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VALUE ADDED TAX

Case Facts Issue + Held

CIR v. Respondent (Seagate Corporation) is a foreign corporation engaged in the Issue: Entitlement of a VAT-Registered PEZA Enterprise
Seagate manufacture of recording components for computers for export. Their principal such as Seagate to a Refund of or Credit for Input VAT
Technology office is at a Special Economic Zone in Naga, Cebu. It is registered with the PEZA
(Philippines) and is likewise a VAT registered entity. Held: YES. As a PEZA registered enterprise, it is entitled to
the fiscal incentives and benefits granted to it by law.
Vat- Respondent filed VAT returns for the period of 1 April 1998 to 30 June 1999.
Registered Subsequently, an administrative claim for refund for unutilized VAT input taxes Preferential Tax Treatment Under Special Laws
PEZA was filed in October 1999 but Petitioner (CIR) did not act on the request. This
Enterprises prompted Respondent to file a Petition for Review to toll the running of the Under all the laws applicable - BCDA, Omnibus Investment
Sorry for the prescriptive period. Act, PD 66 (creating the export processing zone authority),
many and the Philippine Export Development Act - it is clear that
technical Petitioner, in its defense, claimed that Respondent has the burden of proof to petitioner enjoys preferential tax treatment. It is not subject
definitions establish the factual basis of its refund. It further argued that granting, without to internal revenue laws and regulations and is entitled to
admitting, that Respondent is a PEZA registered Ecozone Enterprise, then the tax credits. The VAT on capital goods is an internal revenue
business is not subject to VAT pursuant to Sec. 24 of RA 7916 in relation to Sec tax from which petitioner is exempt. Although transactions
103 of the Tax Code. As the business is not subject to VAT, the capital goods and involving such tax are not exempt, petitioner is entitled to
services purchased are considered not used in a VAT taxable business. Thus, their credits.
Respondent is not entitled to refund of input taxes on such goods.
Nature of the VAT; Tax Credit Method
The Tax Court rendered a decision granting the refund. CA affirmed the same for
the unutilized but substantiated input VAT paid on capital goods. The appellate VAT should be understood as a tax on consumption. It
court reasoned that Respondent availed only of the incentives under the Omnibus should not be understood in the context of the person or
Investment Code of 1987 (EO 226). It found that respondent was only exempt entity that is primarily, directly and legally liable for the
from income tax and not VAT. Having paid input VAT on capital goods it payment. Specifically, it is:
purchased, respondent correctly filed the admin/judicial claims for its refunds. - A uniform tax ranging from 0 to 10% levied on every
importation of goods, w/n in the course of business,
or imposed on each sale, barter, exchange, or
lease of goods of properties or on each rendition of
services in the course of trade or business as they
pass along the distribution and production chain,
the tax being limited only to the value added to such

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goods, properties, or services
- Indirect Tax that may be shifted or passed on to the
buyer, transferree, or lessee of the goods,
properties or services

Under the tax credit method, an entity can credit against or


subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.

Zero Rated and Effectively Zero Rated Transactions


Zero-Rated Transactions: Export sale of goods and supply
of services where the tax rate is set at zero. When applied
to tax base, no tax is chargeable. Seller charges no output
tax, but can claim a refund/tax credi for the VAT previously
charged by suppliers.
Effectively Zero-Rated Transactions: sale of goods or
supply of services to persons or entities whose exemption
under special laws or international agreements to which PH
is a signatory effectively subjects such transactions to a
zero rate. Same as above, zero output tax but may claim for
a refund/credit

Zero Rating and Exemption


In terms of computation, they are the same. It differs in
extent of relief. Applying the destination principle to the
exportation of goods, automatic zero rating is enjoyed by
the seller who is directly and legally liable to the VAT,
making such seller internationally competitive. Effective
zero rating is intended to benefit the purchaser who will
ultimately bear the burden of tax shifted by suppliers.

In both instances of zero rating, there is total relief for the


purchaser. In an exemption there is only partial relief,
because the purchaser is not allowed any tax refund or
credit for input taxes paid.

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Exempt Transaction and Exempt Party

The object of exemption may either be the transaction itself


or any of the parties. An exempt transaction is one listed
under the TAX Code. Transaction is not subject to VAT, but
seller cannot claim for refund or credit. An exempt party is a
person or entity granted VAT exemption under a special law
or agreement. Such party is not subject to VAT but he may
be allowed a tax refund or credit.

Tax Exemptions

Respondent as an entity is exempt from internal revenue


laws and regulations. This exemption covers both direct and
indirect taxes.

VAT, being a tax on consumption, imposes a liability on one


person but the burden is passed to another. Respondent,
then, cannot be charged for VAT on its sales nor indrectly
bear an added cost to the same.

RA 7916 (PEZA Act) states that no taxes, local and


national, should be imposed on the economic zone. Its’ IRR
and laws later amending the main law did not in any way
revoke this prohibition. Likewise, export procesing zone
enterprises registered with the BoI, like Respondent, enjoy
exemption from national internal revenue taxes.

Respondent complied with all requisites for complying


with a VAT refund

1. Respondent is a VAT-registered entity. VAT


Registration, not application for effective zero
rating, is indispensable to VAT refund.
2. The input taxes on capital goods supported by VAT
invoices have not been offset by output taxes/

VAT | TAX 2| DIE-ANOTHER-DAYGEST 3


3. There’s a clear intent by legislators to exempt
investors in ecozones from tax as well as grant
them tax credit.

Panasonic Panasonic, petitioner, is registered with the Board of Investments as a preferred Issue:
Communicati pioneer enterprise under the Omnibus Investment Code. It is also registered as a Whether or not the CTA en banc correctly denied petitioner
ons Imaging valued-added tax enterprise. Petitioner was able to generate export sales Panasonics claim for refund of the VAT it paid as a zero-
Corporation amounting to 24M. Believing them to be zero-rated for VAT under Section rated taxpayer on the ground that its sales invoices did not
of the 106(A)(2)(a)(1) of the 1997 National Internal Revenue Code, Panasonic paid an state on their faces that its sales were zero-rated.
Philippines v. input VAT of around 9.3M total.
CIR Held:
Claiming such input VAT to be unutilized, they filed for a refund. However, BIR did
not act and this prompted Panasonic to file a petiton for review with the CTA. The Yes, the CTA was correct. Panasonic is NOT entitled to a
CTA denied their petition stating that petitioner’s sales did not qualify for the zero- refund.
rating because the word zero-rated was not printed on their invoices.
The VAT is a tax on consumption, an indirect tax that
Their MR was also denied. Hence, this petition. the provider of goods or services may pass on to his
customers. Under the VAT method of taxation, which is
invoice-based, an entity can subtract from the VAT
charged on its sales or outputs the VAT it paid on its
purchases, inputs and imports. For example, when a
seller charges VAT on its sale, it issues an invoice to
the buyer, indicating the amount of VAT he charged.
For his part, if the buyer is also a seller subjected to the
payment of VAT on his sales, he can use the invoice
issued to him by his supplier to get a reduction of his
own VAT liability. The difference in tax shown on
invoices passed and invoices received is the tax paid to
the government. In case the tax on invoices received
exceeds that on invoices passed, a tax refund may be
claimed.

Under the 1997 NIRC, if at the end of a taxable quarter the


seller charges output taxes equal to the input taxes that his
suppliers passed on to him, no payment is required of him.
It is when his output taxes exceed his input taxes that he

VAT | TAX 2| DIE-ANOTHER-DAYGEST 4


has to pay the excess to the BIR. If the input taxes exceed
the output taxes, however, the excess payment shall be
carried over to the succeeding quarter or quarters. Should
the input taxes result from zero-rated or effectively zero-
rated transactions or from the acquisition of capital goods,
any excess over the output taxes shall instead be refunded
to the taxpayer. And, For the effective zero rating of such
transactions, however, the taxpayer has to be VAT-
registered and must comply with invoicing requirements.

For not being to comply with the invoicing requirements, it


was proper to deny Panasonics refund. Besides, statutes
that grant tax exemptions are construed strictissimi juris
against the taxpayer and liberally in favor of the taxing
authority. Tax refunds in relation to the VAT are in the
nature of such exemptions. The general rule is that
claimants of tax refunds bear the burden of proving the
factual basis of their claims. Taxes are the lifeblood of the
nation. Therefore, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of
the government.

CIR v. CIR seeks the reversal of the decision of the CA directing them to issue a tax Issue: W/N VAT Ruling No 008-92 should have a retroactive
Benguet credit to Benguet Corp in the amount of Php 49.7M representing input VAT/tax. It application, as such would not prejudice the respondent.
Corporation is petitioner’s sole contention that the CA erred in rejecting the retroactive
application of VAT Ruling No. 008-92, dated January 23, 1992, subjecting sales Held: NO.
of gold to the CB to 10% VAT to respondents sales of gold during the period from Rulings and circulars, rules and regulations, promulgated by
January 1, 1988 to July 31, 1989. the Commissioner of Internal Revenue, would have no
retroactive application if to so apply them would be
(five rulings from 1988 to 1990 reiterated and confirmed BIR’s position that the prejudicial to the taxpayers.. And the court held that to have
sale of gold by a VAT-registered taxpayer to the Central Bank is subject to the a retroactive application would prejudice Benguet Corp.
zero-rate VAT.)
Input VAT or input tax represents the actual payments,
costs and expenses incurred by a VAT-registered taxpayer
in connection with his purchase of goods and services.
Thus, input tax means the value-added tax paid by a VAT-

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registered person/entity in the course of his/its trade or
business on the importation of goods or local purchases of
goods or services from a VAT-registered person.

On the other hand, when that person or entity sells his/its


products or services, the VAT-registered taxpayer generally
becomes liable for 10% of the selling price as output VAT or
output tax. Hence, "output tax" is the value-added tax on the
sale of taxable goods or services by any person registered
or required to register under Section 107 of the (old) Tax
Code.

The VAT system of taxation allows a VAT-registered


taxpayer to recover its input VAT either by (1) passing on
the 10% output VAT on the gross selling price or gross
receipts, as the case may be, to its buyers, or (2) if the input
tax is attributable to the purchase of capital goods or to
zero-rated sales, by filing a claim for a refund or tax credit
with the BIR.
Simply stated, a taxpayer subject to 10% output VAT on its
sales of goods and services may recover its input VAT
costs by passing on said costs as output VAT to its buyers
of goods and services but it cannot claim the same as a
refund or tax credit, while a taxpayer subject to 0% on its
sales of goods and services may only recover its input VAT
costs by filing a refund or tax credit with the BIR.”

Here, when respondent sold gold to the CB, it relied on the


formal assurances of the BIR, i.e., VAT Ruling No. 378-88
dated August 28, 1988 and VAT Ruling RMC No. 59-88
dated December 14, 1988, that such sales are zero-rated.
To retroact a later ruling VAT Ruling No. 008-92 - revoking
the grant of zero-rating status to the sales of gold to the CB
and applying a new and contrary position that such sales
are now subject to 10%, is clearly inconsistent with justice
and the elementary requirements of fair play.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 6


Contex FACTS: Petitioner is a domestic corporation engaged in the business of ISSUE: Whether or not Contex Corp is entitled to tax
Corporation manufacturing hospital textiles and garments and other hospital supplies for refund?
v. CIR export. Petitioner’s place of business is at the Subic Bay Freeport Zone (SBFZ). It
is duly registered with the Subic Bay Metropolitan Authority (SBMA) as a Subic HELD: No. It must be stressed that the VAT is an indirect
Bay Freeport Enterprise. As an SBMA-registered firm, petitioner is exempt from all tax. As such, the amount of tax paid on the goods,
local and national internal revenue taxes except for the preferential tax provided properties or services bought, transferred, or leased may be
for in Section 12. Petitioner also registered with the Bureau of Internal Revenue shifted or passed on by the seller, transferor, or lessor to
(BIR) as a non-VAT taxpayer. the buyer, transferee or lessee. Unlike a direct tax, such as
the income tax, which primarily taxes an individual’s ability
From January 1, 1997 to December 31, 1998, petitioner purchased various to pay based on his income or net wealth, an indirect tax,
supplies and materials necessary in the conduct of its manufacturing business. such as the VAT, is a tax on consumption of goods,
The suppliers of these goods shifted unto petitioner the 10% VAT on the services, or certain transactions involving the same. The
purchased items, which led the petitioner to pay input taxes in the amounts of VAT, thus, forms a substantial portion of consumer
P539,411.88 and P504,057.49 for 1997 and 1998, respectively. expenditures.

Acting on the belief that it was exempt from all national and local taxes, including Further, in indirect taxation, there is a need to
VAT, pursuant to Rep. Act No. 7227, petitioner filed two applications for tax refund distinguish between the liability for the tax and the
or tax credit of the VAT it paid burden of the tax. As earlier pointed out, the amount of
tax paid may be shifted or passed on by the seller to
the buyer. What is transferred in such instances is not
the liability for the tax, but the tax burden. In adding or
including the VAT due to the selling price, the seller
remains the person primarily and legally liable for the
payment of the tax. What is shifted only to the
intermediate buyer and ultimately to the final purchaser
is the burden of the tax. Stated differently, a seller who
is directly and legally liable for payment of an indirect
tax, such as the VAT on goods or services is not
necessarily the person who ultimately bears the burden
of the same tax. It is the final purchaser or consumer of
such goods or services who, although not directly and
legally liable for the payment thereof, ultimately bears the
burden of the tax.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 7


The petitioner’s claim to VAT exemption in the instant case
for its purchases of supplies and raw materials is founded
mainly on Section 12 (b) and (c) of Rep. Act No. 7227,
which basically exempts them from all national and local
internal revenue taxesWhile it is true that the petitioner
should not have been liable for the VAT inadvertently
passed on to it by its supplier since such is a zero-rated
sale on the part of the supplier, the petitioner is not the
proper party to claim such VAT refund. As an exempt VAT
taxpayer, it is not allowed any tax credit on VAT (input tax)
previously paid. In fine, even if we are to assume that
exemption from the burden of VAT on petitioner’s
purchases did exist, petitioner is still not entitled to any tax
credit or refund on the input tax previously paid as petitioner
is an exempt VAT taxpayer.

Rather, it is the petitioner’s suppliers who are the proper


parties to claim the tax credit and accordingly refund the
petitioner of the VAT erroneously passed on to the latter
because the transaction was deemed a zero-rated sale on
the part of the supplier.

CIR v. Pursuant to a government program of privatization, NCD decided to sell to private ISSUE: Is the sale of the vessels subject to VAT?
Magsaysay enterprise all of its shares in its wholly owned subsidiary, the National Marine
Lines, Inc Corporation (NMC). The NCD then decided to sell its NMC shares and 5 ships, NO. The Supreme Court found that any sale, barter or
which are Klockner type vessel ships. These were offered in a public bidding, with exchange of goods or services not in the course of trade or
a stipulation that the winning bidder was to pay VAT of 10% in the value of such business is not subject to VAT. In this case, the sale of the
vessels. Magsaysay Lines was the highest bidder. Then, there was a formal vessels was an isolated transaction, not done in the
request of whether or not the sale was subject to VAT. ordinary course of NDC’s business and is thus not subject
to VAT.

CIR v. CA, Commonwealth Management and Services Corporation (COMASERCO) is a ISSUE: whether COMASERCO was engaged in the sale of
GR No. corporation duly organized and existing under the laws of the Philippines. It is an services, and thus liable to pay VAT thereon

VAT | TAX 2| DIE-ANOTHER-DAYGEST 8


125355, 30 affiliate of Philippine American Life Insurance Co. (Philamlife), organized by the
Mar. 2000 letter to perform collection, consultative and other technical services, including HELD: YES. VAT is a tax on the value added by the
functioning as an internal auditor, of Philamlife and its other affiliates. performance of the service. It is immaterial whether profit is
derived from rendering the service.
The Bureau of Internal Revenue (BIR) issued an assessment to COMASERCO for
deficiency value-added tax (VAT) amounting to P351,851.01. "SEC. 105. Persons Liable. - Any person who, in the course
of trade or business, sells, barters, exchanges, leases
COMASERCO filed with the Court of Tax Appeals a petition for review contesting goods or properties, renders services, and any person who
the Commissioner's assessment. COMASERCO asserted that the services it imports goods shall be subject to the value-added tax (VAT)
rendered to Philamlife and its affiliates, relating to collections, consultative and imposed in Sections 106 and 108 of this Code.
other technical assistance, including functioning as an internal auditor, were on a
"no-profit, reimbursement-of-cost-only" basis. COMASERCO was established to Xxx
ensure operational orderliness and administrative efficiency of Philamlife and its
affiliates, and not in the sale of services. COMASERCO stressed that it was not "The phrase "in the course of trade or business" means the
profit-motivated, thus not engaged in business. In fact, it did not generate profit but regular conduct or pursuit of a commercial or an economic
suffered a net loss in taxable year 1988. COMASERCO averred that since it was activity, including transactions incidental thereto, by any
not engaged in business, it was not liable to pay VAT. person regardless of whether or not the person engaged
therein is a nonstock, nonprofit organization (irrespective of
CTA ruled in favor of CIR. Upon appeal to the CA by COMASERCO, CA reversed the disposition of its net income and whether or not it sells
the CTA ruling, holding that COMASERCO was not liable to pay VAT. exclusively to members of their guests), or government
entity.

The definition of the term "in the course of trade or


business" incorporated in the present law applies to all
transactions even to those made prior to its enactment.
Executive Order No. 273 stated that any person who, in the
course of trade or business, sells, barters or exchanges
goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for
the sale of goods and services.

Hence, it is immaterial whether the primary purpose of


a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-
on-cost basis only, without realizing profit, for

VAT | TAX 2| DIE-ANOTHER-DAYGEST 9


purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a
fee, remuneration or consideration, then the service
rendered is subject to VAT.

CIR v. Sony ● Sony Philippines engaged the services of several advertising companies Issue: W/N the dole-out given by Sony Singapore
Philippines, ● Due to Sony Philippines’ dire economic conditions, Sony International constituted a sale and whether Sony Philippines is liable to
Inc., Singapore handed Sony Philippines a dole-out to answer for the expenses pay VAT
payable to the advertising companies.
● CIR issued Letter of Authority to examine Sony’s books regarding revenue Held: NO
taxes for the period 1997 and unverified prior years ● Sonys deficiency VAT assessment stemmed from
● The deficiency VAT amounted to P11.1M the CIRs disallowance of the input VAT credits that
● The CTA-First Division disallowed the deficiency VAT assessment should have been realized from the advertising
because the subsidized advertising expense paid by Sony which was duly expense of the latter.
covered by a VAT invoice resulted in an input VAT credit. ● To begin with, the said subsidy termed by the CIR
as reimbursement was not even exclusively
earmarked for Sony’s advertising expense for it was
but an assistance or aid in view of Sony’s dire or
adverse economic conditions, and was only
equivalent to the latter’s (Sonys) advertising
expenses.
● Thus, there must be a sale, barter or exchange of
goods or properties before any VAT may be levied.
Certainly, there was no such sale, barter or
exchange in the subsidy given by SIS to Sony. It
was but a dole out by SIS and not in payment for
goods or properties sold, bartered or exchanged by
Sony.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 10


CIR v. Cebu Respondent Cebu Toyo Corporation is a domestic corporation engaged in the ISSUE: W/N respondent is entitled to a tax refund or credit -
Toyo manufacture of lenses and various optical components used in television sets, YES.
Corporation cameras, compact discs and other similar devices. It is a subsidiary of Toyo Lens
Corporation, a non-resident corporation organized under the laws of Japan. HELD: YES. Petitioner’s contention that respondent is not
Respondent is a zone export enterprise registered with the Philippine Economic entitled to refund for being exempt from VAT is untenable.
Zone Authority (PEZA). It is also registered with the BIR as a VAT taxpayer. This argument turns a blind eye to the fiscal incentives
granted to PEZA-registered enterprises under Section 23 of
As an export enterprise, respondent sells 80% of its products to its mother Rep. Act No. 7916. Note that under said statute, the
corporation, the Japan-based Toyo Lens Corporation, pursuant to an Agreement respondent had two options with respect to its tax burden. It
of Offsetting. The rest are sold to various enterprises doing business in the MEPZ. could avail of an income tax holiday pursuant to provisions
Inasmuch as both sales are considered export sales subject to Value-Added Tax of E.O. No. 226, thus exempt it from income taxes for a
(VAT) at 0% rate under Section 106(A)(2)(a) of the National Internal Revenue number of years but not from other internal revenue taxes
Code, as amended, respondent filed its quarterly VAT returns from April 1, 1996 to such as VAT; or it could avail of the tax exemptions on all
December 31, 1997 showing a total input VAT of ₱4,462,412.63. taxes, including VAT under P.D. No. 66 and pay only the
preferential tax rate of 5% under Rep. Act No. 7916. It was
Respondent then filed for an application for tax credit/refund of VAT paid for the found that respondent availed of the income tax holiday for
aforementioned periods above, representing excess VAT input payments. four (4) years as clearly reflected in its 1996 and 1997
Respondent, however, did not bother to wait for the Resolution of its claim by the Annual Corporate Income Tax Returns, where respondent
CIR. Instead it filed a Petition for Review with the CTA. Before the CTA, the specified that it was availing of the tax relief under E.O. No.
respondent posits that as a VAT-registered exporter of goods, it is subject to VAT 226. Hence, respondent is not exempt from VAT and it
at the rate of 0% on its export sales that do not result in any output tax. Hence, the correctly registered itself as a VAT taxpayer. In fine, it is
unutilized VAT input taxes on its purchases of goods and services related to such engaged in taxable rather than exempt transactions.
zero-rated activities are available as tax credits or refunds.
Taxable transactions are those transactions which are
The petitioner’s position is that respondent was not entitled to a refund or tax subject to value-added tax either at the rate of ten percent
credit since: (1) it failed to show that the tax was erroneously or illegally collected; (10%) or zero percent (0%). In taxable transactions, the
(2) the taxes paid and collected are presumed to have been made in accordance seller shall be entitled to tax credit for the value-added tax
with law; and (3) claims for refund are strictly construed against the claimant as paid on purchases and leases of goods, properties or
these partake of the nature of tax exemption. services. An exemption means that the sale of goods,
properties or services and the use or lease of properties is
not subject to VAT (output tax) and the seller is not allowed
any tax credit on VAT (input tax) previously paid. The
person making the exempt sale of goods, properties or
services shall not bill any output tax to his customers
because the said transaction is not subject to VAT. Thus, a
VAT-registered purchaser of goods, properties or services

VAT | TAX 2| DIE-ANOTHER-DAYGEST 11


that are VAT-exempt, is not entitled to any input tax on such
purchases despite the issuance of a VAT invoice or receipt.

Now, having determined that respondent is engaged in


taxable transactions subject to VAT, let us then proceed to
determine whether it is subject to 10% or zero (0%) rate of
VAT.

In principle, the purpose of applying a zero percent


(0%) rate on a taxable transaction is to exempt the
transaction completely from VAT previously collected
on inputs. It is thus the only true way to ensure that
goods are provided free of VAT. While the zero rating
and the exemption are computationally the same, they
actually differ in several aspects, to wit:

(a) A zero-rated sale is a taxable transaction but does


not result in an output tax while an exempted
transaction is not subject to the output tax;
(b) The input VAT on the purchases of a VAT-registered
person with zero-rated sales may be allowed as tax
credits or refunded while the seller in an exempt
transaction is not entitled to any input tax on his
purchases despite the issuance of a VAT invoice or
receipt;
(c) Persons engaged in transactions which are zero-
rated, being subject to VAT, are required to register
while registration is optional for VAT-exempt persons.

In this case, it is undisputed that respondent is engaged in


the export business and is registered as a VAT taxpayer per
Certificate of Registration of the BIR. Further, the records
show that the respondent is subject to VAT as it availed of
the income tax holiday under E.O. No. 226. Perforce,
respondent is subject to VAT at 0% rate and is entitled
to a refund or credit of the unutilized input taxes.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 12


CIR v. Respondent Toshiba was organized and established as a domestic corporation, ISSUE: W/N respondent Toshiba is entitled to the tax
Toshiba duly-registered with the SEC. Respondent also registered with the PEZA as an credit/refund of its input VAT on its purchases of capital
Information ECOZONE Export Enterprise. Finally, it registered with the BIR as a VAT taxpayer goods and services
Equipment and a withholding agent.
(Phils.), Inc., HELD: YES.
GR No. Respondent Toshiba filed its VAT returns for the first and second quarters of Petitioner CIR argues that although respondent Toshiba
150154 taxable year 1996. It alleged that the reported input VAT was from its purchases of may be a VAT-registered taxpayer, it is not engaged in a
capital goods and services which remained unutilized since it had not yet engaged VAT-taxable business. According to petitioner CIR,
in any business activity or transaction for which it may be liable for any output respondent Toshiba is actually VAT-exempt, invoking Sec.
VAT. Respondent also filed with the One-Stop Shop Inter-Agency Tax Credit and 103 of the Tax Code.
Duty Drawback Center of the Dept. of Finance applications for tax credit/refund of
its unutilized input VAT. To toll the running of the two-year prescriptive period for It would seem that petitioner CIR failed to differentiate
judicially claiming a tax credit/refund, respondent filed with the CTA a Petition for between VAT-exempt transactions from VAT-exempt
Review. entities. In the case of CIR v Seagate Technology (Phils.),
this Court already made such distinction: An exempt
CTA ordered petitioner CIR to refund or to issue a tax credit certificate to transaction, on the one hand, involves goods or services
respondent Toshiba for the amount of about P16M. CA affirmed. which, by their nature, are specifically listed in and
expressly exempted from the VAT under the Tax Code,
without regard to the tax status VAT-exempt or not of the
party to the transaction. An exempt party, on the other
hand, is a person or entity granted VAT exemption under
the Tax Code, a special law or an international agreement
to which the Philippines is a signatory, and by virtue of
which its taxable transactions become exempt from VAT.

Sec. 103 of the Code relied upon by the CIR relates to VAT-
exempt transactions. These are transactions exempted from
VAT by special laws or international agreements to which
the Philippines is a signatory. Since such transactions are
not subject to VAT, the sellers cannot pass on any output
VAT to the purchasers of goods, properties, or services,
and they may not claim tax credit/refund of the input VAT
they had paid thereon. This cannot apply to transactions of
Toshiba because although the said section recognizes that
transactions covered by special laws may be exempt from
VAT, the very same section provides that those falling

VAT | TAX 2| DIE-ANOTHER-DAYGEST 13


under PD No. 66 are not (Decree creating the PEZA).

This Court agrees, however, that PEZA-registered


enterprises, which would necessarily be located within
ECOZONES, are VAT-exempt entities because of Sec. 8 of
R.A. No. 7916 which establishes the fiction that
ECOZONES are foreign territory. The same section
mandates that the PEZA shall manage and operate the
ECOZONES as a separate customs territory. As a result,
sales made by a supplier in the Customs Territory to a
purchaser in the ECOZONE shall be treated as an
exportation from the Customs Territory. Conversely, sales
made by a supplier from the ECOZONE to a purchaser in
the Customs Territory shall be considered as an importation
into the Customs Territory.

Given the preceding discussion, what would be the VAT


implication of sales made by a supplier from the Customs
Territory to an ECOZONE enterprise?
The Philippine VAT system adheres to the Cross Border
Doctrine, according to which, 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.
Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT; while,
those destined for use or consumption within the Philippines
shall be imposed with 10% VAT.

Toshiba In the case at bar, the CIR, in the Joint Stipulation of Facts Issue: W/N Toshiba is subject to 0% VAT
Information and Issues, admitted that Toshiba was a registered VAT
Equipment entity and that it was subject to 0% VAT on its export sales. Held: YES.
(Phils.), Inc. Later, in his Motion for Reconsideration of the adverse Court of Tax Appeals The Supreme Court ruled that Toshiba was a registered
v. CIR, GR decision, the CIR would argue that Toshiba was not entitled to its claim for tax VAT entity and its export sales were subject to 0% VAT.
No. 157594 refund/credit This was so because:
because it was VAT-exempt and its export sales were VAT-exempt transactions. 1) The CIR belatedly raised the issue of Toshiba being
a VAT-exempt entity. It raised the argument in the

VAT | TAX 2| DIE-ANOTHER-DAYGEST 14


Toshiba is a domestic corporation principally engaged in the business of MR filed in the CTA only.
manufacturing and exporting of electric machinery, equipment systems, 2) The CIR admitted this fact; hence, it cannot escape
accessories, parts, components, materials and goods of all kinds, including those the binding effect of its admissions.
relating to office automation and information technology and all types of computer
hardware and software, such as but not limited to HDD-CD-ROM and personal
computer printed circuit board. It is a PEZA-registered entity.

Toshiba filed their amended VAT returns, indicating zero-rated Sales. It filed for a
tax refund/credit for its unused input VAT. CIR opposed this application.

In CTA level, the CIR admitted that Toshiba was a registered VAT entity and that it
was subject to 0% VAT on its export sales. The CTA ruled in favor of Toshiba, to
which the CIR filed an MR against such ruling. It avers that Toshiba is not entitled
to the tax credit/refund because it was VAT-exempt and its export sales were
VAT-exempt
transactions.

Intel Petitioner is a domestic corporation engaged primarily in the business of Issue: W/N the petitioner is entitled to tax credits/refunds
Technology developing, manufacturing, and exporting advanced and large-scale integrated
Philippines, circuit components. It is a VAT-registered entity, as well as being a PEZA Held: YES
Inc. v. CIR, accredited Ecozone enterprise.
GR No. “To the mind of the Court, these documentary evidence
166732 In 1999, it filed for VAT credit/refunds pertaining to domestic purchases of goods submitted by petitioner, e.g., summary of export sales, sales
and services directly used in its commercial operations. invoices, official receipts, airway bills and export
Its main point of contention was that said purchases were to its export sales; declarations, prove that it is engaged in the "sale and actual
consequently, such were not subject to 10% VAT because such were zero-rated shipment of goods from the Philippines to a foreign
sales. country." In short, petitioner is considered engaged in
export sales (a zero-rated transaction) if made by a
Due to the inaction of the respondent, the petitioner filed the claim before the CTA. VAT-registered entity. Moreover, the certification of inward
The petitioner likewise adduced several pieces of evidence such as invoices. remittances attests to the fact of payment "in acceptable
However, the CTA denied the claim because it held that the evidence presented foreign currency or its equivalent in goods or services, and
by petitioner was insufficient because the invoices did not indicate that it was BIR accounted for in accordance with the rules and regulations
authorized, which is something that the Tax Code strictly construes. CA affirmed. of the BSP." Thus, petitioner’s evidence, juxtaposed with
the requirements of Sections 106 (A)(2)(a)(1) and 112(A) of

VAT | TAX 2| DIE-ANOTHER-DAYGEST 15


the Tax Code, as enumerated earlier, sufficiently establish
that it is entitled to a claim for refund or issuance of a tax
credit certificate for creditable input taxes.

[ ] On the latter point, the Court disagrees with the CTA and
CA. As correctly argued by petitioner, there is no law or BIR
rule or regulation requiring petitioner’s authority from the
BIR to print its sales invoices (BIR authority to print) to be
reflected or indicated therein.”

Atlas Atlas Consolidated (Petitioner) filed for the refund/credit of the input VAT on its Prescription
Consolidated purchases of capital goods and on its zero-rated sales. Petitioner is engaged in The prescriptive period for filing an application for tax
Mining and the business of mining, production, etc. refund/credit of input VAT on zero-rated sales made in 1990
Development and 1992 was governed by Sec 106(b) and (c) of the Tax
Corporation Atlas claimed that it was a zero-rated VAT person, thus it asked for a refund/credit Code of 1977. Under the NIRC, the two year prescriptive
v. CIR representing its input vat for the year of 1992. This was denied on the ground of period for filing the application for refund/credit of input VAT
prescription, insufficiency of evidence, and failure to comply with Section 230 of on zero-rated sales shall be determined from the close of
the Tax Code. the quarter when such sales were made.

In another case, Atlas asked for a refund for its purchases of capital goods and on Petitioner however contends that it should be counted from
its zero-rated sales made in the last three taxable quarters of 1990. the date of filing in accordance with Sec 110(b) of the Tax
Code of 1977.
There being a similarly of parties, subject matter, and issues, the Court
consolidated the cases and resolves to rule on the following issues: Held: It is more practical and reasonable to count the 2 year
1. Prescription of claims prescriptive period from the date of filing, according to the
2. Validity and Applicability of Revenue Regulations No. 2-88 imposing upon law then existing, should be made within 20 days from the
petitioner corporation, as a requirement for the VAT zero-rating of its sales, the end of each quarter. All of petitioner’s claims were filed
burden of proving that the buyer companies were not just BOI-registered but also within the prescriptive period, except for the 1929 input vat
exporting 70% of their total annual production refund because there was no showing that the same was
3. Sufficiency of evidence presented by petitioner corporation to establish that it is filed with the BIR and not just the CTA.
indeed entitled to input VAT refund/credit
4. Legal ground for granting the motion of petitioner corporation for re-opening Revenue Regulations NO. 2-88 and the 70% Export
of its cases or holding of new trial before the CTA so it could be given the Requirement
opportunity to present the required evidence

VAT | TAX 2| DIE-ANOTHER-DAYGEST 16


Under Section 100(a) of the Tax Code of 1977, a 10% VAT
was imposed on the gross selling price or gross value in
money of goods sold, bartered, or exchanger. The same
provision subjected export sales and sales to persons or
entities under special laws or international agreements to
0% VAT. These are termed zero-rated sales.Such are still
taxable transactions for VAT purposes, although the VAT
rate applied is 0%.

Petitioner corporation questions the validity of RR No. 2-88


imposing additional requirements for the zero-rating of its
sales to PASAR and PHILPHOS, both also within PEZA.
These additional requirements include application with BIR,
exclusive use of the products bought, etc.

Sales to enterprises operating within the export processing


zones are export sales, which under the Tax Code of 1977,
were subject to 0%. It is on this ground that petitioner
corporation is claiming refund/credit of the input VAT on its
0-rated sales to PASAR and PHILPHOS.

Sec. 2. Of RR 2-99 applied to zero-rated export sales to


export-oriented BOI-registered entities and should not be
applied in this case. It based its applications on the zero-
rating of export sales to enterprises registered with the
EPZA and located within export processing zones.

Sufficiency of Evidence

W/N Atlas has sufficiently established the factual bases for


its application for refund/credit of input VAT?
NO, both administratively and judicially.

Summary of Findings

1. Two year prescriptive period for the filing of claims for

VAT | TAX 2| DIE-ANOTHER-DAYGEST 17


refund/credit of input VAT must be counted from the date of
filing of the quarterly VAT return
2. Sales to EPSA-registered enterprises operating within
economic processing zones were effectively zero-rated and
were not covered by RR No. 2-88
3. Notwithstanding, the claims for refunds are still denied
for not being established and substantiated by appropriate
evidence.

San Roque Facts: Issue:


Power ● W/N the “sale” qualified for zero-rating? (W/N
Corporation ● Respondent, among its many powers, is empowered to grant refunds or petitioner’s claim complied with the requirement—
v. CIR, GR issue tax credit certificates in accordance to Sec. 112 of the NIRC for the existence of zero-rated or effectively zero-rated
No. 180345 unutilized input VAT paid on zero-rated or effectively zero-rated sales and sales, to which creditable input taxes may be
purchase of capital goods. attributed)
● Petitioner is a corporation who is engaged in the supply of electricity to ●
NAPOCOR.
● Petitioner entered into a Power Purchase Agreement(PPA) with the NPC Held:
to develop the hydro potential of the Lower Agno River and generate ● The Supreme Court held that although the “sale”
power for the Luzon Power Grid. was not a commercial sale or in the normal course
● Because of the nature of the PPA, petitioner applied for and was granted of business, it was a “transaction deemed sale”
5 certificates of Zero Rate by the BIR which commenced in 1998 and under Section 106(B)(1) of the 1997 Tax Code. It
continued until 2002. thus qualified for zero-rating.
● During that period, petitioner filed with the respondent its monthly VAT ● The Court is not unmindful of the fact that the
declarations and Quarterly VAT returns. The latter showed excess input transaction described hereinabove was not a
VAT payments on account of its importation and domestic purchases of commercial sale. In granting the tax benefit to
goods and services. VAT-registered zero-rated or effectively zero- rated
● Petitioner filed with the BIR claims for refund of Unutilized input VAT taxpayers, Section 112(A) of the NIRC does not
explaining that the sale of power to NPC are subject to VAT at zero limit the definition of “sale” to commercial
percent rate. transactions in the normal course of business.
● Because the BIR failed to respond, petitioner filed a case with the CTA Conspicuously, Section 106(B) of the NIRC, which
and sought refund on the unutilized excess VAT. deals with the imposition of the VAT, does not limit
● CTA, however, denied petitioner’s request. the term “sale” to commercial sales, rather it
● Hence, this petition. extends the term to transactions that are “deemed”
sale, which are also enumerated under said
provision.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 18


● After carefully examining this provision, this Court
finds it an equitable construction of the law that
when the term “sale” is made to include certain
transactions for the purpose of imposing a tax,
these same transactions should be included in the
term “sale” when considering the availability of an
exemption or tax benefit from the same revenue
measures. It is undisputed that during the fourth
quarter of 2002, petitioner transferred to NPC all the
electricity that was produced during the trial period.
The fact that it was not transferred through a
commercial sale or in the normal course of
business does not deflect from the fact that such
transaction is deemed as a sale under the law.

Mindanao II ● 3 cases consolidated Was Mindanao II’s administrative claim for refund/credit
Geothermal ● Mindanao II allegedly entered into a Built-Operate-Transfer (BOT) timely filed?
Partnership contract with the Philippine National Oil Corporation – Energy
v. CIR Development Company (PNOC-EDC) YES
(additional ● PNOC-EDC shall supply and deliver steam to Mindanao II at no cost.
case by ● Mindanao II shall convert the steam into electric capacity and energy for ● Pursuant to Section 112 (A) of the 1997 Tax Code,
Ma’am) PNOC-EDC and shall deliver the same to the National Power Corporation it is only the administrative claim which is to be filed within
(NPC) for and in behalf of PNOC-EDC the two-year prescriptive period, and the two-year
● Mindanao II alleges that its sale of generated power and delivery of prescriptive period begins to run from the close of the
electric capacity and energy of Mindanao II to NPC for and in behalf of taxable quarter when the sales were made
PNOC-EDC is its only revenue-generating activity which is in the ambit of ● Mindanao II filed its claim for refund/credit for the
VAT zero-rated sales under the EPIRA Law second, third, and fourth quarters of 2004 on Oct 6 2005.
● Mindanao II makes domestic purchases of goods and services and Such date is well within the two-year prescriptive period
accumulates therefrom creditable input taxes. which runs from June 30 2004 (2nd Quarter), Sept 30 2004
● Mindanao II alleges that it can use its accumulated input tax credits to (3rd Quarter) and Dec 31 2004 (4th Quarter).
offset its output tax liability. Considering, however that its only revenue- ● The Atlas case was not applicable because
generating activity is VAT zero-rated under the EPIRA Law, Mindanao II’s Mindanao II’s application for refund/credit was filed before
input tax credits remain unutilized. their promulgation.
● On the belief that its sales qualify for VAT zero-rating, Mindanao II
adopted the VAT zero-rating of the EPIRA in computing for its VAT Is Mindanao II’s judicial claim for refund/credit timely filed?

VAT | TAX 2| DIE-ANOTHER-DAYGEST 19


payable
● Mindanao II filed an application for refund and/or issuance of tax credit ● No. Under Section 112 (C), the judicial claim must be filed
certificate with the BIR on October 6, 2005. by the taxpayer within 30 days after the 120-day waiting
● CIR did not act on the administrative claim until Feb 3 2006, or 120 days period if its administrative claim was not acted upon by CIR.
after Oct 6 2005. ● Here, Mindanao II filed its application for refund on Oct 6
● Believing that a judicial claim must be filed within the 2-year prescriptive 2005. When it was not acted upon, it filed a judicial claim
period provided under Sec 112 (A) and that it must be reckoned from the but only on July 21 2006, or 138 days after the lapse of the
date of filing of its VAT returns, Mindanao filed on July 26 2006 a petition 30-day period on 5 March 2006.
for review before the CTA claiming inaction on the part of the CIR.
● CTA ruled in favor of Mindanao II - satisified the twin requirements for Source of digest: http://barexamphil.com/gr-191498-
VAT zero-rating : mindanao-geothermal/
● Qualified for refund, met the requirements:
1. There must be zero-rated or effectively zero-rated sales;
2. That input taxes were incurred or paid;
3. That such input VAT payments are directly attributable to zero-rated
sales or effectively zero-rated sales;
4. That the input VAT payments were not applied against any output VAT
liability; and
5. That the judicial claim for refund was filed within the two-year
prescriptive period.

●CA ruled against Mindanao II - action for refund has already prescribed

[Quezon City FACTS: Under Section 31, Article 13 of the Quezon City Revenue Code of 1993, a ISSUE: Whether or not the phrase "in lieu of all taxes"
v. ABS-CBN franchise tax was imposed on businesses operating within its jurisdiction. The indicated in the franchise of the respondent appellee
Broadcasting provision states: (Section 8 of RA 7966) serves to exempt it from the
Corporation, payment of the local franchise tax imposed by the
GR No. Section 31. Imposition of Tax. - Any provision of special laws or grant of petitioners-appellants.
166408, tax exemption to the contrary notwithstanding, any person, corporation,
partnership or association enjoying a franchise whether issued by the HELD: No. The "in lieu of all taxes" clause in the franchise
national government or local government and, doing business in Quezon of ABS-CBN has become functus officio with the abolition of
City, shall pay a franchise tax at the rate of ten percent (10%) of one the franchise tax on broadcasting companies with yearly
percent (1%) for 1993-1994, twenty percent (20%) of one percent (1%) for gross receipts exceeding Ten Million Pesos.
1995, and thirty percent (30%) of one percent (1%) for 1996 and the
succeeding years thereafter, of gross receipts and sales derived from the At the time of the enactment of its franchise on May 3,

VAT | TAX 2| DIE-ANOTHER-DAYGEST 20


operation of the business in Quezon City during the preceding calendar 1995, ABS-CBN was subject to 3% franchise tax under
year. Section 117(b) of the 1977 National Internal Revenue Code
(NIRC), as amended, viz.:
Subsequently, ABS-CBN was granted the franchise to install and operate radio
and television broadcasting stations in the Philippines under R.A. No. 7966. SECTION 117. Tax on franchises. - Any provision
Section 8 of R.A. No. 7966 provides the tax liabilities of ABS-CBN which reads: of general or special laws to the contrary
notwithstanding, there shall be levied, assessed
Section 8. Tax Provisions. - The grantee, its successors or assigns, shall and collected in respect to all franchise, upon the
be liable to pay the same taxes on their real estate, buildings and personal gross receipts from the business covered by the law
property, exclusive of this franchise, as other persons or corporations are granting the franchise, a tax in accordance with the
now hereafter may be required by law to pay. In addition thereto, the schedule prescribed hereunder:
grantee, its successors or assigns, shall pay a franchise tax equivalent (a) On electric utilities, city gas, and water
to three percent (3%) of all gross receipts of the radio/television supplies Two (2%) percent
business transacted under this franchise by the grantee, its (b) On telephone and/or telegraph systems,
successors or assigns, and the said percentage tax shall be in lieu of radio and/or broadcasting stations Three
all taxes on this franchise or earnings thereof; Provided that the (3%) percent
grantee, its successors or assigns shall continue to be liable for income (c) On other franchises Five (5%) percent.
taxes under Title II of the National Internal Revenue Code pursuant to (Emphasis supplied)
Section 2 of Executive No. 72 unless the latter enactment is amended or
repealed, in which case the amendment or repeal shall be applicable After several tax developments and laws implemented, R.A.
thereto. (Emphasis added) No. 8241 took effect on January 1, 1997 containing more
amendments to the NIRC. Radio and/or television
ABS-CBN had been paying local franchise tax imposed by Quezon City. However, companies whose annual gross receipts do not exceed
in view of the above provision in R.A. No. 9766 that it "shall pay a franchise tax x x P10,000,000.00 were granted the option to choose between
x in lieu of all taxes," the corporation developed the opinion that it is not liable to paying 3% national franchise tax or 10% VAT. Section 9 of
pay the local franchise tax imposed by Quezon City. Consequently, ABS-CBN R.A. No. 8241 provides:
paid under protest the local franchise tax imposed by Quezon City.
"Sec. 12. Section 117 of the National Internal Revenue
Code, as amended, is hereby further amended to read as
follows:

"Sec. 117. Tax on franchise. - Any provision of


general or special law to the contrary,
notwithstanding, there shall be levied, assessed
and collected in respect to all franchises on radio
and/or television broadcasting companies whose

VAT | TAX 2| DIE-ANOTHER-DAYGEST 21


annual gross receipts of the preceding year does
not exceed Ten million pesos (P10,000,000.00),
subject to Section 107(d) of this Code, a tax of
three percent (3%) and on electric, gas and water
utilities, a tax of two percent (2%) on the gross
receipts derived from the business covered by the
law granting the franchise: Provided, however, That
radio and television broadcasting companies
referred to in this section, shall have an option to be
registered as a value-added tax payer and pay the
tax due thereon: Provided, further, That once the
option is exercised, it shall not be revoked.
(Emphasis supplied)

On the other hand, radio and/or television companies with


yearly gross receipts exceeding P10,000,000.00 were
subject to 10% VAT, pursuant to Section 102 of the NIRC.

On January 1, 1998, R.A. No. 8424 was passed confirming


the 10% VAT liability of radio and/or television companies
with yearly gross receipts exceeding P10,000,000.00.

R.A. No. 9337 was subsequently enacted and became


effective on July 1, 2005. The said law further amended the
NIRC by increasing the rate of VAT to 12%. The effectivity
of the imposition of the 12% VAT was later moved from
January 1, 2006 to February 1, 2006.

In consonance with the above survey of pertinent laws on


the matter, ABS-CBN is subject to the payment of VAT. It
does not have the option to choose between the payment of
franchise tax or VAT since it is a broadcasting company
with yearly gross receipts exceeding Ten Million Pesos
(P10,000,000.00).

VAT | TAX 2| DIE-ANOTHER-DAYGEST 22


[CIR v. SM SM and First Asia are domestic corporations engaged in the business of operating ISSUE: Are gross receipts derived from admission
Prime cinema houses. Consolidated petitions were filed by the Corporations in the CTA, tickets in showing motion pictures, films or movies also
Holdings, Inc questioning the BIR ruling on their alleged VAT deficiency on cinema ticket sales subject to VAT?
for the years 2000-2003.
No. The Supreme Court held that although the enumeration
The CTA ruled that the activity of showing cinematographic films is not a service of services subject to VAT under Section 108 of the 1997
covered by VAT under the NIRC but an activity that is subject to amusement tax Tax Code is not exhaustive. Among those included in the
under the Local Government Code. enumeration is the “lease of motion picture films, films,
tapes and discs.” This, however, is not the same as the
showing or exhibition of motion pictures or films. Hence,
since the showing or exhibition of motion pictures or films is
not in the enumeration, such is not a VAT-taxable
transaction. The intent of the legislature is not to impose
VAT on persons already covered by the amusement tax.

Sonza v. ABS-CBN and Mel and Jay Mngt. And Dev’t Corp. entered into an agreement The main issue in this case is WON an E-E relationship
ABS-CBN wherein it was agreed that Sonza’s services are exclusively available to ABS-CBN exists between Sonza and ABS-CBN and in ruling that there
Broadcasting as talent for radio and television. Sonza is given 310k per month on the first year is none the SC found it proper to highlight the different tax
Corporation, and 317k per month for the 2nd and 3rd years. But then, on the 3rd year, Sonza treatment of talents and broadcasters wherein it was said
GR rescinded the contract because of his irrevocable resignation due to events that the NIRC treats talents, television and radio
No.138051 concerning his program and career. Sonza filed a complaint against ABS before broadcasters differently. Under the NIRC, these
(VAT issue) the DOLE on the grounds that ABS-CBN did not pay his salaries, separation pay, professionals are subject to the 10% value-added tax (VAT)
service incentive leave pay, 13th month pay, signing bonus, travel allowance and on services they render. Exempted from the VAT are those
amounts due under the Employees Stock Option Plan. ABS-CBN countered that under an employer-employee relationship. This different tax
no E-E relationship exists. treatment accorded to talents and broadcasters bolters our
conclusion that they are independent contractors, provided
all the basic elements of a contractual relationship are
present as in this case.

CIR v. Respondent is the Philippine branch of American Express International. It is a WON it is entitled to a VAT refund. Yes.
American servicing unit of the HK branch and is engaged primarily to facilitate the collections
Express of HK branch receivables from card members situated in the Philippines and According to the NIRC, services performed by VAT-
International, payment to service establishments in the Philippines. It filed with the BIR a letter- registered persons in the Philippines, when paid in

VAT | TAX 2| DIE-ANOTHER-DAYGEST 23


Inc. request of its 1997 excess input taxes in the amount of around P3.75M. acceptable foreign currency and accounted for in
(Philippine accordance with the rules & regulations of the BSP, are
Branch), zero-rated. Respondent Philippine Branch is a VAT-
registered person that facilitates the collection and payment
of receivables belonging to its non-resident foreign client,
for which it gets paid in foreign currency inwardly remitted
and accounted for in conformity with BSP rules &
regulations, and thus its services rendered should be zero-
rated.

As a general rule, the VAT system uses the destination


principle as a basis for the jurisdictional reach of the tax.
Goods and services are taxed only in the country where
they are consumed. Thus, exports are zero-rated, while
imports are taxed. However, the law clearly provides for an
exception to the destination principle; that is, for a 0% VAT
rate for services that are performed in the Philippines, "paid
for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP."
Thus, for the supply of service to be zero-rated as an
exception, the law merely requires that 1st, the service be
performed in the Philippines; 2nd, the service fall under any
of the categories in Sec 102(b) of the NIRC; and, 3rd, it be
paid in acceptable foreign currency accounted for in
accordance w/ BSP rules & regulations.
These 3 requirements for exemption from the destination
principle are met by respondent Philippine branch. Its
facilitation service is performed in the Philippines. It falls
under the 2nd category found in Section 102(b) of the Tax
Code, because it is a service other than "processing,
manufacturing or repacking of goods" as mentioned in the
provision. It is also paid in acceptable foreign currency
which is duly accounted for in accordance with BSP rules.
Thus, it should be zero-rated.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 24


CIR v. Placer There was a leakage of mine tailings at one of the mines in Marinduque, owned by ISSUE: WON CIR’s argument is correct
Dome Marcopper. To contain and prevent environmental damage to the rivers and the
Technical immediate area, Placer Dome Inc. (PDI), 39.9% owner of Marcopper, undertook to HELD: NO. (Check CIR v American Express International
Services perform the clean-up and rehabilitation of the rivers affected. To accomplish this, Inc Case, same doctrines as this case)
(Phils.) Inc., PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident
foreign corporation in Canada, to carry out the project. PDTSL then engaged the Section 102(b) of the tax code activates zero-rating service
services of Placer Dome Technical Services Philippines (respondent) to transactions on 2 categories:
implement the project in the Philippines. 1. Processing, manufacturing or repacking goods for
other persons doing business outside the
Respondent and PDTSL entered into an Implementation agreement, whereby Philippines which goods are subsequently exported,
respondent agreed to implement the project in consideration of an amount of where the services are paid for in acceptable
money in dollars. foreign currency and accounted for in accordance
with the rules and regulations of the BSP
Years after, respondent amended its quarterly VAT returns, declaring a total input 2. services other than those mentioned in the
VAT payment of P43 Million and P 42 Million as its total excess input VAT. preceding subparagraph, the consideration for
Respondent then filed an administrative claim for the refund of its total input VAT which is paid for in acceptable foreign currency
payments in relation to the project it had contracted with PDTSL, arguing that the and accounted for in accordance with the rules
revenues it derived from services rendered to PDTSL qualified as zero-rated sales and regulations of the BSP.
under Section 102(b)(2) of the Tax code, since it was paid in foreign currency
inwardly remitted to the Philippines. Revenue Regulation 5-96 elaborated on those services
contemplated as zero-rated under section 102 (b)(2). It
CIR opposed the refund. However, the CTA ruled in favor of the respondents, stated that examples of these services are “project studies,
ruling that the sale of services to PDTSL constituted a zero-rated transaction information services, engineering and architectural designs
under the Tax Code. and other similar services”. Based on this, the CIR claims
that the services rendered by respondent do not fall under
Hence this petition by CIR. CIR based its arguments on VAT Ruling No. 040-98 any of the examples provided, and as such could not be
which interpreted Section 102(b)(2) of the Tax Code that for a service to be deemed a zero-rated service transaction. This contention
deemed a zero-rated transaction, such service must be consumed outside of the is false.
Philippines.
The court held that nowhere in RR 5-96 can it be assumed
that the examples given are restrictive as to what would
Section 102(b)(2) only has 3 requirements for a service to be deemed zero-rated: contemplate a zero-rated service. The scope of the word
1. The service be performed in the Philippines “services” in Section 102(b)(2) is broad and is not
2. The service fall under any of the categories in section 102(b)(2) (any susceptible of narrow interpretation as what the CIR

VAT | TAX 2| DIE-ANOTHER-DAYGEST 25


service other than processing, manufacturing or repacking goods) suggests.
3. It be paid in acceptable foreign currency accounted for in accordance with
BSP rules and regulations Furthermore, the Court debunked CIR’s contention that the
Service not necessarily needed to be consumed abroad for it to be zero- respondent’s services were not consumed abroad, thus the
rated. revenue earned is still within the Philippines and is subject
to VAT. The court held that as a general rule, the VAT
system uses the destination principle as a basis for the
jurisdictional reach of the tax, such that goods and services
are taxed only in the country where they are consumed. In
this case, it is true that the services rendered by
respondents were performed and completed in the
Philippines and therefore also deemed consumed in the
Philippines, and applying the destination principle the same
should be subject to VAT. However, the law clearly
provides for an exception to the destination principle,
which is section 102(b)(2). Thus, for the supply of
service to be zero-rated as an exception, the law merely
requires that:
1. The service be performed in the Philippines
2. The service fall under any of the categories in
section 102(b)(2)
3. It be paid in acceptable foreign currency accounted
for in accordance with BSP rules and regulations

Contrary to CIR’s stand, for the cost of respondent's service


to be zero--rated, it need not be tacked in as part of the cost
of goods exported. The law neither imposes such
requirement nor associates services with exported goods. It
simply states that the services performed by VAT-
registered persons in the Philippines services other
than the processing, manufacturing or repacking of
goods for persons doing business outside this country
if paid in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the
BSP, are zero--rated.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 26


CIR v. ● Burmeister-Denmark together with Mitsui Engineering and Mitsui Co Issue: W/N Burmeister is entitled to tax credit
Burmeister entered into a contract with NAPOCOR for the operation and maintenance HELD: No.
and Wain of NAPOCOR's two power barges. ● The Court declares that the denial of the instant
Scandinavian ● Burmeister-Denmark established Burmeister-Philippines to subcontract petition is not on the ground that respondent’s
Contractor the actual operation and maintenance of NAPOCOR's two power barges services are subject to 0% VAT.
Mindanao, as well as the performance of other duties and acts which necessarily ● it is based on the non-retroactivity of the prejudicial
Inc., have to be done in the Phil. revocation of BIR Ruling No. 023-9517 and VAT
● NAPOCOR pays Burmeister-Phils and Mitsui a mixture of currencies Ruling No. 003-99,18 which held that respondent’s
(Mark, Yen, Peso). The Mark and Yen values are deposited directly to the services are subject to 0% VAT and which
bank accounts in Denmark and Japan, while the Peso-denominated value respondent invoked in applying for refund of the
is deposited in a separate and special designated bank account in the output VAT.
Phil. Burmeister-Phils is paid in a foreign currency inwardly remitted to the ● the applicable provision in 1996 when respondent
Philippines through the banking system. rendered the services and paid the VAT in question,
● In order to ascertain the tax implications of the above transactions, enumerates which services are zero-rated (Sec.
Burmeister sought a ruling from BIR, declaring therein that if Burmeister 102)
chooses to register as a VAT person and the consideration for its services ○ (1) Processing, manufacturing or repacking
is paid for in acceptable foreign currency and accounted for in accordance goods for other persons doing business
with the rules and regulations of the Bangko Sentral ng Pilipinas, the outside the Philippines which goods are
aforesaid services shall be subject to VAT at zero-rate. subsequently exported, where the services
● Burmeister chose to register as a VAT taxpayer. Burmeister then relied on are paid for in acceptable foreign currency
the previous BIR ruling and contend that the services it renders to and accounted for in accordance with the
NAPOCOR is subject to VAT at 0%. rules and regulations of the Bangko Sentral
● The CTA ordered CIR to issue a tax credit certificate in favor of Burmeister ng Pilipinas (BSP);
to compensate for what Burmeister "erroneously paid" output VAT for the ○
year 1996. ○ (2) Services other than those mentioned in
the preceding sub-paragraph, the
consideration for which is paid for in
acceptable foreign currency and accounted
for in accordance with the rules and
regulations of the Bangko Sentral ng
Pilipinas (BSP);
● In insisting that its services should be zero-rated,
respondent claims that it complied with the
requirements of the Tax Code for zero rating under
the second paragraph of Section 102(b).
● The Tax Code not only requires that the services be

VAT | TAX 2| DIE-ANOTHER-DAYGEST 27


other than "processing, manufacturing or repacking
of goods" and that payment for such services be in
acceptable foreign currency accounted for in
accordance with BSP rules. Another essential
condition for qualification to zero-rating under
Section 102(b)(2) is that the recipient of such
services is doing business outside the Philippines.
● In short, services other than processing,
manufacturing, or repacking of goods must likewise
be performed for persons doing business outside
the Philippines.
● If the provider and recipient of the "other services"
are both doing business in the Philippines, the
payment of foreign currency is irrelevant.
Otherwise, those subject to the regular VAT under
Section 102(a) can avoid paying the VAT by simply
stipulating payment in foreign currency inwardly
remitted by the recipient of services. To interpret
Section 102(b)(2) to apply to a payer-recipient of
services doing business in the Philippines is to
make the payment of the regular VAT under
Section 102(a) dependent on the generosity of the
taxpayer.
● In this case, the payer-recipient of respondent’s
services is the Consortium (Burmeister-Denmark
and Mitsui) which is a joint-venture doing business
in the Philippines. While the Consortium’s principal
members are non-resident foreign corporations, the
Consortium itself is doing business in the
Philippines.
● The Consortium’s operation and maintenance of
NAPOCOR’s power barges cannot be classified as
a single or isolated transaction. The Consortium
does not fall under Section 102(b)(2) which requires
that the recipient of the services must be a person
doing business outside the Philippines.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 28


CIR v. Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It also ISSUE: W/N Acesite could refund the VAT it paid on its
Acesite caters food and beverages to PAGCORs casino patrons through the hotel rental income and sale of food and beverages
(Philippines) restaurants outlets. Acesite incurred VAT amounting to P30,152,892.02 from its
Hotel rental income and sale of food and beverages to PAGCOR during said period. HELD:
Corporation Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount YES. It is undisputed that P.D. 1869, the charter creating
assessed to PAGCOR but the latter refused to pay the taxes on account of its tax PAGCOR, grants the latter an exemption from the payment
exempt status. of taxes. This is pursuant to the express provision of Sec.
13, PD 1869.
Thus, PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT
while the latter paid the VAT to the CIR as it feared the legal consequences of Sec. 13. Exemptions
non-payment of the tax. However, Acesite belatedly arrived at the conclusion that
its transaction with PAGCOR was subject to zero rate as it was rendered to a tax- Xxx
exempt entity. Acesite then filed an administrative claim for refund with the CIR but
the latter failed to resolve the same.
(2) Income and other taxes. (a) Franchise Holder: No tax of
Acesite then filed a petition with CTA, which was decided that Acesite is subject to any kind or form, income or otherwise, as well as fees,
0% tax insofar as its gross income from rentals and sales to PAGCOR, a tax charges or levies of whatever nature, whether National
exempt entity by virtue of a special law. Thus, CIR refunded petitioner the amount or Local, shall be assessed and collected under this
of VAT previously paid. Franchise from the Corporation; nor shall any form of
tax or charge attach in any way to the earnings of the
Corporation, except a Franchise Tax of five (5%) percent
Upon appeal, the CA affirmed the decision of the CTA holding that PAGCOR was of the gross revenue or earnings derived by the Corporation
not only exempt from direct taxes but was also exempt from indirect taxes like the from its operation under this Franchise.
VAT and consequently, the transactions between respondent Acesite and
PAGCOR were effectively zero-rated because they involved the rendition of Xxx
services to an entity exempt from indirect taxes.
(b) Others: The exemptions herein granted for earnings
derived from the operations conducted under the franchise
specifically from the payment of any tax, income or
otherwise, as well as any form of charges, fees or levies,
shall inure to the benefit of and extend to corporation(s),
association(s), agency(ies), or individual(s) with whom the
Corporation or operator has any contractual relationship in

VAT | TAX 2| DIE-ANOTHER-DAYGEST 29


connection with the operations of the casino(s) authorized
to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation
or operator as a result of essential facilities furnished and/or
technical services rendered to the Corporation or operator.

Petitioner contends that the above tax exemption refers only


to PAGCORs direct tax liability and not to indirect taxes, like
the VAT. The SC disagrees. A close scrutiny of the above
provisos clearly gives PAGCOR a blanket exemption to
taxes with no distinction on whether the taxes are direct or
indirect. The SC agreed with the CA ruling that PAGCOR is
also exempt from indirect taxes, like VAT. Indeed, by
extending the exemption to entities or individuals dealing
with PAGCOR, the legislature clearly granted exemption
also from indirect taxes. It must be noted that the indirect
tax of VAT, as in the instant case, can be shifted or passed
to the buyer, transferee, or lessee of the goods, properties,
or services subject to VAT. Thus, by extending the tax
exemption to entities or individuals dealing with PAGCOR in
casino operations, it is exempting PAGCOR from being
liable to indirect taxes.

Misamis Petitioner is a domestic corporation whose members are engaged in the buying ISSUE: W/N copra is an agricultural food or non-food
Oriental and selling of copra in Misamis Oriental. Petitioner alleges that prior to the product for purposes of the subject provision of the NIRC --
Association issuance of RMC 47-91, which implemented VAT Ruling 190-90, copra was
of Coco classified as an agricultural food product under Sec. 103(b) of the NIRC and, HELD:
Traders, Inc. therefore, exempt from VAT at all stages of production or distribution. The Court agrees with respondents. In interpreting Sec.
v. DOF 103(a) and (b), the CIR gave it a strict construction
Respondent CIR issued the circular in question, classifying copra as an consistent with the rule that tax exemptions must be strictly
agricultural non-food product and declaring it exempt from VAT only if the sale is construed against the taxpayer and liberally in favor of the
made by the primary producer pursuant to Sec. 103(a). state. Indeed, even Dr. Kintanar said that his classification
of copra as food was based on "the broader definition of
Petitioner contends that the Bureau of Food and Drug of the DOH and not the BIR food which includes agricultural commodities and other
is the competent government agency to determine the proper classification of food components used in the manufacture/processing of food."
products. Petitioner cites the opinion of Dr. Kintanar of the Bureau of Food and

VAT | TAX 2| DIE-ANOTHER-DAYGEST 30


Drug to the effect that copra should be considered "food" because it is produced Moreover, as the government agency charged with the
from coconut which is food and 80% of coconut products are edible. enforcement of the law, the opinion of the CIR, in the
absence of any showing that it is plainly wrong, is entitled to
On the other hand, respondents argue that the opinion of the BIR, as the great weight. The ruling was made by the CIR in the
government agency charged with the implementation and interpretation of tax exercise of his power to "make rulings or opinions in
laws, is entitled to great respect. connection with the implementation of the provisions of
internal revenue laws, including rulings on the
classification of articles for sales tax and similar
purposes" under the NIRC.

[CIR v. The Philippine Health Care Providers, Inc., (PHCP) herein respondent, is a ISSUE: W/N PHCP is exempt for VAT
Philippine corporation organized and existing under the laws of the Republic of the
Health Care Philippines. Pursuant to its Articles of Incorporation, its primary purpose is To HELD: NO.
Providers, establish, maintain, conduct and operate a prepaid group practice health care
Inc., GR No. delivery system or a health maintenance organization to take care of the sick and SEC. 103. Exempt Transactions. The following shall be
168129, disabled persons enrolled in the health care plan and to provide for the exempt from the value-added tax:
administrative, legal, and financial responsibilities of the organization. xxx
(l) Medical, dental, hospital and veterinary services except
EO 273 imposed VAT on good and services. PHCP asked CIR if its services of those rendered by professionals
providing health care programs were exempt. CIR initially ruled that as a provider
of medical services, is exempt from the VAT coverage. The E-VAT law was The CTA made the following conclusions:
subsequently passed 2 years after.

The CIR issued a PAN against PHCP for deficiency VAT for 2 years. PHCP a) Respondent is not actually rendering medical service
protested the assessment but the CIR did not act upon it. The CTA eventually but merely acting as a conduit between the members and
ordered PHCP to pay deficiency VAT. their accredited and recognized hospitals and clinics.
b) It merely provides and arranges for the provision of
pre-need health care services to its members for a fixed
prepaid fee for a specified period of time.
c) It then contracts the services of physicians, medical
and dental practitioners, clinics and hospitals to perform
such services to its enrolled members; and
d) Respondent also enters into contract with clinics,
hospitals, medical professionals and then negotiates with
them regarding payment schemes, financing and other

VAT | TAX 2| DIE-ANOTHER-DAYGEST 31


procedures in the delivery of health services.

Perforce, as respondent does not actually provide medical


and/or hospital services, as provided under Section 103 on
exempt transactions, but merely arranges for the same, its
services are not VAT-exempt.

Philippine Im 1977, PAGCOR was created pursuant to PD 1067-A, where, it was exempt Issue: Is RR 16-2005 void ab initio in so far as the said
Amusement from the payment of any type of tax except a franchise tax of 5% of gross revenue. regulation imposes VAT on Petitioner PAGCOR while its
& Gaming Thereafter, another law was passed expanding such exemption. To consolidate basic law, RA 9337, does not?
Corporation the laws pursuant to PAGCOR’s exemption, PD No. 1869 was issued.
v. CIR, GR Held: The provision is invalid, being contrary to RA 9337.
No. 172087, In 1988, the National Internal Revenue Code of 1977 took effect. Sec. 227(c) of RA 9337 is only clear on the removal of petitioner’s
said law provides that GOCCs must pay corporate income tax, except petitioner exemption from corporate income tax. Nowhere is it
PAGCOR and 3 others. Fast forward to 2005, RA 9337 was passed withdrawing provided that it can be subjected to VAT.
the exemption from the list of GOCCs exempt from paying said tax.
As pointed out by petitioner, although R.A. No. 9337
Various petitions were filed alleging the constitutionality of the latter law, but all introduced amendments to Section 108 of R.A. No. 8424 by
were denied. On the same ate, BIR issued RR 16-2005 specifically identifying imposing VAT on other services not previously covered, it
PAGCOR as one of the franchisees subject to 10% VAT imposed under Sec. 108 did not amend the portion of Section 108 (B) (3) that
of the NIRC. subjects to zero percent rate services performed by VAT-
registered persons to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of
such services to 0% rate.

Petitioner's exemption from VAT under Section 108 (B) (3)


of R.A. No. 8424 has been thoroughly and extensively
discussed in Commissioner of Internal Revenue v. Acesite
(Philippines) Hotel Corporation. Acesite was the owner and
operator of the Holiday Inn Manila Pavilion Hotel. It leased a
portion of the hotel’s premises to PAGCOR. It incurred VAT
amounting to ₱30,152,892.02 from its rental income and
sale of food and beverages to PAGCOR from January 1996
to April 1997. Acesite tried to shift the said taxes to
PAGCOR by incorporating it in the amount assessed to

VAT | TAX 2| DIE-ANOTHER-DAYGEST 32


PAGCOR. However, PAGCOR refused to pay the taxes
because of its tax-exempt status. PAGCOR paid only the
amount due to Acesite minus VAT in the sum of
₱30,152,892.02. Acesite paid VAT in the amount of
₱30,152,892.02 to the Commissioner of Internal Revenue,
fearing the legal consequences of its non-payment. In May
1998, Acesite sought the refund of the amount it paid as
VAT on the ground that its transaction with PAGCOR was
subject to zero rate as it was rendered to a tax-exempt
entity. The Court ruled that PAGCOR and Acesite were both
exempt from paying VAT. Nor does it hold that the tax
exemption used in the case is only applicable to direct
taxes. Instead, a close scrutiny provides a blanket
exemption to taxes. PAGCOR is also thus exempt from
indirect taxes like VAT. Thus, by extending the tax
exemption to entities or individuals dealing with PAGCOR in
casino operations, it is exempting PAGCOR from being
liable to indirect taxes.

It is a settled rule that in case of discrepancy between the


basic law and a rule or regulation issued to implement said
law, the basic law prevails, because the law or regulation
cannot go beyond the provisions of RA 937. Since
PAGCOR is exempt from VAT under RA 9337, the BIR
exceeded its authority in subjecting PAGCOR to 10% VAT
under RR No. 16-2005, hence, the regulatory provision is
hereby nullified.

First Planters In a Pre-Assessment Notice, petitioner was informed by the BIR that it had VAT Issue: W/N the petitioner is liable for VAT
Pawnshop, and DST deficiencies for the year 2000, which was protested.
Inc. v. CIR, The Court saw that the petitioner’s tax liability depends on
GR No. It eventually received a Final Assessment Notice for almost the same amount. the tax treatment of a pawnshop business, which the
174134, 30 Petitioner appealed to the CTA, which upheld the assessment. petitioner is engaged in. Although such have been in
July 2008 existence for a long time, there have been no definite
pronouncements on the matter.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 33


Be that as it may, the Court saw that, by virtue of R.A. No.
9328, such included pawnshops in the definition of non-
bank financial intermediaries. However, seeing as to how
the law deferred the imposition of VAT from non-bank
financial intermediaries, then it was not bound to pay VAT
for the year 2000.

CIR v. Mirant Facts: Issue:


Pagbilao W/N the MPC filed the claim for refund beyond the
Corporation, Mirant Pagbilao Corp. (MPC), herein respondent, is engaged in the generation of prescriptive period?
GR No. power which it sells to the NPC. For the construction of a power plant, respondent
172129 engaged the services of Mitsubishi. Held:

NPC, is exempt from all all taxes which, as ruled by the courts, includes both Yes, it has prescribed. Therefore, MPC can only refund 10M
direct and indirect taxes. instead of the total 149M initially sought.

In light of the tax exemption of NPC, MPC believes that its sales to NPC were According to the NIRC, refunds on zero-rated sales must be
zero-rated for VAT purposes. They filed an application for effective zero rating filed within two (2) years after the close of the taxable
which covered the building of the power plant. quarter when the sales were made, apply for the
issuance of a tax credit certificate or refund of
Not receiving a response, MPC refiled its application in the form of a request for creditable input tax due or paid attributable to such
ruling with the VAT review committee at the BIR National Office. The CIR released sales.
a ruling stating that the sale of electricity to NPC would be subject to zero percent
VAT. The above proviso clearly provides in no uncertain terms
that unutilized input VAT payments not otherwise used for
By reason of such ruling, MPC stopped paying the VAT due on its billings from any internal revenue tax due the taxpayer must be claimed
Mitsubishi. This prompted Mitsubishi to advance the VAT component. However, within two years reckoned from the close of the taxable
after a couple of years, MPC paid Mitsubishi the VAT component. quarter when the relevant sales were made pertaining
to the input VAT regardless of whether said tax was
While waiting for the approval of its application, MPC filed its quarter VAT return paid or not.
where it reflected an input VAT of 149M. Pursuant to a revenue regulation, MPC Prescriptive period commences from the close of the
filed an administrative claim for refund of unutilized input VAT. But, since the BIR taxable quarter when the sales were made and not from the
failed to act on the claim for refund and in order to stall the two-year prescriptive time the input VAT was paid nor from the time the official
period, MPC filed a petition for review with the CTA. However, in response to the receipt was issued.[22] Thus, when a zero-rated VAT
petitioenr, the BIR responded stating that MPC cannot refund because the sale of taxpayer pays its input VAT a year after the pertinent
electricity cannot be granted. transaction, said taxpayer only has a year to file a claim for

VAT | TAX 2| DIE-ANOTHER-DAYGEST 34


refund or tax credit of the unutilized creditable input VAT.
The CTA ruled in favor of the MPC, however, granting 10M instead of the 149M The reckoning frame would always be the end of the quarter
initially sought after. The CA agreed with the ruling of the CTA. Hence, this case when the pertinent sales or transaction was made,
before the SC. regardless when the input VAT was paid.

Be that as it may, and given that the last creditable input


VAT due for the period covering the progress billing of
September 6, 1996 is the third quarter of 1996 ending on
September 30, 1996, any claim for unutilized creditable
input VAT refund or tax credit for said quarter prescribed
two years after September 30, 1996 or, to be precise, on
September 30, 1998. Consequently, MPCs claim for refund
or tax credit filed on December 10, 1999 had already
prescribed.

CIR v. Aichi FACTS: Respondent Aichi Forging Company of Asia, Inc., a corporation duly ISSUE: Whether or not the respondent’s judicial and
Forging organized and existing under the laws of the Republic of the Philippines, is administrative claims for tax refund/credit were filed within
Company of engaged in the manufacturing, producing, and processing of steel and its by- the two-year prescriptive period
Asia, Inc., products. It is registered with the Bureau of Internal Revenue (BIR) as a Value-
GR No. Added Tax (VAT) entity and its products, "close impression die steel forgings" and HELD: No. The two-year period to file a claim for tax
184823, "tool and dies," are registered with the Board of Investments (BOI) as a pioneer refund/credit for the period July 1, 2002 to September 30,
status. 2002 expired on September 30, 2004. Hence, Respondent’s
administrative claim was timely filed. The filing of the judicial
On September 30, 2004, respondent filed a claim for refund/credit of input VAT for claim was premature. However, notwithstanding the timely
the period July 1, 2002 to September 30, 2002 in the total amount of filing of the administrative claim, the Supreme Court is
₱3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR), constrained to deny the respondent’s claim for tax
through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax refund/credit for having been filed in violation of Section 112
Credit and Duty Drawback Center. (D). Section 112(D) of the NIRC clearly provides tha the
CIR has “120 days from the submission of complete
Petitioner maintains that respondent’s administrative and judicial claims for tax documents in support of the application filed for tax
refund/credit were filed in violation of Sections 112(A) and 229 of the NIRC. He refund/credit” within which to grant or deny the claim. In
posits that pursuant to Article 13 of the Civil Code, since the year 2004 was a leap case of full or partial denial by CIR, the taxpayer;s recourse
year, the filing of the claim for tax refund/credit on September 30, 2004 was is to file an appeal before CTA within 30 days from the
beyond the two-year period, which expired on September 29, 2004. receipt of the decision of the CIR. However, if after the 120-
day period the CIR fails to act on the application for tax

VAT | TAX 2| DIE-ANOTHER-DAYGEST 35


refund/credit, the remedy of the taxpayer is to appeal the
inaction of the CIR to CTA within 30 days.

In this case, the administrative and the judicial claims were


simultaneously filed on September 30, 2004. Obviously,
respondent did not wait for the decision of the CIR or the
lapse of the 120-day period. For this reason, we find the
filing of the judicial claim with the CTA premature.

CIR v. San On October 11, 1997, San Roque Power Corporation (San Roque) entered into a · No. San Roque is not entitled to a tax refund because it
Roque Power Power Purchase Agreement (PPA) with the National Power Corporation (NPC) by failed to comply with the mandatory and jurisdictional
Corporation building the San Roque Multi-Purpose Project in San Manuel, Pangasinan. requirement of waiting 120 days before filing its judicial
The San Roque Multi-Purpose Project allegedly incurred, excess input VAT in the claim.
amount of P559,709,337.54 for taxable year 2001 which it declared in its Quarterly · On April 10, 2003, a mere 13 days after it filed its
VAT Returns filed for the same year. amended administrative claim with the CIR on March 28,
San Roque duly filed with the BIR separate claims for refund, amounting to 2003, San Roque filed a Petition for Review with the CTA,
P559,709,337.54, representing unutilized input taxes as declared in its VAT
which showed that San Roque did not wait for the 120-day
returns for taxable year 2001.
However, on March 28, 2003, San Roque filed amended Quarterly VAT Returns period to lapse before filing its judicial claim.
for the year 2001 since it increased its unutilized input VAT To the amount of · Compliance with the 120-day waiting period is
P560,200,283.14. San Roque filed with the BIR on the same date, separate mandatory and jurisdictional, under RA 8424 or the Tax
amended claims for refund in the aggregate amount of P560,200,283.14. Reform Act of 1997. Failure to comply renders the petition
On April 10, 2003, a mere 13 days after it filed its amended administrative claim void.
with the CIR on March 28, 2003, San Roque filed a Petition for Review with the · It violates the doctrine of exhaustion of administrative
CTA.
remedies and renders the petition premature and without a
CIR alleged that the claim by San Roque was prematurely filed with the CTA.
cause of action, with the effect that the CTA does not
acquire jurisdiction over the taxpayer’s petition.
· Article 5 of the Civil Code provides, "Acts executed
against provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity."
· Thus, San Roque’s petition with the CTA is a mere
scrap of paper.
· Well-settled is the rule that tax refunds or credits,
just like tax exemptions, are strictly construed against

VAT | TAX 2| DIE-ANOTHER-DAYGEST 36


the taxpayer.
· Whether the Atlas doctrine or the Mirant doctrine is
applied to San Roque is immaterial because what is at
issue in the present case is San Roque’s non-compliance
with the 120-day mandatory and jurisdictional period, which
is counted from the date it filed its administrative claim with
the CIR. The 120-day period may extend beyond the two-
year prescriptive period, as long as the administrative claim
is filed within the two-year prescriptive period. However,
San Roque’s fatal mistake is that it did not wait for the CIR
to decide within the 120-day period, a mandatory period
whether the Atlas or the Mirant doctrine is applied.
· Section 112(D) of the 1997 Tax Code is clear,
unequivocal, and categorical that the CIR has 120 days to
act on an administrative claim. The taxpayer can file the
judicial claim
(1) Only within 30 days after the CIR partially or fully denies
the claim within the 120- day period, or
(2) only within 30 days from the expiration of the 120- day
period if the CIR does not act within the 120-day period.
· Even if, contrary to all principles of statutory
construction as well as plain common sense, we
gratuitously apply now Section 4.106-2(c) of Revenue
Regulations No. 7-95, still San Roque cannot recover any
refund or credit because San Roque did not wait for the
60-day period to lapse, contrary to the express
requirement in Section 4.106-2(c).
· SC granted the petition of CIR to deny the tax refund or
credit claim of San Roque.

CIR v. Manila Manila Mining Corp. is a VAT registered enterprise. It sold gold to the Central WON Manila Mining provided for sufficient evidence to
Mining Bank for around 200M. In line with this, it filed an application for tax refund for its prove its claim for refund. No.

VAT | TAX 2| DIE-ANOTHER-DAYGEST 37


Corporation input VAT payments in year 1991.
CIR denied such refund. For a judicial claim for refund to prosper, Manila Mining
CTA also denied such for failure to prove that it paid the amounts claimed as there must not only prove that it is a VAT registered entity and
are no sales invoices, receipts or other documents presented. It explained that a that it filed its claims within the prescriptive period. It must
mere listing of VAT invoices and receipts, even if certified to have been previously substantiate the input VAT paid by purchase invoices or
examined by an independent CPA, would not suffice to establish the truthfulness official receipts. This respondent failed to do.
and accuracy of the contents of such invoices and receipts unless offered and
actually verified by it (CTA) in accordance with CTA Circular No. 1-95, as RR 3-88 provides that a photocopy of the purchase invoice
amended by CTA Circular No. 10-97, which requires that photocopies of invoices, or receipt evidencing the value added tax paid shall be
receipts and other documents covering said accounts of payments be pre-marked submitted together with the application. The original copy of
by the party concerned and submitted to the court. the said invoice/receipt, however, shall be presented for
cancellation prior to the issuance of the Tax Credit
Certificate or refund.
A sales or commercial invoice is a written account of goods
sold or services rendered indicating the prices charged
therefor or a list by whatever name it is known which is used
in the ordinary course of business evidencing sale and
transfer or agreement to sell or transfer goods and services.

A receipt on the other hand is a written acknowledgment of


the fact of payment in money or other settlement between
seller and buyer of goods, debtor or creditor, or person
rendering services and client or customer.

These sales invoices or receipts issued by the supplier are


necessary to substantiate the actual amount or quantity of
goods sold and their selling price, and taken collectively are
the best means to prove the input VAT payments.

AT&T Petitioner is a domestic corporation who entered into several Service Agreements ISSUE: WON Petitioner is entitled to a refund or issuance of
Communicati and Assignment Agreements with non-resident foreign corporations such as a tax credit certificate
ons Services AT&T-CSI and AT&T-SI, compensation for such services to be paid in US Dollars.
Philippines, HELD: NO. The Court clarified that there is a distinction as
Inc. v. CIR Petitioner filed with the BIR an application for refund and/or tax credit of its to an “invoice” and a “receipt”, as provided by specific

VAT | TAX 2| DIE-ANOTHER-DAYGEST 38


unutilized VAT input taxes. When BIR did not act on the claim, Petitioner filed a provisions of the Tax Code.
Sales Invoice petition for review with the CTA.
is NOT the The wording of the provisions of the tax code are as follows:
same as The CTA division dismissed petitioner’s claim. Upon appeal, the CTA En Banc
Official affirmed the decision of the CTA division. It ruled that Petitioner was not able to SEC. 108. Value--added Tax on Sale of Services and Use
Receipts. provide VAT official receipts for the foreign currency payment received by or Lease of Properties.-
Petitioner for the services it rendered, and thus it cannot qualify for zero-rating for xxxx
VAT purposes (meaning, no refund or tax credit). The CTA claims that the sales (C) Determination of the Tax - - The tax shall be computed
invoices provided by Petitioner cannot substitute for the VAT receipts which the by multiplying the total amount indicated in the official
law requires as proof of a zero-rating transaction. receipt by one-eleventh (1/11).

SEC. 106. Value--added Tax on Sale of Goods or


Properties,-
xxxx
(D) Determination of the Tax. - The tax shall be computed
by multiplying the total amount
indicated in the invoice by one-eleventh (1/11).

As seen in the provisions, the legislature intended to


distinguish the use of an invoice from an official receipt, the
former being used for sale of goods and properties and the
latter for sale of services.

In this case, Petitioner rendered services to foreign


corporations. As such, the proof which Petitioner needs to
provide as to such service transactions are official receipts
and not invoices, keeping in mind the relevant provisions
of the Tax Code.

Petition dismissed.

Kepco ● KEPCO Philippines Corporation (Kepco) is a VAT-registered independent ISSUE: W/N zero-rated should be imprinted on invoices
Philippines power producer engaged in the business of generating electricity. It and/or official receipts as part of the invoicing requirement
Corporation exclusively sells electricity to National Power Corporation (NPC), an entity
v. CIR exempt from taxes HELD: YES
● Kepco filed an application for zero-rated sales with the Revenue District ● As it failed to indicate in its VAT invoices and

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Office (RDO) No. 54 of the Bureau of Internal Revenue (BIR). Kepcos receipts that the transactions were zero-rated,
application was approved under VAT Ruling 64-01. Kepco failed to comply with the correct
● Kepco filed before the CIR a claim for tax refund covering unutilized input substantiation requirement for zero-rated
VAT payments attributable to its zero-rated sales transactions for taxable transactions.
year 2002 ● Under the law, a VAT invoice is necessary for
● The CTA Second Division ruled that out of the total declared zero-rated every sale, barter or exchange of goods or
sales of P3,285,308,055.85, Kepco was only able to properly substantiate properties while a VAT official receipt properly
P1,451,788,865.52 as its zero-rated sales. After factoring, only 44.19% of pertains to every lease of goods or properties, and
the validly supported input VAT payments being claimed could be for every sale, barter or exchange of services.
considered ● The VAT invoice is the seller's best proof of the sale
● The CTA En Banc dismissed the petition and ruled that in order for Kepco of the goods or services to the buyer while the VAT
to be entitled to its claim for refund/issuance of tax credit certificate receipt is the buyers best evidence of the payment
representing unutilized input VAT attributable to its zero-rated sales for of goods or services received from the seller. Even
taxable year 2002, it must comply with the substantiation requirements though VAT invoices and receipts are normally
under the appropriate Revenue Regulations. issued by the supplier/seller alone, the said invoices
● An important requirement thus includes imprinting of the word zero-rated and receipts, taken collectively, are necessary to
on invoices and/or official receipts covering zero-rated sales. substantiate the actual amount or quantity of goods
sold and their selling price (proof of transaction),
and the best means to prove the input VAT
payments (proof of payment).
● VAT invoice and VAT receipt should not be
confused as referring to one and the same thing.
Certainly, neither does the law intend the two to be
used alternatively.
● Although it is true that the CTA is not strictly
governed by technical rules of evidence, the
invoicing and substantiation requirements must,
nevertheless, be followed because it is the only way
to determine the veracity of Kepco’s claims. Verily,
the CTA En Banc correctly disallowed the input
VAT that did not meet the required standard of
substantiation.

JRA Petitioner, a PEZA Corporation, filed applications for tax credit/refund of unutilized ISSUE: W/N the failure to print the word “zero-rated” on
Philippines, input VAT on its zero-rated sales for the taxable quarters of 2000. the invoices/ receipts is fatal to a claim for credit/refund of

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Inc. v. CIR, input VAT on zero-rated sales
GR No. The claim for credit/refund, however, remained unacted by the respondent. Hence,
177127 petitioner was constrained to file a petition before the CTA. HELD: YES. The absence of the word “zero rated” on the
The CTA eventually denied the petition for lack of the word “zero-rated” on the invoices/receipts is fatal to a claim for credit/refund of input
invoices/receipts. VAT. This has been squarely resolved in Panasonic
Communications Imaging Corporation of the Philippines
(formerly Matsushita Business Machine Corporation of the
Philippines) v. Commissioner of Internal Revenue (G.R. No.
178090, 612 SCRA 28, February 8, 2010). In that case, the
claim for tax credit/refund was denied for non-compliance
with Section 4.108-1 of Revenue Regulations No. 7-95,
which requires the word “zero rated” to be printed on the
invoices/receipts covering zero-rated sales.

From the abovementioned decision, the Court ruled that the


appearance of the word “zero-rated” on the face of invoices
covering zero-rated sales prevents buyers from falsely
claiming input VAT from their purchases when no VAT was
actually paid. If, absent such word, a successful claim for
input VAT is made, the government would be refunding
money it did not collect.

Hitachi Hitachi is a domestic corporation engaged in the business of manufacturing and ISSUE: W/N Hitachi has sufficiently complied with the
Global exporting computer products. It is registered with the BIR as a VAT taxpayer. It is requirements for its claim for VAT refund
Storage also registered with the Export Processing Zone Authority as an Ecozone Export
Technologies Enterprise. HELD: NO.
Philippines We already settled the issue of printing the word zero-rated
Corporation Hitachi filed an administrative claim for refund or issuance of a tax credit certificate on the sales invoices in Panasonic v. CIR. In that case, we
v. CIR, GR before the BIR. The claim involved around P25M representing excess input VAT denied Panasonic’s claim for refund of the VAT it paid as a
No. 174212, attributable to Hitachi's zero-rated exports sales for the 4 taxable quarters of 1999. zero-rated taxpayer on the ground that its sales invoices did
not state on their face that its sales were zero-rated.
Due to BIR's inaction, Hitachi filed a petition for review with the CTA. However, the
CTA and the CTA En Banc, on appeal, both denied the claim. Likewise, in this case, when Hitachi filed its claim for refund
or tax credit, RR 7-95 was already in force. Both the CTA
Hitachi argues that Section 4.108-1 of RR 7-95 cannot expand the invoicing First Division and the CTA En Banc found that Hitachi's
requirements prescribed by Section 113(A) of the NIRC by imposing the additional export sales invoices did not indicate Hitachi's TIN followed

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requirement of printing the word zero-rated on the invoices of a VAT registered by the word VAT. The word zero-rated was also not
taxpayer. imprinted on the invoices. Moreover, both the CTA First
Division and the CTA En Banc found that the invoices were
not duly registered with the BIR.

Being a specialized court, the CTA has necessarily


developed an expertise in the subject of taxation. For this
reason, the findings of fact of the CTA are generally
conclusive on this Court absent grave abuse of discretion or
palpable error, which are not present in this case.

Besides, tax refunds, like tax exemptions, are construed


strictly against the taxpayer. The claimants have the burden
of proof to establish the factual basis of their claim for
refund or tax credit. In this case, Hitachi failed to establish
the factual basis of its claim for refund or tax credit.

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