Tax Alert No. 13 [Revenue Memorandum Circular (RMC) No. 21-2024 dated 07 February 2024]

Clarifies answer to Question No. 31 of RMC No. 49-2022 in relation to Revenue Regulations (RR) No. 4-2022, Implementing Section 295(F) of the National Internal Revenue Code (Tax Code) of 1997, as Amended by Republic Act (RA) No. 11534, Otherwise Known as the Corporate Recovery and Tax Incentives for Enterprises Act or CREATE Act

Please be informed that the BIR issued RMC No. 21-2024 (“the Circular”) which addresses the disparity between the treatment of petroleum importers located inside freeport and special economic zones and those located within customs territories with regard to VAT registration and the refund of excess unutilized input VAT. This is in relation to the guidelines per Q&A No. 31 of RMC No. 49-2022 vis-a-vis Section 295(F) of the National Internal Revenue Code ("Tax Code").

Q&A No. 31 of RMC requires the following types of Registered Export Enterprises ("REE") to change their registration status from VAT to non-VAT:

• Those whose sales are generated only from the registered activity and shifted from Income Tax Holiday ("ITH") to 5% Gross Income Tax ("GIT") or Special Corporate Income Tax ("SCIT") regime, within two (2) months from the expiration of their ITH; and,
• Those enjoying 5% GIT regime but are still VAT-registered at the time the Corporate Recovery and Tax Incentives for Enterprises ("CREATE") Act took effect (on 11 April 2021), within two (2) months from the effectivity of RMC No. 49-2022.

Accordingly, some importers of petroleum products located in freeport zones or special economic zones that do not have other activities other than those registered with an Investment Promotion Agency ("IPA") changed their registration status from VAT-registered to non-VAT to avail of either the 5% GIT or SCIT regime.

However, Section 295(F) of the NIRC provides that “any law to the contrary notwithstanding”, the importation of petroleum products shall be subject to the payment of applicable duties and taxes, but the importer can file for claims for the refund thereof. This presents a problem for importers who changed their registration status to non-VAT, as the Tax Code mandates that only VAT-registered entities may file for a VAT refund.

Therefore, the BIR clarifies that REEs enjoying the 5% GIT or SCIT located within freeport zones or special economic zones which directly import petroleum products and do not have other activities subject to VAT shall be permitted to register as VAT taxpayer to allow them to file applications for the refund of input VAT incurred form the importation of petroleum attributable to zero-rated sales pursuant to RR No. 4-2022.

However, it bears stressing that the Circular specifically qualifies that it does not cover previous transactions of the petroleum products importers located in freeport zones and special economic zones that changed their status to non-VAT.

You may access a copy of the Circular through the BIR website.

For any inquiry or request for assistance, please feel free to contact anyone from our Tax Services group. You may also reach us through this link.