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CIR vs SM Prime Holdings Inc.

In a number of CTA cases, the BIR sent SM Prime and First Asia a
Preliminary Assessment Notice (PAN) for VAT deficiency on
cinema ticket sales for taxable year 2000 (SM), 1999 (First Asia),
2000 (First Asia), 2002 (First Asia), and 2003 (First Asia).
o SM and First Asia filed for protest but the BIR just denied
them and sent them a Letter of Demand subsequently.
o All the PANs were subjected to a Petition for Review filed by
SM and First Asia to the CTA.
The CTA First Division ruled that there should only be one
business tax applicable to theater and movie houses, the 30%
amusement tax. Hence, the CIR is wrong in collecting VAT from
the ticket sales.
o CIR appealed the case to the CTA En Banc.
The CTA En Banc affirmed the ruling of the CTA First Division.

ISSUE: Whether the cinema ticket sales are subject to VAT and thus
included in the meaning of Sale or Exchange of Services?

When VAT was enacted it replaced the tax on original and subsequent
sales tax and percentage tax on certain services. When the VAT law
was implemented, it exempted persons subject to amusement tax
under the NIRC from the coverage of VAT. When the Local Tax Code
was repealed by the Local Government Code of 1991, the local
government continued to impose amusement tax on admission tax on
ticket sales. The following amendments to the VAT law have been
consistent that those subject to amusement tax is no liable under VAT.
Only lessors or distributors of cinematographic films are included in the
coverage of VAT.

It can be seen from the foregoing that the legislative intent was not to
impose VAT on persons already covered by the amusement tax. To hold
otherwise would impose an unreasonable burden on cinema/theater
houses operators and proprietors, who would be paying an additional
10% VAT on top of the 30% amusement tax.

**Yung susunod the discussion ay yung sinabi ng court bago

nila inalam yung legislative intent na nakamention sa itaas**
Sec. 108 of the NIRC provides that, there shall be levied, assessed and
collected, a VAT equivalent to 10% of gross receipts derived from the
sale or exchange of services, including the use or lease of properties.
The phrase sale or exchange of services means the performance of
all kinds of services in the Philippines for others for a fee, remuneration
or consideration, including those.lessors or distributors of
cinematographic films..and similar services regardless of whether
or not the performance thereof calls for the exercise or use of the
physical or mental faculties. The phrase sale or exchange of services
shall likewise include: (7) lease of motion picture films, films, tapes and

A reading of the foregoing provision clearly shows that the

enumeration of the sale or exchange of services subject to VAT is not
exhaustive. The words, including, similar services, and shall
likewise include, indicate that the enumeration is by way of example