CLARIFICATIONS OF CERTAIN ISSUES IN RELATION TO THE IMPLEMENTATION OF EOPT ACT AND INTRODUCTION TO OUTPUT VAT CREDIT ON UNCOLLECTED RECEIVABLES

Introduction

REVENUE MEMORANDUM CIRCULAR NO. 65 – 2024

Clarifies certain issues and set guidelines for the effective implementation of Section 110(D) of the Tax Code that introduced the Output Value Added Tax (VAT) Credit on uncollected receivables.

Section 110(D) of the Tax Code addresses the difference of sales made in cash or on account. In cash sales, the seller has no problem with VAT since it has already been collected. In credit sales, the seller pays the VAT in advance to the BIR, even if the receivables are not collected. In such cases, the uncollected receivable, including the VAT, can be recognized as a bad debt and claimed as a deduction from gross income. This is in accordance with RR No. 5-99, as amended by RR No. 25-2002.

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 the 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.

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

Before a seller can credit the VAT paid on the uncollected receivables, the following requisites must be present:

a. The sale or exchange has taken place after the effectivity of RR No. 3-2024
b. The sale is on credit or on account
c. There is a written agreement on the period to pay the receivable, i.e. credit term is
    indicated on the invoice or any document showing the credit term
d. The VAT is separately shown on the invoice
e. 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
f. The seller declared in the BIR Form No. 2550Q or the quarterly VAT Return (QVR)
    the corresponding output VAT indicated in the invoice within the period prescribed
    under existing rules
g. The period agreed upon, whether extended or not, has lapsed
h. 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.

Availing of seller of the benefit under Section 110(D) of the Tax Code is optional, not mandatory. Sellers can claim the output VAT credit on uncollected receivables in the quarter following the agreed-upon payment period, as prescribed by the section.

If there is a subsequent recovery of previously uncollected receivables for which output VAT was claimed, the recovery must be reported and declared in the taxable quarter in which the collection is made. Failure to do so may result in penalties as per existing rules and regulations.


It is stipulated that buyers cannot claim input VAT credit the moment the sellers availed of output VAT credit on uncollected receivables. Sellers must stamp “Claimed Output VAT Credit” on the duplicate/triplicate copy of the corresponding invoice issued for the uncollected receivable, along with indicating any partial payments made and balance of the uncollected receivable.

Supplementary sales documents, such as credit memos or credit notes, can be issued in addition to the stamped invoice to serve as proof of claiming output VAT credit. Sellers must provide the buyer with copies of these documents for proper adjustment and deduction of corresponding input VAT claimed.

If the buyer fails to deduct the input VAT from the unpaid account, when necessary, they may be held liable for deficiency VAT and penalties if detected during a BIR audit or if the buyer decides to amend their Quarterly VAT Return (QVR) to reflect such adjustment. This highlights the importance of accurate reporting and compliance with VAT regulations to avoid penalties.

As a work-around procedure or until such time that a new version of the BIR Form No. 2550Q has been issued, the output VAT credit shall be presented/declared in the QVR of the seller and the buyer as follows:

Customer/buyer must be properly identified in the Summary List of Sales in the quarter when sale was made for the purpose of claiming the output VAT credit on uncollected receivables. It also highlights that lumping all sales into one account entry is considered invalid compliance. Taxpayers disqualified from availing output VAT tax credit include those tagged as CBL taxpayers, those with complaints under specific programs, and others identified by the Commissioner.

In cases where goods are returned during the agreed period to pay, they are treated as sales returns and deducted from gross sales. However, if goods are returned and accepted by the seller after an output VAT credit claim has been made, no deduction on sales and output VAT is allowed. When there is partial or full collection of previously uncollected receivables, the output VAT pertaining to the partial collection must be added to the seller’s output VAT during the recovery period.

The seller is not required to issue an invoice upon the recovery of uncollected receivables but must stamp “Recovered” on the original invoice. Additionally, supplementary sales documents like debit memos can be issued, indicating the  invoice that is the origin of the transaction that was previously declared uncollected receivables and the seller shall provide copies to the buyer.

As a work-around procedure or until such time that a new version of the BIR Form No. 2550Q has been issued, the seller and the buyer shall reflect the corresponding output VAT of recovered or subsequently collected receivables presented/declared in the VAT Return as follows:

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 will not qualify for output VAT credit under Section 110(D) of the Tax Code. 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.