Reckoning of the 120-day rule
Atax refund is one of the most tedious processes in our tax system, if not the most. Refunds are in the nature of tax exemptions construed strictly against the taxpayer. However, this doesn’t necessarily mean that the taxpayer is at the mercy of government power. In our system of taxation, statutory procedures protect the rights of the taxpayer.
For value-added tax ( VAT) refunds, Section 112 of the Tax Code provides that the taxpayer, whose sales are zerorated or effectively zero-rated, has two years after the close of the taxable quarter when the sales were made, to apply for an administrative claim for refund. Thereafter, the Commissioner of Internal Revenue (CIR) has 120 days from the submission of complete supporting documents to act upon the claim for refund. In case of full or partial denial of the claim or failure of the CIR to act on the application within 120 days, the taxpayer may appeal with the Court of Tax Appeals (CTA) within 30 days from receipt of the decision or upon expiration of the 120-day period.
In the landmark case of CIR vs. Aichi (GR No. 184823 dated October 6, 2010), the Supreme Court (SC) held that the observance of the 120-day period is a mandatory and jurisdictional requisite to the filing of a judicial claim for refund before the CTA. As such, its non-observance would warrant the dismissal of the judicial claim for lack of jurisdiction.
Thus, the proper question now would be, how should we reckon the 120-day period in order to properly observe its mandatory and jurisdictional nature? When should the submission of documents be deemed “completed” for purposes of determining the running of the 120-day period?
In a recent decision of the SC sitting En Banc (GR No. 207112 dated December 29, 2015), the Court clarified that, starting June 11,2014 when Revenue Memorandum Circular (RMC) No. 542014 took effect, the 120-day period should be counted from the date that the administrative claim was filed.
Under RMC No. 542014, prescribing the current rules on VAT refunds, the taxpayer is required to present complete supporting documents at the time of filing the claim. The application must be accompanied by supporting documents as enumerated in the Circular and a statement under oath attesting to its completeness. The affidavit shall further state that the said documents are the only documents which the taxpayer will present to support the claim. Thus, the taxpayer is barred from submitting additional documents after filing the administrative claim. Thus, the 120-day period would start upon the filing of the administrative claim for refund.
What about claims filed before June 11, 2014, or prior to the effectivity of RMC No. 54-2014?
The SC clarified that the 120- day period granted to the CIR to decide on the administrative claim is primarily intended for the benefit of the taxpayer, to ensure that his claim is decided judiciously and expeditiously. Ideally, upon filing his administrative claim, a taxpayer should complete the necessary documents to support his claim for tax credit or refund for excess unutilized VAT. After all, should the taxpayer decide to submit additional documents and effectively extend the 120-period, it grants the CIR more time to decide the claim. Moreover, it would be prejudicial to the interest of a taxpayer to prolong the period of processing of his application before he may reap the benefits of his claim.
The SC emphasized, however, that the benefit given to the taxpayer to extend the deadline is not unbridled. Prior to RMC No. 54- 2014, RMC No. 49-2003 provides that if in the course of the investigation and processing of the claim, additional documents are required for the proper determination of the legitimacy of the claim, the taxpayer-claimants shall submit such documents within 30 days from the request of the investigating/processing office. Notice, by way of a request from the tax collection authority to produce the complete documents in these cases, is essential. It is only upon the submission of these documents that the 120day period would begin to run.
In addition, under RMC No. 29-2009, the CIR is tasked with the duty to notify the taxpayer of the incompleteness of its supporting documents and, if the taxpayer fails to complete the supporting documents despite such notice, the administrative claim shall be denied. Under this RMC, the 120-day period stops running when the taxpayer is notified.
Moreover, whatever documents a taxpayer intends to file to support his claim must be completed within the two-year period under Section 112(A) of the Tax Code.
As to the proper supporting documents, the SC pointed out that a taxpayer’s failure to adequately submit the requirements listed under Revenue Memorandum Order No. 53-98 is not fatal to its claim for tax credit or refund of excess unutilized VAT. The SC explained that RMO No. 53-98 is addressed to internal revenue officers and employees, for purposes of equity and uniformity, to guide them as to what documents they may require taxpayers to present upon audit of their tax liabilities. Nothing stated in the issuance would show that it was intended to be a benchmark in determining whether the documents submitted by a taxpayer are actually complete to support a claim for tax credit or refund of excess unutilized VAT. The SC recognizes that it is the taxpayer who ultimately determines when complete documents have been submitted for the purpose reckoning the 120-day period.
While the Court held that the noncompliance with the requirements under RMO No. 53- 98 is not fatal to the claim of the taxpayer, it did not rule upon the nature of the checklist enumerated under RMC No. 54-2014. Taking caution by the hand, it may be prudent for taxpayers to consider the checklist under the RMC as mandatory for administrative claims to be valid.
Nonetheless, as an end note, the SC emphasized the difference between the administrative cases appealed due to inaction and those dismissed at the administrative level due to the failure of the taxpayer to submit supporting documents. When a judicial claim for refund or tax credit in the CTA is an appeal of an unsuccessful administrative claim, the taxpayer has to convince the CTA that the CIR had no reason to deny its claim. However, a taxpayer cannot cure its failure to submit a document requested by the BIR at the administrative level by filing the said document before the CTA. While, in case the judicial claim is due to inaction, the CTA may give credence to all evidence presented by the taxpayer, including those that may not have been submitted to the CIR as the case is being essentially decided in the first instance.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The firm will not accept any liability arising from the article.