If a buyer in the Philippines purchases
goods from a Philippine Economic Zone Authority (PEZA) registered
enterprise, is the purchase subject to value-added tax (VAT)?
Under Section 107 of the Tax Code in relation to Section 26 of
Republic Act No. 7916 (PEZA Law), sale of goods by a PEZA-registered
enterprise to a buyer in the Philippines (i.e., domestic sales) is
considered a “technical importation,” i.e. the buyer is treated as the
importer and the sale shall be charged the corresponding VAT. The
rationale for this tax treatment is that an ecozone is considered a
separate customs territory which creates a legal fiction that it is a
foreign territory, even though located within the Philippines. In
essence, purchases from an ecozone are likened to purchases made from
abroad. Thus, the sale is treated as a technical importation.
Section 4.107-1 of Revenue Regulations (RR)
No. 16-2005 (Consolidated VAT Regulations), in implementing Section 107
of the Tax Code, provides that VAT is imposed on goods brought into the
Philippines, whether for use in business or not. The VAT, which is
based on the total value used by the Bureau of Customs (BoC) in
determining tariff and customs duties, plus customs duties, excise tax,
if any, and other charges, such as postage, commission, and similar
charges, should be paid prior to the release of the goods from customs
custody.
In case the valuation used by the BoC in computing customs duties is
based on volume or quantity of the imported goods, the landed cost shall
be the basis for computing VAT. Landed cost consists of the invoice
amount, customs duties, freight, insurance and other charges. If the
goods imported are subject to excise tax, the excise tax shall form part
of the tax base.
The same rule applies to technical importation of goods sold by a person
located in a special economic zone to a customer located in a customs
territory. In this case, the VAT on importation shall be paid by the
importer prior to the release of such goods from customs custody.
From the foregoing, it is clear that all domestic sales of goods by
PEZA-registered enterprises are considered technical importations where
the buyer is treated as the importer liable for VAT on importation.
On the other hand, Section 2, Rule VIII of the rules and regulations
implementing the PEZA Law provides that domestic merchandise sent from
the restricted areas of the ecozones by PEZA-registered enterprises to
the customs territory shall be subject to the internal revenue laws of
the Philippines as domestic goods sold, transferred or disposed of for
local consumption. Internal revenue laws, in this case, refer to the Tax
Code in relation to the PEZA Law, as mentioned above.
Corollary to this, Section 105 of the Tax Code provides that any person
who, in the course of his trade or business, sells, barters, exchanges
or leases goods or properties shall be liable to VAT imposed in Section
106 of the Tax Code. The phrase “in the course of trade or business”
means the regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental to it.
Given the foregoing, there was confusion on whether a PEZA-registered enterprise is liable to pay VAT on its domestic sales.
This matter was clarified in BIR Ruling [DA-031-07] dated Jan. 19, 2007.
In this case, a PEZA-registered enterprise imposed and collected 12% VAT
on every sale of metal scrap to a buyer from the customs territory
because it knows for a fact that such sale is subject to VAT. However,
such VAT payment is supposed to answer for the alleged technical
importation that will ultimately be remitted to the government. Thus,
the BoC is no longer required to collect the VAT before the scrap metal
is taken out from PEZA. In such a case, the buyer is paying a total of
24% VAT every time it hauls the same items from PEZA (12% VAT on the
sale and another 12% when the goods are released from customs).
The BIR held that the payment of the VAT should be made by the buyer
directly to the BoC which is the agency tasked to collect VAT on
imports. Accordingly, the PEZA-registered enterprise is not required to
charge VAT on every sale of goods but should be furnished a copy of the
receipt of the VAT payment made by the buyer to the BoC.
This receipt will serve as authority for the buyer to request the
PEZA-registered seller to refrain from imposing VAT on the sale of goods
since the BoC is also collecting the same before the goods are
released.
The same BIR ruling is applicable in cases of goods purchased from other
ecozones (e.g. Subic, Clark) which are also considered technical
importation.
Although the BIR has held in several rulings that sale of goods by a
PEZA-registered enterprise to a buyer in the Philippines is considered
technical importation where the latter shall be responsible for the tax
imposed, the documentation needed for PEZA-registered enterprises to be
absolved from imposing VAT on their domestic sale of goods was then
ambiguous.
With this ruling, however, the issue of double taxation on goods
purchased from PEZA-registered enterprises has finally been resolved.
Conflicting views should have been put to rest.
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.
John Paul M. Vargas is a manager at the Tax Services Department of Isla
Lipana & Co., the Philippine member firm of the PwC network.
(02) 845-2728
john.paul.m.vargas@ph.pwc.com
Showing posts with label VAT. Show all posts
Showing posts with label VAT. Show all posts
Thursday, June 22, 2017
Thursday, January 5, 2017
VAT Refunds: Who, what, where, when and how
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.
VAT Refunds: Who, what, where, when and how
“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
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.
Tuesday, October 21, 2014
BIR rejects calls to junk new VAT refund rules
THE BUREAU of Internal Revenue (BIR) has rejected anew a request from business groups to relax its tax rules, this time sticking to its issuance involving a mandatory period to file a refund claim on value-added taxes (VAT).
Commissioner of Internal Revenue Kim S. Jacinto-Henares, in a phone interview, said “no” when asked if she would withdraw Revenue Memorandum Circular (RMC) 54-2014 based on an appeal to reconsider such issuance contained in a seven-page letter from 16 business groups.
Under RMC 54-2014 issued last June 17 the BIR chief has 120 days from the date of submission whether to grant or deny a refund claim. If the tax chief fails to act within the given period, the claim is “deemed denied” and the taxpayer has 30 days to elevate its refund request before the Court of Tax Appeals (CTA).
“That’s the law. It’s a Supreme Court decision,” Ms. Henares said.
Ms. Henares and Finance Secretary Cesar V. Purisima had met business groups last Oct. 14 to tackle the latter’s position on the VAT refund claim.
Rina-Lorena R. Manuel, President of the Tax Management Association of the Philippines (TMAP), said in a telephone interview the discussion had mixed results.
“In terms of the technical issues, we were not able to resolve that,” Ms. Manuel said, referring to the period in filing tax claims.
“But at least on the administrative side, they committed to involve the group in reviewing the documents for the processing of VAT refund claims,” Ms. Manuel said.
In a draft letter dated Sept. 12, the business groups pointed out that RMC 54-2014 “effectively created new rules and interpretation” which gave taxpayers a hard time to recover VAT refunds owed by the government.
“With its interpretation that BIR inaction on VAT refund applications is ‘deemed denial’, said RMC effectively encourages the BIR to abdicate its administrative duty to process refund claims by compelling taxpayers to pursue judicial claims with the CTA,” the letter read.
Taxpayers, they said, would lose the right to await the BIR’s final ruling on the tax claims, bear additional costs in litigation fees and clog CTA’s dockets.
Further, the business groups claimed the BIR issuance was against the Supreme Court decision which allowed BIR to rule over the administrative claim even as the refund request already reached the tax appellate court.
“Instead of streamlining the VAT refund application process, RMC 54-2014 makes compliance more burdensome to taxpayers by imposing impractical and unrealistic requirements that are very difficult to comply with, or by prescribing additional requirements not found under the law,” the business groups said.
Thus, the business groups asked the BIR to “withdraw RMC 54-2014 and uphold the taxpayer’s right to an administrative appeals process.”
The groups likewise urged BIR to “define service standards for the processing of VAT refund applications to enable the BIR to adhere to the 120-day period.”
“This should be done upon prior consultation with affected zero-rated taxpayers and investors,” the letter stated.
Signatories include five leaders of chambers of commerce in the Philippines: Ebb Hinchliffe, Executive Director (American), Julian Payne, President (Canadian), Michael Raeuber, President (European), Tetsuo Tomino, President (Japanese) and Edward Eun-Gap Chang, President (Korean).
The letter was likewise signed by Sergio R. Ortiz-Luis (Philippine Exporters Confederation President and Philippine Chamber of Commerce and Industry Honorary Chair) and Dean A. Lao, Jr. (United Coconut Associations of the Philippines Chairman), among others.
Other signatories to the business groups’ letter were Donnies T. Alas, President of the Association of Certified Public Accountants in Public Practice; Edgardo G. Lacson, President of the Employers’ Confederation of the Philippines; Jose Mari Mercado, President of the IT and Business Process Association of the Philippines; Gregorio S. Navarro, President of the Management Association of the Philippines; and Ms. Manuel, TMAP President.
As a general rule, the Supreme Court said, Section 112 (C) of the Tax Code gives the BIR chief 120 days to act on a refund request. If the tax chief fails to act within the given period, a taxpayer is given 30 days to raise its tax claim before the CTA.
However, claims filed from Dec. 10, 2003 to Oct. 6, 2010 can be exempted from this general rule since BIR issued a ruling which states that a “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of petition for review.”
In 2010, the high court also ruled that the 30-day period to raise the tax refund claim is mandatory. It reiterated its ruling in a decision dated Feb. 12, 2013. -- Mikhail Franz E. Flores
source: Businessworld
Commissioner of Internal Revenue Kim S. Jacinto-Henares, in a phone interview, said “no” when asked if she would withdraw Revenue Memorandum Circular (RMC) 54-2014 based on an appeal to reconsider such issuance contained in a seven-page letter from 16 business groups.
Under RMC 54-2014 issued last June 17 the BIR chief has 120 days from the date of submission whether to grant or deny a refund claim. If the tax chief fails to act within the given period, the claim is “deemed denied” and the taxpayer has 30 days to elevate its refund request before the Court of Tax Appeals (CTA).
“That’s the law. It’s a Supreme Court decision,” Ms. Henares said.
Ms. Henares and Finance Secretary Cesar V. Purisima had met business groups last Oct. 14 to tackle the latter’s position on the VAT refund claim.
Rina-Lorena R. Manuel, President of the Tax Management Association of the Philippines (TMAP), said in a telephone interview the discussion had mixed results.
“In terms of the technical issues, we were not able to resolve that,” Ms. Manuel said, referring to the period in filing tax claims.
“But at least on the administrative side, they committed to involve the group in reviewing the documents for the processing of VAT refund claims,” Ms. Manuel said.
In a draft letter dated Sept. 12, the business groups pointed out that RMC 54-2014 “effectively created new rules and interpretation” which gave taxpayers a hard time to recover VAT refunds owed by the government.
“With its interpretation that BIR inaction on VAT refund applications is ‘deemed denial’, said RMC effectively encourages the BIR to abdicate its administrative duty to process refund claims by compelling taxpayers to pursue judicial claims with the CTA,” the letter read.
Taxpayers, they said, would lose the right to await the BIR’s final ruling on the tax claims, bear additional costs in litigation fees and clog CTA’s dockets.
Further, the business groups claimed the BIR issuance was against the Supreme Court decision which allowed BIR to rule over the administrative claim even as the refund request already reached the tax appellate court.
“Instead of streamlining the VAT refund application process, RMC 54-2014 makes compliance more burdensome to taxpayers by imposing impractical and unrealistic requirements that are very difficult to comply with, or by prescribing additional requirements not found under the law,” the business groups said.
Thus, the business groups asked the BIR to “withdraw RMC 54-2014 and uphold the taxpayer’s right to an administrative appeals process.”
The groups likewise urged BIR to “define service standards for the processing of VAT refund applications to enable the BIR to adhere to the 120-day period.”
“This should be done upon prior consultation with affected zero-rated taxpayers and investors,” the letter stated.
Signatories include five leaders of chambers of commerce in the Philippines: Ebb Hinchliffe, Executive Director (American), Julian Payne, President (Canadian), Michael Raeuber, President (European), Tetsuo Tomino, President (Japanese) and Edward Eun-Gap Chang, President (Korean).
The letter was likewise signed by Sergio R. Ortiz-Luis (Philippine Exporters Confederation President and Philippine Chamber of Commerce and Industry Honorary Chair) and Dean A. Lao, Jr. (United Coconut Associations of the Philippines Chairman), among others.
Other signatories to the business groups’ letter were Donnies T. Alas, President of the Association of Certified Public Accountants in Public Practice; Edgardo G. Lacson, President of the Employers’ Confederation of the Philippines; Jose Mari Mercado, President of the IT and Business Process Association of the Philippines; Gregorio S. Navarro, President of the Management Association of the Philippines; and Ms. Manuel, TMAP President.
As a general rule, the Supreme Court said, Section 112 (C) of the Tax Code gives the BIR chief 120 days to act on a refund request. If the tax chief fails to act within the given period, a taxpayer is given 30 days to raise its tax claim before the CTA.
However, claims filed from Dec. 10, 2003 to Oct. 6, 2010 can be exempted from this general rule since BIR issued a ruling which states that a “taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of petition for review.”
In 2010, the high court also ruled that the 30-day period to raise the tax refund claim is mandatory. It reiterated its ruling in a decision dated Feb. 12, 2013. -- Mikhail Franz E. Flores
source: Businessworld
Monday, October 20, 2014
Businessmen want new VAT refund rule junked
Sixteen local and foreign business and industry groups have asked the government to withdraw a new tax rule which, they claimed, would make it more difficult for investors to get their value-added tax (VAT) refund.
In a Sept. 12 letter to Finance Secretary Cesar V. Purisima, six foreign chambers as well as 10 Filipino industry associations called on the government to void Revenue Memorandum Circular (RMC) No. 54-2014 issued by the Bureau of Internal Revenue (BIR) last June and “uphold the taxpayer’s right to an administrative appeals process.”
“While an RMC is supposed to only publish and amplify pertinent and applicable portions of tax laws and regulations, RMC 54-2014 effectively created new rules and interpretations, which made it even more difficult for zero-rated taxpayers and investors to recover the VAT refunds owed by government,” according to the joint letter signed by officials of the American, Canadian, European, Japanese and South Korean chambers of commerce as well as the Philippine Association of Multinational Companies Regional Headquarters.
Also signatories to the letter were executives belonging to the Association of Certified Public Accountants in Public Practice, Employers’ Confederation of the Philippines, Information Technology and Business Process Association of the Philippines, Management Association of the Philippines, Philippine Banana Growers and Exporters Association, Philippine Chamber of Commerce and Industry, Philippine Coconut Oil Producers Association, Philippine Exporters Confederation, Tax Management Association of the Philippines, and United Coconut Associations of the Philippines.
According to these groups, RMC 54-2014 “removes the fundamental right of a taxpayer to an administrative appeals process.”
The rules state that the BIR said “if the claim for VAT refund or credit is not acted upon by the Commissioner within 120-days as required by law, such inaction shall be deemed a denial of the claim.”
“This effectively encourages the BIR to abdicate its administrative duty to process refund claims by compelling taxpayers to pursue judicial claims with the CTA [Court of Tax Appeals],” they said.
Such an interpretation is “prejudicial to the taxpayer who has the option to appeal immediately the inaction to the courts after the lapse of the 120-day period.” The groups said that, adding such “will be very costly to the taxpayer who has to incur needless expenses in the form of docket fees—which is about 1 percent of the amount of the claim—and legal costs.”
The business groups also claimed that the circular “runs contrary to the Supreme Court’s ruling in San Roque Power Corp. v. Commissioner of Internal Revenue, 690 SCRA 336 (2013), which it purports to circularize.”
The ruling said that, “the BIR does not lose jurisdiction to process the administrative claim for refund simply because the taxpayer elected to appeal the inaction to the CTA. In fact, the Supreme Court said ‘the Commissioner should still evaluate internally the administrative claim for purposes of opposing the taxpayer’s judicial claim, or even for purposes of determining if the BIR should actually concede to the taxpayer’s judicial claim,’” they noted.
Also, “the retroactive application of the strict ‘120+30’ rule to all pending VAT refund applications is confiscatory since it will result in a large scale automatic denial of all pending applications. This is in violation of the non-retroactivity rule, which undermines the fairness of the tax system,” according to the groups.
The business groups noted that investors were allowed to appeal with the Court of Tax Appeals denials of their tax refund or tax credit claims within 30 days upon receipt of the BIR decision.
However, the groups also pointed out that “the BIR usually takes an average of four to six years to process and approve valid input VAT refund claims, much to the frustration of zero-rated sellers and investors.”
“A far greater number of input VAT refund claims, which already run into billions of pesos, remain unacted upon by the BIR or are pending with the Court of Tax Appeals with no definite timeframe on when these claims will be resolved,” they added.
“Instead of streamlining the VAT refund application process, RMC 54-2014 makes compliance more burdensome to taxpayers by imposing impractical and unrealistic requirements that are very difficult to comply with, or by prescribing additional requirements not found under the law,” they said.
According to the 16 business groups, they deem that “RMC 54-2014, coupled with the questionable stand of the BIR that input VAT claims could not be claimed as cost or expense for income tax purposes, effectively nullifies the incentives granted by law to zero-rated taxpayers and/or transactions.”
“The sudden change in the VAT refund process rules under the said RMC shows the lack of transparency, predictability and consistency on the part of government, which greatly affects investor trust and confidence,” they said, adding that “any unrefunded VAT arising from these very restrictive rules, on top of the existing bureaucratic inefficiencies, will result in higher costs of doing business in the Philippines.”
source: Inquirer
Monday, September 8, 2014
Buying a house, it pays to know if it is VATable or not
PEOPLE in the market for a home have a lot to consider -- from location, property type, style and size of property, to the developer. But for most people, especially those who are constrained by their budget, the clincher for big purchases such as this is the price of the property. With its considerable impact on the budget, VATability of a property -- i.e., whether the property is subject to 12% value added tax (VAT) -- should be one of the first things a prospective buyer should find out.
As provided under Revenue Regulations No. RR 16-05, as amended, the following sale of real properties shall be exempt from VAT:
(1) Low-cost housing registered and licensed by the Housing and Land Use Regulatory Board/Housing (HLURB) subject to a price ceiling of P750,000
(2) Socialized housing with price ceiling per unit of P450,000
(3) Residential lot with price not exceeding P1,919,500
(4) House & lot and other residential dwellings with price ceiling of P3,199,200
It may be noted that RR 16-05 provides specific price ceilings for each type of exempt sale. Given this, is a low cost housing with a price of P1,250,000 still considered exempt from VAT? Or should the buyer pay an additional P150,000 for the 12% VAT on the purchase?
Fortunately, per BIR Ruling No. 285-2014, dated July 09, 2014, the sale of low-cost housing unit with a maximum ceiling price of P1,250,000, though already exceeding the price ceiling of P750,000 may still be considered exempt from VAT. Hence, the buyer does not have to pay the additional P150,000.
Section 109 (P) of the Tax Code, as implemented by Section 4.109-1 of RR 16-05, provides that sale of real property utilized for low-cost housing wherein the unit selling price is within the selling price per unit of P750,000 is exempt from VAT. Moreover, Section 109 further provides that the sale of properties held primarily for sale to customers with a selling price not exceeding the thresholds of P1,919,500 on sale of residential lots, and P3,199,200 for sale of house and lot and other residential dwellings are exempt from VAT.
Hence, as discussed in the ruling, the sale of low-cost housing units that exceed the price ceiling of P750,000 per unit is not eligible for VAT exemption for low-cost housing under Section 109 (P) of the Tax Code. However, the sale may still be exempt from VAT if the selling price of the property held primarily for sale to customers does not exceed the thresholds of P1,919,500 on sale of residential lots, and P3,199,200 for sale of house and lot and other residential dwellings pursuant to the same provisions of Section 109 (P) of the Tax Code.
Accordingly, the BIR held that while the selling price of P1,250,000 of the low-cost housing units sold by a real estate company does not qualify under the classification of a low-cost housing, the selling price still meets the VAT-exempt threshold of P3,919,200 for sale of house and lot under Section 109 (P) of the Tax Code. Hence, the buyer of said low-cost housing units does not have to pay VAT on his purchase.
Given the rising cost of living in the Philippines, specifically the rising prices of residential properties, the ruling is a welcome respite for those who are planning to buy a house. However, to give the hardworking Filipinos more chance or opportunity to have their own homes, hopefully, the government would consider the current proposals to increase the take home pay of employees. These include, among others, the proposals to increase tax exemptions for bonuses to P70,000 annually and to effectively adjust individual income tax rate in the Philippines. With these measures, the Filipinos’ purchasing power will increase, giving them more opportunity to buy not only low cost housing, but even those residential properties subject to VAT.
Ma. Lourdes Politado-Aclan is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
source: Businessworld
As provided under Revenue Regulations No. RR 16-05, as amended, the following sale of real properties shall be exempt from VAT:
(1) Low-cost housing registered and licensed by the Housing and Land Use Regulatory Board/Housing (HLURB) subject to a price ceiling of P750,000
(2) Socialized housing with price ceiling per unit of P450,000
(3) Residential lot with price not exceeding P1,919,500
(4) House & lot and other residential dwellings with price ceiling of P3,199,200
It may be noted that RR 16-05 provides specific price ceilings for each type of exempt sale. Given this, is a low cost housing with a price of P1,250,000 still considered exempt from VAT? Or should the buyer pay an additional P150,000 for the 12% VAT on the purchase?
Fortunately, per BIR Ruling No. 285-2014, dated July 09, 2014, the sale of low-cost housing unit with a maximum ceiling price of P1,250,000, though already exceeding the price ceiling of P750,000 may still be considered exempt from VAT. Hence, the buyer does not have to pay the additional P150,000.
Section 109 (P) of the Tax Code, as implemented by Section 4.109-1 of RR 16-05, provides that sale of real property utilized for low-cost housing wherein the unit selling price is within the selling price per unit of P750,000 is exempt from VAT. Moreover, Section 109 further provides that the sale of properties held primarily for sale to customers with a selling price not exceeding the thresholds of P1,919,500 on sale of residential lots, and P3,199,200 for sale of house and lot and other residential dwellings are exempt from VAT.
Hence, as discussed in the ruling, the sale of low-cost housing units that exceed the price ceiling of P750,000 per unit is not eligible for VAT exemption for low-cost housing under Section 109 (P) of the Tax Code. However, the sale may still be exempt from VAT if the selling price of the property held primarily for sale to customers does not exceed the thresholds of P1,919,500 on sale of residential lots, and P3,199,200 for sale of house and lot and other residential dwellings pursuant to the same provisions of Section 109 (P) of the Tax Code.
Accordingly, the BIR held that while the selling price of P1,250,000 of the low-cost housing units sold by a real estate company does not qualify under the classification of a low-cost housing, the selling price still meets the VAT-exempt threshold of P3,919,200 for sale of house and lot under Section 109 (P) of the Tax Code. Hence, the buyer of said low-cost housing units does not have to pay VAT on his purchase.
Given the rising cost of living in the Philippines, specifically the rising prices of residential properties, the ruling is a welcome respite for those who are planning to buy a house. However, to give the hardworking Filipinos more chance or opportunity to have their own homes, hopefully, the government would consider the current proposals to increase the take home pay of employees. These include, among others, the proposals to increase tax exemptions for bonuses to P70,000 annually and to effectively adjust individual income tax rate in the Philippines. With these measures, the Filipinos’ purchasing power will increase, giving them more opportunity to buy not only low cost housing, but even those residential properties subject to VAT.
Ma. Lourdes Politado-Aclan is a manager with the Tax Advisory and Compliance division of Punongbayan & Araullo. P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
source: Businessworld
CTA rules in favor of APEC Plans on VAT
THE BUREAU of Internal Revenue (BIR) lost a P155-million tax case against pre-need firm Abundance Providers and Entrepreneurs Corporation (APEC Plans) after failing to collect before the lapse of a five-year prescription period, the Court of Tax Appeals (CTA) ruled.
In a 29-page decision, the CTA en banc said that the BIR only served its warrant of distraint and levy on Feb. 11, 2010, just under 10 months after the lapse of the five-year period.
At issue was a value-added tax deficiency amounting to P155.49 million for the tax year 2001.
The BIR served its formal letter of demand and audit result on April 26, 2004.
“Petitioner (Commissioner of Internal Revenue Kim S. Henares) had a period of five years to enforce collection from such date as required by law or until April 26, 2009..... The right of the petitioner to collect is deemed to have already prescribed,” the tax court said.
The tax court upheld its resolution dated Oct. 31, 2012 granting the motion for summary judgment filed by APEC Plans seeking to declare the Feb. 11, 2010 warrant as null and void.
The alleged VAT deficiency includes penalties, based on the alleged failure to indicate the amount of trust fund contributions in its official receipts.
However, APEC argued that its omission did not prejudice the government since it paid its VAT liabilities.
The CTA then sided with APEC Plans.
“The material facts relevant to the proper disposition of the issues in this case are undisputed, thereby leaving no genuine issues of fact which would require presentation of evidence in full-blown trial,” the CTA Third Division had said.
This prompted the BIR to file a petition for review before the CTA en banc, seeking to reverse the Third Division’s ruling, and ordering the firm to pay in full the alleged tax deficiency plus the accrued 25% surcharge for late payment and 20% interest per annum from April 26, 2004.
The BIR said it has the right to collect the deficiency. It argued that the CTA has no authority to issue an order nullifying the warrant of distraint and levy.
But the CTA said otherwise.
“The appellate jurisdiction of this court is not limited only to decisions of the Commissioner of Internal Revenue involving disputed assessments or claims for refunds, but also those involving other matters which include the authority to determine the validity of a warrant of distraint and levy issued by the Commissioner of Internal Revenue,” the court said. -- Reden D. Madrid
source: Businessworld
In a 29-page decision, the CTA en banc said that the BIR only served its warrant of distraint and levy on Feb. 11, 2010, just under 10 months after the lapse of the five-year period.
At issue was a value-added tax deficiency amounting to P155.49 million for the tax year 2001.
The BIR served its formal letter of demand and audit result on April 26, 2004.
“Petitioner (Commissioner of Internal Revenue Kim S. Henares) had a period of five years to enforce collection from such date as required by law or until April 26, 2009..... The right of the petitioner to collect is deemed to have already prescribed,” the tax court said.
The tax court upheld its resolution dated Oct. 31, 2012 granting the motion for summary judgment filed by APEC Plans seeking to declare the Feb. 11, 2010 warrant as null and void.
The alleged VAT deficiency includes penalties, based on the alleged failure to indicate the amount of trust fund contributions in its official receipts.
However, APEC argued that its omission did not prejudice the government since it paid its VAT liabilities.
The CTA then sided with APEC Plans.
“The material facts relevant to the proper disposition of the issues in this case are undisputed, thereby leaving no genuine issues of fact which would require presentation of evidence in full-blown trial,” the CTA Third Division had said.
This prompted the BIR to file a petition for review before the CTA en banc, seeking to reverse the Third Division’s ruling, and ordering the firm to pay in full the alleged tax deficiency plus the accrued 25% surcharge for late payment and 20% interest per annum from April 26, 2004.
The BIR said it has the right to collect the deficiency. It argued that the CTA has no authority to issue an order nullifying the warrant of distraint and levy.
But the CTA said otherwise.
“The appellate jurisdiction of this court is not limited only to decisions of the Commissioner of Internal Revenue involving disputed assessments or claims for refunds, but also those involving other matters which include the authority to determine the validity of a warrant of distraint and levy issued by the Commissioner of Internal Revenue,” the court said. -- Reden D. Madrid
source: Businessworld
Tuesday, September 2, 2014
For human or not for human
PRICE hikes are always controversial. With the current situation of commodity prices, Filipinos feel every additional centavo they have to pay to meet their basic needs. This is because Filipinos belonging to the lower bracket income cannot keep up with the ballooning prices of goods, especially those which are staple in every household. In their perception, the government’s inaction is to be blamed for rising commodity prices.
A probable issue of price hike on livestock and poultry products arose just recently. The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. (RMC) 66-2014, amending RMC 55-2014. The circular provides a list of feed ingredients that may be subjected to value-added tax (VAT). Unless the taxpayer shows that the ingredients are unfit for human consumption or that the ingredient cannot be used for the production of food for human consumption, the ingredient/raw material should be subjected to VAT.
The lists of ingredients under the circular are as follows: 1. whey powder 2. skimmed milk powder 3. lactose 4. buttermilk powder 5. whole milk powder 6. palm olein. The circular also provides for a catch-all phrase, “and such other feed ingredients and additives used in the manufacture of finished feed which may hereinafter be determined by competent authority to have possible utilization for human consumption.” To avail of the VAT exemption, the circular further requires certification from the Food and Drug Administration that the ingredients are unfit for human consumption.
Under Revenue Regulations No. (RR) 16-2005, the sale or importation of fish, prawn, livestock and poultry feeds are exempt from VAT. This exemption covers ingredients, whether locally produced or imported, used in the manufacture of these animal feeds.
Republic Act No. (RA) 1556 also known as Livestock and Poultry Feeds Act, as amended by Presidential Decree No. (PD) 7, “ingredients” or “feed ingredients” is defined as any single article of feed or feeding stuff which enters into the composition of a ration, concentrate or supplement. The law does not distinguish the ingredient as to its fitness for human consumption. Previously, the VAT exemption only requires that the Bureau of Animal Industry (BAI) ascertain the classification of the importations as ingredients for animal feed. With the new rule, there is the additional requirement of a certification from the FDA for identification of whether a specific ingredient is fit for human consumption or not. In the end, we would expect that some of the ingredients will now be subject to VAT since many of these ingredients are also used in the manufacture of food for human consumption.
Tax exemptions are allowed to certain transactions by reason of public policy. The rationale for the VAT exemption of feed ingredients has been discussed in the case of Tolentino vs. Secretary of Finance and Commissioner, G.R. No. 115455. The High Court declared that in specific transactions, exemptions, such as purchase of ingredients used in the manufacture of feeds, are “granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit.” Relative to this, the Court also held that “exempt from the tax are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.”
Additionally, under VAT Ruling No. 12-01, the bureau opined that if the law declared the end product to be exempt, it is but logical that all the inputs needed to produce the end product must necessarily be exempt. The ruling also said that the exemption accorded by law to feed and feed ingredients is closely intertwined to the public policy of exempting basic food from the coverage of VAT, related as they are to the exemption of livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption.
The Philippine populace has a higher concentration on the lower and middle income families. The impact of a little jump in the prices of basic commodities is magnified on these brackets because with very little extra funds (or none at all), there is little room for a rearrangement of their daily budget. Hence, the issue on price increase arises. The rationale for the exemption of inputs of feeds for animals, save the specialty feeds for animals considered as pets, is to prevent increase in the price of inputs to agricultural and marine food products, which are consumed more by low and middle income groups. If any of the inputs will be subjected to VAT, necessarily, it will be added to the cost of manufacturing, hence an increase in input price. There are two possible outcomes if this is to be the case: either the producer sector (meaning the livestock and poultry farmers) would squeeze their margins, or the end-consumer would carry the burden of such increase in price. As end-consumers, we just hope that the effect of the imposition of VAT on such ingredients will not greatly affect the prices of livestock and poultry products.
We could understand the reason of the BIR in passing the circular to avoid abuses of availing VAT exemptions such as diversion of ingredients for other purposes not related to the manufacture of animal feeds. We cannot argue on the good intentions of the circular. However, by imposing the circular, the BIR also sanctioned the ones diligently following the law. The BIR has other ways to meet the objectives of compliance. Say for instance, this should be included in the regular audit of the manufacturers. The BIR may also impose a threshold amount on ingredients which are susceptible from being used for purposes not in relation to the manufacture of animal feeds.
In this particular issue what we simply say is that, there is a need to revisit the practice of regulators of plugging the leakages by closing the whole pipeline. The BIR is not out of options yet and I submit that their choice in this case may not be the best one.
P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
Eliezer P. Ambatali is a tax associate with the Tax Advisory and Compliance division of Punongbayan & Araullo.
source: Businessworld
A probable issue of price hike on livestock and poultry products arose just recently. The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular No. (RMC) 66-2014, amending RMC 55-2014. The circular provides a list of feed ingredients that may be subjected to value-added tax (VAT). Unless the taxpayer shows that the ingredients are unfit for human consumption or that the ingredient cannot be used for the production of food for human consumption, the ingredient/raw material should be subjected to VAT.
The lists of ingredients under the circular are as follows: 1. whey powder 2. skimmed milk powder 3. lactose 4. buttermilk powder 5. whole milk powder 6. palm olein. The circular also provides for a catch-all phrase, “and such other feed ingredients and additives used in the manufacture of finished feed which may hereinafter be determined by competent authority to have possible utilization for human consumption.” To avail of the VAT exemption, the circular further requires certification from the Food and Drug Administration that the ingredients are unfit for human consumption.
Under Revenue Regulations No. (RR) 16-2005, the sale or importation of fish, prawn, livestock and poultry feeds are exempt from VAT. This exemption covers ingredients, whether locally produced or imported, used in the manufacture of these animal feeds.
Republic Act No. (RA) 1556 also known as Livestock and Poultry Feeds Act, as amended by Presidential Decree No. (PD) 7, “ingredients” or “feed ingredients” is defined as any single article of feed or feeding stuff which enters into the composition of a ration, concentrate or supplement. The law does not distinguish the ingredient as to its fitness for human consumption. Previously, the VAT exemption only requires that the Bureau of Animal Industry (BAI) ascertain the classification of the importations as ingredients for animal feed. With the new rule, there is the additional requirement of a certification from the FDA for identification of whether a specific ingredient is fit for human consumption or not. In the end, we would expect that some of the ingredients will now be subject to VAT since many of these ingredients are also used in the manufacture of food for human consumption.
Tax exemptions are allowed to certain transactions by reason of public policy. The rationale for the VAT exemption of feed ingredients has been discussed in the case of Tolentino vs. Secretary of Finance and Commissioner, G.R. No. 115455. The High Court declared that in specific transactions, exemptions, such as purchase of ingredients used in the manufacture of feeds, are “granted, in some cases, to encourage agricultural production and, in other cases, for the personal benefit of the end-user rather than for profit.” Relative to this, the Court also held that “exempt from the tax are sales of farm and marine products, so that the costs of basic food and other necessities, spared as they are from the incidence of the VAT, are expected to be relatively lower and within the reach of the general public.”
Additionally, under VAT Ruling No. 12-01, the bureau opined that if the law declared the end product to be exempt, it is but logical that all the inputs needed to produce the end product must necessarily be exempt. The ruling also said that the exemption accorded by law to feed and feed ingredients is closely intertwined to the public policy of exempting basic food from the coverage of VAT, related as they are to the exemption of livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption.
The Philippine populace has a higher concentration on the lower and middle income families. The impact of a little jump in the prices of basic commodities is magnified on these brackets because with very little extra funds (or none at all), there is little room for a rearrangement of their daily budget. Hence, the issue on price increase arises. The rationale for the exemption of inputs of feeds for animals, save the specialty feeds for animals considered as pets, is to prevent increase in the price of inputs to agricultural and marine food products, which are consumed more by low and middle income groups. If any of the inputs will be subjected to VAT, necessarily, it will be added to the cost of manufacturing, hence an increase in input price. There are two possible outcomes if this is to be the case: either the producer sector (meaning the livestock and poultry farmers) would squeeze their margins, or the end-consumer would carry the burden of such increase in price. As end-consumers, we just hope that the effect of the imposition of VAT on such ingredients will not greatly affect the prices of livestock and poultry products.
We could understand the reason of the BIR in passing the circular to avoid abuses of availing VAT exemptions such as diversion of ingredients for other purposes not related to the manufacture of animal feeds. We cannot argue on the good intentions of the circular. However, by imposing the circular, the BIR also sanctioned the ones diligently following the law. The BIR has other ways to meet the objectives of compliance. Say for instance, this should be included in the regular audit of the manufacturers. The BIR may also impose a threshold amount on ingredients which are susceptible from being used for purposes not in relation to the manufacture of animal feeds.
In this particular issue what we simply say is that, there is a need to revisit the practice of regulators of plugging the leakages by closing the whole pipeline. The BIR is not out of options yet and I submit that their choice in this case may not be the best one.
P&A is a leading audit, tax, advisory and outsourcing services firm and is the Philippine member of Grant Thornton International Ltd.
Eliezer P. Ambatali is a tax associate with the Tax Advisory and Compliance division of Punongbayan & Araullo.
source: Businessworld
Thursday, June 12, 2014
VAT refunds: The importance of timely registration of official receipts
IN CLAIMING a refund of unutilized input
value added tax (VAT) that is attributable to zero-rated sales, it is
imperative to prove that the billing documents are duly registered with
the Bureau of Internal Revenue (BIR) at the time of the sale
transaction. In a recent case, the Court of Tax Appeals (CTA) held that
the absence of such proof was fatal to the VAT refund claim.
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
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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