Circularization of BIR Ruling No. 123-2013 dated March 25, 2013 on the recovery of unutilized creditable input taxes attributable to VAT zero-rated sales

09 September 2013

The Commissioner of Internal Revenue (“CIR”) has issued Revenue Memorandum Circular No. 57-2013 dated 23 August 2012 (“RMC”) reiterating a relevant portion of BIR Ruling No. 123-2013 dated March 25, 2013 concerning the recovery of unutilized creditable input taxes attributable to VAT zero-rated sales.

The CIR cites Section 110(B) in relation to Section 112(A) of the Tax Code which provides that unutilized creditable input taxes attributable to zero-rated sales can only be recovered through the application for refund or tax credit and thus the method of treating the unapplied input taxes as outright deductible expense for income tax purposes lacks legal basis.

With the issuance of the RMC, revenue officers engaged in the audit and review of cases are enjoined to disallow such deductions claimed for income tax purposes