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Double trouble?
A drawback to a
taxpayer’s
double invoicing
system
August 28, 2019 | 10:35 pm

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Taxwise Or Otherwise
By Mary Rose Lara

In taxation, it is a basic rule that every transaction must

be supported by a valid and relevant proof to establish
the existence of either a taxable or non-taxable event. However, no
matter how many stacks of documents you keep, if these do not
comply with the requirements of the tax laws, they will not serve their
purpose.

For value-added tax (VAT)-registered taxpayers, compliance with the

invoicing requirements, for both sale and purchase transactions, is a
must to determine if: (1) the seller has reported the output tax due on
the sale; and (2) the buyer is entitled to claim the input tax credit from
the purchase.

The tax law provides the following invoicing requirements for VAT-
registered taxpayers:

1. A VAT invoice for every sale, barter, or exchange of goods or

properties; and

2. A VAT of cial receipt for every lease of goods or properties and

every sale, barter or exchange of services.

In various cases, the Supreme Court has concluded that these

documents should not be confused to refer to the same things or be
used interchangeably.

In the case of VAT assessments/investigations, the taxpayer must

submit relevant documents necessary to support all covered
transactions.

Failure to comply with these requirements may result in drawbacks

such that if the subject taxpayer is the buyer/purchaser, the Bureau of
Internal Revenue (BIR) may have a basis to disallow the input tax
claimed as credits against the output tax due. On the other hand, if
the subject taxpayer is the supplier/seller, the BIR may impose
penalties, which can lead the taxpayer to a separate investigation
known as “Oplan Kandado” conducted against those who have
deliberately failed to issue invoices or of cial receipts to document
their transactions.

If, however, the case involves the issuance of both an of cial receipt
and an invoice for the same transaction, can the taxing authorities
hold the taxpayer liable for de ciency taxes or penalties?

In a case docketed as Court of Tax Appeals (CTA) No. 9217 dated Aug.
17, 2018, the CTA con rmed that nowhere in the Tax Code does the
law allow imposing the 12% VAT twice on the same transaction as a
consequence of a taxpayer erroneously issuing both a VAT of cial
receipt and a VAT invoice to document one sale.

The CTA’s decision is anchored on Section 113(D) of the Tax Code

which speci cally provides for the consequences of erroneously
issuing a VAT invoice or VAT of cial receipt, quoted as follows:

“(1) If a person, who is not a VAT-registered person, issues an invoice

or receipt showing his Taxpayer Identi cation Number (TIN), followed
by the word ‘VAT’:

(a) The issuer shall, in addition to any liability to other percentage

taxes, be liable to:

(i) The tax imposed in Section 106 or 108 without the bene t of any
input tax credit; and

(ii) A fty percent (50%) surcharge under Section 248(B) of this Code;

(b) The VAT shall, if the other requisite information required under
Subsection (B) hereof is shown on the invoice or receipt, be
recognized as an input tax credit to the purchaser under Section 110
of this Code.

(1) If a VAT-registered person issues a VAT invoice or VAT of cial

receipt for a VAT-exempt transaction, but fails to display prominently
on the invoice or receipt the term ‘VAT-exempt sale,’ the issuer shall
be liable to account for the tax imposed in Section 106 or 108 as if
Section 109 did not apply.”

From a cursory reading, it is evident that the consequences listed

above do not apply to taxpayers issuing double billing documents for
transactions subject to VAT. While that is true, the taxpayer
nonetheless has the burden of establishing that the documents,
though issued simultaneously, pertain to a single transaction and that
the basis of reporting is proper.

Thus, the mere issuance of double billing documents should not cause
more trouble for the taxpayer who rightfully paid what is due. In form,
two documents were issued, but in essence, both documents pertain
to the same transaction. As the off-cited accounting principle states,
cliché as it may sound, substance should prevail over form.

On a related note, though not covered in the court decision, the tax
bureau may have basis to question the issuance of both of cial
receipt and sales invoice to cover the same transaction since there is a
possibility that the customers, on the other end, may have claimed the
input tax twice based on the two supporting documents. Thus, the
burden of proof rests upon the taxpayer to establish the fact that no
double input tax was claimed by its customers. Perhaps a sworn
declaration from the customers to support this claim may suf ce as
proof.

Of course, double invoicing will likely raise a red ag on the suspicion

that the government is being cheated out of revenue taxes. All it takes
is for two conniving parties to issue an invoice with a lower value for
tax purposes and secretly issue a second one with a higher value for
billing purposes. However, it is a different case where the taxpayer
has rightfully declared and paid what is due to the government. After
all, there is no revenue loss on the part of the taxing authority. The
only mistake that the taxpayer may have committed is a mere error in
the documentation — a minor slip up that may, at worst, deserve only
reasonable penalties.

The views or opinions expressed in this article are solely those of the
author and do not necessarily represent those of Isla Lipana & Co.
The content is for general information purposes only, and should not
be used as a substitute for speci c advice.

Mary Rose Lara is a senior consultant at the Tax Services Department

of Isla Lipana & Co., a Philippine member rm of the PwC network.
+63 (2) 845-2728

mary.rose.lara@pwc.com

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