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Other matters:
It does not unduly discriminate against customs brokers.
A tax assessed, levied, and collected on every importation of goods, whether or not in the course of The phrase "except customs brokers" is not meant to discriminate against customs brokers. It
trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on was inserted in Sec. 103(r) to complement the provisions of Sec. 102 of the Code, which makes
each rendition of services in the course of trade or business as they pass along the production and the services of customs brokers subject to the payment of the VAT and to distinguish customs
distribution chain, the tax being limited only to the value added to such goods, properties or brokers from other professionals who are subject to the payment of an occupation tax
services by the seller, transferor or lessor. under the Local Tax Code.

Described as: The distinction of the customs brokers from the other professionals who are subject to
a privilege tax: a tax on the privilege of engaging in the business of selling goods or occupation tax under the Local Tax Code is based upon material differences, in that the
services or in the importation of goods activities of customs brokers (like those of stock, real estate and immigration brokers)
cumulative: imposed on all stages from manufacturing, wholesale up to retail partake more of a business, rather than a profession and were thus subjected to the
ad valorem tax: based on the value of the property being sold percentage tax under Sec. 174 of the National Internal Revenue Code prior to its amendment
indirect tax: the burden of paying the tax liability can be passed on to the consumer, by EO 273. EO 273 abolished the percentage tax and replaced it with the VAT. If the petitioner
Association did not protest the classification of customs brokers then, the Court sees no reason
Types of Business taxes: why it should protest now.
1. VAT
2. Other percentage tax Tolentino v. Secretary of Finance (1994 and 1995)
3% based on gross receipts
3. Sin tax 1994
Tax on sin products: cigarettes, alcoholic beverages
The Constitution does not really prohibit the imposition of indirect taxes which,
VAT and other percentage tax like the VAT, are regressive.
Same subject matter: privilege of doing business.
A taxpayer cannot be subjected to both tax. What it simply provides is that Congress shall "evolve a progressive system of taxation." The
If both are imposed on the same income, same transaction and same privilege, it constitutional provision has been interpreted to mean simply that "direct taxes are to be
would constitute double taxation since both are in the nature of a business tax preferred and as much as possible, indirect taxes should be minimized."

Resort to indirect taxes should be minimized but not avoided entirely because it is
Kapatiran v. Tan difficult, if not impossible, to avoid them by imposing such taxes according to the taxpayers'
ability to pay.
Purpose of VAT
The VAT is said to have eliminated privilege taxes, multiple rated sales tax on manufacturers and The law minimizes the regressive effects of VAT
producers, advance sales tax, and compensating tax on importations. It is principally aimed to
rationalize the system of taxing goods and services; simplify tax administration; and make the tax The law provides for zero rating of certain transactions while granting exemptions to other
system more equitable, to enable the country to attain economic recovery. transactions

Uniformity The transactions which are subject to the VAT are those which involve goods and
services which are used or availed of mainly by higher income groups. These include real
VAT is considered uniform: properties held primarily for sale to customers or for lease in the ordinary course of trade or
o It operates with the same force and effect in every place where the subject may be business, the right or privilege to use patent, copyright, and other similar property or right,
found. the right or privilege to use industrial, commercial or scientific equipment, motion picture
o It shall apply equally to all persons, firms and corporations placed in similar films, tapes and discs, radio, television, satellite transmission and cable television time, hotels,
situation. restaurants and similar places, securities, lending investments, taxicabs, utility cars for rent,
tourist buses, and other common carriers, services of franchise grantees of telephone and
Equitable telegraph

It is imposed only on sales of goods or services by persons engage in business with an On the other hand, small business establishments, with annual gross sales of less than
aggregate gross annual sales exceeding the amount set by law. P500,000, are exempted. This, according to respondents, removes from the coverage of the law
some 30,000 business establishments.
Small corner sari-sari stores are consequently exempt from its application. Likewise exempt
from the tax are sales of farm and marine products, spared as they are from the incidence of
the VAT, are expected to be relatively lower and within the reach of the general public.

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Equality and uniformity of taxation means that all taxable articles or kinds of property of the The distinction between statutory privileges and vested rights must be borne in mind for
same class be taxed at the same rate. The taxing power has the authority to make reasonable and persons have no vested rights in statutory privileges. The state may change or take away rights,
natural classifications for purposes of taxation. To satisfy this requirement it is enough that the which were created by the law of the state, although it may not take away property, which was
statute or ordinance applies equally to all persons, forms and corporations placed in similar vested by virtue of such rights.
Uniformity and Equitability of Taxation
The following transactions involving basic and essential goods and services are exempted
from the VAT: Uniformity in taxation means that all taxable articles or kinds of property of the same class shall
be taxed at the same rate. Different articles may be taxed at different amounts provided that the
(a) Goods for consumption or use which are in their original state (agricultural, marine and rate is uniform on the same class everywhere with all people at all times. 86
forest products, cotton seeds in their original state, fertilizers, seeds, seedlings, fingerlings, fish,
In this case, the tax law is uniform as it provides a standard rate of 0% or 10% (or 12%) on all
prawn livestock and poultry feeds) and goods or services to enhance agriculture (milling of
goods and services. Sections 4, 5 and 6 of R.A. No. 9337 provide for a rate of 10% (or 12%) on
palay, corn sugar cane and raw sugar, livestock, poultry feeds, fertilizer, ingredients used for the
sale of goods and properties, importation of goods, and sale of services and use or lease of
manufacture of feeds).
properties. These same sections also provide for a 0% rate on certain sales and transaction.
(b) Goods used for personal consumption or use (household and personal effects of citizens
returning to the Philippines) and or professional use, like professional instruments and
Neither does the law make any distinction as to the type of industry or trade that will bear the
implements, by persons coming to the Philippines to settle here.
70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of
(c) Goods subject to excise tax such as petroleum products or to be used for manufacture of
capital goods or the 5% final withholding tax by the government. It must be stressed that the rule
petroleum products subject to excise tax and services subject to percentage tax.
of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and
(d) Educational services, medical, dental, hospital and veterinary services, and services rendered
only demands uniformity within the particular class.
under employer-employee relationship.
(e) Works of art and similar creations sold by the artist himself. R.A. No. 9337 is also equitable. The law is equipped with a threshold margin. The VAT rate of
(f) Transactions exempted under special laws, or international agreements. 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or
(g) Export-sales by persons not VAT-registered. receipts not exceeding P1,500,000.00. Also, basic marine and agricultural food products in
(h) Goods or services with gross annual sale or receipt not exceeding P500,000.00. their original state are still not subject to the tax thus ensuring that prices at the grassroots
level will remain accessible.
ABAKADA v. Ermita
Creditable Withholding Tax and Final Withholding Tax
Under RA 9337, the President upon the recommendation of the Secretary of Finance shall raise
the rate of value-added tax to twelve percent (12%), after any of the following conditions has (A) Final Withholding Tax. Under the final withholding tax system the amount of
been satisfied: income tax withheld by the withholding agent is constituted as full and final
payment of the income tax due from the payee on the said income. The liability for
(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous payment of the tax rests primarily on the payor as a withholding agent. Thus, in case
year exceeds two and four-fifth percent (2 4/5%) or of his failure to withhold the tax or in case of underwithholding, the deficiency tax
(ii) national government deficit as a percentage of GDP of the previous year exceeds one and shall be collected from the payor/withholding agent.
one-half percent (1 %).
(B) Creditable Withholding Tax. Under the creditable withholding tax system, taxes
Philosophy behind these alternative conditions: withheld on certain income payments are intended to equal or at least approximate
the tax due of the payee on said income. Taxes withheld on income payments
1. VAT/GDP Ratio > 2.8% covered by the expanded withholding tax and compensation income (are creditable in
The condition set for increasing VAT rate to 12% have economic or fiscal meaning. If VAT/GDP is nature.
less than 2.8%, it means that government has weak or no capability of implementing the VAT or
that VAT is not effective in the function of the tax collection. Therefore, there is no value to Input Tax and Output Tax; Three Scenarios
increase it to 12% because such action will also be ineffectual.
The Input tax is the tax paid by a person, passed on to him by the seller, when he buys goods.
2. Natl Govt Deficit/GDP >1.5% Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT
The condition set for increasing VAT when deficit/GDP is 1.5% or less means the fiscal condition payable, three possible scenarios may arise:
of government has reached a relatively sound position or is towards the direction of a balanced
budget position. Therefore, there is no need to increase the VAT rate since the fiscal house is in a First, if at the end of a taxable quarter the output taxes charged by the seller are equal to the
relatively healthy position. Otherwise stated, if the ratio is more than 1.5%, there is indeed a input taxes that he paid and passed on by the suppliers, then no payment is required;
need to increase the VAT rate
Second, when the output taxes exceed the input taxes, the person shall be liable for the
VAT is not confiscatory excess, which has to be paid to the Bureau of Internal Revenue (BIR); 69 and
The input tax is not a property or a property right within the constitutional purview of the due
process clause. A VAT-registered persons entitlement to the creditable input tax is a mere
statutory privilege.

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Third, if the input taxes exceed the output taxes, the excess shall be carried over to the Bar Question similar to the above:
succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively The argument of BIR: it is subject to VAT because it concerns lease of service in the ordinary course
zero-rated transactions, any excess over the output taxes shall instead be refunded to the of business.
taxpayer or credited against other internal revenue taxes, at the taxpayers option The condo corporation: alleges that activity being conducted was not for business. It is only for the
maintenance of the common area.

VAT AS AN INDIRECT TAX Answer: The association dues are not subject to VAT. The collection is not made in the ordinary
course of business.
Distinction between direct and indirect taxes
In the case of Yamane v. CA, the court held that condominium corporations are not engaged in
business. The issue there is whether gross receipts are subject to local business tax.
Direct tax: The tax burden is upon the income recipient upon whom the tax is imposed. It is a tax
demanded from the very person who, it is intended or desired, should pay it.
If we would use the logic behind that ruling, it is obvious that gross receipts are also not subject to
VAT because collection of association dues are not made in the course of business.
The burden of paying the tax is not passed on to the consumer or to another individual
Special Characteristics of an Indirect Tax
But can it be passed on?
Yes, by stipulation.
1. Tax imposed on the seller/lessor/importer/service provider
Indirect tax: It may be shifted or passed on to the buyer, transferee, or lessee of the goods, CIR vs. Magsaysay Lines
properties, or services as part of the purchase price in the absence of any showing that the
transferee, etc. is exempt from indirect tax The VAT 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
The burden of tax is passed to the consumer notwithstanding the absence of any stipulation or course of trade or business may invariably contribute to the production chain, but they do so
contractual stipulation between the two parties: seller and purchaser. only as a matter of accident or incident.

If the seller can pass on the VAT, will the tax liability remain to be with the seller? As the sales of goods or services do not occur within the course of trade or business, the
Yes. What is only passed is the burden. Seller remains to be the statutory taxpayer. 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
Coverage of VAT system: of output VAT arises in the first place only through the ordinary course of trade or business.

1. Sale, barter, exchange or lease of goods or services made in the ordinary course of The course of business" or "doing business" connotes regularity of activity.
business. In the instant case, the sale was an isolated transaction. The sale which was involuntary
2. Importation of goods and made pursuant to the declared policy of Government for privatization could no longer
be repeated or carried on with regularity. It should be emphasized that the normal VAT-
If the coverage is importation, it does not matter whether it has been made in the registered activity of NDC is leasing personal property
ordinary course of business.
Except: IF the importation is exempt under the law. Other lecture notes:
Importation of personal goods exempt from custom duties is likewise exempt Will a change of ownership be classified as a cessation of business?
from VAT Yes. In this case, there was a change of ownership so it may be considered as a
transaction deemed sale. This is the main argument of BIR
Are the dues collected by sports organization subject to VAT? However, in this case the Supreme Court held that it is not a transaction deemed sale.
NO. Change of ownership in this case did not lead to the cessation of the business. The
business of NDC is the leasing of personal property, which continued its operation
Analyze: Is the collection made in the course of business? even after the sale.
No. It shall only include the use of facilities and allowances of the trainers. But if a sole proprietorship transferred property to a corporate taxpayer, there is
Membership dues are not subject to VAT unless it is in the ordinary course of business. change of ownership so it is a transaction deemed sale
If the costs cover the use of facilities, then membership dues are not part of it. Another point to consider: the transaction must be subject to VAT in order to be
classified as a transaction deemed sale.
Is the collection of association dues in condominiums subject to VAT?
2. Not a tax on the buyer/lessee/service availer
Under Property Law: Philippine Acetylene v CIR
There are condominium units specifically owned and there are common areas.
Condominium homeowners association would own the deeds and would maintain the common FACTS:
areas. They would collect homeowners association dues for this maintenance. Philippine Acetylene made sales to National Power Corporation (NPC), an agency of the
Philippine Government, and to the Voice of America (VOA) an agency of the United States
Government. These two agencies are exempt from indirect tax.

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Philippine Acetylene alleges that it shall likewise be exempt from tax since it cannot shift the In the case of Philippine Packing Corporation v CIR
burden of paying the VAT to its purchasers.
The term agricultural products" as used by the fisherman or fishing herein shall not
VAT liability remains to be with the seller include cultured operator, whether in their fish and other products raised or not,
produced in fishponds, and those which have undergone the process of manufacturing
What is passed on to the consumer is merely the burden of paying the tax. The VAT passed on to as defined in section one hundred ninety-four (x) of this Code.
the consumer forms part of the purchase price. If the purchaser is exempt from vat, then the
seller cannot capitalize on such exemption of such purchaser because what had been passed on Under Section 109 of the Tax Code
to the purchaser is merely the burden of tax and not the tax liability.
Products are still considered in their original state even if they have undergone simple
The act of passing the burden to the purchaser is just a matter of economics. processes of preparation or preservation for the market, such as freezing, drying,
salting, broiling, roasting, smoking, or stripping. Polished and/or husked rice, corn grits,
The tax burden may not even be shifted to the purchaser at all if the seller does not want to. A raw cane sugar and molasses, ordinary salt and copra shall be considered in their original
decision to absorb the burden of the tax is largely a matter of economics. Then it can no longer state.
be contended that a sales tax is a tax on the purchaser

We therefore hold that the tax imposed by section 186 of the National Internal Revenue Code is a CIR vs. JOHN GOTAMCO & SONS, INC
tax on the manufacturer or producer and not a tax on the purchaser except probably in a very
remote and inconsequential sense. Under an international agreement, the WHO is exempt from direct and indirect tax.

Gotamco transacts with the WHO. It alleges that it should not be liable for contractors tax, a form
of indirect tax. Since its consumer is exempt from tax, Gotamco cannot shift the burden. Hence it
CIR vs. American Rubber must also be exempt from tax.

Claim of American Rubber: the sale of rubber material is exempt from VAT because it is a sale
of agricultural products in its original state Gotamco must also be exempt from contractors tax

The seller is the proper party to ask for the refund because he remains to be the Gotamco must be exempt from contractors tax. WHO is exempted from tax because there is a
statutory taxpayer. Therefore it has personality to claim for refund. provision in the international agreement that exempts it from such. In addition to this, the
international agreement also provides that any person or entity that contracted with WHO on
In the event that refund is successful will hold it in trust for the consumer who shouldered the the construction of WHO building shall likewise be exempt from tax.
burden of tax.
The Host Agreement, in specifically exempting the WHO from "indirect taxes," contemplates
*** PRECAUTION*** taxes which, although not imposed upon or paid by the Organization directly, form part of the
This has been promulgated before RA 9337. The law effective at that time provides that price paid or to be paid by it.
agricultural products in original state are exempt from VAT whether food or nonfood.
After effectivity of RA 9337, only agricultural food products are exempt from VAT. The certification issued by the WHO, dated January 20, 1960, sought exemption of the
contractor, Gotamco, from any taxes in connection with the construction of the WHO office
building. The 3% contractor's tax would be within this category and should be viewed as a
Bar Question: form of an "indirect tax" On the Organization, as the payment thereof or its inclusion in the bid
The taxpayer is engaged in the sale of flowers. price would have meant an increase in the construction cost of the building.
Is it subject to VAT?

If decided prior to the effectivity of RA 9339, it is exempt. It is an agricultural product sold Difference between Philippine Acetylene and Gotamco
in original state Philippine Acetylene Gotamco
If decided after the effectivity of RA 9337, it is subject to VAT since it is non-food. The charter and the agreement between the The international agreement contains
Philippines and USA do not contain provisions provisions that individuals and corporations
Notes: that any individual or entity transacting with transacting with WHO in the construction of
NPC and VOA is likewise exempted WHO building shall likewise be exempt from
Under RA 9337, if the annual gross receipts or gross sales exceeds 1,919,500 (amount tax.
specified in a Circular) the taxpayer shall be mandated to pay VAT.
Agricultural food products are exempt both from VAT and Other Percentage Tax

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the retailer. When the retailer now sells it to another, it is subject to output VAT on the part of the

1. Tax imposed on the sale/barter/exchange/lease 3. Tax imposed on the value added

A. Tax Credit Mechanism

CIR vs. Sony Philippines
Under the tax credit method, an entity can credit against or subtract from the VAT charged on its
CIR issued a letter of authority wherein officers of CIR are authorized to examine books of Sony.
sales or outputs the VAT paid on its purchases, inputs and imports.
CIR now issued a deficiency assessment to Sony for P15m. which represens VAT and
Withholding Tax.
In other words, it refers to the reduction of Output VAT (OV) against Input VAT (IV) and the
reduction of Creditable Input VAT against future tax liabilities
CIRs Allegation: Sony should be liable to VAT. Since Sonys advertising expense was
reimbursed by SIS (Sonys office in Singapore), the former never incurred any advertising
Section 110(A) of the Tax Code provides that any input tax evidenced by a VAT invoice or official
expense. As a result, Sony is not entitled to a tax credit. At most, the said advertising expense
receipt on purchase or importation of goods or for purchase of services shall be creditable against
should be for the account of SIS, and not Sony Philippines.
output tax.
Despite reimbursement from SIS, Sony Philippines still incurred advertisement
Under the VAT method of taxation, which is invoice-based, an entity can subtract from the
expenses. It can still deduct and not liable for VAT.
VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports
Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits
that should have been realized from the advertising expense of the latter. It is evident under
If a client would ask you: which is better, other percentage or VAT?
Section 110 of the 1997 Tax Code that an advertising expense duly covered by a VAT
invoice is a legitimate business expense.
It would depend on the purchases of the taxpayer.
If most of his purchases are subject to VAT, then VAT-system is better because there is a
There is also no denying that Sony incurred advertising expense. Aluquin testified that
tax credit mechanism. He can deduct input taxes from his output taxes.
advertising companies issued invoices in the name of Sony and the latter paid for the
In Other Percentage Tax, there is no tax credit mechanism
same. Indubitably, Sony incurred and paid for advertising expense/ services. Where the
money came from is another matter all together but will definitely not change said fact.
First consideration should be the type of business.
The fact that due to adverse economic conditions, Sony-Singapore has granted to Sony
Philippines a subsidy equivalent to the latters advertising expenses will not affect the validity of
If leasing residential units
the input taxes from such expenses. Thus, at the most, this is an additional income of Sony
Philippines subject to income tax.
What would be his costs?
Salaries to his employees to maintain the units.
These salaries are not subject to VAT. There is no Input VAT component to his
The amount is an income that is subject to income tax, not to VAT
Insofar as the above-mentioned subsidy may be considered as income and, therefore, subject to
Utilities: electric, water, telecommunication, internet
income tax, the Court agrees. However, the Court does not agree that the same subsidy should be
Subject to VAT
subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as reimbursement
was not even exclusively earmarked for Sonys advertising expense for it was but an assistance or
So if it is a leasing business, better to subject it to other percentage tax. Few transactions are subject
aid in view of Sonys dire or adverse economic conditions, and was only "equivalent to the
to input vat (since magkano lang naman yung utilities expenes. The taxpayer can only deduct few
latters (Sonys) advertising expenses
input taxes. Moreover, he will be subjected to a higher rate which is up to 12%.
Other class notes:
Output VAT vs. Input VAT
Scope of VAT: sale, barter, exchange or lease. In this case, there were no such
exchanges, so there shall be no VAT.
Output VAT: VAT imposed on the sale of services or goods.
Is the subsidy an income in part of Sony? Yes. While it is an income, it is not one that is
Input VAT: VAT paid for the purchase of goods or services.
subject to vat. Since it is income, it is subject to income tax.
2. Tax imposed on all levels of the production/distribution process
Reynolds is engaged in the business of buying and selling bags. He is VAT-registered.
From the purchase of goods or capital equipment up to the sale of the same or
Note: Output VAT and Input VAT are applicable only to VAT-registered entities.
goods produced from the same, there is VAT imposed.
Kiko is engaged in buying and selling bags. He is also VAT-registered.
Example: Franz is not engaged in buy and sell. He is engaged in the hobby of collecting bags.
A retailer purchases goods from a wholesaler, this is subject to input VAT on the part of

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Reynolds to Kiko 3. It is not VAT-exempt or VAT zero-rated.
Reynolds sold the bag to Kiko for 10k. Since he is VAT-registered, he will pass on the 12% VAT to
Kiko. He needs to add 1200 to represent the VAT. Kiko now will pay 11,200. If all three elements are present, then the transaction is subject to the 12% VAT.
10,000 (selling price) Importations are subject to VAT, whether or not in the course of trade or business
+ 1,200 (VAT)
11,200 Kiko will pay this amount In the course of trade or business
o The regular conduct or pursuit of a commercial or an economic activity including
On the part of Reynolds, selling price is only 10k. The 1,200 to be collected as VAT is not an transactions incidental thereto, by any person regardless of whether or not the
income. It is an output vat which is required to be remitted to the government. He will only hold the person engaged therein is a non-stock, non-profit private organization or a government
1200 in trust for the government. entity.
o Services rendered by non-resident foreign persons shall be considered as being
Kiko to Franz rendered in the course of trade or business, even if the performance of services is not
On the part of Kiko, he paid 11,200. He decided to sell it for 20k. VAT is 2400. Total amount to be regular
paid by Franz is 22,400. o Any business where the gross sales or receipts do not exceed P100,000 during
any 12-month period shall be considered principally for subsistence or livelihood and
20,000 (selling price) not in the course of trade or business.
+ 2,400 (VAT)
22,400 Franz will pay this amount In the course of business, elements:
1. Regular conduct or pursuit of the activity, and not merely isolated
Books of Kiko 2. Include activities incidental to main line of business (RA 9337)
3. It can be conducted by any person
Gross Selling Price: 20k Even by nonstock, non-profit organization, irrespective of the manner on how the
Output VAT: 24,000 (what he passed to his buyer, Franz) income is disposed, as long as the activity is proprietary in nature
Input VAT: 1,200 (what was passed to him by his supplier, Reynolds)
Two types of persons liable for VAT:
If Output Vat is higher than the Input VAT, it is called vat payable. 1. Those who voluntarily register business under the VAT system
2,400 2. Those who are mandated to register under the VAT system
- 1,200
1,200 considered as vat payable
Mandatory registration:
If the Input Vat is higher than Output Vat, the difference is called creditable input vat o Required if annual gross sales or receipts or expected gross sales or gross receipts
This creditable input VAT may be subject of tax refund or a tax credit exceeds 1,919,500

B. Impact of Taxation and Incidence of Taxation However this threshold amount will not apply to franchise grantees of radio and
television broadcast
Impact of taxation: the point on which a tax is originally imposed. The impact of taxation is If radio, the threshold amount is P10M.
on the seller. Sale of residential house and lot, the threshold amount is P3,122,500

Incidence of tax: that point on which the tax burden finally rests or settles down and in most Note:
cases, the incidence is on the final consumer. If taxpayer opted to register under vat system, such option to register shall be considered
as irrevocable for the period of 3 years.
4. Consumption-based Tax Therefore no cancellation within 3 years can be made if the taxpayer voluntarily
registered himself under vat system
Destination principle: VAT shall be imposed only upon goods consumed in the Philippines. Cases in Point: Magsaysay Lines and Western Mindanao Power Corporation

Cross border doctrine: VAT shall not be imposed if the goods will be consumed outside the If the case is decided before the effectivity of RA 9337: only activities related to the main activity of
Philippines. the taxpayer shall be subject to VAT; incidental activities are not subject to vat
After the effectivity of RA 9337: activities related to main activities and those incidental to main
These are kindred concepts activity are subject to vat.


Elements of VAT-taxable transactions 1. RR 16-2005, as amended by RR 4-2007 (Consolidated regulation)
1. It must be done in the ordinary course of trade or business 2. RR 16-2011 (Adjustment of threshold amount for liability)
2. There must be a sale, barter, exchange, lease of goods or properties, or rendering of 3. RR 10-2011 (Clarifying VAT rules on certain transactions)
service in the Philippines.

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RATES OF VAT Illustration:

Three types of vat system X is leasing apartment units. The monthly rental per unit is 10k.

1. Ordinary Is it material to know the annual gross receipt to be subjected to VAT?

2. Exempt Transaction No.
3. Zero-Rated Transaction
Remember there are two conditions to be subjected to VAT:
Note: Memorize! Be ready to classify whether the transactions are vat-taxable, exempt or zero-rated (a) Monthly rental per unit exceeds 12,800; AND
transactions. (b) Aggregate annual rental exceeds 1,919,500

ORDINARY RATE OF 12% The lease here will automatically be not subjected to VAT since the first condition (i.e. that the
monthly rental per unit must exceed 12,800) is not met. There is no use to know if the second
condition is met. The conditions must be concurrently met.

1. When the gross sales exceed the threshold amount of 1,919,500 X is also leasing bed space units. Per room, there are 5 students whose rental is 7k each per month.
If radio, the threshold amount is P10M. Hence, per room, X receives a rental of 35k.

2. Sale of residential lots or house & lots Is the lease subject to VAT?
Residential lots: threshold amount is 1,919,500 Per unit in a bedspace unit is per person. Note here that each persons rental is only 7k.
House and lot: threshold amount is 3,199, 200 (RR 16-2011) The first condition for VAT to be applied is that the monthly rental per unit is 12,800.
Hence it does not matter that X receives 35k per room each month since what is involved
Note: Taxpayer must be engaged in the selling of House and Lots; it must be in the ordinary court of is a bedspace unit, in which case per unit is defined as per person.
4. Piece of Work
If not: subject to Capital Gains Tax (for capital assets)
Piece of Work vs. Contract of Sale

3. Lease of residential units Piece of Work Contract of Sale

Subject to VAT Subject to VAT if gross sales Subject to VAT if gross sales
Conditions: reached the threshold reached the threshold
(a) Monthly rental per unit exceeds 12,800; AND amount amount
(b) Aggregate annual rental exceeds 1,919,500
Income derived Gross Receipts Gross Sales
Reminder: the conjunction used is AND. It means that both elements must concur.
Method of recognition of Cash Method Accrual Method
Lease of Commercial Spaces Income
As long as the annual aggregate amount of rentals exceeded the threshold amount, it shall be subject
to VAT
Residential Unit (RR 16-2011)
Apartment and house and lots used for residential purposes and buildings or parts/units thereof Maam purchased and sold bag for 10k Contract of Sale
used solely as dwelling places. Mam did not collect 10k kasi inutang ni Reynolds (2016).
Does not include: Will Maam reflect the 10k as income subject to vat?
Hotel Yes. The income is already recognized
Pension houses What if Maam made the bag customized and Reynolds did not pay the 10k?
Motel This is now a contract of piece of work.
Lodging places The 10k amount would not form part of cash receipts and therefore not subject to VAT.
Per unit
o Apartments: per apartment unit In a contract of piece, income can only be recognized if it is already collected.
o Houses: per residential house Therefore, Maam cannot reflect the 10k as an income subject to VAT.
o Dorm, Boarding Houses, Bedspaces: per person
o Rooms for rent: Per room

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Another illustration on Rent: Commercial Spaces
(b) Distribution or transfer of goods or properties originally intended for sale to
Maam has a building. Her tenants are Reynolds, Tony and Kiko. either:
o Shareholders/investors as share or profits
Is this a service, retail, manufacture? o Creditors as payment of debts
Service; so use cash method.
Note: only if goods are in the inventory, so as to qualify as ones that are originally intended for sale.
Assuming Maam is subject to vat,
Note that these are commercial spaces so do not apply rule under revenue regulation on (c) Consignment of goods if actual sale is not made within 60 days from the date of
Residential units. consignment and were left unreturned.

Reynolds paid an advance of 10k Consignment: possession is transferred to another but ownership remains with the consignor
Tony never paid so he incurred a debt for 50k
Kiko regularly pays his rent. Who owns consigned goods?
Is the advance given by Reynolds an income in the part of Maam? Once delivery is made, ownership is still on the consignor.
Cash method can be used; from the moment the cash was collected, it is reflect in the Illustration:
gross receipts notwithstanding the fact that the income has not yet accrued (since this is
an advance) Goods worth 100k were delivered by A to B under consignment basis.

Is the 50k unpaid rent of Tony an income? Is the 100k considered as sales of A?
NO. Not yet. The ownership had never been transferred from A to B.
It was not yet collected. Only if B already sold the goods or B did not return the goods within 60days, it
will be subject to VAT.

If this is sale and the goods worth 100k were delivered from A to B:
If this is a contract of sale: It is considered an income. It forms part of the Gross Sales subject to VAT

Is the 10k advance payment of Reynolds subject to VAT? (d) Retirement from or cessation of business with respect to inventories of taxable
NO. goods

Note that in sales: accrual method, method is used. The seller can report the income if it is earned. Note: the amount subject to VAT would only refer to the inventories of taxable goods.
This is an advance payment, so it is not part of the gross sales.
Is the 50k unpaid rent by Tony subject to VAT? Individual is VAT-registered. He has a rental business wherein he rents out his 5 buildings. He also
YES. has a Corporation named X Corporation. He transferred his business to X Corporation. Necessarily,
Even if is not yet collected, it has already accrued. Hence it is subject to VAT based on the he needs to cancel his own registration for being engaged in the rental business.
accrual method.
Will the cancellation of the registration be tantamount to retirement from or cessation of
5. Transactions Deemed Sale business?
(a) Transfer, use or consumption (not in the ordinary course of business) of properties
or goods originally intended for sale not in the ordinary course of business The BIR subjected the five buildings of X to VAT.

The properties must be originally intended for sale. If not, it is not a transaction deemed Was the assessment proper?
sale. NO.
The transfer, use, or consumption must not be in the ordinary course of business. The buildings in this case are not inventoriable since they are not being sold.

Illustration: Apply the retirement principle if the properties are inventoriable properties.
Maam owns a grocery store. She bought products such as soap and shampoo.
She took a soap for her personal use. NOTES:
Before provisions of Transaction deemed sale can be applied, know first if the taxpayer or
the transaction involved is subject to VAT
Is this a transaction deemed sale? It is transaction deemed sale only if the transaction occurred in the ordinary course of
Yes, because the items formed part of the inventory. They are originally business.
intended for sale.

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1. Sale or importation of agricultural and marine food products in their original state.
o No imposition of Output VAT Such products are still considered in their original state even if they have
o No acquisition of Input VAT undergone simple processes of preparation or preservation for the market, such as
freezing, drying, salting, broiling, roasting, smoking, or stripping. Polished and/or husked
NOTE: these are only some of the exempt transactions. rice, corn grits, raw cane sugar and molasses, ordinary salt and copra shall be considered
in their original state.
1. Transactions by entities not registered under the vat system 2.Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock
Transaction is not subject to vat, unless the amount of gross sales or gross receipts and poultry feeds
exceeds the threshold amount This does not include specialty feeds for race horses, fighting cocks, aquarium fish,
zoo animals, and other animals generally considered as pets.
2. Transactions intended for subsistence livelihood 3. Importation of personal and household effects belonging to the residents of the
Philippines returning from abroad
3. Sale of agricultural food products in their original state 4. Importation of professional instruments and implements, wearing apparel, domestic
Likewise exempt from other percentage tax animals and personal household effects belonging to persons coming to settle for the
first time in the Philippines
4. Export sales of non VAT-registered business 5. Services subject to percentage tax
Likewise exempt from other percentage tax 6. Services by agricultural contract growers and milling for others of palay into rice, corn
into grits and sugarcane into raw sugar
Q: Export sales are VAT-exempt, but it can also zero-rated. How come? 7. Medical, dental, hospital and veterinary services except those rendered by professionals
A: It is exempt if the entity is not VAT-registered. A transaction cannot be considered a zero rated 8. Educational services rendered by private educational institutions duly accredited by
transaction if the taxpayer is not VAT-registered. DEPED, CHED, and TESDA and those by governmental educational institutions
9. Services rendered pursuant to an employee-employer relationship
5. Importation of good exempt from custom duties and intended for personal use 10. Services rendered by regional or area headquarters established in the Philippines
Likewise exempt from other percentage tax 11. Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws
12. Sales by agricultural cooperatives duly registered with the Cooperative Development
6. Services of medical dental hospital and veterinary except those rendered by prof Authority
Likewise exempt from other percentage tax 13. Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority whose lending is limited to members
Are services of Doctors exempt from VAT? 14. Sales by non-agricultural, non-electric and non-credit cooperatives duly registered
No. It is taxable because it is rendered by Professional with the Cooperative Development Authority
Provided that the share capital contribution of each member does not exceed P15,000
7. Services rendered in favor of senior citizens and products sold to them 15. Export sales by persons who are not VAT-registered
16. Sales of real properties not primarily held for sale to customers or held for lease in the
8. Gross sales and gross receipts not exceed threshold ordinary course of trade or business or sales within the low-cost cap of below 1,919,500 for a
residential lot and P3,199,200 for a house and lot and other residential dwelling
Except if the taxpayer voluntarily registered under the vat system 17. Lease of a residential unit with a monthly rental not exceeding P12,800
18. Sale, importation, printing or publication of books and any newspaper, magazine, review
If gross sales and gross receipts do not exceed threshold, taxpayer is exempt from VAT but not or bulletin which appears at regular intervals with fixed prices for subscription and sale
exempt from other percentage tax. If threshold amount is not reached, he shall be liable for 3% and is not devoted principally to publication of paid advertisements
other percentage tax 19. Sale, importation, or lease of passenger or cargo vessels and aircraft
des engine, equipment, and spare parts thereof for domestic or international
9. Services rendered by domestic common carriers by land transport operations.
Exempt from vat but subject to other percentage tax of 3% 20. Importation of fuels, goods and supplies by persons engaged in international
Exempt from VAT regardless of the amount of gross receipts earned shipping or air transport operations
21. Services of banks, non-bank financial intermediaries performing quasi-banking
10. Services by international air or shipping carriers functions and other non-bank financial intermediaries
Subject to other percentage tax of 3% 22. 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
11. Franchise grantees of gas and water utilities do not exceed the amount of P1,919,500
Subject to 2% other percentage tax
Note: the rate is 2%, not 3%.
Philippine Packing Corporation vs. CIR
12. Sale, barter or exchange of listed shares
Subject to of 1%: stock transaction tax Appellant Philippine Packing Corporation is a domestic corporation engaged in the growing and
canning of pineapples in Mindanao for sale locally. Approximately 120,000 tons of pineapple

Page | 23
every year are produced by appellant from its plantations, out of which it sells or gives away in
fresh state 50,000 tons which are not suitable for canning, for which it is not taxed, and the rest Texas Instrument has three options of using the creitable input VAT:
are canned into sliced pineapple, pineapple chunks, crushed pineapple, and pineapple 1. Carry over to the succeeding years
juice. 2. Apply for refund of creditable input vat for a period of 2 years
3. Apply for a tax credit certificate which TI can use to pay off its tax liabilities.
The manipulations to which appellant subjects the fresh pineapple fruit grown
by it does not amount to a manufacturing process which would make it taxable. If you are tax lawyer of TI, do not advise your client to carry over the creditable input VAT, since in
the following years, TI will still be engaged in zero rated transaction.
The very text of the law, in exempting "agricultural products whether in their original state or
not," makes it clear that the exemption is not divested merely because the products TI can sell its tax credit certificates to other companies.
themselves have undergone processing of some kind.
The canning of appellant's products is a mere incident and consequence of its large scale A Revenue Regulation provides that tax credit certificates are no longer transferrable.
production of pineapples. Appellant perforce had to resort to a preserving process, for the
volume of its products (170,000 tons) made it impossible to dispose of the same in the local Is this constitutional?
market. NO.

The legislature, in providing a tax exemption for agricultural products, "whether in their original According to the case of ABAKADA Guro, the Creditable Input Vat is not a property right but a
state or not", had precisely in mind that fruit crops could not be raised and sold on a large scale privilege. However, if government already issued the tax certificate, it is already a property right.
without resort to some process to prevent their deterioration. Any cancellation of tax credit certificate would result to a violation of due process under the
Purpose of Legislature
The exemption was due to the belief on the part of the law making body that by exempting
agricultural products from this tax the farming industry would be favored and the Three types of transactions under zero rated
development of the resources of the country encouraged. It is a fact, of which we take
judicial cognizance, that there are immense tracts of public land in this country, at present 1. Export Sales
wholly unproductive, which might be made fruitful by cultivation, and that large sums of money products must be consumed outside the Philippines
go abroad every year for the purchase of food substance which might be grown here. Every If the taxpayer's activity does not solely deal with the sale of products outside the
dollar's worth of food which the farmer produces and sells in these Islands adds directly to the Philippines, the taxpayer shall be considered engaged in export sales if at least 70% of its
wealth of the country. transaction shall be sold outside the Philippines.

The appellant corporation directly produces its goods from the cultivation of land, merely 2. Foreign currency denominated transaction
engaging in the suitable preservative processes for the purpose of making the product available
at all times, without regard to seasons, and in markets that would not be accessible to the fresh Elements:
fruit. Appellants does not make its profit upon goods produced by others, and there is no reason a. Service must be performed in the Philippines
why it should not be given the protection that the law affords. b. Service must be paid in an acceptable foreign currency in accordance with BSP rules and
c. Service must be performed in favor of a non-resident client
Transaction is subject to VAT. However, the vat rate is not 12% but 0%. Is the business process outsourcing subject to 0% rate?
Service is performed in Philippines
Difference between VAT-exempt and Zero-rated Entities are paid in foreign currency
Except: if render services for resident clients
VAT-EXEMPT ZERO-RATED Service is performed in favor of a foreign client
Transaction is not subject to output tax Taxable transaction but does not result in an
output tax Yes. Transaction is zero-rated
The seller is not entitled to any input tax on The input VAT on the purchases of a VAT-
his purchases despite the issuance of a VAT registered person may be allowed as tax credit Will it not violate destination principle?
invoice or receipt or refund In CIR vs. American Express: this is an exemption from the destination principle
Registration is optional Registration is required.

Texas Instrument is engaged in export sale. Export sale is a zero rated transaction. Since it is zero
rated, it has no Output VAT but may acquire input VAT.

Since Input VAT is higher than Output VAT, it may incur creditable input VAT.

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Western Mindanao Power Corporation v. CIR The requirement is reasonable and is in accord with the efficient collection of VAT from the
covered sales of goods and services. The appearance of the word "zero-rated" on the face of
Petitioner WMPC is a domestic corporation engaged in the production and sale of electricity. It is invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from
registered as a VAT taxpayer. It sells electricity solely to the National Power Corporation their purchases when no VAT was actually paid. If, absent such word, a successful claim for
(NPC), which is in turn exempt from the payment of all forms of taxes, duties, fees and imposts, input VAT is made, the government would be refunding money it did not collect.
pursuant to RA. 6395. Petitioners power generation services to NPC is zero-rated.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales that are
WMPC filed with the Commissioner of Internal Revenue (CIR) applications for a tax credit subject to 10% (now 12%) VAT from those sales that are zero-rated.
certificate of its input VAT.
The failure to imprint BIR authority to print is not a ground to deny the claim or
The tax refund or credit cannot be allowed for failure to comply with the refund
documentary requirements under the law
Sec. 4.108-1 required the following to be reflected on the invoice:
In a claim for tax refund or tax credit, the applicant must prove not only entitlement to the
grant of the claim under substantive law. It must also show satisfaction of all the 1. The name, taxpayers identification number (TIN) and address of seller;
documentary and evidentiary requirements for an administrative claim for a refund or tax 2. Date of transaction;
credit. Hence, the mere fact that petitioners application for zero-rating has been approved by the 3. Quantity, unit cost and description of merchandise or nature of service;
CIR does not, by itself, justify the grant of a refund or tax credit. 4. The name, TIN, business style, if any, and address of the VAT-registered purchaser, customer
or client;
Under the NIRC, a creditable input tax should be evidenced by a VAT invoice or official receipt, 5. The word "zero-rated" imprinted on the invoice covering zero-rated sales; and
which may only be considered as such when it complies with the requirements of RR 7-95, 6. The invoice value or consideration.
particularly Section 4.108-1. This section requires, among others, that "(i)f the sale is subject to
zero percent (0%) value-added tax, the term zero-rated sale shall be written or printed The "BIR authority to print" is not one of the items required to be indicated on the invoices or
prominently on the invoice or receipt." receipts.

Principle of Legislative Approval by Reenactment

If administrative ruling or issuance is enacted into a law, it is believed that the Congress has HITACHI GLOBAL CORP vs. CIR
approved the validity of the issuance.
Hitachi is a domestic corporation engaged in the business of manufacturing and exporting
The subsequent incorporation of Section 4.108-1 of RR 7-95 in Section 113 (B) (2) (c) of R.A. computer products. Hitachi is registered as a Value-added Tax (VAT) taxpayer. Hitachi is also
9337 actually confirmed the validity of the imprinting requirement on VAT invoices or official registered with the Export Processing Zone Authority as an Ecozone Export Enterprise. Hitachi
receipts. filed an administrative claim for refund or issuance of a tax credit certificate before the BIR.

Note: when this case was promulgated, the charter of NPC was not yet amended. In the new charter, The claim for refund must be denied for failure to comply with the invoicing
all entities transacting with NPC shall likewise be exempt from indirect tax. requirements

PANASONIC vs. CIR Sec.4.108-1. Invoicing Requirements. - All VAT-registered persons shall, for every sale or lease of
goods or properties or services, issue duly registered receipts or sales or commercial
Rule-making power of Secretary of Finance invoices which must show:

Section 4.108-1 of RR 7-95 proceeds from the rule-making authority granted to the 1. the name, TIN and address of seller;
Secretary of Finance for the efficient enforcement of the Tax Code and of course its amendments. 2. date of transaction;
Thus SOF has the power to expand the invoicing requirements on zero-rated transactions 3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or
PANASONIC failed to imprint Zero-Rated in its invoices client;
5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and
If the claim for refund/TCC is based on the existence of zero-rated sales by the taxpayer but it 6. the invoice value or consideration.
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 Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their
denied considering that the invoice it is issuing to its customers does not depict its being a invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by
VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this invoices other than a "VAT invoice" shall not give rise to any input tax.
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. Hitachis export sales invoices did not indicate Hitachis Tax Identification Number (TIN)
Moreover, the case shall be referred by the processing office to the concerned BIR office for followed by the word VAT. The word "zero-rated" was also not imprinted on the invoices.
verification of other tax liabilities of the taxpayer Moreover, the invoices were not duly registered with the BIR.

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Tax refunds, like tax exemptions, are construed strictly against the taxpayer. which charges no output VAT but can claim a refund of or a tax credit certificate for the input
The claimants have the burden of proof to establish the factual basis of their claim for refund or VAT previously charged to it by suppliers.
tax credit. In this case, Hitachi failed to establish the factual basis of its claim for refund or tax
credit. However, the respondent failed to substantiate its claim

Silicon Philippines v. CIR 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
Requisites for Refund (Section 112A of NIRC) substantiate the input VAT paid by purchase invoices or official receipts. The respondent failed
1. The taxpayer must be VAT-registered; to do so.
2. The taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
3. The claim must be filed within two years after the close of the taxable quarter when such sales Section 16 of Revenue Regulations 5-87 provides:
were made; and A photocopy of the purchase invoice or receipt evidencing the value added tax
4. The creditable input tax due or paid must be attributable to such sales, except the transitional paid shall be submitted together with the application. The original copy of the said
input tax, to the extent that such input tax has not been applied against the output tax. invoice/receipt, however, shall be presented for cancellation prior to the issuance of the Tax
Credit Certificate or refund.
Printing the ATP (Authority to Print) on the invoices or receipts is not a
requirement for the grant of refund 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
The ATP need not be reflected or indicated in the invoices or receipts because there is no law or ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods
regulation requiring it. Thus, in the absence of such law or regulation, failure to print the ATP on and services.
the invoices or receipts should not result in the outright denial of a claim or the invalidation of A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or
the invoices or receipts for purposes of claiming a refund. other settlementbetween seller and buyer of goods, debtor or creditor, or person rendering
services and client or customer.
However, Section 238 of the NIRC expressly requires persons engaged in
business to secure an ATP from the BIR prior to printing invoices or receipts. These sales invoices or receipts issued by the supplier are necessary to substantiate the actual
Failure to do so makes the person liable under Section 26452 of the NIRC. amount or quantity of goods sold and their selling price, and taken collectively are the best
means to prove the input VAT payments.
Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are zero-rated or
effectively zero-rated. To prove this, duly registered invoices or receipts evidencing zero-rated
sales must be presented. However, since the ATP is not indicated in the invoices or
receipts, the only way to verify whether the invoices or receipts are duly registered is 3. Effectively zero rated transaction
by requiring the claimant to present its ATP from the BIR. Without this proof, the invoices or One where the taxpayer transacts with an entity exempt from indirect tax provided that
receipts would have no probative value for the purpose of refund. the international agreement or the special law effectively subject such transaction to a
zero percent rate.
While the pertinent provisions of the Tax Code and the rules and regulations Refers to the local sale of goods and properties by a VAT-registered person or a person
implementing them require entities engaged in business to secure a BIR authority to print or entity who was granted direct and indirect tax exemption under special laws or
invoices or receipts and to issue duly registered invoices or receipts, it is not specifically international agreements (RMC No. 50-2007)
required that the BIR authority to print be reflected or indicated therein. Indeed, what is
important with respect to the BIR authority to print is that it has been secured or obtained by the Contex Corporation vs. CIR
taxpayer, and that invoices or receipts are duly registered.
While it is true that the petitioner should not have been liable for the VAT inadvertently passed
CIR vs. Manila Mining Corporation on to it by its supplier since such is a zero-rated sale on the part of the supplier, the petitioner is
not the proper party to claim such VAT refund
Respondent, a mining corporation duly organized and existing under Philippines laws, is
registered with the BIR as a VAT-registered enterprise. Respondents sales of gold to the Central What was shifted to Contex as the purchaser is merely the burden and not the
Bank amounted to P200M. Respondent, relying on a letter from then BIR Deputy Commissioner tax liability
that gold sold to the Central Bank is considered an export sale is subject to zero-rated if such
sale is made by a VAT-registered person, it filed an application for tax refund/credit of the input VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services
VAT it paid. 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
The claim for refund shall be disallowed 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
The export sale is zero-rated same. The VAT, thus, forms a substantial portion of consumer expenditures.

As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to it The amount of tax paid may be shifted or passed on by the seller to the buyer. What is
as purchaser. Zero rating is primarily intended to be enjoyed by the seller respondent herein, 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

Page | 26
for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to the Seagate also passes input vat to its buyers. But this input vat is not attributable to zero
final purchaser is the burden of the tax. rated transaction since this is an import sale.

It is the petitioners suppliers who are the proper parties to claim the tax credit and Remember one of the requirements of Sec 112 for a claim of refund is that the input vat must
accordingly refund the petitioner of the VAT erroneously passed on to the latter. be attributable to either a zero-rated or an effectively zero-rated transaction.

Petitioner is registered as a NON-VAT taxpayer and cannot claim for the tax So does this mean that Seagate cannot claim for refund of input vat in its transactions
credit with its buyers?
Petitioner is exempt from VAT. As an exempt VAT taxpayer, it is not allowed any tax credit on NO!
VAT (input tax) previously paid.
Here is when you differentiate between a VAT-Exempt Transaction and a VAT-Exempt Entity
VAT-EXEMPTION ZERO-RATED SALES A VAT-exempt party can avail of input vat IF it is a VAT-registered entity. Hence, it is
The sale of goods or properties and/or These are sales by VAT-registered persons important to know if transactions between Seagate to buyers involve VAT-exempt
services and the use or lease of properties is which are subject to 0% rate, meaning the transaction or VAT-exempt party
not subject to VAT (output tax) tax burden is not passed on to the purchaser.
A zero-rated sale by a VAT-registered RA 7916 does not exempt transaction from VAT but exempts Seagate from VAT.
person, which is a taxable transaction for Therefore, Seagate is a VAT-exempt entity.
VAT purposes, shall not result in any
output tax. Next step is to know if Seagate is VAT-registered.

Since Seagate is VAT-Registered, Seagate is allowed to deduct input vat from the output vat.
The seller is not allowed any tax credit on The input tax on his purchases of goods, It is a VAT-Exempt party so it cannot be directly or indirectly liable for the output vat.
VAT (input tax) previously paid. properties or services related to such
zero-rated sale shall be available as tax Respondent's exemption under both PD 66 and RA 7916 effectively subjects such transactions to
credit or refund in accordance with these a zero rate, because the ecozone within which it is registered is managed and operated by
regulations the PEZA as a separate customs territory. This means that in such zone is created the legal
The VAT is removed at the exempt stage All VAT is removed from the zero-rated fiction of foreign territory.
(i.e., at the point of the sale, barter or goods, activity or firm.
exchange of the goods or properties). Under the cross-border principle, 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
CIR v. Seagate Technology rule holds for such exports from the national territory -- except specifically declared areas -- to
an ecozone.
Summary made by Atty. Tin
Zero-Rated vs. Effectively Zero-Rated
Seagate is located in an ecozone which under the law is considered a separate customs ZERO-RATED EFFECTIVELY ZERO-RATED
territory. It creates the legal fiction of being in a foreign state. Export sale of goods and supply of service Sale of goods or supply of services to
persons or entities whose exemption under
Input taxes were passed on by supplier to Seagate. However, under RA 7916, Seagate should special laws or international agreements
be exempt from national and local taxes except as to preferential tax. Seagate paid for to which the Philippines is a signatory
unutilized input tax. It now claims for a refund. effectively subjects such transactions to a
zero rate.
Seagate also sells products to its buyers. Primarily intended to be enjoyed by the Intended to benefit the purchaser who, not
seller who is directly and legally liable for being directly and legally liable for the
Under Sec 112: the claim for refund of an unutilized input tax is that the input tax must have the VAT, making such seller internationally payment of the VAT, will ultimately bear the
arisen from a zero rated or effectively zero rated transaction. competitive by allowing the refund or credit burden of the tax shifted by the suppliers.
of input taxes that are attributable to export
How to classify transaction between Supplier and Seagate? sales.
Tax Rate is Zero
Seagate is located in a separate customs territory. Every sale from the supplier to Seagate is Rate does not yield any tax chargeable against the purchaser
classified as export sale, which is zero-rated. Input tax should not have been passed to Seller can claim a refund of or a tax credit certificate for the VAT previously charged by
Seagate. suppliers.
Total relief is given to the purchaser from the burden of the tax
How to classify transaction between Seagate and its buyers?

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Exempt Transaction vs. Exempt Party 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.
Goods or services which, by their nature, A person or entity granted VAT exemption PAGCORs tax exemption privilege includes the indirect tax of VAT to entitle
are specifically listed in and expressly under the Tax Code, a special law or an Acesite to zero percent (0%) VAT rate
exempted from the VAT under the Tax Code, international agreement to which the
without regard to the tax status - VAT- Philippines is a signatory, and by virtue of It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from
exempt or not - of the party to the which its taxable transactions become the payment of taxes.
transaction exempt from the VAT.
Transaction is not subject to the VAT, but Party is also not subject to the VAT, but may Although the law does not specifically mention PAGCORs exemption from indirect
the seller is not allowed any tax refund be allowed a tax refund of or credit for taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from
of or credit for any input taxes paid input taxes paid, depending on its taxes persons or entities contracting with PAGCOR in casino operations. Although,
registration as a VAT or nonVAT differently worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes
taxpayer. one step further by granting tax exempt status to persons dealing with PAGCOR in casino
operations. The unmistakable conclusion is that PAGCOR is not liable for the VAT and neither is
Respondent, which as an entity is exempt, is different from its transactions which are not Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424.
exempt. The end result, however, is that it is not subject to the VAT. The non-taxability of
transactions that are otherwise taxable is merely a necessary incident to the tax Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the
exemption conferred by law upon it as an entity, not upon the transactions themselves. legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect
Nonetheless, its exemption as an entity and the non-exemption of its transactions lead to the tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of
same result 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
Difference with the case of Contex: Seagate can claim for a tax refund of the input tax it from being liable to indirect taxes.
previously paid to the suppliers because it is a VAT-registered entity.
VAT exemption extends to Acesite
A VAT-registered status, as well as compliance with the invoicing requirements, is sufficient for
the effective zero rating of the transactions of a taxpayer. The nature of its business and Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not
transactions can easily be perused from, as already clearly indicated in, its VAT registration liable for the payment of it as it is exempt in this particular transaction by operation of law to pay
papers and photocopied documents attached thereto. the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the 1977 Tax Code,
as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides:
Tax Implication of Seagates Transactions Transactions subject to zero percent (0%) rated.
Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity (in xxxx
this case, Seagate) are considered exports to a foreign country; conversely, sales by a PEZA- (3) Services rendered to persons or entities whose exemption under special laws or
registered entity (Seagate) to a VAT-registered person in the customs territory are deemed international agreements to which the Philippines is a signatory effectively subjects the supply of
imports from a foreign country such services to zero (0%) rate
If Seagate enters into such sales transactions with a purchaser -- usually in a foreign country -- for The proviso in P.D. 1869, extending the exemption to entities or individuals dealing with PAGCOR
use or consumption outside the Philippines, these shall be subject to 0 percent. in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be shifted to
If entered into with a purchaser for use or consumption in the Philippines, then these shall
subject the purchaser to 10 percent (now 12%), unless the purchaser is exempt from the indirect There was erroneous payment of taxes
burden of the VAT, in which case it shall also be zero-rated. There is erroneous payment of taxes when a taxpayer pays under a mistake of fact, as for the
End point: Since Seagate is an exempt entity, it cannot be subjected to VAT. Its purchases cannot instance in a case where he is not aware of an existing exemption in his favor at the time the
be subjected to an input VAT, and its sales cannot be subjected to Output VAT. Whether the payment was made." Such payment is held to be not voluntary and, therefore, can be recovered or
transaction is an exempt transaction or not, it does not matter since the entity itself is exempt from refunded.
VAT. Solutio indebiti applies to the Government
Enshrined in the basic legal principles is the time-honored doctrine that no person shall unjustly
enrich himself at the expense of another. It goes without saying that the Government is not
CIR vs. ACESITE HOTEL CORP exempted from the application of this doctrine

Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations
Avenue in Manila. It leases its hotels premises to the Philippine Amusement and Gaming
Corporation [hereafter, PAGCOR] for casino operations. Acesite incurred from its rental income
and sale of food and beverages to PAGCOR during said period. Acesite tried to shift the said taxes

Page | 28
PAGCOR v. BIR foreign corporation in Canada which, in turn, engaged the services of Placer Dom Technical
Services Philippines (PD Philippines).
ISSUE: Whether or not PAGCOR is still exempt from corporate income tax and VAT with the
enactment of R.A. No. 9337. PD 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, contending that Placer Dome Philippines services,
It is no longer exempt from corporate income tax . while rendered to a non-resident foreign corporation, are not destined to be consumed abroad.

Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue Code The tax credit/refund must be allowed
of 1977, petitioner is no longer exempt from corporate income tax as it has been effectively
omitted from the list of GOCCs that are exempt from it. The VAT is a tax on consumption "expressed as a percentage of the value added to goods or
services" purchased by the producer or taxpayer. As an indirect tax on services, its main object is
The legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to the transaction itself or, more concretely, the performance of all kinds of services conducted in
require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR the course of trade or business in the Philippines. These services must be regularly conducted in
from exemption from the payment of corporate income tax. The express mention of the GOCCs this country; undertaken in "pursuit of a commercial or an economic activity;" for a valuable
exempted from payment of corporate income tax excludes all others. Not being excepted, consideration; and not exempt under the Tax Code, other special laws, or any international
petitioner PAGCOR must be regarded as coming within the purview of the general rule that agreement.
GOCCs shall pay corporate income tax, expressed in the maxim: exceptio firmat regulam in
casibus non exceptis Yet even as services may be subject to VAT, our tax laws extend the benefit of zero-rating the
VAT due on certain services. The aforementioned Section 102(b) of the 1986 NIRC activates
It is still exempt from VAT such zero-rating on two categories of transactions:

As to the validity of RR No. 16-2005, the Court holds that the provision subjecting PAGCOR to 10% (1) Processing, manufacturing or repacking goods for other persons doing business outside the
VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that Philippines which goods are subsequently exported, where the services are paid for in
petitioner can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's acceptable foreign currency and accounted for in accordance with the rules and regulations of
exemption from the payment of corporate income tax. the BSP; and
(2) Services other than those mentioned in the preceding subparagraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the rules
R.A. No. 9337 itself exempts petitioner from VAT, which reads: and regulations of the BSP.
Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the
following transactions shall be exempt from the value-added tax: Services are exemptions from the cross-border principle
General Rule: the VAT system uses the destination principle as a basis for the jurisdictional
(k) Transactions which are 'exempt under international agreements to reach of the tax. Goods and services are taxed only in the country where they are consumed.
which the Philippines is a signatory or under special laws, except Presidential Decree Thus, exports are zero-rated, while imports are taxed.
No. 529.37
Petitioner is exempt from the payment of VAT, because PAGCORs charter, P.D. No. 1869, is a Confusion in zero rating arises because petitioner equates the performance of a particular
special law that grants petitioner exemption from taxes. Moreover, the exemption is supported by type of service with the consumption of its output abroad. The consumption contemplated by
Section 6 of R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424. law does not imply that the service be done abroad in order to be zero-rated.
Although R.A. No. 9337 introduced amendments to Section 108 of R.A. No. 8424 by imposing VAT Consumption:
on other services not previously covered, it did not amend the portion of Section 108 (B) (3) The use of a thing in a way that thereby exhausts it."
that subjects to zero percent rate services performed by VAT-registered persons to persons Applied to services, the term means the performance or "successful completion of
or entities whose exemption under special laws or international agreements to which the a contractual duty, usually resulting in the performer's release from any past or
Philippines is a signatory effectively subjects the supply of such services to 0% rate. future liability"

In this case, 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 establishment s
VAT on Services here. Its services, having been performed in the Philippines, are therefore also consumed in the
CIR v. Placer Dome Technical Services Philippines.

Placer Dome Inc (PDI) owns 39.9% of Marcopper. It undertook to clean-up and rehabilitate the Unlike goods, services cannot be physically used in or bound for a specific place when their
Makalupnit and BOAC Rivers in Marinduque which was affected by its mining operations. PDI destination is determined. Instead, there can only be a "predetermined end of a course"
engaged the services of Placer Dome Technical Services Limited (PD Canada), a non-resident when determining the service "location or position for legal purposes."

Page | 29
The law clearly provides for an exception to the destination principle; that is, for a zero percent Thus, for the supply of service to be zero-rated as an exception, the law merely requires that first,
VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign the service be performed in the Philippines; second, the service fall under any of the
currency and accounted for in accordance with the rules and regulations of the [BSP]." Thus, for categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable foreign
the supply of service to be zero-rated as an exception, the law merely requires that: currency accounted for in accordance with BSP rules and regulations.

1. The service be performed in the Philippines; Indeed, these three requirements for exemption from the destination principle are met by
2. The service fall under any of the categories in Section 108(b) of the Tax Code; respondent. Its facilitation service is performed in the Philippines. It falls under the second
3. It be paid in acceptable foreign currency accounted for in accordance with BSP rules category found in Section 102(b) of the Tax Code, because it is a service other than "processing,
and regulations. manufacturing or repacking of goods" as mentioned in the provision. Undisputed is the fact that
such service meets the statutory condition that it be paid in acceptable foreign currency duly
accounted for in accordance with BSP rules. Thus, it should be zero-rated.
CIR v. American Express
Ejusdem Generis Inapplicable
Transactions subject to zero percent (0%) rate. -- The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate[:] The canon of statutory construction known as ejusdem generis or "of the same kind or specie" does
not apply to Section 4.102-2(b)(2) of RR 7-95 as amended by RR 5-96.

(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable First, although the regulatory provision contains an enumeration of particular or specific words,
foreign currency and accounted for in accordance with the rules and regulations of the Bangko followed by the general phrase "and other similar services," such words do not constitute a readily
Sentral ng Pilipinas (BSP); discernible class and are patently not of the same kind. Project studies involve investments or
marketing; information services focus on data technology; engineering and architectural designs
require creativity. Aside from calling for the exercise or use of mental faculties or perhaps
(2) Services other than those mentioned in the preceding subparagraph, the consideration for producing written technical outputs, no common denominator to the exclusion of all others
which is paid for in acceptable foreign currency and accounted for in accordance with the rules characterizes these three services. Nothing sets them apart from other and similar general
and regulations of the [BSP];" services that may involve advertising, computers, consultancy, health care, management,
messengerial work -- to name only a few.
Zero Rating of "Other" Services Second, there is the regulatory intent to give the general phrase "and other similar services" a
The law is very clear. Under the last paragraph quoted above, services performed by VAT- broader meaning. Clearly, the preceding phrase "as well as" is not meant to limit the effect of "and
registered persons in the Philippines (other than the processing, manufacturing or repacking of other similar services."
goods for persons doing business outside the Philippines), when paid in acceptable foreign Third, and most important, the statutory provision upon which this regulation is based is by
currency and accounted for in accordance with the rules and regulations of the BSP, are itself not restrictive. The scope of the word "services" in Section 102(b)(2) of the Tax Code is
zero-rated. broad; it is not susceptible of narrow interpretation

VAT Requirements for the Supply of Service Consumed Abroad" Not Required by Legislature
Without doubt, the transactions respondent entered into with its Hong Kong-based client meet all Interpellations on the subject in the halls of the Senate also reveal a clear intent on the part of the
these requirements. legislators not to impose the condition of being "consumed abroad" in order
for services performed in the Philippines by a VAT-registered person to be zero-rated.
First, respondent regularly renders in the Philippines the service of facilitating the
Senator Herrera: What is important here is that these services are paid in
collection and payment of receivables belonging to a foreign company that is a clearly
acceptable foreign currency remitted inwardly to the Philippines
separate and distinct entity.
Second, such service is commercial in nature; carried on over a sustained period of
time; on a significant scale; with a reasonable degree of frequency; and not at random, Legislative Approval By Reenactment
fortuitous or attenuated. Upon the enactment of RA 8424, which substantially carries over the particular provisions on zero
Third, for this service, respondent definitely receives consideration in foreign currency rating of services under Section 102(b) of the Tax Code, the principle of legislative approval of
that is accounted for in conformity with law. administrative interpretation by reenactment clearly obtains. This principle means that "the
reenactment of a statute substantially unchanged is persuasive indication of the adoption
Finally, respondent is not an entity exempt under any of our laws or international
by Congress of a prior executive construction."

The legislature is presumed to have reenacted the law with full knowledge of the contents of the
Respondents Services Exempt from the Destination Principle
revenue regulations then in force regarding the VAT, and to have approved or confirmed them
However, the law clearly provides for an exception to the destination principle; that is, for a zero because they would carry out the legislative purpose. The particular provisions of the regulations
percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign we have mentioned earlier are, therefore, re-enforced.
currency and accounted for in accordance with the rules and regulations of the [BSP]."

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Other Types of INPUT VAT: Can it still deduct the input vat it paid for its purchases prior to its registration?
Yes. Under transitional input vat, it can deduct.
1. Presumptive Input VAT
2. Transitional Input Tax Is the payment of input vat prior to registration a condition sine qua non before you can avail of
transitional input vat?

Persons or firms engaged in the processing of sardines, mackerel and milk, and in the Fort Bonifacio Devt Corp v. CIR
manufacturing of 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% of the Doctrine: There is nothing in Section 105 of the old NIRC that indicate that prior payment of
gross value in money of their purchases of primary agricultural products which are used as inputs taxes is necessary for the availment of the transitional input tax credit. All that is required
to their production. is for the taxpayer to file a beginning inventory with the BIR

RATE: 4% of gross value of purchases The language of Section 105 is explicit. It precludes reading into the law that the transitional input
tax credit is limited to the amount of VAT previously paid. When the aforesaid section speaks of
When does Presumptive Input VAT apply? "eight percent (8%) of the value of such inventory" followed by the clause "or the actual value-
Sale of the following: added tax paid on such goods, materials and supplies," the implication is clear that under the first
Sardines clause, "eight percent (8%) of the value of such inventory," the law does not contemplate the
Mackerels payment of any prior tax on such inventory. This is distinguished from the second clause, "the
Milk actual value-added tax paid on the goods, materials and supplies" where actual payment of VAT
Cooking oil on the goods, materials and supplies is assumed. Had the intention of the law been to limit the
Packed noodles amount to the actual VAT paid, there would have been no need to explicitly allow a claim
Sugar based on 8% of the value of such inventory.
The contention that the 8% transitional input tax credit in Section 105 presumes that a previous
Why are these products covered by presumptive input vat? tax was paid, whether or not it was actually paid, requires a transaction where a tax has been
Their main ingredient is agri-food products imposed by law, is utterly without basis in law.

Lecture Note:
The phrase or actual vat paid is considered a phrase imposing ceiling as to the amount that can
X is a manufacturer of 666 Sardines. Main ingredient of this is tuna. X buys the tuna from a be availed of. It is not a condition.
fisherman. In the purchase, fisherman will not pass input VAT since agri-foods are exempt from VAT
as being sold in their original state.
Transitional Input VAT is not only limited to the improvement of real properties
When X now sells the sardines, this will be subject to VAT of 12% (output vat). He is at a RR 7-95 cannot limit the application and coverage of Section 105 (now Section 111(A) by stating
disadvantage since he cannot deduct input vat from its output vat. that in the case of real estate dealers, the basis of the presumptive input tax shall be the
improvements. This is a legislative act beyond authority of the CIR and the Secretary of Finance.
So this transaction is subject to a presumptive input vat of 4%. The law already presumes that the The term goods and properties includes real properties held primarily for sale to customers
input vat arising of the transaction is equivalent to 4% or held for lease in the ordinary course of business. Thus, FBDC is entitled to claim transitional
input VAT based not only the improvements but also on the value of the entire real property
TRANSITIONAL INPUT VAT and regardless of whether or not there was actual payment on the purchase price of the real
property or not.
A person who becomes liable to VAT or any person who elects to be VAT-registered shall, subject Rationale of Transitional Input Tax:
to the filing of an inventory, be allowed input tax on his beginning inventory of goods, materials The transitional input tax credit operates to benefit newly VAT-registered persons, whether or not
and supplies equivalent to 2% of the value of such inventory or the actual VAT paid on they previously paid taxes in the acquisition of their beginning inventory of goods, materials and
such goods, materials and supplies, whichever is higher, which shall be creditable against the supplies. During that period of transition from non-VAT to VAT status, the transitional input tax
output tax. credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-
registered taxpayer is obliged to remit a significant portion of the income it derived from its sales
Transitional input vat can be availed of by a newly registered taxpayer. as output VAT. The transitional input tax credit mitigates this initial diminution of the
taxpayers income by affording the opportunity to offset the losses incurred through the
Illustration: remittance of the output VAT at a stage when the person is yet unable to credit input VAT
Amare already expects that its gross sales will exceed the threshold amount. Before registration to payments.
the BIR, it already purchased ingredients so it has been subjected to input vat.

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PROCEDURE RE: REFUND OF VAT (6) The input taxes claimed are attributable to zero-rated or effectively zero-rated
(7) For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1)
Section 112 vs. 229 and (2), the acceptable foreign currency exchange proceeds have been duly accounted
for in accordance with BSP rules and regulations;
Section 112 Section 229 (8) Where there are both zero-rated or effectively zero-rated sales and taxable or
Purpose of refund Refund of unutilized input vat Refund of OIEP exempt sales, and the input taxes cannot be directly and entirely attributable to any
a) Overpayment of these sales, the input taxes shall be proportionately allocated on the basis of sales
b) Illegal payment volume; and
c) Erroneous payment (9) The claim is filed within two years after the close of the taxable quarter when
d) Penalties not provided by such sales were made.
Period for filing 2 years 2 years The law did not distinguish between an invoice and a receipt when used as
refund evidence of a zero-rated transaction.
Reckoning period Administrative Claim: from the close Both Administrative and
of the taxable quarter when the sales Judicial Claims: from date of Consequently, the CTA should have accepted either or both of these documents as evidence of
were made payment regardless of any SPPs zero-rated transactions
supervening event
The principle of solution indebiti applies to the government
Note: Administrative claim for
refund is required except if on The claim for tax credit or refund, arising out of zero-rated transactions, is essentially based on
the face of return it shows the excess payment. In zero-rating a transaction, the purpose is not to benefit the person legally liable
overpayment to pay the tax, like SPP, but to relieve exempt entities like NPC which supplies electricity to
Period when CIR 120 days None factories, offices, and homes, from having to shoulder the tax burden that ultimately would be
shall Act on the passed to the public.
Period for filing a Within 30 days
judicial claim for Judicial claim may be The principle of solutio indebiti should govern this case since the BIR received something that
refund from the date of receipt of CIR simultaneously filed with the it was not entitled to. Thus, it has to return the same. The government should not use
decision if made within 120-day administrative claim. technicalities to hold on to money that does not belong to it. Only a preponderance of evidence is
period; or needed to grant a claim for tax refund based on excess payment.
from the expiration of the 120- The only requirement is that it
day period, if no decision is made must be filed within 2 years Lecture Notes:
within the 120-day period from date of payment
regardless of supervening If a BPO transacted with a resident client, and the payment is through a foreign currency, the
event transaction is subject to 12% vat. If it also transacts with a nonresident client and the payment is
through a foreign currency, this transaction is zero rated.
Must judicial claim No. 2-year period applies only to the Yes.
be filed within 2 administrative claim. Necessarily, BPO would make purchases for which it paid input vat.
However, there is a need to comply Input vat would not only be related to the zero rated services but would also relate to those
with the mandatory 120+30 days. transactions subject to 12% VAT (transactions with resident client).

Southern Philippines Power Corporation vs CIR Under the requirements mentioned in the above case, the portion subject of refund under sec 112 is
only the portion attributable to the zero percent transaction. Hence, those attributable to
The following criteria governs claims for refund or tax credit under Section 112(A) of the NIRC: transactions subject to 12% vat would not be subject of refund.

In short, in cases of mixed transaction, the refund must be proportionately distributed to those
(1) The taxpayer is VAT-registered; zero rate transaction over those which are not zero rated.
(2) The taxpayer is engaged in zero-rated or effectively zero-rated sales;
(3) The input taxes are due or paid; CIR vs. Mirant Pagbilao Corporation
(4) The input taxes are not transitional input taxes;
Mirant Doctrine: on claims for refund under section 112, the reckoning date is the close of
(5) The input taxes have not been applied against output taxes during and in the
taxable quarter where the sale was made
succeeding quarters;
Effectivity of Mirant Doctrine: September 12 2008

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Prior to this, what is applicable is the Atlas Doctrine: the two year period must be reckoned
from date of payment. Not from close of taxable quarter Sec 112 provides that the reckoning period of 2 years for filing a claim for refund is from close
Effectivity of Atlas Doctrine: June 8 2007 of taxable quarter when sale is made

4/14/98: date of payment of Input Vat by MPC The input vat transactions here are until Sept 30 2002
1993-1996: Sales were made Close of taxable quarter: Sept 30 2002
Latest progress billing was on Sept 6 1996 When to file the claim: Sept 30 2004

Recall: 4 taxable quarters Sept 30 2004: claim for refund was filed; hence filed within the prescriptive period.
March 31
June 30 But NOTE! There was a simultaneous filing of both administrative and judicial claim.
September 30
December Is it allowed?

In this case, the last quarter was in September. Consider not the month where the transaction Under Section 112, it is not necessary that the judicial claim be filed within the 2 year period.
was entered into but the close of taxable quarter when the sale was made. This requirement is only applied in Section 229 for claim for refunds of erroneously paid tax.
BUT SINCE it falls under sec 112, it is necessary that 120 day mandatory period be waited
The sale being mentioned here is the sales made not by the taxpayer but the sales made to the Otherwise, judicial claim will be dismissed on the ground of failure to exhaust administrative
taxpayer. It pertains to input taxes, hence to the purchases made by the taxpayer. remedies for premature filing.

Sept 30 1996: last quarter When to file judicial claim? 30 days after the lapse of the 120-day period.
The 120+30 day period is both mandatory and jurisdiction.
Prescriptive period for administrative claim: 2 years!
Discussion by the Court
Sept 30 1998,: last day of filing
The Court ruled that the administrative claim was timely filed while the judicial claim was
12/1/1999: claim was made. Hence filed out of time. 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
Important note: Do not count from the date of payment of Input VAT. This is not a claim for clear that Aichi timely filed its administrative claim within the two-year prescriptive
erroneously paid input tax so the reckoning date is the close of taxable quarter where the sale period.
was made.
On the other hand, the claim of Aichi must be denied for non-observance of the 120-day period
Another note: If claim for refund is filed during the effectivity of Atlas Doctrine, apply the date of Where the taxpayer did not wait for the decision of the CIR or the lapse of the 120-day period, it
payment as taxable period. having simultaneously filed the administrative and the judicial claims, the filing of the
said judicial claim with the CTA is premature. The non-observance of the 120-day period is
CIR vs. Aichi Forging Company of Asia, Inc fatal to the filing of a judicial claim.

Aichi doctrine: 120+30 day period for filing a judicial claim is mandatory and The claim of Aichi that such non-observance is not fatal as long as both the administrative and
jurisdictional judicial claim is filed within the 2-year prescriptive period is without legal basis. The 2 year
Effectivity: October 6 2010 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
Aichi is engaged in processing of steel products. It has a pioneer status registered under BOI. It is Section 112(D) of the NIRC, which already provides for a specific period within which a
also Vat-registered taxpayer should appeal the decision or inaction of the CIR. The 120 -day period is crucial in filing
an appeal with the CTA.
July 1,2002 up to Sept 30 2002: sales were made
Sept 30 2004: Both admin and judicial claims were filed CIR vs. San Roque Power Corporation

Aichi now claims for refund for its unutilized input vat attributable to its effectively-zero rated San Roque Doctrine: exception to the 120 mandatory period
San Roque:
Two possible scenarios in Section 112: Vat-registered
1. CIR issues decision before the lapse of 120 day period NAPOCOR bought electricity from San Roque
Reckoning date of filing judicial claim: [30 days] from the decision of CIR Claiming for refund of unutilized input tax

2. CIR did not decide within 120days Admin claim: 3/28/2003

Reckoning date of filing judicial claim: [30 days] from the lapse of 120 days. Judicial claim: 4/10/2003

Page | 33
For taxable period: 2001
For the judicial claim, there must be compliance with the 120+30 day mandatory period.
Applicable provision: Section 112, where the reckoning period is from the close of taxable From November, the judicial claim must have been filed around March to April. In this case, the
quarter when the sale was made filing was made in February. It was filed within the 120 day period, which violates the
mandatory waiting period of 120+30 days.
Taxable quarters:
March 31 Ordinarily, the judicial claim should not prosper for the failure to exhaust administrative
June 30 remedies for premature filing.
Sept 30
December 31 2001 In this case, the judicial claim was not denied despite being in violation of the mandatory
waiting period.
The sale was made in 2001.
December 31 2001: last taxable quarter: San Roque doctrine: Any judicial claim filed during effectivity of Administrative Issuance
December 31 2003: last day of filing Administrative claim for refund (BIR DA 489-03) shall be entertained notwithstanding the non-compliance with the
120+30 day period
March 28 2003: Administrative claim was filed. Hence, it was filed on time.
Under BIR DA 489-03, there is no need for taxpayer to wait for 120 day period in filing of judicial
However, the judicial claim was also filed on the same date. Remember that the judicial claim claim. This is a general interpretative rule which can be availed of by taxpayers if they relied in
must comply within 120+ 30day waiting period. the issuance in good faith.

In this case, the filing of the judicial claim should have been filed in August 2003 (120 Effectivity date of issuance: December 10 2003 to October 5 2010
days+30days from March). But in this case, judicial claim was already filed on March 28 2003. Note: On October 6 2010, the Aichi doctrine is already applicable.
The filing of judicial claim was premature. It must be denied on ground of failure to exhaust
admin remedies by reason of premature filing. Philex Mining Corporation vs CIR

The CTA has no jurisdiction yet since there was no CIR decision yet to speak of. Mining Corporation
Claiming for Input VAT for sales made in 2005
Note: The inaction of CIR will be treated as denial which is considered a decision. When the 120-
day lapsed without the CIR deciding on the claim, it is already proper to elevate the claim to the March 31 2005: First Taxable Quarter
CTA. The CIR is deemed to have denied the claim. So still treated as a decision. March 20 2006: Administrative claim was filed
October 17 2007: Judicial claim was filed
Other note: 2005: Taxable year
Taxpayer here raised the atlas doctrine as a defense.
Consider the first quarter, March 31 2005
The Supreme Court held that Atlas Doctrine is not applicable. The atlas doctrine does not discuss Last day of filing of administrative claim: March 31 2007
the 120+30 period but the reckoning date of the 2-yr period (from the date of payment) In this case, the claim was filed on march 20 2006; hence filed within the prescriptive period
Atlas Doctrine effectivity: June 8 2007 up until the case of Mirant was promulgated
The judicial claim has to comply with the mandatory 120+30 day period. From March, the
Taganito Mining Corporation vs. CIR 120+30 days would fall on the month of August.

Mining corporation In this case judicial claim was filed beyond August since it was filed On October 17 2007.
Exporter of nickel oars
Vat registered The 30 day period is mandatory such that the claim must not be filed beyond the said period. In
BOI registered this case there was a late filing of judicial claim for refund. Philex filed to elevate the claim of
denial of CIR to CTA within the 30 day period [The inaction of CIR is deemed a denial]. The denial
Taganito Mining Corporaition filed a claim for refund for excessive input vat for year 2005 will become final and appealable. Since the right to appeal is a statutory privilege, it must be
complied with by the taxpayer. Because Philex failed to comply, its claim for refund shall be
November 14 2005: Administrative claim denied.
November 29 2006: Amended administrative claim (the first administrative claim was
erroneous) ***Period to appeal is mandatory in remedial law.
February 14 2007: Judicial claim
2005: taxable year Three compelling reasons of the SCs decision:
1. The 120 day period refers only to the administrative claim
December 31 2005: last quarter when the sale was made 2. The 30 day period would be meaningless if it falls within the 2yr prescriptive period
December 31 2007: last day for filing administrative claim 3. The 2-yr period does not refer to judicial claim for refund. Only the administrative claim is
required to be filed within the 2-yr period.
In this case, claim was made on November 29 2006; hence it was filed on time.

Page | 34
Silicon Philippines v. CIR

Requisites of credit/refund of input VAT on zero-rated sales:

1. The taxpayer must be VAT-registered;

2. The taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
3. The claim must be filed within two years after the close of the taxable quarter when
such sales were made; and
4. The creditable input tax due or paid must be attributable to such sales, except the
transitional input tax, to the extent that such input tax has not been applied against the output

Requisites of credit/refund of input VAT on capital goods:

1. The claimant must be a VAT registered person;

2. The input taxes claimed must have been paid on capital goods;
3. The input taxes must not have been applied against any output tax liability; and
4. The administrative claim for refund must have been filed within two (2) years after the close
of the taxable quarter when the importation or purchase was made

1.) Monthly Return
To be filed on those months not considered as end of the quarter month


What shall be declared?

the gross receipts for such month

2.) Quarterly Return

March 31: gross receipts from January to March

June 30: gross receipts from April to June
September 30: gross receipts from July to September
December 31: gross receipts from October to December

Note: the gross receipts declared in the monthly return are also declared in the quarterly return.
Is there double taxation?

Any payments made during the months covered by the Monthly Return can be credited to the
liability at the end of the quarter.

Quarterly return must be accompanied with summary list of sales and purchases

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