Legal basis and coverage reach
- Section 1 and the operative rules on TCCs are issued pursuant to Section 244 in relation to Sections 76, 112, 130, 135, 204, and 230 of the Tax Code of 1997.
- The regulations govern the manner of issuance of BIR-issued Tax Credit Certificates (TCCs) and the conditions for their use, conversion, revalidation, and transfer.
- The regulations require TCCs to be issued and processed through BIR accountable forms and through acts by the Commissioner or his duly authorized representative.
Core policy and definitions
- The regulations recognize a tax credit as an amount due to a taxpayer arising from an overpayment of tax liability or an erroneous payment of a tax due (Section 1(A)).
- A Tax Credit Certificate is a certification issued to the named taxpayer by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form, acknowledging the grantee-taxpayer’s legal entitlement to a tax credit with a money value usable to pay internal revenue taxes (subject to exclusions) or convertible to a cash refund or otherwise disposed under the regulations (Section 1(B)).
- A Tax Debit Memo is a certification issued by the Commissioner or his duly authorized representative, reduced in a BIR Accountable Form, acknowledging that the taxpayer paid internal revenue tax liability in the form of and through the use of an existing TCC; it serves as the official receipt for that payment, and the amount shown is charged against/deducted from the TCC’s credit balance (Section 1(C)).
- Direct Internal Revenue Tax Liability refers to taxes for which a taxpayer is statutorily liable—i.e., liability of a person mandated by law to file the tax return and pay the tax due thereon (Section 1(D)).
Tax credits that qualify as sources
- A taxpayer may be granted a tax credit for the following categories (Section 2):
- Excess quarterly income taxes paid reflected in the final adjustment return, at the option of the taxpayer (Section 2(a)).
- Overwithholding at source of income taxes to the extent the overpayment was not deducted or applied against income tax due, at the option of the taxpayer (Section 2(b)).
- Input taxes attributable to:
- zero-rated sales made by a VAT-registered taxpayer, including export sales by a VAT-registered exporter;
- effectively zero-rated sales made by a VAT-registered taxpayer; and
- capital goods imported or locally purchased by a VAT-registered taxable person (Section 2(c)(i)-(iii)).
- Unused input taxes resulting from cancellation of VAT registration due to retirement from or cessation of business, or due to changes in or cessation of status as a VAT taxable taxpayer under Section 106(C) of the Tax Code (Section 2(d)).
- Excise taxes paid on:
- petroleum products sold to tax-exempt entities and international carriers; and
- goods locally produced or manufactured and actually exported without returning to the Philippines (Section 2(e)(i)-(ii)).
- Taxes erroneously or illegally paid or penalties imposed without authority (Section 2(f)).
- If a taxpayer is erroneously registered as a VAT person, the taxpayer is not covered for input-tax sources under Section 2(c) and unused-input sources under Section 2(d) (Section 2).
- A taxpayer cannot receive a tax refund or TCC resulting from availment of incentives granted under special laws for which no actual tax payment was made (Section 2).
Uses of TCCs and payment limitations
- When a TCC is issued to acknowledge a valid tax credit, the TCC may be used by the grantee or his assignee to pay the grantee’s direct internal revenue tax liability, including: income tax, documentary stamp tax, excise tax, value-added tax, percentage tax, and other internal revenue taxes (Section 3).
- A TCC cannot be used to pay withholding tax (Section 3(a)).
- A TCC cannot be used to pay obligations arising from availment of a tax amnesty declared under legislative enactment (Section 3(b)).
- A TCC cannot be used to pay deposits on withdrawal of exciseable articles (Section 3(c)).
- A TCC cannot be used to pay taxes not administered or collected by the Bureau of Internal Revenue (Section 3(d)).
- A TCC cannot be used to pay compromise penalty (Section 3(e)).
Assignment, transferability, and procedures
- TCC holders hold BIR-issued TCCs “in the concept of an owner” and the TCCs may be transferred to an assignee subject to conditions (Section 4(a)).
- A transfer requires prior approval of the Commissioner or his duly authorized representative, who verifies whether the TCC sought to be transferred is still valid in the hands of the original holder (Section 4(a)(i)).
- A TCC may be transferred only once (Section 4(a)(ii)).
- The transferee must use the assigned TCC strictly in payment of the transferee’s direct internal revenue tax liability and the TCC cannot be used by the transferee for conversion to cash (Section 4(a)(iii)).
- For assignment/transfer, the following steps apply (Section 4(b)):
- The TCC to be assigned must be presented to the Commissioner or his duly authorized representative for verification; if valid and with creditable balance, the TCC is marked “Valid for Transfer” and countersigned (Section 4(b)(i)).
- After execution of the Deed of Assignment, the transferor must present the Deed together with the original copy of the TCC (Section 4(b)(ii)).
- The original copy of the TCC must be cancelled even if only part of the face value is transferred; new TCC(s) are issued for the portions assigned to transferee(s) and/or the remaining balance for the transferor (Section 4(b)(iii)).
- Any TCC issued to the transferee/assignee is valid for five (5) years, and must be annotated with:
- “Not valid for further transfer”; and
- “Not valid for cash conversion” (Section 4(b)(iv)).
Validity, conversion to refund, and revalidation
- A TCC issued in accordance with the Tax Code of 1997 that remains unutilized after five (5) years from the date of issue becomes invalid if not revalidated before the end of the fifth year (Section 5(a)).
- An invalid TCC cannot be used to pay any internal revenue tax liability and cannot be transferred; the unutilized amount reverts to the General Fund of the National Government (Section 5(a)).
- A revalidated TCC is valid for five years from the date of issue (Section 5(a)).
- A cash conversion request for unutilized tax credits may be allowed during the validity period of the TCC (Section 5(b)).
- For conversion, the original copy showing a creditable balance must be surrendered to the Asst. Commissioner, Collection Service or other duly authorized Revenue Officer for verification and cancellation (Section 5(b)).
- A refund check or treasury warrant issued under the Tax Code provisions becomes forfeited if it remains uncashed or unclaimed within five (5) years from the date of issue, mailing, or delivery (whichever comes later), and the amount reverts to the general fund (Section 5(b)).
- Revalidation may be sought prior to the expiration of the TCC’s validity period (Section 5(c)).
- A special rule applies for TCCs issued prior to January 1, 1998: if the grantee’s holding period as of that date is less than five (5) years counted from date of issue, the holder may submit for revalidation within six (6) months prior to the end of the fifth (5th) year (Section 5(c)).
- Revalidation is initiated by filing an application with the Collection Service or other duly authorized Office of the Bureau of Internal Revenue (Section 5(d)).
- Revalidation is accomplished by issuance of a new TCC reflecting the unutilized amount or creditable balance (Section 5(d)).
- No revalidated TCC is issued unless the Commissioner’s duly authorized representative certifies that the applicant taxpayer has no outstanding tax liability (Section 5(d)).
- If the applicant has outstanding tax liability, the liability is applied first against the TCC sought to be revalidated through issuance of a Tax Debit Memo (TDM) (Section 5(d)).
- “Outstanding tax liability” is defined as an assessment that is already final and executory (Section 5(d)).
Prior issuances and amendments
- Revenue Regulations No. 7-98 and any other revenue issuance inconsistent with BIR Regulations No. 5-2000 are repealed, amended, or modified accordingly (Section 6).