[Ask The Tax Whiz] Output VAT credit on uncollected receivables: What taxpayers must know

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[Ask The Tax Whiz] Output VAT credit on uncollected receivables: What taxpayers must know

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The Philippine Tax Whiz discusses the introduction of Output VAT Credit on Uncollected Receivables through Revenue Memorandum Circular 65-2024 of the Bureau of Internal Revenue.
As a seller, who is engaged in retail of goods on account, when can we claim the Output VAT on uncollected receivables and what are the conditions that must be met before we can use it as tax credit? 

The output VAT on uncollected receivables can be claimed during the next quarter after the period agreed upon to pay has lapsed, provided that the seller has fully paid the VAT on the transaction and has not been claimed as “bad debt” expense as deduction to the gross income.

The following requirements must be present in order to claim VAT credit:

  1. The sale must have taken place after the effectivity of RR No. 3-2024
  2. The sales are on credit or on account
  3. There must be a written agreement on the pay [of] the receivable, i.e. credit term is indicated on the invoice or any document showing the credit term
  4. The VAT must be shown separately on the invoice
  5. The sale is specifically reported in the Summary List of Sales covering the period when the sale was made and not reported as part of “various” sales
  6. The seller must have reported the VAT on their tax returns within the required time
  7. The period agreed upon, whether extended or not, has lapsed
  8. The VAT on the uncollected receivable was not claimed as a deduction from gross income (i.e. bad debt)

In case of recovery of the uncollected receivables or previously claimed VAT credit, it shall be reported in the taxable quarter where the recovery or collection was made. In case of failure to declare, the penalties shall apply. 

How will I document the particular sales on account where the corresponding Output VAT credit is claimed from uncollected receivable and how do I present and declare it in the Quarterly VAT return?

To document the Output VAT credit claimed from uncollected receivables, the seller shall stamp “Claimed Output VAT Credit” on the duplicate copies (seller’s copy) of the corresponding invoice issued for the uncollected receivable. The seller may also issue supplementary sales documents such as credit memo or credit note on top of the stamping of “Claimed Output VAT Credit” on the invoice to serve as proof and/or basis in recording the same in the books of the seller’s accounts. They must also indicate on the invoice, the origin of the transaction that was declared, as uncollected

In order for the buyer to make adjustments and deduct the appropriate input VAT claimed, the seller must give the buyer a copy of the relevant documentation. The buyer may, however, choose to voluntarily reverse its claimed input VAT in its Quarterly VAT Return (QVR) if the seller fails to provide the buyer with such documentation. 

In presenting and declaring the Output VAT credit in the BIR Form 2550Q, the seller and buyer shall follow this work-around procedure, or until such time a new version of the aforementioned form has been issued:

If the Output Tax on uncollected receivables were already paid, can the buyer—who has become delinquent—still claim the Input tax on its unpaid purchases? 

No, the corresponding Input VAT claimed by the buyer shall not be allowed as tax credit the moment the seller availed the Output VAT credit on uncollected receivables. In case the buyer fails to deduct on the available input tax the corresponding input tax from the unpaid account, penalties shall be imposed during audit by the BIR or during the adjustment of QVR.

Which taxpayers are not qualified in availing tax credit on uncollected receivables?

The following taxpayers are disqualified from availing output VAT credit on uncollected receivables:

  1. those Tagged as cannot be located (CBL) Taxpayers;
  2. those with duly filed complaints at the DOJ under Run After Fake Transactions (RAFT) and Run After Tax Evaders (RATE) programs;
  3. other taxpayers that may be identified by the Commissioner.

Keep yourselves posted on how to claim output VAT on uncollected receivables. Learn the important conditions and requirements you need to meet. Consult ACG!

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