INSIGHTS is a monthly publication of BDB LAW to inform, update and provide perspectives to our clients and readers on significant tax-related court decisions and regulatory issuances (includes BIR, SEC, BSP, and various government agencies).

DISCLAIMER: The contents of this Insights are summaries of selected issuances from various government agencies, Court decisions, and articles written by our experts. They are intended for guidance only and as such should not be regarded as a substitute for professional advice.

Copyright © 2024 by Du-Baladad and Associates (BDB Law). All rights reserved. No part of this issue covered by this copyright may be produced and/or used in any form or by any means – graphic, electronic, and mechanical without the written permission of the publisher.

If the RTC's final decision, order, or resolution does not pertain to a local tax case, then the CTA is bereft of jurisdiction to entertain an appeal.

A local government unit demanded the payment of environmental tax from the taxpayer. After unsuccessfully questioning the environmental tax assessment and demanding a refund of the same at the administrative level, the taxpayer filed an appeal before the regional trial court (“RTC”). However, the case was dismissed which prompted the taxpayer to file an appeal with the tax court.

The taxpayer argued that the tax court possesses jurisdiction because the subject matter of the action is a local tax. This is bolstered by the Watershed Code and its IRR which named the exaction as an "environmental tax.”

However, the tax court decided against the taxpayer since its appellate jurisdiction over decisions of the RTC becomes operative only when the RTC has ruled on a local tax case. If the RTC's final decision does not pertain to a local tax case, then the CTA is bereft of jurisdiction to entertain the same.

If generation of revenue is the primary purpose, the imposition is a tax. However. To accurately classify these exactions, the objectives and purposes of the pertinent tax ordinance must be consulted. The tax court found that the environmental taxes imposed under the Watershed Code are fees, and not taxes, as the object and nature thereof are mainly one for regulation. (DOLE Philippines Inc. – Stanfilco Division v.The Sangguniang Panlungsod of the City of Davao, and the Hon. Sara Z. Duterte-Carpio and Hon. Lawrence D. Bantiding, CTA AC No. 286, June 7, 2024)

An application for Compromise
Settlement is not a continuation of taxpayer’s administrative protest.

The BIR garnished the taxpayer’s various accounts due to the latter’s failure to file a protest on the FAN. In response thereto, the taxpayer filed a protest letter against the garnishment. Unmoved, the BIR denied the protest and maintained the garnishment.

Rather than filing a judicial protest with the CTA, the taxpayer applied for a Compromise Settlement on the ground of financial incapacity. Such application was still denied by the BIR. This prompted the taxpayer to amend its application and invoked the ground of doubtful validity. Over a year later, the BIR denied the application to which the taxpayer filed a judicial appeal to the CTA.

The CTA ruled that the appeal must be dismissed due to lack of jurisdiction. The court explained that an application for Compromise Settlement is not a continuation of administrative protest. Thus, the counting of the 30-day period to appeal cannot be counted from the denial of the Compromise Settlement. The CTA reasoned out that to consider applications for compromise as "administrative protests" would allow taxpayers to indefinitely delay filing a judicial appeal, rendering the 30-day period for such nugatory. (Producers Saving Bank Corporation. v. Commissioner of Internal Revenue, CTA Case No. 11485, June 21, 2024)

The breakdown which indicates the term “zero-rated sale” does not cure the taxpayer’s failure to comply with the imprinting requirement

The taxpayer filed a motion for reconsideration on the denial of the CTA of its refund claim on the ground that the term “VAT ZERO-RATED SALES” is not prominently printed on the sales invoices. The taxpayer argues that the imprinted “VAT zero-rated sales” in the breakdown portion of the invoice is already sufficient to comply with the said requirement.

The CTA ruled that the breakdown which indicates the term “zero-rated sale” does not cure taxpayer’s failure to comply with the imprinting requirement. Parenthetically, the information necessary to be indicated in the “breakdown” on one hand, and the writing or imprinting of “zero-rated sale” on the VAT official receipts on the other hand, are requirements governed by separate provisions Tax Code.

Otherwise stated, if the breakdown requirement, which necessarily indicates the type of the sale, is intended by law to also encompass the imprinting requirement, then the law could have easily deleted the specific provision on the imprinting requirements for both zero-rated sales and exempt sales for being superfluous. (Schaeffler Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10358, June 25, 2024)

Revenue Regulations No. 11-2024, June 13, 2024. -
This amends the transitory provisions relative to the deadlines for compliance with the invoicing requirements.

• Billing statements, statements of account, statement of charges may be converted into billing invoices.
• Converted primary documents are valid for claiming input taxes if issued from April 27, 2024, until fully consumed.

Enhancement of Computerized Accounting Systems and Computerized Books of Accounts with accounting records shall be undertaken on or before December 31, 2024.

Revenue Memorandum Circular No. 65-2024, June 14, 2024. -
This clarifies certain issues relative to output VAT credit on uncollected receivables.

The following are clarifications to the implementation of Section 19 of EOPT:

• Requisites to be entitled credit:

1.) The sale or exchange has taken place after the effectivity of RR No. 3-2024;

2.) The sale is on credit or on account;

3.) There is a written agreement on the period to pay the receivable, i.e. credit term is indicated on the invoice or any document showing the credit term;

4.)The VAT is separately shown on the invoice;

5.)The sale is specifically reported in the SLS covering the period when the sale was made and not reported as part of “various” sales;

6.) The seller declared in the BIR Form No. 2550Q the corresponding output VAT in the invoice within the period prescribed under existing rules;

7.) The period agreed upon, whether extended or not, has lapsed; and

8.) The VAT component of the uncollected receivable was not claimed as deduction from gross income.

• The seller can claim for VAT credit on uncollected receivables on the next quarter, after the lapse of the agreed upon period to pay.

• Documentary support for the claimed output VAT for being uncollectible.

 - Duplicate/triplicate copies of the corresponding invoice with “Claimed Output VAT Credit” stamp; or

- Supplementary sales documents such as credit memo or credit note with “Claimed Output VAT Credit” stamp

• The taxpayers disqualified to avail output VAT tax credit on uncollected receivables are:

1.)Those tagged as cannot be located (CBL) taxpayers;

2.) Those with duly filed complaints at the DOJ under the Run After Fake Transaction (RAFT) and Run After Tax Evaders (RATE) programs; and

3.) Other taxpayers that may be identified by the Commissioner.

• Presentation of output VAT credit in the VAT return.

RRevenue Memorandum Order No. 23-2024, June 19, 2024. - This prescribes the guidelines, policies, and procedures in the implementation of the risk-based approach in the verification and processing of VAT refund claims.

A. Identification of the risk classification of the claim

• The risk classification shall be determined using a point system which considers the following main risk factors:

1. Amount of VAT refund claim;
2. Frequency of filing VAT refund claims;
3. Tax compliance history; and
4. Other risk factors (e.g. level of disallowance from previous claims)

• The resulting weighted average following the prescribed pointing system shall be interpreted as follows:

1. Low-risk: 00% and below
2. Medium-risk: above 35.00% but not exceeding 60.00%
3. High-risk: above 60.00%

• The following VAT refund claims shall be automatically considered as high-risk or shall require full verification:

1. Claims filed on April 27, 2024, to June 30, 2024;
2. File by first-time claimant which will remain as such for the succeeding three (3) VAT refund claims;
3. The fourth (4^th) claim following the three (3) consecutive low-risk classification of processed VAT refund claims;
4. Filed pursuant to Section 112(B) of the Tax Code;
5. Filed by taxpayer-claimants tagged as Cannot Be Located (CBL);
6. Filed by taxpayer-claimants with complaints duly filed at the DOJ and/or those facing cases before the Courts under RATE and RAFT programs;
7. Filed by taxpayer-claimant who has fully denied claim from its immediately preceding VAT refund claim; and
8. Application for VAT refund claims for VAT refund claim covering more than one taxable quarter, where at least one taxable quarter is already prescribed.

B. Refund claims procedures based on risk classification

The scope of verification may be reduced in accordance with the identified risk as follows: