CREATE Again?
By: Atty. Irwin C. Nidea, Jr.
"A bill coined us CREATE More wants to change the 2-year-old law and revive the cross-border doctrine. It provides that all sales to an RBE, regardless of its location, must be zero-rated. Why is there already a proposal to change a 2-year-old law, when it has barely walked? Many multinational companies that are in special economic zones have been promised a zero-percent VAT when they committed their money in the country. Unfortunately, some of these investors think that the government has reneged on this promise, and they feel short-changed."
 Irwin C. Nidea Jr. +632 8403-2001 loc.330 |
CREATE is just barely 2 years old but there is already clamor for its amendment. Why? Is it broken?
Of particular interest is the provision that effectively killed the cross-border principle. For decades, any sale made to a company located in the special economic zone (registered business enterprise or RBE) is considered a sale made to another country. Thus, VAT at zero-rate is automatically charged by the supplier to an RBE. In other words, generally, no VAT is passed on to an RBE if it is located in the special economic zone.
CREATE has introduced a different rule. Now, for VAT to be zero-rated, an RBE must prove that what it purchased is directly and exclusively used for its registered activity. If not, its purchases will be considered vatable. Why do RBEs want this repealed? RBEs find themselves trapped as some of their working capital is captured and transformed to input VAT. Remember, RBEs are only entitled to zero percent VAT for purchases that are directly and exclusively used for their registered activities. What happens to purchases that are not? Will it still be recovered? One view is that it can be refunded since purchases, although not directly and exclusively used for an RBE's registered activity, may still be considered attributable to its export sales, which are considered zero-rated. On the other hand, the contrary view is when VAT was passed on by a supplier to an RBE, there was already a determination that the purchase would not be directly and exclusively used for an RBE's registered activity. It follows therefore that the certification for VAT zero-rating was not secured. Consequently, the said purchase cannot also be considered attributable to an RBE’s zero-rated sales, which is a requirement for VAT to be refunded. There is no other recourse but for an RBE to write off the input VAT as an expense.
A bill coined us CREATE More wants to change the 2-year-old law and revive the cross-border doctrine. It provides that all sales to an RBE, regardless of its location, must be zero-rated. Why is there already a proposal to change a 2-year-old law, when it has barely walked? Many multinational companies that are in special economic zones have been promised a zero-percent VAT when they committed their money in the country. Unfortunately, some of these investors think that the government has reneged on this promise, and they feel short-changed. Even if they may claim a refund, it is a reality that they have to go through the eye of a needle before they see a dime. In the meantime, their input VAT accumulates while they see their working capital being eaten out. It also does not help when the law is not clear when a claim for refund must be elevated in court.
CREATE More hopes to leave no doubt as to when the 90-day period for the BIR to process a VAT refund claim ends. As of this moment, even the courts have issued conflicting decisions on this matter. Some decisions say that if the taxpayer is not able to secure a VAT refund within ninety days from filing the same, its claim for refund is deemed denied by inaction. It has thirty days to file an appeal in court. Some decisions on the other hand state that taxpayers must wait for the decision of the BIR before they can go to court. CREATE More hopes to leave no doubt by categorically stating that the BIR must decide within 90 days and its inaction during that period is considered a denial of the claim for refund, which entitles taxpayers to the right to go to court.
If our leaders want our country to have a fighting chance in this increasingly competitive world, they must listen to the sentiments of the investors. Promises must not be broken, and laws must be clear. Our policymakers must also be in tune with what is happening in international tax.
Here we are still talking about VAT when the rest of the world is already very much ahead of the curve in passing their Pillar 2 rules.
The author is a senior partner of Du-Baladad and Associates Law Offices, a member-firm of WTS Global.
The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at This email address is being protected from spambots. You need JavaScript enabled to view it. or call 8403-2001 local 330.