By definition, to “comply” is to act in accordance with a wish or command. Being responsible taxpayers, we are expected to observe the highest level of compliance with our tax laws. However, one might ask — with the ever-changing landscape of the country’s rules and regulations, how can we all keep up? As plausible as this line of questioning may seem to be, there’s an important legal principle that says, “ignorance of the law is no excuse.” Thus, being unaware or unfamiliar even with the simplest requirement in substance and in form would not be a valid argument in the eyes of the court.
In the case of unutilized input value-added taxes (VAT) related to a taxpayer’s zero-rated sales, taxpayers have the remedy of claiming tax refunds. In a tax refund claim, the burden of proof lies with the taxpayer to prove not only his entitlement to the claim but also his compliance with all the documentary and evidentiary requirements. Most often, the failure to sustain such a burden can be fatal to a taxpayer’s claim, and in numerous cases, the denial comes not from any improperly paid tax but is unfortunately attributed to non-compliant receipts and invoices.
As a refresher, let’s go back to the basics of invoicing. What is considered compliant? For reference, the invoicing requirements for VAT-registered taxpayers are outlined in Section 113 of the Tax Code where among others, VAT invoices or receipts shall contain:
• a statement that the seller is a VAT-registered person;
• the seller’s Taxpayer’s Identification Number (TIN);
• the total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes VAT;
• If applicable, a breakdown of sales price between its taxable, exempt and zero-rated components;
• the term “VAT-exempt sale” or “zero-rated sale” written or printed predominantly in the invoice or receipt for sales exempt from VAT or for sales subject to zero percent VAT, respectively; and
• the date of transaction, quantity, unit cost, and description of the goods or services sold/rendered.
Generally speaking, adherence to the required invoicing information should already render a taxpayer compliant with the invoicing requirements. However, as many taxpayers have unfortunately experienced, compliance does not end with the basics. In fact, this was touched upon in the Court of Tax Appeals (CTA) En Banc Case Nos. 2382 and 2395, in which the court upheld the decision of the Second Division in CTA Case No. 9706 when it affirmed the disallowance of receipts/invoices with inserted handwritten details or information as support for a tax refund claim.
As argued by the taxpayer in the CTA case, which I would also agree with, there is nothing in the Tax Code that states that additions, alterations, deletions, or inserted handwritten details or information in receipts and invoices would make the documents noncompliant with the invoicing requirements. So, what is the basis for discrediting such supporting documents?
While the Court recognized that there is no legislation that specifically mandates such disallowance, doubt would surely exist as to the veracity of the details on already issued or computerized receipts/invoices. When an invoice/receipt is computerized, any subsequent insertion therein would raise doubt as to the completeness of the invoice/receipt. The same goes for invoices/receipts with mixed handwritten and printed details. Even if computerized tape receipts have portions allowing a purchaser’s name, address, TIN, and/or business style to be inserted, this should not be taken as an implied authority for the seller or purchaser to manually write such details on their own accord. Doubt will also arise for manual receipts if these contain different markers or handwriting of details, and while in some cases it is allowable to have such insertions/deletions made by authorized signatories, there still lies the burden for taxpayers to prove that such authority exists.
As troublesome as this level of compliance may seem, in a similar vein, we experience this practice of proper substantiation in our everyday lives. For example, when it comes to our visa applications, job applications, account registrations, and the like, we expect from the very beginning that heavy scrutiny would be placed on our submissions. Hence, in the hopes of getting approval, we tend to exert extraordinary diligence in ensuring the accuracy of our information before we even attempt to submit any documents. I say, if we can practice this in our everyday lives, more so, we should mimic this diligence as responsible taxpayers.
Compared to personal applications, a tax refund claim partakes the nature of tax exemptions, which are strictly construed against the taxpayer and liberally in favor of the government. Therefore, evidence in support of a claim must likewise be strictly scrutinized and duly proven. As a claimant, a taxpayer has the burden to prove that he has complied with and has satisfied all statutory and administrative requirements to claim a refund, presenting not only convincing evidence but also form compliant supporting documentation.
The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only and should not be used as a substitute for specific advice.
Maryjane Almira Kau is an assistant manager at the Tax Services department of Isla Lipana & Co., the Philippine member firm of the PwC network.
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