TAX II Midterms Case Law

1. CIR vs Sony Philippines Inc.:

 Sony Philippines incurred advertising expenses supported by VAT invoices

(VAT Invoice- If you buy something for your business, you will need an invoice to claim back. However,
you only need to issue a VAT invoice when selling to another VAT-registered business.)
 Due to reasons of “dire or adverse economic conditions”, Sony International Singapore
reimbursed Sony Philippines money equivalent to the advertising expenses.

Are the advertising expenses considered as input VAT credit?

Answer: Yes. An advertising expense duly covered by a VAT invoice is a legitimate business expense
and will be considered as input VAT credit.

Will reimbursement of the advertising expenses cancel out the input VAT credit? Is it subject to VAT?
Answer: No. The reason of the reimbursement was financial assistance or aid in view of Sony’s dire
economic conditions, and was only equivalent to the advertising expenses.

No. The reimbursement is not subject to VAT as it is not in payment for goods, property, or
services. However, it is subject to income tax as reimbursements are considered income.

2. CIR vs Seagate:

 Seagate is a VAT Exempt entity by virtue of being a PEZA(Philippine Economic Zone Authority)
enterprise
 Seagate claimed for a refund of the VAT input taxes as a result of the zero-rated transactions
 The CIR said the transactions are not tax exempt, so no tax credit is due. Being a VAT exempt
entity is not enough, the transactions must also be exempted.

Is Seagate entitled to the tax credit even if the transaction is not tax exempted?
Answer: YES! VAT exempted entities’ transactions are all zero-rated and therefore the input taxes
therein should be considered as tax credit or refund.

(Not in the case)

VAT exempted/Zero-rated transactions vs VAT exempted entity
Exemption vs Zero rating

VAT exempted (Sec. 109) /zero-rated (Sec. 106(2) for goods and Sec. 108 (B) for services) transactions
involve goods or services that are specifically listed as VAT exempt/zero-rated under the Tax Code
without regard to the tax status of the parties involved (whether Tax Exempt Entities or not).
Exemption and Zero rating are the same in terms of VAT computation as no VAT is charged for the
sellers. However, in Zero rating, the seller can get a tax credit or refund for its input taxes paid to its
suppliers, while in Exemption, the seller cannot claim a tax credit or refund for its input taxes paid to its
suppliers.

VAT exempted entities are persons or entities granted VAT exemption under our laws. Their
transactions are ALL Zero-rated. Such parties are not subject to VAT and may be allowed a tax refund or
credit for input taxes related to the zero-rated trasaction IF they are VAT Taxpayers. If Non-VAT
taxpayer, as is lang.

The purpose of the varying degree of relief is that VAT exemption protects mainly the purchaser of the
goods, while VAT Zero-rated protects both the purchaser and the seller of the goods. Such sellers can
ask for tax credit or refund for the input taxes they paid to their suppliers. Mas loved ang zero-rated
kaysa exempted.

3. CIR vs AMERICAN EXPRESS INTERNATIONAL, INC.

Destination Principle:

VAT is paid only where the goods are consumed.

When it comes to service, if performed in the Philippines, is also therefore consumed in the Philippines,
even if the final product is exported.

(Not in the Case)

Exemption to the Destination Principle:
108B of the Tax Code:

(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 Bangko
Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to
zero percent (0%) rate;
(4) Services rendered to vessels engaged exclusively in international shipping; and
(5) Services performed by subcontractors and/or contractors in processing, converting, of
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total
annual production.
 4. CIR vs Magsaysay Lines:

 Because of a government program of privatization, National Development Company(NDC)

decided to sell its National Marine Corporation(NMC) shares and five of its ships.
 In a VAT Ruling, it was held that the sale was subject to VAT since NDC was a VAT-registered
enterprise and the transaction is incident to its normal VAT-registered activity of leasing out
personal property.

Is the sale subject to VAT?

Answer: No. The sale was not in the ordinary course of trade or business of the NDC. It was an isolated
transaction forced by the government program of privatization.

(Not in the case)

Section 105. Persons Liable. – Any person who, in the course of trade or business, sells barters,
exchanges, leases goods or properties, renders services, and any person who imports goods shall be
subject to the value-added tax (VAT).
The phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a commercial
or an economic activity, including transactions incidental thereto.

5. Mindanao II Geothermal Partnership vs CIR

 Mindanao II Geothermal Partnership sold its fully depreciated Nissan Patrol

 CIR said that the sale is subject to VAT.
 Mindanao, in its defense, asserted that the sale is not incidental transaction in the course of its
business, hence, an isolated transaction that should not have been subject to VAT.

Are isolated transactions automatically not covered by VAT as according to the Magsaysay Lines case?
Answer: No. Isolated transactions may still be covered by VAT. Section 105 states that VATable
transactions are performed in the ordinary course of trade or business, OR incidental thereto. Here ,
even if the sale of the Nissan Patrols are isolated, they are still incidental to the ordinary course of
business as they are deemed as equipment.

6. Accenture vs CIR
 Accenture applied for a tax refund or tax credit by virute of its alleged zero-credit transactions
with foreign entities/corporations.
 CIR states that Accenture failed to fully substantiate or document its claim. Accenture had failed
to present evidence to prove that the foreign clients to which the former rendered services did
business outside thePhilippines.
Is Accenture entitled to a refund/credit?
Answer: No. To be a zero-rated transaction, the recipient of services must be doing business outside the
Philippines as stated by Sec. 108(B).

Further, Accenture failed to prove that its clients are doing business outside the Philippines.
Consequently, to come within the purview of Section 108(B)(2), it is not enough that the recipient of the
service be proven to be a foreign corporation; rather, it must be specifically proven to be a nonresident
foreign corporation.

7. Rohm Apollo Semiconductor Phil vs CIR:

Important Prescriptive Periods:

2 years--For a claim for tax refund or tax credit by virtue of 112(B) or payments for capital goods, two
years from the close of the taxable quarter when the purchase was made.
120 days--Commissioner can approve or deny the claim (112(D))
30 days--from denial or from the lapse of 120 days, the taxpayer can appeal to the CTA. (112(D))

Here, the Commissioner failed to act within the 120 days. Rohm Apollo should have appealed to the CTA
30 days therefrom as inaction is equivalent to denial.

8. Republic v. GST Philippines, Inc:

Are the 120 day and 30 day periods in Sec. 112(D) mandatory and jurisdictional?
Answer: Yes. But not from December 10, 2003 in the BIR Ruling DA-489-03 to October 6, 2010 in the
Aichi case. In between these dates, the admin claim and the judicial claim can be filed within 2 years
after the close of the taxable quarter where the transaction subject to tax refund/credit was made.

However, after October 6, 2010, 112(D) is mandatory and jurisdictional. Meaning the CTA cannot
acquire jurisdiction if the conditions in 112(D) is not met.
 9. CIR vs Solidbank Corporation

 Solidbank declares 1.4B worth of gross receipts. 350M of which is passive income.
 It claims tax credit or refund for 3.5M which is excess tax paid as the 3.5M should not be
included in the computation of the gross receipt tax.
350M x 20% = 70M
70M x 5% = 3.5M
 It claims that the 20% FWT does not form part of the taxable gross receipt as it did not receive
the amount. It went straight to the government.
 Under the Tax Code, the earnings of banks from passive income are subject to a twenty percent
final withholding tax (20% FWT). This tax is withheld at source and is thus not actually and
physically received by the banks, because it is paid directly to the government by the entities
from which the banks derived the income.
 Apart from the 20% FWT, banks are also subject to a five percent gross receipts tax (5% GRT)
which is imposed by the Tax Code on their gross receipts, including the passive income.
Whether or not the 20% FWT on a bank’s interest income forms part of the taxable gross receipts in
computing the 5% gross receipts tax?
Answer: Since the 20% FWT is constructively received by the banks and forms part of their gross receipts
or earnings, it follows that it is subject to the 5% GRT. After all, the amount withheld is paid to the
government on their behalf, in satisfaction of their withholding taxes. That they do not actually receive
the amount does not alter the fact that it is remitted for their benefit in satisfaction of their tax
obligations.

Important terms:
GRT: Tax on the amount of gross receipts. Covers passive incomes.

FWT : It is a tax on passive income, deducted and withheld at source by the payor-corporation and/or
person as withholding agent.

IN WITHHOLDING- the payee is the taxpayer and the payor is merely an agent of the government.
 10. Philippine Health Care Providers vs CIR:

Services of Health Maintenance Organizations are not included in Sec. 185 as “other insurance policies”
Therefore, they are not liable for documentary stamp tax.

Reasons:
1. Created primarily for the distribution of health care services rather than the assumption of
insurance risk
2. HMOs are not supervised by the Insurance Commission but by the DOH
3. No legislative intent

11. Philippine Banking Corporation vs CIR:

Are Super Savings Deposit accounts in the nature of regular savings accounts and therefore not subject
to Documentary Stamp Tax?
Answer: Yes. Documentary stamp tax is a tax on documents, instruments, loan agreements, and papers
evidencingthe acceptance, assignment, sale or transfer of an obligation, right or property incident
thereto.
A DST is actually an excise tax because it is imposed on the transaction rather than on the document. So
even if the document is a passbook, the nature of its tansaction determines if it is liable for DST.

Sec. 180 provides that a certificate of deposit bearing interest among other things are liable for DTST.
Certificate of deposit is a written acknowledgment by a bankof the receipt of a sum of money on deposit
which the bank promises to pay to the depositor, to the order of thedepositor, or to some other person
or his order, whereby the relation of debtor or creditor between the bank andthe depositor is created.

Features of the SSDA which makes it a certificate of deposit and not a regular savings account:
1. Subject to a holding period to earn higher interest rate
2. Substantial money required to open and maintain an SSDA
3. Penalty involved if the account falls below the high maintaining balance

Based on these features, it is clear that the SSDA is a certificate of deposit drawing interest subject to
DST even if itis evidenced by a passbook and non-negotiable in character.