Clarification on the risk-based approach when considering VAT refund claims

The Bureau of Internal Revenue (BIR) has issued Revenue Memorandum Circular (RMC) 115-2024 to clarify issues regarding risk-based approach testing and processing of VAT refund claims under and pursuant to Section 112(A) of the Internal Revenue Code, as amended. implemented by Revenue Regulation (RR) 05-2024 and Revenue Memorandum Order (RMO) 23-2024, as amended by RMO 42-2024.

Below are the key points to review and process VAT refund claims using a risk-based approach:

Submission of documentary requirements

The taxpayer must provide all documentary requirements required by the BIR for VAT refund purposes, regardless of the level of risk identified.

Submission of complete documentary requirements must comply with the mandatory requirements checklist. Failure to comply with this checklist will result in refusal to accept the VAT refund application.

Processing period for VAT refund applications

The 90-day period for reviewing the application and making a decision on the claim begins from the moment the application/application for VAT refund is accepted by the processing department, provided that all documentary requirements are met.

Procedure for filing an application for VAT refund

Step 1. The checklist procedure is the initial stage of processing VAT refund claims and is limited only to ensuring the completeness of the submitted documentary requirements by the taxpayer based on the checklist of mandatory requirements.

Step 2. A quick check of the completeness of supporting documents submitted for the purchase and sale of goods and services after acceptance of the application. A purchase and sale recognized by NSD or the absence of supporting documents during a cursory check is not considered an incomplete submission, but entails a refusal in its unreasonable part, regardless of the risk classification.

Step 3: Determine the risk level of the claim when further review is identified. If the NSD for purchase and sale transactions exceeds at least one percent of the total sales amount (for sales transactions) or the total claim amount (for purchase transactions), the application is automatically classified as high-risk and requires 100 percent verification. At the same time, applications with missing or incomplete information in the submitted sales and purchase schedules are automatically classified as high risk and require 100% verification.

Step 4. The verification procedure is the final stage of checking and assessing the accuracy and reliability of documents and is performed only for medium and high risk claims. Low-risk claims are automatically recommended for return after internal review procedures have been completed. Input VAT claims that are not selected for verification but are included in the False Transaction Run or Raft Program for the Medium Risk Claims Program are not allowed, resulting in a complete ban. In addition, local suppliers with input VAT claims that are not selected for verification, but are identified as taxpayers that cannot be located, are not allowed and form part of the denial of the claim.

RMC 115-2024 is effective immediately on October 18, 2024. It will apply to current VAT refund applications that are currently being processed by the applicable offices and have not been approved for review by the reviewing offices at the time of issuance.

Please be guided accordingly.

Source:

P&A Grant Thornton

Certified Accountants