Siguion Reyna Montecillo & Ongsiako Law Offices

December 20, 2007 BIR RULING [DA-674-07] Sec. 112 (A) DA-254-2007 Siguion Reyna Montecillo & Ongsiako Law Offices 4th & 6th Floors, Citibank Center 8741 Paseo de Roxas Makati City Attention: Attys. Jose Lis C. Leagogo and Ma. Consolacion C. Mercado Gentlemen : This refers to your letter dated October 23, 2007 requesting on behalf of your client, Swedish Match Philippines, Inc., for a ruling that the two-year prescriptive period for the filing of an application for the issuance of a tax credit certificate for input taxes should be counted from the date required for filing of the return for Value-Added Tax (VAT), which is within 25 days from the end of the taxable quarter when the zero-rated sales to which the input VAT are attributable were made. aTEHCc It is represented that Swedish Match Philippines, Inc. (the "Corporation") is a corporation duly organized and existing under and by virtue of Philippine laws. Its primary purpose is to manufacture, produce, purchase, import or otherwise acquire and sell, export or otherwise dispose of, lighters and machinery, equipment and component parts for manufacturing lighters. It is registered with the Board of Investments as an expanding producer of gas helper and energy cell products which are subject to 100% exportation. On January 1, 1996, it was registered as a VAT taxpayer with the Bureau of Internal Revenue. EDISTc On October 23, 2007, the Corporation filed an application for the issuance of a tax credit certificate ("TCC") with the One-Stop Shop Inter-Agency and Duty Drawback Center of the Department of Finance ("DOF-OSS") for input VAT attributable to the third quarter of 2005, as follows: Claimant Period Covered Amount Date of Application Information Sheet (Php) with DOF-OSS (CIS) No. 56573 July to September P4,194,685.82 October 23, 2007 2005 CIS No. 56573 covered the Corporation's claim for input taxes attributable to its zero-rated sales in the third quarter of 2005, or for July to September 2005, as set forth in its Quarterly Value-Added Tax Return (BIR Form No. 2550Q) which it filed on October 25, 2005. However, DOF-OSS received the application with the admonition that DOF-OSS will definitely deny the same because the prescriptive period for filing already prescribed on September 30, 2007. DOF-OSS maintained that the application should have been filed within two years after the close of the taxable quarter which, for the third quarter of 2005, is reckoned on September 30, 2005. In reply please be informed that Section 112 (A) of the Tax Code of 1997, as amended, provides, viz .: cHSIAC Sec. 112. Refunds or Tax Credits of Input Tax . (A) Zero-Rated or Effectively Zero-Rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in case of zero-rated sales under Section 106 (A) (2) (a) (1), (2) and (b) and Section 108 (B) (1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108 (B) (6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. TaISDA Further, the phrase "close of the taxable quarter" means the date of filing of the corresponding quarterly VAT return which is within twenty five (25) days after the close of each taxable quarter. As clearly explained by the Court of Tax Appeals in EG & G Omni, Inc. vs. CIR, C.T.A. Case No. 5987, March 26, 2004: "The reckoning of the prescriptive period in the above provision of the NIRC should be counted from the date of filing of the corresponding VAT quarterly return which must be made within twenty (20) (now twenty-five) days from the close of the taxable quarter, as elucidated by this court in a Resolution promulgated on July 20, 1998, in Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, CTA Case No. 5296. This court ratiocinated that said reckoning of the prescriptive period will harmonize Section 108 with Section 230 of the Tax Code which was interpreted by the Supreme Court in the cases of Commissioner of Internal Revenue vs. TMX Sales Inc. and the Court of Appeals, GR No. 83736, dated January 15, 1992; and ACCRA Investments Corporation vs. Commissioner of Internal Revenue, 204 SCRA 957, that the two-year period should be counted from the filing of the final income tax return, because it is only during that date that the exact tax liability or refundability of tax can be determined. In the same manner, it is only after the filing of the quarterly VAT return that we can determine the VAT liability or refundability of VAT. It should be noted that the basic requirement is that VAT refund can only be granted to the extent that the input taxes have not been applied against output tax. All these things can only be determined if a return is filed. It is logical therefore, to conclude that the two-year period should not immediately be counted from the close of the quarter but from the date of filing of the VAT return." IDETCA Accordingly, the Corporation's application for issuance of the tax credit certificate filed on October 23, 2007 with the DOF-OSS was well within the two-year prescriptive period which must be reckoned from October 25, 2005, the date when quarterly VAT return for the third quarter of 2005 was filed. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling should be considered null and void. TSEAaD Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service