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Tax Notes: EOPT is here: Revised rules on tax refund

THE Bureau of Internal Revenue (BIR) has released a series of Revenue Regulations (RR) for the implementation of Republic Act 11976, otherwise known as the Ease of Paying Taxes (EOPT) Act. This edition of Tax Notes discusses matters relating to the risk-based approach in verifying VAT (value-added tax) refund claims, refund of utilized excess income tax credit in case of dissolution or cessation of business and refund of erroneously collected taxes and penalties, covered under RR 5-2024.

Risk-based approach in verifying VAT refund claims

Refunds will be classified into low, medium, and high risk categories, depending on the amount of VAT refund claim, the frequency of filing VAT refund claims, the tax compliance history, and other risks that may be identified. Taxpayers are still required to submit the documentary requirements for VAT refund, regardless of risk classification. However, only medium risk and high risk will be subject to verification by the BIR, wherein the scope of verification of sales and purchases will be at least 50 percent for medium risk and 100 percent for high risk.

However, the risk-based approach comes with limitations as follows:

1. Claims filed by first-time claimants will be automatically considered high risk and will remain as such for the succeeding three VAT refund claims.

2. In the event of a full denial of a claim, the succeeding claim filed will be classified as high risk.

3. For medium-risk claims, verification will be adjusted to 100 percent if the assigned revenue officer found at least 30 percent disallowance of the amount of VAT refund claim.

4. Claims classified as low risk for the three consecutive filings of VAT refund claims will be subject to mandatory full verification on the fourth VAT refund claim, regardless of the risk classification.

5. VAT credit/refund claims for any unused input tax filed by a VAT-registered person whose registration has been cancelled due to retirement from or cessation of business, or due to changes in or cessation of status, will be classified as high risk and will require full verification.

6. A risk classification will be made for every filing for taxpayer-claimants filing quarterly.

7. Other limitations that may be identified by the BIR.

A VAT refund will be granted within 90 days from the date of submission of the complete documentary requirements. In case of full or partial denial of VAT refund claims, the taxpayer may appeal to the Court of Tax Appeals (CTA) within 30 days from the receipt of the decision denying the claim. However, in case of inaction of the BIR within the 90-day period, the taxpayer has the following options:

1. Appeal to the CTA within the 30-day period after the expiration of the 90 days required by law to process the claim; or

2. Forego the judicial remedy and await the final decision of the BIR on the application of VAT refund claim.

The risk-based approach will cover VAT refund claims that are filed beginning July 1, 2024.

Refund of utilized excess income tax credit in case of dissolution or cessation of business

In case the taxpayer cannot carry-over the excess income tax credit due to dissolution or cessation of business, the taxpayer will file an application for refund of any unutilized excess income tax credit.

The BIR will decide on the application and refund of excess income tax credit within two years from the date of the dissolution or cessation of business. The two-year period begins with the submission of the “Application for Registration Information Update/Correction/Cancellation (BIR Form 1905)” together with the complete documentary requirements.

The approved refund will only be released after the completion of the mandatory audit of all internal revenue tax liabilities covering the immediately preceding year, including any short period returns, and the full settlement of any unpaid tax liabilities relative to the cessation or dissolution of the business or prior thereto.

Refund of erroneously collected taxes and penalties

The following are the requisites for the claims of tax credit/refund of erroneously collected taxes or penalties:

a. The tax credit/refund claim pertains to erroneously collected taxes or penalties imposed without authority.

b. The filing of the claim must be done within two years after the payment of the taxes or penalties.

c. The erroneously or illegally collected taxes must be supported by a copy of the duly filed tax return with the corresponding payment remitted to the BIR.

The filed tax return showing an overpayment will be considered a written claim for refund, which will be filed with the BIR within two years from the erroneous payment of taxes or penalties. The BIR has provided 180 days from the submission of the complete documents to act on the application.

In case of denial or inaction of the BIR, the taxpayer may appeal to the CTA within 30 days from the receipt of the decision of denial or within 30 days after the expiration of the 180 days required by law to process the claim. Nevertheless, the taxpayer may forego the judicial remedy and await the final decision of the BIR.

Effectivity

The provisions stated in RR 5-2024 were effective on April 27, 2024, or 15 days from April 12, 2024, which was the date of posting on the BIR website.

Source: P&A Grant Thornton

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