September 15, 2009

BIR RULING [DA-(VAT-086) 539-09]

RR 9-89; VAT Ruling No. 059-92

Punongbayan & Araullo

20th Floor, Tower 1, The Enterprise Center
6766 Ayala Avenue, 1200 Makati City

Attention: Atty. Raymund S. Gallardo

Tax Partner

Gentlemen :

This refers to your letter dated June 24, 2009, requesting on behalf of your
client Hitachi Via Asia Pte Ltd. [(HVA-Philippine Branch) (HVA)], for confirmation
of your opinion that the unused excess input VAT related to the Company's zero-rated
sales for the period starting January 2007 to May 2007 may already be claimed as
deduction against its gross income for income tax purposes since the two-year period
within which the Company may file a claim for refund has already lapsed.

Background Information

HVA is a foreign corporation organized and existing under the laws of

Singapore and licensed to transact business in the Philippines as a Branch Office, as
per Securities and Exchange Commission (SEC) License No. A200011863.

HVA is primarily engaged in the business of providing after sales and other
related services to its own clients and the clients of its international affiliates. Most of
these clients are PEZA-registered entities and non-resident foreign corporations not
doing business in the Philippines. Consequently, sales made to these entities are
treated as zero-rated for VAT purposes. As a result, HVA has no output VAT against
which its input VAT may be applied. HEISca

From January 2007 until July 2008, HVA had been filing its Monthly VAT

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 Declaration and Quarterly VAT Tax Returns showing excess input taxes. No
application for tax refund or issuance of tax credit certificate has been applied for by
the Company.

The Request

Based on the foregoing facts, it is requested that the accumulated unutilized

input taxes may already be expensed by the Company in its books and in relation
thereto, deduct the same from the Company's gross income for purposes of computing
the income tax due after the lapse of the two-year counted from the filing of HVA's
VAT returns.

In reply, please be informed that in VAT Ruling No. 059-92 dated April 28,
1992, the BIR elucidated that if the Mining Company has no other sales transactions
subject to 10% VAT against which its input taxes may be used in payment, then, it
follows, it is constituted as the final person against which the costs of the tax passed
on shall legally stop and rest, hence, in this connection, the said input taxes may
already be legally converted as cost available as deduction for income tax purposes.

Moreover, in several CTA cases (Atlas Consolidated Mining & Development

Corp. vs. CIR, CTA Case No. 4749 dated April 5, 1994, Benguet Corporation vs. CIR,
CTA Case Nos. 4686 and 4829 dated Sept. 27, 1995), the CTA has impliedly agreed
with the treatment of input taxes in VAT Ruling No. 59-92 as cost which may be
deducted from income for income tax purposes. cSTHAC

In Court of Appeals (CA) Case CA-G.R. S.P. Nos. 37205, 38958 and 39435
dated July 10, 1998, involving Benguet Corporation vs. CIR, though the CA opined
that the remedy suggested by the CTA in the CTA cases mentioned above would not
result in the full recovery of the cost of input taxes, it did not disagree on the treatment
of input taxes as deduction for income tax purposes. A perusal of Revenue
Regulations No. 9-89 (Guidelines in Determining Refundable/Creditable Input Taxes
Attributable to Zero-Rated Transactions), the BIR illustrated the sample journal entry
to record disallowance of input taxes attributed to zero-rated sales in a company's
claim for refund. The pro-forma journal entry includes a Debit to Purchase or Cost of
Sales for an amount equivalent to the disallowed input tax and a credit to Receivables.
The foregoing entry, a debit to Purchases or Cost of Sales of the amount of the
disallowed input tax is a cost recovery method whereby the amount of tax/cost (i.e.,
input tax) duly identifiable with the particular asset sold but cannot be passed on as
part thereof may be claimed as expense deductible from the taxpayer as gross income.

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 Based on the foregoing, this Office hereby affirms your opinion that creditable
input taxes whose periods for refund have already prescribed may be deducted from
gross income for income tax purposes.

This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different, then
this ruling shall be considered null and void.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

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