Time is of the essence

(Conclusion)

There had been diverging rulings held by the Supreme Court as to the issue on the two-year prescriptive period within which to file an administrative claim for VAT refund arising from zero-rated transactions. Previously, the Supreme Court (SC) held in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue (G.R. Nos. 141104 & 148763, June 8, 2007) that the reckoning period for VAT refund is set within two years from the filing of quarterly VAT returns and payment of the output VAT. In the case of Commissioner of Internal Revenue vs. Mirant Pagbilao Corp. (Formerly, Southern Energy Quezon Inc.) (G.R. No. 172129, Sept. 12, 2008), the SC finally resolved the issue on this two-year prescriptive period, which period should be reckoned from the close of the taxable quarter when the sales were made.

Subsequently, in the case of Commissioner of Internal Revenue vs. Aichi Forging Co. of Asia Inc. (G.R. No. 184823, Oct. 6, 2010), the SC seemingly modified the doctrine in Mirant by emphasizing another requirement, that is, strict observance of the period for filing a judicial claim for VAT refund, the non-observance of which will make the claim premature. The SC also clarified that the phrase “within two years after the close of the taxable quarter when the sales were made” refers to applications for VAT refund or credit filed with the CIR and not to appeals made to the CTA.

As recently held in the case of Miramar Fish Co., Inc. vs. Commissioner of Internal Revenue (CTA EB No. 627, February 15, 2011), the CTA sitting en banc, applying the Mirant and Aichi cases, reiterated the rule that an administrative claim for VAT refund arising from zero-rated transactions should be filed within two years from the close of the taxable quarter when the sales were made. On the other hand, a judicial claim for VAT refund should be filed within 30 days from receipt of the decision of the CIR before the lapse of the 120-day period or from the lapse of the 120-day period when no decision is made by the CIR within that period. It was also emphasized that the observance of these periods is mandatory and non-compliance therewith would result in the denial of the claim. The two-year prescriptive period under Section 112 (A) of the NIRC applies only to administrative claim. In fact, applying the two-year period to judicial claims would render nugatory Section 112 (C) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR.

It is worthy to note that in reality, however, there is no actual cash returned or paid back for meritorious claims for VAT refund. The Bureau of Internal Revenue rather issues a TCC in favor of the taxpayer. The TCC validly issued pursuant to a claim for VAT refund may be applied against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly liable.

Thus, it is important that a taxpayer must prove not only his entitlement to a refund but also his compliance with the procedural due process as non-observance of the prescriptive period within which to file the administrative and the judicial claims would result in the denial of his claim.

(Maria Ofelia B. Galura is a Supervisor for Tax of Manabat Sanagustin & Co., CPAs, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG in the Philippines. For comments or inquiries, please email mailto:[email protected]or mailto:[email protected]