Nobody’s Perfect: Requirements for Tax Credit/Refund Claims of Erroneously Paid Taxes/Penalties

As featured on PhilStar: Nobody’s perfect

In a society obsessed with perfection, the adage "nobody's perfect" serves as a reminder that mistakes are inevitable and that we all make mistakes from time to time. Similarly, in tax, taxpayers may commit unintended mistakes in filing their tax returns or tax compliance obligations such as, but not limited to, supplying inaccurate personal information, making errors in the claiming deductions, entering amounts erroneously, etc. These mistakes often lead to erroneous payment of taxes.

Prior to the enactment of Republic Act No. 11976, also known as the Ease of Paying Taxes Act (EOPT Law), taxpayers most likely tend to resort to "carrying over” its excess tax credits or payments instead of applying for a tax refund. This is because filing an administrative claim for a refund is considered a very tedious process, as its success depends on compliance to both substantive and procedural requirements.

In line with the recently introduced reforms on tax refunds under the EOPT Law, the BIR recently issued Revenue Memorandum Circular (RMC) No. 74-2024, dated 1 July 2024, which provides the guidelines and prescribes the mandatory documentary requirements in the processing and grant of claims for issuance of tax credit certificates (TCC) or cash refunds (refund) of erroneously or illegally received or collected taxes under Section 229 of the Tax Code.

As part of the general policies provided by the said RMC, the Commissioner of Internal Revenue may credit or refund taxes erroneously or illegally received, or penalties imposed without authority. For taxpayer-claimants to avail of the said credit or refund, they are required to submit the Application for Tax Credits/Refunds (BIR Form No. 1914) to the Revenue District Office (RDO) or the respective Large Taxpayers Audit Division (LTAD) or Large Taxpayers District Office (LTDO) under the Large Taxpayers Services (LTS). The application should be accompanied by the complete documentary requirements enumerated in the Checklist of Mandatory Requirements under Annex “A.1” of the same RMC. This is because only applications with complete documentary requirements shall be received and processed by the authorized processing office. It is also noteworthy that the application should be filed within the prescribed two-year period after the payment of the tax or penalty.

In addition to the above, taxpayer-claimants should also furnish a notarized Taxpayer Attestation for which a template has already been provided by the BIR as Annex “A.2” of RMC No. 74-2024. This attestation is required to certify the completeness of the documents submitted and that the claims shall be processed based on said documents.

However, provision of documentary requirements does not stop there. Any documents requested during the verification conducted by the assigned Revenue Officers (ROs) shall be presented, including, but not limited to, the books of accounts and accounting records. Taxpayer-claimants must also fully cooperate with the assigned RO and ensure the availability of all requested documents during the verification.

Lastly, taxpayer-claimants must secure a Delinquency Verification Certificate from the Collection Division under the respective Revenue Region or the Large Taxpayer Collection Enforcement Division under the LTS, whichever is applicable.

Taxpayer-claimants should be aware that the documents needed for tax credit or refund claims may vary depending on the nature of tax being refunded or credited, the circumstances associated with the taxes that are allegedly erroneously or illegally collected, or penalties that are imposed without authorization. Furthermore, failure to cooperate or submit the requested documents for clarification as requested by the assigned ROs may result in either full or partial denial of the claim.

Claims for tax refund or tax credit are construed strictly against the taxpayer as they partake the nature of a tax exemption. Hence, the burden rests on the taxpayer-claimant to prove entitlement to the credit or refund being claimed and that all substantive and procedural requirements under existing tax laws, rules and regulations are complied with. Being mindful of all the requirements is key to credit or refund claims, since claims’ success may largely depend on both compliance with said requirements and its completeness.