BIR ordered to expedite VAT refunds processing

Finance Secretary Carlos G. Dominguez III has ordered the Bureau of Internal Revenue to fast-track the issuance of investors’ value-added tax (VAT) refunds that were retroactively affected by a rule issued in 2014.

Revenue Regulations (RR) No. 1-2017 signed by Dominguez and Revenue Commissioner Caesar R. Dulay prescribed amendments to Revenue Memorandum Circular No. 54-2014 issued by then BIR chief Kim S. Jacinto-Henares, which business groups had complained about.

One touchy issue on RMC 54-2014 was the so-called “120+30” rule. Under the circular, the BIR said “if the claim for VAT refund or credit is not acted upon by the Commissioner within the 120-day period required by law, the ‘inaction will be deemed a denial’ of the application for tax refund or credit.”

“The retroactive application of the ‘120+30’ rule to all pending VAT refund applications is confiscatory since it will result in a large scale automatic denial of pending applications,” business groups had said.

Henares had nonetheless claimed that RMC 54-2014, including the “120+30” rule in processing VAT credits and refunds, only implemented provisions of the Tax Code.

According to RR 1-2017, RMC 54-2014 “takes away from the taxpayer-claimant the reckoning of the 120-day period.”

“It appears that RMC 54-2014 was being given retroactive effect because pending claims were deemed denied upon expiration of the 120-day period from the date the claims were filed even though the taxpayer-claimants are still in the process of submitting the complete documents which was allowed under RMC 49-2003. It presumed that the pending claims had been filed with complete documents and the same have remained unacted upon beyond the 120-day period,” RR 1-2017 said.

But on Dec. 8 last year. the Supreme Court ruled that “taxpayers ‘have every right to pursue their claims in the manner provided by existing regulations at the time it was filed,’ and therefore, RMC 54-2014 cannot be applied retroactively as this would prejudice taxpayers whose VAT claims for tax credit or tax refund were filed and pending before June 11, 2014 the date RMC 54-2014 took effect,” RR 1-2017 said.

As such, RR 1-2017 clarified the tax treatment and processing of applications for VAT tax credit/refund filed and pending prior to RMC 54-2014.

RR 1-2017 gave “fair and adequate relief to taxpayer-claimants whose claims were ‘deemed denied’ as a result of the retroactive application of RMC 54-2014.”

“For this purpose, and consistent with the judicial ‘summation of rules’ decreed to be ‘made applicable to claims of tax credit/refund filed before June 11, 2014,’ such claims filed prior to RMC 54-2014 shall continue to be processed administratively,” RR 1-2017 said.