Philomatheia VAT

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012
REVIEWER ON MERCANTILE TAXES

PRELIMINARY NOTE
This reviewer is organized according to the Guide Notes of Dean Gruba and specifically designed for her class. Digests of cases are also included. If the case is cited again, only the pertinent doctrine shall be cited. In the production of this reviewer, references have been made to the following sources: 1. 2. 3. 4. 5. 6. 7. BIR Revenue Regulation 15-2006 BIR Revenue Regulation 4-2007 Tax Law and Jurisprudence by Vitug and Acosta Reviewer on Taxation by Mamalateo Tax Digest by Atty. Untian Taxation Law 2 Bar Reviewer by UP Bar Ops Taxation Reviewer by Ateneo Central Bar Ops. lease of goods or properties and on the performance os service in the course of trade or business or on the importation of goods, whether for business or nonbusiness. It is a BUSINESS TAX levied on certain transactions involving a wide range of goods, properties and services, such tax being payable by the seller, lessor or transferor. It is also an EXCISE TAX or a tax on the privilege of engaging in the business of selling goods or services or in the importation of goods It is an INDIRECT TAX, the amount of which may be shifted to or passed on the buyer, transferee or lessee of the goods, properties or services. (see 105) The taxpayer (seller) determines his tax liability by computing the tax on the gross selling price or gross receipt (OUTPUT TAX) and subtracting or crediting the earlier VAT on the purchase or importation of goods or on the purchase of service (INPUT TAX) against the tax due on his own sale. To best illustrate:
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As a complement to this reviewer, it is highly recommended that you use the National Internal Revenue Code Annotated Codal of Atty. Sacdalan-Casasola and Atty. Santiago-Bernaldo.
MERCANTILE TAXES IN GENERAL

What are mercantile taxes?
CIR vs. Seagate Technology, GR No. 153866, 11 Feb 2005. Mercantile taxes or business taxes are impositions covering transactions and dealings in the field of commerce. These indirect taxes include: 1. Percentage Taxes a. Value Added Tax (VAT) 105 to 115 b. Other Percentage Taxes - 116 to 128 Excise Taxes - 129 to 172 a. Specific Taxes b. Ad Valorem Taxes Documentary Stamp Taxes - 173 to 201
FACTS: Seagate Technology is a PEZA-registered and VAT-registered enterprise. Seagate filed VAT returns for the period April 1, 1998 to June 30 1999. It later filed an administrative claim for refund of unutilized VAT input taxes it paid on capital goods it purchased. ISSUE: Whether Seagate is entitled to the refund/tax credit for its alleged unutilized input VAT? HELD: YES. As a PEZA-registered enterprise within a special economic zone, Seagate enjoys preferential tax treatment. It is no subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on capital goods is an internal revenue tax from which Seagate as an entity is exempt. Although the transactions involving such tax are not exempt, Seagate as a VAT-registered person, however, is exempt. The case explained the nature of the value-added tax and the tax credit method, thus: Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent [now 12 percent] 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. As such, it should be understood not in the context of the person or entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on consumption. In either case, though, the same conclusion is arrived at. The law that originally imposed the VAT in the country, as well as the
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VALUE ADDED TAX ( 105 to 115)

Q: What is value-added tax? Value-added tax (VAT) is a tax assessed, levied, and collected 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. Q: What is the nature and characteristics of VAT? 1. VAT is a PERCENTAGE TAX imposed at every stage of the distribution process on the sale, barter, or exchange or
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subsequent amendments of that law, has been drawn from the tax credit method. Such method adopted the mechanics and self-enforcement features of the VAT as first implemented and practiced in Europe and subsequently adopted in New Zealand and Canada. Under the present method that relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. 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 that 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.
attributable to said sales to the CB. Consequently, Benguet filed for a tax credit for input VAT attributable to its export sales. Then, a VAT Ruling was issued holding that the sales of gold to the CB are considered domestic sales subject to 10% VAT instead of 0% as previously held. Subsequent rulings affirmed this position and provided for retroactive application. On the basis of this, the CIR treated sales of gold by Benguet to the CB as domestic sales subject to 10% VAT but allowed a tax credit corresponding to VAT input taxes attributable to its direct export sales. Benguet was not refunded the said amount. On appeal to the CTA, the whole amount of Benguets claim for tax credit was denied. In a reversal action, the CA ruled in favor of Benguet and rejected the retroactive application of the later VAT ruling. ISSUE: Whether the CA erred in rejecting the retroactive application of the VAT Ruling which subjects sales of hold to the CB to 10% VAT? HELD: NO. Rulings and circulars, rules and regulations promulgated by the CIR would have no retroactive application if to so apply them would be prejudicial to the taxpayers. Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-registered taxpayer in connection with his purchase of goods and services. Thus, "input tax" means the value-added tax paid by a VAT-registered person/entity in the course of his/its trade or business on the importation of goods or local purchases of goods or services from a VAT-registered person. On the other hand, when that person or entity sells his/its products or services, the VAT-registered taxpayer generally becomes liable for 10% of the selling price as output VAT or output tax. Hence, "output tax" is the valueadded tax on the sale of taxable goods or services by any person registered or required to register under Section 107 of the (old) Tax Code. The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either by 1. passing on the 10% output VAT on the gross selling price or gross receipts, as the case may be, to its buyers, or 2. if the input tax is attributable to the purchase of capital goods or to zero-rated sales, by filing a claim for a refund or tax credit with the BIR. Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and services may recover its input VAT costs by passing on said costs as output VAT to its buyers of goods and services but it cannot claim the same as a refund or tax credit, while a taxpayer subject to 0% on its sales of goods and services may only recover its input VAT costs by filing a refund or tax credit with the BIR. In this case, by providing for retroactive application of the VAT ruling declaring sales of gold to the CB as 10%, Benguets application for refund/tax credit was denied. Clearly, the retroactive application is prejudicial to Benguet.
Panasonic Communications vs. CIR, GR No. 178090, 8 Feb 2010

FACTS: Panasonic Communications produces and exports plain paper copiers and their sub-assemblies, parts and components. It is registered with the BOI as a preferred pioneer enterprise under the OIC and is also a registered VAT enterprise. Panasonic generated export sales to which, believing that such export sales were zero-rated for VAT, it paid input VAT. Later, it claimed that the input VAT it paid remained unutilized or unapplied. Hence, Panasonic filed for a tax refund/tax credit. When the case was brought to the CTA, it ruled that while the export sales were subject to 0% VAT, the same did not qualify for zero-rating because the word zero-rated was not printed in Panasonics export invoices. ISSUE: Whether the CTA correctly denied Panasonics claim on the ground that its sales invoice did not state on their faces that such sales were zerorated? HELD: YES. For the effective zero rating of such transactions, the taxpayer has to be VAT-registered and must comply with invoicing requirements. Failure to comply with invoicing requirements will result in the disallowance of his claim for refund. Citing CIR v. Seagate, the case explained invoice-based nature of VAT: The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports. For example, when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of his own VAT liability. The difference in tax shown on invoices passed and invoices received is the tax paid to the government. In case the tax on invoices received (INPUT TAX) exceeds that on invoices passed (OUTPUT TAX), a tax refund may be claimed.
Note: See Grubas handout on Multi-stage VAT System Using the Tax Credit Method SECTION 105. PERSONS LIABLE Q: Who are liable for VAT? ( 105, 1) 1. Any person who, in the course of trade or business a. Sells, barters, exchanges goods or properties b. Leases goods or properties c. Renders services
CIR vs. Benguet Corporation, GR No. 145559, July 14, 2006

FACTS: Benguet Corporation is a VAT-registered enterprise engaged in mining business. It filed an application for zero-rating of its sales of mine products which was approved. Thereafter, the Deputy CIR issued a VAT Ruling declaring that the sale of gold to the CB is considered an export sale and therefore subject to VAT at 0% rate. Several rulings reiterated such position. Relying on the foregoing issuances, Benguet sold gold to the CB and treated the sales as zero-rated. During the same period, it incurred input taxes
hence is not the proper party to claim for VAT refund.
Exception: When the annual sales do not exceed P1,500,000 and the person is not VAT-registered. It shall pay instead a tax equivalent to 3% of his gross monthly sales or receipts. 2. Any person who imports goods whether or not made in the course of his trade or business (RR 16-2005).
Q: What is meant by in the course of trade or business? ( 105, 3) The regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto By an person regardless of whether or not the person engaged therein is a non-stock, nonprofit organization Irrespective of the disposition of its net income and whetjer or not it sells exclusively to members or their guests, or government entity.
VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the good, properties or services. ( 105, 2) Q: Distinguish between liability for tax and burden of the tax?
CIR vs. Magsaysay Lines, GR No. 146984, 28 July 2006 Contex Corporation vs. CIR, GR No. 151135, July 2, 2004
FACTS: Contex is a SBFZ-registered enterprise/non-VAT taxpayer engaged in the business of manufacturing hospital textiles. As such, it is exempt from all local and national internal revenue taxes except for the preferential tax provided under RA 7227. Contex purchased various supplies and materials necessary for its business. The suppliers of these goods shifted unto Contex the 10% VAT on the purchased items which led Contex to pay input taxes. This was erroneous because such was a zero-rated sale on the part of the supplier. Acting on the belief that it was exempt from all national and local taxes as it is a SBMA-registered firm pursuant to RA 7227, Contex filed an application for a tax refund or tax credit for the VAT it paid. The CIR denied its claim. ISSUE: Whether or not Contex is entitled to a refund on the input VAT passed to it by its suppliers? HELD: NO. While Contex rightly claims that is exempt from VAT on all its sales and importations of goods and services, only VAT-registered entities can claim input VAT Credit/refund. Contex is a non-VAT taxpayer. While it is true that Context should not have been liable for the VAT erroneously passed on to it, Context is not the proper party to claim such VAT refund. The case made a distinction between tax liability and tax burden: At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income tax, which primarily taxes an individuals ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the same. The VAT, thus, forms a substantial portion of consumer expenditures. Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the burden of the tax. As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to the selling price, the seller remains the person primarily and legally liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the tax. Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the person who ultimately bears the burden of the same tax. It is the final purchaser or consumer of such goods or services who, although not directly and legally liable for the payment thereof, ultimately bears the burden of the tax. Contex is not the person legally liable for payment of the VAT in this case and FACTS: Pursuant to the governments privatization program, NDC decided to sell it its National Marine Corporation (NMC) shares and 5 vessels. Magsaysay Lines offered to buy the shares and the vessels. In the contract of sale, it was stipulated that the purchaser shall pay the VAT, if any. A ruling was sought from the BIR to which it held that such was subject to the 10% VAT. It posited that NDC was a VAT-registered enterprise and its transactions incident to its normal VAT registered activity of leasing out personal property including sale of its own assets are subject to VAT. ISSUE: Whether the sale by NDC of 5 vessels to Magsaysay Lines is subject to VAT? HELD: NO. Any sale, barter or exchange of goods or services not in the course of trade or business is not subject to VAT. A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on consumption, even though it is assessed on many levels of transactions on the basis of a fixed percentage. It is the end user of consumer goods or services which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the providers of these goods or services who in turn may credit their own VAT liability (or input VAT) from the VAT payments they receive from the final consumer (or output VAT). The final purchase by the end consumer represents the final link in a production chain that itself involves several transactions and several acts of consumption. The VAT system assures fiscal adequacy through the collection of taxes on every level of consumption, yet assuages the manufacturers or providers of goods and services by enabling them to pass on their respective VAT liabilities to the next link of the chain until finally the end consumer shoulders the entire tax liability. Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayers role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. These transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of trade or business. The sale of the vessels was an isolated transaction, not done in the ordinary course of NDCs business and is thus not subject to VAT.
CIR vs. CA, GR. No. 125355, 30 Mar 2000

FACTS: Commonwealth Management and Services Corporation (COMASERCO) is a non-stock, non-profit organization. It is an affiliated of Philamlife and organized to perform collection, consultative and other technical services such as functioning as internal auditor. BIR assessed COMASERCO for deficiency VAT. COMASERCO protested and asserted that the services rendered to Philamlife were on a no-profit, reimbursement-of-cost-only basis. Hence, not being profit-motivated, it is no engaged in business. COMASERCO even pointed out the fact that it has incurred losses. ISSUE: Whether COMASERCO was liable to pay VAT? HELD: YES. VAT is a tax on transactions imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The definition of the term in the course of trade or business applies to all transactions. Even a non-stock, non-profit corporation or government entity is liable to pay VAT for the sale of goods and services.
Gross selling price (GSP) is the total amount of money or its equivalent which the puirchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties excluding the VAT. Any excise tax, if any, on such goods or properties shall form part of the GSP. SECTION 106(A)(1). GOODS OR PROPERTIES Q: What do goods or properties subject to VAT include? All tangible and intangible objects which are capable of pecuniary estimation, including: 1. Real properties held primarily for sale to customers or held for lease in the ordinary course of business 2. The right or privilege to use patent, copyright, design or model, plan, secret formula or process, good will, trademark, trade brand, or other like property or right 3. The right or privilege to use in the Philippines of any industrial, commercial or scientific equipment 4. The righ or the privilege to use motion picture files, films tapes and discs 5. Radio, television, satellite transmission and cable television line Q: What is a sale of goods or properties? CIR vs. Sony Philippines, GR No. 178697, 17 Nov 2010
FACTS: Sony Philippines engaged the services of several advertising companies. Due to dire economic conditions, Sony International handed Sony Philippines a dole-out to answer for the expenses payable to the advertising companies. Thereafter, CIR ordered an examination of Sonys books of accounts and other accounting records. Sony was assessed for deficiency VAT on the subsidized advertising expense. ISSUE: Whether the subsidy should be subject to VAT?
Q: What are the transactions subject to VAT? 1. 2. 3. 4. Any sale, barter or exchange of goods and properties or similar transactions in the course of trade or business Any sale of services or similar transactions in the course of trade or business Any lease of goods and properties or similar transactions in the course of trade or business Any importation of goods, whether in the course of trade or business or not.
Q: How are transactions classified under the VAT system of taxation? 1. Taxable transactions a. Those subject to 12% i. Sale of goods and properties under 106(A)1 ii. Importation of goods under 107(A) iii. Sale of services and use/lease of properties under 108(A) b. Those subject to 0% I. Zero-rated sale of goods or properties under 106(A)2 II. Zero-rated sale of services and use/lease of properties under 108(B) Exempt transactions under 109
HELD: NO. There must be a sale, barter, or exchange of goods or propertieis before any VAT may be levied. In this case, there was no such sale, barter, or exchange in the subsidy given by Sony International to Sony. It was but a dole out by Sony International and not in payment for goods or properties sold, bartered or exchanged by Sony.
SECTION 106(A)(2). ZERO-RATED SALES OF GOODS Rate: 0% Basis: Gross selling price or gross value in money of the goods or properties
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SECTION 106. VALUE-ADDED TAX ON SALE OF GOODS OR PROPERTIES SECTION 106(A). RATE AND BASE OF TAX Rate: 12% Basis: Gross selling price or gross value in money of the goods or properties.
Q: Distinguish between VAT rating and zero rating. CIR vs. Benguet Corporation, GR No. 145559, July 14, 2006
Note: See case as previously cited In transactions taxed at a 10% rate, when at the end of any given taxable quarter the output VAT exceeds the input VAT, the excess shall be paid to the government; when the input VAT exceeds the output VAT, the excess would be carried over to VAT liabilities for the succeeding quarter or quarters. On the other hand, transactions which are taxed at zero-rate do not result in
Q: What is gross selling price in relation to VAT?
any output tax. Input VAT attributable to zero-rated sales could be refunded or credited against other internal revenue taxes at the option of the taxpayer. To illustrate, in a zero-rated transaction, when a VAT-registered person (taxpayer) purchases materials from his supplier at P80.00, P7.30[39] of which was passed on to him by his supplier as the latters 10% output VAT, the taxpayer is allowed to recover P7.30 from the BIR, in addition to other input VAT he had incurred in relation to the zero-rated transaction, through tax credits or refunds. When the taxpayer sells his finished product in a zerorated transaction, say, for P110.00, he is not required to pay any output VAT thereon. In the case of a transaction subject to 10% VAT, the taxpayer is allowed to recover both the input VAT of P7.30 which he paid to his supplier and his output VAT of P2.70 (10% the P30.00 value he has added to the P80.00 material) by passing on both costs to the buyer. Thus, the buyer pays the total 10% VAT cost, in this case P10.00 on the product.
Q: Distinguish between VAT exemption and zero-rating. CIR vs. Seagate Technology, GR No. 153866, 11 Feb 2005.
Note: See case as previously cited CIR v. Seagate Technology (Philippines) differentiated VAT exemption and zero-rating in this wise: In terms of the VAT computation, zero rating and exemption are the same, but the extent of relief that results from either one of them is not. [In] zero rating, there is total relief for the purchaser from the burden of the tax. But in an exemption there is only partial relief, because the purchaser is not allowed any tax refund of or credit for input taxes paid.
CIR vs. Cebu Toyo Corporation, GR No. 149073, 16 Feb 2005

FACTS: Cebu Toyo is a PEZA-registered and VAT-registered enterprise engaged in the manufacture of lenses and various optical components used in television sets, cameras and other similar devices. As an export enterprise, Cebu Toyo sells 80% of its products to its mother corporation, the Japanbased Toyo Lens Corporation. The rest are sold to various enterprises in the Mactan Export Processing Zone (MEPZ). As both sales are considered export sales subject to 0% VAT, Cebu Toyo filed a claim for tax credit/refund for its input VAT. Cebu Toyo contends that as VAT-registered exporter of goods, it is subject to 0% VAT on its export sales that do not result to any output tax. Hence, the unutilized VAT input taxes on its purchases of goods and services related to such zero-rated activities are available as tax credits or refunds. CIR contends that since Cebu Toyo, as a PEZA-registered enterprise, is exempt from national and local taxes, including VAT, it is not entitled to any refund or credit on input taxes it previously paid. ISSUE: Whether Cebu Toyo is exempt from VAT and thus not entitled to VAT refund)? HELD: NO. A Peza-registered enterprise has two options: (1) avail of an income tax holiday thus exempting it from income taxes for a number of years but not from other internal revenue taxes such as VAT or (2) avail of the exemption of all taxes, including VAT but pay a preferential tax rate of 5%. In this case, Cebu Toyo chose the income tax holiday. Hence, it is not exempt from VAT. In fine, it is engaged in taxable rather than exempt transactions. The case of CIR v. Cebu Toyo Corporation cited the differences between VAT exemption and zero-rating, thus: In principle, the purpose of applying a zero percent (0%) rate on a taxable transaction is to exempt the transaction completely from VAT previously collected on inputs. It is thus the only true way to ensure that goods are provided free of VAT. While the zero rating and the exemption are computationally the same, they actually differ in several aspects, to wit: Zero-rated transaction It is a taxable transaction but does not result in an output tax The input VAT on the purchases of a VAT-registered person with zerorated sales may be allowed as tax credits or refunded Persons engaged in transactions which are zero-rated, being subject to VAT, are required to register Exempt transaction Not subject to the output tax The seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt; Registration is optional for VATexempt persons.
Contex Corporation vs. CIR, GR No. 151135, July 2, 2004

Note: See case as previously cited The case of Contex Corporation v. CIR enumerated two ways by which a transaction could have preferential treatment under the VAT system, namely: (1) VAT exemption; and (2) zero-rating. Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under VAT, the transaction can have preferential treatment in the following ways: a) VAT Exemption. An exemption means that the sale of goods or properties and/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. This is a case wherein the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or exchange of the goods or properties). 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. On the other hand, a VATregistered purchaser of VAT-exempt goods/properties or services which are exempt from VAT is not entitled to any input tax on such purchase despite the issuance of a VAT invoice or receipt. b) Zero-Rated Sales. These are sales by VAT-registered persons which are subject to 0% rate, meaning the tax burden is not passed on to the purchaser. 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 zero-rated sale shall be available as tax credit or refund in accordance with these regulations.
Under zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In contrast, exemption only removes the VAT at the exempt stage, and it will actually increase, rather than reduce the total taxes paid by the exempt firms business or non-retail customers. It is for this reason that a sharp distinction must be made between zero-rating and exemption in designating a value-added tax.
Having availed of the income tax holiday and the export sales being a zerorated transaction, Cebu Toyo is entitled to refund or credit for its unutilized input taxes.
SECTION 106(A)(2)(A). EXPORT SALES Q: Distinguish between zero-rated transactions and effectively zero-rated transactions. CIR vs. Seagate Technology, GR No. 153866, 11 Feb 2005.
Note: See case as previously cited 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 transactions 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 charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. The decision went on to say (under the subheading Zero Rating and Exemption): Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoyed 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.
Q: What is the cross-border doctrine? CIR vs. Toshiba Information Equipment, GR No. 150154, 9 Aug. 2005
FACTS: Toshiba Information Equipment is a PEZA-registered and VATregistered enterprise engaged in the business of manufacturing and exporting electrical and mechanic machinery relating to office automation, information technology and computer hardware and software. Toshiba filed its VAT returns reporting input VAT. It alleged that the said 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 output VAT. Toshiba filed for tax refund/tax credit. On a petitioner for review before the CTA, the court ruled in Toshibas favor and granted the refund. On appeal, the CIR contends that Toshiba, being registered with PEZA, is not subject to VAT and the capital goods and services it purchases are considered not used in VAT taxable business. Therefore, Toshiba is not entitled to a refund/ tax credit. ISSUE: Whether Toshiba is entitled to the tax credit/refund? HELD: YES. PEZA-registered enterprises, which would necessarily be located within ECOZONES, are VAT-exempt entities not because of Section 24 of RA 7926 (which imposes the 5% preferential tax rate on gross income of PEZAregistered enterprises in lieu of all taxes) but rather because of Section 8 of the same which establishes the fiction that ECOZONES are foreign territory. a result, sales made by a supplier in the Customs Territory (national territory of the Philippines outside the borders of the ECOZONE) to a purchaser in the ECOZONE shall be considered as exportation from the Customs Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser in the Customs Territory shall be considered as an importation into the Customs Territory. The Philippine VAT system adheres to the cross-border doctrine which means that 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%) *now 12%+ VAT. Sales made by an enterprise within a non-ECOZONE territory, i.e., Customs Territory, to an enterprise within an ECOZONE territory shall be free of VAT. 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 sale is made by a VAT-registered supplier, they shall be subject to VAT at 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. 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. In this case, Toshiba opted to avail itself of the income tax holiday. Therefore, it was likely that suppliers from the Customs Territory passed on output VAT to respondent Toshiba and the latter incurred input VAT. Toshiba can claim such input VAT as credit/refund.
Q: Enumerate the zero-rated sales 1. Export Sales (IF GONE) a. Sale and actual shipment of goods from the Philippines to a Foreign country b. Sale of raw materials or packaging materials to a Nonresident buyer for delivery to a resident local exportoriented enterprise c. Sale of raw materials or packaging materials to Export-oriented enterprise whose export sales exceed 70% of total annual production d. Sale of Gold to the BSP e. Those that are not considered export sales under the Omnibus Investment Code and other special laws f. Sale of goods, supplies, and equipment and fuel to persons engaged in International shipping or international air transport operations. Foreign currency denominated sale the sale to a nonresident of goods assembled or manufactured in the Philippines for delivery to a resident in the Philippines paid in acceptable foreign currency and accounted for in accordance with BSP rules and regulations Sales to persons or entities whose exemption under special laws and international agreements to which the Philippines is a signatory subjects such sales to 0% rate
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SECTION 106(A)(2)(a)(i). ACTUAL SHIPMENT PHILIPPINES TO A FOREIGN COUNTRY
OF
GOODS
FROM THE
ISSUE: Whether Intel is entitled to a tax refund/credit? HELD: YES. For a taxpayer engaged in zero-rated or effectively zero-rated transactions to be entitled to a refund or issuance of a tax credit certificate, it must comply with the following requisites: 1. The taxpayer is engaged in sales which are zero-rated (like export sales) or effectively zero-rated 2. The taxpayer is VAT-registered 3. The claim must be filed within two years after the close of the taxable quarter when such sales were made 4. The creditable input tax due or paid must be attributable to such sales 5. In case of zero-rated sales under Section 106(A)(2)(a)(1) and (2) Section 106(B) and Section 108(B)(1) and (2), the acceptable foreign exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations. In this case, the documentary evidence presented by the taxpayer such as the summary of export sales, sales invoices, official receipts, airway bills and export declarations and certification of inward remittances, prove that Intel is engaged in the sale and actual shipment of goods from the Philippines to a foreign country. There is no or BIR rule or regulation requiring the taxpayers authority from the BIR to print its sales invoices to be reflected or indicated therein. . Also, while entities engaged in business are required to secure from the BIR an authority to print receipts or invoices and to issue duly registered receipts or invoices, it is not required that the BIR authority to print be reflected or indicated therein.
Q: Give examples of export sales in the form of actual shipment of goods from the Philippines to a foreign country. CIR vs. Toshiba Information Equipment, GR No. 157594, 9 March 2010
FACTS: Toshiba Information Equipment is a PEZA-registered and VATregistered enterprise engaged in the business of manufacturing and exporting electrical and mechanic machinery relating to office automation, information technology and computer hardware and software. In its VAT returns, Toshiba declared input VAT payments on its domestic purchases of taxable goods and services with zero-rated sales. Toshiba filed for tax refund/tax credit. On a petitioner for review before the CTA, the court ruled THAT Toshiba was not entitled to the credit/refund of its unutilized input VAT payments attributable to its export sales, because it was a tax-exempt entity and its export sales were VAT-exempt transactions.
ISSUE: Whether Toshiba is entitled to the tax credit/refund? HELD: YES. The arguments of the CIR that Toshiba was VAT-exempt and the latters export sales were VAT-exempt transactions are inconsistent with the explicit admissions of the CIR in the Joint Stipulation of Facts and Issues that Toshiba was a registered VAT entity and that it was subject to 0% VAT on its export sales. Such is a judicial admission. Moreover, the judicial admissions of the CIR are consistent with the ruling on the VAT treatment of PEZA-registered enterprises in the previous Toshiba case. It is now a settled rule that based on the Cross Border Doctrine, PEZAregistered enterprises such as Toshiba are VAT exempt and no VAT can be passed on to them. However, the Court noted in the previous Toshiba case that the rule which considers any sale by a supplier from the Customs Territory to a PEZA-registered enterprise as export sale, which should not be burdened by output VAT, was only clearly established on October 15, 199 upon the issuance of the BIR of RMC 74-99. Prior to October 15, 1999, whether a PEZA-registered enterprise was exempt or subject to VAT depended on the type of fiscal incentives availed of by the said enterprise. In this case, Toshiba is claiming the refund of unutilized input VAT payments on its local purchases of goods and services attributable to its export sales for the first and second quarters of 1997. Such export sales took place when the old rule on VAT treatment of PEZA-registered enterprises still applied.
SECTION 106(A)(2)(a)(ii). SALE NONRESIDENT BUYER FOR DELIVERY ORIENTED ENTERPRISE SECTION 106(A)(2)(a)(iii). SALE ORIENTED ENTERPRISE
OF TO A
RAW MATERIALS TO A RESIDENT LOCAL EXPORT-
OF
RAW MATERIALS
TO
EXPORT-
Altas Consolidated vs. CIR, GR No. 146221, 25 Sept. 2007

FACTS: Atlas is a VAT-registered enterprise engaged in the business of mining, production and sale of various mineral. Atlas filed VAT returns and submitted the corresponding applications for excess input VAT refunds resulting from the claimed zero-VAT nature of its sales of gold to the BSP, copper concentrates to the Philippine Smelter and Refining Corporation and pyrite to Philippine Phosphate. Both the CTA and CA ruled that Altas failed to substantiate its claim of overpayment to the BIR for input VAT for zerorelated transactions. On appeal, Altas, among other issues, contends that zero-rating of sales to export-oriented entities applies in its entirety and should not be limited merely to the proportion of sales to the actual exports of the export-oriented entities. Altas alleges that the CA failed to rule on this issue. ISSUE: Whether zero-rating to export-oriented entities should apply in its entirety? HELD: YES. Section 106(A)(2)(a)(iii) of the 1997 Tax Code pertains to the sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed 70% of total annual production. These sales are to be zero-rated provided the seller complies with outher requirements. The law and the implementing rules neither expressly mention that only a percentage of the sales would be zero-rated. Thus, the 0% rate applies to the total sale of raw materials or packaging materials to an export-oriented enterprise and not just the percentage of the sale in proportion to the actual exports of the enterprise.
Intel Technology Philippines vs. CIR, GR No. 166732, 27 April 2007

FACTS: Intel Technology Philippines is a PEZA-registered and VAT-registered enterprise engaged in the business of designing, developing and manufacturing advanced and large-scale integrated circuit components. It filed its VAT return declaring zero-rated export sales and VAT input taxes from domestic purchases of goods and services in the total amount. Intel filed with the CIR a claim for tax credit refund of VAT input taxes on its domestic purchases of goods and services directly used in its commercial operations. On a petition for review before the CTA, the CTA rendered judgment against Intel. The tax court noted that Intel is legally entitled to a refund or issuance of a tax credit certificate but the export invoices adduced in evidence by Intel could not be considered as competent evidence to prove its zero-rated sales of goods for VAY purposes and for refund or issuance of a tax credit certificate because no BIT authority to print said invoices were indicated thereon
Note: SECTION 106(A)(2)(a)(iv). SALE OF GOLD TO THE BSP Tax Base on transactions deemed sale Output tax = market value of the goods deemed sold as of the time of the occurrence of the transactions Tax Base in case of retirement/cessation of business Tax Base = acquisition cost or current market price of the goods or properties, whichever is lower
Q: Give an example of sale of gold to the BSP CIR vs. Benguet Corporation, GR No. 145559, July 14, 2006
Note: See case as previously cited CIR v. Benguet Corporation is a claim for tax refund/credit of alleged unutilized input VAT on Benguet Corporations sale of gold to the Bangko Sentral ng Pilipinas for the period 1 August 1989 to 31 July 1991. [NOTE: At the time the subject transaction was made, the treatment of sale of gold to the BSP as export sales was merely based on BIR issuances. Today, such treatment is already contained in the 1997 Tax Code.]
SECTION 106(B)(1). TRANSFER NOT IN THE COURSE OF TRADE OR BUSINESS OF GOODS/SERVICES ORIGINALLY INTENDED FOR SALE/USE IN THE COURSE OF TRADE
OR BUSINESS
SECTION 106(A)(2)(a)(v). EXPORT SALES UNDER THE OMNIBUS INVESTMENT CODE OF 1997 AND OTHER SPECIAL LAWS
Q: Give an example of a transaction deemed sale under this provision. San Roque Power Corporation vs. CIR, GR No. 180345, 25 Nov. 2009
FACTS: San Roque Power Corporation is a VAT-registered enterprise engaged in the supply of electricity. It entered into a purchase power agreement with NAPOCOR to develop the hyrdro potential of the Lower Agno River. San Roque applied for and was granted certificate of Zero Rate by the BIR. San Roque filed its VAT declarations and VAT returns. Its Quarterly VAT returns showed excess input VAT payments on account of its importation and domestic purchases of goods and services. San Roque filed a claim for tax refund/credit. A portion of the claim for tax refund/credit was attributable to a sale of electricity to NAPOCOR that was made during the testing period sometime in 2002, for which San Roque was paid an amount of Php 42.5 million. ISSUE: Whether such sale during the testing period should qualify for zerorating?
Panasonic Communications vs. CIR, GR No. 178090, 8 Feb 2010

Note: See case as previously cited In Panasonic Communications Imaging Corporation of the Philippines v. CIR, Panasonic produced and exported paper copiers and their sub-assemblies, parts, and components. It was registered with the Board of Investments as a preferred pioneer enterprise under the Omnibus Investment Code of 1987; it was a registered VAT enterprise; and its export sales were zero-rated.
SECTION 106(A)(2)(a)(vi). SALE OF GOODS TO PERSONS ENGAGED IN INTERNATIONAL SHIPPING OR AIR TRANSPORT OPERATIONS
SECTION 106(A)(2)(b). FOREIGN CURRENCY DENOMINATED SALE SECTION 106(A)(2)(c). ZERO-RATED SALES PURSUANT INTERNATIONAL AGREEMENTS SECTION 106(B). TRANSACTIONS DEEMED SALE. Q: Enumerate the transactions deemed sale. (DR TC) The phrase transactions deemed sale includes the following: 1. Transfer, use or consumption not in the ordinary course of business of goods or properties originally intended for sale or for use in the course of business Distribution or transfer to: a. Shareholders or investors as share in the profits of the VAT-registered persons b. Creditors in payment of debt Consignment of goods if actual sale is not made within 60 days following the sate such goods were consigned Retirement from or cessation of business, with respect to inventories of taxable goods existing, as of such retirement or cessation.
TO
SPECIAL LAWS
OR
HELD: YES. The Court is not unmindful of the fact that the transaction was not a commercial sale. In granting the tax benefit to VAT-registered zero-rated or effectively zero-rated taxpayers, Section 112(A) of the NIRC does not limit the definition of sale to commercial transactions in the normal course of business. Conspicuously, Section 106(B) of the NIRC, which deals with the imposition of VAT, does not limit the term sale to commercial sales, rather it extends the term to transactions that are deemed sale. Here, it is undisputed that San Roque transferred to NPC all the electricity that was produced during the trial period. The fact that it was not transferred through a commercial sale or in the normal course of business does not deflect from the fact that such transaction is deemed as a sale under the law.
SECTION 106(B)(2). OTHER TRANSACTIONS These are: (1) transfer to shareholders/investors as share in the profits of a VAT-registered person/entity; (2) transfer to creditors in payment of debt; (3) consignment of goods, if actual sale is not made within 60 days following the date such goods were consigned; and (4) retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation.
2.
3. 4.
SECTION 106(C). CHANGES IN OR CESSATION OF STATUS OF A VAT-REGISTERED PERSON VAT shall apply to goods disposed of or existing as of a certain date if under the circumstances to be prescribed in rules and regulations to be promulgated by the Secretary of Finance, upon recommendation of the Commissioner, the status of a person as a VAT-registered person changes or is terminated.
goods, properties or services by the seller, transferor or lessor.
SECTION 107(B). TRANSFER OF GOODS BY TAX-EXEMPT PERSONS Q: Who shall be liable for internal revenue taxes where the imported goods are sold, transferred, or exchanged by tax-exempt persons to non-exempt buyers, transferees, or recipients? The non-exempt buyers, transferees, or recipients shall be deemed the importers of the taxable goods and shall be liable for internal revenue taxes on the same. SECTION 108. VALUE-ADDED TAX ON SALE OF SERVICES AND USE OR LEASE OF PROPERTIES. SECTION 108(A). RATE AND BASE OF TAX Rate: 12% Basis: Gross receipts derived from the sale or exchange of services, including the use or lease of properties Note: This is the general rule to apply to sale of services and use or lease of properties. However, if the transaction falls under Section 108(B), then it shall be zero-rated. Q: What are gross receipts? Gross receipts means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty actually or constructively received during the taxable quarter for the services performed or to be performed for another person. Q: What is a sale of services? A sale of exchange of services means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration. Note: See SECTION 108(A) for an extensive enumeration of the type of services including in said definition. Case law:
Note: Refer to RR 16-2005 4.106 B for an enumeration of which changes in the status of a VAT-registered person shall subject it to output tax. SECTION 106(D). SALES RETURNS, ALLOWANCES, AND SALES DISCOUNTS The value of goods or properties sold and subsequently returned or for which allowances were granted by a VATregistered person may be deducted from the gross sales or receipts for the quarter in which a refund is made or a credit memorandum or refund is issued.
OF THE
SECTION 106(E). AUTHORITY APPROPRIATE TAX BASE.
COMMISSIONER
TO
DETERMINE
THE
The CIR, by rules and regulations prescribed by the Secretary of Finance, shall determine the appropriate tax base in cases where a transaction is deemed a sale.
SECTION 107. VALUE-ADDED TAX ON IMPORTATION OF GOODS SECTION 107(A). IN GENERAL Rate: 12% Basis: total value used by the BOC in determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges. Where the customs duties are determined on the basis of the quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any.
Q: Does VAT apply to every importation of goods? CIR vs. Seagate Technology, GR No. 153866, 11 Feb 2005. CIR vs. Sony Philippines, GR No. 178697, 17 Nov 2010.
Note: See case as previously cited Note: See case as previously cited In explaining value-added tax, CIR v. Seagate Technology (Philippines) stated that VAT shall be imposed on every importation of goods, whether or not in the course of trade or business. This is unlike VAT on sale of goods or properties which must be in the course of trade or business. Otherwise, the person/transaction shall not be liable to pay VAT. Pertinent portion of the decision read: Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent [now 12 percent] 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 Sony Philippines engaged the services of several advertising companies. Due to Sony Philippines dire economic conditions, Sony International Singapore handed Sony Philippines a dole-out to answer for the expenses payable to the advertising companies. Sony Philippines was thereafter assessed deficiency VAT for the transaction, i.e., dole-out, between Sony International Singapore and Sony Philippines. The Supreme Court ruled that the dole-out or subsidy from the Singaporean company to the Philippine company neither constituted a sale of goods or properties, nor a sale of services. Hence, Sony Philippines was not liable to pay VAT on the same.
Quezon City vs. ABS-CBN, GR No. 166408, 6 Oct. 2008

FACTS: ABS-CBN was granted a franchise to install and operate radio and television broadcasting stations in the Philippines under RA 7966 which provides that it shall pay a franchise tax of 3% and that said tax shall be in lieu of all taxes on franchise or earnings. Because of this provision, ABS-CBN developed an opinion that it is not liable to pay local franchise tax imposed by Quezon City. It was assessed for local franchise tax and ABS-CBN paid in protest. When the case was brought to the RTC, the Court ruled that pursuant to the in lieu of all taxes provision, ABS-CBN is exempt from the payment of local franchise tax and that ABS-CBN shall instead be liable to pay a franchise tax of 3% on all gross receipts in lieu of all other taxes. ISSUE: Whether the RTCs erred in its ruling that ABS-CBN should pay the franchise tax instead of VAT? HELD: Yes. The in lieu of all taxes clause in the franchise of ABS-CBN has become functus officio with the abolition of the franchise tax on broadcasting companies with yearly gross receipts exceeding P10 million. As the law now stands: Section 119 of the Tax Code imposes a percentage tax, in the form of a 3% franchise tax, on radio and television broadcasting companies whose annual gross receipts do not exceed Php 10 million. Such franchise holders, however, has the option of paying 3% franchise tax or 12% VAT. On the other hand, radio and television broadcasting companies whose annual gross receipts exceed Php 10 million are governed by Section 108 of the 1997 Tax Code. They are liable to pay VAT, and do not have the option to choose between paying franchise tax or VAT. ABS-CBN, being a broadcasting company with yearly gross receipts exceeding Php 10 million, was found liable to pay VAT.
HELD: No. Although the enumeration of services subject to VAT under Section 108 of the 1997 Tax Code is not exhaustive. Among those included in the enumeration is the lease of motion picture films, films, tapes and discs. This, however, is not the same as the showing or exhibition of motion pictures or films. Hence, SM Prime and First Asia were not liable to pay VAT.
Sonza vs. ABS-CBN, GR No. 138051, 10 June 2004

FACTS: Sonza and ABS-CBN entered into an agreement where Sonza will provide his services exclusively to ABS-CBN as a talent for the latters television and radio shows. Thereafter, Sonza filed a complaint that ABS-CBN did not pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, and other benefits. He argues that there exists an employer-employee relationship between him and ABS-CBN. ISSUE: Whether Sonza is an employee of ABS-CBN and, thus, his provision of services is not subject to TAX? HELD: No. Sonza is an independent contractor. In order to determine the existence of an employer-employee relationship, the Court has applied the four-fold test: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employees conduct, or the so called control test, which is considered the most important element. None of the elements existed in this case. Hence, Sonza, as an independent contractor pursuant to a contractual relationship which includes professional such as talent and television and radio broadcasters, is liable to pay VAT.
SECTION 108(B). ZERO-RATED SALES OF SERVICES Q: What is the destination principle? Are there exceptions to the rule?
As a general rule, the value-added tax (VAT) system uses the destination principle. This means that Goods and services are taxed only in the country where they are consumed However, our VAT law itself provides for a clear exception, under which the supply of service shall be zero-rated when the following requirements are met: 1. the service is performed in the Philippines; 2. the service falls under any of the categories provided in Section 102(b) of the Tax Code; and 3. it is paid for in acceptable foreign currency that is accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas. Since respondents services meet these requirements, they are zero-rated.
CIR vs. CA, GR No. 125355, 30 Mar. 2000

Note: See case as previously cited Section 108 of the 1997 Tax Code defines sale of services as the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, including supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme. In the case of CIR v. CA, COMASERCO was a non-stock non-profit organization engaged in the sale of services of such nature. However, COMASERCO argued that its sales of services were not subject to VAT because although it charged a fee for such sales, the organization was operating on a reimbursement-of-cost basis and hence, did not derive profit from such sales. The Supreme Court held that any sale of services for a fee, remuneration or consideration is subject to VAT, regardless of any profit derived therefrom.
CIR vs. American Express, GR No. 152609, 29 June 2005. CIR vs. SM Prime Holdings, GR No. 183505, 26 Feb 2010
FACTS: SM Prime and First Asia were engaged in the business of operating cinema houses. It was assessed by the BIR for deficiency VAT for its cinema ticket sales. When the case was brought to the CTA, the Court ruled that the activity of showing films by cinema houses is not covered by VAT. It further added that the Tax Code only mentions lessor or distributors of films and that this is not the same as the showing of such which is only subject to amusement tax. ISSUE: Whether the cinema ticket sales are subject to VAT? FACTS: American Express Philippines (AMEX-Phil) is a Philippine Branch of American Express International, Inc. It is a servicing unit of American Exrpess International Hong Kong (AMEX-HK) and is engaged primarily to facilitiate the collections of AMEX-HK receivables from card members situated in the Philippines and payment to service establishments in the Philippines. AMEXPhil filed with the BIR a claim for refund for its input taxes arising from its zero-rated sale of services to AMEX-HK. CIR argues that AMEX-Phils services must be consumed abroad in order to be zero-rated. ISSUE: Whether AMEX-Phils sale of services to AMEX-HK is zero-rated? HELD: As a general rule, the VAT system uses the destination principle as a
10 P I E R R E M A R T I N D E L E O N R E Y E S
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. The decision proceeded to define consumption as the use of a thing in a way that thereby exhausts it. Applied to services, it means the performance or successful completion of a contractual duty, usually resulting in the performers release from any past or future liability. Exceptions to the destination principle are found in Section 108(B) of the 1997 Tax Code. They are deemed exceptions because although the services are performed in the Philippines, the sales of such services are zero-rated when the following requirements are met: (1) the service is performed in the Philippines; (2) the service falls under any of the categories provided in Section 102(b) of the Tax Code; and (3) it is paid for in acceptable foreign currency that is accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas. Since AMEX-Phils services meet these requirements, they are zero-rated.
CIR vs. Placer Dome, GR No. 164365, 8 June 2007

FACTS: Placer Dome, Inc (PDI) owns 39.9% of San Antonio Mines Marcopper. It undertook to clean-up and rehabilitate the Makalupnit and Boac Rivers in Marinduque which was affected by its mining operations. PDI engaged the services of Placer Dome Technical Services Limited (Placer Dome Canada), a non-resident foreign corporation in Canada which, in turn, engaged the services of Placer Dom Technical Services Philippines (Placer Dome Philippines). Placer Dome Philippines filed for a claim for tax credit/refund and contends that its sale of services to Placer Dome Canada was zero-rated. The CIR invokes the destination principle, citing that Placer Dome Philippines services, while rendered to a non-resident 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. ISSUE: Whether the sale of services by Placer Dome Philippines to Placer Dome Canada is zero-rated? HELD: Yes. Citing CIR vs. American Express: 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. 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 performer's 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 establishments 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." Respondent's 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 zero-rated 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.
Q: Enumerate the zero-rated sale of services 1. 2. Processing, Manufacturing, or Repacking Goods for Other Persons Doing Business outside the Philippines Services Other than Those Mentioned in the Preceding Paragraph rendered to a person engaged in business conducted outside the Philippines or a nonresident person not engaged in business who is outside the Philippines when the services were performed Services rendered to person or entities whose exemption under Special Laws or International Agreements effectively subjects the supply of such services to a 0% rate. Sale of Services to Persons Engaged in International Shipping or Air Transport Operations Sale of Services for Export-Oriented Enterprise whose export sales exceed 70% of total annual production Transport of Passengers and Cargo by Air or Seal Vessels from the Philippines to a Foreign Country Sale of Power Generated through Renewable Sources of Energy
3.
4. 5. 6. 7.
SECTION 108(B)(1) PROCESSING, MANUFACTURING, OR REPACKING GOODS FOR OTHER PERSONS DOING BUSINESS OUTSIDE THE PHILIPPINES SECTION 108(B)(2) SERVICES OTHER PRECEDING PARAGRAPH
THAN
THOSE MENTIONED
IN THE
Q: CITE EXAMPLES OF SERVICES OTHER THAN PROCESSING, MANUFACTURING, OR REPACKING OF GOODS CIR vs. American Express, GR No. 152609, 29 June 2005.
Note: See case as previously cited. Amex Phils. facilitated in the Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign client, Amex HK, and getting paid for it in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. The Supreme Court ruled that the facilitation services Amex Phils. rendered in the Philippines fell under Section 108(B)(2) of the 1997 Tax Code.
CIR vs. Burmeister, GR No. 153205, 22 Jan. 2007

FACTS: A foreign consortium composed of Burmeister and Wain Scandinavian Contractor (BWSC Denmark), Mitsui Engineering and Mitsui and Co., Ltd. entered into a contract with NAPOCOR for the operation and maintenance of its two power barges. The Consortium appointed BWSC Denmark as its coordination manager. BWSC established BWSC Mindanao which subcontracted the actual operation and maintenance of NAPOCORs two power barges as well as the performance of other duties and acts which necessarily have to be done in the Philippines. BWSC Mindanao sought a ruling from BIR in order to ascertain the tax implications of its transactions. BIR responded that if BWSC Mindanao chooses to register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of
the BSP, the aforesaid services shall be subject to VAT at zero-rate. The law provides that the processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, and where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP are transactions subject to zero-rate. Thus, BWSC Mindanao chose to register as a VAT taxpayer and seasonably filed its VAT returns. BWSC Mindanao, availing of the Voluntary Assessment Program, assessed itself in accordance with RR 7-95 which subjected its sale of services to the Consortium to 10% VAT. BWSC Mindanao then was able to secure a ruling from the VAT Review Committee which reconfirmed the prior BIR ruling that the services being rendered by BWSC Mindanao is subject to VAT at zero percent. ISSUE: Whether BWSC Mindanao is subject to VAT at zero percent and thus entitled to a refund? HELD: No. The Tax Code not only requires that the services be other than processing, manufacturing or repacking of goods and that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules. Another essential condition for qualification to zero-rating under Section 102(b)(2) is that the recipient of such services is doing business outside the Philippines. While this requirement is not expressly stated in the second paragraph of Section 102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services must be for other persons doing business outside the Philippines. The phrase for other persons doing business outside the Philippines not only refers to the services enumerated in the first paragraph of Section 102(b), but also pertains to the general term services appearing in the second paragraph of Section 102(b). In short, services other than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside the Philippines. Hence, the legislative intent is that the recipient of services is doing business outside the Philippines. In this case, the payer-recipient of respondents services is the Consortium which is a joint-venture doing business in the Philippines. While the Consortiums principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines. Hence, the transactions of BWSC Mindanao are not subject to VAT at zero percent. Note: In relation to CIR v. American Express International, Inc. and CIR v. Placer Dome Technical Services (Philippines), Inc. discussed above, said cases stated that consumption of the services abroad is not a requirement for zerorating. However, on the basis of CIR v. Burmeister & Wain Contractor Mindanao, Inc., the payer-recipient of the services must be doing business outside of the Philippines.]
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 transactions 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 charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. The decision went on to say (under the subheading Zero Rating and Exemption): Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoyed 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.
Q: GIVE EXAMPLES OF EFFECTIVELY ZERO-RATED SALES OF SERVICES PURSUANT TO SPECIAL LAWS. CIR vs. Acesite Philippines, GR No. 147295, 16 Feb 2007
FACTS: Acesite is the operator of Holiday Inn Hotel. It leases a part of its premises to PAGCOR for casino operations. It also caters food and beverages to PAGCORs casino patrons through the hotels restaurant outlets. Acesite incurred VAT from its rental income and sale of food and beverages to PAGCOR. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status. Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. Hence, Acesite filed a claim for tax credit/refund. ISSUE: Whether Acesite could refund the VAT it paid on its rental income and sale of food and beverages to PAGCOR? HELD: Yes. The Tax Code provides that 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 (0%) rate shall be subject to 0%. Since the law clearly provides for PAGCORs exemption, the sale of services of Acesite to PAGCOR is effectively zero-rated. Hence, Acesite may refund the VAT it paid on its rental income and sale of food and beverages to PAGCOR.
SECTION 108(B)(3) ZERO-RATED SALES INTERNATIONAL AGREEMENTS
PURSUANT TO
SPECIAL LAWS
OR
Q: Distinguish between zero-rated transactions and effectively zero-rated transactions. CIR vs. Seagate Technology, GR No. 153866, 11 Feb. 2005
Note: See case as previously cited. 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.
San Roque Power vs, CIR, GR No. 180345, 25 Nov. 2009

Note: See case previously cited. It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the burden of indirect tax so as to encourage the development of particular industries. Before, as well as after, the adoption of the VAT, certain special laws were enacted for the benefit of various entities and international agreements were entered into by the Philippines with foreign governments and institutions exempting sale of goods or supply of services from indirect taxes at the level of their suppliers. Effective zero-rating was intended to relieve the exempt entity from being burdened with the indirect tax which is or which will be shifted to it had there been no exemption. In this case, petitioner is being exempted
from paying VAT on its purchases to relieve NPC of the burden of additional costs that petitioner may shift to NPC by adding to the cost of the electricity sold to the latter.
SECTION 108(B)(4) SALE OF SERVICES TO PERSONS ENGAGED IN INTERNATIONAL SHIPPING OR AIR TRANSPORT OPERATIONS SECTION 108(B)(5) SALE OF SERVICES FOR EXPORT-ORIENTED ENTERPRISE SECTION 108(B)(6) TRANSPORT OF PASSENGERS AND CARGO VESSELS FROM THE PHILIPPINES TO A FOREIGN COUNTRY
BY
AIR
OR
SEAL
SECTION 108(B)(7) SALE OF POWER GENERATED THROUGH RENEWABLE SOURCES OF ENERGY SECTION 109. EXEMPT TRANSACTIONS Q: WHAT ARE VAT-EXEMPT TRANSACTIONS? VAT-exempt transactions refer to the sale of goods or properties and/or services and the use or lease of properties that is NOT subject to VAT (OUTPUT VAT) and the seller is NOT allowed any tax credit of VAT (INPUT TAX) on purchases. 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. Q: Enumerate the exempt transactions 1. 2. 3. 4. Sale or importation of agricultural and marine food products in their original sate Sale or importation of fertilizers; seeds, seedlings and fingerlings Importation of personal and household effects belonging to the residents of the Philippines returning from abroad Importation of professional instruments and implements, wearing apparel, domestic animals and personal household effects Services subject to percentage tax Services by agricultural contract growers and milling Medical, dental, hospital and veterinary services except those rendered by professionals Educational services rendered by private and government educational institutions Services rendered by regional or area headquarters established in the Philippines Transactions which are exempt under international agreements to which the Philippines is a signatory Sales by agricultural cooperatives duly registered Gross receipts from lending activities by credit or multipurpose cooperatives Sales by non-agricultural, non-electric and non-credit cooperatives duly registered Export sales by persons who are not VAT-registered Sales of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business
16. Lease of a residential unit with a monthly rental not exceeding P10,000 17. Sale, importation, printing or publication of books 18. Sale, importation, or lease of passenger or cargo vessels and aircraft 19. Importation of fuels, goods and supplies by persons engaged in international shipping or air transport operations 20. Services of banks, non-bank financial intermediaries performing quasi-banking functions and other non-bank financial intermediaries 21. Sale or lease of goods or properties or performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do no exceed the amount of P1,500,000. Q: Distinguish between an exempt transaction and an exempt party. CIR vs. Seagate Technology, GR No. 153866, 11 Feb 2005.
Note: See case as previously cited. 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. Indeed, 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 or non-VAT taxpayer.
Q: Give examples of exempt transactions. SECTION 109(A) SALE OR IMPORTATION OF AGRICULTURAL MARINE FOOD PRODUCTS IN THEIR ORIGINAL STATE
AND
5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.
Misamis Oriental vs. DOF, GR No. 108524, 10 Nov. 1994.

FACTS: Misamis Oriental was engaged in the buying and selling of copra. Misamis alleges that copra is an agricultural food product exempt from VAT at all stages of production or distribution under the Tax Code. The CIR denied Misamis claim. Misamis then contended that it is the Bureau of Food and Drug of the DOH and not the BIR that should determine the proper classification of food products. Misamis cites the opinion of a certain Dr. Kintanar of the Bureau of Food and Drug who opines that copra should be considered food because it is produced from coconut which is food and 80% of coconut products are edible. ISSUE: Whether copra is an agricultural food for purposes of the Tax Code? HELD: No. Copra per se is not food, that is, it is not intended for human consumption. Simply stated, nobody eats copra for food. That previous CIRs considered it so, is not reason for holding that the present interpretation is wrong. The CIR is not bound by the ruling of his predecessors. Moreover, as between the Bureau of Food and Drug and the Bureau of Internal Revenue, the classification made by the latter would prevail.
Note: Under the current Tax Code, copra is included in the sale of agricultural food products in their original state.
SECTION 109(G) MEDICAL, DENTAL, HOSPITAL, AND VETERINARY SERVICES, EXCEPT THOSE RENDERED BY PROFESSIONALS
issue is Section 1 of R.A. No. 9337, which amended Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR from the enumeration of GOCCs that are exempt from payment of corporate income tax. Different groups assailed the validity of RA 9337 including the imposition of VAT on the sale of services and use or lease of properties which they believe was now imposed upon PAGCOR. ISSUE: Whether PAGCOR s sale of services is exempt from VAT? HELD: Yes. PAGCOR is exempt from the payment of VAT, because PAGCOR's charter, P.D. No. 1869, is a special law that grants petitioner exemption from taxes. Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424, thus: 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.
CIR vs. Philippine Health Care Providers, GR No. 168129, 24 Apr. 2007
FACTS: Philippine Health Care Provides (PHCPI) is a corporation whose primary purpose is to establish, maintain and operate a prepaid group practice health care delivery system or a health maintenance organization to take care of the sick and disabled persons enrolled in the health care plan. Previously, the CIR considered PHCPIs transactions as exempt from VAT given that it is a provider of medical services. This was later revoked when the BIR assessed PHCPI for deficiency VAT ISSUE: Whether the services of PHCPI are exempt from VAT? HELD: No. The facts show that (1) PHCPI is not actually rendering medical service but merely acting as a conduit between the members and their accredited and recognized hospitals and clinics; (2) It merely provides and arranges for the provision of pre-need health care services to its members for a fixed prepaid fee for a specified period of time; (3) It then "contracts the services of physicians, medical and dental practitioners, clinics and hospitals to perform such services to its enrolled members; and (4) it also enters into contract with clinics, hospitals, medical professionals and then negotiates with them regarding payment schemes, financing and other procedures in the delivery of health services. As PHCPI does not actually provide medical and/or hospital services, as provided under Section 103 (now Section 109) on exempt transactions, but merely arranges for the same, its services are not VAT-exempt.
SECTION 109(U) SERVICES OF BANKS, NON-BANK FINANCIAL INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS, AND OTHER NON-BANK FINANCIAL INTERMEDIARIES
First Planters Pawnshop vs. CIR, GR No. 174134, 30 July 2008.

FACTS: First Planters was assessed deficiency VAT and DST liabilities by the BIR. First Planters protested the said assessment. It argues that it is not a lending investor and as such it is not subject to VAT. The CIR on the other hand contends that a pawnshop is considered as akin to lending investors business activity and hence they are subject to VAT ISSUE: Whether First Planters Pawnshop is a lending investor and hence its transactions are subject to VAT? HELD: Yes. Pawnshops are non-banks/banking institutions. The nature of their business activities partakes that of a financial intermediary in that its principal function is lending. Since First Planters is a non-bank financial intermediary, it is subject to VAT. A pawnshop's business and operations are governed by Presidential Decree (P.D.) No. 114 or the Pawnshop Regulation Act and Central Bank Circular No. 374 (Rules and Regulations for Pawnshops). Section 3 of P.D. No. 114 defines pawnshop as a person or entity engaged in the business of lending money on personal property delivered as security for loans and shall be synonymous, and may be used interchangeably, with pawnbroker or pawn brokerage. That pawnshops are to be treated as non-bank financial intermediaries is further bolstered by the fact that pawnshops are under the regulatory supervision of the Bangko Sentral ng Pilipinas and covered by its Manual of Regulations for Non-Bank Financial Institution Note: Section 109(U) of the 1997 Tax Code provides that transactions involving services rendered by banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries shall be VAT-exempt. The case of First Planters Pawnshop, Inc. v. CIR pertained to a taxable period prior to the adoption of the present wording of Section 109(U) of the 1997 Tax Code.
SECTION 109(I) SERVICES RENDERED BY INDIVIDUALS AN EMPLOYER-EMPLOYEE RELATIONSHIP
PURSUANT TO
Sonza vs. ABS-CBN, GR No. 138051, 10 June 2004.

Note: See case as previously cited. The case differentiated between services rendered pursuant to an employeremployee relationship (which is an exempt transaction) and services rendered by an independent contractor pursuant to a contractual relationship (which is subject to VAT). The Supreme Court ruled that Sonza was an independent contractor. As such, he was subject to VAT on the services that he rendered.
SECTION 109(K) TRANSACTIONS WHICH ARE EXEMPT UNDER INTERNATIONAL AGREEMENTS TO WHICH THE PHILIPPINES IS A SIGNATORY OR UNDER SPECIAL LAWS, EXCEPT THOSE UNDER PD NO. 529
PAGCOR vs. CIR, GR No 172087, 15 Mar. 2011

FACTS: PAGCOR was created pursuant to PD 1607-A. Simultaneous to its creation, PD 1607-B was issued exempting PAGCOR from payment for any type of tax except franchise tax. In the 1977 Tax Code, PAGCOR was not liable to pay corporate income tax. With the enactment of RA 9336, certain sections of the NIRC were amended. The particular amendment that is at
SECTION 110. TAX CREDITS. SECTION 110(A). CREDITABLE INPUT TAX Any INPUT TAX evidenced by a VAT invoice or official receipt issued in accordance with Section 113 on purchase or importation of goods or for purchase of services shall be creditable against OUTPUT TAX.
SECTION 111(B). PRESUMPTIVE INPUT TAX CREDITS. Q: Distinguish between input tax and output tax CIR vs. Benguet Corporation, GR No. 145559, 14 July 2006.
Note: See case as previously cited Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-registered taxpayer in connection with his purchase of goods and services. Thus, "input tax" means the value-added tax paid by a VAT-registered person/entity in the course of his/its trade or business on the importation of goods or local purchases of goods or services from a VAT-registered person. On the other hand, when that person or entity sells his/its products or services, the VAT-registered taxpayer generally becomes liable for 10% of the selling price as output VAT or output tax. Hence, "output tax" is the valueadded tax on the sale of taxable goods or services by any person registered or required to register under Section 107 of the (old) Tax Code. The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either by (1) passing on the 10% output VAT on the gross selling price or gross receipts, as the case may be, to its buyers, or (2) if the input tax is attributable to the purchase of capital goods or to zero-rated sales, by filing a claim for a refund or tax credit with the BIR. Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and services may recover its input VAT costs by passing on said costs as output VAT to its buyers of goods and services but it cannot claim the same as a refund or tax credit, while a taxpayer subject to 0% on its sales of goods and services may only recover its input VAT costs by filing a refund or tax credit with the BIR.
Persons or firms engaged in the processing of sardines, mackerel and milk, and in the manufacturing or refined sugar, cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to 4%. SECTION 112. REFUNDS OR TAX CREDITS OF INPUT TAX. SECTION 112(A). ZERO-RATED OR EFFECTIVELY ZERO-RATED SALES. Q: Distinguish between zero-rated transactions and effectively zero-rated transactions. CIR vs. Seagate Technology, GR No. 153866, 11 Feb 2005.
Note: See case as previously cited 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 transactions 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 charges zero output tax on such transactions can also claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. The decision went on to say (under the subheading Zero Rating and Exemption): Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoyed 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. (Emphasis supplied.)
SECTION 110(B). EXCESS OUTPUT OR INPUT TAX. If at the end of any taxable month or quarter: Output tax > input tax Output tax < input tax The excess shall be paid by the VATregistered person The excess shall be carried over to the succeeding quarter or quarters
However, input tax attributable to zero-rated sales by a VATregistered person may at his option be refunded or applied for a tax credit certificate (TCC) which may be used in the payment of internal revenue taxes. SECTION 110(C). DETERMINATION OF CREDITABLE INPUT TAX. SECTION 111. TRANSITIONAL/PRESUMPTIVE INPUT TAX CREDITS. SECTION 111(A). TRANSITIONAL INPUT TAX CREDITS. A person who becomes liable to VAT or any person who elects to be VAT-registered shall, subject to the filing of an inventory, be allowed a tax on his beginning inventory of goods, materials and supplies equivalent to 2%.
Q: What are the requirements for a claim for VAT refund/credit? 1. 2. 3. 4. 5. 6. 7. The taxpayer is engaged in sales which are zero-rated or effectively zero-rated The taxpayer is VAT-registered The claim must be filed within two years after the close of the taxable quarter when such sales were made The input taxes are due or paid; The input taxes are not transitional input taxes The input taxes have not been applied against output taxes during and in the succeeding quarters The input taxes claimed are attributable to zero-rated or effectively zero-rated sales
8.
9.
In certain types of zero-rated sales, the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with BSP rules and regulations [Sections 106(A)(2)(a)(1) and (2); Section 106(B); Sections 108(B)(1) and (2)] 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.
VS.
privilege extended to qualified and registered taxpayers by the very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or erroneously collected national internal revenue tax, consists of monetary amounts which are currently in the hands of the government but must rightfully be returned to the taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously collected national internal revenue tax, or input VAT, the taxpayer must be given equal opportunity for filing and pursuing its claim. For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the return.
Note: See cases of INTEL TECHNOLOGY CORPORATION VS. CIR.
CIR and SAN ROQUE POWER CIR vs. Mirant, GR No. 172129, 12 Sept. 2008
FACTS: Mirant is a VAT-registered corporation engaged in the generation of power which it sells to the National Power Corporation (NPC). In light of NPCs tax exempt status, Mirant applied for a tax refund/credit for its input tax given that its sale of power generation services to NPC has become effectively zero-rated. The claim was denied for being filed beyond the prescriptive period of two years. ISSUE: Whether or not the claim for refund or tax credit was filed out of time? HELD: Yes. Section 112(A) provides that any VAT-registered person, whose sales are zero-rated or effectively zero-rated may within two years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. The provision clearly provides that unutilized input VAT payments must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. Mirant cannot avail itself of the provisions of either Section 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes the payment of the tax as the starting point for the two-year prescriptive limit for the filing of a claim. These provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.
Q: In claims for VAT refund/credit, what is the reckoning point for the two-year prescriptive period? Atlas Consolidated Mining vs. CIR, GR Nos. 141104 & 148763, 8 June 2007
FACTS: Atlas is a VAT-registered corporation engaged in the business of mining. Atlas filed an application for refund/credit of the input tax on its purchases of capital goods and on its zero-rated sales. The claim was denied on the ground that the prescriptive periods for filing the same had expired. According to the CIR and the CTA, a plain reading of the law would show that the two-year prescriptive period for filing the application for refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter when such sales were made. On the other hand, Atlas claims that the said two-year prescriptive period should be counted, not from the close of the quarter when the zero-rated sales were made, but from the date of filing of the quarterly VAT return. ISSUE: Whether the claim of Atlas for refund/tax credit of its input tax has already prescribed? HELD: No. Until and unless the VAT-registered taxpayer prepares and submits to the BIR its quarterly VAT return, there is no way of knowing with certainty just how much input VA the taxpayer may apply against its output VAT; how much output VAT it is due to pay for the quarter or how much excess input VAT it may carry-over to the following quarter; or how much of its input VAT it may claim as refund/credit. It should be recalled that not only may a VATregistered taxpayer directly apply against his output VAT due the input VAT it had paid on its importation or local purchases of goods and services during the quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT to the succeeding quarters for application against its future output VAT liabilities, or (2) file an application for refund or issuance of a tax credit certificate covering the amount of such input VAT.Hence, even in the absence of a final adjustment return, the determination of any output VAT payable necessarily requires that the VAT-registered taxpayer make adjustments in its VAT return every quarter, taking into consideration the input VAT which are creditable for the present quarter or had been carried over from the previous quarters. Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it does have refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities information which are supposed to be reflected in the taxpayer's VAT returns. Thus, an application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the taxable quarter/s concerned. Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally or erroneously collected, its refund/credit is a
ATLAS (2007) MIRANT (2008)
From the date of the filing of the VAT quarterly return From the close of the taxable quarter when the relevant sales were made
Hence, as jurisprudence now stands, it is cogent to follow the rule of MIRANT where the reckoning point of the two-year prescriptive period shall be from the close of the taxable quarter when the relevant sales were made. SECTION 112(B). CANCELLATION OF VAT REGISTRATION. SECTION 112(C). PERIOD WITHIN WHICH REFUND OR TAX CREDIT OF INPUT TAXES SHALL BE MADE. The CIR shall grant a tax credit certificate/refund for creditable input taxes within 120 days from the date of submission of complete documents in support of the application. In case of full or partial denial of the claim for tax credit certificate/refund:
1.
2.
The taxpayer may appeal to the CTA within 30 days from the receipt of said denial, otherwise the decision shall be come final If no action on the claim for tax credit certificate/refund has been taken by the CIR after the 120 day period in which he must decide, the taxpayer may appeal to the CTA within 30 days from the lapse of the 120 day period.
SECTION 112(D). MANNER OF GIVING REFUND SECTION 113. INVOICING REGISTERED PERSONS.
AND
ACCOUNTING REQUIREMENTS
FOR
VAT-
Q: Is there a difference between an invoice and an official receipt? CIR vs. Manila Mining Corporation, GR. 153204, 31 Aug 2005
FACTS: Manila Mining is a VAT-registered mining corporation. It sold gold to the BSP. By virtue of this zero-rated VAT transaction, Manila Mining filed an application for tax credit/refund. The claim was denied for failure to submit documentary evidence. Manila Mining merely submitted a listing of VAT invoices and receipts. ISSUE: Whether Manila Mining presented sufficient evidence to grant its application for tax credit/tax refund? HELD: No. Mere listing of VAT invoice and receipts is insufficient. The claim must be substantiated with VAT invoices or official receipts which is defined as: A sales or commercial invoice is a written account of goods sold or services rendered indicating the prices charged therefor or a list by whatever name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services. A receipt on the other hand is a written acknowledgment of the fact of payment in money or other settlement between seller and buyer of goods, debtor or creditor, or person rendering services and client or customer.
Q: When are administrative and judicial claims for VAT refund/credit filed? CIR vs. Aichi Forging, GR No. 184823, 6 Oct. 2010
FACTS: Aichi Forging is a VAT-registered corporation engaged in the manufacturing, producing and processing of steel. It filed for a tax credit/refund for its unutilized input tax from purchases and importation attributable to its zero-rated sales. The CIR and the CTA ruled that the administrative and judicial claims were filed beyond the period allowed by law. Moreover, the CIR puts in issue the fact that the administrative claim with the BIR and the judicial claim with the CTA were filed on the same day. The CIR opines that simultaneous filing of the claims contravenes the NIRC which requires the prior filing of an administrative claim which is based on the doctrine of exhaustion of administrative remedies. ISSUE: Whether Aichi may claim for a tax credit/refund? HELD: No. First, the court reiterated that the unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made as laid down in Mirant. Going to the administrative and judicial claims, the Court ruled that the administrative claim was timely filed while the judicial claim was premature. In this case, applying the Administrative Code which states that a year is composed of 12 calendar months instead of the Civil Code ( a year is equivalent to 365 days), it is clear that Aichi timely filed its administrative claim within the two-year prescriptive period. On the other hand, the claim of Aichi must be denied for having filed the judicial claim beyond the prescriptive period. Where the taxpayer did not wait for the decision of the CIR or the lapse of the 120-day period, it having simultaneously filed the administrative and the judicial claims, the filing of the said judicial claim with the CTA is premature. Moreover, the 2 years prescriptive period refers to applications for refund/credit filed with the CIR and not to appeals made to the CTA. Applying the two-year period to judicial claims would render nugatory Section 112(D) of the NIRC, which already provides for a specific period within which a taxpayer should appeal the decision or inaction of the CIR.
AT&T Communications vs. CIR, GR No. 182364, 3 Aug 2010

FACTS: AT&T Communications supplies services to AT&T International and AT&T Singapore. Since its sale of services is zero-rated, AT&T communications applied for a VAT refund/credit. The CIR denied the claim for failure to substantiate its claim. The CTA ruled that valid VAT receipts should be present and not mere sales invoices. ISSUE: Whether sales invoices are enough to substantiate AT&Ts claim? HELD: Yes. In giving credence to the sales invoices (not necessarily official receipts), the Supreme Court said that: Sales invoices are recognized commercial documents to facilitate trade or credit transactions. They are proofs that a business transaction has been concluded, hence, should not be considered bereft of probative value. Only the preponderance of evidence threshold as applied in ordinary civil cases is needed to substantiate a claim for tax refund proper.
Hence, the case of AICHI clarified the Courts ruling in MIRANT, and periods to observe in filing an administrative claim or judicial claim for tax credit/refund of creditable input tax shall be as follows: 1. 2. For administrative claim, file within 2 years from the end of the taxable quarter when sales were made For judicial claim, the CIR has 120 days to decide a. If adverse decision within the 120-day period, appeal to CTA within 30 days from receipt of decision. b. If no decision within 120 days, appeal to the CTA within 30 days from the lapse of the 120-day period.
Kepco Philippines vs. CIR, GR No. 181858, 24 Nov. 2010

FACTS: KEPCO is an independent power producer. It supplies power to NPC, an entity exempt from tax. Given that its sale of power to NPC is effectively zero-rated, Kepco filed for a tax refund/credit. The claim was denied because Kepco failed to support its claim with VAT invoices. ISSUE: Whether Kepco is required to present VAT invoices to support its application for tax credit/refund? HELD: Yes. Only a VAT invoice might be presented to substantiate a sale of goods or properties, while only a VAT receipt could substantiate a sale of services. Pertinent portion of the decision read:
In other words, the VAT invoice is the sellers best proof of the sale of the goods or services to the buyer while the VAT receipt is the buyers best evidence of the payment of goods or services received from the seller. Even though VAT invoices and receipts are normally issued by the supplier/seller alone, the said invoices and receipts, taken collectively, are necessary to substantiate the actual amount or quantity of goods sold and their selling price (proof of transaction), and the best means to prove the input VAT payments (proof of payment). Hence, VAT invoice and VAT receipt should not be confused as referring to one and the same thing. Certainly, neither does the law intend the two to be used alternatively.
address and taxpayer identification number (TIN) of the purchaser, customer or client. Panasonic Communications vs. CIR, GR No. 178090, 8 Feb 2010
Note: See case as previously cited Section 113(B)(2)(c) of the 1997 Tax Code provides that certain information must be indicated on the VAT invoice or VAT official receipt, and that if the sale is subject to zero percent (0%) value-added tax, the term zero-rated sale shall be written or printed prominently on the invoice or receipt. The Bureau of Internal Revenue, the Divisions of the Court of Tax Appeals, the Court of Tax Appeals En Banc, and the Supreme Court has conflicting opinions on whether the term zero-rated sale must be written, stamped, or imprinted. However, as enunciated in recent cases, the term zero-rated sale must be imprinted, and not merely written or stamped. Otherwise, such claims for VAT refund/credit substantiated by non-conforming VAT invoices or VAT official receipts shall be disallowed.
MANILA MINING (2005) AND AT&T ( AUG 2010) KEPCO (NOV 2010)
Section 113 does not create a distinction between VAT invoice and VAT receipt There is a distinction. VAT invoice must be present to substantiate a sale of goods or properties while only a VAT receipt can substantiate a sale of services.
As jurisprudence now stands, we follow the rule of KEPCO where for purposes of substantiation: 1. 2. If sale of goods or properties, present VAT invoice. If sale of services, present VAT receipt.
IN THE
SECTION 113(C). ACCOUNTING REQUIREMENTS. SECTION 113(D). CONSEQUENCE OF ISSUING ERRONEOUS VAT INVOICE OR VAT OFFICIAL RECEIPT.
SECTION 113(B) INFORMATION CONTAINED OFFICIAL RECEIPT 1. 2.
VAT INVOICE
OR
VAT
A statement that the seller is a VAT-registered person, followed by his taxpayer's identification number (TIN); 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: Provided, That: a. b. The amount of the tax shall be shown as a separate item in the invoice or receipt; If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall be written or printed prominently on the invoice or receipt; If the sale is subject to zero percent (0%) value-added tax, the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt; If the sale involves goods, properties or services some of which are subject to and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt shall clearly indicate the breakdown of the sale price between its taxable, exempt and zero-rated components, and the calculation of the value-added tax on each portion of the sale shall be shown on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale.
If a person who is not VAT-registered issues an invoice or receipt showing his TIN, followed by the word VAT, the erroneous issuance shall result to the following: A. The Non-VAT person shall be liable to the: 1. percentage taxes applicable 2. VAT due on the transactions without the benefit of any input tax credit 3. 50% surcharge as penalty B. The VAT shall, if the other requisite information required is shown on the invoice or receipt, be recognized as an input tax credit to the purchaser. If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-exempt transaction, but fails to display prominently on the invoice or receipt the term VAT-exempt Sale, the issuer shall be liable to account for the VAT imposed. The purchaser shall be entitled to claim an input tax credit on said purchase. SECTION 113(E). TRANSITIONAL PERIOD. SECTION 114. RETURN AND PAYMENT OF VALUE-ADDED TAX. SECTION 114(A). IN GENERAL VAT returns shall be filed by persons liable to pay VAT. A quarterly VAT return of the amount of his gross sales or receipts within 25 days after the close of each taxable quarter prescribed for each taxpayer. The monthly VAT Declarations of taxpayers whether large or not shall be filed and the taxes paid not later than the th 20 day following the end of each month
c.
d.
3. 4.
The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and In the case of sales in the amount of one thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any,
Note: VAT is paid on a monthly basis. SECTION 114(B). WHERE TO FILE THE RETURN AND PAY THE TAX Except as the Commissioner otherwise permits, the return shall be filed with and the tax paid to an authorized agent bank, Revenue Collection Officer or duly authorized city or municipal Treasurer in the Philippines located within the revenue district where the taxpayer is registered or required to register. SECTION 114(C). WITHHOLDING OF VALUE-ADDED TAX The government or any of its political subdivisions, instrumentalities or agencies, including GOCCs, shall, before making payment on account of each purchase of goods or services subject to VAT, deduct and withhold a final VAT equivalent to 5% of the gross payment thereof provided that the payment for lease or use of properties or property rights to non-resident owners shall be subject to 10% withholding tax at the time of payment. SECTION 115. POWER OF THE COMMISSIONER OPERATIONS OF A TAXPAYER.
TO
SUSPEND
THE
BUSINESS

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COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

REVIEWER ON MERCANTILE TAXES

MERCANTILE TAXES IN GENERAL

VALUE ADDED TAX ( 105 to 115)

1 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

Panasonic Communications vs. CIR, GR No. 178090, 8 Feb 2010

CIR vs. Benguet Corporation, GR No. 145559, July 14, 2006

2 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

hence is not the proper party to claim for VAT refund.

3 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

CIR vs. CA, GR. No. 125355, 30 Mar 2000

Q: What is gross selling price in relation to VAT?

4 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

CIR vs. Cebu Toyo Corporation, GR No. 149073, 16 Feb 2005

Contex Corporation vs. CIR, GR No. 151135, July 2, 2004

5 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

6 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

SECTION 106(A)(2)(a)(i). ACTUAL SHIPMENT PHILIPPINES TO A FOREIGN COUNTRY

RAW MATERIALS TO A RESIDENT LOCAL EXPORT-

Altas Consolidated vs. CIR, GR No. 146221, 25 Sept. 2007

Intel Technology Philippines vs. CIR, GR No. 166732, 27 April 2007

7 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

Panasonic Communications vs. CIR, GR No. 178090, 8 Feb 2010

8 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

goods, properties or services by the seller, transferor or lessor.

SECTION 106(E). AUTHORITY APPROPRIATE TAX BASE.

9 PIERRE MARTIN DE LEON REYES

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

Quezon City vs. ABS-CBN, GR No. 166408, 6 Oct. 2008

Sonza vs. ABS-CBN, GR No. 138051, 10 June 2004

CIR vs. CA, GR No. 125355, 30 Mar. 2000

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

CIR vs. Placer Dome, GR No. 164365, 8 June 2007

CIR vs. Burmeister, GR No. 153205, 22 Jan. 2007

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

SECTION 108(B)(3) ZERO-RATED SALES INTERNATIONAL AGREEMENTS

San Roque Power vs, CIR, GR No. 180345, 25 Nov. 2009

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

Misamis Oriental vs. DOF, GR No. 108524, 10 Nov. 1994.

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

First Planters Pawnshop vs. CIR, GR No. 174134, 30 July 2008.

SECTION 109(I) SERVICES RENDERED BY INDIVIDUALS AN EMPLOYER-EMPLOYEE RELATIONSHIP

Sonza vs. ABS-CBN, GR No. 138051, 10 June 2004.

PAGCOR vs. CIR, GR No 172087, 15 Mar. 2011

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

Note: See cases of INTEL TECHNOLOGY CORPORATION VS. CIR.

ATLAS (2007) MIRANT (2008)

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

AT&T Communications vs. CIR, GR No. 182364, 3 Aug 2010

Kepco Philippines vs. CIR, GR No. 181858, 24 Nov. 2010

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

SECTION 113(B) INFORMATION CONTAINED OFFICIAL RECEIPT 1. 2.

COURSE: TAXATION II PROFESSOR: GRUBA 1st Semester AY 2011-2012

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