Written by Ferdinand D. Tolentino, 6 September 2007
A tax credit certificate (more commonly known as “TCC”) is a certification, duly issued to the taxpayer named therein, by the Commissioner of Internal Revenue or his duly authorised representative, reduced in a BIR Accountable Form in accordance with the prescribed formalities, acknowledging that the grantee-taxpayer named therein is legally entitled, the money value of which may be used in payment or in satisfaction of his internal revenue tax liability (except those excluded). By regulation, it may also be converted as a cash refund, or may otherwise be disposed of in the manner and in accordance with the limitations, if any as may be prescribed by the provisions of Revenue Regulations (RR) 5-2000).
In other words, it is a document saying that the company whose name appears on the paper may use the amount reflected thereon to pay its internal revenue tax liability subject to a specified restriction, or, may convert the same to a cash refund, or, may otherwise dispose it
The use of TCCs is provided under Section 204 (C) of the Tax Code (“NIRC”) which allows a TCC to be “xxx applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable”.
As laid out in RR 5-2000 has enumerated the following: a) payment or remittance for any kind of withholding tax; b) payment arising from the availment of tax amnesty declared under a legislative enactment; c) payment of deposits on withdrawal of exciseable articles; d) payment of taxes not administered or collected by the BIR; and e) payment of compromise penalty.
However, some BIR examiners lately have been taking the position that TCCs cannot be assigned if the seller/assignor has a pending tax assessment at the administrative or court level.
This position has no basis in law and in regulation. There is no prohibition or qualification in TCC usage under Section 204 (C) of the NIRC on the ground of a pending tax assessment or an on-going tax litigation. In fact, under RR 5-2000 only an outstanding tax liability, defined as an assessment which is already final and executory, may arguably prevent the sale/assignment of a TCC.
A pending assessment which has been protested, as well as an ongoing litigation, cannot prevent a TCC sale/assignment. A closer look at RR 5-2000, however, will show that only a revalidation of an expiring TCC is prevented by an outstanding liability. The “outstanding tax liability” is a non-issue in Section 3 of the RR governing the uses of TCCs.
When the BIR unduly limits the usage of TCCs by preventing assignments thereof due to pending assessments or on-going litigations, it does so without legal basis.
It must be emphasised that the TCC is a property which the owner has the right to use (in this case, in accordance with Section 204 of the Tax Code). When the BIR restricts this property interest arguably for public welfare, it must do so in accordance with law. The perceived duty of the BIR to restrict the use of TCCs must be anchored on the provisions of law and cannot be arbitrary.
Moreover, a few months back, in a forum organised by the former head of the BIR National Large Taxpayers Service, the BIR introduced the three-tiered system in using TCCs to pay internal revenue taxes: 1) if the tax liability is P3M or less, then the whole amount can be paid with TCCs; 2) if the tax liability is above P3M but less than P10M, then 50% of the tax liability can be paid with TCCs; and 3) if the tax liability is in excess of P10M, then only 25% thereof may be settled through TCCs.
This was never reduced in writing, I surmise because the same has no basis in law and is glaringly against Section 204 of the Tax Code.
Some BIR enforcement officers are even disregarding the already questionable three-tiered system and are dictating how much TCC can be used to settle an internal revenue tax liability or at worst, disallowing any tax payment at all via TCC.
Based on the recent experience of TCC-holders, the BIR now simply looks at the absolute amount of the TCC that is proposed to be used (regardless of its compliance with the three-tiered system) and will dictate what the amount they will allow the TCC holder to use.
The irony is that they even use as a reason to disregard the three-tiered system the fact that such limitation on the TCC utilisation was not put in writing.
While it is understandable that the BIR’s recent move on the TCCs was triggered by their mandate to meet, if not increase their target collections, the BIR should also be mindful of the taxpayers’ rights under the law.
Strict implementation of the law is different from erroneous implementation of the law. The BIR should implement what the law provides and not what is convenient albeit irregular to achieve their collection goal.
The provision of the law is clear: TCCs may be applied against any internal revenue tax, excluding withholding tax, for which the taxpayer is directly liable.
If the BIR will restrict the assignment or limit the use of TCCs, they must do so with the consent of the TCC-holder who has all the right to refuse the BIR’s request.
