Tax Articles

90-day Rule on Income Tax Refund

By Atty. Irwin C. Nidea Jr.

History repeats itself. This is particularly true in claims for refund. Taxpayers suffer from poor legislation where doubts are always tilted against them.

The story of the VAT-refund confusion started with the reversal of the Atlas Case (GR 141104 &148763, June 8, 2007) by the Mirant Case (GR 172129, September 12, 2008), where the Supreme Court (SC) clarified that VAT refund must be filed within two years from the close of the taxable quarter and not two years from the end of filing of the VAT return. As a result, claims for refund that were filed based on the prescriptive period laid down in the Atlas case were all dismissed for having been filed late.

The 120-30 day rule of the Aichi Case has its share of victims as well. It started as a strong, lone dissent until it became a doctrine. After several SC rulings, it has been ruled that the Commissioner of Internal Revenue (CIR) has 120 days from the date of submission of complete documents in support of the administrative claim, within which, to decide whether to grant a refund or issue a tax-credit certificate. If the 120-day period expires without any decision from the CIR, then the administrative claim may be considered as denied by inaction. Thus, a judicial claim must be filed with the CTA within 30 days from the expiration of the 120-day period without any action from the CIR. Again, many taxpayers have lost their input VAT for having filed their claims beyond the 120-30 day period.

In 2018, TRAIN Law was enacted. The BIR issued Revenue Regulation 13-2018. Under the said regulation, the period for the BIR to process a claim for VAT refund is 90 days, from the previous 120 days. This was followed by another regulation, RR 26-2018. It clarified that the 90-day period is counted from the filing of the application for VAT refund to the release of the payment. It notably removed the option of the taxpayer to elevate the case to the CTA if the BIR fails to release the refund within 90 days. In other words, the doctrine in Aichi Case where the BIR’s inaction is considered a denial, appears to have been abandoned by legislation.

So, there are now varying opinions on the jurisdiction of the CTA in VAT refunds. Some say that a taxpayer may appeal to the CTA after the lapse of the 90-day period without any action on the part of the CIR. The mandatory character of the 90-day period is important because the taxpayer chooses to appeal the “inaction” of the CIR. Another school of thought is saying that the taxpayer must wait for the decision of the CIR if it wants to appeal a claim for VAT refund. Failure by the BIR to act within 90 days is not considered inaction.

TRAIN Law has created this confusion. Taxpayers are now in quandary whether to appeal a VAT refund to the CTA after the lapse of the 90-day period or wait for the denial of the CIR. But if the taxpayer chooses the latter, what happens if the CIR does not issue a formal decision, at all?

Unfortunately, this 90-day rule on VAT refund will be carried in claims for income tax refund. The impending CREATE law has included a similar provision. The BIR must process a claim for income tax refund within 90 days. But it is silent on the proper remedy of the taxpayer in the event the BIR fails to act on the claim within the given period. As it stands now, taxpayers may file a claim for income tax refund within 2 years from payment of the tax. It can elevate the inaction or decision of the CIR, within that 2-year period. There is no 90-day period for the BIR to act.

If the 90-day period is carried in CREATE, a plethora of judicial controversy will arise. Is inaction of the CIR within the 90-day period can be considered a denial of the claim? Should the taxpayer file an appeal to the CTA within 30 days from the lapse of the 90-day period or should the taxpayer wait for the decision of the CIR before it can initiate an appeal to the CTA?

TRAIN and CREATE should have been categorical in laying down taxpayer’s remedies in claims for VAT and Income tax refunds to avoid judicial controversy. I anticipate a long drawn legal battle on a totally avoidable issue. We are back to square one because of a poorly crafted law - again at the expense of taxpayers.