BIR warns lack of documents will raise VAT refund risk category in the Philippines

The Bureau of Internal Revenue (BIR) has announced that a lack of supporting documents beyond a certain threshold in VAT refund applications will automatically classify the claim as high-risk. Specifically, if the "no supporting documents" (NSD) for sales or purchases exceeds 1% of the total sales or claim amount, the application will require full verification. This classification does not count as an incomplete submission but results in the disallowance of any unsubstantiated portions of the claim.

The Bureau of Internal Revenue (BIR) said the lack of supporting documents beyond a certain threshold on sales and purchases involved in a value-added tax (VAT) refund application will automatically bump the claim into the high-risk category. It shall not be considered as incomplete submission, but the same will result in the disallowance of the unsubstantiated portion of the sales or purchases regardless of the risk classification.

If the 'NSD' for sales and purchases exceeds 1% of the total sales amount (for sales transactions) or total claim amount (for purchase transactions), the application will automatically be deemed high-risk and will require full verification.

Republic Act (RA) No. 11976, known as the Ease of Paying Taxes Act, established a risk-based system for classifying VAT refund claims into low, medium, or high risk.

The BIR uses a points system to assess VAT refund claims, taking into account factors such as the claim size, frequency of claims, the claimant's tax compliance history, and other risk considerations.

Those applying for refunds must submit documentation before they are assigned a risk level. Low-risk claims will only be classified with complete documentation.