SyCip Salazar Hernandez & Gatmaitan
  March 1, 2021 - Philippines

Tax Issues and Practical Solutions (T.I.P.S.) for February

The SyCipLaw T.I.P.S. for February covers the following tax issues:

1. What are the new and simplified guidelines and procedures on the use of Computerized Accounting Systems, Computerized Books of Account, and/or its Components, including Electronic Storage System?

The Bureau of Internal Revenue (BIR) issued Revenue Memorandum Order No. 9-2021 (RMO No. 9-21) which prescribes the simplified guidelines and procedures on the use of Computerized Accounting Systems, Computerized Books of Accounts, and/or its components, including Electronic Storage System, middleware and other similar systems (collectively referred to as System).

Under RMO No. 9-21, a taxpayer no longer needs to obtain a Permit to Use a System. Nevertheless, every taxpayer that intends to use a System must inform and register with the Revenue District Office (RDO) or Large Taxpayers (LT) Office where it is registered of its intention to use a System. The System that will be used by the taxpayer must strictly comply with the Standard Functional and Technical Requirements set out in Annex B of RMO No. 9-21.

The taxpayer must submit the requirements listed in Annex A (the Checklist of Documentary Requirements) of RMO No. 9-21. These requirements include:

(a) Sworn Statement (Annex C of RMO No. 9-21) (if the System is used and maintained by taxpayer) or Joint Sworn Statement (Annex E of RMO No. 9-21) (if system is outsourced or used and maintained by tax service providers or third-party software provider instead of taxpayer) with attached duly accomplished Summary of System Description, Commercial Invoice/Receipts/ Document Description, Forms/Records and Reports Specification (Annex C-1 of RMO No. 9-21);

(b) Sample print-out of Principal and Supplementary Receipts/invoices compliant with existing rules and other accountable forms that will be used, if applicable (as declared on Part V of Annex C-1 of RMO No. 9-21);

(c) Sample print-out of Books of Accounts compliant with existing rules and other reports that can be generated from the system and will be used, if applicable (as declared on Part VI of Annex C-1 of RMO No. 9-21);

(d) Printed copy of Audit Trail (activity log generated by the system); and

(e) Duly accomplished and signed form regarding Standard Functional and Technical Requirements (Annex B of RMO No. 9-21).

The concerned RDO/LT Office shall issue an Acknowledgment Certificate (AC) (Annex D of RMO No. 9-21) upon receipt of the complete documentary requirements. The AC shall be issued within three working days from receipt of complete documentary requirements. The AC shall be valid unless revoked by the BIR upon discovery of non-compliance with the provisions of RMO No. 9-21 and other related issuances during the conduct of post-evaluation.

2. How does a taxpayer file a claim for refund of erroneously or illegally assessed or collected value-added tax (VAT)?

In Revenue Memorandum Order No. 47-2020 (RMO No. 47-20), the BIR consolidated and amended the existing revenue issuances on the processing of VAT credit/refund claims filed under Sections 112 and 229 of the National Internal Revenue Code, as amended (Tax Code). The effective date of RMO NO. 47-20 is on January 19, 2021, as clarified by Revenue Memorandum Circular No. 19-2021.

Like applications for refund of input VAT under Section 112 of the Tax Code, claims for refunds of erroneously or illegally assessed or collected VAT under Section 229 of the Tax Code will undergo the same process of verification, review, and approval before the issuance of the tax credit certificate or refund check, as may be applicable.

As a policy, only applications for refund with complete documentary requirements which are filed within the prescribed period under the Tax Code shall be received by the authorized processing office. Before officially receiving the application, the assigned BIR Revenue Officer shall check the completeness and propriety of the supporting documents, compliance with the appropriate Checklist of Requirements, the existence of any outstanding tax liability other than VAT, and the existence of pending audit investigations covering the same taxable period. Applications that are refused by the BIR may be re-filed as long as the re-filing is within the corresponding prescriptive period under the Tax Code.

3. What amendatory provisions of the 2019 Proposed Amendments to the 1997 Rules of Civil Procedure are adopted by the Court of Tax Appeals (CTA)?

In CTA En Banc Resolution No. 9-2020 dated August 7, 2020, the CTA expressly adopted the following provisions of the 2019 Proposed Amendments to the 1997 Rules of Civil Procedure (Amended Rules): (a) Section 2, Rule 6 (Kinds of Pleadings); (b) Sections 3, 4, 5 and 6, Rule 7 (Parts and Contents of a Pleading); (c) Section 12, Rule 8 (Manner of Making Allegations in Pleadings); (d) Rule 10 (Amended and Supplemental Pleadings); (e) Section 1 and 11, Rule 11 (When to File Responsive Pleadings); (f) Rule 13 (Filing and Service of Pleadings, Judgments and other Papers); (g) Rule 15 (Motions); (h) Rule 18 (Pre-Trial); (i) Section 6, Rule 21 (Subpoena); (j) Rule 33 (Demurrer to Evidence); (k) Rule 34 (Judgment on the Pleadings); and (l) Rule 35 (Summary Judgments). These provisions shall apply to all civil cases filed with the CTA after May 1, 2020, and to all pending civil proceedings filed prior to May 1, 2020, except to the extent that, in the opinion of the CTA, their application would not be feasible or would work injustice.

The other provisions of the Amended Rules that are not expressly adopted by the CTA in the En Banc resolution, apply in a suppletory manner to CTA cases pursuant to Section 3, Rule 1 of the Revised Rules of the CTA.

4. Is a Final Notice Before Seizure sent by the BIR to a taxpayer appealable to the CTA?

Yes. In Philippine Dream Company, Inc. v. Commissioner of Internal Revenue (G.R. No. 216044, August 27, 2020), the BIR issued a Final Notice Before Seizure while the taxpayer’s protest against a tax assessment was pending review by the BIR. The Supreme Court ruled that a Final Notice Before Seizure is considered a final decision of the Commissioner of Internal Revenue (CIR) on a disputed assessment. Accordingly, pursuant to Section 228 of the Tax Code, the taxpayer must file an appeal to question the Final Notice Before Seizure with the CTA within 30 days from its receipt of the same. Being a court of special jurisdiction, the CTA can only take cognizance of matters which are within its jurisdiction. While the right to appeal a decision of the CIR to the CTA is a statutory remedy, the requirement that the appeal must be brought within the prescribed 30-day period is jurisdictional.

5. In an input VAT refund case, may the CTA automatically adjudge deficiency VAT liability if it finds that a portion of the sales/receipts do not qualify for VAT zero-rating?

No. Commissioner of Internal Revenue v. Procter & Gamble Asia Pte. Ltd. (CTA En Banc Case No. 1998, January 5, 2021 and CTA Case No. 7683, September 6, 2018) involves a petition filed by Procter & Gamble Asia Pte. Ltd. (P&G) for VAT refund on its unutilized excess input VAT attributable to zero-rated sales/receipts. The CTA in Division partially granted the petition but disallowed a portion of P&G’s zero-rated sales/receipts for failure of P&G to adequately prove that these sales/receipts qualify for zero-rating. The CIR filed an appeal before the CTA En Banc, which eventually affirmed the CTA in Division.

The CIR then filed a motion for reconsideration and asked the CTA En Banc to determine the corresponding output VAT liability on P&G’s sales/receipts that did not qualify for zero-rating. The CIR argued that the determination of P&G’s output VAT liability is for the purpose of merely ascertaining the latter’s entitlement to its unutilized input VAT claim, and SyCipLaw TIP 4: Make sure to use the latest version of BIR Form No. 1709 (Information Return on Transactions with Related Party). SyCipLaw TIP 5: A tax refund claim, where the sole issue is the taxpayer’s entitlement to a refund, cannot be used by the BIR and the CTA to issue a deficiency tax assessment. A taxpayer must be given the opportunity to question an alleged deficiency tax assessment before the BIR in a separate proceeding. not for imposing any deficiency tax.

The CTA En Banc denied the CIR’s motion and held that any tax deficiency liability of a taxpayer-claimant in a refund case may not be collected in the same refund case where the sole issue therein is the taxpayer’s entitlement to a refund. The CTA En Banc ruled that to automatically hold the taxpayer liable for the alleged tax deficiencies against the claim for refund pertaining to the same category of tax would be unjust as it would deprive the taxpayer of the opportunity to dispute the same in the proper venue, and would not afford the taxpayer the defenses available to it under the law. The CTA En Banc also stressed that it has no assessment power like that of the CIR.

The CIR may still file an appeal before the Supreme Court.




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