Foreign investors concerned over VAT refund issues of BIR

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Erwin Tulfo

Erwin Tulfo

“We feel that foreign investors are being short-changed.”

This is the main concern of Mr. Henry Schummacher, external affairs vice president for the European Chamber of Commerce of the Philippines, as he sat down with The Manila Times to discuss the recent Supreme Court (SC) ruling against San Roque Power Plant’s tax refund claim, on grounds that the latter did not comply with standard procedures in filing its claim.

Although Schummacher expressed his delight with the current “reform-willing government since [former president]Ramos,” him and his colleagues in the foreign investment community are alarmed by the “retroactive” ruling of the SC, saying that this incident could turn off future foreign investors looking to invest in the Philippines.

Schummacher is blaming the SC and Bureau of Internal Revenue (BIR) for “ganging up on foreign investors,” as both agencies continue to make it difficult for revenue-generating foreigners to receive fiscal incentives such as duty and tax free imports for capital equipment of priority sectors.


The long process of claiming such refunds is also burdensome to these investors, as they have to go through the BIR only to be forced to go to the Court of Tax Appeals (CTA) and then to the SC, where long delays cause businesses to claim their refunds only years after, if not to be denied of their rightful claims.

Schummacher has cited three large-scale investment companies that have been “short-changed” by the SC. The San Roque Power Plant Company had over P500 million in tax refunds, Korea Electric Power Corp. (Kepco) which had over P1.7 billion of receivables, and the CBK (Caliraya, Botocan, Kalayaan) Power Plant which had over P800 million in tax refunds, were all denied of their claims by the SC.

Although foreign investors enjoy such incentives, VAT and other taxes have to be advanced by the companies then later on reimbursed by the tax bureau.

The SC ruling’s denial over San Roque Power Plant’s claim was based on the decision in the case of Aichi Forging Co. of Asia Inc. in 2010, that was denied of the same refund after the company did not observe the 120-day period that was fatal to the filing of a judicial claim.

San Roque Power Plant believed the decision of the SC on its claim to be “retroactive,” since it was back in 2003 that the company filed for its claim for refund, only to be told that after 10 long years, what it had done was “erroneous and premature,” the same reason it cited with SC’s 2010 ruling with Aichi.

Schummacher, along with his foreign peers, fear that these “technicalities” could be grounds for investors to look at other markets besides the Philippines such as Vietnam, Indonesia and Taiwan, which are more foreign investment-friendly.

Schummacher believes that the government should also “treat old investors nicely,” as they serve as “ambassadors for new investors” looking to invest in the local market.

Unexpected and drastic changes in internal revenue policies should also be given a “five-year adjustment period” according to Schummacher, giving local and foreign investors a chance to cope with new policies of the government.

The German executive also believes that if the government is not open for changes in the constitution, then it should at least look at other areas, such as revising the Internal Revenue code, to give a “level playing field” for all investors, whether local or foreign.

Although Schummacher is troubled by the current tax refund situation of the BIR and the SC, he has remained in the Philippines for 36 years, saying that he enjoys the country’s “flexibility,” enabling foreign investors to “use your creativity with all its gray areas,” far from the “black and white” business practices offered in European countries such as Germany.

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