Tax Alert No. 23 [Revenue Regulations (RR) No. 5-2024 dated 11 April 2024]

Filing and processing of tax refund applications 

Please be informed that the Secretary of Finance, through the recommendation of the Commissioner of Internal Revenue (“CIR”), has issued RR No. 5-2024 to implement the amendments to Sections 112(C), 112(D), 76(C), 204(C), and 229 of the Tax Code under the “Ease of Paying Taxes (EOPT) Act”. These regulations shall cover tax credit/refund claims that are filed starting 1 July 2024 onwards.

The following are the salient points of the regulations:

VAT refunds

• VAT refund claims shall be classified into low-, medium- and high-risk claims depending on the amount of the claim, the frequency of filing, tax compliance history, and other risk factors.
• The scope of verification in accordance with the identified risks are as follows:

• The scope of verification are subject to the following limitations:
  • First-time claimants shall be automatically considered as high-risk and its 3 succeeding VAT refund claims;
  • In case of full denial of a claim, the succeeding claim filed shall be classified as high-risk;
  • For medium-risk claims, verification shall be adjusted to 100% if the assigned Revenue Officer found at least 30% disallowance of the amount of VAT refund claim;
  • Where there are 3 consecutive low-risk claims, the 4th claim shall be subject to full verification regardless of the risk classification;
  • Claims by VAT-persons whose registration had been canceled due to retirement, cessation of business, or cessation of status shall be classified as high-risk;
  • For taxpayer-claimants filing on a quarterly basis, the risk classification shall be made for every filing; and,
  • Other limitations that may be identified by the CIR through revenue issuances.
• Complete documentary requirements for VAT refund shall be submitted regardless of the risk level.
• The application is deemed “filed” upon the submission of the invoices and/or receipts and other required documents.
• The 90-day period to process and decide on the claim shall start from the “filing” of the claim for VAT refund.
• In case of full or partial denial, the taxpayer may appeal to the Court of Tax Appeals (CTA) from the receipt of the decision denying the claim.
• If the claim is not acted upon within the 90-day period, the taxpayer may appeal to the CTA within 30 days after the expiration of the 90-day period, or forgo the judicial remedy and await the final decision of the CIR.

Refund of excess income tax credits for taxpayers with “going concern” status

• Regular claims, i.e. of taxpayers with “going-concern” status, are subject to the following requisites: 

  • The claim must be filed within 2 years from the date of filing of the Annual Income Tax Return (AITR); 

  • The income was included as part of the gross income declared in the AITR; 

  • The fact of withholding is established by a copy of the withholding tax certificate duly issued by the payor to the payee showing the amount of income payment and the amount of tax withheld.

• To comply with the 180-day processing period for regular claims, all offices concerned shall prioritize the processing of income tax credit/refund claim/s in case of dissolution or cessation of business. 

• If the taxpayer chose the option to be issued a Tax Credit Certificate (TCC) or refund but carried forward the said amount to the succeeding taxable year, the claim for tax credit or refund may be denied, but the carried-over amount may be allowed as credit against future income tax liabilities. 

   

Refund of excess income credits for taxpayers undergoing closure

• As an exception to the irrevocability rule, the taxpayers who chose the option to “carry-over” may claim a refund provided that they have permanently ceased operations.
• The application shall be decided upon by the BIR within 2 years from the date of dissolution or cessation of business instead of 180 days.
• The 2-year period to decide and refund the excess taxes shall commence from the submission of the Application for Cancellation (BIR Form No. 1905) together with the complete documentary requirements.
• The approved refund, if any, shall be released only after completion of the mandatory audit of all internal revenue tax liabilities covering the immediately preceding year and the short period return and full settlement of all tax liabilities.

Refund of erroneously or illegally collected tax

• The CIR may:

  • Credit/refund taxes erroneously or illegally received or penalties imposed without authority;

  • Refund the value of internal revenue stamps when they are returned in good condition by the purchaser;

  • Redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction.

• The claim shall be filed within 2 years after the payment of the tax or penalty. 

• The time-frame to process and decide the tax credit/refund shall be 180 days from the date of the submission of complete documents up to the payment of the approved refund or receipt of the TCC.

• In case of full or partial denial, the taxpayer may appeal to the CTA within 30 days from the receipt of the denial.  

• In case the tax refund/credit is not acted upon by the CIR within the 180-day period, the taxpayer-claimant may opt to: 

  • Appeal to the CTA within the 30-day period after the expiration of the 180 days required by law to process the claim; or

  • Forego the judicial remedy and await the final decision of the CIR.

Judicial claim for credit/refund

• No judicial claim shall be maintained until a claim for refund or credit has been duly filed with the CIR.
• No such suit or proceeding shall be filed unless there is a full or partial denial of the claim by the CIR or there is a failure on his part to act on the claim within the 180-day period.
• For tax refund claims of excess income taxes of taxpayers undergoing cessation or dissolution of business, judicial claim for tax credit/refund must be made within 30 days from full or partial denial by the CIR.

You may access the full version of this issuance 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.