EOPT ACT ON TAX REFUNDS

REVENUE REGULATIONS NO. 5-2024

Issued on Apri 11, 2024 to implement certain provisions of the Tax Code specifically on the risk-based approach in verifying VAT refund claims, processing of tax refund, etc. Said regulations shall cover tax credit/refund claims that are filed starting July 1, 2024 onwards to provide ample time for the taxpayers and the BIR to adjust to the requirements and procedures prescribed pursuant to the amendments of the EOPT Act, which mainly focuses on:

(A) Section 112(C) of the Tax Code that introduced the risk-based approach to verification of VAT refund claims;
(B) Section 112(D) of the Tax Code which clarified the liability of the taxpayer-claimant and the BIR in case of disallowance by the Commission of Audit (COA);
(C) Section 76(C) of the Tax Code allowing the application for refund of unutilized excess income tax credit in case of dissolution or cessation of business. For purposes of the Regulations, the entire provision of 76(C) of the Tax Code shall be covered to include policies for the processing of income tax credit/refund of taxpayers who have chosen the option to apply for tax credit or refund the excess income tax in their Annual Income Tax Returns (AITR);
(D) Section 204(C) of the Tax Code that introduced the one hundred eighty (180)-day processing of claims for tax refund except for VAT Refunds under Section 112 of the Tax Code; and
(E) Section 229 of the Tax Code outlined the policies for judicial claims and repealed the supervening clause provision thereof.

Note that the Regulations do not cover processing of tax refund/credit claims pursuant to the final and executory judgement by the courts.

Section 3 of the said Regulations provides that VAT refund claims pursuant to Section 112(A) of the Tax Code, as amended, shall be classified into low, medium, and high-risk claims and that the medium and high-risk claims shall be subject to audit or other verification processes in accordance with the BIR’s national audit program. Further, claims filed by first-time claimants shall be automatically considered as high-risk and shall remain as such for the succeeding three (3) VAT refund claims. In case of a full denial of claim, the succeeding claim filed shall be classified as high-risk. Note that for taxpayer-claimants filing on a quarterly basis, the risk classification shall be made for every filing.

 Under Section (3) (B) of RR 5-2024, the scope of verification in accordance with the identified risk as follows:

Moreover, the following are the main risk factors that will be used as a guide by the BIR in establishing the risk-level of each claim:

1. Amount of VAT refund claim;
2. Frequency of filing VAT refund claims;
3. Tax compliance; and
4. Other risk factors that may be identified.

The BIR may expand the above list into sub-categories and assign weights to each category to arrive at a more comprehensive risk classification of the claim.

All documentary requirements mandated by the BIR for purposes of VAT refund under Section 112 of the Tax Code, as amended, shall be submitted by the taxpayer regardless of the identified risk level.

Note that the 90-day period to process and decide shall start from the filing of the claim/application for VAT refund with complete documentary requirements up to the release of the payment thereof. In case of full or partial denial of the claim for VAT refund, the taxpayer may, within 30 days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals (CTA). However, in case the VAT refund is not acted upon by the Commissioner within the 90-day period, the taxpayer-claimant may opt to appeal to CTA within the 30-day period after the expiration of the 90 days or forego the judicial remedy and await final decision of the Commissioner on the application for VAT refund claim.

Moreover, Section 4 provides that approved VAT refunds under Section 112 of the Tax Code, as amended, shall be subject to post audit by the COA following the risk-based classification mentioned above. In case of disallowance by the COA, only the taxpayer shall be liable for the disallowed amount without prejudice to any administrative liability on the part of any employee of the BIR who may be found to be grossly negligent in the grant of the refund.

In addition to that, Section 5(A) of the same Regulations provides:

“SECTION 5. Credit/Refund of Unutilized Excess Income Tax Credit under Section 76 (C). — In order to properly implement Section 76 (C) of the Tax Code, as amended, the following rules shall apply.”

(A) Regular Claims. — This applies to claims for income tax credit/refund of taxpayers of “going-concern” status who have chosen the option to apply for tax credit or refund the excess income tax in their AITRs.|||
xxx xxx xxx

2. In case the taxpayer is entitled to a tax credit or refund of the excess income taxes paid during the year, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the said excess income taxes paid against the income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate (TCC) shall be allowed therefore.
3. In case the taxpayer chose the option to be issued TCC or refund but carried forward the said amount sought to be refunded/issued TCC in the AITR filed for the succeeding year, this shall be a ground for denial of the claim for tax credit or refund. However, the carried over amount may be allowed as credit against future income tax liabilities of the taxpayer-claimant.
4. Requisites in claiming tax credit or refund of unutilized excess income tax:
a. The filing of claim for TCC/refund must be made within two (2) years from the date of filing of the AITR.
b. The income upon which the taxes were withheld must be included as part of the gross income declared in the income tax return of the recipient.
c. The fact of withholding is established by a copy of the withholding tax certificate duly issued by the payor (withholding agent) to the payee showing the amount of income payment and the amount of tax withheld. The taxpayer-claimant must be clearly identified as the payee in the withholding tax certificate.” (Underscoring ours)

On the other note, in case the taxpayer cannot carry-over the excess income tax credit due to dissolution or cessation of business, the taxpayer shall file an application for refund of any unutilized excess income tax credit.

Section 6 of the Regulations also provides:
“SECTION 6. Processing of Tax Credit/Refund Claims under Sections 204 (C) and 229 of the Tax Code, as amended —
xxx xxx xxx
(B) No credit/refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty as provided under Section 229 of the Tax Code, as amended, Provided, however, that a return filed showing an overpayment shall be considered as a written claim for credit/refund. Provided, further, that for purposes of the 180-day processing period, the counting shall begin upon submission of complete documents in support of the application that will be prescribed by the BIR for this purpose and should be within the 2-year prescriptive period. xxx” (Underscoring ours)
Lastly, Section 7 provides for the guidelines on Judicial Claim for Credit/Refund under Section 229 of the Tax Code, as amended —
“(A) No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

(B) In any case, no such suit or proceeding shall be filed unless there is a full or partial denial of the claim for credit/refund by the Commissioner or there is a failure on the part of the Commissioner to act on the claim within the 180-day period under Section 204 (C) of the Tax Code, as amended.

(C) Judicial claim for tax credit/refund must be made within thirty (30) days from full or partial denial by the Commissioner or failure on the part of the Commissioner to act on the claim within the one hundred eighty (180)-day period under Section 204 (C) of the Tax Code, as amended.

(D) For tax refund claims of excess income taxes of taxpayers undergoing cessation or dissolution of business pursuant to Section 76 (C) of the Tax Code, as amended, judicial claim for tax credit/refund must be made within thirty (30) days from full or partial denial by the Commissioner.” (Underscoring ours)