1

PRINCIPLES/CONCEPTS
OF ESTATE TAX & VAT
I. Estate tax
Post-mortem dispositions typically (1) Convey no title or ownership to the transferee before the death of the
transferor; or, what amounts to the same thing, that the transferor should retain
the ownership (full or naked) and control of the property while alive;
(2) That before the [donor's] death, the transfer should be revocable by the
transferor at will, ad nutum; but revocability may be provided for indirectly by
means of a reserved power in the donor to dispose of the properties conveyed;
(3) That the transfer should be void if the transferor should survive the
transferee;
[4] [T]he specification in a deed of the causes whereby the act may be revoked
by the donor indicates that the donation is inter vivos, rather than a disposition
mortis causa;
[5] That the designation of the donation as mortis causa, or a provision in the
deed to the effect that the donation is "to take effect at the death of the donor"
are not controlling criteria; such statements are to be construed together with
the rest of the instrument, in order to give effect to the real intent of the
transferor; and
(6) That in case of doubt, the conveyance should be deemed donation inter vivos rather
than mortis causa, in order to avoid uncertainty as to the ownership of the property
subject of the deed. (GONZALO VILLANUEVA vs. SPOUSES FROILAN, G.R. No. 172804,
January 24, 2011)
The conveyance in question is not, first of all, one of mortis causa, which should be embodied in
a will. In this case, the monies subject of savings account were in the nature of conjugal funds.
In the case relied on, Rivera v. People's Bank and Trust Co., we rejected claims that a
survivorship agreement purports to deliver one party's separate properties in favor of the other,
but simply, their joint holdings. (ROMARICO G. VITUG vs. THE HONORABLE COURT OF
APPEALS and ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)
But although the survivorship agreement is per se not contrary to law its operation or effect
may be violative of the law. For instance, if it be shown in a given case that such agreement is a
mere cloak to hide an inofficious donation, to transfer property in fraud of creditors, or to defeat

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the legitime of a forced heir, it may be assailed and annulled upon such grounds. (ROMARICO G.
VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-CORONA, G.R. No.
82027, March 29, 1990)
As held in Propstra v. U.S., where a lien claimed against the estate was certain and enforceable
on the date of the decedent's death, the fact that the claimant subsequently settled for lesser
amount did not preclude the estate from deducting the entire amount of the claim for estate tax
purposes. These pronouncements essentially confirm the general principle that post-death
developments are not material in determining the amount of the deduction. (RAFAEL ARSENIO
S. DIZON vs. COURT OF TAX APPEALS, G.R. No. 140944, April 30, 2008)
We express our agreement with the date-of-death valuation rule. There is no law, nor do we
discern any legislative intent in our tax laws, which disregards the date-of-death valuation
principle and particularly provides that post-death developments must be considered in
determining the net value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports,
tax statutes being construed strictissimi juris against the government. (RAFAEL ARSENIO S.
DIZON vs. COURT OF TAX APPEALS, G.R. No. 140944, April 30, 2008)
Such construction finds relevance and consistency in our Rules on Special Proceedings wherein
the term "claims" required to be presented against a decedent's estate is generally construed to
mean debts or demands of a pecuniary nature which could have been enforced against the
deceased in his lifetime, or liability contracted by the deceased before his death. Therefore, the
claims existing at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)
Administration expenses, as an allowable deduction from the gross estate of the decedent for
purposes of arriving at the value of the net estate, have been construed by the federal and
state courts of the United States to include all expenses "essential to the collection of the assets,
payment of debts or the distribution of the property to the persons entitled to it." In other
words, the expenses must be essential to the proper settlement of the estate and expenditures
incurred for the individual benefit of the heirs, devisees or legatees are not deductible.
(COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 123206, March 22,
2000)
Thus, in Lorenzo v. Posadas, the Court construed the phrase "judicial expenses of the
testamentary or intestate proceedings" as not including the compensation paid to a trustee of
the decedent's estate when it appeared that such trustee was appointed for the purpose of
managing the decedent's real estate for the benefit of the testamentary heir. In another case,
the Court disallowed the premiums paid on the bond filed by the administrator as an expense of
administration since the giving of a bond is in the nature of a qualification for the office, and not
necessary in the settlement of the estate. Neither may attorney's fees incident to litigation
incurred by the heirs in asserting their respective rights be claimed as a deduction from the
gross estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No.
123206, March 22, 2000)

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The notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such
settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs. Similarly, the
attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property should also
be considered as a deductible administration expense as PNB provided a detailed accounting of
decedent's property and gave advice as to the proper settlement of the latter's estate, acts
which contributed towards the collection of decedent's assets and the subsequent settlement of
the estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 123206,
March 22, 2000)
Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it
was to take effect after the death of one party. Secondly, it is not a donation between the
spouses because it involved no conveyance of a spouse's own properties to the other.
(ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINOCORONA, G.R. No. 82027, March 29, 1990)
In the case at bar, when the spouses Vitug opened savings account, they merely put what
rightfully belonged to them in a money-making venture. They did not dispose of it in favor of
the other, which would have arguably been sanctionable as a prohibited donation. (ROMARICO
G. VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINO-CORONA, G.R.
No. 82027, March 29, 1990)
The granting clause shows that Diego donated the properties out of love and affection for the
donee which is a mark of a donation inter vivos; second, the reservation of lifetime usufruct
indicates that the donor intended to transfer the naked ownership over the properties; third, the
donor reserved sufficient properties for his maintenance in accordance with his standing in
society, indicating that the donor intended to part with the six parcels of land; lastly, the donee
accepted the donation. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT
OF APPEALS, G.R. No. 111904, October 5, 2000)
In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an acceptance clause is
a mark that the donation is inter vivos. Acceptance is a requirement for donations inter vivos.
Donations mortis causa, being in the form of a will, are not required to be accepted by the
donees during the donors' lifetime. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA
vs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000)
Crucial in resolving whether the donation was inter vivos or mortis causa is the determination of
whether the donor intended to transfer the ownership over the properties upon the execution of
the deed. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF APPEALS,
G.R. No. 111904, October 5, 2000)
A remuneratory donation is one where the donee gives something to reward past or future
services or because of future charges or burdens, when the value of said services, burdens or
charges is less than the value of the donation. (De Luna v. Abrigo, G.R. No. L-57455, January
18, 1990)

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B. Value-Added Tax (VAT)
1. Concept
As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in
the chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not
just on the value added by the taxpayer, but on the entire selling price of his goods, properties
or services. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION,
G.R. No. 187485, February 12, 2013)
However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who
sold him the inputs for his goods, properties, or services. The net effect is that the taxpayer
pays the VAT only on the value that he adds to the goods, properties, or services that he
actually sells. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
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 term "in the course of trade or business" requires the regular
conduct or pursuit of a commercial or an economic activity, regardless of whether or not the
entity is profit-oriented. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 125355, March 30, 2000)
The VAT is not a license tax; it is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties
or the sale or exchange of services and the lease of properties purely for revenue purposes.
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
2. Characteristics/Elements of a VAT-Taxable transaction
VAT is not a singular-minded tax on every transactional level; its assessment bears direct
relevance to the taxpayer's role or link in the production chain. Hence, as affirmed by Section 99
[now Sec. 105] 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. (COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES,
INC., G.R. No. 146984. July 28, 2006)
The Court rules that given the undisputed finding that the transaction in question was not made
in the course of trade or business of the seller, NDC that is, the sale is not subject to VAT
pursuant to Section 99 [now Sec. 105] of the Tax Code, no matter how the said sale may hew
to those transactions deemed sale as defined under Section 100 [now Sec. 106].
(COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R. No. 146984. July
28, 2006)

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Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be
levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to
Sony; it was but a dole out by SIS and not in payment for goods or properties sold, bartered or
exchanged by Sony. (COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC.,
G.R. No. 178697, November 17, 2010)
Goods or properties must be used directly or indirectly in the production or sale of taxable
goods and services. (Kepco Philipppines Corp. v. CIR, G.R. No. 179356, December 14, 2009)
it is immaterial whether the primary purpose of a corporation indicates that it receives payments
for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service rendered is subject to
VAT. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 125355,
March 30, 2000)
3. Impact of tax
Under Section 105 of the Tax Code, VAT is imposed on any person who, in the course of trade
or business, sells or renders services for a fee. In other words, the seller of services, who in this
case is the tollway operator, is the person liable for VAT. The latter merely shifts the burden of
VAT to the tollway user as part of the toll fees. (RENATO V. DIAZ and AURORA MA. F. TIMBOL
vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
4. Incidence of tax
The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is transferred is not the seller's liability
but merely the burden of the VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears
its burden since the amount of VAT paid by the former is added to the selling price. Once
shifted, the VAT ceases to be a tax and simply becomes part of the cost that the buyer must
pay in order to purchase the good, property or service. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
A seller who is directly and legally liable for the 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 of 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 v. CIR,
G.R. No. 151135, July 2, 2004)
In the case of the VAT, the law minimizes the regressive effects of indirect taxation by providing
for zero rating of certain transactions, while granting exemptions to other transactions. On the
other hand, the transactions which are subject to the VAT are those which involve goods and

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services which are used or availed of mainly by higher income groups. (ARTURO M. TOLENTINO
v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
According to the Destination Principle, goods and services are taxed only in the country where
these are consumed. In connection with the said principle, the Cross Border Doctrine mandates
that no VAT shall be imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT, while those destined for use or
consumption within the Philippines shall be imposed with 10% VAT. (ATLAS CONSOLIDATED
MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
Nos. 141104 & 148763, June 8, 2007)
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. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Under the cross-border principle of the VAT system being enforced by the Bureau of Internal
Revenue (BIR), no VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority. If exports of goods and
services from the Philippines to a foreign country are free of the VAT, then the same rule holds
for such exports from the national territory - except specifically declared areas - to an ecozone.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
While an ecozone is geographically within the Philippines, it is deemed a separate customs
territory and is regulated in laws as foreign soul. Sales by supplies outside the borders of
ecozone to this separate customs territory are deemed exports and treated as export sales. (CIR
v. Seksui Jushi Phils, Inc. G.R. No. 149671, July 21, 2006)
For as long as the goods remain within the zone, whether we call it an economic zone or a
freeport zone, for as long as we say in this law that all goods entering this particular territory
will be duty-free and tax-free, for as long as they remain there, consumed there or re-exported
or destroyed in that place, then they are not subject to duties and taxes in accordance with the
laws of the Philippines. (Coconut Oil Refiners Association v. Executive Secretary, G.R. No.
132527, July 29, 2005)
8. VAT on sale of goods or properties
Goods, as commonly understood in the business sense, refer to the product which the VATregistered person offers for sale to the public. With respect to real estate dealers, it is the real
properties themselves which constitute their goods. Such real properties are the operating
assets of the real estate dealer. (Fort Bonifacio Development Corporation vs. CIR, G.R. Nos.
158885 and 170630, April 2, 2009)

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a) Requisites of taxability of sale of goods or properties
Mindanao II's sale of the Nissan Patrol is said to be an isolated transaction. However, it does not
follow that an isolated transaction cannot be an incidental transaction for purposes of VAT
liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction
"in the course of trade or business" includes "transactions incidental thereto." (MINDANAO II
GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301,
March 11, 2013)
Prior to the sale, the Nissan Patrol was part of Mindanao II's property, plant, and equipment.
Therefore, the sale of the Nissan Patrol is an incidental transaction made in the course of
Mindanao II's business which should be liable for VAT. (MINDANAO II GEOTHERMAL
PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
9. Zero-rated sales of goods or properties, and effectively zero-rated sales of goods
or properties
Zero-rated transactions generally refer to the export sale of goods and supply of services. The
tax rate is set at zero and 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.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
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. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
If respondent is located in an export processing zone within that ecozone, sales to the export
processing zone, even without being actually exported, shall in fact be viewed as constructively
exported under EO 226. Considered as export sales, such purchase transactions by respondent
would indeed be subject to a zero rate. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
PAGCOR's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly
and extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation. Acesite sought the refund of the amount it paid as VAT on the ground that its
transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.
The Court ruled that PAGCOR and Acesite were both exempt from paying VAT. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE,
G.R. No. 172087, March 15, 2011)

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No prior application for the effective zero rating of its transactions is necessary. The BIR
regulations additionally requiring an approved prior application for effective zero rating cannot
prevail over the clear VAT nature of respondent's transactions. Other than the general
registration of a taxpayer the VAT status of which is aptly determined, no provision under our
VAT law requires an additional application to be made for such taxpayer's transactions to be
considered effectively zero-rated. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
The Omnibus Investments Code of 1987 recognizes as export sales the sales of export products
to another producer or to an export trader, provided that the export products are actually
exported. For purposes of VAT zero-rating, such producer or export trader must be registered
with the BOI and is required to actually export more than 70% of its annual production. (ATLAS
CONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007)
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 both instances of zero rating, there is total
relief for the purchaser from the burden of the tax but in an exemption there is only partial
relief, because the purchaser is not allowed any tax refund of or credit for input taxes paid.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
13. VAT on sale of service and use or lease of properties
Service has been defined as the art of doing something useful for a person or company for a fee
or useful labor or work rendered or to be rendered another for a fee. (CIR v. American Express
International, Inc., G.R. No. 152609, June 29, 2005)
By qualifying "services" with the words "all kinds," Congress has given the term "services" an all
-encompassing meaning. The listing of specific services are intended to illustrate how pervasive
and broad is the VAT's reach rather than establish concrete limits to its application; thus, every
activity that can be imagined as a form of "service" rendered for a fee should be deemed
included unless some provision of law especially excludes it. (RENATO V. DIAZ and AURORA MA.
F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
Tollway operators not only come under the broad term "all kinds of services," they also come
under the specific class described in Section 108 as "all other franchise grantees" who are
subject to VAT, "except those under Section 119 of this Code." Tollway operators are franchise
grantees and they do not belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less than P10 million and gas and water
utilities) that Section 119 spares from the payment of VAT. (RENATO V. DIAZ and AURORA MA.
F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
In specifically including by way of example electric utilities, telephone, telegraph, and

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broadcasting companies in its list of VAT-covered businesses, Section 108 opens other
companies rendering public service for a fee to the imposition of VAT. Businesses of a public
nature such as public utilities and the collection of tolls or charges for its use or service is a
franchise. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE,
G.R. No. 193007, July 19, 2011)
In the case of CIR v. Court of Appeals (CA), the Court had the occasion to rule that services
rendered for a fee even on reimbursement-on-cost basis only and without realizing profit are
also subject to VAT. In that case, COMASERCO rendered service to its affiliates and, in turn, the
affiliates paid the former reimbursement-on-cost which means that it was paid the cost or
expense that it incurred although without profit. (COMMISSIONER OF INTERNAL REVENUE vs.
SONY PHILIPPINES, INC., G.R. No. 178697, November 17, 2010)
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. The legislative
intent is not to impose VAT on persons already covered by the amusement tax and this holds true even
in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was
intended to replace the percentage tax on certain services. (CIR v. SM Prime Holdings, Inc. and First
Asia Realty Development Corp., G.R. No. 183505, February 26, 2010)
15. VAT exempt transactions
An exempt transaction involves goods or services which, by their nature, are specifically listed in
and expressly exempted from the VAT under the Tax Code, without regard to the tax status VAT-exempt or not - of the party to the transaction. 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.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
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. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
a) VAT exempt transactions, in general
By extending the exemption to entities or individuals dealing with PAGCOR, the legislature
clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT,
as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods,
properties, or services subject to VAT. Thus, by extending the tax exemption to entities or
individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable
to indirect taxes. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE
BUREAU OF INTERNAL REVENUE, G.R. No. 172087, March 15, 2011)

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The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension
of such exemption to entities or individuals dealing with PAGCOR in casino operations are best
elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons,
Inc., where the absolute tax exemption of the World Health Organization (WHO) upon an
international agreement was upheld. We held in said case that the exemption of contractee
WHO should be implemented to mean that the entity or person exempt is the contractor itself
who constructed the building owned by contractee WHO, and such does not violate the rule that
tax exemptions are personal because the manifest intention of the agreement is to exempt the
contractor so that no contractor's tax may be shifted to the contractee WHO. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE,
G.R. No. 172087, March 15, 2011)
Pawnshops- considered as non-bank financial intermediary is exempted from VAT but liable to
percentage tax. (Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085, January 21, 2010)
16. Input tax and output tax, defined
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.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
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. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Prior payment of taxes is not necessary before a taxpayer could avail of the 8% transitional
input tax credit: first, it was never mentioned in Section 105 of the old NIRC [now Sec. 111]
that prior payment of taxes is a requirement; second, since the law (Section 105 of the NIRC)
does not provide for prior payment of taxes, to require it now would be tantamount to judicial
legislation which, to state the obvious, is not allowed; third, a transitional input tax credit is not
a tax refund per se but a tax credit; fourth, if the intent of the law were to limit the input tax to
cases where actual VAT was paid, it could have simply said that the tax base shall be the actual
value-added tax paid; and fifth, this Court had already declared that prior payment of taxes is
not required in order to avail of a tax credit. (FORT BONIFACIO DEVELOPMENT CORPORATION
vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, January 22, 2013)
Section 112 of the Tax Code does not prohibit cash refund or tax credit of transitional input tax
in the case of zero-rated or effectively zero-rated VAT registered taxpayers, who do not have
any output VAT. The phrase "except transitional input tax" in Section 112 of the Tax Code was
inserted to distinguish creditable input tax from transitional input tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425,
January 22, 2013)
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered

11
persons, whether or not they previously paid taxes in the acquisition of their beginning
inventory of goods, materials and supplies. During that period of transition from non-VAT to
VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the
taxpayer. (FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
In a VAT-exempt transaction, the seller is not allowed to charge VAT to his customer. Since no
output tax is shifted by the seller, there is no output tax against which the related input taxes
may be credited. Neither can he credit this input tax against the VAT due on other sales. In this
case, he is treated as the end user who will shoulder the cost of the input VAT.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)
Unlike the input taxes related to exempt sales, input taxes related to zero-rated sales may be
credited against output taxes on other sales and in case it is not fully utilized, the excess may
be carried over to the succeeding quarter or quarters and there is no prescription period for the
carry-over. The law gives the taxpayer another option for the recovery of used input taxes:
application for refund or tax credit certificate. (COMMISSIONER OF INTERNAL REVENUE vs.
SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013)
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.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
While a tax liability is essential to the availment or use of any tax credit, prior tax payments are
not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a
prior tax payment is needed. (FORT BONIFACIO DEVELOPMENT CORPORATION vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, January 22, 2013)
As regards Section 110, while the law only provides for a tax credit, a taxpayer who erroneously
or excessively pays his output tax is still entitled to recover the payments he made either as a
tax credit or a tax refund. In this case, since petitioner still has available transitional input tax
credit, it filed a claim for refund to recover the output VAT it erroneously or excessively paid for
the 1st quarter of 1997. Thus, there is no reason for denying its claim for tax refund/credit.
(FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
Even if the law does not expressly state that the Ironcon's excess creditable VAT withheld is
refundable, it may be the subject-of a claim for refund as an erroneously collected tax under
Sec. 204 (C) and 229 of the NIRC. It should be clarified that this ruling only refers to creditable
VAT withheld pursuant to Sec. 114 of the NIRC prior to its amendment. After its amendment by
R.A. 9337, the amount withheld under Sec. 114 of the NIRC is now treated as final VAT, no

12
longer under the creditable withholding tax system (CIR v. Ironcon Builders and Development
Corp., G.R. No. 180042, February 8, 2010)
The input VAT is not "excessively" collected as understood under Section 229 because at the
time the input VAT is collected the amount paid is correct and proper. The person
legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere
existence of an "excess" input VAT. The term "excess" input VAT simply means that the input
VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected
because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT
cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No.
187485, February 12, 2013)
If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek
a refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT
System does not allow such refund or credit and such "excess" input VAT is not an "excessively"
collected tax under Section 229. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE
POWER CORPORATION, G.R. No. 187485, February 12, 2013)
Who may claim for refund/apply for issuance of tax credit certificate
Having determined that respondent's purchase transactions are subject to a zero VAT rate, the
tax refund or credit is in order. To repeat, the VAT is a tax imposed on consumption, not on
business. Although respondent as an entity is exempt, the transactions it enters into are not
necessarily so. The VAT payments made in excess of the zero rate that is imposable may
certainly be refunded or credited. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Period to file claim/apply for issuance of tax credit certificate
The Court, in San Roque, ruled that equitable estoppel had set in when respondent issued BIR
Ruling No. DA-489-03 which was a general interpretative rule, which effectively misled all
taxpayers into filing premature judicial claims with the CTA. Thus, taxpayers could rely on the
ruling from its issuance on 10 December 2003 up to its reversal on 6 October 2010, when CIR v.
Aichi Forging Company of Asia, lnc. was promulgated. (PROCTER & GAMBLE ASIA PTE LTD.
vs.COMMISSIONER OF INTERNAL REVENUE, G.R. No. 202071, February 19, 2014)
In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or
credit of unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows:
(1) An administrative claim must be filed with the CIR within two years after the close of
the taxable quarter when the zero-rated or effectively zero-rated sales were made.
(2) The CIR has 120 days from the date of submission of complete documents in
support of the administrative claim within which to decide whether to grant a refund or
issue a tax credit certificate. The 120-day period may extend beyond the two-year

13
period from the filing of the administrative claim if the claim is filed in the later part of
the two-year period. If the 120-day period expires without any decision from the CIR,
then the administrative claim may be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the
CIR's decision denying the administrative claim or from the expiration of the 120-day
period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6 October
2010, as an exception to the mandatory and jurisdictional 120+30 day periods.
(COMMISSIONER OF INTERNAL REVENUE vs.TOLEDO POWER, INC., G.R. No. 183880,
January 20, 2014)
Its summary:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year prescriptive
period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is the close of the
taxable quarter when the relevant sales were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12
September 2008. Atlas states that the two-year prescriptive period for filing a claim for
tax refund or credit of unutilized input VAT payments should be counted from the date
of filing of the VAT return and payment of the tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within
thirty days after the Commissioner denies the claim within the 120-day period, or (2) file
the judicial claim within thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on the part of
the CIR.
3. As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional.
(Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only if filed between
10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in

14
force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-48903 was in force. (San Roque) (COMMISSIONER OF INTERNAL REVENUE vs. MINDANAO
II GEOTHERMAL PARTNERSHIP, G.R. No. 191498, January 15, 2014)
It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. Failure to comply with the 120-day waiting period violates a mandatory provision
of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect that the CTA does not acquire
jurisdiction over the taxpayer's petition. (MINDANAO II GEOTHERMAL PARTNERSHIP vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
Stated otherwise, the two-year prescriptive period does not refer to the filing of the judicial
claim with the CTA but to the filing of the administrative claim with the Commissioner. As held
in Aichi, the "phrase
within two years x x x apply for the issuance of a tax credit or refund'
refers to applications for refund/credit with the CIR and not to appeals made to the CTA."
(MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 193301, March 11, 2013)
San Roque's failure to comply with the 120-day mandatory period renders its petition for
review with the CTA void as Article 5 of the Civil Code provides, "Acts executed against
provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes
their validity." San Roque's void petition for review cannot be legitimized by the CTA or this
Court because Article 5 of the Civil Code states that such void petition cannot be legitimized
"except when the law itself authorizes [its] validity," and there is no law authorizing the
petition's validity. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
Sec. 112(A) clearly provides in no uncertain terms that unutilized input VAT payments not
otherwise used for any internal revenue tax due the taxpayer 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. The
reckoning frame would always be the end of the quarter when the pertinent sales or transaction
was made, regardless when the input VAT was paid. (COMMISSIONER OF INTERNAL REVENUE
vs. MIRANT PAGBILAO CORPORATION, G.R. No. 172129. September 12, 2008)
This prescriptive period has no relation to the date of payment of the "excess" input VAT since
the "excess" input VAT may have been paid for more than two years but this does not bar the
filing of a judicial claim for "excess" VAT under Section 112 (A), which has a different reckoning
period from Section 229. Moreover, the person claiming the refund or credit of the input VAT is
not the person who legally paid the input VAT. (COMMISSIONER OF INTERNAL REVENUE vs.
SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013)

15
The mere filing by a taxpayer of a judicial claim with the CTA before the expiration of the 120day period cannot operate to divest the Commissioner of his jurisdiction to decide an
administrative claim within the 120-day mandatory period, unless the Commissioner has clearly
given cause for equitable estoppel to apply as expressly recognized in Section 246 of the Tax
Code. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R.
No. 187485, February 12, 2013)
Because the 120+30 day period is jurisdictional, the issue of whether petitioner complied with
the said time frame may be broached at any stage, even on appeal. (NIPPON EXPRESS
(PHILIPPINES) CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 196907,
March 13, 2013)
For a judicial claim for refund to prosper, however, respondent must not only prove that it is a
VAT registered entity and that it filed its claims within the prescriptive period. It must
substantiate the input VAT paid by purchase invoices or official receipts: 1) 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; and 2)
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. (ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. Nos. 141104 & 148763, June
8, 2007)
a) Invoicing requirements in general
The requisite that the receipt be issued showing the name, business style, if any, and address
of the purchaser, customer or client is precise so that when the books of accounts are subjected
to a tax audit examination, all entries therein could be shown as adequately supported and
proven as legitimate business transactions. The absence of official receipts issued in the
taxpayer's name is tantamount to non-compliance with the substantiation requirements
provided by law. (BONIFACIO WATER CORPORATION (formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142, July 22,
2013)
Taxpayers claiming for a refund or tax credit certificate must comply with the strict and
mandatory invoicing and accounting requirements provided under the 1997 NIRC, as amended,
and its implementing rules and regulations. Thus, the change of petitioner's name to "Bonifacio
GDE Water Corporation," being unauthorized and without approval of the SEC, and the issuance
of official receipts under that name which were presented to support petitioner's claim for tax
refund, cannot be used to allow the grant of tax refund or issuance of a tax credit certificate in
petitioner's favor. (BONIFACIO WATER CORPORATION (formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142, July 22,
2013)

16
Failure to print the word "zero-rated" on the invoices or receipts is fatal to a claim for credit of
refund of input VAT on zero-rated sales (J.R.A. Philippines, Inc. v. CIR, G.R. No. 177127,
October 11, 2010)
If the claim for refund/tax credit certificate is based on the existence of zero-rated sales by the
taxpayer but it fails to comply with the invoicing requirements in the issuance of sales invoices
(e.g. failure to indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be
denied considering that the invoice it is issuing to its customers does not depict its being a VATregistered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment is
without prejudice to the right of the taxpayer to charge the input taxes to the appropriate
expense account or asset account subject to depreciation, whichever is applicable (Panasonic
Comm. Imaging Corp. of the Phil. v. CIR, G.R. No. 178090, February 8, 2010)