Cash for your VAT TCCs

Cash for your VAT TCCs by Ma. Lourdes A. Politado

A Tax Credit Certificate (TCC) is a duly issued instrument by the Bureau of Internal Revenue (BIR) or the Bureau of Customs (BoC) in favor of a taxpayer acknowledging that the grantee is legally entitled to a tax credit.
 
Unless revalidated, TCCs shall be valid only for a period of five years from the date of issue. Revalidation must be done before the end of the fifth year. Once revalidated, the TCCs shall be valid for another five years from date of revalidation.

TCCs that remain unused within the extended five-year period shall become invalid and the amounts thereof shall revert to the General Fund of the National Government.

Under Revenue Regulations No. (RR) 05-2000, a TCC in the hand of the original owner may be used as payment for other internal revenue tax liabilities (except for withholding tax, availment of tax amnesty declared under a legislative enactment, deposits on withdrawal of excisable articles, taxes not administered or collected by the BIR, and compromise penalty) or may be converted as a cash refund. Also, the same may be transferred or assigned in favor of any person but usually at a discounted value. Once transferred or assigned, the TCC can no longer be converted to cash.

However, with the issuance of RR 14-2011, the transferability of TCCs is no longer allowed. Hence, original owners of TCCs have no option but to utilize the same or convert it to cash, while transferees or assignees can only use the same for payment of internal revenue tax liabilities.

In light of this, what then could be the recourse of a transferee/assignee of a TCC that will soon expire if he has no outstanding tax liabilities?

Recently, the Department of Finance (DoF), Department of Budget Management (DBM), BIR, and BoC issued Joint Circular Nos. 02-2012 and 3-2012 to implement the monetization program for VAT TCCs under Executive Order No. 68 series of 2012.

The program covers only TCCs issued due to VAT refunds and duty drawbacks pursuant to Section 112 of the National Internal Revenue Code.

Under the circular, holders of TCCs, whether as original grantees or transferees, may apply for the monetization of such certificates. Hence, transferees of TCCs who have no immediate use for such may now heave a sigh of relief.

Based on the implementing rules, interested TCC holders must submit their application together with the original copies of the TCCs to the issuing agency of the certificate (BIR, BoC, or the One-Stop-Shop Center of the DoF) within three months from the effectivity of the circular. Any TCCs submitted for verification shall no longer be allowed to be used as payment for the TCC holders’ tax liabilities.

Upon verification and validation of the TCC and the application, the issuing agency shall issue the Notice of Payment Schedule (NPS), detailing the taxpayer’s information, refundable amount, and the TCC maturity date. Holders of the NPS shall have the following options:

(a) Hold on to the NPS and receive the full cash value upon maturity date (expiry date of the TCC). The NPS must be presented for payment with the issuing agency within 30 calendar days before maturity date.

(b) Sell the NPS to government financial institutions at a discount to be set by the DoF and the Government Financial Institutions (GFIs).

With regard to option (a) above, monetization of TCCs shall be available only on the following schedules:

TCCs originally issued in 2003 or earlier  - 2012

TCCs originally issued in 2008 and prior years - 2013

TCCs originally issued in 2009 - 2014

TCCs originally issued in 2010 - 2015

TCCs originally issued in 2011 and 2012 - 2016

Thus, considering the above schedules and the requirement to apply for the program within three months from the effectivity of the circular, it is suggested that holders of TCCs carefully study the options available to them with regard to their available certificates. Note that TCCs originally issued in 2009, 2010, 2011 and 2012 shall be available only for full value monetization during the period 2014 to 2016. Hence, taking into account the time value of money, the TCC holder may have to wait for two to four years before he can receive the cash refund. The holder of the TCCs must also carefully study future tax liabilities, if any.

Nonetheless, the option to sell the NPS to the government financial institution (GFI) should also be considered. However, this may be taken into account only after the DoF and GFIs determine the applicable discounts. Ideally, the discount should be more or less commensurate to the current effective interest rates in order for the holders to have a viable option.

The implementation of this monetization program is one good step by the Aquino administration in improving the country’s investment climate. However, a similar program should also be issued to cover the other TCCs (e.g., overpayment of income tax, erroneously or over-withheld tax, taxes erroneously or illegally paid or penalties imposed without authority). This would eliminate the issues attendant to the other TCCs that have already been addressed by this monetization program.