RMC No. 65-2024 — Clarifies certain issues relative to the implementation of Section 19 of RA No. 11976, otherwise known as the "Ease of Paying Taxes Act", which added Section 110(D) of the National Internal Revenue Code of 1997, as amended (Tax Code), that introduced the Output VAT Credit on uncollected receivables

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE National Office Building Quezon City BUREAU OF IN RECORDS HT.DIVISION 855AW N JUN^I4 2024 u :y HAL REVENUE

JUN 1 3 2024

REVENUE MEMORANDUM CIRCULAR No.- 65-2024

SUBJECT: Clarifies Certain Issues Relative to the Implementation of Section 19 of R.A. Section 110(D) of the National Internal Revenue Code (NIRC) of 1997, as No. 11976, otherwise known as "Ease of Paying Taxes Act", Which Added amended (Tax Code), that Introduced the Output VAT Credit on Uncollected Receivables

TO: All Internal Revenue Officials, Employees, and Others Concerned

This Circular is issued to clarify issues and set guidelines for the effective implementation

as "Ease of Paying Taxes Act", which provides that: of Section 110(D) of the Tax Code, as introduced in Republic Act (RA) No. 11976, also known

"Output VAT Credit on Uncollected Receivables. - A seller of goods or services may deduct the output VAT pertaining to uncollected receivables from its

pay: Provided, That the seller has fully paid the VAT on the transaction: output VAT on the next quarter, after the lapse of the agrced upon period to

not been claimed as allowable deduction under Section 34(E) of this Code. Provided, further, That the VAT component of the uncollected receivables has

In case of recovery of uncollected receivables, the output VAT pertaining thereto shall be added to the output VAT of the taxpayer during the period of recovery."

Q1: What is the rationale of Section 110(D) above?

A1: Sales are either made in cash or on account.

In Cash sales, the seller, who has passed-on the VAT to the buyer has no problem in the

agreed selling price, including the corresponding VAT. corresponding VAT due thereon to the Bureau since the seller has already collected the

the goods or properties, or lease the properties, or to render service, upon sale, barter or exchange, secured only by a written agreement that the buyer thereof promises to pay the In credit sales, the seller, without having received the payment therefor, agreed to part

money owed including the VAT at a certain period (credit term). The seller, being the

on to the buyer to the Bureau. In some cases, the receivables are not collected. Under person statutorily liable for the payment of the VAT, pays in advance the VAT passed-

these circumstances, the seller would ordinarily recognize the uncollected reccivable including the VAT as a bad debt and claim the same as a deduction from gross income

by RR No. 25-2002. following the provisions set forth under Revenue Regulations (RR) No. 5-99, as arnended

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Founded on the interests of justice, the provision therefore provides an avenue by which a VAT-registered seller of goods or services can recoup the VAT paid in advance which was passed-on to the buyer and made part of the consideration resulting from thc sale, barter or exchange on account or on credit, where such trade receivable has not been collected after the agreed period with the buyer. This rule covers credit of VAT shouldered and paid for by the seller.

Q2: What is the meaning of the phrase "after the lapse of the agreed upon period to pay"?

A2: For purposes of this Circular, the phrase "after the lapse of the agreed upon period to

pay" means that the buyer, to whom goods or properties were sold, bartered or exchanged or to whom a property has been leased, or to whom service has been rendered upon written promise to pay the money owed and the passed on VAT at a certain period and having fulfilled the promise. where such period or extended date, as the case may be, has lapsed without the buyer

Q3: Who can claim or deduct output VAT credit on uncollected receivables?

A3: of the agreed upon period to pay. to the uncollected receivables originating from the sales on account that transpired upon Only the seller of goods and/or services may deduct the output VAT which corresponds the effectivity of RR No. 3-2024 from the output VAT of the next quarter after the lapse

Q4: What are the conditions before a seller can credit the VAT paid on the uncollected receivables?

A4: To be entitled to VAT credit, the following requisites must be present:

1. The sale or exchange has taken place after the effectivity of RR No. 3-2024;

The sale is on credit or on account; There is a written agreement on the period to pay the receivable, i.e. credit term is ECORDS MGT.DIVISION C jS2 5 SjON 14 2ot EA The VAT is separately shown on the invoice; indicated on the invoice or any document showing the credit term;

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D The sale is specifically reported in the Summary List of Sales covering the period

C 2 The seller declared in the BIR Form No. 2550Q or the quarterly VAT Return (QVR) when the sale was made and not reported as part of "various" sales;

R E under existing rules; the corresponding output VAT indicated in the invoice within the period prescribed

The period agreed upon, whether extended or not, has lapsed; and The VAT component of the uncollected receivable was not claimed as a deduction from gross income (i.e. bad debt) pursuant to Section 34(E) of the Tax Code.

Q5: Do the preceding rules have an effect to the deductibility of bad debts expense for

purposes of income tax?

A5: No. These rules do not amend the conditions on the deductibility of bad debts expense in seller of output VAT credit subject to the conditions under Q&A No. 4 above. without any effort on the part of the seller to collect the sales on account shall entitle the the income tax returns as provided in RR No. 25-2002. For purposes of claiming output VAT credit on uncollected receivables, mere lapse of the agreed upon period to pay even

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Q6 Is the seller required to automatically credit the VAT paid every time there is an uncollected receivable due to the lapse of the agrecd upon period?

A6: No. Availing of the benefit under Section 110(D) of the Tax Code is merely an option. The seller may not necessarily automatically claim the output VAT credit on the uncollected receivable especially so if the likelihood of collectability is high. This will same in the eventual collection of the receivable. save the hassle on the part of the seller to claim the said VAT credit, only to reverse the

Q7: When can the seller claim output VAT credit on uncollected receivables?

A7: Section 110(D) mandates that the claim for output VAT credit on uncollected receivables shall be on the next quarter, after the lapse of the agreed upon period to pay.

Hllustration:

ABC Corp. supplies merchandise to its clients on account payable within 90 days. The sales transaction are as follows:

Date of Sale Due Date Amount VAT 30-Sep-2024 31-Dec-2024 Status as of 31-Mar-2025

30-Jun-2024 20-May-2024 15-Apr-2024 18-Aug-2024 28-Sep-2024 14-Jul-2024 P200,000.00 P300,000.00 P100,000.00 P36,000.00 P12.000.00 P24.000.00 Uncollected Uncollected Collected Uncollected Collected Collected Uncollected Collected Collected

In this scenario, the corresponding output VAT for the sales covering April to June 2024 were declared in the QVR ending June 30, 2024 and the current quarter where the failure to collect the receivable happened in September 30, 2024. ABC Corp may claim as output VAT credit in the quarter ending December 31, 2024 which is the next QVR after the lapse of the agreed period to pay during the quarter ending September 30, 2024 the VAT component of the uncollected receivables pertaining remained uncollected as of December 31, 2024. to the sales on account on June 30, 2024 as it fell due on September 28, 2024 and

2 j 14 2024 S 8: St INTERNAL Of E b. Since the sales on account on June 30, 2024 remained uncollected as of March 31 2025, can ABC Corp. deduct again its VAT component in the QVR for the quarter ending March 31, 2025?

REVENI The VAT component of the uncollected receivables for the month of June 2024 can No. The 90-day period, counting from June 30, 2024 lapsed on September 28, 2024. only be claimed ONCE as deduction from output VAT of the next quarter after the lapse of the agreed period to pay (in this case quarter ending December 31, 2024).

. Following the preceding question, if the seller failed to claim the corresponding VAT

on the QVR ending March 31, 2025 if it remained uncollected? credit on the QVR ending December 31, 2024, can the seller claim the VAT credit

December 31, 2024. The seller may claim the output VAT credit on the uncollected Yes. Provided, the seller and the buyer agreed for an extended period to pay until

"from the output VAT on the next quarter" only, after the lapse of the agreed period 31, 2025. Note that Section 110(D) of the Tax Code limits the claim for deduction to pay. receivable on the QVR ending March 31, 2025 if it remained uncollected on March

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Q8: What happens if there is subsequent recovery of uncollected receivables where the output VAT was already claimed as VAT credit?

A8: The corresponding output VAT of the subsequently collected or recovered reccivables

existing rules and regulations shall apply. previously claimed as VAT credit shall be reported and declared in the taxable quarter in which the recovery or collection is made. In case of failure to declare, the penalties under

Illustration:

sales transaction are as follows: ABC Corp. supplies merchandise to its clients on account payable within 90 days. The

DS MGT. C (hTL 2 JUN EAO A 15-Apr-2024 20-May-2024 Date of Sale 30-Jun-2024 18-Aug-2024 28-Sep-2024 14-Jul-2024 Due Date P300,000.00 P100,000.00 P200,000.00 Amount P12,000.00 P36.000.00 P24.000.00 VAT 30-Sep-2024 Uncollected Uncollected Collected 31-Dec-2024 Uncollected Status as of Collected Collected [31-Mar-2025 Collected Collected Collected

D{V{S! n this scenario, the sales on account on June 30, 2024 was declared in the QVR of June

December 31, 2024 but was subsequently collected during the taxable quarter ending March 31, 2025. ABC Corp. shall declare the recovered output VAT in the QVR for the 30, 2024 and the corresponding output VAT was claimed as credit in the QVR of juarter ending March 31, 2025.

Q9: What is the effect on the input tax claimed by the delinquent buyer when thc seller

availed of the output VAT credit on uncollected receivable?

A9: The corresponding input tax claimed by the buyer shall not be allowed as input VAT

credit the moment the seller claims output VAT credit on such uncollected receivable.

Q10: corresponding output VAT credit was claimed for being uncollected receivabie? How will the seller document the particular sales on account where the

A10: The seller shall stamp "Claimed Output VAT Credit" on the duplicate/triplicate copy/ies

therefrom and the balance of the uncollected receivable shall also be indicated. there is a partial payment on the said uncollected receivable, the amount coliected (seller's copy) of the corresponding invoice issued for the uncollected receivable. In case

the transaction that was declared as uncollected. The seller is not precluded from issuing supplementary sales document such as credit invoice to serve as proof thereto and/or as a basis in recording the same in the books of memo or credit note on top of the stamping of "Claimed Output VAT Credit" on the accounts of the seller. The seller shall indicate in the supplementary sales document the phrase "Claimed Output VAT Credit" and must indicate the Invoice that is the origin of

O11: Is the seller required to provide the buyer a copy of the invoice stamped with the

phrase "Claimed Output VAT Credit" and credit memo or credit note to the buyer?

Al1: Yes. The seller shall provide the buyer a copy of the said documents so the buyer can adjust and deduct the corresponding input VAT claimed accordingly. However, in case the seller failed to provide the buyer such documents, the buyer can voluntarily reverse its claimed input VAT credit in its QVR.

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O12: What are the implications if the buyer failed to deduct accordingly in the available input taxes in its QVR the corresponding input VAT from the unpaid account from the seller?

A12: The buyer shall be liable for the deficiency VAT due including applicable statutory

penalties if it was found out during audit by the BIR or if the buyer decides to amend its OVR to reflect such adiustment.

Q13:How should the output VAT credit be presented/declared in the VAT Return?

A13: As a work-around procedure or until such time that a new version of the BIR Form No. 2550Q has been issued for this purpose, the output VAT credit shall be

presented/declared in the QVR of the seller and the buyer as follows:

eBIR Forms and Manual EFPS Filer Version Used February 2007 January 2023 (ENCS) (ENCS) Line Credits/Payment Line 26G "Others" Seller 19 "Other and Line Line 23E "Others" Credits/Payment Buyer 53 "Other and

Filers specify as "Output VAT Credit on Uncollected specify as "Input VAT Claimed from Unpaid

Receivables Purchases on Account

Q14: For purposes of claiming the output VAT credit on uncollected receivables, how should the sale be declared on the Summary List of Sales?

A14: The customer/buyer must be properly identified in the Summary List of Sales in the quarter when the sale was made. However, if the seller lumps all sales into one "various "

uncollected after the lapse of the agreed period to pay. account entry, the lumping shall be considered invalid compliance with the requisites the output VAT cannot be used or allowed as VAT Credit should the transaction remain provided for purposes of claiming the output VAT credit on uncollected receivables and

Q15: Who are not qualified to avail the tax credit on VAT paid on uncollected reccivables?

A15: The following taxpayers are disqualified to avail output VAT tax credit on uncollected receivables:

1. Those tagged as cannot be located (CBL) taxpayers; 2. Those with duly filed complaints at the DOJ under the Run After Fake Transaction (RAFT) and Run After Tax Evaders (RATE) programs; 3. Other taxpayers that may be identified by the Commissioner.

Q16: What happens if the goods were returned during the agreed upon period to pay and the output VAT is not yet paid?

A16: The return is treated as a sales return and therefore a deduction from gross sales in the

quarter where the goods were returned. 5 BUREAU OF INTERNAL REVENUE NTIYT 8:554 JUN IL 2974 Y

yg 1 RECORDS MGT.DIVISICH

Q17: What happens if the goods were returned and accepted by the seller but the claim

for output VAT credit has been made?

A17: This is treated as sales return but for purposes of VAT, no deduction on sales and output

VAT shall be allowed since the claim for output VAT credit has already been made.

Q18: What are the implications if there is partial or full collection of the previously uncollected reccivable for which output VAT credit output had been claimcd?

A18: In case of partial or full recovery of uncollected receivable, the output VAT pertaining to that partial collection shall accrue and must be added to the output VAT of the seller during the period of recovery.

Q19: Is the seller required to issue an invoice upon the recovery of previously uncollected receivable?

A19: No. The seller shall stamp the phrase "Recovered" in the Invoice that is the origin of the

transaction that was previously declared as uncollected and the amount collected, if

DIVISION MGT ORDS eG 1 t 14 2024 fU Q X Uncollected Receivable" and must indicate the Invoice that is the origin of the transactior. of the said documents to the buyer. The seller is not precluded from issuing supplementary sales document such as debit memo or debit note to serve as proof thereto. In this instance, the seller shall indicate in the supplementary sales document the phrase "Recovery of Previously Reported that was previously declared as uncollected. Consequently, the seller shall provide a copy partial, on the same duplicate/triplicate copy/ies (seller's copy) of the corresponding invoice issued for the uncollected receivable.

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020 How should the output VAT of recovered or subsequently collected receivables be

presented/declared in the VAT Return?

A20: As a work-around procedure or until such time that a new version of the BIR Form No

2550Q has been issued for this purpose, the seller and the buyer shall reflect the corresponding output VAT as follows:

eBIR Forms and Manual EFPS Filers Filer February 2007 Version Used January 2023 (ENCS) (ENCS) Line 53 "Others" and Claimed Line 23E "Others" indicate "Output VAT on Recovered Seller Uncollected Previously Line 20E "Others' Line 40 "Others" and indicate "Input VAT on Paid Account Purchases Buyer Previously O

Receivable" Unsettled"

O21: Will the outstanding receivables on sale of goods where the corresponding output VAT has been declared but the period to collect has already lapsed as of the effectivity of RR No. 3-2024 qualify for output VAT credit under Section 110(D) of the Tax Code?

A21: No. The output VAT credit on uncollected receivables shall only apply to sales of goods

and/or services on account that transpired upon the effectivity of RR No. 3-2024.

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amended, modified or revoked accordingly. All revenue issuances and BIR Rulings inconsistent herewith are hereby considered

strictly implement the provision of this Circular. All internal revenue officers, employees and others concerned are hereby enjoined to

This Circular takes effect immediately.

UMAGUI, JR Com assioner of Internal Revenue

BUREAU OF INTERNAL REVENUE DnNI 8.35 jw JUN'14 2024

RECORDS MGT. DIVISION UG