Substantiation of input tax credits
Substantiation of input tax credits by: Mark Julius C. Estur
Taxes are the lifeblood of the
nation. In fact, under Philippine laws,
statutes that grant tax exemptions are construed strictissimi juris against
the taxpayer and liberally in favor of the taxing authority.
Tax refunds in relation to the value
added tax are in the nature of such exemptions.
Thus, cliché as it may sound the
taxpayer has the burden of proving the factual bases for the grant of tax
credits/refunds and that the necessary supporting documents thereto should be
clearly scrutinized by the taxing authorities.
The recent pronouncement of the Supreme
Court (SC) penned by Justice Carpio-Morales, AT&T Communications Services Philippines Inc. vs. Commissioner of
Internal Revenue, G.R. No. 182364 dated August 3, 2010, stating that
Section 113 of the Tax Code does not create a distinction between a sales
invoice and an official receipt.
Parenthetically, the SC ruled that to determine the validity of
petitioner’s claim as to unutilized input VAT; an invoice would suffice to
prove its zero-rated sales provided the requirements under Section 113 and 237
of the Tax Code are met.
It is worthy to
mention, however, that this is based on the provision of the VAT Law effective
at the time of the transaction covered by said case.
In the foregoing case, petitioner filed
the application for tax refund and/or tax credit of its excess/unutilized input
VAT from zero-rated sales with the Commissioner of Internal Revenue and
subsequently to the Court of Tax Appeals last March 26, 2004.
This was prior to the Republic Act
(RA) No. 9337, which took effect on November 1, 2005. RA No. 9337 specifically provides that input
tax credits for domestic purchase of goods and properties must be substantiated
and supported by an invoice and an official receipt for services.
Even if the transaction occurred prior
to the issuance of RA No. 9337, however, the CTA First Division in February 23,
2007 ruled in a manner which is consistent with the 2005 Revenue Regulation (i.e.,
Revenue Regulations (RR) No. 16-05) and relied on the provisions of the Tax
Code, to wit: “The CTA First Division,
relying on Sections 106 and 108 of the Tax Code, held that since petitioner is
engaged in sale of services, VAT Official Receipts should have been presented
in order to substantiate its claim of zero-rated sales, not VAT invoices which
pertain to sale of goods or properties.”
This is notwithstanding that in the old
VAT regulations; there were no specific distinction between an invoice and an
official receipt in the claim for tax credit/refunds.
In RR No. 3-88 amending RR No. 5-87, it may
be implied that an invoice may suffice for claiming tax credit on services, by
stating only that: “a photocopy of the purchase
invoice or receipt evidencing the value added tax paid shall be submitted
together with the application.
The same holds true with RR 6-97
amending RR 7-95, otherwise known as the consolidated value-added tax
regulations, which made no mention that the provision relative to the
substantiation of input tax credit has been revised or amended.
There are varied opinions regarding the
matter, as some practitioners point out that even prior to the issuance of the
RR 16-05, there is already a distinction between an invoice and an official
receipt for purposes of substantiation in rendition of service, and that it was
only strictly implemented and made clear by the issuance of the said
This is also supported by
Revenue Memorandum Circular No. 42-2003 issued last July 15, 2003, which
provides that invoice is the supporting document for the claim of input tax on
purchase of goods whereas official receipt is the supporting document for the
claim of input tax on purchase of services.
A 2008 CTA Decision (Teekay Shipping Philippines Inc. vs.
Commissioner of Internal Revenue, C.T.A. Case No. 7533, October 15, 2008), stated that our laws and regulations require that the sale of goods or
properties must be supported by sales invoices; while the sale of services must
be supported by official receipts. This requirement is mandatory in nature and
consequently, non-compliance therewith is fatal to one's claim for credit or
refund of its input taxes. With the
recent decision of the SC, however, it appears that there is no more distinction
between an official receipt and an invoice in the substantiation of input tax
credit for services relying on the provisions of the Tax Code prior to the
issuance of RR 16-2005.
While this may appear favorable to the
taxpayer, we should be wary of the implications of this recent pronouncement by
the Supreme Court for purposes of invoking the issue on substantiation of input
VAT claims for credit/refund on services.
It should be noted that Section 113 of the Tax Code, as amended, already
made a distinction between an invoice and an official receipt for purposes of
invoicing requirements. Thus, it may
appear that the case in point may be applicable only to those filed prior to
the issuance of RR No. 9337.