Tax refund claims can be a long and tedious process. But for those who are entitled to the claim, the frustration is soon forgotten when the refund gets granted. Amid the taxpayer’s daunting task to prove entitlement to a refund claim, what does it really take to turn the tables over the tax authority?
Recently, the Court of Tax Appeals (CTA) Second Division granted real estate dealer Dakudao & Sons, Inc.’s P112-million value-added tax (VAT) refund claim. It ruled that real property-for-equity shares transfer between two real estate dealers is not subject to VAT. Hence, there is basis to claim refund for the alleged erroneously paid VAT.
On April 2011, petitioner Dakudao & Sons transferred two parcels of land as consideration for shares of stock of another real estate dealer Metro South Davao Property Corp. (MSDPC). On the said transfer, the Bureau of Internal Revenue (BIR) assessed VAT amounting to P112.14 million which was paid by petitioner. As illustrated in Revenue Regulations (RR) No. 16-2005, Dakudao & Sons contended that the transfer of real property made by a real estate dealer to gain control of another real-estate corporation is not subject to VAT. Relying on the said RR, petitioner believed that there was an erroneous payment of VAT, and proceeded to file a claim for refund for the amount of P112.14 million.
The BIR opposed the claim for refund. To justify its assessment of VAT, respondent Commissioner of Internal Revenue argued that a tax exemption certificate should have first been secured by the petitioner before effecting the transfer as required under RR 18-2001. The Commissioner also averred that the said transfer is not one of the transactions enumerated as VAT-exempt in the Tax Code, as amended.
As gleaned above, the CTA upheld that RR 16-2005 is more apt to govern the transaction since it expressly deals with VAT on transfer of real property in exchange for the controlling interest among real estate dealers. RR 18-2001, on the other hand, merely deals with the monitoring of any tax-free exchange of property; it does not deal with VAT on such transfer. Likewise, the BIR ruling/certification required thereon is only used for the monitoring of tax-free properties. Stated differently, the CTA ruled that the BIR ruling required under RR No. 18-2001 is for determining gain or loss on a subsequent sale or disposition of property subject of the tax-free exchange, and not as a precondition for availment of a tax exemption.
Considering that target collection is pegged at P1.46 trillion (about P325.74 billion of which will be sourced from VAT) this 2014, any adverse decision which will create an outflow from the tax collection will surely be under BIR’s close watch. Thus, it is hardly surprising that the Commissioner appealed the decision of the CTA division to the CTA en banc. Pending appeal, we cannot expect the BIR to issue cash or tax credit certificates to the petitioner.
Well-settled is the rule that in an action for tax refund, the burden of proof is on the taxpayer. Indeed, the claimant is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund (CIR vs Eastern Telecommunications Philippines, Inc., GR 163835, July 7, 2010). To turn the tables over the BIR, taxpayers filing a claim for refund must be ready and able to prove their entitlement to the tax refund. Well-grounded knowledge of the rules and regulations, therefore, is clearly indispensable to expedite and ensure a favorable verdict. Otherwise, the claim for tax refund would be a mere exercise in futility.
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Hanna Karen Almario is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email ph-kpmgmla@kpmg.com or rgmanabat@kpmg.com.
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