To quote Winston Churchill, “To improve is to change; to be perfect is to change often.” Since the start of my professional career, I often find myself adjusting to the ever-changing tax rules and regulations, which is a challenging ordeal. However, any changes in tax laws or rules that provide clarity are always welcome developments.
One such notable change in the current tax rules is Republic Act No. 11976, or the “Ease of Paying Taxes Act” (EOPT). The new law changed the procedures for claiming tax refunds of excess creditable withholding taxes. To implement the amendatory provisions on tax refund provisions, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 05-2024. The said regulations took effect on 11 April 2024, and it will affect tax refund claims beginning 01 July 2024 onwards.
The new law and regulations also included significant changes with respect to Value-added Tax refunds and refunds by reason of cessation of business. The focus of this article is on claims for refunds of unutilized excess creditable withholding taxes (CWT) and taxes erroneously or illegally received, or penalties imposed without authority.
Rules prior to EOPT
Claims for refund of unutilized CWT and taxes erroneously or illegally received, or penalties imposed without authority, must first be filed with the BIR and then on a Petition for Review with the Court of Tax Appeals (CTA). Prior to the EOPT, both administrative and judicial claims must be filed within two years from the date of payment of the tax or penalty.
The Supreme Court in the case of ACCRA Investment Corp. vs. Court of Appeals (G.R. No. 96322, 1991) clarified that the reckoning of the two-year prescriptive period commences to run on the date of the filing of the Final Adjusted Income Tax Return for both the administrative and judicial claims for refund. For example, if the taxpayer is in the calendar year, and filed the Final Adjustment Income Tax Return on 15 April 2022, the deadline for filing the claim for refund will be 15 April 2024.
Since both actions have the same deadline and because the BIR claim must be filed first, a common practice is to file a day earlier with the BIR. The CTA claim will then be filed on the last day of the two-year period to beat the deadline.
In one refund case before the Supreme Court (GR No. 231581, 2019), the BIR challenged this practice on grounds of violation of the principle of exhaustion of administrative remedies. The Court ruled that the law only requires that an administrative claim for refund be priorly filed. In other words, as long as the administrative and judicial claims were filed within the two-year prescriptive period, then there was exhaustion of administrative remedy.
New rules under the EOPT
Under the EOPT Act, amendments in Sections 204 (C) and 209 of the Tax Code were introduced, specifically on the timelines for when to file the administrative claim and judicial claim for refund beginning 01 July 2024.
Section 204 (C) introduced the 180-day period from filing the administrative claim for refund for the BIR to decide on whether to grant or deny in full or in part the claim. On the other hand, Section 229 provides that no suit or proceeding shall be filed unless there is a full or partial denial or inaction on the part of the BIR for a period of 180 days from the filing of the administrative claim.
With the implementation of the new rules, administrative claims for refunds can hopefully be decided on their merits and not treated as a mere “requirement” for filing a judicial claim.
Revenue Regulations 05-2024 clarified that in cases of full or partial denial of the claim for refund, the taxpayer may, within 30 days from receipt of the denial, appeal the decision with the CTA.
Further, if the BIR did not act on the administrative claim, the taxpayer has two options under regulations:
1.) Appeal to the CTA within the 30-day period after the expiration of the 180 days required by law to process the claim; or
2.) Forego the judicial remedy and await the final decision of the BIR on the application.
Based on the regulations, if the BIR fails to render a decision within the 180-day period and the taxpayer claimant opts to seek a judicial remedy within 30 days of such a period, the administrative claim for refund shall be considered moot and shall no longer be processed.
However, if the taxpayer wants to file a judicial action, it must be vigilant to do so after the lapse of the 180-day period. If the BIR fails to act on the claim for refund, the taxpayer must file the judicial claim within the 30-day period. Otherwise, the regulations state that the taxpayer is deemed to have forgone the judicial remedy.
To provide a clear comparison, consider our example where the taxpayer operates on a calendar-year basis. If the final adjustment income tax return is filed on 15 April 2024, the administrative claim for a refund must be submitted on or before 15 April 2026.
Under the new rules, the filing of a judicial claim is now dependent on the occurrence of the following situations:
a.) There is full or partial denial of the administrative claim before the lapse of 180 days from the filing of the administrative claim; or
b.) Inaction for a period of 180 days on the part of the BIR.
In view of the above, suppose the taxpayer will file the administrative claim on 01 August 2025; the judicial claim must be filed whichever comes first in the following situations:
a.) If the denial of the BIR is issued before the lapse of 180 days from filing the administrative claim, e.g., if the denial was received on 08 December 2025, then the judicial claim must be filed within 30 days from receipt of the denial or on or before 07 January 2026.
b.) If, on the other hand, the 180 days lapsed without any decision from the BIR, the judicial claim must be filed within 30 days from the lapse of the 180 days, i.e., on 28 January 2026, then the judicial claim must be filed on 27 February 2026.
With the effectivity of the new rules on 01 July 2024, taxpayers who have claims for refunds of unutilized CWT and taxes erroneously or illegally received or penalties imposed without authority should be aware of the deadlines as mentioned above.
In practice, the whole process of resolving tax refund claims, from filing the administrative claim up to the judicial claim, can take more than 5 years or even longer. With the implementation of the new rules, the hope is that actions on tax refund claims can be resolved at the administrative level before resorting to the courts. Indeed, these are welcome developments.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 16 July 2024
