Tax Alert No. 30 [Revenue Memorandum Order (RMO) No. 23-2024 dated 19 June 2024]

Implementation of the risk-based approach in the verification and processing of VAT refund claims

Please be informed that the BIR has recently issued RMO No. 23-2024 to provide the guidelines, policies and procedures in the implementation of the risk-based approach in the verification of VAT refund claims under Section 112(A) of the National Internal Revenue Code (Tax Code), as amended. 

The following are the salient points of the regulations: 

• The following VAT refund claims shall be automatically classified as high-risk or shall require full verification: 

  • Claims filed on 27 April 2024 to 30 June 2024; 

  • Claims filed by first-time claimant which will remain as such for the succeeding three (3) VAT refund claims;

  • The fourth (4th) claim following the three (3) consecutive low-risk classification of the processed VAT refund claims;

  • Claims filed pursuant to Section 112(B) of the Tax Code (Refund of Input Tax); 

  • Claims filed by taxpayers tagged as Cannot Be Located (CBL); 

  • Claims filed by taxpayers with complaints duly filed at the Department of Justice and/or those facing criminal cases before the Courts under the Run After Tax Evaders (RATE) and Run After Fake Transactions (RAFT) programs;

  • Claims filed by taxpayers who has a fully denied claim from its immediately preceding VAT refund claim; 

  • Applications for VAT refund claim covering more than one taxable quarter, where at least one taxable quarter is already prescribed; and, 

  • Other cases considered as high-risk claims as determined by the Commissioner of Internal Revenue, which shall be covered by a separate revenue issuance. 

• A first-time claimant shall refer to those with no history of VAT refund application since registration with the BIR or no previous administrative claim for VAT refund for the last five (5) years prior to the application of claim as certified by the BIR Assessment Programs Division (APD). 

• The risk matrix which shall be used as a guide by the processing offices in determining the risk level is in Annex “A” of the RMO

• The scope of verification in accordance with the identified risks are as follows:

• The processing of low-risk claims shall be limited only to the checking of the authenticity and completeness of documentary requirements. 

• For medium-risk claims, the default 50% verification rate shall be determined as follows - 

  • For sales transactions, the 50% of the total invoices/receipts shall be selected at random by assigning random numbers, which shall be sorted from lowest to highest. The first 50% of the total invoices/receipts starting from the lowest randomly assigned number shall comprise the documents subject for verification. 

  • Sales adjustments supported by credit/debit memo, journal vouchers or other relevant documents shall be fully verified in addition to the minimum 50% of sales to be verified. Provisional and final invoices/receipts shall be counted as one transaction for purposes of identifying the minimum 50% sales that will be verified. 

  • The sales document to be examined shall account for at least 50% of the total sales reported as zero-rated or exempt. If the documents are not sufficient to cover the minimum 50% of the total amount of zero-rated and exempt sales, additional documents shall be taken from the succeeding invoices/receipts. 

  • For local purchases with input VAT claimed, the suppliers of "big-ticket purchases" shall be prioritized in the selection of the 50% of the total suppliers.

  • The big-ticket purchases shall be subject to 100% verification. The non-big-ticket suppliers shall then be selected randomly by assigning random numbers which shall be sorted from lowest to highest, then selecting the suppliers starting from the lowest randomly assigned number. If not sufficient to cover the minimum 50% of total local purchases with input VAT claimed, additional suppliers shall be selected until the minimum 50% is covered. 

  • For importations with input VAT claimed, the suppliers of imported purchases of goods with input VAT claimed shall be assigned random numbers and sorted from lowest to highest. The first 50% of the total suppliers starting from the lowest number shall comprise the source of documents subject for verification. If not sufficient to cover the minimum 50% of the total importations with input VAT claimed, additional documents shall be taken from the transactions with the succeeding suppliers until the minimum 50% of total importations with input VAT claimed are covered. 

• A medium-risk claim where at least 30% disallowance of the total VAT refund claim is found shall be reclassified to a high-risk claim. 

You may access the full version of this Regulation 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.