Tax refunds: Setting matters straight
TOP OF MIND - Chyrs Anne M. Rosalejos (The Philippine Star) - September 23, 2014 - 12:00am

A claim for tax refund or issuance of a Tax Credit Certificate (TCC) partakes of the nature of a tax exemption.  It is elementary that a statute granting tax exemption is strictly construed against the entity claiming such exemption. Under the Tax Code, the rules for claims for refunds or TCCs (claims) differ in the procedural aspect based on the type of tax to be refunded, which can either be excess unutilized input value-added tax (VAT) or other taxes erroneously or illegally received by the Bureau of Internal Revenue (BIR).

Oftentimes, it is difficult for a taxpayer to understand the rules on claims as provided in the Tax Code and its implementing regulations.  In most cases, these rules are clarified as a result of being the subject of litigation in courts. Based on the latest jurisprudence and administrative issuances, let us clarify and review the rules on claims for the both the VAT and other taxes.

Last June 11, 2014, the BIR issued Revenue Memorandum Circular (RMC) No. 54-2014.  Aside from mentioning the requirement of filing a claim within a two-year period, as stated in Section 112 of the Tax Code, the circular provides more of the substantial and procedural requirements for filing claims, based on the decisions of the Supreme Court in  the cases of Commissioner of Internal Revenue vs. San Roque Power Corp. (G.R. No. 187475, 196113, and 197156 dated 12 Feb. 12,  2013) and Mindanao II Geothermal Partnership vs. Commissioner of Internal Revenue (G.R. No. 193301 and 194637 dated March 11, 2013).

On the issue of substance, the taxpayer is now required to submit the complete set of supporting documents as provided under RMC No. 54-2014, along with the taxpayer’s statement under oath attesting to the completeness of the documents submitted, and that the said documents are the only documents which the taxpayer shall present to support his claim. For juridical persons, a sworn statement that the officer signing the affidavit has been authorized by the Board of Directors of the company is needed. Evidently, in case the documents submitted by the taxpayer are incomplete, the claim shall be denied outright.

For the procedural aspect, the commissioner of Internal Revenue (CIR) has 120 days from the date of filing of the complete documents to decide whether or not to grant the claim. If the claim is not acted upon by the CIR within the 120-day period as required by law, such “inaction shall be deemed a denial”. And in case of full or partial denial of the claim or the inaction within the prescribed period, the taxpayer may, within 30 days from receipt of the decision denying the claim or after the expiration of the 120-day period, appeal the decision or unacted claim to the Court of Tax Appeals (CTA). As such, the taxpayer is required to observe the 120 + 30-day rule before filing a judicial claim with the CTA.

Thus, the taxpayer has the option to either: (1) file the judicial claim within 30 days after the CIR denies the claim within the 120-day period, or (2) file the judicial claim within 30 days from the expiration of the 120-day period if the CIR does not act within the said period.

In case the taxpayer fails to file a judicial claim with the CTA within the 30-day period, either from the end of the 120-day period or from the receipt of the decision of the CIR, the taxpayer loses his right to pursue the claim at the judicial level. Note further that after the lapse of the 120-day period in the case of inaction on the part of the CIR, the CIR is no longer obliged to continue to process the claim. This appears to be one of the major differences between claims involving the VAT and those involving other taxes.

On the other hand, in cases involving erroneous or illegally received payments of taxes, separate refund rules apply.

The rules on recovery of tax erroneously or illegally collected can be found under Section 229 of the Tax Code which provides that in case of recovery of any national internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, the taxpayer must file a claim with the CIR within two years from the date of the payment of the tax or penalty regardless of any supervening cause.

For a claim based on erroneous payment of tax, various cases decided by the Supreme Court provides for the requirements as follows: (1) there must be a written claim filled by the taxpayer with the CIR; (2) the claim must also categorically demand for reimbursement; and (3) the taxpayer must show proof of payment of the tax.

Incidentally, the Supreme Court has also laid down several rules to determine the commencement of the two-year period as prescribed under Section 229 of the Tax Code. First, when the tax sought to be refunded is illegally or erroneously collected, it commences from the date the tax was paid (Commissioner of Internal Revenue vs. Victorias Milling, G.R. No. L-24108, Jan. 31, 1968). Second, when the tax is paid only in installments or only in part, it commences from the date the last or final installment of payment was made, because for tax purposes, there is no payment until the whole or entire tax liability is fully paid (Collector of Internal Revenue vs. Prieto, G.R. No. L-11976, 29 Aug. 29, 1961). Third, in case the taxpayer merely made a deposit, it is counted from the conversion of the deposit to payment (Union Garment vs. Collector of Internal Revenue, CTA Case No. 416, 17 Nov. 17, 1958). And lastly, in the instance that tax has been withheld from source, it is counted from the date the withholding tax falls due at the end of the taxable year (Gibbs vs. Commissioner of Internal Revenue, G.R. No. L-17406, Nov. 29, 1965).

The claim under Section 229 of the Tax Code refers to: (1) the administrative claim which the taxpayer must file within two years with the BIR; and (2) the judicial claim, which must commence with the CTA within the two-year period, in case the BIR fails to act on the action for refund.

Based on the rules on claims presented above, what is clear is that in a claim for unutilized input VAT, the RMC provides for the 120-day period for the CIR to act on the claim, while in case of a claims for other taxes, the CIR effectively has the whole two-year period to evaluate the same assuming the taxpayer immediately files the said claim. Also, based on the RMC, within 30 days from receipt of the CIR’s denial of the claim within the 120-day period, or within 30 days from the lapse of the 120-day period if the CIR does not act on the claim, the taxpayer must file his judicial claim with the CTA; while for other taxes, the taxpayer has until the end of the two-year period stated in Section 229 of the Tax Code within which to file a judicial claim.  Of course, if the CIR actually denies the claim within the two-year period, the taxpayer should file a judicial claim as well with the CTA, likewise within 30 days from the receipt of the denial. Under both instances, should the taxpayer fail to file their respective judicial claims within the periods prescribed under the RMC and Section 229, the taxpayer loses the right to appeal to the CTA.

Taking into consideration the above discussion, what is important to emphasize is the fact that the taxpayer has to file an administrative claim with the BIR, which in case of VAT refund, is given a steep 120-day period to act and evaluate on the claim. On the other hand, in case of erroneous payment of taxes, although there is no specific period given to the BIR to decide the claim, it appears that the BIR can use the period of two years, depending on when the claim was filed, to process such claims. This is evidenced by the number of judicial claims for refund filed in the CTA. Apparently, for a lot of taxpayers with pending claims based on erroneous payment, the only feasible remedy is to file a judicial claim with the CTA or they risk losing their right to claim for tax refunds. Finally, it should be noted that the filing of judicial claims is not without costs, as compared to the claims filed with the BIR. 

It is a sad irony that taxpayers with valid claims are effectively forced to incur additional costs just to get their money back.  And in terms of VAT claims, these costs would now appear to be more inevitable, and would be incurred earlier, like after 120 days from the date of filing of the claim.

Chyrs Anne M. Rosalejos is a supervisor from the tax group of R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or RGM&Co. For comments or inquiries, please email or

For more information on KPMG in the Philippines, you may visit


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