MANY taxpayers were taken aback by the issuance of Revenue Memorandum Circular (RMC) 54-2014 and its retroactive application. All pending claims for refund of value-added tax (VAT) that were not elevated to the Court of Tax Appeals (CTA) 120 days from their filing (with the complete documents) are deemed denied. If the taxpayer did not elevate the “deemed denial” within 30 days from the expiration of those 120 days, then the taxpayer permanently lost its claim.
The controversial phrase in this RMC is “deemed denial.” Where did it come from?
The Supreme Court (SC), in the San Roque case (GR 187485, 2014), derived this phrase, not from the Tax Code, but from the charter of the CTA, which provides that, if the Internal Revenue commissioner fails to decide within “a specific period” required by law, such “inaction shall be deemed a denial” of the application for tax refund or credit.
It is not the first time that the SC has passed upon the phrase. In the Lascona case (667 Supreme Court Reports Annotated 458, 2012), the High Court ruled that, in tax assessment, a taxpayer has two options on when to appeal its protest to the CTA: One, appeal within 30 days from the lapse of the 180-day period that the Bureau of Internal Revenue (BIR) has not acted on the taxpayer’s protest, which the SC considers as a deemed denial; and two, wait for the BIR’s decision on the protest, no matter when it is handed down. According to the High Tribunal, a taxpayer cannot be prejudiced if it chooses the second option.
These two options in the Lascona case must also be applicable to claims for refund. Section 228 of the Tax Code (which outlines the appeal process in tax assessments) and Section 112 of the Tax Code (which outlines the appeal process in VAT refunds) uses almost the same words.
According to Section 228, if the BIR does not act on the protested assessment within 180 days, then it will be treated as inaction. The same rationale applies in Section 112. If the BIR does not act on the claim for refund within 120 days, then it will be also treated as inaction. According to the CTA charter, when there is inaction, the taxpayer has 30 days to appeal to the CTA. This was confirmed by the SC in the Lascona and San Roque cases.
But there is a very important difference between these two cases. In the former, the SC was confronted with the BIR’s decision on a disputed assessment. This decision denying the protest was issued way beyond the 180-day period. So the SC was able to resolve squarely that, even after the 180 days have passed, if the BIR decides on the disputed assessment, the taxpayer can still appeal to the CTA within 30 days. It, therefore, became clear that a taxpayer has the option to wait.
In the latter, however, the SC was only confronted with the following facts: 1) a taxpayer appealed its claim for refund to the CTA before the 120 days lapsed (premature filing); and 2) a taxpayer appealed to the CTA beyond the 120+30-day period (late filing). The factual milieu prevents the SC from resolving the third scenario, where a decision was made by the BIR after the 120-day period lapsed and the taxpayer appealed the same to the CTA.
Why is this distinction important? The BIR is basing RMC 54-2014 on the San Roque case. This circular cannot go beyond what the SC has resolved, which is basically only the two scenarios described above. It is a rule that the High Court can only resolve the actual facts and controversy before it. What the SC has resolved in San Roque is that a taxpayer may elevate its claim for refund to the CTA when the 120-day period has lapsed to avoid premature filing and late filing. The High Tribunal did not categorically say that this is the only option. Again, it must be emphasized that the SC was limited by the actual controversy before it. Thus, it is yet to resolve a scenario where a taxpayer has opted to wait for a decision of the BIR that was issued beyond the 120+30-day period.
With this in mind, it is paramount for the SC to resolve the limitations of the San Roque case by cutting down the sweeping position of the BIR that a taxpayer’s only option is to appeal its claim for refund when a deemed denial has set in after the 120-day period has lapsed. It is, thus, important that the RMC is questioned before the SC, because it might be the chance for the High Court to resolve the actual controversy, i.e., whether or not the circular is correct in excluding, as an option, that a taxpayer may wait for the decision of the BIR on a claim for VAT refund, even if this decision is issued beyond the 120+30-day period.
If taxpayers are not vigilant and the RMC is not questioned, and since the SC cannot resolve a hypothetical case, would there be a taxpayer willing to be a test case by waiting for the BIR’s decision on its claim for refund beyond the 120+30-day period? The bigger problem is, that decision might never come.
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The author is a partner of Du-Baladad and Associates Law Offices, a member-firm of World Tax Services Alliance.
The article is for general information only, and is neither intended nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported, therefore, by a professional study or advice. Send comments or questions about the article to the author at irwin.nidea@bdblaw.com.ph, or call (632) 403-2001, local 330.