VAT

**Tax Credit Method; Zero-rated sales of goods; Vat on importation of goods,

VAT-EXEMPT: CIR v. Seagate
Summary

Business companies registered in and operating from the

Special Economic Zone in Naga, Cebu -- like herein respondent -- are
entities exempt from all internal revenue taxes and the implementing rules
relevant thereto, including the value-added taxes or VAT.

Although export sales are not deemed exempt transactions,

they are nonetheless zero-rated. Hence, in the present case, the
distinction between exempt entities and exempt transactions has little
significance, because the net result is that the taxpayer is not liable for the
VAT.

Respondent, a VAT-registered enterprise, has complied with all

requisites for claiming a tax refund of or credit for the input VAT it paid on
capital goods it purchased. Thus, the Court of Tax Appeals and the Court
of Appeals did not err in ruling that it is entitled to such refund or credit.

To summarize, special laws expressly grant preferential tax

treatment to business establishments registered and operating within an
ecozone, which by law is considered as a separate customs territory.

As such, respondent is exempt from all internal revenue taxes,

including the VAT, and regulations pertaining thereto. It has opted for the
income tax holiday regime, instead of the 5 percent preferential tax
regime.

As a matter of law and procedure, its registration status

entitling it to such tax holiday can no longer be questioned. Its sales
transactions intended for export may not be exempt, but like its purchase
transactions, they are zero-rated.

No prior application for the effective zero rating of its

transactions is necessary. Being VAT-registered and having satisfactorily
complied with all the requisites for claiming a tax refund of or credit for the
input VAT paid on capital goods purchased, respondent is entitled to such
VAT refund or credit.
FACTS:

Seagate is a resident foreign corporation duly registered

with the Securities and Exchange Commission to do business in the
Philippines.

With principal office address at the new Cebu Township

One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu.

Registered with the Philippine Export Zone Authority

(PEZA) and has been issued PEZA Certificate.


VAT [(Value Added Tax)]-registered entity as evidenced
by VAT Registration Certification No. 97-083-000600-V issued on 2
April 1997

VAT returns for the period 1 April 1998 to 30 June 1999

have been filed

An administrative claim for refund of VAT input taxes in

the amount of P28,369,226.38 with supporting documents (inclusive
of the P12,267,981.04 VAT input taxes subject of this Petition for
Review), was filed on 4 October 1999 with Revenue District Office No.
83, Talisay Cebu.

No final action has been received by [respondent] from

[petitioner] on [respondents] claim for VAT refund.

CIR is sued in his official capacity, having been duly

appointed and empowered to perform the duties of his office,
including, among others, the duty to act and approve claims for refund
or tax credit.

CTA: granted the claim for refund.

CA: affirmed in the reduced amount ofP12,122,922.66. This

sum represented the unutilized but substantiated input VAT paid on capital
goods purchased for the period covering April 1, 1998 to June 30, 1999.

CA held that neither Section 109 of the Tax Code nor Sections
4.106-1 and 4.103-1 of RR 7-95 were applicable. Having paid the input
VAT on the capital goods it purchased, respondent correctly filed the
administrative and judicial claims for its refund within the two-year
prescriptive period.

Such payments were -- to the extent of the refundable value -duly supported by VAT invoices or official receipts, and were not yet offset
against any output VAT liability.
ISSUE: WON Seagate is entitled to the refund.
HELD: Yes.
Zero-rated sales of good

Although both are taxable and similar in effect, zero-rated

transactions differ from effectively zero-rated transactions as to their
source.

Zero-rated transactions generally refer to the export sale of

goods and supply of services. The tax rate is set at zero.

When applied to the tax base, such rate obviously results in no

tax chargeable against the purchaser.

The seller of such transactions charges no output tax, but can

claim a refund of or a tax credit certificate for the VAT previously charged
by suppliers.


Effectively zero-rated transactions, however, refer to the sale
of goods or supply of services to persons or entities whose exemption
under special laws or international agreements to which the Philippines is
a signatory effectively subjects such transactions to a zero rate. Again, as
applied to the tax base, such rate does not yield any tax chargeable
against the purchaser.

The seller who charges zero output tax on such transactions

can also claim a refund of or a tax credit certificate for the VAT previously
charged by suppliers.
Tax Credit Method and Vat on importation of goods

Viewed broadly, the VAT is a uniform tax ranging, at present,

from 0 percent to 10 percent levied on every importation of goods, whether
or not in the course of trade or business, or imposed on each sale, barter,
exchange or lease of goods or properties or on each rendition of services
in the course of trade or business as they pass along the production and
distribution chain, the tax being limited only to the value added to such
goods, properties or services by the seller, transferor or lessor.

It is an indirect tax that may be shifted or passed on to the

buyer, transferee or lessee of the goods, properties or services.

As such, it should be understood not in the context of the

person or entity that is primarily, directly and legally liable for its payment,
but in terms of its nature as a tax on consumption.

The law that originally imposed the VAT in the country, as well
as the subsequent amendments of that law, has been drawn from the tax
credit method.

Under the present method that relies on invoices, an entity can

credit against or subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.

If at the end of a taxable quarter the output taxes charged by a

seller are equal to the input taxes passed on by the suppliers, no payment
is required. It is when the output taxes exceed the input taxes that the
excess has to be paid.

If, however, the input taxes exceed the output taxes, the
excess shall be carried over to the succeeding quarter or quarters.

Should the input taxes result from zero-rated or effectively

zero-rated transactions or from the acquisition of capital goods, any excess
over the output taxes shall instead be refunded to the taxpayer or credited
against other internal revenue taxes.

Seagate as an entity is exempt from internal revenue laws and

regulations.

This exemption covers both direct and indirect taxes,

stemming from the very nature of the VAT as a tax on consumption, for

which the direct liability is imposed on one person but the indirect burden is
passed on to another.

Seagate, as an exempt entity, can neither be directly charged

for the VAT on its sales nor indirectly made to bear, as added cost to such
sales, the equivalent VAT on its purchases.
Vat-Exempt

Seagate as an entity is exempt from internal revenue laws and

regulations.

This exemption covers both direct and indirect taxes,

stemming from the very nature of the VAT as a tax on consumption, for
which the direct liability is imposed on one person but the indirect burden is
passed on to another.

Seagate, as an exempt entity, can neither be directly charged

for the VAT on its sales nor indirectly made to bear, as added cost to such
sales, the equivalent VAT on its purchases.

Moreover, the exemption is both express and pervasive for the

following reasons:
1. RA 7916 states that no taxes, local and national, shall be imposed on
business establishments operating within the ecozone. Since this law
does not exclude the VAT from the prohibition, it is deemed included
Moreover, even though the VAT is not imposed on the entity but on the
transaction, it may still be passed on and, therefore, indirectly imposed
on the same entity -- a patent circumvention of the law.
That no VAT shall be imposed directly upon business establishments
operating within the ecozone under RA 7916 also means that no VAT
may be passed on and imposed indirectly. Quando aliquid prohibetur ex
directo prohibetur et per obliquum. When anything is prohibited directly, it
is also prohibited indirectly.
2. When RA 8748 was enacted to amend RA 7916, the same prohibition
applied, except for real property taxes that presently are imposed on
land owned by developers.
3. Foreign and domestic merchandise, raw materials, equipment and
the like shall not be subject to x x x internal revenue laws and regulations
under PD 66-- the original charter of PEZA (then EPZA) that was later
amended by RA 7916. No provisions in the latter law modify such
exemption.
4. Even the rules implementing the PEZA law clearly reiterate that
merchandise -- except those prohibited by law -- shall not be subject to x

x x internal revenue laws and regulations x x x if brought to the ecozones

restricted area for manufacturing by registered export enterprises,vof
which respondent is one. These rules also apply to all enterprises
registered with the EPZA prior to the effectivity of such rules.
5. Export processing zone enterprises registered with the Board of
Investments (BOI) under EO 226 patently enjoy exemption from national
internal revenue taxes on imported capital equipment reasonably
needed and exclusively used for the manufacture of their products.
6. The exemption from local and national taxes granted under RA 7227
are ipso facto accorded to ecozones. In case of doubt, conflicts with
respect to such tax exemption privilege shall be resolved in favor of the
ecozone.
7. The tax credits under RA 7844 -- given for imported raw materials
primarily used in the production of export goods, and for locally produced
raw materials, capital equipment and spare parts used by exporters of
non-traditional products -- shall also be continuously enjoyed by similar
exporters within the ecozone. Indeed, the latter exporters are likewise
entitled to such tax exemptions and credits.
DOCTRINE:

Under the VAT method of taxation, which is invoice based,

an entity can subtract from the VAT charged on its sales or outputs
the VAT it paid on its purchases, inputs and imports.

Zero-rated transactions generally refer to the export sale

of goods and supply of services. The tax rate is set at zero.When
applied to the tax base, such rate obviously results in no tax
chargeable against the purchaser. The seller of such transactions
charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
Effectively zero-rated transactions, however, refer to the sale of
goods or supply of services to persons or entities whose
exemption under special laws or international agreements to which
the Philippines is a signatory effectively subjects such transactions
to a zero rate. Again, as applied to the tax base, such rate does not
yield any tax chargeable against the purchaser.The seller who
charges zero output tax on such transactions can also claim a
refund of or a tax credit certificate for the VAT previously charged
by suppliers.

The VAT shall be imposed on every importation of goods,

whether or not in the course of trade or business. This is unlike VAT

on sale of goods or properties which must be in the course of trade

or business. Otherwise, the person/transaction shall not be liable to
pay VAT.

PEZA-registered enterprises, which would necessarily be

located within ecozones, are VAT-exempt entities not because of
Section 24 of RA 7926 (which imposes the 5% preferential tax rate on
gross income of PEZA-registered enterprises in lieu of all taxes) but
rather because of Section 8 of the same which establishes the fiction
that ecozones are foreign territory. The Philippine VAT system
adheres to the cross-border doctrine which means that no VAT shall
be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority.
Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT; while those destined for use or
consumption within the Philippines shall be imposed with VAT.
**Input tax and output tax; Zero-rated sales of goods or properties: CIR v.
Benguet
FACTS
On August 28, 1988, Deputy Commissioner of Internal Revenue, Eufracio Santos
issued VAT Ruling RR No 3788-88 which declared the sale of gold to Central
Bank is considered as export sale subject to zero-rate pursuant to Section 100
NIRC of the Tax Code, as amended by EO No. 273. BIR came out with at least 6
other issuances reiterating the zero-rating sale of gold to central Bank.
Respondent then sold to Central Bank gold during August 1989 to July 1991 and
entered into transactions that resulted in input VAT incurred in relation to the
subject sales of gold. Because of this, it filed applications for tax refunds/credits
corresponding to the input VAT for the amounts of P46M, P19M and P84M. It
were expressly disallowed since on January 1992, VAT Ruling No 008-92 was
issued stating that sales of gold to the Central Bank shall not be considered
export sales and thus subject to 10% VAT, which withdrew, modified and
superseded all inconsistent BIR issuances. Later on, BIR issued a deficiency
assessment against respondent Benguet corp since there was a balance of
excess output VAT.
Respondent filed three separate petitions for review with CTA wherein it argued
the retroactive application of the BIR ruling. CTA dismissed such petitions since it
claimed there was no prejudice on the part of respondent and there was no
violation on Sec 246 NIRC (non-retroactivity of rulings that would prejudice
taxpayer). CA reversed the decision stating that there was financial damage. If
respondent had known such sale would be subject to 10% VAT during the time of
transactions, respondent would have passed on the cost of the input taxes to the
Central Bank.

ISSUE WON respondent corporation was prejudiced due to the retroactive effect
of the BIR issuance? YES!
HELD
VAT is a percentage tax imposed at every stage of the distribution process on the
sale, barter, exchange or lease of goods or properties and rendition of services in
the course of trade or business, or importation of goods--it is an indirect tax
which may be shifted to the buyer, transferee, or lessee of the goods,
properties, or services HOWEVER, the party directly liable for the payment of
the tax is the SELLER.
In transactions taxed at a 10% rate:
a) when at the end of any given taxable quarter, when the output VAT exceeds
the input VAT, the excess shall be paid to the government (Seller Liable to pay
excess)
b) When the input VAT exceeds the output VAT, the excess would be carried
over to VAT liabilities for succeeding quarter/s (Seller pays in the next quarter)
c) BUT when transactions which are taxed at zero-rate, they DO NOT RESULT
IN OUTPUT TAX. Input tax attributable to zero-rated should be refunded or
credited against other internal revenue taxes at option of taxpayer.
In this case, Ruling No. 008-92 (issued in 1992 after the transactions with
Central Bank) unilaterally forfeited or withdrew this option of respondent which
gave the adverse effect that respondent became the unexpected and unwilling
debtor to the BIR of the amount equivalent to the total VAT cost of its product
(liability it could have recovered from BIR under zero-rated scenario or could
have passed to the Central bank if it knew it would be taxed at 10% during the
years 1989 to 1991). Thus, it is clear that respondent suffered economic
prejudice when it consummated sales of gold to central bank were taken
out of the zero-rated category. The change in the vat ratings resulted in the
twin loss of its exemption from payment of output VAT and opportunity to recover
Input VAT and subject it to 10% VAT with option to pass to Central Bank.
DOCTRINES
1.
Input tax and output tax (See illustration below to understand
concept)
In transactions taxed at a 10% rate, when at the end of any given taxable quarter
the output VAT exceeds the input VAT, the excess shall be paid to the
government; When the input VAT exceeds the output VAT, the excess would be
carried over to VAT liabilities for succeeding quarter/s. BUT when transactions
which are taxed at zero-rate, they DO NOT RESULT IN OUTPUT TAX.


NOTE: VAT is the end user of consumer goods/services which
ultimately shoulders the tax as a liability that is passed on to the end users
by the providers of these goods who, in turn, may credit their own VAT
liability (input tax) from the VAT payments they receive from final consumer
(output tax) -- from case CIR v. Magsaysay Lines
2.
Zero-related sales of goods or properties
Transactions which are taxed at Zero-rate do not result in any output tax; Input
VAT attributable to zero-related sales could be refunded or credited against
other internal revenue taxes at the option of the taxpayer
ILLUSTRATION ON ZERO-RATED TRANSACTIONS and 10% VAT
TRANSACTIONS:
Scenario:
VAT Registered person (taxpayer) purchased materials from supplier at P80.00.
Included in this P80.00 is the P7.30 VAT passed on to him by his supplier at the
10% output VAT (of the supplier so that means the buyer pays the supplier the
10% such supplier is required to pay)
In this case, The taxpayer is allowed to recover the P7.30 from the BIR in
addition to other input VAT he had incurred in relation to the zero-rated
transactions through TAX REFUND/CREDIT.
When such taxpayer sells his FINISHED product in a zero-rated transaction
at P110.00, for example, he is not required to pay any OUTPUT vat. So he gets
the full P110.00
When such taxpayer sells his FINISHED product subject to 10% VAT at
P110.00, the taxpayer is allowed to recover BOTH input VAT of P7.30 (which he
paid to supplier earlier) and his output VAT of P2.70 (10% of the P30.00 value
he added in addition to the P80.00 material) by passing both costs to the buyer.
Thus, the buyer of the finish product pays both input and output VAT, which is
equivalent of P10.00 (P7.30 + P2.70) on the finished product.
NOTE: In BOTH cases, taxpayer has option not to carry any VAT cost
because in zero-related transaction, the taxpayer is allowed to recover input tax
from BIR without need to pay output tax. AND in 10% rated VAT, the taxpayer is
allowed to pass on both input and output VAT to the buyer.
TERMS TO KNOW under ISSUANCES in this case:
1.
Export sales - only direct export sales and foreign currency
denominated sales, shall be qualified for zero-rating

2.
Local Sales of Goods- which by fiction of law are considered
export sales (ex. Export Duty Law considered sales of gold to Central Bank
of phil as export sale). This is not considered as export sale for VAT
purposes
3.
EO No 273: any person who, in the course of trade or
business, sells, barters, or exchanged goods, renders services, or
engages in similar transactions and any person who imports goods is liable
for output VAT at rates either 10% or 0% (zero-rated) depending on the
classification of the transaction under Sec 100 NIRC. Persons registered
under the VAT system are allowed to recognize input VAT or the VAT due
from or paid by it in the course of its trade of business on importation of
goods or local purchases of goods or service, including lease or use of
properties, from a VAT-registered person.
Meaning of "in the course of trade": Lapanday Foods v. CIR
FACTS
Summary:

Lapanday Foods was incorporated primarily to engage in the

managing, promoting, administering, or assisting in any business or activity
of corporations, partnerships, associations, individuals or firms.

Thus, in extending loans to its affiliates, Lapanday is engaged

in transactions incidental to its business of providing assistance to its
affiliates.

Lapanday is saying VAT cant be imposed on the extension of

loans to its affiliates because its not done in the course of their business.

SC said its wrong and that VAT was correctly imposed since
said activity is in the course of business, whether primary or incidental.
(SUBSTANTIAL FACTS)
Actually, there was a discrepancy between the taxable receipts per
Lapandays VAT returns and the taxable receipts per examiners
investigation
Lapandays Arguments:

Lapanday submits that the difference represents interest

income on loans to affiliates for the year 2000 in the amount of P35M

Lapanday alleges that the discrepancy of P485k represents

miscellaneous charges which were subjected to VAT, but not included in
the BIR computation and the BIRs under take-up of proceeds from sale of
equipment in the computation

Invoking RMC 42-2003, Lapanday posits that since it does

not quality as a lending investor, dealer in securities, financial
institution as defined in RR 12-2003, or any other entity performing
similar financing activities, the interest income on loans it granted to
affiliates is not subject to VAT

CIRs Arguments: (and SC Argument)

Such interest income is subject to VAT pursuant to Sec 105 of

Tax Code which clearly imposes VAT on any person who renders service in
the course of its business

The term in the course of business includes transactions

incidental thereto.
(PROCEDURAL FACTS)

JANUARY 21, 2004: Lapanday received a Formal Assessment

Notice, together with several Assessment Notices, covering the taxable
year 2000 for alleged deficiency value added tax

FEB. 20, 2004: They filed a protest against the assessments,

MARCH 23, 2004: and also supplemental protest

APRIL 20, 2004: Later on, Lapanday completed the

submission of all relevant documents it deemed necessary to prove the
defences raised in its protest and supplemental protest

OCT. 29, 2004: Lapanday received from CIR the Final

Decision on Disputed Assessment dated Oct. 28, 2004, with
accompanying Amended Assessment Notices.

In the final decision, the VAT and DST assessments were

reduced, the final withholding tax assessment was cancelled
ISSUE WON the interest income on loans to affiliates is subject to 10% VAT
(YES)
HELD YES

Lapanday was incorporated primarily to engage in the

managing, promoting, administering, or assisting in any business or activity
of corporations, partnerships, associations, individuals or firms.

Thus, in extending loans to its affiliates, Lapanday is engaged

in transactions incidental to its business of providing assistance to its
affiliates.

Sec 105 provides that any person who, in the course of trade
or business, sells, barters, exchanges, leases goods or properties, renders
services shall be subject to VAT

The phrase in the course of trade or business means the

regular conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto

VAT is imposed on a sale or transaction entered into by a

person in the course of any trade or business.

A transaction will be characterized as having been entered into

by a person in the course of trade or business if it is (1) regularly

conducted; (2)undertaken in pursuit of a commercial or economic activity

Likewise, transactions that are made incidental to the pursuit

of a commercial or economic activity are considered as entered into in the
course of trade or business

Incidental: primary, necessary

DOCTRINE:

Sec 105 provides that any person who, in the course of trade
or business, sells, barters, exchanges, leases goods or properties, renders
services shall be subject to VAT

The phrase in the course of trade or business means the

regular conduct or pursuit of a commercial or an economic activity,
including transactions incidental thereto

VAT is imposed on a sale or transaction entered into by a

person in the course of any trade or business.
DECISION: VAT is imposed
Meaning of "in the course of trade": Waterfront Philippines v. CIR
FACTS
Waterfront Mactan Casino Hotel was assessed by BIR for deficiency taxes
pertaining to VAT. Waterfront claims that the assessment was based on their
sales to PAGCOR to which they did not impose VAT.
ISSUE
WON PAGCOR is exempted from VAT
HELD
Yes. PAGCOR is exempt from the assessment or collection of tax, in any kind or
form, whether national or local.
PO No. 1869 SECTION 13. Exemptions.
(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form,
income or otherwise, as well as fees, charges, or levies of whatever nature,
whether National or Local, shall be assessed and collected under this
Franchise from the Corporation; nor shall any form of tax or charge attach in
any way to the earnings of the Corporation, except a Franchise Tax of five
percent (5/o) of the gross revenue
Although BIR claims that PAGCOR is no longer exempted from VAT by virtue of
RA No. 9337, a closer look on the said law clearly reveals that the elimination of
PAGCOR's tax exemption covers only corporate income tax.
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
-

XXX XXX XXX

(B) Transactions Subject to Zero Percent {0/o) Rate.
- The following services performed in the Philippines by VAT- registered persons
shall be subject to zero percent (0/o) rate:
XXX XXX XXX
(3) Services rendered to persons or entities whose exemption under special
laws
DOCTRINE
Services rendered to persons or entities whose exemption is provided by special
laws shall be subject to zero percent (0%) rate VAT.
Meaning of "in the course of trade": CIR v. Ongtengco
FACTS
CIR assessed Ongtenco for VAT deficiency for the interest income earned on
loans extended to his affiliates for taxable year 2006. The interest income earned
from lending money to Intertrade Credit Corporation (ICC) and the gross sales is
subject to VAT since the performance of all kinds of services for others for a fee,
consideration or remuneration in the course of trade or business is subject to
VAT.
Ongtengco contend that being a non-VAT taxpayer, he is not subject to VAT. His
gross sales does not exceed the threshold of P1.5M (Previous threshold) and
that the interest income he received from Intertrade arose from a single
transaction and not in the ordinary course of his trade or business.
CTA division ruled that interest income is revenue realized from the services
rendered by Ongtengco to his affiliates as part of its ordinary course of business.
The loan assistance extended to its business is deemed a transaction in the
ordinary course of trade or business. Therefore, the interest income is subject to
VAT.
The VAT applies notwithstanding the fact that the company does not profit from
lending to its affiliates because it only passes on to its affiliates the interest that is
charged by the bank from which the funds are sourced.
CIR filed Motion for Reconsideration with the decision of CTA.

ISSUE
W/N Ongtengco is liable for the deficiency VAT?
HELD
NOT LIABLE. The loan extended to ICC is not an incidental transaction, not is it
part of the ordinary course of trade or business.
For Ongtengco to be held liable for deficiency VAT, the transaction involved, the
act of extending loan to ICC, must have been made in the course of trade or
business.
In the course of trade or business specifically means the regular conduct or
pursuit of a commercial or economic activity, including transactions incidental
thereto. To constitute as incidental, it must be depending upon or appertaining
to something else as primary; something necessary, appertaining to or
depending upon another, which is termed the principal; something incidental to
the main purpose.
In the course of trade or business means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto,
regardless of whether or not the person engaged therein is non-stock, non-profit
private organization or government entity.
In this case, there is no trade or business yet at the time of the subject
transaction with ICC. When Ongtengco extended a loan to ICC in 2004, he was
not yet engaged in any trade or business, as his motorcycle business only
started in Nov. 2006 and subsequently registered with BIR on Dec 2006.
Further, absent any indication that respondent was an employee of ICC, it is
clear that his involvement in the management of ICC was in his capacity as a
member of the board of directors and not as part of his trade or business.
Therefore, his management services cannot also be subject to VAT.
Considering that no basis for concluding that the loan extended to ICC was an
incidental transaction to Ongtengcos business. It follows that the interest income
resulting from said loan transaction is not subject to VAT.
EXEMPT FROM VAT gross sales below the threshold of P1.5M
DOCTRINE
In the course of trade or business specifically means the regular conduct or

pursuit of a commercial or economic activity, including transactions incidental

thereto. To constitute as incidental, it must be depending upon or appertaining
to something else as primary; something necessary, appertaining to or
depending upon another, which is termed the principal; something incidental to
the main purpose.
Meaning of "in the course of trade": CIR v. CA & Commonwealth
FACTS

Commonwealth Management and Services Corporation

(COMASERCO), is a corporation duly organized and existing

It is an affiliate of Philamlife,
organized by the latter to perform collection,
consultative and other technical services, including
functioning as an internal auditor, of Philamlife and its other
under the laws of the Philippines.

affiliates.

BIR

issued

an

assessment

to

private

respondent

deficiency value-added tax (VAT)

amounting to P351,851.01, for taxable year 1988.
COMASERCO for

return

COMASERCO's

annual corporate income tax

ending December 31, 1988

indicated a net loss in its

operations in the amount of P6,077.00

COMASERCO filed with the CTA a petition for review

contesting the Commissioner's assessment.

COMASERCO asserted that the services it rendered to

Philamlife and its affiliates, relating to collections, consultative and
other technical assistance, including functioning as an internal

It
averred that it was not engaged in the
business of providing services to Philamlife
auditor, were on a "non-profit, reimbursement-of-cost-only" basis.

and its affiliates. COMASERCO was established to ensure

operational orderliness and administrative efficiency of Philamlife
and its affiliates, and not in the sale of services. COMASERCO
stressed that it was not profit-motivated, thus not
engaged in business. In fact, it did not generate profit but
suffered a net loss in taxable year 1988. COMASERCO averred that
since it was not engaged in business, it was not liable to pay VAT.

CTA decided in favor of CIR wit h slight modifications.

COMASERCO filed with the CA a PFR of the said decision.


CA reversed the CTA decision upholding that, in one case
involving the same parties ,COMASERCO was not liable to pay fixed and
contractors tax for services rendered to Philamlife and its affiliates,
therefore since it was not engaged in business of proving services to
Philamlife and its affiliates, it was not liable to pay VAT
ISSUE

Whether or not COMASERCO was engaged in the sale of

services, and thus liable to pay VAT thereon?
HELD

Petitioner avers that to "engage in business" and to "engage in

the sale of services" are two different things. Petitioner maintains that the
services rendered by COMASERCO to Philamlife and its affiliates, for a fee
or consideration, are subject to VAT. VAT is a tax on the value

added by the performance of the service. It is

immaterial whether profit is derived from rendering
the service.

We agree with the Commissioner

Section 99 of the National Internal Revenue Code of 1986, as

amended by Executive Order (E.O.) No. 273 in 1988, provides that.

"Section 99. Persons liable. - Any person who, in the

course of trade or business, sells, barters or exchanges goods,
renders services, or engages in similar transactions and any person
who imports goods shall be subject to the value-added tax (VAT)
imposed in Sections 100 to 102 of this Code

COMASERCO contends that the term

"in the course of trade or business" requires
that the "business" is carried on with a view to
profit or livelihood. It avers that the activities of the entity must

be profit- oriented. COMASERCO submits that it is not motivated by profit,

as defined by its primary purpose in the articles of incorporation, stating
that it is operating "only on reimbursement-of-cost basis, without any
profit." Private respondent argues that profit motive is material in
ascertaining who to tax for purposes of determining liability for VAT.

We disagree.

Contrary to COMASERCO's contention the above provision

clarifies that even a non-stock, non-profit, organization or government
entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on
transactions, imposed at every stage of the distribution process on the

sale, barter, exchange of goods or property, and on the performance of

The term
"in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an
economic activity, regardless of whether or not
the entity is profit-oriented.
services, even in the absence of profit attributable thereto.

The definition of the term "in the course of trade or business"

incorporated in the present law applies to all transactions even to those
made prior to its enactment. Executive Order No. 273 stated that any

person who, in the course of trade or business, sells,

barters or exchanges goods and services, was already
liable to pay VAT. The present law merely stresses that even a
nonstock, nonprofit organization or government entity is liable to pay VAT
for the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997

defines the phrase "sale of services" as the "performance of all kinds of
services for others for a fee, remuneration or consideration." It includes
"the supply of technical advice, assistance or services rendered in
connection with technical management or administration of any scientific,
industrial or commercial undertaking or project

Hence, it is immaterial whether the primary

purpose of a corporation indicates that it receives

payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides
service for a fee, remuneration or consideration, then
the service rendered is subject to VAT

At any rate, it is a rule that because taxes are the lifeblood of

the nation, statutes that allow exemptions are construed strictly against the
grantee and liberally in favor of the government. Otherwise stated, any
exemption from the payment of a tax must be clearly stated in the
language of the law; it cannot be merely implied therefrom. In the case of
VAT, Section 109, Republic Act 8424 clearly enumerates the transactions
exempted from VAT. The services rendered by COMASERCO do not fall
within the exemptions.

DOCTRINE
Meaning of "in the course of trade": CIR v. Sony Philippines
FACTS
CIR issued a Letter of Authority (LOA) authorizing certain revenue officers to
examine Sonys books of accounts and other accounting records regarding
revenue taxes for "the period 1997 and unverified prior years.
A preliminary assessment for 1997 deficiency taxes and penalties was
issued by the CIR which Sony protested.
Thereafter, acting on the protest, the CIR issued final assessment notices,
the formal letter of demand and the details of discrepancies.
The audit yielded assessments against Sony Philippines for deficiency VAT
on subsidy/reimbursement received by Sony Philippines from its offshore
affiliate, Sony International Singapore (SIS).
CIR argues that Sonys deficiency VAT should have been realized from its
advertising expense.
CIR further argues that under Section 110 of the 1997 Tax Code that an
advertising expense duly covered by a VAT invoice is a legitimate business
expense.
ISSUE
WON Sony Philippines is liable for deficiency Value Added Tax.
HELD
NO
Court does not agree that the same subsidy should be subject to the 10%
VAT.
The subsidy or reimbursement was not even exclusively reserved for Sonys
advertising expense for it was but an assistance or aid in view of Sonys dire or
adverse economic conditions, and was only "equivalent to Sonys advertising
expenses.
Thus, there must be a sale, barter or exchange of goods or properties
before any VAT may be levied.
Certainly, there was no such sale, barter or exchange in the subsidy given
by SIS to Sony.
It was but a dole out by SIS and not in payment for goods or properties sold,
bartered or exchanged by Sony.
Sony also did not render any service to SIS at all.
The services rendered by the advertising companies, paid for by Sony using
SIS dole-out, were for Sony and not SIS.
SIS just gave assistance to Sony in the amount equivalent to the latters
advertising expense but never received any goods, properties or service from
Sony.

DOCTRINE
Sony Philippines cannot be deemed to have received the
subsidy/reimbursement as a fee for a VAT-taxable activity.
The absence of a sale, barter or exchange of goods or properties supports
the non-VAT nature of the subsidy/reimbursement.
Vat treatment of ecozone: CIR v. Toshiba (GR 157594)
FACTS

Toshiba is a domestic corporation engaged in the business of

manufacturing and exporting of electric machinery, equipment systems,
accessories, parts, components, materials and goods of all kinds.

It is registered with the PEZA as an ECOZONE export

enterprise in the Laguna Technopark, Inc.

It is also registered in the RDO of the BIR in San Pedro,

Laguna as a VAT-taxpayer.

For the VAT returns of the first and second quarters of 1997,
Toshiba declared input VAT payments on its domestic purchases of taxable
goods and services with no zero-rated sales.

Two years later, Toshiba filed with the DOF One-Stop Shop
two separate applications for tax credit/refund for the input VAT payments
for the first half of 1997. The next day, Toshiba filed with the CTA a Petition
for Review to toll the running of the two-year prescriptive period according
to the Tax Code of 1977, as amended.

CTA: Granted the claim for credit/refund of Toshiba in the

amount of P1,385,282.08.

The CIR admitted that the export sales of Toshiba were

subject to 0% VAT based on the Tax Code, hence Toshiba could
claim tax credit or refund of input VAT.

MR by Toshiba: disallowed by CTA

MR by CIR: Toshiba was not entitled to credit/refund

because as a PEZA-registered ECOZONE export enterprise,
Toshiba was not subject to VAT. The CIR contended that under Sec.
24 of RA 7916, all business and establishments within the
ECOZONE were to remit to the government 5% of their gross
income earned within the zone, in lieu of all taxes, including VAT. -DENIED by the CTA because it was raised for the first time by the
CIR.

CA: Granted the appeal of the CIR and reversed and set aside
the decision and resolution of the CTA. The CTA reduced the amount to be
credited or refunded to Toshiba as Toshiba was liable for remitting to the
national government 5% of its gross income earned within the ECOZONE,
in lieu of all other national and local taxes, including VAT.

The CA further adjudged that the export sales of Toshiba

were VAT-exempt, not zero-rated transactions.

ISSUE
W/N the CIR timely raised the issue on VAT-exemptions of Toshiba and its export
sales
W/N the CIR was bound by the admission that Toshiba was VAT-registered and
was subject to VAT at 0% rate
HELD

Upon issuance of RMC 74-99, the rule was clearly established

that following the cross-border doctrine, based on the fiction that ecozones
are foreign territory, a sale by a supplier in the customs territory to a PEZAregistered enterprise is considered an export sale and therefore subject to
zero VAT.

Upon the failure of the CIR to timely plead and prove before
the CTA the defenses and objections that Toshiba was VAT-exempt and
that its export sales were VAT-exempt transactions, the CIR is deemed to
have waived the same. It should have done the same in its answer and not
in its motion for reconsideration in the CTA.

The CIR was likewise bound by the Joint Stipulation at the end
of the pre-trial conference. Such was approved by the CTA. The admission
having been made in a stipulation of facts at pre-trial by the parties, it must
be treated as a judicial admission.
DOCTRINE
Failure by the Commissioner of Internal Revenue (CIR) to timely plead and prove
before the CTA the defenses that Toshiba was VAT-exempt under Republic Act
No. 7916 and that its export sales were VAT-exempt under the Tax Code is
deemed a waiver of such defenses.
VAT treatment of ecozones: CIR v. Toshiba (GR 150154)
FACTS

Respondent Toshiba was organized and established as a

domestic corporation, duly-registered with the Securities and Exchange
Commission

Respondent Toshiba also registered with the Philippine

Economic Zone Authority (PEZA) as an ECOZONE Export Enterprise

Respondent Toshiba filed its VAT returns for the first and
second quarters of taxable year 1996, reporting input VAT in the amount of
P13,118,542.00 and P5,128,761.94,
respectively, or a total of
P18,247,303.94

Respondent Toshiba filed with the One-Stop Shop InterAgency Tax Credit and Duty Drawback Center of the Department of
Finance (DOF) applications for tax credit/refund of its unutilized input VAT
[7]

[8]

for 01 January to 31 March 1996 in the amount of P14,176,601.28, and

for 01 April to 30 June 1996 in the amount of P5,161,820.79, for a total of
P19,338,422.07

Respondent Toshiba filed a Petition for Review with CTA to toll

the running of the 2-years prescriptive period.

CTA ordered petitioner CIR to refund, or in the alternative, to

issue a tax credit certificate to respondent Toshiba in the amount of
P16,188,045.44.

CA affirmed.
[10]

[11]

ISSUE whether respondent Toshiba is entitled to the tax credit/refund of its input
VAT on its purchases of capital goods and services
HELD Yes

An ECOZONE enterprise is a VAT-exempt entity. Sales of

goods, properties, and services by persons from the Customs Territory to
ECOZONE enterprises shall be subject to VAT at zero percent (0%).

Respondent Toshiba bases its claim for tax credit/refund on

Section 106(b) of the Tax Code of 1977

Petitioner CIR, on the other hand, opposes such claim on

account of Section 4.106-1(b) of Revenue Regulations (RR) No. 7-95,
otherwise known as the VAT Regulations

Refund of input taxes on capital goods shall be allowed

only to the extent that such capital goods are used in VAT taxable
business

Petitioner CIR argues that although respondent Toshiba

may be a VAT-registered taxpayer, it is not engaged in a VAT-taxable
business. According to petitioner CIR, respondent Toshiba is actually
VAT-exempt. Since respondent Toshiba is a PEZA-registered
enterprise, it is subject to the five percent (5%) preferential tax rate
imposed under Chapter III, Section 24 of Republic Act No. 7916

CIR failed to differentiate between VAT-exempt transactions

from VAT-exempt entities

An exempt transaction, on the one hand, involves goods

or services which, by their nature, are specifically listed in and
expressly exempted from the VAT under the Tax Code, without
regard to the tax status VAT-exempt or not of the party to the
transaction

An exempt party, on the other hand, is a person or entity

granted VAT exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a signatory, and
by virtue of which its taxable transactions become exempt from VAT

Section 103(q) of the Tax Code of 1977, as amended, relied

upon by petitioner CIR, relates to VAT-exempt transactions. Section 103(q)

of the Tax Code of 1977, as amended, cannot apply to transactions of
respondent Toshiba because although the said section recognizes that
transactions covered by special laws may be exempt from VAT, the very
same section provides that those falling under Presidential Decree No. 66
are not.

Presidential Decree No. 66, creating the Export

Processing Zone Authority (EPZA), is the precursor of Rep. Act No.
7916, as amended, under which the EPZA evolved into the PEZA

PEZA-registered enterprises, which would necessarily be

located within ECOZONES, are VAT-exempt entities, not because of
Section 24 of Rep. Act No. 7916, as amended, which imposes the five
percent (5%) preferential tax rate on gross income of PEZA-registered
enterprises, in lieu of all taxes; but, rather, because of Section 8 of the
same statute which establishes the fiction that ECOZONES are foreign
territory.

Sales made by a supplier in the Customs Territory to a

purchaser in the ECOZONE shall be treated as an exportation from the
Customs Territory. Conversely, sales made by a supplier from the
ECOZONE to a purchaser in the Customs Territory shall be considered as
an importation into the Customs Territory.

Sales of goods, properties and services by a VAT-registered

supplier from the Customs Territory to an ECOZONE enterprise shall be
treated as export sales. If such sales are made by a VAT-registered
supplier, they shall be subject to VAT at zero percent (0%).

Meanwhile, sales to an ECOZONE enterprise made by a nonVAT or unregistered supplier would only be exempt from VAT and the
supplier shall not be able to claim credit/refund of its input VAT
[20]

DOCTRINE
PEZA-registered enterprises, which would necessarily be located within
ECOZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act No.
7916, as amended, which imposes the five percent (5%) preferential tax rate on
gross income of PEZA-registered enterprises, in lieu of all taxes; but, rather,
because of Section 8 of the same statute which establishes the fiction that
ECOZONES are foreign territory
Sales made by a supplier in the Customs Territory to a purchaser in the
ECOZONE shall be treated as an exportation from the Customs Territory.
Conversely, sales made by a supplier from the ECOZONE to a purchaser in the
Customs Territory shall be considered as an importation into the Customs
Territory

Sales of goods, properties and services by a VAT-registered supplier from the

Customs Territory to an ECOZONE enterprise shall be treated as export sales. If
such sales are made by a VAT-registered supplier, they shall be subject to VAT at
zero percent (0%)
Services performed in Philippines to a Recipient outside: CIR v. Burmeister
FACTS
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTORDENMARK entered
into a foreign consortium with Mitsui Engineering, Mitsui and Co., and
NAPOCOR for the operation and maintenance of latters two power barges.
The Consortium appointed Burmeister as its coordination manager. Burmeister
Denmark subcontracted the actual operation and maintenance and the
performance of other duties which would be done in the Phils to BurmeisterMindanao (respondent), corporation duly organized in the Philippines with
address in Davao City. Its services will be paid in foreign currency inwardly
remitted to the Phils through the banking system.
Burmeister-Mindanao sought a BIR ruling to ascertain the tax implications.
BIR Ruling: It shall be subject to 0% VAT if it register as VAT person and its
services be paid in foreign currency and accounted for in accordance with rules
of BSP.
Respondent choose to register as Vat taxpayer and filed its tax returns reflecting
zero rated sales.
Later, the RR 05-96 became effective. Thus, respondent subjected its sales to
10% VAT.
After two years, respondent was able to secure VAT Ruling which reconfirmed
the previous BIR Ruling, that its services are subject to 0% VAT.
Respondent filed a claim for issuance of tax credit certificate with BIR. (DENIED)
CTA and CA: ruled IFO respondent; CIR to issue tax credit certificate
Respondent relied in BIR rulings.
ISSUE
W/N services rendered by respondent to consortium is subject to 0% VAT?
HELD
Yes. It is entitled to zero-rated status and to the refund but only for the period

covered prior to the filing of the CIRs answer in the CTA. This is so because
prior, Burmeister was able to secure a ruling from the BIR allowing zero-rating of
its sales. However, such ruling is valid only until the time that the CIR filed its
answer in the CTA which amounted to a revocation of the said ruling. Such
revocation of CIR cannot be made retroactive effect if prejudicial to taxpayer as
provided in Section 246 of Tax Code.
It must be noted, however, that without this special circumstance, Burmeister
would not have been entitled to a zero-rated status. This is because the
Consortium, which was the recipient of the services rendered by Burmeister, was
deemed doing business within the Philippines.
For services other than processing, manufacturing or repacking of
goods, the consideration for which paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations
of the BSP. Another essential condition for qualification to zero-rating
under Section 102(b)(2) is that the recipient of such services is doing
business outside the Philippines. When Section 102(b)(2) stipulates
payment in acceptable foreign currency under BSP rules, the law
clearly envisions the payer-recipient of services to be doing business
outside the Philippines
In this case, while the Consortiums principal members are non-resident foreign
corporations, the Consortium itself is doing business in the Philippines
considering that it has 15-year contract to operate and maintain NAPOCORs two
100-megawatt power barges in Mindanao. Hence, the transactions of BWSC
Mindanao are not subject to VAT at zero percent.
DOCTRINE
For services other than processing, manufacturing or repacking of goods, the
consideration for which paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP. Another essential
condition for qualification to zero-rating under Section 102(b)(2) is that the
recipient of such services is doing business outside the Philippines.
Services to persons and entities exempt under Special Laws: CIR v. Acesite Phil
FACTS

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 PAGCOR for casino

operations. It also caters food and beverages to PAGCORs casino patrons
through the hotels restaurant outlets.


Acesite incurred VAT amounting to P30,152,892.02 from its
rental income and sale of food and beverages to PAGCOR during said
period.

Acesite tried to shift the said taxes to PAGCOR by

incorporating it in the amount assessed to PAGCOR but the latter refused
to pay the taxes on account of its tax exempt status

Thus, Acesite paid the VAT to the CIR as it feared the legal
consequences of non-payment of the tax.

However, Acesite belatedly arrived at the conclusion that its

transaction with PAGCOR was subject to zero rate as it was rendered to a
tax-exempt entity.

Acesite filed an administrative claim for refund with the CIR but
the latter failed to resolve the same. Thus on 29 May 1998, Acesite filed a
petition with the CTA which was decided in its favor which was affirmed by
the CA.
ISSUE

WON PAGCORs tax exemption privilege includes the indirect

tax of VAT to entitle Acesite to zero percent VAT rate; and

WON the zero percent (0%) VAT rate under then Section 102
(b)(3) of the Tax Code (now Section 108 (B)(3) of the Tax Code of 1997)
legally applies to Acesite.
HELD. YES

It is undisputed that P.D. 1869, the charter creating PAGCOR,

grants the latter an exemption from the payment of taxes.

Petitioner contends that the above tax exemption refers

only to PAGCORs direct tax liability and not to indirect taxes, like the
VAT.

Such position is devoid of merit.

A close scrutiny of the above law clearly gives PAGCOR a

blanket exemption to taxes with no distinction on whether the taxes are
direct or indirect. In fact, it goes 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
P30,152,892.02 VAT and neither is Acesite as the latter is effectively
subject to zero percent rate under Sec. 108 B (3). R.A. 8424.

Indeed, by extending the exemption to entities or individuals

dealing with PAGCOR, the legislature clearly granted exemption also from
indirect taxes. It must be noted that the indirect tax of VAT, as in the instant
case, can be shifted or passed to the buyer, transferee, or lessee of the
goods, properties, or services subject to VAT. Thus, by extending the tax
exemption to entities or individuals dealing with PAGCOR in casino

operations, it is exempting PAGCOR from being liable to indirect taxes.

VAT exemption extends to Acesite

Thus, while it was proper for PAGCOR not to pay the 10% VAT
charged by Acesite, the latter is not liable for the payment of it as it is
exempt in this particular transaction by operation of law to pay 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:

Section 102. Value-added tax on sale of services (a)

Rate and base of tax There shall be levied, assessed and
collected, a value-added tax equivalent to 10% of gross receipts
derived by any person engaged in the sale of services x x x;
Provided, that the following services performed in the Philippines by
VAT-registered persons shall be subject to 0%.

(b) Transactions subject to zero percent (0%) rated.

(3) Services rendered to persons or entities whose

exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects the supply of
such services to zero (0%) rate (emphasis supplied).
DOCTRINE
Sale of Power generated through renewable sources: Mindanao Geothermal
Partnership v. CIR
FACTS
Mindanao entered into a contract of Build-Operate-Transfer (BOT) with the
Philippine National Oil Corporation Energy Development Corporation
(PNOC-EDC) for the construction of a geothermal power plant.
Under the BOT contract, PNOC-EDC shall supply and deliver steam to
Mindanao at no cost.
Mindanao will convert the steam into electric capacity and energy for PNOCEDC and shall subsequently supply and deliver the same to the National
Power Corporation (NPC) in behalf of PNOC-EDC.
On June 26, 2001, Congress enacted "Electric Power Industry Reform Act of
2001 (EPIRA).
Under EPIRA, the delivery and supply of electric energy by generation
companies became VAT zero-rated, which previously were subject to ten
percent (10%) VAT.
Mindanao adopted the VAT zero-rating of the EPIRA in computing for its VAT
payable when it filed its VAT Returns, on the belief that its sales qualify for VAT
zero-rating.

ISSUE
WON Mindanao is qualified for VAT zero-rating.
HELD
NO.
The taxpayer was not able to prove that it is a generation company qualified
for VAT zero rating as required by law -> (legal basis: Section 108(B)(7) of the
1997 NIRC, as amended by R.A. No. 9337, and in relation to Section 4.108-3
of RR No. 16-05 and Section 4, Rule 5 of the Implementing Rules and
Regulations of R.A. No. 9136)
Particularly, its failure to submit its Energy Regulatory Commission (ERC)
registration and Certificate of Compliance which will show that it is duly
authorized by the ERC to operate facilities used in the generation of electricity.
In order to qualify for VAT zero-rating under Section 108(B)(7) of the NIRC, as
amended, the taxpayer must be able to prove that it is a generation company
and that it is engaged in the sale of power or fuel generated through renewable
source of energy.
DOCTRINE
In order to qualify for VAT zero-rating under Section 108(B)(7) of the NIRC, as
amended, the taxpayer must be able to prove that it is a generation company
and that it is engaged in the sale of power or fuel generated through renewable
source of energy.
Mindanao failed to submit its Energy Regulatory Commission (ERC)
registration and Certificate of Compliance which will show that it is duly
authorized to operate facilities used in the generation of electricity.
VAT-exempt Transactions: CIR v. Phil Health Care
FACTS

On 1987, CIR issued VAT Ruling No. 231-88 stating that

Philhealth, as a provider of medical services, is exempt from the VAT
coverage.

When RA 8424 or the new Tax Code was implemented it

adopted the provisions of VAT and E-VAT.

On 1999, the BIR sent Philhealth an assessment notice for

deficiency VAT and documentary stamp taxes for taxable years 1996 and
1997.

After CIR did not act on it, Philhealth filed a petition for review
with the CTA. The CTA withdrew the VAT assessment. The CIR then filed
an appeal with the CA which was denied.
ISSUE

Whether Philhealth is subject to VAT.

HELD

YES. Section 103 of the NIRC exempts taxpayers engaged in

the performance of medical, dental, hospital, and veterinary services from
VAT.

But, in Philhealth's letter requesting of its VAT-exempt

status, it was held that it showed Philhealth provides medical service
only between their members and their accredited hospitals, that it
only provides for the provision of pre-need health care services, it
contracts the services of medical practitioners and establishments
for their members in the delivery of health services. Thus, Philhealth
does not fall under the exemptions provided in Section 103, but
merely arranges for such, making Philhealth not VAT-exempt.

The Court held that Philhealth acted in good faith. The term
health maintenance organization was first recorded in the Philippine
statute books in 1995. It is apparent that when VAT Ruling No. 231-88 was
issued in Philhealth's favor, the term health maintenance organization was
unknown and had no significance for taxation purposes. Philhealth,
therefore, believed in good faith that it was VAT exempt for the taxable
years 1996 and 1997 on the basis of VAT Ruling No. 231-88. The rule is
that the BIR rulings have no retroactive effect where a grossly unfair deal
would result to the prejudice of the taxpayer.
DOCTRINE
Philhealth is NOT exempt because it showed that it contracts the services of
medical practitioners and establishments for their members in the delivery of
health services. It does not fall within Section 103, but merely arranges for such,
making Philhealth NOT VAT-exempt.
VAT-exempt Transactions: Hermano (san) miguel Febres v. CIR (CTA CASE
NO. 8194, May 15 2012)
FACTS:
1.
Petitioner Hermano San Miguel Febres Cordero Medical
Education Foundation (DLSU Health Sciences Institute or DLSU-HSI) was
assessed 2.6M deficiency VAT and 20% deficincy and delinquent interest
by CIR
2.
Lower court ruled IFO of CIR. Petitioner now comes to CTA for
review
3.
CIR moved to dismiss, alleging:
1.
The drugs being sold by Petitioner to in-patients are
tangible and capable of pecuniary estimation, considered goods
and therefore subject to VAT when sold
2.
Petitioner failed to prove that they deserve the
exemption under BIR Ruling DA-122-2005, saying the evidence they

presented were insufficient

4.
Petitioner maintains that it is a hospital and the sale of drugs is
part of its services.
ISSUE:
Whether Petitioner must pay VAT? YES
Whether Petitioner is a hospital? NO
HELD
FIRST ISSUE
SC disagrees with CIR that the drugs are covered by VAT. SC held that sale of
drugs or pharmaceutical items to in-patients is considered part of the term
hospital services covered by the exemption from VAT under NIRC S109(G). It is
a necessary and essential service rendered by any hospital. Also, they cited
Perpetual Soccour Hospital v. CIR as basis. However, petitioner is still liable for
VAT since they are not a hospital as discussed by second issue.
SECOND ISSUE
Petitioner failed to establish by competent evidence that it is an entity that
operates a hospital. S109(G) exempts taxpayers from VAT if they are selling
drugs or pharmaceutical items to in-patients of the hospital.
A perusal of Petitioners articles of incorporation reveals that Petitioner is a nonstock, non-profit educational corporation. Further, Petitioner itself represented in
this Petition for Review that it is a non-stock, non-profit educational
corporation. Still, Petitioner alleges that it is engaged in providing medical and
hospital services. However, although its articles of incorporation implies the
operation of a hospital, the records of the case and evidence presented does not
indicate so. Nowhere in the records can at least infer the fact that petitioner
actually operates a hospital.
Even if Petitioner is able to prove that it operates a hospital, they would still be
liable for VAT because it failed to substantiate by competent evidence that the
sale of drugs consist of sales to in-patients
DOCTRINE
Before a taxpayer may claim exemption, they must first establish that:
1.
They operate a hospital
2.
said hospital has a pharmacy/drugstore
3.
that the sale of drugs claimed to be VAT exempt was made by
the hospital drugstore to in-patients of the hospital
Vat-exempt Transactions: Sonza v. ABS-CBN

FACTS

Respondent ABS-CBN Broadcasting Corporation (ABS-CBN)

signed an Agreement (Agreement) with the Mel and Jay Management and
Development Corporation (MJMDC)

MJMDC (acting as Agent) agreed to provide Sonzas services

exclusively to ABS-CBN as talent for radio and television

MJMDC wrote a letter to ABS-CBN resigning from the program

due to changes made by ABS-CBN which allegedly is in violation of the
Agreement. In the same letter served as notice of rescission of the
Agreement.

Sonza filed a complaint against ABS-CBN before the

Department of Labor and Employment. Sonza complained that ABS-CBN
did not pay his salaries, separation pay, service incentive leave pay, 13
month pay, signing bonus, travel allowance and amounts due under the
Employees Stock Option Plan (ESOP).

ABS-CBN filed a Motion to Dismiss on the ground that no

employer-employee relationship existed between the parties

LA dismissed case for lack of jurisdiction. Sonza is an

independent contractor.

NLRC affirmed

CA affirmed. The alleged breach of Agreement is a breach of

contractual obligations cognizable by regular courts, not by the labor
courts.

th

ISSUE W/N CA erred? (Basically this case is a labor case)

HELD No, CA did not err. Sonza is an independent contractor.

SC applied the four-fold test in labor cases.

Elements of an employer-employee relationship are: (a)

the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employers power to
control the employee on the means and methods by which the work
is accomplished.

The last element, the so-called control test, is the most

important element

The National Internal Revenue Code (NIRC) in relation to

Republic Act No. 7716, as amended by Republic Act No. 8241, treats
talents, television and radio broadcasters differently.

Under the NIRC, these professionals are subject to the 10%

value-added tax (VAT) on services they render.

Exempted from the VAT are those under an employeremployee relationship.

This different tax treatment accorded to talents and

broadcasters bolters the conclusion that they are independent contractors,

provided all the basic elements of a contractual relationship are present.
DOCTRINE
The National Internal Revenue Code (NIRC) in relation to Republic Act No. 7716,
as amended by Republic Act No. 8241, treats talents, television and radio
broadcasters differently.
Under the NIRC, these professionals are subject to the 10% value-added tax
(VAT) on services they render. Exempted from the VAT are those under an
employer-employee relationship.
Vat-exempt Transactions: PAGCOR v. CIR
FACTS:

PAGCOR was created pursuant to Presidential Decree (P.D.)

No. 1067-A on January 1, 1977.

Simultaneous to its creation, P.D. No. 1067-B (supplementing

P.D. No. 1067-A) was issued exempting PAGCOR from the payment of any
type of tax, except a franchise tax of five percent (5%) of the gross
revenue.

Thereafter, on June 2, 1978, P.D. No. 1399 was issued

expanding the scope of PAGCOR's exemption.

To consolidate the laws pertaining to the franchise and powers

of PAGCOR, P.D. No. 1869 was issued. Section 13 thereof reads as
follows:

Sec. 13. Exemptions. x x x

(1) Customs Duties, taxes and other imposts on

importations. - All importations of equipment, vehicles, automobiles,
boats, ships, barges, aircraft and such other gambling
paraphernalia, including accessories or related facilities, for the sole
and exclusive use of the casinos, the proper and efficient
management and administration thereof and such other clubs,
recreation or amusement places to be established under and by
virtue of this Franchise shall be exempt from the payment of duties,
taxes and other imposts, including all kinds of fees, levies, or
charges of any kind or nature.

Vessels and/or accessory ferry boats imported or to be

imported by any corporation having existing contractual
arrangements with the Corporation, for the sole and exclusive use of
the casino or to be used to service the operations and requirements
of the casino, shall likewise be totally exempt from the payment of all
customs duties, taxes and other imposts, including all kinds of fees,
levies, assessments or charges of any kind or nature, whether

National or Local.

(2) Income and other taxes. - (a) Franchise Holder: No

tax of any kind or form, income or otherwise, as well as fees,
charges, or levies of whatever nature, whether National or Local,
shall be assessed and collected under this Franchise from the
Corporation; nor shall any form of tax or charge attach in any way to
the earnings of the Corporation, except a Franchise Tax of five
percent (5%)of the gross revenue or earnings derived by the
Corporation from its operation under this Franchise. Such tax shall
be due and payable quarterly to the National Government and shall
be in lieu of all kinds of taxes, levies, fees or assessments of any
kind, nature or description, levied, established, or collected by any
municipal, provincial or national government authority.

(b) Others: The exemption herein granted for

earnings derived from the operations conducted under the
franchise, specifically from the payment of any tax, income or
otherwise, as well as any form of charges, fees or levies, shall
inure to the benefit of and extend to corporation(s),
association(s), agency(ies), or individual(s) with whom the
Corporation or operator has any contractual relationship in
connection with the operations of the casino(s) authorized to
be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation as
a result of essential facilities furnished and/or technical
services rendered to the Corporation or operator.

The fee or remuneration of foreign entertainers

contracted by the Corporation or operator in pursuance of this
provision shall be free of any tax.

(3) Dividend Income. Notwithstanding any provision of

law to the contrary, in the event the Corporation should declare a
cash dividend income corresponding to the participation of the
private sector shall, as an incentive to the beneficiaries, be subject
only to a final flat income rate of ten percent (10%) of the regular
income tax rates. The dividend income shall not in such case be
considered as part of the beneficiaries' taxable income; provided,
however, that such dividend income shall be totally exempted from
income or other form of taxes if invested within six (6) months from
the date the dividend income is received in the following:

(a) operation of the casino(s) or investments in

any affiliate activity that will ultimately redound to the benefit of
the Corporation; or any other corporation with whom the
Corporation has any existing arrangements in connection with
or related to the operations of the casino(s);


(b) Government bonds, securities, treasury notes,
or government debentures; or

(c)
BOI-registered
or
export-oriented
corporation(s).

PAGCOR's tax exemption was removed in June 1984 through

P.D. No. 1931, but it was later restored by Letter of Instruction No. 1430,
which was issued in September 1984.

On January 1, 1998, R.A. No. 8424, otherwise known as the

National Internal Revenue Code of 1997, took effect. Section 27 (c) of R.A.
No. 8424 provides that government-owned and controlled corporations
(GOCCs) shall pay corporate income tax, except petitioner PAGCOR, the
Government Service and Insurance Corporation, the Social Security
System, the Philippine Health Insurance Corporation, and the Philippine
Charity Sweepstakes Office, thus:

(c) Government-owned or Controlled Corporations,

Agencies or Instrumentalities. - The provisions of existing special
general laws to the contrary notwithstanding, all corporations,
agencies or instrumentalities owned and controlled by the
Government, except the Government Service and Insurance
Corporation (GSIS), the Social Security System (SSS), the
Philippine Health Insurance Corporation (PHIC), the Philippine
Charity Sweepstakes Office (PCSO), and the Philippine Amusement
and Gaming Corporation (PAGCOR), shall pay such rate of tax upon
their taxable income as are imposed by this Section upon
corporations or associations engaged in similar business, industry,
or activity.

With the enactment of R.A. No. 9337 on May 24, 2005, certain
sections of the National Internal Revenue Code of 1997 were amended.
The particular amendment that is at issue in this case is Section 1 of R.A.
No. 9337, which amended Section 27 (c) of the National Internal Revenue
Code of 1997 by excluding PAGCOR from the enumeration of GOCCs that
are exempt from payment of corporate income tax, thus:

(c) Government-owned or Controlled Corporations,

Agencies or Instrumentalities. - The provisions of existing special
general laws to the contrary notwithstanding, all corporations,
agencies, or instrumentalities owned and controlled by the
Government, except the Government Service and Insurance
Corporation (GSIS), the Social Security System (SSS), the
Philippine Health Insurance Corporation (PHIC), and the Philippine
Charity Sweepstakes Office (PCSO), shall pay such rate of tax upon
their taxable income as are imposed by this Section upon
corporations or associations engaged in similar business, industry,
or activity.
7


Different groups came to this Court via petitions for certiorari
and prohibition assailing the validity and constitutionality of R.A. No. 9337,
ISSUE: WON PAGCOR is still exempt from VAT with the enactment of R.A. No.
9337.
HELD: YES

Anent the validity of RR No. 16-2005, the Court holds that the
provision subjecting PAGCOR to 10% VAT is invalid for being contrary to
R.A. No. 9337. Nowhere in R.A. No. 9337 is it provided that petitioner can
be subjected to VAT. R.A. No. 9337 is clear only as to the removal of
petitioner's exemption from the payment of corporate income tax, which
was already addressed above by this Court.
As pointed out by the OSG, R.A. No. 9337 itself exempts
petitioner from VAT pursuant to Section 7 (k) thereof, which
reads:
Sec. 7. Section 109 of the same Code, as amended, is hereby
further amended to read as follows:
Section 109. Exempt Transactions. - (1) Subject to the
provisions of Subsection (2) hereof, the following transactions
shall be exempt from the value-added tax:
xxxx
(k) Transactions which are exempt under international
agreements to which the Philippines is a signatory or under
special laws, except Presidential Decree No. 529.

Petitioner is exempt from the payment of VAT, because

PAGCORs charter, P.D. No. 1869, is a special law that grants petitioner
exemption from taxes.

Moreover, the exemption of PAGCOR from VAT is supported

by Section 6 of R.A. No. 9337, which retained Section 108 (B) (3) of R.A.
No. 8424, thus:
[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A.
No. 8424), as amended, is hereby further amended to read as
follows:
SEC. 108. Value-Added Tax on Sale of Services and Use or
Lease of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed
and collected, a value-added tax equivalent to ten percent (10%)
of gross receipts derived from the sale or exchange of services,
including the use or lease of properties: x x x
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate. The
following services performed in the Philippines by VATregistered persons shall be subject to zero percent (0%) rate;

xxxx
(3) Services rendered to persons or entities whose exemption
under special laws or international agreements to which the
Philippines is a signatory effectively subjects the supply of such
services to zero percent (0%) rate;
xxxx

As pointed out by petitioner, although R.A. No. 9337

introduced amendments to Section 108 of R.A. No. 8424 by imposing VAT
on other services not previously covered, it did not amend the portion of
Section 108 (B) (3) that subjects to zero percent rate services performed
by VAT-registered persons to persons or entities whose exemption under
special laws or international agreements to which the Philippines is a
signatory effectively subjects the supply of such services to 0% rate.

Petitioner's exemption from VAT under Section 108 (B) (3) of

R.A. No. 8424 has been thoroughly and extensively discussed in
Commissioner of Internal Revenue v. Acesite (Philippines) Hotel
Corporation. The Court ruled that PAGCOR and Acesite were both exempt
from paying VAT, thus:
xxxx
PAGCOR is exempt from payment of indirect taxes
It is undisputed that P.D. 1869, the charter creating PAGCOR,
grants the latter an exemption from the payment of taxes.
Section 13 of P.D. 1869 pertinently provides:
Sec. 13. Exemptions.
xxxx
(2) Income and other taxes. - (a) Franchise Holder: No tax of
any kind or form, income or otherwise, as well as fees, charges
or levies of whatever nature, whether National or Local, shall be
assessed and collected under this Franchise from the
Corporation; nor shall any form of tax or charge attach in any
way to the earnings of the Corporation, except a Franchise Tax
of five (5%) percent of the gross revenue or earnings derived by
the Corporation from its operation under this Franchise. Such
tax shall be due and payable quarterly to the National
Government and shall be in lieu of all kinds of taxes, levies, fees
or assessments of any kind, nature or description, levied,
established or collected by any municipal, provincial, or national
government authority.
(b) Others: The exemptions herein granted for earnings derived
from the operations conducted under the franchise specifically
from the payment of any tax, income or otherwise, as well as
any form of charges, fees or levies, shall inure to the benefit of
and extend to corporation(s), association(s), agency(ies), or

individual(s) with whom the Corporation or operator has any

contractual relationship in connection with the operations of the
casino(s) authorized to be conducted under this Franchise and
to those receiving compensation or other remuneration from the
Corporation or operator as a result of essential facilities
furnished and/or technical services rendered to the Corporation
or operator.

A close scrutiny of the above provisos clearly gives PAGCOR

a blanket exemption to taxes with no distinction on whether the taxes are
direct or indirect. We are one with the CA ruling that PAGCOR is also
exempt from indirect taxes, like VAT, as follows:

Under the above provision [Section 13 (2) (b) of P.D. 1869],

the term "Corporation" or operator refers to PAGCOR.

Although the law does not specifically mention PAGCOR's

exemption from indirect taxes, PAGCOR is undoubtedly exempt from such
taxes because the law exempts from taxes persons or entities contracting
with PAGCOR in casino operations.

Although, differently worded, the provision clearly exempts

PAGCOR from indirect taxes. In fact, it goes 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 P30,
152,892.02 VAT and neither is Acesite as the latter is effectively subject to
zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.)

Indeed, by extending the exemption to entities or individuals

dealing with PAGCOR, the legislature clearly granted exemption also from
indirect taxes.

It must be noted that the indirect tax of VAT, as in the instant

case, can be shifted or passed to the buyer, transferee, or lessee of the
goods, properties, or services subject to VAT.

Thus, by extending the tax exemption to entities or individuals

dealing with PAGCOR in casino operations, it is exempting PAGCOR from
being liable to indirect taxes.

The manner of charging VAT does not make PAGCOR liable to

said tax.

It is true that VAT can either be incorporated in the value of the

goods, properties, or services sold or leased, in which case it is computed
as 1/11 of such value, or charged as an additional 10% to the value. Verily,
the seller or lessor has the option to follow either way in charging its clients
and customer. In the instant case, Acesite followed the latter method, that
is, charging an additional 10% of the gross sales and rentals. Be that as it
may, the use of either method, and in particular, the first method, does not
denigrate the fact that PAGCOR is exempt from an indirect tax, like VAT.

Since PAGCOR is exempt from VAT under R.A. No. 9337, the

BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR

No. 16-2005; hence, the said regulatory provision is hereby nullified.
DOCTRINE: RA 9337 only withdrew PAGCORs exemption from corporate
income taxes but does not contain any provision that subjects the same to
VAT. PAGCOR is exempt from the payment of VAT, because PAGCOR's
charter, P.D. No. 1869, is a special law that grants it exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of
R.A. No. 9337, which retained Section 108 (B) (3) of R.A. No. 8424. Thus,
Services rendered to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero percent (0%) rate.
Vat-exempt Transactions: Tambunting Pawnshop v. CIR
FACTS
CIR sent Tambuting Pawnshop an assessment notice for deficiency value-added
tax (VAT) for taxable year 1999.
To petitioner, a pawnshop is not enumerated as one of those engaged in sale or
exchange of services in Section 108, NIRC. It contends that the nature of the
business of pawnshop does not fall under service as defined under the Legal
Thesaurus of William Burton:
accommodate, administer to, advance, afford, aid, assist,
attend, be of use, care for, come to the aid of, commodere,
comply, confer a benefit, contribute to, cooperate, deservire,
discharge one's duty, do a service, do one's bidding, fill an
office, forward, furnish aid, furnish assistance, give help, lend,
aid, minister to, promote, render help, servire, submit, succor,
supply aid, take care of, tend, wait on, work for.
ISSUE:
Whether pawnshops are liable to pay VAT?
HELD:
Petitioner is not liable for VAT for the tax year 1999.
The Court, in First Planters Pawnshop, Inc. v. Commissioner of Internal
Revenue, held that:
.prior to the passage of the EVAT Law in 1994, pawnshops
were treated as lending investors subject to lending investor's
tax. Subsequently, with the Court's ruling in Lhuillier,
pawnshops were then treated as VAT-able enterprises under
the general classification of "sale or exchange of services"

under Section 108 (A) of the Tax Code of 1997, as amended.

R.A. No. 9238 [which was passed in 2004] finally classified
pawnshops as Other Non- bank Financial Intermediaries.
xxxx
with the enactment of R.A. No. 9238 in 2004, the services
of banks, non-bank financial intermediaries, finance
companies, and other financial intermediaries not performing
quasi-banking functions were specifically exempted from VAT,
and the 0% to 5% percentage tax on gross receipts on
other non-bank financial intermediaries was reimposed
under Section 122 of the Tax Code of 1997.
At the time of the disputed assessment, that is, for the year
2000, pawnshops were not subject to 10% VAT under the
general provision on "sale or exchange of services" as defined
under Section 108 (A) of the Tax Code of 1997, which states:
"'sale or exchange of services' means the performance of all
kinds of services in the Philippines for others for a fee,
remuneration or consideration . . . ." Instead, due to the specific
nature of its business, pawnshops were then subject to 10%
VAT under the category of non-bank financial intermediaries.
Coming now to the issue at hand Since petitioner is a nonbank financial intermediary, it is subject to l0% VAT for the
tax years 1996 to 2002; however, with the levy, assessment
and collection of VAT from non-bank financial intermediaries
being specifically deferred by law, then petitioner is not liable
for VAT during these tax years. But with the full
implementation of the VAT system on non-bank financial
intermediaries starting January 1, 2003, petitioner is liable
for 10% VAT for said tax year. And beginning 2004 up to the
present, by virtue of R.A. No. 9238, petitioner is no longer
liable for VAT but it is subject to percentage tax on gross
receipts from 0% to 5%, as the case may be.
In light of the foregoing ruling, since the imposition of VAT on pawnshops, which
are non-bank financial intermediaries, was deferred for the tax years 1996 to
2002, petitioner is not liable for VAT for the tax year 1999.
DOCTRINE:
Beginning 2004, pawnshops are treated as VAT-able enterprises under the

general classification of sale or exchange of services. RA 9238, which was

enacted in 2004, classified pawnshops as other non-bak financial
intermediaries and is subject to the 0% to 5% percentage tax on gross receipts.
Purchases/ Importations of capital goods: Taganito Mining v. CIR
FACTS
Taganito Mining is primarily engaged in business of exloring, extracting, mining,
selling and exporting precious metals and all kinds of ores, metals, and their byproducts, filed through the BIR computerized filing system. It filed its Quarterly
VAT Returns in 2006 and then filed an Amended one in October 2006 for the 1st
and 2nd quarter of 2006 and on March 2008 for the 4th quarter of 2006. It filed
for a refund of input VAT paid on its domestic purchases of taxable goods and
services and importation of goods amounting to P22M for the whole year of
2006. When the CIR did not issue a final decision on its claim, it filed a judicial
claim before the CTA Division with intention of tolling the running of the 2 year
period to judicially claim tax credit/refund under Section 229 NIRC.
Later on it filed for partial withdrawal of P17M (the amount approved by BIR in its
administrative claim). CTA denied the remaining P4M claim claiming that its
receipts did not prove Taganitos actual payment of claimed input VAT since no
year was indicated in the receipt and no import entry showed actual payment of
VAT on imported goods. CTA dismissed the case for 2 reasons: it was filed
prematurely since it should have waited for the 120 days after filing of the
administrative claim before filing a judicial claim and it failed to substantiate its
claim on refund.
ISSUE WON CTA erred in dismissing the case? No. Although it erred in
claiming the case was filed prematurely, Taganito failed to substantiate its
claim for TAX refund/credit so the dismissal still holds correct.
HELD
Judicial Filing:
Under the case of CIR v. San Roque Power, it is Section 112 which applied to
claims for tax credit certificates and tax refunds arising from sales of VAT
registered persons that are zero-rated or effectively zero-rated (unutilized
creditable input VAT) and not Section 229 of the NIRC.
According to Section 112(A), the taxpayer may, within 2 years after the close of
the taxable quarter when the sales were made, via an administrative claim with
the CIR, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales. And under Section 112(D), the
CIR must then act on the claim within 120 days from the submission of the
taxpayers complete documents.

In case of (a) a full or partial denial by the CIR of the claim, or (b) the CIRs
failure to act on the claim within 120 days, the taxpayer may file a judicial claim
via an appeal with the CTA of the CIR decision or unacted claim, within 30
days (a) from receipt of the decision; or (b) after the expiration of the 120day period.
Section 229 pertains to the recovery of taxes erroneously, illegally, or excessively
collected. San Roque stressed that input VAT is not excessively collected as
understood under Section 229 because, at the time the input VAT is collected,
the amount paid is correct and proper. It is, therefore, Section 112 which applies
specifically with regard to claiming a refund or tax credit for unutilized creditable
input VAT.
Upholding the ruling in Aichi, San Roque held that the 120+30-day period
prescribed under Section 112(D) mandatory and jurisdictional. The jurisdiction of
the CTA over decisions or inaction of the CIR is only appellate in nature and,
thus, necessarily requires the prior filing of an administrative case before the CIR
under Section 112. The CTA can only acquire jurisdiction over a case after the
CIR has rendered its decision, or after the lapse of the period for the CIR to act,
in which case such inaction is considered a denial. A petition filed prior to the
lapse of the 120-day period prescribed under said Section would be
premature for violating the doctrine on the exhaustion of administrative
remedies.
There is, however, an exception to the mandatory and jurisdictional nature of the
120+30-day period. The Court in San Roque noted that BIR Ruling No. DA-48903, dated December 10, 2003, expressly stated that the taxpayer-claimant need
not wait for the lapse of the 120-day period before it could seek judicial relief with
the CTA by way of Petition for Review. Hence, taxpayers can rely on BIR Ruling
No. DA-489-03 from the time of its issuance on December 10, 2003 up to its
reversal by this Court in Aichi on October 6, 2010, where it was held that the
120+30-day period was mandatory and jurisdictional.
THUS, the GENERAL RULE IS: the 120+30-day period is mandatory and
jurisdictional from the effectivity of the 1997 NIRC on January 1, 1998, up to the
present.
THE EXCEPTION IS: judicial claims filed from December 10, 2003 to October
6, 2010 need not wait for the exhaustion of the 120-day period.
IN THIS CASE: Taganito filed its judicial claim with the CTA on April 17, 2008,
clearly within the period of exception of December 10, 2003 to October 6, 2010.
THUS, Its judicial claim was, therefore, not prematurely filed.
Sufficiency of Claim:
Under Sections 110(A) and 113(A) of the NIRC, any input tax that is subject of a

claim for refund must be evidenced by a VAT invoice or official receipt. With
regard to the importation of goods or properties, however, Section 4.110-8 of
R.R. No. 16-05, as amended, further requires that an import entry or other
equivalent document showing actual payment of VAT on the imported
goods must also be submitted. THUS, an Import Entry and Internal Revenue
Declaration (IEIRD) is required to properly substantiate the payment of the duties
and taxes on imported goods. Tabunting did not do so in this case. Additionally,
the CTA said that Assuming arguendo that Taganito had submitted the valid
import entries, its claim would still fail. Its claim of refund of input VAT relates to
its importation of dump trucks, allegedly a purchase of capital goods. The
pertinent provisions of law must be used in this regard: Sections 4.110-3 and
4.113-3 of R.R. No. 16-05, as amended by R.R. No. 4-2007.
First, Taganito failed to prove that the importations pertaining to the input VAT are
in the nature of capital goods and properties as defined in the above quoted
section. It points to the report of the independent CPA which allegedly reviewed
the IERIDs and subsidiary ledger containing the description of the dump trucks
but failed to present the actual document itself. Testimony of VP for Finance is
insufficient.
Second, even assuming that the importations were duly proven to be capital
goods, Taganitos claim still would not prosper because it failed to present
evidence to show that it properly amortized the related input VAT over the
estimated useful life of the capital goods in its subsidiary ledger, as required by
the above quoted sections. This is made apparent by the fact that Taganitos
claim for refund is for the full amount of the input VAT on the importation, rather
than for an amortized amount, and by its failure to present its subsidiary ledger.
THUS, Taganito failed to prove its claim in any way.
DOCTRINES
1.
The prevailing doctrine is CIR v. San roque power wherein
Section 112 of the NIRC which is applicable specifically to claims for tax
credit certificates and tax refunds for untilized creditable input VAT and not
Sec 229.
2.
The two year period under Section 229 does not apply to
appeals before the CTA with respect to claims for a refund or tax
credit for unutilized creditable input VAT since input VAT is not
considered excessively collected. It is Section 112 that applies, this, the
120 + 30 day period prescribed therein is mandatory and jurisdictional in
nature.
3.
Take note, however, that As an exception to the mandatory
and jurisdictional nature of the 120 + 30 day period, judicial claims filed
from the issuance of BIR RULING DA-489-03 on December 10, 2003

until its reversal in CIR v. AICHI FORGING CO on October 6, 2010, need

not wait for the lapse of the 120 + 30 day period in consonance with the
principle of equitable estoppel.
Transactional Input Tax Credits: Fort Bonifacio v. CIR GR 17570, 180035 &
181092, Nov 19 2014
FACTS
Petitioner was a real estate developer that bought from the national government
a parcel of land that used to be the Fort Bonifacio military reservation. At the time
of the said sale there was as yet no VAT imposed so Petitioner did not pay any
VAT on its purchase. Subsequently, Petitioner sold two parcels of land to Metro
Pacific Corp. In reporting the said sale for VAT purposes (because the VAT had
already been imposed in the interim), Petitioner claimed transitional input VAT
corresponding to its inventory of land. The BIR disallowed the claim of
presumptive input VAT and thereby assessed Petitioner for deficiency VAT.
ISSUE
Is Petitioner entitled to claim the transitional input VAT on its sale of real
properties given its nature as a real estate dealer and if so (i) is the transitional
input VAT applied only to the improvements on the real property or is it applied on
the value of the entire real property and (ii) should there have been a previous
tax payment for the transitional input VAT to be creditable?
HELD
YES. Petitioner is entitled to claim transitional input VAT based on the value of
not only the improvements but on the value of the entire real property and
regardless of whether there was in fact actual payment on the purchase of the
real property or not.
The amendments to the VAT law do not show any intention to make those in the
real estate business subject to a different treatment from those engaged in the
sale of other goods or properties or in any other commercial trade or business.
On the scope of the basis for determining the available transitional input VAT, the
CIR has no power to limit the meaning and coverage of the term "goods" in
Section 105 of the Tax Code without statutory authority or basis. The transitional
input tax credit operates to benefit newly VAT-registered persons, whether or not
they previously paid taxes in the acquisition of their beginning inventory of goods,
materials and supplies
DOCTRINE
Petitioner is entitled to claim transitional input VAT based on the value of not only
the improvements but on the value of the entire real property and regardless of
whether there was in fact actual payment on the purchase of the real property or
not.

ACCENTURE v CIR (from reviewer)

FACTS:
Taxpayer filed an application for refund of unutilized input taxes allocated to its
zero-rated sale of services to foreign clients. In order to prove that its sales are
VAT zero-rated, taxpayer presented as evidence the Official Receipts, Billing
Statements, Memo Invoices, Receivable, Memo Invoices-Payable and Bank
Statements. Taxpayer argued that these documents show that the zero-rated
sales were paid in foreign currency and duly accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
HELD:
The Court ruled that for sale of services to be VAT zero-rated under Section
108(B) of the NIRC, the recipient of service must be doing business outside the
Philippines. According to the Court, the documents presented by taxpayer merely
substantiated the existence of sales, receipt of foreign currency payments and
inward remittance of the proceeds of such sales. There is no evidence that the
clients were doing business outside the Philippines. Accordingly, the Court
denied the claim on the ground that no evidence was presented to prove the fact
that the foreign clients to whom the taxpayer rendered services are clients doing
business outside the Philippines
DOCTRINE:
For VAT zero-rating of services rendered to non-resident foreign corporation
under Section 108(B)((2) of the NIRC, it is not enough that the recipient of
services be proven to be a foreign corporation, it must be proven to be a nonresident foreign corporation.