Guidelines on the Issuance of Tentative Tax Credit Certificate for Value-Added tax VAT, the Nature of which is Tentative Pending the Final determination of the Creditable or Refundable Amount to which the Claimant is Entitled under a Letter of Authority Pursuant to RAMO 191

August 14, 1991 REVENUE AUDIT MEMORANDUM ORDER NO. 3-91 SUBJECT : Guidelines on the Issuance of Tentative Tax Credit Certificate for Value-Added tax VAT, the Nature of which is Tentative Pending the Final determination of the Creditable or Refundable Amount to which the Claimant is Entitled under a Letter of Authority Pursuant to RAMO 1-91 I. SCOPE This Order prescribes the guidelines on the issuance of tentative tax credit certificate for value-added tax (VAT), the nature of which is tentative pending the final determination of the creditable or refundable amount to which the claimant is entitled under a letter of authority pursuant to RAMO 1-91. II. ADMINISTRATIVE REQUIREMENTS 1. MINIMUM qualifications a) The tentative tax credit certificate is only available to a claimant whose transactions are zero-rated or effectively zero-rated and the amount of which constitutes at least 70% of total annual sales. Example 1 ABC Company has a total sales for the period of P2,000,000.00, the breakdown of which as shown in the books of accounts, VAT returns and others accounting records consist of the following: Zero-rated/effectively zero-rated sales P150,000.00 Domestic Sales 30,000.00 Exempt Sales 20,000.00 Total Sales P200,000.00 Zero-rated/effectively Ratio of zero-rated/ zero-rated sales effectively zero x 100% = rated sales to total Total Sales sales per books P150,000.00 x 100% = 75% P200,000.00 b) 100% of the proceeds of export sales test-checked must have been inwardly remitted. 2. Deadline The issuance of tax credit certificate (TCC) shall be made within 20 days from the date of scheduled test-checking as determined under Item III (1) (b) hereof. 3. Documents to be submitted a. Application for VAT credit/refund (BIR Form No. 2552). b. VAT returns (BIR Form No. 2550) for the quarter(s) in which the zero-rated transactions were declared and the amount of claim reflected. A minimum of 4-quarter VAT returns is required to be attached although the claim may cover only one quarter (for the purpose of determining the 70% minimum requirement). c. Copy of approved application for zero-rate, when applicable. d. Summary list of sales with corresponding foreign currency inward remittances. It must show: A. Goods 1. Export sales including foreign currency denominated sales a. Date of export b. Sales invoice number c. Name of buyer d. Airway Bill/Bill of lading number e. Lading date f. Amount of sales in foreign currency g. Peso conversion rate h. Date of remittance i. Bank credit memo number j. Amount remitted in pesos B. Service a. Breakdown of gross foreign currency receipts into commission, allotment manning fee, agency fee, advances, etc. b. Peso conversion rate c. Bank credit memo number d. Name of Bank e. Date of remittance f. Amount remitted in pesos C. Effectively zero-rated sales of goods and services a. Name of person or entity to whom the goods were delivered or services rendered b. Date of delivery or billing c. Amount of consideration d. Description of goods delivered or services rendered e. Document of liquidation, when applicable (RR 2-88) e. Summary list of purchases per supplier containing the following details: a. Name of supplier b. VAT number c. Invoice/OR number d. Date of Invoice/OR e. Amount f. Input Tax g. Total invoice amount h. The claimant must sort and batch his invoices/receipts per supplier for easy checking. It is understood that the claimant has sorted and batched his invoices/receipts per supplier for easy checking. f. Bank credit memos, certificate of foreign currency inward remittances and/or certification from the Central Bank of approved offset arrangement and non-violation of Central Bank rules and regulations. g. Certification of non-filing of claim for tax credit/refund from BOI, EPZA, Bureau of Customs or other government offices. h. Sworn statement that the inventory of goods from which input tax credits had been claimed were subsequently used in the zero-rated sale of goods and services. i. Statement of payback liability of claimant for undue credit arising from fraudulent claim and/or fake invoices or receipts, inclusive of civil and penal liabilities. 4. Receipt of Documents No application under this Order shall be received unless it is accompanied by each and every document required to be submitted. Each of the document shall be conspicuously stamped with the word "RECEIVED". 5. Reconcile a. The amount of zero-rated sales declared in BIR Form 2552, BIR Form 2550, summary list of sales, sales ledger accounts, bank credit memos and bank certificate of inward remittance of foreign currency; and b. The amount of purchases and corresponding input tax credits declared in BIR Form 2550 with that shown in the summary list of purchases, subsidiary purchase journal and BIR Form 2552. 6. Test-check: a. Date of test-checking shall be scheduled on the date agreed upon between the applicant and the assigned revenue officer, but no sooner than the date the last supporting document was submitted. b. At least 20% of the total amount of input tax credits claimed per summary lists with that shown in the original invoices/receipts. As far as practicable, the test-checking shall be spread out to the invoices/receipts of all suppliers. Purchase invoices involving substantial amounts shall be cross-checked with the records of the suppliers. c. At least 20% of sales in the summary list with that of the original sales invoices/receipts and corresponding foreign currency inward remittance (if applicable). The 20% of sales and input tax credits in purchases to be test-checked shall be pre-determined and indicated on the summary lists by the Chief of the Value-Added Tax Division or authorized officer. Upon discovery of substantial unsupported input tax credits, or circumstances suggesting the presence of fraud or tax liability in excess of credits, the claim shall be recommended for regular audit. The claim is considered substantially unsupported or unacceptable if more than 40% of the amount of the claim test-checked is unsupported or based on invoices/receipts which had been found to be unacceptable in accordance with the existing invoicing requirements. 7. Maximum amount The amount of tentative Tax Credit Certificate that may be issued under this Order shall not exceed 40% of the amount of claim. To determine: a) the amount of the tentative tax credit to be granted; or b) whether the claim shall be recommended for regular audit, use the ratio of allowable input tax credit test-checked over the input tax credit test-checked, computed as follows: Example 2 Assuming that the amount of purchases is P1,000.00 and the amount of claimed input tax credits is P10,000, the amount of input tax credits to be checked is P2,000. Result of test-checking shows an allowable input tax credit of only P1,420. P1,420.00 x 100% = 71% P2,000.00 a. Under the foregoing example, the taxpayer is entitled to 71% of P4,000 or P2,840. b. If more than 40% of P2,000 has been found to be unsupported or unacceptable, the claim shall be referred for regular audit. III. REPORTING REQUIREMENTS 1. Time to submit report a. The Revenue Officer who conducted the test-checking shall immediately uniform the claimant of: 1. Unacceptable invoices or receipts due to non-compliance with the existing invoicing requirements; and 2. Any discovery of fraud or tax liability, etc. Sufficient time shall be given to claimant to explain or account for the findings or discrepancies within the reporting period. b. Report shall be submitted by the Revenue Officer within 15 days from the scheduled first day of test-checking. 2. Form and content of report a. The test-checking report shall be made in BIR Form No. (Annex "A"). b. The amount of input tax credit test-checked against the original invoices should be at least 20% of the purchase invoices or receipts or of the amount claimed. c. It shall be specific as to the amount of TCC to be issued which in no case shall exceed 40% of the amount of claim. d. The TCC shall be issued with the note "GRANTED UNDER RAMO NO. ___" 3. Cancellation of Invoices/receipts Upon the issuance of TCC, but before the delivery of the certificate to the applicant, each and every invoice/receipt shall be cancelled with the note IV. TRANSITORY PROVISION Application for the issuance of TCC received before the effectivity of this Order may be processed under this system, at the option of the applicant, provided that the required letter of authority has not been issued or it may have already been issued but the verification of the claim has not yet been started. V. EFFECTIVITY This Order shall take effect immediately. Strict compliance herewith is enjoined. (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge