Tax Notes: EOPT is here: BIR clarifies availment of output VAT credit on uncollected receivables

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When the Republic Act No. 11976, also known as the Ease of Paying Taxes (EOPT) Act, changed the method of recognizing value-added tax (VAT) from a cash basis to an accrual basis, taxpayers may have difficulty when it shoulders the output VAT on receivables that may not be collected. In effect, taxpayers are now required to remit to the Bureau of Internal Revenue (BIR) the portion of output VAT despite not receiving the money for payment. The EOPT introduces the output VAT credit on uncollected receivables, which is a reprieve for taxpayers who have not yet collected their receivables otherwise already reported for VAT purposes.

In the Revenue Memorandum Circular (RMC) 65-2024, issued last June 13, 2024, the BIR allows the seller to deduct the output VAT on uncollected receivables from sales on accounts made after April 27, 2024, from the output VAT of the following quarter after the lapse of the credit term. As such, this provision does not apply to outstanding receivables on sales made prior to the effectivity of Revenue Regulations No. 3- 2024, or before April 27, 2024.

To be entitled to the output VAT credit, the sale or exchange should be on credit or account and should have taken place after the effectivity of RR No. 3-2024, or on April 27, 2024. The period agreed upon, whether extended or not, must have already lapsed. Also, there should be a written agreement on the period to pay the receivable, i.e., the credit term is indicated on the invoice or any document showing the credit term with the corresponding VAT amount separately shown.

Additionally, the sales should be declared in the BIR Form No. 2550Q or the quarterly VAT Return the corresponding output VAT indicated in the invoice within the period prescribed under existing rules; and specifically reported in the Summary List of Sales covering the period when the sale was made and not reported as part of “various” sales. If the seller consolidates all sales into a single entry titled “various,” the lumping shall be considered invalid compliance with the requisites, and the output VAT credit on uncollected receivable may be disqualified. Lastly, the VAT component of the uncollected receivable should not have been claimed as a bad debt deduction from gross income (i.e., bad debt) for income tax purposes.

As an example, if ABC Corp. sold merchandise worth P100,000 to clients on account for a period of 90 days until Sept. 28, 2024. If ABC Corp. fails to collect the receivable by that date, it may claim the output VAT credit for the quarter ending December 31, 2024. If the receivable remains uncollected by March 31, 2025, ABC Corp. cannot claim the VAT credit again. However, if the payment is extended to December 31, 2025, ABC Corp. may now claim the VAT credit in the quarterly return ending March 31, 2025, provided that they did not claim such credit in the previous quarter.

Furthermore, the corresponding input VAT claimed by the buyer shall not be allowed as input VAT credit if the seller claims output VAT credit on such an uncollected receivable. Should the buyer continue to claim such input VAT, they will be liable for deficiency taxes. In this case, the seller is required to stamp “Claimed Output VAT Credit” on the seller’s copy of the corresponding invoice previously issued. In case of partial collection, the amount collected, and the remaining balance shall also be indicated. The seller should also provide the buyer with a copy of the stamped invoice so the buyer may adjust its input VAT credit. In case the seller fails to provide such a stamped invoice, the buyer can voluntarily reverse its claimed input VAT credit in its VAT return.

Moreover, in cases where goods sold previously were returned by the buyer during the agreed-upon period/credit term, the return is treated as a sales return and a deduction from gross sales in the quarterly VAT return when the return happened. Conversely, if the goods previously sold were returned by the buyer and the seller has claimed output VAT credit on uncollected receivables, no deduction from sales and output VAT shall be allowed since the claim for tax credit has already been made.

If the output VAT is subsequently collected, the previously claimed output VAT credit shall be reported and declared in the taxable quarter in which the recovery or collection is made. Following the example of ABC Corp. above, sales on account on June 30, 2024 were declared in the June 30, 2024 VAT return and the corresponding output VAT was claimed as credit in the December 31, 2024 VAT return; but was subsequently collected during the taxable quarter ending March 31, 2025. Hence, ABC Corp. shall declare the recovered output VAT in the VAT return for the quarter ending March 31, 2025.

In any case, the VAT-registered seller is not required to automatically claim the output VAT on the uncollected receivable, especially if the likelihood of collectability is high.

Taxpayers such as those tagged by the BIR as Cannot Be Located taxpayers, those with duly filed complaints at the DOJ under the Run After Fake Transaction and Run After Tax Evaders programs, and other taxpayers that may be identified by the Commissioner cannot claim the tax credit on VAT paid on uncollected receivables.

In the tax return (BIR Form 2550Q), the output VAT credit and its recovery shall be presented as follows:

a. in eFPS:

a. Output VAT credit:

i. seller – Line 26G “Others”

ii. buyer – Line 23E “Others”.

b. Recovery of output VAT:

i. seller – Line 23E “Others”

ii. buyer – Line 20E “Others”.

b. in eBIRForms:

a. Output VAT credit:

i. seller - Line 19 “Other Credits/Payment and specify as “Output VAT Credit on Uncollected Receivables

ii. buyer - Line 53 “Other Credits/Payment and specify as “Input VAT Claimed from Unpaid Purchases on Account

b. Recovery of output VAT:

i. seller – Line 53 “Others” and indicate “Output VAT on Recovered

Previously Claimed Uncollected Receivable”

ii. buyer - Line 40 “Others” and indicate “Input VAT on Paid Purchases on Account Previously Unsettled.”

Please be guided accordingly.

Source:

P&A Grant Thornton

Certified Public Accountants

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