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COMMISSIONER OF INTERNAL REVENUE v. CEBU TOYO CORPORATION. G.R. No. 149073. February 16, 2005
FACTS:
Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses and various optical components.
Its principal office is located at the Mactan Export Processing Zone (MEPZ) in Lapu-Lapu City, Cebu and is a subsidiary of Toyo Lens
Corporation, a non-resident corporation organized under the laws of Japan. It is a zone export enterprise registered with the Philippine
Economic Zone Authority (PEZA), pursuant PD 66 and is also registered with the BIR as a VAT taxpayer.
The sales of respondent are considered export sales subject to VAT at 0% rate under Section 106 of the NIRC, as amended.
Respondent then filed, an application for tax credit/refund of VAT paid for the period April 1, 1996 to December 31, 1997 amounting to
P4,439,827.21 representing excess VAT input payments. Respondents claim that they can avail of the tax credits as they are VATregistered exporter of goods at the rate of 0%.
The CIR oppose such stating that they are not entitled to the tax credit as the claims for refund are strictly construed against
respondents as it is of the nature of tax exemption.
The CTA granted the motion partially to the respondents as they only lowered the tax credits to P2,158,714.46 representing unutilized
input tax payments. The CIR filed a petition with the CA which was denied.
ISSUE: Whether Cebu Toyo Corporation can avail of the tax credits.
RULING:
YES. Respondents availed of an income tax holiday as provided in the Omnibus Investments Code ( EO 226). It is one of the fiscal
incentives granted to PEZA-registered enterprises and one of the options to its tax burden. Both the CA and CTA found that respondent
availed of the income tax holiday for four (4) years as it was shown in their Annual Corporate Income Tax Returns. In it also is where
respondent specified that it was availing of the tax relief under EO 226. Hence, respondent is not exempt from VAT and it correctly
registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions.
Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent (10%) or zero percent
(0%). In taxable transactions, the seller shall be entitled to tax credit for the value-added tax paid on purchases and leases of goods,
properties or 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 that are VAT-exempt, is not entitled to any input tax on such purchases despite the issuance
of a VAT invoice or receipt.
The court also held that respondent is subjected to VAT at 0% rate as it is engaged in the export business.
Seagate Technology (Seagate) is registered with the Philippine export Zone Authority (PEZA) and has been issued a PEZA
certificate
It is also a VAT registered entity
An administrative claim for refund of VAT input taxes in the amount of PHP 28,369.88 was filed on October 4, 1999
No final action as been received by Seagate from the CIR on its claim for VAT refund
Seagate thus elevated the case to the CTA by way of petition for review in order to toll the running of the two year prescriptive
period
ISSUE: W/N Segeate is entitled to the refund or issuance of Tax Credit Certificate YES
RATIO:
Seagate is a PEZA registered enterprise
As a PEZA registered enterprise within a special economic zone, Seagate is entitled in the fiscal incentives and benefits,
provided for in either PD66 or EO 226. It shall moreover enjoy all privileges, benefits, advantages, or exemptions under both
RA 7227 and RA 7844
Seagate enjoys preferential tax treatment. It is not subject to internal revenue laws and regulations and is even entitled to tax
credits.
The VAT on capital goods is an internal revenue from which Seagate as an entity is exempt. Although the transactions
involving such tax is are not exempt, Seagate as a VAT registered person however is entitled to their credits
VAT is a uniform tax ranging at present from 0-10% levied on every importation of goods, whether or not in the course of trade
or business, or imposed on each sale, barter, exchange or lease of goods or properties, or on each rendition of services in the
course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value
added to such goods, properties or services by the seller, transferor or lessor
It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties, or services
The law that originally impose the VAT in the country, as well as subsequently amendments of that law, has been drawn from
the tax credit method. Under the present method that relied on invoices, and entity can credit against or subtract from the VAT
charged on its sales or outputs the Vat paid on its purchases, inputs and imports.
If at the end of a taxable quarter the output taxes charged by a seller are equal to the input taxes passed on by the suppliers,
no payment is required. It is when the output taxes exceed the input taxes tha the excess has to be paid. If, however, the input
taxes exceed the output taxes, the excess 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 or credited against other internal revenue taxes
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Although both are taxable and similar in effect, zero rated transactions differ from effectively zero rated transactions as to their
source
Zero rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When
applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions
charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers.
Effectively zero rated transactions, however, refer to the sale of goods or supply of services to persons or entities whose
exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such
transaction to a zero rate. Again, as applied to the tax base, such rate does not yield any tax chargeable against the
purchaser. The seller who chares zero output tax on such transactions can also claim a refund of or a tax credit certificate fir
the VAT previously charged by suppliers.
Zero Rating and Exemption
In terms of the VAT computation, zer rating and exemption are the same, but the extend of relief that results from either one of
them is not
Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoys by the
seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or
credit of input taxes that are attributable to export sales. Effective zero rating on the contrary is intended to benefit the
purchaser who not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted
by the suppliers.
In both instances of zero rating, there is a TOTAL relief for the purchaser from the burden of the tax. But in an exemption there
is only partial relief because the purchaser is not allowed any tax refund of or credit for input taxes paid.
Exempt Transaction and Exempt Party
the object of exemption from the VAT may either be the transaction itself or any of the parties to the transaction
An exempt transaction on the one hand., involved goods or services 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. Such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any input
taxes paid.
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 the VAT. Such party is also not subject to the VAT but may be allowed a tax refund of or credit for input taxes paid,
depending on its registration as a VAT r non-VAT taxpayer.
Special laws may certainly exempt transactions from the VAT. However, the Tax Code provides that those falling under PD 66
are not. PD 66 is the precursor of RA 7916 the special law under which Seagate was registered. The purchase transactions
it entered into are therefore not VAT exempt. These are subject to the Vat. Seagate is required to register.
Its sales transactions however will either be zero rated or taxed at the standard rate of 10 percent. Depending again on the
application of the destination principle
If Seagate enters into such sales transactions with a purchaser --- usually in a foreign country for use or consumption
outside the Philippines, these shall be subject to a 0 percent. If entered into which a purchase for use or consumption in the
Philippine, then these shall be subject to 10 percent, unless the purchaser is exempt from the indirect burden of the VAT, in
which case it shall also be zero rated.
Since the purchases of Seagate are not exempt from the VAT, the rate to be applied is zero. Its exemption under both PD 66
and RA 7916 effectively subjects such transactions to a zero rate because the ecozone within which it is registered is
managed and operated by the PEZA as a separate customs territory. This means that such zone has created the legal fiction
of a foreign territory. Under the cross border principle of the VAT system being enforced by the BIR, no VAT shall be imposed
to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. If exports of
goods and services from the Philippines to a foreign country are free of the VAT, then the same rule holds for such exports
from the national territory except specifically declared areas --- to an ecozone.
Sales made by a VAT registered person in the customs territory to a PEZA registered entity are considered exports to a foreign
country, conversely, sales by a PEZA registered entity to a VAT registered person in the customs territory are deemed imports
from a foreign country. This legal fiction is necessary to give meaningful effect to the policies of the special law creating the
zone. If Seagate is located in an export processing zone within that ecozone, sales to the export processing zone , even
without being actually exported, shall in fact be viewed as constructively exported under EO 226. Considered as export sales,
such purchase transactions by Seagate would indeed be subject to a zero rate
The Exemptions Broad and Express
Applying the special laws we have earlier discussed, Seagate as an entity is exempt from internal revenue laws and
regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for
which the direct liability is imposed on one person but the indirectly made to bear, as added cost to such sales, the equivalent
VAT n its purchases.
First, RA 7916 states that no taxes, local, and national, shall be imposed on the business establishments operating within the
ecozone Since this law does not exclude the VAT from the prohibition, it is deemed included
Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real property taxes that
presently are imposed on land owned by developers
Third, foreign and domestic merchandise, raw materials, equipment and the like shall not be subject to internal revenue laws
and regulations under PD 66 the original charter provisions on the latter law modify such exemption
Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise except those prohibited by law shall
not be subject to internal revenue laws and regulations if brought to the ecozones restricted area for manufacturing by
registered export enterprises of which Seagate is one. These rules also apply to all enterprises registered with the PEZA prior
to the effectivity of such ruled
Tax Refund as Tax Exemption
To be sure, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the
taxing authority
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Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the burden of proving the
factual basis of them claims and of showing by words to plain to be mistaken, that the legislature intended to exempt them. In
the present case, all the cited legal provisions with respect to the grant of the tax exemptions are too vivid to pass unnoticed.
Seagate which as an entity is exempt, is different from its transactions which are not exempt. The end result, however, is that it
is not subject to the VAT. The non taxability of transactions that are otherwise taxable is merely a necessary incident to the tax
exemption conferred by law upon it as an entity, not upon the transactions themselves. Nonetheless, its exemption as an entity
and the non exemption of its transactions lead to the same result.
VAT registration, not application for effective zone rating indispensable to Vat refund
By the VATs very nature as a tax on consumption, the capital goods and services Seagate has purchased are subject to VAT,
although at zero rate. Registration does not determine taxability under the VAT law.
The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over the clear
VAT nature of Seagates transactions. The scope of such regulations is not within the statutory authority granted by the
legislature.
Other than the general registration of a taxpayer, the VAT status of which is aptly determined, no provision under our VAT law
requires an additional application to be made for such taxpayers transactions to be considered effectively zero rated. An
effectively zero rated transaction does not and cannot become exempt simply because an application therefore was not made
or if made, was denied. To allow the additional requirement is to give unfettered discretion to those officials or agents who
without fluid consideration, are bent on denying a valid application
Tax Refund or credit in order
Having determined that Seagates purchase transactions are subject to a zero VAT rate, the tax refund or credit is in order.
As correctly held by the lower courts, Seagate had chosen the fiscal incentives in EO 226 over those in RA 7916 and PD 66. It
opted for the income tax holiday regime instead of the 5 percent preferential tax regime,
These two regimes are incompatible and cannot be availed of simultaneously by the same entity. While EO 226 merely
exempts it from income taxes, the PEZA law exempts it from all taxes.
Therefore Seagate can be considered exempt not from the VAT but only from the payment of income tax for certain number of
years depending on its registration.
CIR VS. SEAG ATE TECHNOLOGY
FACTS:
Seagate is a resident foreign corporation duly registered with the SEC to do business in the Philippines, with principal office
address at the new Cebu Township One, Special Economic Zone, Naga, Cebu
It registered with PEZA and has been issued PEZA Certificate to engage in the manufacture of recording components primarily
used in computers for export
Seagate Technology is a VAT -registered entity as evidenced by VAT Registration Certification No. 97-083-000600-V issued on 2
April 1997.
It was able to file VAT returns for the period 1 April 1998 to 30 June 1999.
Thereafter, an administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents
(inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999 with Revenue
District Office No. 83, Talisay Cebu but this was not acted upon by the CIR.
ISSUES:
WoN respondent is exempt from tax
RULING:
YES. Respondent as an entity is exempt from internal revenue laws and regulations.
This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for which
the direct liability is imposed on one person but the indirect burden is passed on to another.
Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to bear, as added
cost to such sales, the equivalent VAT on its purchases.
Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end result, however, is that it
is not subject to the VAT. The non-taxability of transactions that are otherwise taxable is merely a necessary incident to the tax
exemption conferred by law upon it as an entity, not upon the transactions themselves. Nonetheless, its exemption as an entity and
the non-exemption of its transactions lead to the same result for the following considerations:
o The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over
the clear VAT nature of respondent's transactions. The scope of such regulations is not within the statutory authority x
x x granted by the legislature. A mere administrative issuance, like a BIR regulation, cannot amend the law; the
former cannot purport to do any more than interpret the latter. The courts will not countenance one that overrides the
statute it seeks to apply and implement.
Special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone,
which by law is considered as a separate customs territory.
As such, SEAGATE is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for
the income tax holiday regime, instead of the 5 percent preferential tax regime.
As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales
transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for
the effective zero rating of its transactions is necessary.
Being VAT-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT
paid on capital goods purchased, respondent is entitled to such VAT refund or credit.
An exempt transaction, involves goods or services 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
Page 3 of 24
CIR VS. TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC.,. G.R. NO. 150154. AUGUST 9, 2005
FACTS:
Toshiba was organized and established as a domestic corporation, duly-registered with the SEC
Its primary purpose is to engage in the business of manufacturing and exporting of electrical and mechanical machinery,
equipment, systems, accessories, parts, components, materials and goods of all kinds, including, without limitation, to those
relating to office automation and information technology, and all types of computer hardware and software, such as HDD, CD-ROM
and personal computer printed circuit boards.
9/27/95: Toshiba registered with PEZA as an ECOZONE Export Enterprise, it registered with BIR as a VAT taxpayer and a
withholding agent.
Toshiba filed its VAT returns for the 1st & 2nd quarters of 1996
It alleged that the input VAT was from its purchases of capital goods and services which remained unutilized since it had not yet
engaged in any business activity or transaction for which it may be liable for any output VAT.
3/27/98: Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF applications for tax
credit/refund of its unutilized input VAT
To toll the running of the two-year prescriptive period for judicially claiming a tax credit/refund, Toshiba, filed with the CTA a Petition
for Review.
CIR raised several Special and Affirmative Defenses:
5. Assuming without admitting that petitioner filed a claim for refund/tax credit, the same is subject to investigation by the
Bureau of Internal Revenue.
6. Taxes are presumed to have been collected in accordance with law. Hence, petitioner must prove that the taxes sought to
be refunded were erroneously or illegally collected.
7. Petitioner must prove the allegations supporting its entitlement to a refund.
8. Petitioner must show that it has complied with the provisions of Sections 204(c) and 229 of the 1997 Tax Code on the filing
of a written claim for refund within two (2) years from the date of payment of the tax.
9. Claims for refund of taxes are construed strictly against claimants, the same being in the nature of an exemption from
taxation.12
CTA ordered CIR to refund, or in the alternative, to issue a tax credit certificate to respondent Toshiba
CA also dismissed petitioner CIRs Petition for Review and affirmed the CTA Decision
ISSUE:
WON Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services
RULING:
SC RULED THAT TOSHIBA IS ENTITLES TO THE TAX CREDIT/REFUND OF ITS INPUT VAT
An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and services by persons from the Customs Territory to
ECOZONE enterprises shall be subject to VAT at zero percent (0%).
Toshiba bases its claim for tax credit/refund on Section 106(b) Refunds or tax credits of creditable input tax, of the Tax Code of
1977:
(b) Capital goods. A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid
on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes.
The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase
was made.
Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable
business. If it is also used in exempt operations, the input tax refundable shall only be the ratable portion corresponding to the
taxable operations.
Since Toshiba is a PEZA-registered enterprise, it is subject to the five percent (5%) preferential tax rate imposed RA 7916 or The
Special Economic Zone Act of 1995
According to the special law, "[e]xcept for real property taxes on land owned by developers, no taxes, local and national, shall be
imposed on business establishments operating within the ECOZONE. In lieu thereof, 5% of the gross income earned by all
business enterprises within the ECOZONE shall be paid" The five percent (5%) preferential tax rate imposed on the gross
income of a PEZA-registered enterprise shall be in lieu of all national taxes, including VAT.
CIR FAILED TO DIFFERENTIATE BETWEEN VAT-EXEMPT TRANSACTIONS FROM VAT-EXEMPT ENTITIES.
In the case of Commissioner of Internal Revenue v. Seagate Technology (Philippines),19 this Court already made such distinction
An exempt transaction, on the one hand, involves goods or services 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
The tax code provision relied upon by petitioner 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.
Such provision cannot apply to transactions of respondent 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 under PD. 66 are not.
PD. 66, creating the EPZA is the precursor of Rep. Act No. 7916, which the EPZA evolved into the PEZA. Thus, the exception of
PD 66 extends likewise to RA 7916
SC agrees that PEZA-registered enterprises, which would necessarily be located within ECOZONES, are VAT-exempt entities, not
because of Rep. Act No. 7916 provision, which imposes the five percent (5%) preferential tax rate on gross income of PEZA-
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registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same statute which establishes the fiction that
ECOZONES are foreign territory.
Toshiba is located within an ECOZONE.
An ECOZONE or a Special Economic Zone has been described as selected areas with highly developed or which have the
potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers
whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the
following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers.
The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs
Territory.22
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 ten percent (10%) VAT.
Applying said doctrine to the sale of goods, properties, and services to and from the ECOZONES, the BIR issued RMC
No. 74-99. Section 3 thereof reads:
SECTION 3. Tax Treatment Of Sales Made By a VAT Registered Supplier from The Customs Territory, To a PEZA
Registered Enterprise.
(1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu of all taxes,
except real property tax, pursuant to R.A. No. 7916, as amended:
a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered subject to zero
percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART.
77(2) of the Omnibus Investments Code.
b) Sale of service. This shall be treated subject to zero percent (0%) VAT under the "cross border doctrine" of
the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.
(2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax regime, hence, subject to
taxes under the NIRC, e.g., Service Establishments which are subject to taxes under the NIRC rather than the 5% special
tax regime:
a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered subject to zero
percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916 in relation to ART. 77(2)
of the Omnibus Investments Code.
b) Sale of Service. This shall be treated subject to zero percent (0%) VAT under the "cross border doctrine" of
the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.
(3) In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the
Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the
latters PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly,
all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory
shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the Omnibus
Investments Code, while all sales of services to the said enterprises, made by VAT registered suppliers from the Customs
Territory, shall be treated effectively subject to the 0% VAT, pursuant to Section 108(B)(3), NIRC, in relation to the
provisions of R.A. No. 7916 and the "Cross Border Doctrine" of the VAT system.
NO OUTPUT VAT MAY BE PASSED ON TO AN ECOZONE ENTERPRISE SINCE IT IS A VAT-EXEMPT ENTITY. The VAT
treatment of sales to it, however, varies depending on whether the supplier from the Customs Territory is VAT-registered or not.
SALES OF GOODS, PROPERTIES AND SERVICES BY A VAT-REGISTERED SUPPLIER FROM THE CUSTOMS TERRITORY
TO AN ECOZONE ENTERPRISE SHALL BE TREATED AS EXPORT SALES. If such sales are made by a VAT-registered supplier,
they shall be subject to VAT at zero percent (0%). In zero-rated transactions, the VAT-registered supplier shall not pass on any
output VAT to the ECOZONE enterprise, and at the same time, shall be entitled to claim tax credit/refund of its input VAT
attributable to such sales. Zero-rating of export sales primarily intends to benefit the exporter (i.e., the supplier from the Customs
Territory), who is directly and legally liable for the VAT, making it internationally competitive by allowing it to credit/refund the input
VAT attributable to its export sales.
Meanwhile, sales to an ECOZONE enterprise made by a non-VAT or unregistered supplier would only be exempt from VAT and the
supplier shall not be able to claim credit/refund of its input VAT.
Toshiba, as a PEZA-registered enterprise, is a VAT-exempt entity that could not have engaged in a VAT-taxable business, SC still
believes, given the particular circumstances of the present case, that it is entitled to a credit/refund of its input VAT.
Prior to RMC No. 74-99, however, PEZA-registered enterprises availing of the income tax holiday under Executive Order No. 226,
as amended, were deemed subject to VAT.
"SEC. 4.100-2. Zero-rated sales. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes,
shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zerorated sale shall be available as tax credit or refund in accordance with these regulations."
the VAT-registered person who can avail as tax credit or refund of the input tax on his purchases of goods, services or properties is
the seller whose sale is zero-rated.
Under RMC No. 42-2003, the DOF would still accept applications for tax credit/refund filed by PEZA-registered enterprises, availing
of the income tax holiday, for input VAT on their purchases made prior to RMC No. 74-99. Acceptance of applications essentially
implies processing and possible approval thereof depending on whether the given conditions are met. Respondent Toshibas claim
for tax credit/refund arose from the very same circumstances recognized by Q-5(1) and A-5(1) of RMC No. 42-2003. It therefore
seems irrational and unreasonable for petitioner CIR to oppose respondent Toshibas application for tax credit/refund of its input
VAT, when such claim had already been determined and approved by the CTA after due hearing, and even affirmed by the Court of
Appeals; while it could accept, process, and even approve applications filed by other similarly-situated PEZA-registered enterprises
at the administrative level.
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PDTSL and PDTSL Phils entered into an Implementation Agreement. Due to the urgency and potentially significant damage to the
environment, respondent agreed to implement the project even prior to the agreements signing. The agreement further stipulated that
PDTSL was to pay respondent an amount of money in US funds equal to all costs incurred for Implementation Services performed
under the Agreement as well as a fee agreed to 1% of such costs
In 1998, respondent amendment its VAT returns. Respondent declared a total input VAT payment of P43M and P42M as its total excess
input VAT for the same period. Then, in Sept 1998, respondent filed an administrative claim for the refund of its reported total input VAT
payments in relation to the project it contracted with PDTSL, P43M. In support of this claim for refund, respondent argued that the
revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero rated sales, since it was paid in
foreign currency inwardly remitted to the PH.
When CIR did not act on this claim, respondent filed a petition for review with the CTA praying for the refund of its total reported excess
input vat of P42M. CIR merely invoked the presumption that taxes are collected in accordance with law, and that claims for refund of
taxes are construed strictly against claimants, as the same was in the nature of an exemption from taxation.
CTA supported respondent, that its sale of services to PDTSL constituted a zero rated transaction. CTA pointed out that out that of the
US$27M paid by PDTSL to respondent, only US$14M was inwardly remitted and accounted for in accordance with the BSP. The CTA
also noted that not all the reported total input VAT payments of respondent were properly supported by VAT invoices and/or official
receipts, and that not all of the allowable input VAT of the respondent could be directly attributed to its zero rated sales. In the end, the
CTA found that only the resulting input VAT of P17M could be refunded the respondent.
The CTA reiterated its pronouncement in said case, thus: x x x it is very clear that VAT Ruling No. 040 98 not only expands the
language of Section (108)(B)(2) but also of Revenue Regulation No. 5 96 which interprets the said stat ute. The same cannot be
countenanced. It is a settled rule of legal hermeneutics that the implementing rules and regulations cannot amend the act of Congress x
x x for administrative rules and regulations are intended to carry out, not supplant or modify, the law.
CA affirmed CTA.
ISSUE: WON Sale here is subject to zero rate?
RULING: YES.
Our evaluation of the petition must begin with the statutory scope of the services performed in the Philippines by VATregistered
persons, referred to in the law applicable at the time of the subject incidents, the National Internal Revenue Code of 1986, as
amended(1986 NIRC).
It is Section 102(b)(2) which finds special relevance to this case. As explicitly provided in the law, a zero rated VAT transaction includes
services by VATregistered persons other than processing, manufacturing or repacking goods for other persons doing business outside
the Philippines, which goods are subsequently exported, the consideration for which is paid in foreign currency and accounted for in
accordance with the rules and regulations of the BSP.
Still, this provision was interpreted by the Bureau of Internal Revenue through Revenue Regulation No. 596,
Although there is nothing in Section 4.1022(b)(2) that is expressly fatal to respondents claim, VAT Ruling No. 040 98 interpreted the
provision in such fashion.
Petitioners arguments:
Petitioner argues that following Section 4.1022(b)(2) of Revenue Regulation No. 596, there are only two categories of services that are
subject to zero percent VAT, namely: services other than processing, manufacturing or repacking for other persons doing business
outside the Philippines for goods which are subsequently exported; and services by a resident to a nonresident foreign client, such as
project studies, information services, engineering and architectural designs and other similar services
Petitioner explains that the services rendered by respondent were not for goods which were subsequently exported. Likewise, it is
argued that the services rendered by respondent were not similar to project studies, information services, engineering and architectural
designs which were destined to be consumed abroad by non resident foreign clients.
VAT Ruling No. 04098 expresses that the zerorating may apply only when the services are destined for consumption abroad. This view
aligns with the theoretical principle that the VAT is ultimately levied on consumption. If the service were destined for consumption in the
Philippines, the service provider would have the faculty to pass on its VAT liability to the enduser, thus avoiding having to shoulder the
tax itself.
Unfortunately for petitioner, his arguments are no longer fresh. The Court spurned them in Commissioner of Internal Revenue v.
American Express.
American Express involved transactions invoked as zerorated by a VATregistered person that facilitates the collection and payment
of receivables belonging to its non resident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and
accounted for in conformity with BSP rules and regulations.24 The CIR in that case relied extensively on the same VAT Ruling No.
04098 now cited before us. However, the Court would conclude in American Express that the opinion therein that the service must be
destined for consumption outside of the Philippines was clearly ultra vires and invalid.
American Express explained the nature of VAT imposed on services in this manner:
The VAT is a tax on consumption expressed as a percentage of the value added to goods or services purchased by the
producer or taxpayer. As an indirect tax on services, its main object is the transaction itself or, more concretely, the
performance of all kinds of services conducted in the course of trade or business in the Philippines. These services must be
regularly conducted in this country; undertaken in pursuit of a commercial or an economic activity; for a valuable
consideration; and not exempt under the Tax Code, other special laws, or any international agreement.
It was from the awareness that Section 102(b) is free from ambiguity in providing so broad an extension of the zero rated benefit on
VATregistered persons performing services that the Court in American Express proceeded to consider the same Section 4.1022(b)(2) of
Revenue Regulation No. 596 now cited by petitioner. The Court in American Express explained that Revenue Regulation No. 596 had
amended Revenue Regulation No. 795, Section 4.1022 of which had retained the broad language of Section 102(b) in defining
transactions subject to zerorate, adding only, by way of specific example, the phrase those [services] rendered by hotels and other
service establishments.30 However, the amendatory Revenue Regulation No. 596 opted for a more specific approach, providing, by
way of example, an enumeration of those services contemplated as zerorated
In the present case, it is because of such enumeration that petitioner now argues that respondents services likewise do not fall under
the second category mentioned in Section 4.1022(b) (2) [as amended by Revenue Regulation No. 596], because they are not similar to
project studies, information services, engineering and architectural designs which are destined to be consumed abroad by nonresident
foreign clients.
Petitioner presently invokes the destination principle, citing that [r]espondents services, while rendered to a nonresident foreign
corporation, are not destined to be consumed abroad. Hence, the onus of taxation of the revenue arising therefrom, for VAT purposes,
is also within the Philippines. Yet the Court in American Express debunked this argument when it rebutted the theoretical underpinnings
of VAT Ruling No. 04098, particularly its reliance on the destination principle in taxation:
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 zerorated, while imports are taxed.
Confusion in zero rating arises because petitioner equates the performance of a particular type of service with the
consumption of its output abroad. In the present case, the facilitation of the collection of receivables is different from the utilization or
consumption of the outcome of such service. While the facilitation is done in the Philippines, the consumption is not. Respondent
Page 6 of 24
renders assistance to its foreign clientsthe ROCs outside the countryby receiving the bills of service establishments located here in
the country and forwarding them to the ROCs abroad. The consumption contemplated by law, contrary to petitioners
administrative interpretation, does not imply that the service be done abroad in order to be zerorated.
Consumption is the use of a thing in a way that thereby exhausts it. Applied to services, the term means the performance or
successful completion of a contractual duty, usually resulting in the performers release from any past or future liability x x
x The services rendered by respondent are performed or successfully completed upon its sending to its foreign client the
drafts and bills it has gathered from service establish ments here. Its services, having been performed in the Philippines, are
therefore also consumed in the Philippines.
Unlike goods, services cannot be physically used in or bound for a specific place when their destination is determined.
Instead, there can only be a predetermined end of a course when determining the service location or position x x x for
legal purposes. Respondents facilitation service has no physical existence, yet takes place upon rendition, and therefore upon
consumption, in the Philippines. Under the destination principle, as petitioner asserts, such service is subject to VAT at the rate of 10
percent.
However, the law clearly provides for an exception to the destination principle; that is, for a zero percent 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 zerorated as an exception, the law merely requires that first, the service be
performed in the Philippines; second, the service fall under any of the categories in Section 102(b) of the Tax Code;
and, third, it be paid in acceptable foreign currency accounted for in accordance with BSP rules and regulations.
Again, contrary to petitioners stand, for the cost of respondents 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 VATregistered persons in the Philippines services other than the processing,
manufacturing or repacking of goods for persons doing business outside this countryif paid in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP, are zerorated. The service rendered by respondent
is clearly different from the product that arises from the rendition of such service. The activity that creates the income must
not be confused with the main business in the course of which that income is realized
Finally, the Court in American Express found support from the legislative record that revealed that consumption abroad is not a
pertinent factor to imbue the zerorating on services by VATregistered persons performed in the Philippines.
DISPOSITIVE: Petition denied. (PETITION for review on certiorari of a decision of the Court of Appeals.)
CIR V AMERICAN EXPRESS INTERNATIONAL, INC. (PHIL. BRANCH)
Facts:
Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with servicing a unit of AMEX-Hongkong Branch
and facilitating the collections of AMEX-HK receivables from card members situated in the Philippines and payment to service
establishments in the Philippines.
It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis Section 110B of the 1997 Tax Code, which
held that xxx Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his
option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112.
In addition, respondent relied on VAT Ruling No. 080-89, which read, In Reply, please be informed that, as a VAT registered entity
whose service is paid for in acceptable foreign currency which is remitted inwardly to the Philippine and accounted for in accordance
with the rules and regulations of the Central Bank of the Philippines, your service income is automatically zero rated xxx
Petitioner claimed, among others, that the claim for refund should be construed strictly against the claimant as they partake of the
nature of tax exemption.
CTA rendered a decision in favor of respondent, holding that its services are subject to zero-rate. CA affirmed this decision and further
held that respondents services were services other than the processing, manufacturing or repackaging of goods for persons doing
business outside the Philippines and paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of BSP.
Issue:
W/N AMEX Phils is entitled to refund
Held:
Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or lease of properties. Section 102B particularly
provides for the services or transactions subject to 0% rate:
(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are
subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the BSP;
(2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered by hotels and other service
establishments, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules
and regulations of the BSP
Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or
repackaging of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for
in accordance with the R&R of BSP, are zero-rated. Respondent renders service falling under the category of zero rating.
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.
In the present case, the facilitation of the collection of receivables is different from the utilization of consumption of the outcome of such
service. While the facilitation is done in the Philippines, the consumption is not. The services rendered by respondent are performed
upon its sending to its foreign client the drafts and bulls it has gathered from service establishments here, and are therefore, services
also consumed in the Philippines. Under the destination principle, such service is subject to 10% VAT.
However, the law clearly provides for an exception to the destination principle; that is 0% VAT rate for services that are performed in the
Philippines, paid for in acceptable foreign currency and accounted for in accordance with the R&R of BSP. The respondent meets the
following requirements for exemption, and thus should be zero-rated:
(1) Service be performed in the Philippines
(2) The service fall under any of the categories in Section 102B of the Tax Code
(3) It be paid in acceptable foreign currency accounted for in accordance with BSP R&R.
Page 7 of 24
Page 8 of 24
This can only be the logical interpretation of Section 102(b)(2). 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 payerrecipient 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. The provider of services can choose to pay the regular
VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payerrecipient. Such interpretation removes Section
102(a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a voluntary
contribution.
Further, when the provider and recipient of services are both doing business in the Philippines, their transaction falls squarely under
Section 102(a) governing domestic sale or exchange of services. Indeed, this is a purely local sale or exchange of services subject to
the regular VAT, unless of course the transaction falls under the other provisions of Section 102(b).
Thus, when Section 102(b)(2) speaks of [s]ervices other than those mentioned in the preceding subparagraph, the legislative
intent is that only the services are different between subparagraphs 1 and 2. Expressly included among the transactions subject to 0%
VAT are [s]ervices other than those mentioned in the [first] paragraph [of Section 108(b)] rendered to a person engaged in business
conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when
the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of the BSP.
In this case, the payerrecipient of respondents services is the Consortium which is a jointventure doing business in the Philippines.
While the Consortiums principal members are nonresident foreign corporations, the Consortium itself is doing business in the
Philippines.
Respondent, as subcontractor of the Consortium, operates and maintains NAPOCORs power barges in the Philippines.
NAPOCOR pays the Consortium, through its nonresident partners, partly in foreign currency outwardly remitted. In turn, the
Consortium pays respondent also in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This
payment scheme does not entitle respondent to 0% VAT.
the place of payment is immaterial, much less is the place where the output of the service is ultimately used. An essential condition for
entitlement to 0% VAT under Section 102(b) (1) and (2) is that the recipient of the services is a person doing business outside the
Philippines. In this case, the recipient of the services is the Consortium, which is doing business not outside, but within the
Philippines because it has a 15year contract to operate and maintain NAPOCORs two 100megawatt power barges in
Mindanao.
In contrast to American Express case, this case involves a recipient of servicesthe Consortiumwhich is doing business in the
Philippines. Hence, American Express services were subject to 0% VAT, while respondents services should be subject to 10% VAT.
DISPOSITIVE: Subject to 10% VAT
CIR VS ACESITE
FACTS:
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.[39] 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
P30,152,892.02 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 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 P30,152,892.02.
Acesite paid VAT in the amount of P30,152,892.02 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, thus:
xxxx
Petitioner contends that the tax exemption refers only to PAGCOR's direct tax liability and not to indirect taxes, like the VAT.
We disagree.
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. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes, like VAT, as follows:
Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to PAGCOR. Although the law
does not specifically mention PAGCOR's exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because
the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the
provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons
dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT
and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.)
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.
It is 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 said rule or regulation cannot go beyond the terms and provisions of the basic law. RR No. 16-2005,
therefore, cannot go beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR
exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory provision is hereby
nullified.
WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337, amending Section 27 (c) of the National
Internal Revenue Code of 1997, by excluding petitioner Philippine Amusement and Gaming Corporation from the enumeration of
government-owned and controlled corporations exempted from corporate income tax is valid and constitutional, while BIR Revenue
Regulations No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the National Internal
Revenue Code of 1997, as amended by Republic Act No. 9337.
Page 9 of 24
Page 10 of 24
3.
4.
The claim must be filed within 2 years after the close of the taxable quarter when such sales were made; and
The creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such
input tax has not been applied against the output tax.
A.
B.
In a case, the SC ruled that ATP need not be reflected or indicated in the invoices or receipts because there is no law or regulation
requiring it.
Thus, failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the invalidation of the
invoices or receipts for purposes of claiming a refund.
ATP must be secured from the BIR
Sec. 238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or
receipts. Failure to do so, makes the person liable under Sec. 264 of the Tax Code.
W/N a claimant for unutilized input VAT on zero-rated sales is required to present proof that it has secured an ATP from the
BIR prior to the printing of its invoices or receipts.
YES. Since ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is
by requiring the claimant to present its ATP from the BIR. Without which, the invoices would have no probative value for the purpose of
refund.
Failure to print the word zero-rated on the sales invoices is fatal to a claim for refund of input VAT.
In compliance with Sec. 4.108-1 of RR 7-95, requiring the printing of the word zero-rated on the invoice covering zero-rate sales is
essential as this regulation proceeds from the rulemaking authority of the Secretary of Finance under Sec. 244 of the NIRC.
In this case, Silicon failed to present its ATP and to print the word zero-rated on its export sales invoices.
Thus, the claim for credit/refund of input VAT attributable to its zero-rated sales must be denied.
Page 11 of 24
COMMISSIONER OF INTERNAL REVENUE VS. SONY PHILIPPINES, INC.- VALUE ADDED TAX, FINAL
WITHHOLDING TAX, LETTER OF AUTHORITY
Page 12 of 24
FACTS:
Sony Philippines was ordered examined for the period 1997 and unverified prior years as indicated in the Letter of Authority. The audit
yielded assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of Final Withholding Tax on royalties
for the period January to March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its offshore affiliate,
Sony International Singapore (SIS).
ISSUES:
(1)
Is
Petitioner
liable
for
(2) Was the investigation of its 1998 Final Withholding Tax return valid?
deficiency
Value
Added
Tax?
HELD:
(1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it paid for certain advertising costs. This is
sufficient to accord it the benefit of input VAT credits and where the money came from to satisfy said advertising billings is another
matter but does not alter the VAT effect. In the same way, Sony Philippines can not be deemed to have received the reimbursable as a
fee for a VAT-taxable activity. The reimbursable was couched as an aid for Sony Philippines by SIS in view of the companys dire or
adverse economic conditions. More importantly, the absence of a sale, barter or exchange of goods or properties supports the nonVAT nature of the reimbursement. This was distinguished from the COMASERCO case where even if there was similarly a
reimbursement-on-cost arrangement between affiliates, there was in fact an underlying service. Here, the advertising services were
rendered in favor of Sony Philippines not SIS.
(2) NO. A Letter of Authority should cover a taxable period not exceeding one year and to indicate that it covers unverified prior years
should be enough to invalidate it. In addition, even if the Final Withholding Tax was covered by Sony Philippines fiscal year ending
March 1998, the same fell outside of the period 1997 and was thus not validly covered by the Letter of Authority.
Page 13 of 24
Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that Section 119[9]
[13] spares from the payment of VAT. The word franchise broadly covers government grants of a special right to do an act or series
of acts of public concern.
Petitioners, of course contend that tollway operators cannot be considered franchise grantees under Section 108 since they do not
hold legislative franchises. But nothing in Section 108 indicates that the franchise grantees it speaks of are those who hold legislative
franchises. Petitioners give no reason, and the Court cannot surmise any, for making a distinction between franchises granted by
Congress and franchises granted by some other government agency. The latter, properly constituted, may grant franchises. Indeed,
franchises conferred or granted by local authorities, as agents of the state, constitute as much a legislative franchise as though the
grant had been made by Congress itself. The term franchise has been broadly construed as referring, not only to authorizations that
Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant
franchises has been delegated by Congress.
Tollway operators are, owing to the nature and object of their business, franchise grantees. The construction, operation, and
maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of
authority from the state. Indeed, Congress granted special franchise for the operation of tollways to the Philippine National
Construction Company, the former tollway concessionaire for the North and South Luzon Expressways. Apart from Congress, tollway
franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers under P.D. 1112.[13][17] The franchise in
this case is evidenced by a Toll Operation Certificate.[14][18]
XXXXXXXXXXXXXXXXXX
ISSUE: PETITIONERS CONTEND THAT TOLL FEES ARE OF PUBLIC NATURE AND THEREFORE NOT SALE OF SERVICES. IS
THEIR CONTENTION CORRECT?
No. The law in the same manner includes electric utilities, telephone, telegraph, and broadcasting companies in its list of vat-covered
businesses. Their services are also of public nature.
Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the term sale of
services under Section 108 of the Code. But, again, nothing in Section 108 supports this contention. The reverse is true. In
specifically including by way of example electric utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered
businesses, Section 108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a public
nature such as public utilities and the collection of tolls or charges for its use or service is a franchise. XXXXXXXXXXXXXXXXX
ISSUE: PETITIONERS ARGUE THAT THE STATEMENTS MADE BY SOME LAWMAKERS DURING THE THE DELIBERATIONS ON
THE VAT LAW SHOW INTENT TO EXEMPT TOLLWAY OPERATORS. CAN THE STATEMENTS OF THESE LAWMAKERS BE
CONSIDERED BINDING ON THE INTERPRETATION OF VAT COVERAGE?
No. Statements made by individual members of congress in the consideration of a bill do not necessarily reflect the sense of that body
and are, consequently, not controlling in the interpretation of law. The congressional will is ultimately determined by the language of
the law that the lawmakers voted on.
XXXXXXXXXXXXXXXX
ISSUE: IS TOLL FEE A USERS TAX AND SO VAT ON TOLL FEE WOULD BE TAX ON TAX?
No. Toll fee is not a tax. It is not collected by bir or by the govt. It does not go to government coffers. It is not collected for a public
purpose.
ISSUE: BUT IN THE CASE OF MIAA VS. CA FEES PAID TO AIRPORTS WERE CONSIDERED TAX. DOES THE CASE OF MIAA
APPLY?
No. The subject of the maiaa case is terminal fee which goes to the government. Also the issue in the miaa case is whether paranaque
city can sell at auction property of the national government. The discussion on the terminal fee is just to emphasize the fact that the
local government cannot tax the national government.
Two. Petitioners argue that a toll fee is a users tax and to impose VAT on toll fees is tantamount to taxing a tax.
Actually, petitioners base this argument on the following discussion in Manila International Airport Authority (MIAA) v. Court of Appeals:
No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like roads, canals, rivers, torrents,
ports and bridges constructed by the State, are owned by the State. The term ports includes seaports and airports. The MIAA Airport
Lands and Buildings constitute a port constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and
Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.
x x x The operation by the government of a tollway does not change the character of the road as one for public use. Someone must pay
for the maintenance of the road, either the public indirectly through the taxes they pay the government, or only those among the public
who actually use the road through the toll fees they pay upon using the road. The tollway system is even a more efficient and equitable
manner of taxing the public for the maintenance of public roads.
The charging of fees to the public does not determine the character of the property whether it is for public dominion or not. Article 420
of the Civil Code defines property of public dominion as one intended for public use. Even if the government collects toll fees, the road
is still intended for public use if anyone can use the road under the same terms and conditions as the rest of the public. The charging
of fees, the limitation on the kind of vehicles that can use the road, the speed restrictions and other conditions for the use of the road do
not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees MIAA charges to airlines, constitute the bulk of the income
that maintains the operations of MIAA. The collection of such fees does not change the character of MIAA as an airport for public use.
Such fees are often termed users tax. This means taxing those among the public who actually use a public facility instead of taxing all
the public including those who never use the particular public facility. A users tax is more equitable a principle of taxation mandated in
the 1987 Constitution.
Petitioners assume that what the Court said above, equating terminal fees to a users tax must also pertain to tollway fees. But the
main issue in the MIAA case was whether or not Paraaque City could sell airport lands and buildings under MIAA administration at
public auction to satisfy unpaid real estate taxes. Since local governments have no power to tax the national government, the Court
held that the City could not proceed with the auction sale. MIAA forms part of the national government although not integrated in the
department framework. Thus, its airport lands and buildings are properties of public dominion beyond the commerce of man under
Article 420(1)[21][25] of the Civil Code and could not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees was made, not to establish a rule that tollway fees are
users tax, but to make the point that airport lands and buildings are properties of public dominion and that the collection of terminal
fees for their use does not make them private properties. Tollway fees are not taxes. Indeed, they are not assessed and collected by
the BIR and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a users tax, collectible from motorists, for the construction and
maintenance of certain roadways. The tax in such a case goes directly to the government for the replenishment of resources it spends
for the roadways. This is not the case here. What the government seeks to tax here are fees collected from tollways that are
constructed, maintained, and operated by private tollway operators at their own expense under the build, operate, and transfer scheme
that the government has adopted for expressways. Except for a fraction given to the government, the toll fees essentially end up as
earnings of the tollway operators.
Page 14 of 24
In sum, fees paid by the public to tollway operators for use of the tollways, are not taxes in any sense. A tax is imposed under the
taxing power of the government principally for the purpose of raising revenues to fund public expenditures. Toll fees, on the other hand,
are collected by private tollway operators as reimbursement for the costs and expenses incurred in the construction, maintenance and
operation of the tollways, as well as to assure them a reasonable margin of income. Although toll fees are charged for the use of public
facilities, therefore, they are not government exactions that can be properly treated as a tax. Taxes may be imposed only by the
government under its sovereign authority, toll fees may be demanded by either the government or private individuals or entities, as an
attribute of ownership.
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due to the nature of VAT as an indirect tax. In indirect
taxation, a distinction is made between the liability for the tax and burden of the tax. The seller who is liable for the VAT may shift or
pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the sellers
liability but merely the burden of the VAT.
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears its burden since the amount of VAT paid
by the former is added to the selling price. Once shifted, the VAT ceases to be a tax [26][30] and simply becomes part of the cost that
the buyer must pay in order to purchase the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user, but on the tollway operator. Under Section 105 of the
Code, [27][31] VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words,
the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of VAT to
the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll fees were deemed as a users tax. VAT is assessed
against the tollway operators gross receipts and not necessarily on the toll fees. Although the tollway operator may shift the VAT
burden to the tollway user, it will not make the latter directly liable for the VAT. The shifted VAT burden simply becomes part of the toll
fees that one has to pay in order to use the tollways.[28][32]
XXXXXXXXXXXXXXXX
ISSUE: DOES PETITIONER TIMBOL HAVE A PERSONALITY AS PETITIONER?
No. She will not be affected by the reduction of profits. The right to recover investments belong to the tollway investors.
Page 15 of 24
Page 16 of 24
113 of the 1997 NIRC. Petitioner filed an appeal but the CTA En Banc dismissed such, reasoning out that petitioners failure to comply
with the requirement of imprinting the words "zero-rated" on its official receipts resulted in non-entitlement to the benefit of VAT zerorating and denial of its claim for refund of input tax.
Issue: Whether or not petitioners failure to imprint the words "zero-rated" on its official receipts issued to NPC justifies an outright
denial of its claim for refund of unutilized input tax credits.
Ruling: Yes.
It is the duty of petitioner to comply with the requirements, including the imprinting of the words "zero-rated" in its VAT official receipts
and invoices in order for its sales of electricity to NPC to qualify for zero-rating. It must be emphasized that the requirement of imprinting
the word "zero-rated" on the invoices or receipts under Section 4.108-1 of R.R. No. 7-95 is mandatory as ruled by the CTA En Banc,
citing Tropitek International, Inc. v. Commissioner of Internal Revenue. The imprinting of "zero-rated" is necessary to distinguish sales
subject to 10% VAT, those that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau of Internal Revenue to
properly implement and enforce the other provisions of the 1997 NIRC on VAT.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are subject to 10% (now 12%) VAT from those
sales that are zero-rated. Unable to submit the proper invoices, petitioner Panasonic has been unable to substantiate its claim for
refund. Well-settled in this jurisdiction is the fact that actions for tax refund, as in this case, are in the nature of a claim for exemption
and the law is construed in strictissimi juris against the taxpayer. The pieces of evidence presented entitling a taxpayer to an exemption
are also scrutinized and must be duly proven.
Page 17 of 24
RULING:
No.
The held that even though the RMOs No were issued in accordance with the power of the CIR, they cannot issue administrative rulings
or circulars not consistent with the law sought to be applied. It should remain consistent with the law they intend to carry out. Only
Congress can repeal or amend the law.
In the NIRC, the term lending investor includes all persons who make a practice of lending money for themselves or others at
interest. A pawnshop, on the other hand, is defined under Section 3 of P.D. No. 114 as a person or entity engaged in the business of
lending money on personal property delivered as security for loans.
While it is true that pawnshops are engaged in the business of lending money, they are not considered lending investors for the
purpose of imposing the 5% percentage taxes citing the following reasons:
1. Pawnshops and lending investors were subjected to different tax treatments as per the NIRC.
2. Congress never intended pawnshops to be treated in the same way as lending investors.
3. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to percentage tax dealers in securities and lending investors
only. There is no mention of pawnshops.
4. The BIR had ruled several times prior to the issuance of the RMOs that pawnshops were not subject to the 5% percentage tax
imposed by Section 116 of the NIRC of 1977. As Section 116 of the NIRC of 1977 was practically lifted from Section 175 of the NIRC of
1986, and there being no change in the law, the interpretation thereof should not have been altered.
PAGCOR VS BIR
FACTS: The Philippine Amusement and Gaming Corporation (PAGCOR) was created by P.D. No. 1067-A in 1977. Obviously, it is a
government owned and controlled corporation (GOCC).
In 1998, R.A. 8424 or the National Internal Revenue Code of 1997 (NIRC) became effective. Section 27 thereof provides that GOCCs
are NOT EXEMPT from paying income taxation but it exempted the following GOCCs:
1. GSIS
2. SSS
3. PHILHEALTH
4. PCSO
5. PAGCOR
But in May 2005, R.A. 9337, a law amending certain provisions of R.A. 8424, was passed. Section 1 thereof excluded PAGCOR from
the exempt GOCCs hence PAGCOR was subjected to pay income taxation. In September 2005, the Bureau of Internal Revenue issued
the implementing rules and regulations (IRR) for R.A. 9337. In the said IRR, it identified PAGCOR as subject to a 10% value added tax
(VAT) upon items covered by Section 108 of the NIRC (Sale of Services and Use or Lease of Properties).
PAGCOR questions the constitutionality of Section 1 of R.A. 9337 as well as the IRR. PAGCOR avers that the said provision violates
the equal protection clause. PAGCOR argues that it is similarly situated with SSS, GSIS, PCSO, and PHILHEALTH, hence it should not
be excluded from the exemption.
ISSUE: Whether or not PAGCOR should be subjected to income taxation.
HELD: Yes. Section 1 of R.A. 9337 is constitutional. It was the express intent of Congress to exclude PAGCOR from the exempt
GOCCs hence PAGCOR is now subject to income taxation.
PAGCORs contention that the law violated the constitution is not tenable. The equal protection clause provides that all persons or
things similarly situated should be treated alike, both as to rights conferred and responsibilities imposed.
The general rule is, ALL GOCCs are subject to income taxation. However, certain classes of GOCCs may be exempt from income
taxation based on the following requisites for a valid classification under the principle of equal protection:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class.
When the Supreme Court looked into the records of the deliberations of the lawmakers when R.A. 8424 was being drafted, the SC
found out that PAGCORs exemption was not really based on substantial distinctions. In fact, the lawmakers merely exempted
PAGCOR from income taxation upon the request of PAGCOR itself. This was changed however when R.A. 9337 was passed and now
PAGCOR is already subject to income taxation.
Anent the issue of the imposition of the 10% VAT against PAGCOR, the BIR had overstepped its authority. Nowhere in R.A. 9337 does
it state that PAGCOR is subject to VAT. Therefore, that portion of the IRR issued by the BIR is void. In fact, Section 109 of R.A. 9337
expressly exempts PAGCOR from VAT. Further, PAGCORs charter exempts it from VAT.
To recapitulate, PAGCOR is subject to income taxation but not to VAT.
CIR VS. JOHN GOTAMCO AND SONS, ET.AL.[G.R. NO. NO. L-31092 FEBRUARY 27, 1987]
Facts: The World Health Organization (WHO for short) is aninternational organization which has a regional office in Manila. An
agreement was entered into between the Republic of the Philippines and the said Organization on July 22, 1951. Section 11 of that
Agreement provides, inter alia, that "the Organization, its assets, income and other properties shall be: (a) exempt from all direct and
indirect taxes. The WHO decided to construct a building to house its own offices, as well as the other United Nations offices stationed
in Manila. A bidding was held for the building construction. The WHO informed the bidders that the building to be constructed belonged
to an international organization exempted from the payment of all fees, licenses, and taxes, and that therefore their bids "must take this
into account and should not include items for such taxes, licenses and other payments to Government agencies." Thereafter,
the construction contract was awarded to John Gotamco & Sons, Inc. (Gotamco for short). Subsequently, the Commissioner of Internal
Revenue sent a letter of demand to Gotamco demanding payment of for the 3% contractor's tax plus surcharges on the grossreceipts it
received from the WHO in the construction of the latter's building. WHO. The WHO issued a certification that the bid of John Gotamco &
Sons, should be exempted from any taxes in connection with the construction of the World Health Organization office building because
such can be considered as an indirect tax to WHO. However, The Commissioner of Internal Revenue contends that the
3% contractor's tax is not a direct nor an indirect tax on the WHO, but a tax that is primarily due from the contractor, and thus not
covered by the tax exemption agreement
Page 18 of 24
Issue: Whether or not the said 3% contractors tax imposed upon petitioner is covered by the direct and indirect
tax exemptiongranted to WHO by the government.
Held: Yes. The 3% contractors tax imposed upon petitioner is covered by the direct and indirect tax exemption granted to WHO.
Hence, petitioner cannot be held liable for such contractors tax. The Supreme Court explained that direct taxes are those that are
demanded from the very person who, it is intended or desired, should pay them; while indirect taxes are those that are demanded in the
first instance from one person in the expectation and intention that he can shift the burden to someone else. While it is true that
thecontractor's tax is payable by the contractor, However in the last analysis it is the owner of the building that shoulders the burden of
the tax because the same is shifted by the contractor to the owner as a matter of self-preservation. Thus, it is an indirect tax against the
WHO because, although it is payable by the petitioner, the latter can shift its burden on the WHO.
MACEDA VS. MACARAIG, JR. 197 SCRA 771 GR NO. 88291 MAY 31, 1991
"A taxpayer may question the legality of a law or regulation when it involves illegal expenditure of public money."
FACTS:
Senator Ernesto Maceda sought to nullify certain decisions, orders, rulings, and resolutions of respondents Executive Secretary,
SOF, CIR, Commissioner of Customs and the Fiscal Incentives Review Board FIRB for exempting the National Power Corporation
(NPC) from indirect tax and duties.
RA 358, RA 6395 and PD 380 expressly grant NPC exemptions from all taxes whether direct or indirect.
In 1984, however, PD 1931 and EO 93 withdrew all tax exemptions granted to all GOCCs including the NPC but granted the
President and/or the Secretary of Finance by recommendation of the FIRB the power to restore certain tax exemptions.
Pursuant to the latter law, FIRB issued a resolution restoring the tax and duty exemption privileges of the NPC.
The actions of the respondents were thus questioned by the petitioner for certiorari, prohibition and mandamus with prayer for a
writ of preliminary injunction and/or restraining order.
To which public respondents argued, that petitioner does not have the standing to challenge the questioned orders and resolution
because he was not in any way affected by such grant of tax exemptions.
ISSUE:
Has a taxpayer the capacity to question the legality of the resolution issued by the FIRB restoring the tax exemptions?
HELD:
Yes.
In this petition it is alleged that petitioner is "instituting this suit in his capacity as a taxpayer and a duly-elected Senator of the
Philippines."
Public respondent argues that petitioner must show that he has sustained direct injury as a result of the action and that it is not
sufficient for him to have a mere general interest common to all members of the public.
The Court however agrees with the petitioner that as a taxpayer he may file the instant petition following the ruling in Lozada
when it involves illegal expenditure of public money.
The petition questions the legality of the tax refund to NPC by way of tax credit certificates and the use of said assigned tax
credits by respondent oil companies to pay for their tax and duty liabilities to the BIR and Bureau of Customs.
Other version:
FACTS:
Act 120 created NPC as a public corporation to undertake the development of hydraulic power and the production of power from
other sources
RA 358 granted NPC tax duty and exemption privileges
RA 6395 revised the charter of NPC, tasking it to carry out the policy of the national electrification, and provided in detail NPC tax
exemptions
PD 380 specified that NPCs exemptions include all taxes, etc. imposed directly or indirectly
PD 938 integrated the exemptions in favor of GOCCs including their subsidiaries, however, empowering the president or minister of
finance, upon recommendation of FIRB to restore, partially or completely, the exemptions withdrawn or revised
FIRB issued resolution 10-85 restoring the duty and tax exemptions privileges of NPC from june 1984 to june 1985
Resolution 1-86 restored such exemption indefinitely effective July 1985
EO 93 again withdraw the exemption
FIRB issued Resolution 17-87 restoring NPCs exemption, which was approved by the president on October 1987
Since 1976, oil firms never paid excise or specific and ad valorem taxes for petroleum products sold and delivered to NPC
Oil companies started to pay specific and ad valorem taxes on their sales of oil products to NPC only in 1984
NPC claimed for a refund (468.58M)
Only portion thereof, corresponding ot Caltex, was approved and released by way of tax credit memo. The claim for refund of taxes
paid by PetroPhil, Shell and Caltex amounting to 410.58M was denied
NPC moved for reconsideration, starting that all deliveries of petroleum products to NPC are tax exempt, regardless of the period
of delivery
ISSUE:
WON NPC cease to enjoy exemption from indirect tax when PD 938 stated exemption in general terms
RULING:
NPC is a nonprofit public corporation created for the general good and welfare, and wholly owned by the Philippine govt
Page 19 of 24
From the very beginning of the corporations existence, NPC enjoyed preferential tax treatment to enable the corporation to
pay the indebtedness and obligation and effective implementation if the policy enunciated in Sec. 1 of RA 6395
From the preamble of PD 938, it is evident that its provisions were not intended to be strictly construed against NPC
On the contrary, the law mandates that it should be interpreted liberally so as to enhance the tax exempt status of NPC.
It is a recognized principle that the rule on strict interpretation does not apply in the case of exemptions in favor of government
political subdivision or instrumentality
In the case of property owned by the state or a city or other public corporations, the express exception should not be
construed with the same degree of strictness that applies to exemptions contrary to the policy of the state, since as to such
property, exception is the rule and taxation is the exception
ATLAS CONSOLIDATED VS. CIR
ATLAS CONSOLIDATED MINING DEVT CORP vs. CIR
524 SCRA 73, 103
GR Nos. 141104 & 148763, June 8, 2007
"The taxpayer must justify his claim for tax exemption or refund by the clearest grant of organic or statute law and should not be
permitted to stand on vague implications."
"Export processing zones (EPZA) are effectively considered as foreign territory for tax purposes."
FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and sale of various mineral products, filed
claims with the BIR for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales in the taxable quarters of
the years 1990 and 1992. BIR did not immediately act on the matter prompting the petitioner to file a petition for review before the CTA.
The latter denied the claims on the grounds that for zero-rating to apply, 70% of the company's sales must consists of exports, that the
same were not filed within the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed only on April 20, 1994),
and
that
petitioner
failed
to
submit
substantial
evidence
to
support
its
claim
for
refund/credit.
The petitioner, on the other hand, contends that CTA failed to consider the following: sales to PASAR and PHILPOS within the EPZA
as zero-rated export sales; the 2-year prescriptive period should be counted from the date of filing of the last adjustment return which
was April 15, 1993, and not on every end of the applicable quarters; and that the certification of the independent CPA attesting to the
correctness of the contents of the summary of suppliers invoices or receipts examined, evaluated and audited by said CPA should
substantiate its claims.
ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications for refund/credit of input VAT?
HELD: No. Although the Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for
refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to PASAR and PHILPOS
inside the EPZA are taxed as exports because these export processing zones are to be managed as a separate customs territory from
the rest of the Philippines, and thus, for tax purposes, are effectively considered as foreign territory, it still denies the claims of petitioner
corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during the period claimed for
not
being
established
and
substantiated
by
appropriate
and
sufficient
evidence.
Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in
strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by
the clearest grant of organic or statute law and should not be permitted to stand on vague implications.
CIR V MANILA MINING CORPORATION
Facts: The respondent is a VAT- registered corporation that engaged in the sale of gold to the Central Bank amounting to P200,832.
Seeking for tax refund/credit of the input VAT it paid pursuant to Sec. 2 of E.O 581, the respondent file an application for tax refund.
As CIR failed to act upon respondents application within sixty (60) days from the dates of filing, the respondent filed a petition
for review with the CTA, seeking the issuance of tax credit certificates.
Nonetheless, the CTA denied the respondents claim for refund of input VAT for failure to prove that it paid the amounts
claimed as such for the year 1991, no sales invoices, receipts or other documents as required.
The respondent appealed to the CA contending the CTA erred in denying the refund for insufficiency of evidence. The CA
reversed the decision of the CTA and granted the respondents claim for refund or issuance of tax credit certificates. In granting the
refund, the appellate court held that there was no need for respondent to present the photocopies of the purchase invoices or receipts
evidencing the VAT paid in view of Rule 26, Sec. 2 of the Revised Rules of Court.
Issue:
Whether or not respondent is entitled to a refund/credit despite the lack of photocopies of the purchase invoices or receipts?
Held:
No, the court held that the respondent is not entitled to the refund or credit for failure to provide the required purchase receipts
and invoices. As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to it as purchaser. Zero
rating is primarily intended to be enjoyed by the seller-respondent, herein, which charges no output VAT but can claim a refund of or a
tax credit certificate for the input VAT previously charged to it by suppliers. For a judicial claim for refund to prosper, however,
respondent must not only prove that it is a VAT registered entity and that it filed its claims within the prescriptive period. It must
substantiate the input VAT paid by purchase invoices or official receipts. The respondent failed to do so. Its contention that the
certification of the independent CPA should be sufficient to establish the purchase invoices cannot be given merit.
Under R.A 1125, the CTA is described as a court of record. As cases filed before it are litigated de novo, party
litigants should prove every minute aspect of their cases. No evidentiary value can be given the purchase invoices or
receipts submitted to the BIR as the rules on documentary evidence require that these documents must be formally offered
before the CTA.
For failure of respondent then not only to strictly comply with the rules of procedure but also to establish the factual basis of its
claim for refund, this Court has to deny its claim. A claim for refund is in the nature of a claim for exemption and should be construed
in strictissimi juris against the taxpayer and liberally in favor of the taxing authority.
FORT BONIFACIO v CIR
FACTS: Petitioner was a real estate developer that bought from the national government a parcel of land that used to be the Fort
Bonifacio military reservation. At the time of the said sale there was as yet no VAT imposed so Petitioner did not pay any VAT on its
purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp. In reporting the said sale for VAT purposes (because
the VAT had already been imposed in the interim), Petitioner claimed transitional input VAT corresponding to its inventory of land. The
BIR disallowed the claim of presumptive input VAT and thereby assessed Petitioner for deficiency VAT.
Page 20 of 24
ISSUE: Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its nature as a real estate dealer and if
so (i) is the transitional input VAT applied only to the improvements on the real property or is it applied on the value of the entire real
property and (ii) should there have been a previous tax payment for the transitional input VAT to be creditable?
HELD: YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the improvements but on the value of the
entire real property and regardless of whether there was in fact actual payment on the purchase of the real property or not.
The amendments to the VAT law do not show any intention to make those in the real estate business subject to a different treatment
from those engaged in the sale of other goods or properties or in any other commercial trade or business. On the scope of the basis for
determining the available transitional input VAT, the CIR has no power to limit the meaning and coverage of the term "goods" in Section
105 of the Tax Code without statutory authority or basis. The transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies.
Page 21 of 24
Page 22 of 24
The Commissioner filed a Petition for Review before the CTA EB praying for the denial of San Roques claim for refund or tax credit in
its entirety as well as for the setting aside of the 29 November 2007 Amended Decision and the 11 July 2008 Resolution in CTA Case
No. 6647.
The CTA EB dismissed the CIRs petition for review and affirmed the challenged decision and resolution.
The CTA EB cited Commissioner of Internal Revenue v. Toledo Power, Inc.21 and Revenue Memorandum Circular No. 49-03,22 as its
bases for ruling that San Roques judicial claim was not prematurely filed. The pertinent portions of the Decision state:
More importantly, the Court En Banc has squarely and exhaustively ruled on this issue in this wise:
It is true that Section 112(D) of the abovementioned provision applies to the present case. However, what the petitioner failed to
consider is Section 112(A) of the same provision. The respondent is also covered by the two (2) year prescriptive period. We have
repeatedly held that the claim for refund with the BIR and the subsequent appeal to the Court of Tax Appeals must be filed within the
two-year period.
Accordingly, the Supreme Court held in the case of Atlas Consolidated Mining and Development Corporation vs. Commissioner of
Internal Revenue that the two-year prescriptive period for filing a claim for input tax is reckoned from the date of the filing of the
quarterly VAT return and payment of the tax due. If the said period is about to expire but the BIR has not yet acted on the application for
refund, the taxpayer may interpose a petition for review with this Court within the two year period.
In the case of Gibbs vs. Collector, the Supreme Court held that if, however, the Collector (now Commissioner) takes time in deciding the
claim, and the period of two years is about to end, the suit or proceeding must be started in the Court of Tax Appeals before the end of
the two-year period without awaiting the decision of the Collector.
Furthermore, in the case of Commissioner of Customs and Commissioner of Internal Revenue vs. The Honorable Court of Tax Appeals
and Planters Products, Inc., the Supreme Court held that the taxpayer need not wait indefinitely for a decision or ruling which may or
may not be forthcoming and which he has no legal right to expect. It is disheartening enough to a taxpayer to keep him waiting for an
indefinite period of time for a ruling or decision of the Collector (now Commissioner) of Internal Revenue on his claim for refund. It
would make matters more exasperating for the taxpayer if we were to close the doors of the courts of justice for such a relief until after
the Collector (now Commissioner) of Internal Revenue, would have, at his personal convenience, given his go signal.
This Court ruled in several cases that once the petition is filed, the Court has already acquired jurisdiction over the claims and the Court
is not bound to wait indefinitely for no reason for whatever action respondent (herein petitioner) may take. At stake are claims for refund
and unlike disputed assessments, no decision of respondent (herein petitioner) is required before one can go to this Court. (Emphasis
supplied and citations omitted)
Lastly, it is apparent from the following provisions of Revenue Memorandum Circular No. 49-03 dated August 18, 2003, that [the CIR]
knows that claims for VAT refund or tax credit filed with the Court [of Tax Appeals] can proceed simultaneously with the ones filed with
the BIR and that taxpayers need not wait for the lapse of the subject 120-day period, to wit:
In response to [the] request of selected taxpayers for adoption of procedures in handling refund cases that are aligned to the statutory
requirements that refund cases should be elevated to the Court of Tax Appeals before the lapse of the period prescribed by law, certain
provisions of RMC No. 42-2003 are hereby amended and new provisions are added thereto.
In consonance therewith, the following amendments are being introduced to RMC No. 42-2003, to wit:
I.) A-17 of Revenue Memorandum Circular No. 42-2003 is hereby revised to read as follows:
In cases where the taxpayer has filed a "Petition for Review" with the Court of Tax Appeals involving a claim for refund/TCC that is
pending at the administrative agency (Bureau of Internal Revenue or OSS-DOF), the administrative agency and the tax court may act
on the case separately. While the case is pending in the tax court and at the same time is still under process by the administrative
agency, the litigation lawyer of the BIR, upon receipt of the summons from the tax court, shall request from the head of the
investigating/processing office for the docket containing certified true copies of all the documents pertinent to the claim. The docket
shall be presented to the court as evidence for the BIR in its defense on the tax credit/refund case filed by the taxpayer. In the
meantime, the investigating/processing office of the administrative agency shall continue processing the refund/TCC case until such
time that a final decision has been reached by either the CTA or the administrative agency.
If the CTA is able to release its decision ahead of the evaluation of the administrative agency, the latter shall cease from processing the
claim. On the other hand, if the administrative agency is able to process the claim of the taxpayer ahead of the CTA and the taxpayer is
amenable to the findings thereof, the concerned taxpayer must file a motion to withdraw the claim with the CTA.23 (Emphasis supplied)
The Courts Rulings
One and Two. The Court reiterated in San Roque Power Corporation v. Commissioner of Internal Revenue[3] the following
criteria governing claims for refund or tax credit under Section 112(A) of the NIRC:
(1) The taxpayer is VAT-registered;
(2) The taxpayer is engaged in zero-rated or effectively zero-rated sales;
(3) The input taxes are due or paid;
(4) The input taxes are not transitional input taxes;
(5) The input taxes have not been applied against output taxes during and in the succeeding quarters;
(6) The input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
(7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign
currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;
(8) Where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes
cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume; and
(9) The claim is filed within two years after the close of the taxable quarter when such sales were made.
While acknowledging that SPPs sale of electricity to NPC is a zero-rated transaction, [4] the CTA En Banc ruled that SPP failed to
establish that it made zero-rated sales. True, SPP submitted official receipts and sales invoices stamped with the words BIR VAT ZeroRate Application Number 419.2000 but the CTA En Banc held that these were not sufficient to prove the fact of sale.
Page 23 of 24
But NIRC Section 110 (A.1) provides that the input tax subject of tax refund is to be evidenced by a VAT invoice orofficial
receipt issued in accordance with Section 113. Section 113 has been amended by Republic Act (R.A.) 9337 but it is the unamended
version that covers the period when the transactions in this case took place. It reads:
Section 113. Invoicing and Accounting Requirements for VAT-Registered Persons.
A. Invoicing Requirements. A VAT-registered person shall, for every sale, issue an invoice or receipt. In
addition to the information required under Section 237, the following information shall be indicated in the invoice or
receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayers identification number
(TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that
such amount includes the value-added tax. (Emphasis supplied)
The above does not distinguish between an invoice and a receipt when used as evidence of a zero-rated transaction.
Consequently, the CTA should have accepted either or both of these documents as evidence of SPPs zero-rated transactions.
Section 237 of the NIRC also makes no distinction between receipts and invoices as evidence of a commercial transaction:
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an internal
revenue tax shall, for each sale or transfer of merchandise or for services rendered valued at Twenty-five pesos
(P25.00) or more, issue duly registered receipts or sales or commercial invoices, prepared at least in
duplicate, showing the date of transaction, quantity, unit cost and description of merchandise or nature of
service: Provided, however, That in the case of sales, receipts or transfers in the amount of One hundred pesos
(P100.00) or more, or regardless of the amount, where the sale or transfer is made by a person liable to value-added
tax to another person also liable to value-added tax; or where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees, receipts or invoices shall be issued which shall show the name, business style,
if any, and address of the purchaser, customer or client: Provided, further, That where the purchaser is a VATregistered person, in addition to the information herein required, the invoice or receipt shall further show the Taxpayer
Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client at the time the
transaction is effected, who, if engaged in business or in the exercise of profession, shall keep and preserve the
same in his place of business for a period of three (3) years from the close of the taxable year in which such invoice
or receipt was issued, while the duplicate shall be kept and preserved by the issuer, also in his place of business, for
a like period.
The Commissioner may, in meritorious cases, exempt any person subject to internal revenue tax from
compliance with the provisions of this Section. (Emphasis supplied)
The Court held in Seaoil Petroleum Corporation v. Autocorp Group[5] that business forms like sales invoices are recognized in the
commercial world as valid between the parties and serve as memorials of their business transactions. And such documents have
probative value.
Three. The CTA also did not accept SPPs official receipts due to the absence of the words zero-rated on it. The omission,
said that court, made the receipts non-compliant with RR 7-95, specifically Section 4.108.1. But Section 4.108.1 requires the printing of
the words zero-rated only on invoices, not on official receipts:
Section 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or lease of
goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show:
1. The name, TIN and address of seller;
2. Date of transaction;
3. Quantity, unit cost and description of merchandise or nature of service;
4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client;
5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; and
6. The invoice value or consideration.
x x x x (Emphasis supplied)
Actually, it is R.A. 9337 that in 2005 required the printing of the words zero-rated on receipts. But, since the receipts and invoices in
this case cover sales made from 1999 to 2000, what applies is Section 4.108.1 above which refers only to invoices.
A claim for tax credit or refund, arising out of zero-rated transactions, is essentially based on excess payment. In zero-rating a
transaction, the purpose is not to benefit the person legally liable to pay the tax, like SPP, but to relieve exempt entities like NPC which
supplies electricity to factories, offices, and homes, from having to shoulder the tax burden that ultimately would be passed to the
public.
The principle of solutio indebiti should govern this case since the BIR received something that it was not entitled to. Thus, it
has to return the same. The government should not use technicalities to hold on to money that does not belong to it. [6]Only a
preponderance of evidence is needed to grant a claim for tax refund based on excess payment.[7]
Notably, SPP does no other business except sell the power it produces to NPC, a fact that the CIR did not contest in the
parties joint stipulation of facts.[8] Consequently, the likelihood that SPP would claim input taxes paid on purchases attributed to sales
that are not zero-rated is close to nil.
Four. The Court finds that SPP failed to indicate its zero-rated sales in its VAT returns. But this is not sufficient reason to deny it its
claim for tax credit or refund when there are other documents from which the CTA can determine the veracity of SPPs claim.
Of course, such failure if partaking of a criminal act under Section 255 of the NIRC could warrant the criminal prosecution of the
responsible person or persons. But the omission does not furnish ground for the outright denial of the claim for tax credit or refund if
such claim is in fact justified.
Five. The CTA denied SPPs claim outright for failure to establish the existence of zero-rated sales, disregarding SPPs sales
invoices and receipts which evidence them. That court did not delve into the question of SPPs compliance with the other requisites
provided under Section 112 of the NIRC.
Consequently, even as the Court holds that SPPs sales invoices and receipts would be sufficient to prove its zero-rated
transactions, the case has to be remanded to the CTA for determination of whether or not SPP has complied with the other requisites
mentioned. Such matter involves questions of fact and entails the need to examine the records. The Court is not a trier of facts and the
competence needed for examining the relevant accounting books or records is undoubtedly with the CTA.
WHEREFORE, the Court GRANTS the petition, SETS ASIDE the Court of Tax Appeals En Banc decision dated July 31, 2007
and resolution dated September 19, 2007, andREMANDS the case to the Court of Tax Appeals Second Division for further hearing as
stated above.
SO ORDERED.
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