Supreme Court Clarifies Two-Year Prescriptive Period for Refund of Wrong VAT Payment

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Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

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AT A GLANCE:

In Melco Resorts v. CIR (G.R. No. 271261, April 2, 2025), the Supreme Court ruled that the two-year period starts from the date the taxpayer actually paid the VAT to the BIR, not from the date the supplier remitted it.

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The Facts

1. Melco Resorts Leisure (PHP) Corporation (Melco) is a VAT-registered domestic corporation engaged in casino gaming and hotel operations under a license from PAGCOR.
2. For the first quarter of 2016, Melco paid PHP81,119,005.84 in input VAT allegedly passed on by its suppliers. Melco claimed this amount as erroneously or illegally paid taxes and sought a refund under Sections 112(A) and 229 of the NIRC, which reads: 
3. On April 25, 2016, Melco filed its quarterly VAT return (BIR Form No. 2550-Q) for the 1st quarter of taxable year 2016. Later, on December 19, 2017, Melco filed its administrative claim for refund with the Large Taxpayer Services of the BIR.
4. However, on February 26, 2018, the BIR denied Melco’s claim based on the provisions of RMC No. 33-2013, stating that income derived from operations related to gaming activities are subject to VAT at 12% and are not entitled to refund of creditable input tax.
5. Aggrieved, Melco filed a Petition for Review before the CTA First Division on April 12, 2018. However, the CTA denied this petition, ruling that while Melco timely filed its judicial claim for refund under Section 112 of the Tax Code, it was not entitled to a refund because it was not engaged in zero-rated activities.  
6. Upon petition, the CTA En Banc affirmed the CTA First Division’s decision, emphasizing that Melco’s reliance on Section 108 (B)(3) of the Tax Code was misplaced as, under this special law, the entity enjoying incentives is not the seller but the buyer.
7. Moreover, although Melco’s taxes were indeed erroneously paid as it was erroneously passed on by suppliers, the Court ultimately ruled that it cannot be determined whether Melco timely filed its claim for refund of tax credit.
8. On Melco’s alternative claim under Section 229, the Court ruled that Melco was not the statutory taxpayer but merely bore the economic burden thereof. 
9. Hence, the CTA En Banc concluded that it was erroneous for Melco to count the two-year period from the date of filing of its own 1st quarter VAT return on April 25, 2016. Instead, the period must be reckoned from the payment of the supplier-statutory taxpayer.

 

The Issues

1. W/N  Melco is entitled to a refund or tax credit of input VAT paid for the 1st quarter of 2016. – NO
2. W/M Melco timely filed its administrative and judicial claims for refund under Section 229 of the Tax Code. – YES

 

The Supreme Court decides: 

NO, Melco is not entitled to a refund or tax credit of input VAT paid for the 1st quarter of 2016.

1. The Supreme Court simply adopted the rulings of the CTA First Division and CTA En Banc that Melco is not entitled to a refund.
2. With regard to Section 112, the SC emphasized the CTA First Division’s ruling, ultimately concluding that while Melco is a VAT-exempt entity, its transactions with its suppliers are not considered zero-rated or effectively zero-rated sales under the Tax Code.
3. In accordance with Section 229, the Court held that when payment is not voluntary, it can then be recovered or refunded. 
4. In the current case, the Court found that Melco’s payment represented and formed part of the purchase price it paid to its suppliers. Thus, the said amount was not erroneous nor illegal; hence, not refundable. 

 

YES, Melco timely filed its administrative and judicial claims for refund under Section 229 of the Tax Code.

1. The Supreme Court clarified that the two-year prescriptive period for refund under Section 229 of the Tax Code is not necessarily reckoned from the actual remittance by the suppliers. 
2. Instead, the Court ruled that the two-year prescriptive period can be reckoned from the filing of the claimant’s own VAT return where the erroneous VAT was recorded, especially when the claimant is not the statutory taxpayer but bore the economic burden of the tax. Hence, the Court found error and fault in the CTA En Banc’s previous ruling.
3. Additionally, the Court emphasized that substantial justice and fair play outweigh administrative burdens and consequently ruled it would be unreasonable to require the taxpayer to prove government or third-party compliance in order to claim a refund.
4. Given this, the Court found that the CTA erred in requiring proof of the suppliers’ VAT payment dates to start the two-year period. Such a requirement would be oppressive and impractical, especially since Melco had over 400 suppliers, and would have to present 1,600 VAT returns.

 

ACCORDINGLY, the Petition for Review on Certiorari is PARTLY GRANTED. The July 11, 2023 Decision and the January 8, 2024 Resolution of the Court of Tax Appeals En Banc in CTA EB No. 2608 (CTA Case No. 9811) are PARTIALLY REVERSED. 

 

Source:

• Melco Resorts Leisure (PHP) Corporation Vs. Commissioner of Internal Revenue (G.R. No. 271261 | April 2, 2025)
• SC Clarifies Two-Year Prescriptive Period for Refund of Wrong VAT Payment

 

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