Business enterprises registered with the Philippine Export Zone Authority (PEZA) may choose between two fiscal

incentive schemes: (1) to pay a five percent preferential tax rate on its gross income and thus be exempt from all other taxes; or (b) to enjoy an income tax holiday, in which case it is not exempt from applicable national revenue taxes including the value-added tax (V !)" !he present respondent, which availed itself of the second tax incentive scheme, has proven that all its transactions were export sales" #ence, they should be V ! $ero-rated"

CIR VS. Sekisui Jushi Philippines, Inc. .R. !". #$%&'#, Jul( )#, )**&

Tax; VAT Zero-rated Transactions +rancis ,a-ier Sinon

+ACTS. Respondent is a do/estic corporation duly organized and existing under and by virtue of the laws of the Philippines with principal office located at the Special Export Processing Zone, Laguna Technopar , !i"an, Laguna# Se isui $ushi is a P0ZA entit( engaged in %anufacture and export of strapping bands and other pac aging %aterials see ing for refund of unutilized input taxes# &aving registered with the !ureau of 'nternal Revenue (!'R) as a value*added tax (+,T) taxpayer, respondent filed its -uarterly returns with the !'R, reflecting therein input taxes in the a%ount of P.,/01,102#34 paid by it in connection with its do%estic purchase of capital goods and services# Said input taxes re%ained unutilized since respondent has not engaged in any business activity or transaction for which it %ay be liable for output tax and for which said input taxes %ay be credited# 5n 6ove%ber 11, 1778, respondent filed with the 5ne*Stop*Shop 'nter*,gency Tax 9redit and :uty :rawbac 9enter of the :epart%ent of ;inance (9E6TER*:5;) two (2) separate applications for tax credit<refund of +,T input taxes paid# There being no action on its application for tax credit<refund under Section 112 (!) of the 1773 6ational 'nternal Revenue 9ode (Tax 9ode), as a%ended, private respondent filed, within the two (2)*year prescriptive period under Section 227 of said 9ode, a petition for review with the 9ourt of Tax ,ppeals# The 9T, ruled that respondent was entitled to the refund# =hile the co%pany was registered with the PEZ, as an ecozone and was, as such, exe%pt fro% inco%e tax, it availed itself of the fiscal incentive under Executive 5rder 6o# 22/# 't thereby sub>ected itself to other internal revenue taxes li e the +,T# The 9T, then found that only input taxes a%ounting to P.,033,142#2/ were duly substantiated by invoices and 5fficial Receipts# The 9ourt of ,ppeals upheld the :ecision of the 9T,# ,ccording to the 9,, respondent had co%plied with the procedural and substantive re-uire%ents for a clai% by 1) sub%itting receipts, invoices, and supporting papers as evidence? 2) paying the sub>ect input taxes on capital goods? 0) not applying the input taxes against any output tax liability? and .) filing the clai% within the two*year prescriptive period under Section 227 of the 1773 Tax 9ode# &ence, this Petition# ISS10. =hether the respondent is entitled to the refund or issuance of tax credit certificate in the a%ount of P.,033,142#2/ as alleged unutilized input taxes paid on do%estic purchase of capital goods and services# 2034. 50S. Since 144 percent of the products of respondent are exported, all its transactions are dee%ed export sales and are thus +,T zero*rated# 't has been shown that respondent has no output tax with which it could offset its paid input tax# Since the su67ect input tax it paid 8or its do/estic purchases o8 capital 9oods and ser-ices re/ained unutili:ed, it can clai/ a re8und 8or the input VAT pre-iousl( char9ed 6( its suppliers. The a%ount of P.,033,142#2/ is excess input taxes that >ustify a refund# 6otably, while an ecozone is geographically within the Philippines, it is dee%ed a separate custo%s territory and is regarded in law as foreign soil# Sales by suppliers fro% outside the borders of the ecozone to this separate custo%s territory are dee%ed as exports and treated as export sales# These sales are zero*rated or sub>ect to a tax rate of zero percent#