As a buyer, are you cautious of the contents of official receipts (OR) or invoices you receive from a seller?

Most of us are not.
Taxpayers beware: simple non-compliance of ORs or invoices you receive from your suppliers may cost your business.

In fact, the absence of the address or Tax Identification Number (TIN) of the buyer may render the value-added tax (VAT) OR/invoice noncompliant and, therefore, make it a ground for disallowance of input VAT claimed by the taxpayer. This is the position taken by the Court of Tax Appeals (CTA) in one of its recent case decisions.

The VAT regulations specifically provide that input taxes (i.e., VAT related to importation of goods or the domestic purchase of goods, properties or services) made by taxpayers in the course of their trade or business must be substantiated and supported by the following documents:

1.    for the importation of goods: import entry or other equivalent document showing actual payment of VAT on the imported goods;

2.    for the domestic purchase of goods and properties: invoice showing the information required under Sections 113 and 237 of the 1997 Tax Code, as amended;

3.    for the purchase of real property: public instruments (i.e., deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc., together with VAT invoice issued by the seller);

4.    for the purchase of services: OR showing the information required under Sections 113 and 237 of the 1997 Tax Code, as amended.

Section 113 of the 1997 Tax Code, as amended, requires a VAT-registered person to issue an invoice or receipt for every sale transaction and to indicate on such invoice or receipt the following information:

1.    VAT/ taxpayer identification number (TIN) of the seller;

2.    total amount payable, with the VAT indicated as a separate item;

date of transaction;

3.    quantity and unit cost;

4.    description of merchandise or nature of service;

5.    name, business style (if any), address and TIN of the buyer/client, if the sale amounts to at least P1,000 or where the buyer is also VAT-registered;

6.    The term "VAT-exempt sales" and "zero-rated sales for sales exempt from VAT and subject to zero percent VAT", respectively are written or printed prominently.

In its recent decision, the CTA ruled that these information are indispensable. The court noted that the wordings of the legal provisions pertaining to VAT invoicing and accounting requirements clearly require compliance. Accordingly, the purchaser is duty-bound to ensure that all required information are indicated in the sales documents.

The taxpayer’s failure to comply with such requirements is fatal to its claim for recognition of input VAT credits. Hence, deficiency VAT will be assessed if input taxes supported by such ORs or invoices have been credited against output VAT.

In the CTA case, the taxpayer argued that failure to indicate the purchaser’s address or TIN on the invoices or receipts is an act attributable to the seller.

The CTA, however, held that it is still within the purchaser’s power to ensure that the seller indicates all the information as required by law.

Accordingly, the court upheld the disallowance of the input VAT and the assessment for deficiency VAT issued by the Bureau of Internal Revenue (BIR) due to the absence of the purchaser’s TIN and/or address on the invoices/ORs issued by the seller.

At present, the court’s decision is not yet final and executory since the petitioner has filed a motion for reconsideration with the CTA en banc.

Regardless of the court’s decision, it is still advisable for entities to be cautious on the completeness of the information in the suppliers’ invoices/OR including minor details, such as checking whether the TIN, address and unit c ost, among others, are indicated.

For most companies, many employees are responsible for securing invoices or ORs on behalf of the company.

However, not all employees are aware of or strict about the requirements. In addition to the purchasing officers, other personnel, from rank and file to supervisory and managerial officers as well as top management, at one time or another, may be responsible for securing invoices or ORs for the incurred business-related expenses that are reimbursed by the company. These people should be identified and be given specific instructions to check the invoices and ORs before accepting them from the seller and service providers.

Ensuring full compliance with the invoicing requirements should not be left to the seller.

Taxpayers should always bear in mind that simple noncompliance is still noncompliance which may result in a significant loss to the company.

(The author is a tax director at Punongbayan & Araullo, a member firm within Grant Thornton International Ltd.)