6 Technical Requirements for Input VAT Refund Approval in Philippines

By: Garry S. Pagaspas

requirements for input VAT refund Philippines

Under the current value added tax (VAT) rules in the Philippines, taxpayer’s whose sales are VAT zero-rated goods or services may have the option to apply for input VAT refund in the Philippines such input VAT attributable to VAT zero-rated sales. In filing the application for VAT refund, the BIR has issued guidelines on the list of documentary requirements for input VAT refund on zero-rated sales to be completed and related processing that a taxpayer has to undergo (e.g. Revenue Memorandum Circulars (RMC) No. 17-2018).

In this article, let us share you the six (6) technical requirements that the BIR would look into to determine whether or not, your application for input VAT refund on zero rated should be approved or denied. In some court decided input VAT refund from zero-rated cases, such long list of documentary requirements and related processes revolves on the following technical requirements for the refund, and hereunder we quote:

“Thus, in order to be entitled to a refund or tax credit of input VAT payments attributable to zero-rated or effectively zero-rated sales, the following requisites must be satisfied:

1. the taxpayer must be VAT-registered;
2. there must be zero-rated or effectively zero-rated sales;
3. input taxes were incurred or paid;
4. such input VAT payments were directly attributable to zero-rated sales or effectively zero-rated sales;
5. the input VAT payments were not applied against any output VAT liability; and
6. the claim for refund was filed within the two-year prescriptive period.”

“Also, the applicant must not only prove its entitlement to such claim but must comply with all the documentary and evidentiary requirements, and other rules and regulations pertaining to tax refunds”

From the above requirements, let us discuss further our views and determine if your circumstances would warrant qualifications for input VAT refund from zero-rating in Philippines as follows:

1. VAT Registration of applicant for input VAT refund

VAT registration could easily be determined by the BIR Certificate of Registration showing that the applicant is a VAT-registered entity in the Philippines. BIR would require a Certified True Copy of this document for such purpose along with other corporate registration documents from SEC and BIR. Certified True Copies of VAT returns duly filed and related attachments will likewise be required.

2. VAT Zero-rated sales of goods or services

 Another thing that the applicant for input VAT zero-rating will prove is that it actually engaged in zero-rated sales of goods or services during the period covered by the application. First is to determine the specific provision or legal basis in the Tax Code, as amended, or special law for such zero-rating of goods or services and then, determine the applicable requirements to prove such zero-rating sales of goods or services in the Philippines. Example, zero-rating of sales of services such as on business process outsourcing (BPO) in the Philippines could be based under Section 108(B)(2) of the NIRC, as amended and in one Court case, it held that in order for the supply of services to be VAT zero-rated under Section 108 (B) (1) of the NIRC of 1997, as amended, the following requisites must be satisfied:

1. the services must be other than processing, manufacturing or repacking of goods.
2. the payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations;
3. the recipient of such services must be doing business outside the Philippines.

Based on the requisites under Section 108(B)(1) of the Tax Code, as amended, you can now determine the documentary requirements for zero-rating such as the service contracts in foreign currency denominations, official receipts issued along with authority to print, inward remittance of foreign currency payments, SEC negative certification on the foreign client.

3. Input VAT of applicant

Under this, the applicant for input VAT refund would need to prove that it incurred input VAT from varying sources such as from VAT-registered suppliers, importations, services performed in Philippines by non-residents and etc. Such input VAT should properly be supported such as by the following – by sales invoices for goods, official receipts for services, and Bureau of Customs receipts along with importation documents. Such documents should comply as well with the invoicing requirements for input VAT refund in Philippines under the regulations such as the following:

1. Under the name of the applicant;
2. TIN of the applicant;
3. Under registered address of applicant;
4. VAT shown separately; and,
5. Such other details required.

For input VAT refund application, certified true copies (duly certified by applicant representative) of such invoices and receipts will have to be submitted to the BIR. As a matter of procedure, the BIR will verify the certified true copies to the original copies of such invoices/receipts, and other related documents upon approval of the application and prior to the processing of the release of refund check. In an event that the application will have to the filed with the Court of Tax Appeals (CTA), services of an Independent CPA may have to be secured as officer-of-the CTA in verifying the supporting documents and determining if indeed, the copies attached to the application are faithful reproductions of the originals.

4. Input VAT attributable to Zero-rated sales

What is being allowed for refund are those input VAT attributable to zero-rated sales such that if VAT returns shows both VATable and Zero-rated sales that could mean a mixed sales transaction requiring allocation of common input VAT not attributable to zero-rated sales. This could be just a matter of mathematical computation based on the figures on (3) above.

5. Input VAT for refund not applied against VAT liability

For the application, the applicant is required to indicate on the VAT return its declaration of VAT refund by deducting such amount intended to be refunded. Under this, the applicant need to establish such fact that the input VAT being applied for refund has not been carried-over to succeeding quarters and has not been actually applied to VATable sales, otherwise, it would result to double claim that would prejudice the interest of the government.

6. Timely filing of Input VAT refund

Under the rules, the applicant must file the input VAT refund within 2 years from the quarter of zero-rated sales and this should be clearly determined. Filing the application beyond the 2-year period will surely not get approval.

 Conclusion

The above enumeration only relates to the technical aspects of input VAT refund on zero-rated sales of goods and services for general information. For the details of documentary requirements, related processes, and other related matters, please refer to the related BIR issuances.

Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for about fifteen (15) years now helping out taxpayers on tax compliance, tax savings, tax assessments, tax refunds, and other related professional tax services. He has been helping out some clients in their BIR Input VAT refund applications and at times acts as independent certified public accountant (ICPA) with the Court of Tax Appeals in relation to input VAT refunds. He is presently a frequent speaker of Tax and Accounting Center, Inc. and you may send him mail at garry.pagaspas(@)taxacctgcenter.ph.

Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.