COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
Although the transactions involving such tax are
TECHNOLOGY (PHILIPPINES)
451 SCRA 132, February 11, 2005
FACTS
SEAGATE is a resident foreign corporation duly registered with the SEC to do
business in the Philippines. It is also registered with the PEZA to engage in the
manufacture of recording components primarily used in computers for export.
SEAGATE is a VAT-registered entity. An administrative claim for refund of VAT
input taxes in the amount of P28,369,226.38 with supporting documents was filed
with Revenue District Office in Cebu. The administrative claim for refund was not
acted upon by the petitioner prompting the respondent to elevate the case to the
CTA.
The CIR contended that since ‘taxes are presumed to have been collected in
accordance with laws and regulations,’ the respondent has the burden of proof that
the taxes sought to be refunded were erroneously or illegally collected.
Unfortunately, the respondent failed to do so.
ISSUE/s of the CASE:
(1) Whether Seagate Technology is a VAT exempt entity/person, and
(2) Whether its transactions are VAT exmpt?
HELD:
1. Yes, VAT exempt entity
As a PEZA-registered enterprise within a special economic zone,respondent is
entitled to the fiscal incentives and benefits provided for in either PD 66 or EO 226
which would not subject respondent to internal revenue laws and regulations for
raw materials, supplies, articles, etc or would be entitled to income tax holiday;
additional deduction for labor expense, etc. It shall, moreover, enjoy all privileges,
benefits, advantages or exemptions under both Republic Act Nos. 7227 (Duty-free
importation) and 7844 (Tax Credits). Thus, respondent enjoys preferential tax
treatment. The VAT on capital goods is an internal revenue tax from which
petitioner as an entity is exempt.
not exempt, petitioner as a VAT-registered person, however, is entitled to their
credits.
Zero-rated transactions differ from effectively zero-rated transactions as to their
source. Zero-rated transactions generally refer to the export sale of goods and
supply of services. Effectively zero-rated transactions, however, refer to the sale of
goods or supply of services to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory. In both
instances, the transactions are not exempt transactions and the seller of such
transactions charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers. In both instances of zero
rating, there is total relief for the purchaser from the burden of the tax. But in an
exemption there is only partial relief, because the purchaser is not allowed any tax
refund of or credit for input taxes paid.
2. No. but subject to Zero Rated Sale
VAT is a tax on consumption, the amount of which may be shifted or passed on by
the seller to the purchaser of the goods, properties or services. If a special law
merely exempts a party as a seller from its direct liability for payment of the VAT,
but does not relieve the same party as a purchaser from its indirect burden of the
VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not
exempt. Applying this principle to the case at bar, the purchase transactions entered
into by respondent are not VAT-exempt.
Since the purchases of respondent are not exempt from the VAT, the rate to be
applied is zero. Its exemption under both PD 66 and RA 7916 effectively subjects
such transactions to a zero rate, because the ecozone within which it is registered is
managed and operated by the PEZA as a separate customs territory. This means that
in such zone is created the legal fiction of foreign territory. Under the crossborder
principle of the VAT system being enforced by the BIR, no VAT shall be imposed
to form part of the cost of goods destined for consumption outside of the territorial
border of the taxing authority. If exports of goods and services from the Philippines
to a foreign country are free of the VAT, then the same rule holds for such exports
from the national territory -- except specifically declared areas -- to an ecozone.