Tax Articles

Evolving Rules on Tax Refunds

By: Atty. Rodel C. Unciano

Atty. Rodel C. Unciano Partner   +632 8403-2001 loc.380 This email address is being protected from spambots. You need JavaScript enabled to view it. View Profile

The recent amendments in our tax laws have also brought some changes on the rules in claiming refunds of erroneously paid taxes as well as refund of unutilized input Value Added Tax (VAT) attributable to VAT zero-rated sales. As we are still in transition, there are still areas which need to be clarified for smoother implementation of the amendments. But for now, let me just highlight the more significant changes to watch out for, without digging deeper into the technicalities and seemingly inconsistent provisions of the implementing rules, for lack of sufficient space.

VAT refund

One of the most heavily revised rules on claiming a refund is the refund of unutilized input VAT attributable to VAT zero-rated sales. Through the years, even jurisprudence took part, to some extent, on the modification of the rules on claiming VAT refund.

The period for filing administrative claim for refund or credit of input tax attributable to VAT zero-rated sales remains to be within two (2) years after the close of the taxable quarter when the sales were made. The changes were on the period of claiming a judicial claim or in appealing the refund claim with the Court of Tax Appeals (CTA).

For administrative claims, under the old rule, the Commissioner is given a period of one hundred twenty (120) days from the date of submission of complete documents in support of the application within which to grant or deny the claim. In case of full or partial denial of the claim, or the failure on the part of the Commissioner to act on the application within the one hundred twenty (120) day period, the taxpayer may, within thirty (30) days from the receipt of the denial or after the expiration of the one hundred twenty (120) day period, appeal the decision to the CTA.

Republic Act (RA) 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN Law) subsequently reduced the number of days for the Commissioner to decide on the claim from one hundred twenty (120) days to ninety (90) days but added a provision that failure on the part of any official, agent or employee of the Bureau of Internal Revenue (BIR) to act on the application within the ninety (90) day period shall be punishable by law.

RA 11976 or the Ease of Paying Taxes (EOPT Law) retained the same period for the Commissioner to decide on the claim but added a provision that refund claims shall be classified into risk classifications to determine the extent of verification needed, based on amount of VAT refund claim, tax compliance history, frequency of filing VAT refund claims, among others.

Then came RA 12066, or the CREATE MORE law. RA 12066 likewise retained the 90-day period for the Commissioner to decide on the claim but introduced a level of remedy for the taxpayer to file a Motion for Reconsideration with the Commissioner in case of denial.

So, as it stands now, the taxpayer shall have fifteen (15) days from receipt of the full or partial denial to file a request for reconsideration. The Commissioner shall decide on the request for reconsideration within fifteen (15) days from receipt. Failure to file a request for reconsideration within the fifteen (15)-day period shall render the decision final.

In case of full or partial denial of the request for reconsideration, or failure on the part of the Commissioner to act on the application for refund or request for reconsideration within the periods prescribed above, the taxpayer may, within thirty (30) days from the receipt of the decision denying the request for reconsideration, or after the expiration of the ninety (90)-day period to decide on the application for refund, or after the lapse of the fifteen (15)-day period to decide on the request for reconsideration in cases where no action is made by the Commissioner on the request for reconsideration, appeal the decision with the CTA.

Refund of erroneously paid taxes

For a long time, Section 204 of the Tax Code has been the governing rule for the administrative claim for refund or credit of erroneously paid taxes while for filing of judicial claims, Section 229 of the Tax Code is the applicable provision of law. And these rules apply for claims for refund or credit of all erroneously paid national internal revenue taxes including refund of erroneously paid excise taxes, claim for refund or credit of excess and unutilized creditable withholding taxes, claim for refund of erroneously withheld final taxes, among others.

So under Section 204 of the Tax Code, application for credit or refund of erroneously or illegally collected taxes should be filed with the BIR within two (2) years after the payment of the tax. For judicial claims for refund under Section 229 of the Tax Code, the rule has also been to file the claim within two years from the date of payment of the tax regardless of any supervening cause that may arise after payment.

There was no required specific period of time for the Commissioner to act on the claim for refund. And so therefore, in the case of Commissioner’s inaction on the administrative claim and the 2-year period is about to expire, the judicial claim must already be filed with the CTA to meet the 2-year prescriptive period.

RA 11976 retained the 2-year period for filing administrative claims but now requires the Commissioner to process and decide the claim within one hundred eighty (180) days from the date of submission of complete documents in support of the application. In case of full or partial denial of the claim for refund or credit by the Commissioner or there is a failure on the part of the Commissioner to act on the claim within the one hundred eighty (180)-day period, the taxpayer, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred eighty (180)-day period, appeal the decision with the CTA.

Refund of excise tax on petroleum products

RA 12066 changed the rules for refund of excise tax products sold to international carriers and exempt entities or agencies. As discussed earlier, it used to be that refund of excise tax was governed by Sections 204 and 229 of the Tax Code.

The rules have changed with the enactment of RA 12066 into law. While RA 12066 retained the 2-year period for claiming administrative claim for refund, the Commissioner is now mandated by law to process and decide the refund claim within ninety (90) days from the submission of complete documents supporting the application filed. In case of denial, the taxpayer shall have fifteen (15) days from receipt of the denial to file a request for reconsideration, which shall be resolved by the Commissioner within fifteen (15) days from the receipt thereof. Failure to file a request for reconsideration within the fifteen (15)-day period shall render the decision final.

In case of full or partial denial of the request for reconsideration, or failure on the part of the Commissioner to act on the application for refund or request for reconsideration within the periods prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the request for reconsideration, or after the lapse of the period to decide on the application for refund or request for reconsideration, in cases where no action is made by the Commissioner, appeal the decision with the CTA.

So, the excise tax refund process is now akin to the amended procedures for refund of unutilized input VAT attributable to zero-rated sales.

VAT refund for non-resident tourist

For a long time, this was not available in our tax laws until the signing into law late last year of RA 12079. So, with the entry of RA 12079 in our legal system, a non-resident tourist shall now be eligible for a VAT refund on locally purchased goods if the following requisites are present: the goods are purchased in person by the tourist in duly accredited stores, the goods are taken out of the Philippines by the tourist within sixty (60) days from the date of purchase, and the value of goods purchased per transaction is equivalent to at least Three Thousand Pesos (P3,000.00).

So, taxpayers with tax refund claims should take note of the foregoing amendments in our tax refund rules because non-compliance with the prescribed procedures is futile to the refund claim. Refunds partake the nature of tax exemptions, hence, are construed strictly against the taxpayer.