Philippines: Running of prescriptive period for VAT, applicability of VAT to interest income from affiliated loans

The First Division of the Supreme Court held that the three-year prescriptive period began running from the taxpayer’s filing of its original value added tax (VAT) return, even the taxpayer subsequently amended the return, because the amendment was not “substantial.”

The case is: Lapanday Foods Corporation vs. Commissioner of Internal Revenue, G.R. 186155 (17 January 2023). Read the Supreme Court’s opinion [PDF 487 KB] 

The taxpayer originally filed a monthly VAT declaration (BIR Form No. 2550M) on the last day prescribed by law for the filing of the quarterly VAT return, instead of a quarterly VAT return (BIR Form No. 2550Q). The taxpayer filed a BIR Form No. 2550Q more than a year later to correct the form used (with no change in the figures). The Supreme Court held that this amended filing did not affect the running of the prescriptive period for that particular quarter because it was not a substantial amendment, such as an amendment involving an increase or reduction of either taxable sales/receipts or input VAT for any of the months of the taxable quarter in question.

The Supreme Court also held that VAT did not apply to interest income on loans granted to affiliates because it was not clearly established that the loan transactions were incidental transactions of the taxpayer’s main line of business (i.e., providing management services to clients). In order for a transaction to be considered incidental to the main line of business, there must be some intimate connection between the transaction in question and the main business activity/primary purpose of the taxpayer.

Read a June 2023 report prepared by the KPMG member firm in the Philippines