for the refund or issuance of a TCC representing excess or unutilized input tax credits attributable to zero-rated or effectively zero-rated sales. Export sales are considered zero-rated sales while sales to entities registered with the Philippine Economic Zone Authority (or other free trade zones) or entities registered with the Board of Investments whose sales are 100% exported are effectively zero-rated sales.
Where? Claims/Applications for refund or issuance of a TCC representing excess input taxes attributable to export sales may be filed either with the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) having jurisdiction over the taxpayer-applicant or with the Bureau of Internal Revenue’s (BIR) VAT Credit Audit Division (VCAD).
On the other hand, claims/applications representing excess input taxes attributable to export-oriented sales (i.e., effectively zero-rated sales) may only be filed with the RDO/LTDO having jurisdiction over the taxpayer-applicant.
When? Refund claims/applications must be filed within two years from the close of the taxable quarter when the sales were made.
Once the claim/application is filed by the taxpayer, the BIR office where the claim was filed is required to act on the refund claim within a mandated 120-day period. Based on a 2014 Supreme Court decision, inaction by the BIR within this period shall be deemed a denial of the claim. For taxpayers who generate their revenues from export sales, experience would show that it is more advisable to file the claim with the VCAD. This is because, unlike the RDO/LTDO which has numerous functions, the sole function of the VCAD is to cater to refund claims filed by direct exporters.
How? Aside from being able to substantiate the claim with compliant supporting documents, it is also important for applicants to know how to calculate the amount to be applied for refund.
For taxpayers whose sales are all considered export or export-oriented, the refundable amount shall be the covered period’s current purchases.
For taxpayers with mixed transactions (i.e., with sales subject to 12% VAT and with sales subject to 0% VAT), only the input taxes attributable to the export or export-oriented sales (zero-rated sales) shall be eligible for refund. Where specific identification is not possible, the input tax is allocated based on sales volume.
After allocating the input tax, please do note that in cases where the current period’s input taxes attributable to domestic sales is greater than current period’s output VAT liabilities, such excess input taxes would be included in the VAT credit balances to be carried forward. As mentioned, only the current period’s input taxes attributable to zero-rated sales would be eligible for refund. On the other hand, in case the current period’s input taxes attributable to domestic sales is less than current period’s output VAT liabilities, the output tax still due for the current period of the claim shall be deducted from the current period’s input taxes attributable to zero-rated sales. Only the balance of current period’s input tax attributable to zero-rated sales, after deducting the “output tax still due,” will be eligible for refund.
Undoubtedly, processing a tax refund is considered a tedious process; nonetheless, succeeding in this endeavor (without Court intervention) is not an impossible feat. In fact, this author believes that by at least knowing the above basics of VAT refunds, taxpayers do have a fighting chance during the 120-day ordeal with the BIR. Knowing the basics also applies to taxpayers who prefer to seek external assistance from consultants as this will make the refund application process go smoothly and increase the chances of full recovery. In turn, this will help relieve the pressure to “show me the money” as it gives life to the other oft-quoted catchphrase -- “help me, help you.”
The views or opinions expressed 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.
Jocelyn T. Tsang is a Senior Manager belonging to the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
By Jocelyn T. Tsang, 5 January 2017
“Show me the money!” -- Rod Tidwell, Jerry Maguire.
The catchphrase made famous by actor Cuba Gooding Jr. seems to perfectly capture the constant pressure received by consultants like me who assist taxpayers in the recovery of their excess or unused input taxes remitted to the Philippine tax authority.
To put things in context, let us revisit the basic principles surrounding the Philippine value-added tax (VAT) system. Briefly, except for certain specific transactions or taxpayers that are exempt, any person who sells, leases or exchanges goods or services in the Philippines is subject to VAT at the rate of either 0% or 12%. However, being an indirect tax, the amount of VAT due from the seller is shifted or passed on to the buyer of the goods and/or services sold. The buyer then becomes entitled to claim the VAT paid as input tax credit against his output tax liabilities. As such, a taxpayer shall only pay the difference between the VAT on his own sales (output tax) and the VAT from his purchases (input tax).
In most cases, the amount of output tax will be more than the input tax, resulting in a VAT remittance to the government. However, there are instances when the opposite is true, particularly if the buyer’s own sales transactions are subject to 0% VAT (such as in the case of export sales). In such cases where the input VAT credits of a taxpayer exceed his output VAT liabilities, the Philippine Tax Code allows the taxpayer to carry over such excess to the succeeding quarters, or apply for a refund or issuance of a tax credit certificate (TCC).
For this article, let’s discuss the “who, what, where, when and how” with regard to the refund of excess or unused input taxes attributable to a taxpayer’s sales which are subject to 0% VAT.
Who? Any VAT-registered taxpayer claiming a refund of excess or unutilized input tax credits.
What? An application for the refund or issuance of a TCC representing excess or unutilized input tax credits attributable to zero-rated or effectively zero-rated sales. Export sales are considered zero-rated sales while sales to entities registered with the Philippine Economic Zone Authority (or other free trade zones) or entities registered with the Board of Investments whose sales are 100% exported are effectively zero-rated sales.
Where? Claims/Applications for refund or issuance of a TCC representing excess input taxes attributable to export sales may be filed either with the Revenue District Office (RDO)/Large Taxpayers District Office (LTDO) having jurisdiction over the taxpayer-applicant or with the Bureau of Internal Revenue’s (BIR) VAT Credit Audit Division (VCAD).
On the other hand, claims/applications representing excess input taxes attributable to export-oriented sales (i.e., effectively zero-rated sales) may only be filed with the RDO/LTDO having jurisdiction over the taxpayer-applicant.
When? Refund claims/applications must be filed within two years from the close of the taxable quarter when the sales were made.
Once the claim/application is filed by the taxpayer, the BIR office where the claim was filed is required to act on the refund claim within a mandated 120-day period. Based on a 2014 Supreme Court decision, inaction by the BIR within this period shall be deemed a denial of the claim. For taxpayers who generate their revenues from export sales, experience would show that it is more advisable to file the claim with the VCAD. This is because, unlike the RDO/LTDO which has numerous functions, the sole function of the VCAD is to cater to refund claims filed by direct exporters.
How? Aside from being able to substantiate the claim with compliant supporting documents, it is also important for applicants to know how to calculate the amount to be applied for refund.
For taxpayers whose sales are all considered export or export-oriented, the refundable amount shall be the covered period’s current purchases.
For taxpayers with mixed transactions (i.e., with sales subject to 12% VAT and with sales subject to 0% VAT), only the input taxes attributable to the export or export-oriented sales (zero-rated sales) shall be eligible for refund. Where specific identification is not possible, the input tax is allocated based on sales volume.
After allocating the input tax, please do note that in cases where the current period’s input taxes attributable to domestic sales is greater than current period’s output VAT liabilities, such excess input taxes would be included in the VAT credit balances to be carried forward. As mentioned, only the current period’s input taxes attributable to zero-rated sales would be eligible for refund. On the other hand, in case the current period’s input taxes attributable to domestic sales is less than current period’s output VAT liabilities, the output tax still due for the current period of the claim shall be deducted from the current period’s input taxes attributable to zero-rated sales. Only the balance of current period’s input tax attributable to zero-rated sales, after deducting the “output tax still due,” will be eligible for refund.
Undoubtedly, processing a tax refund is considered a tedious process; nonetheless, succeeding in this endeavor (without Court intervention) is not an impossible feat. In fact, this author believes that by at least knowing the above basics of VAT refunds, taxpayers do have a fighting chance during the 120-day ordeal with the BIR. Knowing the basics also applies to taxpayers who prefer to seek external assistance from consultants as this will make the refund application process go smoothly and increase the chances of full recovery. In turn, this will help relieve the pressure to “show me the money” as it gives life to the other oft-quoted catchphrase -- “help me, help you.”
The views or opinions expressed 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.
Jocelyn T. Tsang is a Senior Manager belonging to the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.
No comments:
Post a Comment