There are instances where the income tax due from a taxpayer at the end of the taxable year is less than the tax payments made through withholding tax for the months or the quarters of the year. Other times, a taxpayer may have erroneously paid specific taxes, which payments are not creditable against other taxes for which the same taxpayer is liable. In these cases, taxpayers have the general option to apply for a refund of the overpaid or erroneously paid taxes. The usual result of the application for a refund is the issuance by the Bureau of Internal Revenue (BIR) of a tax credit certificate (TCC) representing the amount of overpaid or erroneously paid taxes.
A cash refund or TCC may be granted for the following: (a) excess quarterly income taxes paid reflected in the final adjustment return; (b) overwithholding of income taxes to the extent that the amount of such overpayment was not deducted or applied against income tax due; (c) input taxes attributable to zero-rated sales made by a value-added tax (VAT)-registered taxpayer or on capital goods imported or locally purchased by a VAT-registered taxpayer; (d) unused input taxes resulting from cancellation of VAT registration due to retirement from or cessation of business, or due to changes in or cessation of status as a VAT taxpayer; (e) excise taxes paid on petroleum products sold to tax-exempt entities and international carriers or on goods locally produced or manufactured and actually exported without returning to the Philippines; (f) taxes erroneously or illegally paid or penalties imposed without authority. A TCC is obviously not cash. Generally though, a TCC takes less time to be issued, since a cash refund of taxes requires the additional step of going through the Department of Budget and Management (DBM) for the allocation of specific funds. On the other hand, a TCC cannot be transferred from one taxpayer to another, and has a shelf life of just 10 years (and unlike cash, cannot earn interest if invested accordingly).
A TCC shall be valid for a period of five years from the date of issue which, if unutilized, must be revalidated before the end of the fifth year. The revalidated TCC shall be valid for a period of another five years from the date of issue. Thereafter, no further revalidation shall be allowed. In which case, the taxpayer may apply for conversion of the TCC into a cash refund during the validity period of the TCC, unless the taxpayer deems that he may use the TCC as payment of his direct internal revenue tax liability within the five-year validity period after revalidation.
Considering that the conversion of the TCC into a cash refund may take some time, the BIR noticed issues arising from the treatment of applications for cash conversion of TCCs whose dates of expiration are falling during the pendency of the applications and the same are still in the possession of the concerned BIR revenue office.
This issue has been clarified by the BIR when it issued Revenue Memorandum Circular (RMC) No. 77-2014 (Clarifying Certain Requirements on the Processing of Applications for Cash Conversion of Tax Credit Certificates).
Essentially, RMC No. 77-2014 describes two instances wherein there will be no need for a “second” revalidation of the TCC after the “first” revalidation and the five-year period is about to expire. All applications for cash conversion of TCCs which have been filed with the concerned BIR revenue office before the expiration of the validity period shall no longer be required to be revalidated for purposes of continuance of the processing of applications for TCC cash conversion. This is clearly provided for in Revenue Regulations No. 5-2000 dated 19 July 2000 where it was stated that any request for conversion into cash refund of unutilized tax credits may be allowed during the validity period of any TCC. In this case, certainly, there will be no need for revalidation of the TCC since the application for cash conversion has been made before the validity period of the TCC has expired.
There will also be no need for a “second” revalidation of the TCC after the “first” revalidation whose validity period is about to expire and the holder of the TCC has to apply the unutilized portion thereof as payment of his tax liabilities.
This “no more revalidation” policy under the RMC will save the taxpayers from the hassle of going back to the processing BIR revenue office due to reasons beyond their control. However, it is worthy to note that the RMC is silent on how long an application for TCC cash conversion will remain pending in the hands of the BIR. It should be taken into consideration that the cash conversion of the TCCs is also dependent on the allotted budget for every year on the part of the government.
Thus, this RMC admits the fact the there are several of applications for TCC cash conversions that have been pending with the BIR. For how long will those applications for cash conversion of TCCs remain pending with the concerned BIR revenue office? Well, that would be a good subject for clarification through another revenue memorandum circular. While RMC No. 77-2014, addresses the issue of revalidation of TCCs pending for TCC cash conversion, maybe another RMC should be issued providing a timeline on the processing of the application, at least on the side of the BIR, before the application is forwarded to the DBM.
Patricia C. Velarde 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 view 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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