GUIDE NOTES ON VALUE-ADDED TAX

VALUE-ADDED TAX
Q. WHAT IS THE NATURE AND CONCEPT OF VALUE-ADDED TAXES?
* VAT is a percentage tax. There is a percentage fixed by law which will be applied to
the gross selling price in order to arrive to the VAT to be paid.
[CIR v. Seagate Technology (Philippines), GR No. 153!!, 11 "e#. $%%5.& is a case
on a clai' (o) ta* )e(+n,-c)e,it o( allege, +n+tili.e, inp+t /0T pai, on capital goo,s
(o) the pe)io, 1 0p)il 111 to 3% 2+ne 1111. It e*plaine, the concept of a value-
added tax, th+s3
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 1!
levied on every importation of goods, whether or not in the course of trade or
business, or imposed on each sale, barter, exchange or lease of goods or properties
or on each rendition of services in the course of trade or business as they pass along
the production and distribution chain, the tax bei! "i#ite$ %"& t% the 'a"(e a$$e$
t% )(*h !%%$)+ ,-%,e-tie) %- )e-'i*e) b& the )e""e-, transferor or lessor.
"t 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 % *%)(#,ti%.
#ituations that may arise$ %&eneral 'rinciples(
.. I/ at the e$ %/ a taxab"e 0(a-te- the %(t,(t taxe) *ha-!e$ b& a )e""e- a-e
e0(a" t% the i,(t taxe) ,a))e$ % b& the )(,,"ie-)+ % ,a&#et i)
-e0(i-e$.
1. I/ at the e$ %/ a taxab"e 0(a-te-+ the %(t,(t taxe) ex*ee$ the i,(t taxe)+
the ex*e)) ha) t% be ,ai$ b& the )e""e-.
). "f the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding *uarter or *uarters
+. "f the input taxes result from 2e-%--ate$ or e//e*ti'e"& 2e-%--ate$ t-a)a*ti%)
or from a*0(i)iti% %/ *a,ita" !%%$) any excess over the output taxes shall
be refunded to the taxpayer %- credited against other internal revenue taxes.
* ,iting CIR v. Seagate Technology (Philippines), the case of Panasonic
Co''+nications I'aging Co)po)ation o( the Philippines v. CIR explained value-added
tax in this wise$
.The VAT is a tax on consumption+ a i$i-e*t tax that the ,-%'i$e- %/ !%%$) %-
)e-'i*e) #a& ,a)) % t% hi) *()t%#e-).
/nder the VAT method of taxation, which is i'%i*e-ba)e$, an entity can subtract
from the VAT charged on its sales or outputs the VAT it paid on its ,(-*ha)e), i,(t)
and i#,%-t).
0or example, when a seller charges VAT on its sale, it issues an invoice to the
buyer, indicating the amount of VAT he charged.
0or his part, if the buyer is also a seller sub1ected to the payment of VAT on his
sales, he can use the invoice issued to him by his supplier t% !et a -e$(*ti% %/
hi) %3 VAT "iabi"it&.
The difference in tax shown on invoices passed and invoices received is the tax
paid to the government.
I *a)e the tax % i'%i*e) -e*ei'e$ ex*ee$) that % i'%i*e) ,a))e$+ a tax
-e/($ #a& be *"ai#e$.2
Q4 DEFINE AND DIFFERENTIATE INPUT TAX AND OUTPUT TAX.
The case of CIR v. 4eng+et Co)po)ation defined .input tax2 and .output tax.2
I,(t tax O(t,(t tax
"nput VAT or input tax represents the
actual payments, costs and expenses
incurred by a VAT-registered taxpayer in
connection with his purchase of goods
and services
Thus, 5i,(t tax5 #ea) the 'a"(e-
a$$e$ tax ,ai$ b& a VAT--e!i)te-e$
,e-)%6etit& i the *%(-)e %/ hi)6it)
t-a$e %- b()ie)) % the i#,%-tati%
%/ !%%$) %- "%*a" ,(-*ha)e) %/ !%%$)
%- )e-'i*e) /-%# a VAT--e!i)te-e$
,e-)%
3hen that person or entity sells his4its
products or services, the VAT-registered
taxpayer !ee-a""& becomes liable for
1! of the selling price as output VAT or
output tax.
5ence, 5%(t,(t tax5 i) the 'a"(e-a$$e$
tax % the )a"e %/ taxab"e !%%$) %-
)e-'i*e) b& a& ,e-)% -e!i)te-e$ %-
-e0(i-e$ t% -e!i)te- ($e- Se*ti% .78
%/ the 9%"$: Tax C%$e.
Q4 HOW CAN A VAT-REGISTERED TAXPA;ER RECOVER ITS INPUT VAT?
The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT
either by
%1( passing on the 1! output VAT on the gross selling price or gross receipts, as the
case may be, to its buyers, or
%( if the input tax is attributable to the purchase of capital goods or to 6ero-rated
sales, by filing a claim for a refund or tax credit with the 7"8.
#imply stated, a taxpayer sub1ect to 1! output VAT on its sales of goods and
services may recover its input VAT costs by passing on said costs as output VAT to its
buyers of goods and services but it cannot claim the same as a refund or tax credit,
while a taxpayer sub1ect to 0! on its sales of goods and services may only recover its
input VAT costs by filing a refund or tax credit with the 7"8.
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1
Q4 I""()t-ate i,(t tax+ %(t,(t tax a$ VAT ,a&ab"e
9 ,orp, manufacturer, sold goods to :, a retailer, for 100,000 plus vat of 1,000 %so :
bought it for 11,000( Then, : resold the goods to ;, end-consumer for 1<0,000 plus
VAT of 1=,000 %so ; bought it for 1>=,000(
?n the part of :, the retailer,
-5is "@'/T TA9 is 1,000 because this tax was passed on to him when he bought
goods from 9 ,orp.
-5is ?/T'/T TA9 is 1=,000 because this is the tax he passed on to ;.
-"n this case, : will pay for4ultimately be liable for the vat of >,000 on the sale because
the output tax is greater than the input tax. %see $
n,
sit+ation in (i)st page)
Q4 I""()t-ati'e ,-%b"e# 9C%-Utia:
9 is a VAT registered person. 5e bought goods from : for 1,<00, exclusive of VAT. 9
then sold these goods to consumer ; for 1<,000, exclusive of the VAT
%a( 5ow much is the VAT payable by 9 to the 7"8A
9Bs purchase has an input tax of 1,<00 %1,<00 x 1!( and his re-sale
transaction has an output tax of 1,=00 %1<,000 x 1!( The VAT payable by 9
is the difference of the output tax and the input tax thus it is )00 %1=00-1<00(
%b( 5ow much can 9 claim as a tax creditA
9 may claim the 1,<00 input tax on his purchase as a tax credit. This is why
it was deducted from 1,=00.
%c( ,an ; claim a tax creditA
@o. 5e is the end-consumer. 5e ultimately bears the tax burden.
SEC. 105. Persons Liable.
Any person who, in the course of trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-
added tax (VA! imposed in "ections #$% to #$& of this 'ode.
he value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. his rule shall li(ewise apply to
existing contracts of sale or lease of goods, properties or services at the time of the effectivity
of )epublic Act *o. ++#%.
he 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, by any person
regardless of whether or not the person engaged therein is a non-stoc(, nonp-rofit private
organi-ation (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests!, or government entity.
he rule of regularity, to the contrary notwithstanding, services as defined in this 'ode
rendered in the .hilippines by nonresident foreign persons shall be considered as being course
of trade or business.
Q4 UNDER .
ST
PARAGRAPH OF SEC .7<+ WHAT ARE THE VAT-A=LE TRANSACTIONS?
CS07:, I=P>RT0TI>N 0N9 S:R/IC:S&
1. #ale, barter, exchange of goods or properties
. Transactions deemed sale
). "mportation of goods Cdoes not have to be exercised in the ordinary
course of busines)D
+. #ale of services and use or lease of properties
Q4 UNDER PAR 1+ VAT IS AN INDIRECT TAX. DISTINGUISH =ETWEEN LIA=ILIT; FOR THE TAX
AND =URDEN OF THE TAX.
* The case of Conte* Co)po)ation v. CIR made a distinction between the two
concepts. "t provided CC,ontex ,orporation v. ,"8, &8 @o. 1<11)<, Euly 00+.D
At this 1uncture, it must be stressed that the VAT is an indirect tax. As such, the
amount of tax paid on the goods, properties or services bought, transferred, or leased
may be )hi/te$ or ,a))e$ % by the seller, transferor, or lessor to the buyer,
transferee or lessee.
/nliFe a direct tax, such as the income tax, which primarily taxes an individualBs ability
to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax
on consumption of goods, services, or certain transactions involving the same.
The VAT, thus, forms a substantial portion of consumer expenditures.
0urther, in indirect taxation, there is a need to distinguish between the liability for
the tax and the burden of the tax.
As earlier pointed out, the amount of tax paid may be shifted or passed on by the
seller to the buyer.
o What i) t-a)/e--e$ i )(*h i)ta*e) i) %t the "iabi"it& /%- the tax+
b(t the tax b(-$e.
o "n adding or including the VAT due to the selling price, the seller remains
the person primarily and legally liable for the payment of the tax. 3hat is
shifted only to the intermediate buyer and ultimately to the final
purchaser is the burden of the tax.

State$ $i//e-et"&+ a )e""e- 3h% i) $i-e*t"& a$ "e!a""& "iab"e
/%- ,a&#et %/ a i$i-e*t tax+ )(*h a) the VAT % !%%$)
%- )e-'i*e) i) %t e*e))a-i"& the ,e-)% 3h% ("ti#ate"&
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bea-) the b(-$e %/ the )a#e tax.

It i) the /ia" ,(-*ha)e- %- *%)(#e- %/ )(*h !%%$) %-
)e-'i*e) 3h%+ a"th%(!h %t $i-e*t"& a$ "e!a""& "iab"e /%-
the ,a&#et the-e%/+ ("ti#ate"& bea-) the b(-$e %/ the
tax.
Q4 WHAT IS >EANT =; ?IN THE COURSE OF TRADE OR =USINESS@?
* The case of CIR v. =agsaysay 7ines, Inc &8 @o. 1+>G=+. involved the sale by the
@ational Hevelopment ,ompany of five of its vessels to Iagsaysay Jines, "nc. The
issue was whether such sale was within the coverage of VAT. The #upreme ,ourt
found that the sale of the vessels was not in the ordinary course of trade or business.
As such, the transaction was outside the coverage of VAT.
That the sale of the vessels was not in the ordinary course of trade or business of
@H, was appreciated by both the ,TA and the ,ourt of Appeals, the latter doing so
even in its first decision which it eventually reconsidered. 3e cite with approval the
,TABs explanation on this point$
"n I#,e-ia" '. C%""e*t%- %/ Ite-a" Re'e(e, &.8. @o. J-KG+, #eptember )0, 1G<<
%GK 'hil. GG(, the term Lcarrying on businessL does not mean the performance of a
single disconnected act, but means conducting, prosecuting and continuing business
by performing progressively all the acts normally incident thereofM while L$%i!
b()ie))L conveys the idea of business being done, not from time to time, but all the
time.
LC%(-)e %/ b()ie))L is what is usually done in the management of trade or
business.
3hat is clear therefore, based on the aforecited 1urisprudence, is that Lcourse of
businessL or Ldoing businessL connotes regularity of activity. "n the instant case, the
sale was an isolated transaction. The sale which was involuntary and made
pursuant to the declared policy of Government for privatization could no longer
be repeated or carried on with regularity. "t should be emphasi6ed that the normal
VAT-registered activity of @H, is "ea)i! ,e-)%a" ,-%,e-t&.

This finding is confirmed by the 8evised ,harte of the @H, which bears no indication
that the @H, was created for the primary purpose of selling real property.

The conclusion that the sale was not in the course of trade or business, which the ,"8
does not dispute before this ,ourt should have definitively settled the matter. Any
sale, barter or exchange of goods or services %t i the *%(-)e %/ t-a$e %-
b()ie)) is not sub1ect to VAT.
The decision contained an explanation of VAT, to wit$
A brief reiteration of the basic principles governing VAT is in order. VAT is
ultimately a tax on consumption, even though it is assessed on many levels of
transactions on the basis of a fixed percentage.
"t is the end user of consumer goods or services which ultimately shoulders the
tax, as the liability therefrom is passed on to the end users by the providers of
these goods or services who in turn may credit their own VAT liability %or input
VAT( from the VAT payments they receive from the final consumer %or output
VAT(.
The final purchase by the end consumer represents the final linF in a production
chain that itself involves several transactions and several acts of consumption.
The VAT system assures fiscal ade*uacy through the collection of taxes on every
level of consumption, yet assuages the manufacturers or providers of goods and
services by enabling them to pass on their respective VAT liabilities to the next
linF of the chain until finally the end consumer shoulders the entire tax liability.
:et VAT is not a singular-minded tax on every transactional level. It)
a))e))#et bea-) $i-e*t -e"e'a*e t% the tax,a&e-A) -%"e %- "iB i the
,-%$(*ti% *hai. 5ence, as affirmed by #ection GG of the Tax ,ode and its
subse*uent incarnations, the tax i) "e'ie$ %"& % the )a"e+ ba-te- %-
ex*ha!e %/ !%%$) %- )e-'i*e) b& ,e-)%) 3h% e!a!e i )(*h a*ti'itie)+
i the *%(-)e %/ t-a$e %- b()ie)).
o These transactions outside the course of trade or business may
invariably contribute to the production chain, but they do so only as a
matter of accident or incident.
o As the sales of goods or services do not occur within the course of trade
or business, the providers of such goods or services would hardly, if at
all, have the opportunity to appropriately credit any VAT liability as
against their own accumulated VAT collections since the accumulation
of output VAT arises in the first place only through the ordinary course of
trade or business(
** "n the case of CIR v. C0, ,?IA#N8,?, being a non-stocF non-profit organi6ation,
contended that it 3a) %,e-ati! % a -ei#b(-)e#et-%/-*%)t ba)i), that it)
%,e-ati%) 3e-e %t ,-%/it-%-iete$ a$ %t ?i the *%(-)e %/ t-a$e %/ b()ie)),2
and that therefore, it was not liable to pay VAT. The #upreme ,ourt held that #ection
10< of the 1GGK Tax ,ode was clear and unambiguous in stating that even non-stocF
non-profit organi6ations were liable to pay VAT on the sale of goods or services.
***N.. ooch !ifference of "#$ v. %agsaysay v. "#$ v. "&, "omaserco'
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -
(A! )ate and /ase of ax. - here shall be levied, assessed and collected on every sale, barter
or exchange of goods or properties, value-added tax e0uivalent to twelve percent (#12! of the
gross selling price or gross value in money of the goods or properties sold, bartered or
exchanged, such tax to be paid by the seller or transferor.
(#! he term ,oods, or !properties! shall mean all tanible and intanible ob"e#ts $%i#%
are #apable of pe#uniar& esti'ation and s%all in#lude3

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)
(a! )eal properties held primarily for sale to customers or held for lease in the ordinary course
of trade or business4
(b! he right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademar(, trade brand or other li(e property or right4
(c! he right or the privilege to use in the .hilippines of any industrial, commercial or
scientific e0uipment4
(d! he right or the privilege to use motion picture films, tapes and discs4 and
(e! )adio, television, satellite transmission and cable television time.
he term !ross sellin pri#e! means the total amount of money or its e0uivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the value-added tax. he excise tax, if any, on
such goods or properties shall form part of the gross selling price.
Q4 WHAT IS A ?SALE OF GOODS OR PROPERTIES@?
* "n "#$ v. (ony )hilippines, #nc., #ony 'hilippines engaged the services of several
advertising companies.
Hue to #ony 'hilippinesB dire economic conditions, #ony "nternational #ingapore
handed #ony 'hilippines a dole-out to answer for the expenses payable to the
advertising companies. #ony 'hilippines was thereafter assessed deficiency VAT for
the transaction, i.e., dole-out, between #ony "nternational #ingapore and #ony
'hilippines. The #upreme ,ourt ruled that the dole-out or subsidy from the
(ingaporean company to the )hilippine company neither constituted a sale of
goods or properties, nor a sale of services. 5ence, #ony 'hilippines was not liable
to pay VAT on the same.
C,"8 v. #ony 'hilippines, "nc., &8 @o. 1K=>GK, 1K @ov. 010.D
106(A)(*) +ero-,ated Sales of Goods
(1! he following sales b& VAT-reistered persons s%all be sub"e#t to -ero per#ent (0.)
rate3

(a! Export Sales. - he term ,export sales, means3
(#! he sale and actual shipment of goods from the .hilippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported and paid for in acceptable
foreign currency or its e0uivalent in goods or services, and accounted for in accordance with
the rules and regulations of the /ang(o "entral ng .ilipinas (/".!4
(1! "ale of raw materials or pac(aging materials to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, pac(ing or
repac(ing in the .hilippines of the said buyer,s goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the /ang(o "entral
ng .ilipinas (/".!4
(5! "ale of raw materials or pac(aging materials to export-oriented enterprise whose export
sales exceed seventy percent (+$2! of total annual production4
(6! "ale of gold to the /ang(o "entral ng .ilipinas (/".!4 and
(7! hose considered export sales under 8xecutive 9rder *9. 11%, otherwise (nown as the
9mnibus :nvestment 'ode of #;&+, and other special laws.
Q4 DISTINGUISH =ETWEEN VAT RATING AND CERO-RATING .
* The case of CIR v. 4eng+et Co)po)ation explained VAT rating vis-as-vis 6ero-rating
in principle, as well as by way of illustration, to wit$
I t-a)a*ti%) taxe$ at a .1D -ate 9VAT -ati!:, when at the end of any given
taxable *uarter the output VAT exceeds the input VAT, the excess shall be paid to
the governmentM when the input VAT exceeds the output VAT, the excess would
be carried over to VAT liabilities for the succeeding *uarter or *uarters.
?n the other hand, t-a)a*ti%) 3hi*h a-e taxe$ at 2e-%--ate do not result in
any output tax. "nput VAT attributable to 6ero-rated sales could be refunded or
credited against other internal revenue taxes at the option of the taxpayer.
To illustrate, i a 2e-%--ate$ t-a)a*ti%+ when a VAT-registered person %.taxpayer2(
purchases materials from his supplier at '=0.00, 'K.)0 of which was passed on to
him by his supplier as the latterBs 10! output VAT, the tax,a&e- i) a""%3e$ t%
-e*%'e- P8.E7 /-%# the =IR, in addition to other input VAT he had incurred in relation
to the 6ero-rated transaction, th-%(!h tax *-e$it) %- -e/($).
3hen the taxpayer sells his finished product in a 6ero-rated transaction, say, for
'110.00, he is not re*uired to pay any output VAT thereon. I the *a)e %/ a
t-a)a*ti% )(bFe*t t% .7D VAT+ the taxpayer is allowed to recover both the input
VAT of 'K.)0 which he paid to his supplier and his output VAT of '.K0 %10! the
')0.00 value he has added to the '=0.00 material( by passing on both costs to the
buyer. Thus, the buyer pays the total 10! VAT cost, in this case '10.00 on the
product.
C,"8 v. 7enguet ,orporation, &8 @os. 1)+<=K O 1)+<==, = Euly 00<.D
Q4 DISTINGUISH =ETWEEN VAT EXE>PTION AND CERO-RATING.
The case of Conte* Co)po)ation v. CIR enumerated two ways by which a transaction
could have preferential treatment under the VAT system, namely$ %1( VAT exemptionM
and %( 6ero-rating.
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+
Nxemptions from VAT are granted by express provision of the Tax ,ode or special
laws. /nder VAT, the transaction can have preferential treatment in the following
ways$
Vat Exe#,t Sa"e) 9Vat-Exe#,t: Ce-% Rate$ Sa"e) 9Ce-% Rati!:
#imply put, the VAT is removed at the
exempt stage %e.g. point of the sale,
barter, etc(
These are sales by VAT-registered
persons which are sub1ect to 0! rate,
meaning the tax burden is not passed on
to the purchaser.
A 6ero-rated sale or transaction by a VAT-
registered person, which is a taxable
transaction for VAT purposes, $%e) %t
-e)("t i a& %(t,(t tax %still a ta*a#le
t)ansaction)
A VAT-8egistered purchaser of VAT-
exempt goods4properties4services which
are exempt from VAT i) %t etit"e$ t%
a& i,(t tax % )(*h ,(-*ha)e.
The seller of exempt goods properties or
services )ha"" %t bi"" a& %(t,(t tax.
The i,(t VAT on the purchases of a
VAT-registered person with 6ero-rated
sales may be a""%3e$ as tax *-e$it) or
refunded
Nxemption only removes the VAT at the
exempt stage, and it 3i"" a*t(a""&
i*-ea)e+ -athe- tha -e$(*e the t%ta"
taxe) ,ai$ b& the exe#,t /i-#A)
b()ie)) %- %--etai" *()t%#e-).
The-e i) %"& ,a-tia" -e"ie/ be*a()e the
,(-*ha)e i) %t a""%3e$ a& tax
-e/($ %- *-e$it /%- i,(t taxe) ,ai$.
/nder 6ero-rating, all VAT is removed
from the 6ero-rated goods, activity or firm
C"nD 6ero rating, there is total )elie( for the
purchaser from the burden of the tax
Q4 Di)ti!(i)h bet3ee 2e-%--ate$ t-a)a*ti%) a$ e//e*ti'e"& 2e-%--ate$
t-a)a*ti%).
The case of CIR v. Seagate Technology (Philippines) addressed this issue. "t stated
that the difference is primarily as to their source.
;ero-8ated Nffectively ;ero-8ated
Ce-%--ate$ t-a)a*ti%) generally refer
to the export sale of goods and supply of
services.
The tax rate is set at 6ero.
E//e*ti'e"& 2e-%--ate$ t-a)a*ti%)
-efer to the sale of goods or supply of
services to persons or entities whose
exemption under special laws or
international agreements to which the
'hilippines is a signatory effectively
3hen 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
sub1ects such transactions to a 6ero rate.
Again, as applied to the tax base, such
rate does not yield any tax chargeable
against the purchaser.
The seller who charges 6ero output tax
on such transactions can also claim a
refund of or a tax credit certificate for the
VAT previously charged by suppliers.2
Applying the ,estination p)inciple to the
exportation of goods, a(t%#ati* 2e-%
-ati! is primarily intended to be en1oyed
by the seller who is directly and legally
liable for the VAT, maFing such seller
internationally competitive by allowing the
refund or credit of input taxes that are
attributable to export sales.
E//e*ti'e 2e-% -ati!, on the contrary, is
intended to benefit the purchaser who,
not being directly and legally liable for the
payment of the VAT, will ultimately bear
the burden of the tax shifted by the
suppliers
106(A)(*)(a) Export Sales
Q4 What i) the *-%))-b%-$e- $%*t-ie?
* According to CIR v. Toshi#a In(o)'ation :?+ip'ent (Phils.), Inc., the 'hilippines
adheres to the cross-border doctrine which means that .no *&T shall be imposed to
form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority.
5ence$
actual export of goods and services from the 'hilippines to a foreign country
must be free of VATM
?n the other hand, those destined for use or consumption within the 'hilippines
shall be imposed with ten percent %10!( Cnow 1!D VAT.
Additionally, sales made by an enterprise within a non-N,?;?@N territory, i.e.,
,ustoms Territory, to an enterprise within an N,?;?@N territory shall be free of
VAT.
C,"8 v. Toshiba "nformation N*uipment %'hils.(, "nc., &8 @o. 1<01<+, G Aug. 00<.D
//106(A)(*)(a)(1) A#tual S%ip'ent of Goods fro' t%e P%ilippines
to a 0orein Countr& (+,T)1 he sale and actual shipment of goods from the
.hilippines to a foreign country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the goods so exported and
paid for in acceptable foreign currency or its e0uivalent in goods or services, and accounted
for in accordance with the rules and regulations of the /ang(o "entral ng .ilipinas (/".!<<
T05 $ S677048S
9:0N 7I76 ;. GR840
S-6 $%11<$%1$
<
Q4 Gi'e exa#,"e) %/ ex,%-t )a"e) i the /%-# %/ a*t(a" )hi,#et %/ !%%$) /-%#
the Phi"i,,ie) t% a /%-ei! *%(t-&.
* Toshi#a In(o)'ation :?+ip'ent (Phils.), Inc. v. CIR is a claim for tax refund4credit of
alleged unutili6ed input VAT on local purchases of goods and services which are
attributable to export sales for the first and second *uarters of 1GGK. C@?TN$ This is
different from the Toshiba ,ase previously cited.D
"n the case at bar, the CIR, in the Eoint #tipulation of 0acts and "ssues, a$#itte$ that
T%)hiba 3a) a -e!i)te-e$ VAT etit& a$ that it 3a) )(bFe*t t% 7D VAT % it)
ex,%-t )a"e). Jater, in his Iotion for 8econsideration of the adverse ,ourt of Tax
Appeals decision, the CIR 3%("$ a-!(e that T%)hiba 3a) %t etit"e$ t% it) *"ai#
/%- tax -e/($6*-e$it be*a()e it 3a) VAT-exe#,t and its export sales were VAT-
exe#,t t-a)a*ti%) (CIR a)g+e, this @ay #eca+se i( the e*po)t sales @e)e /0T
e*e'pt, then it @o+l, #e entitle, to clai' any c)e,it ()o' inp+t ta*)
The #upreme ,ourt ruled that Toshiba was a registered VAT entity and its export
sales were sub1ect to 0! VAT.
N%te$ 8emember, a 6ero-rated sale by a VAT-registered person, which is a taxable
transaction for VAT purposes, shall not result in any output tax. 5owever, the input tax
on his purchases of goods, properties or services related to such 6ero-rated sale shall
be available as tax credit or refund in accordance with these regulations
CToshiba "nformation N*uipment %'hils.(, "nc. v. ,"8, &8 @o. 1<K<G+, G Iar. 010.D
The case of Intel Technology Philippines, Inc. v. CIR is a claim for tax refund4credit of
alleged unutili6ed input VAT on local purchases of goods and services which are
attributable to export sales for the second *uarter of 1GG=.
To prove that it was engaged in the .sale and actual shipment of goods from the
'hilippines to a foreign country and therefore entitled to tax credit of input VAT,
"ntel Technology presented documentary evidence such as )(##a-& %/ ex,%-t
)a"e)+ )a"e) i'%i*e)+ %//i*ia" -e*ei,t)+ ai-3a& bi"")+ a$ ex,%-t $e*"a-ati%).
And, to prove that payment was made .in acceptable foreign currency or its
e*uivalent in goods or services, and accounted for in accordance with the rules
and regulations of the 4angAo Sent)al ng Pilipinas %7#'(,2 a *e-ti/i*ati% %/
i3a-$ -e#itta*e) was presented by "ntel Technology
The #upreme ,ourt found that "ntel TechnologyBs evidence sufficiently
established that it was engaged in export sales.
N%te$ 4ase, on Sec 1%!, e*po)t sales, o) sales o+tsi,e the Philippines, a)e s+#Bect to
/0T at %C )ate i( 'a,e #y a /0T<)egiste)e, pe)son. Dhen applie, to the ta* #ase,
the %C )ate o#vio+sly )es+lts in no ta* cha)gea#le against the p+)chase). The selle)
o( s+ch t)ansactions cha)ges no o+tp+t ta*, #+t can clai' a )e(+n, o) ta* c)e,it
ce)ti(icate (o) the /0T p)evio+sly cha)ge, #y s+pplie)s.
Additionally, /nder #ections 10> %A(%(%a(%1( in relation to 11%A( of the Tax ,ode, a
taxpayer engaged in 6ero-rated or effectively 6ero-rated transactions may apply for a
refund or issuance of a tax credit certificate for input taxes paid attributable to such
sales upon complying with the following re*uisites$ %1( the taxpayer is engaged in
sales which are 6ero-rated %liFe export sales( or effectively 6ero-ratedM %( the
taxpayer is VAT-registeredM %)( the claim must be filed within two years after the close
of the taxable *uarter when such sales were madeM %+( the creditable input tax due or
paid must be attributable to such sales, except the transitional input tax, to the extent
that such input tax has not been applied against the output taxM and %<( in case of
6ero-rated sales under #ection 10>%A(%(%a(%1( and %(, #ection 10>%7(, and #ection
10=%7(%1( and %(, the acceptable foreign currency exchange proceeds thereof had
been duly accounted for in accordance with 7#' rules and regulations. "t is added
that, Lwhere the taxpayer is engaged in 6ero-rated or effectively 6ero-rated sale and
also in taxable or exempt sale of goods or properties or services, and the amount of
creditable input tax due or paid cannot be directly or entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volume of the
sales
C"ntel Technology 'hilippines, "nc. v. ,"8, &8 @o. 1>>K), K Apr. 00K.D
106(A)(*)(a)(*) Sale of ,a$ 2aterials to a 3onresident 4u&er for
5eli6er& to a ,esident Lo#al Export-7riented Enterprise1 "ale of raw
materials or pac(aging materials to a nonresident buyer for delivery to a resident local export-
oriented enterprise to be used in manufacturing, processing, pac(ing or repac(ing in the
.hilippines of the said buyer,s goods and paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the /ang(o "entral ng .ilipinas
(/".!4
106(A)(*)(a)(8) Sale of ,a$ 2aterials to Export-7riented
Enterprise1 "ale of raw materials or pac(aging materials to export-oriented enterprise
whose export sales exceed seventy percent (+$2! of total annual production4
Q4 Gi'e a exa#,"e %/ a )a"e %/ -a3 #ate-ia") t% a ex,%-t-%-iete$ ete-,-i)e.
* #ection 10>%A(%(%a(%)( of the 1GGK Tax ,ode pertains to the sale of raw materials or
pacFaging materials to an export-oriented enterprise 3h%)e ex,%-t )a"e) ex*ee$
87D %/ t%ta" a(a" ,-%$(*ti%. 3ith respect to the extent of the relief, the #upreme
,ourt held that$
Thus, the 7D -ate a,,"ie) t% the t%ta" )a"e %/ -a3 #ate-ia") %- ,a*Ba!i!
#ate-ia") t% a ex,%-t-%-iete$ ete-,-i)e and not F()t the percentage of the sale
in proportion to the actual exports of the enterprise.2
CAtlas ,onsolidated Iining and Hevelopment ,orporation v. ,"8, &8 @o. 1+>1, <
#ept. 00K.D
106(A)(*)(a)(9) Sale of Gold to t%e 4SP
T05 $ S677048S
9:0N 7I76 ;. GR840
S-6 $%11<$%1$
>
Q4 Gi'e a exa#,"e %/ a )a"e %/ !%"$ t% the =SP.
CIR v. 4eng+et Co)po)ation is a claim for tax refund4credit of alleged unutili6ed input
VAT on 7enguet ,orporationBs sale of gold to the 4angAo Sent)al ng Pilipinas for the
period 1 August 1G=G to )1 Euly 1GG1. C@?TN$ At the time the sub1ect transaction was
made, the treatment of sale of gold to the 7#' as export sales was merely based on
7"8 issuances. Today, such treatment is already contained in the 1GGK Tax ,ode.D
C,"8 v. 7enguet ,orporation, &8 @os. 1)+<=K O 1)+<==, = Euly 00<.D
106(A)(*)(a)(5) Export Sales under t%e 7'nibus :n6est'ent Code
of 1;<= and 7t%er Spe#ial La$s
Q4 Gi'e a exa#,"e %/ ex,%-t )a"e) ($e- the O#ib() I'e)t#et C%$e %/
.GH8 a$ %the- ),e*ia" "a3).
"n Panasonic Co''+nications I'aging Co)po)ation o( the Philippines v. CIR,
'anasonic produced and exported paper copiers and their sub-assemblies, parts, and
components. "t was registered with the 7oard of "nvestments as a preferred pioneer
enterprise under the ?mnibus "nvestment ,ode of 1G=KM it was a registered VAT
enterpriseM and its export sales were 2e-%--ate$.
C'anasonic ,ommunications "maging ,orporation of the 'hilippines v. ,"8, &8 @o.
1K=0G0, = 0eb. 010.D
106(A)(*)(a)(6) Sale of Goods to Persons Enaed in :nternational
S%ippin or Air Transport 7perations
106(A)(*)(b) 0orein Curren#& 5eno'inated Sale1 he phrase ,foreign
currency denominated sale, means sale to a nonresident of goods, except those mentioned
in "ections #6; and #7$, assembled or manufactured in the .hilippines for delivery to a
resident in the .hilippines, paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the /ang(o "entral ng .ilipinas (/".!.
106(A)(*)(#) +ero-,ated Sales pursuant to Spe#ial La$s or
:nternational Aree'ents
106(4) Transa#tions 5ee'ed Sale1
106(4)(1) Transfer 3ot in t%e Course of Trade or 4usiness of
Goods>Ser6i#es 7riinall& :ntended for Sale>?se in t%e Course of
Trade or 4usiness
106(4)(*) 7t%er Transa#tions1
hese are3
(#! transfer to shareholders=investors as share in the profits of a VA-registered person=entity4
(1! transfer to creditors in payment of debt4
(5! consignment of goods, if actual sale is not made within %$ days following the date such
goods were consigned4 and
(6! retirement from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation.
Q4 Gi'e a exa#,"e %/ a t-a)a*ti% $ee#e$ )a"e ($e- thi) ,-%'i)i%.
* "n San Ro?+e Po@e) Co)po)ation v. CIR, #an 8o*ue 'ower ,orporation was
engaged in the )(,,"& %/ e"e*t-i*it& t% the Nati%a" P%3e- C%-,%-ati%. #uch sale
of service *ualified as a 6ero-rated transaction under #ection 10=%7(%)( of the 1GGK
Tax ,ode.
A portion of #8',Bs claim for tax refund4credit for alleged unutili6ed input VAT was
att-ib(tab"e t% a ?)a"e@ %/ e"e*t-i*it& t% NPC that 3a) #a$e $(-i! the te)ti!
,e-i%$ )%#eti#e i 1771, for which #8', was paid an amount of 'hp +.< million.
The issue was whether such .sale2 *ualified for 6ero-rating. The #upreme ,ourt held
that although the .sale2 was not a commercial sale or in the normal course of
business, it was a .transaction deemed sale2 under #ection 10>%7(%1( of the 1GGK Tax
,ode. "t thus *ualified for 6ero-rating.
C#an 8o*ue 'ower ,orporation v. ,"8, &8 @o. 1=0)+<, < @ov. 00G.D
.7I9C: Cha!e) i %- Ce))ati% %/ Stat() %/ a VAT-Re!i)te-e$ Pe-)%
.7I9D: Sa"e) Ret(-)+ A""%3a*e)+ a$ Sa"e) Di)*%(t)
.7I9E: A(th%-it& %/ the C%##i))i%e- t% Dete-#ie the A,,-%,-iate Tax =a)e
(ec. +,-, *alue-&dded Tax on #mportation of Goods
P$ Hoes VAT apply on every importation of goodsA
* "n explaining value-added tax, CIR v. Seagate Technology (Philippines)
stated that VAT shall be imposed on every importation of goods, whether or
not in the course of trade or business. This is unliFe VAT on sale of goods or
properties which must be in the course of trade or business. ?therwise, the
person4transaction shall not be liable to pay VAT. 'ertinent portion of the
decision read$
.Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to
10 percent Cnow 1 percentD 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,
T05 $ S677048S
9:0N 7I76 ;. GR840
S-6 $%11<$%1$
K
properties or services by the seller, transferor or lessor.2
C,"8 v. #eagate Technology %'hilippines(, &8 @o. 1<)=>>, 11 0eb. 00<.D
(ec. +,., *alue-&dded Tax on (ale of (ervices and /se or 0ease of )roperties
.7H9A: Rate a$ =a)e %/ Tax
P$ 3hat is a .sale of services2A
* "n CIR v. Sony Philippines, Inc., #ony 'hilippines engaged the services of
several advertising companies. Hue to #ony 'hilippinesB dire economic
conditions, #ony "nternational #ingapore handed #ony 'hilippines a dole-out
to answer for the expenses payable to the advertising companies. #ony
'hilippines was thereafter assessed deficiency VAT for the transaction, i.e.,
dole-out, between #ony "nternational #ingapore and #ony 'hilippines. The
#upreme ,ourt ruled that the dole-out or subsidy from the #ingaporean
company to the 'hilippine company neither constituted a sale of goods or
properties, nor a sale of services. 5ence, #ony 'hilippines was not liable to
pay VAT on the same.
C,"8 v. #ony 'hilippines, "nc., &8 @o. 1K=>GK, 1K @ov. 010.D
** E+e.on City v. 04S<C4N 4)oa,casting Co)po)ation dealt with VAT-able
sales of .services of franchise grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all other franchise grantees
except those under #ection 11G of this ,ode.2
C@?TN$ #ection 11G of the Tax ,ode imposes a percentage tax, in the form of
a )! franchise tax, on radio and television broadcasting companies whose
annual gross receipts $% %t ex*ee$ 'hp 10 million. #uch franchise holders,
however, has the option of paying )! franchise tax or 1! VAT. ?n the other
hand, radio and television broadcasting companies whose annual gross
receipts ex*ee$ 'hp 10 million are governed by #ection 10= of the 1GGK Tax
,ode. They are liable to pay VAT, and do not have the option to choose
between paying franchise tax or VAT.D
A7#-,7@, being a broadcasting company with yearly gross receipts
exceeding 'hp 10 million, was found liable to pay VAT.
CPue6on ,ity v. A7#-,7@ 7roadcasting ,orporation, &8 @o. 1>>+0=, > ?ct.
00=.D
*** #ection 10= of the 1GGK Tax ,ode defines .sale of services2 as .the
performance of all Finds of services in the 'hilippines for others for a fee,
remuneration or consideration,2 including .supply of technical advice,
assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaFing, venture,
pro1ect or scheme.2 "n the case of CIR v. C0, ,?IA#N8,? was a non-stocF
non-profit organi6ation engaged in the sale of services of such nature.
5owever, ,?IA#N8,? argued that its sales of services were not sub1ect to
VAT because although it charged a fee for such sales, the organi6ation was
operating on a reimbursement-of-cost basis and hence, did not derive profit
from such sales. The #upreme ,ourt held that any sale of services for a fee,
remuneration or consideration is sub1ect to VAT, regardless of any profit
derived therefrom.
C,"8 v. ,A, &8 @o. 1<)<<, )0 Iar. 000.D
**** .#ale of services2 includes .lease of motion picture films, films, tapes and
discs.2 "n CIR v. S= P)i'e Fol,ings, Inc., #I 'rime and 0irst Asia were
engaged in the business of operating cinema houses. At issue was whether
cinema operators4proprietors were liable to pay VAT, on top of the amusement
tax imposed by the 1GG1 J&,. The #upreme ,ourt conceded that the
enumeration of services sub1ect to VAT under #ection 10= of the 1GGK Tax
,ode was not exhaustive. 5owever, .lease of motion picture films, films, tapes
and discs2 did not e*uate to .showing or exhibition of motion pictures or films.2
#I 'rime and 0irst Asia were not liable to pay VAT.
C,"8 v. #I 'rime 5oldings, "nc., &8 @o. 1=)<0<, > 0eb. 010.D
***** Son.a v. 04S<C4N 4)oa,casting Co)po)ation differentiated between
services rendered pursuant to an employer-employee relationship and
services rendered by an independent contractor pursuant to a contractual
relationship. #ubsumed under the latter, professionals such as talent and
television and radio broadcasters are liable to pay VAT.
C#on6a v. A7#-,7@ 7roadcasting ,orporation, &8 @o.1)=0<1, 10 Eune 00+.D
.7H9=: Ce-%-Rate$ Sa"e) %/ Se-'i*e)
P$ 3hat is the destination principleA Are there exceptions to the ruleA
* According to CIR v. 0'e)ican :*p)ess Inte)national, Inc.$ .As a general rule,
the VAT system uses the destination principle as a basis for the 1urisdictional
reach of the tax. &oods and services are taxed only in the country where they
are consumed. Thus, exports are 6ero-rated, while imports are taxed.2 The
decision proceeded to define .consumption2 as .the use of a thing in a way
that thereby exhausts it.2 Applied to services, it means .the performance or
successful completion of a contractual duty, usually resulting in the performerBs
release from any past or future liability.2
Nxceptions to the destination principle are found in #ection 10=%7( of the 1GGK
Tax ,ode. They are deemed exceptions because although the services are
performed in the 'hilippines, upon compliance with certain re*uirements, the
sales of such services are 6ero-rated.
C,"8 v. American Nxpress "nternational, "nc. %'hilippine 7ranch(, &8 @o.
1<>0G, G Eune 00<.D
.7H9=:9.: P-%*e))i!+ >a(/a*t(-i!+ %- Re,a*Bi! G%%$) /%- Othe- Pe-)%)
D%i! =()ie)) %(t)i$e the Phi"i,,ie)
.7H9=:91: Se-'i*e) Othe- tha Th%)e >eti%e$ i the P-e*e$i! Pa-a!-a,h
P$ ,ite examples of services other than .processing, manufacturing, or repacFing of
goods.2
T05 $ S677048S
9:0N 7I76 ;. GR840
S-6 $%11<$%1$
=
* "n CIR v. 0'e)ican :*p)ess Inte)national, Inc., Amex 'hils. facilitated in the
'hilippines the collection and payment of receivables belonging to its 5ong
Qong-based foreign client, Amex 5Q, and getting paid for it in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the 7#'. The #upreme ,ourt ruled that the facilitation services
Amex 'hils. rendered in the 'hilippines fell under #ection 10=%7(%( of the
1GGK Tax ,ode.
C,"8 v. American Nxpress "nternational, "nc., &8 @o. 1<>0G, G Eune 00<.D
** "n CIR v. Place) 9o'e Technical Se)vices (Phils.) Inc., 'lacer Home
,anada engaged the services of 'lacer Home 'hils. to perform the clean-up
and rehabilitation of the IaFalupnit and 7oac 8ivers in Iarindu*ue. 'lacer
Home 'hils. argued that its sale of services to 'lacer Home ,anada was a
6ero-rated transaction under #ection 10=%7(%( of the 1GGK Tax ,ode. ,iting
CIR v. 0'e)ican :*p)ess Inte)national, Inc., the #upreme ,ourt upheld 'lacer
Home 'hils.B argument.
C,"8 v. 'lacer Home Technical #ervices %'hilippines(, "nc., &8 @o. 1>+)><, =
Eune 00K.D
*** "n CIR v. 4+)'eiste) an, Dain Scan,inavian Cont)acto) =in,anao, Inc.,
7urmeister was engaged in the actual operation and management of two
power barges in Iindanao. "t claimed that its transactions were sub1ect to
6ero-rating under #ection 10=%7(%( of the 1GGK Tax ,ode. The #upreme ,ourt
denied 7urmeisterBs claim on the ground that #ection 10=%7(%( of the 1GGK
Tax ,ode additionally re*uired that the payer-recipient of the services must be
doing business outside the 'hilippines. "t ruled in this manner$
.The Tax ,ode not only re*uires that the services be other than Rprocessing,
manufacturing or repacFing of goodsB and that payment for such services be in
acceptable foreign currency accounted for in accordance with 7#'
rules. Another essential condition for *ualification to 6ero-rating under #ection
10%b(%( is that the -e*i,iet %/ )(*h )e-'i*e) i) $%i! b()ie)) outside
the Phi"i,,ie). 3hile this re*uirement is not expressly stated in the second
paragraph of #ection 10%b(, this is clearly provided in the first paragraph of
#ection 10%b( where the listed services must be J/%- %the- ,e-)%) $%i!
b()ie)) %(t)i$e the Phi"i,,ie).A The phrase .for other persons doing
business outside the 'hilippines2 not only refers to the services enumerated in
the first paragraph of #ection 10%b(, but also pertains to the general term
.services2 appearing in the second paragraph of #ection 10%b(. "n short,
services other than processing, manufacturing, or repacFing of goods must
liFewise be performed for persons doing business outside the 'hilippines.2
C@?TN$ "n relation to CIR v. 0'e)ican :*p)ess Inte)national, Inc. and CIR v.
Place) 9o'e Technical Se)vices (Philippines), Inc. discussed above, said
cases stated that *%)(#,ti% %/ the )e-'i*e) ab-%a$ i) %t a -e0(i-e#et
/%- 2e-%--ati!. 5owever, on the basis of CIR v. 4+)'eiste) G Dain
Cont)acto) =in,anao, Inc., the ,a&e---e*i,iet %/ the )e-'i*e) #()t be
$%i! b()ie)) %(t)i$e %/ the Phi"i,,ie).D
C,"8 v. 7urmeister O 3ain #candinavian ,ontractor Iindanao, "nc., &8 @o.
1<)0<, Ean. 00K.D
.7H9=:9E: Ce-%-Rate$ Sa"e) ,(-)(at t% S,e*ia" La3) %- Ite-ati%a"
A!-ee#et)
P$ Histinguish between 6ero-rated transactions Ce.g., #ec. 10=%7(%1(-%(D and
effectively 6ero-rated transactions Ce.g., #ec. 10=%7(%)(D.
* The case of CIR v. Seagate Technology (Philippines) addressed this issue. "t
stated that$
.Although both are taxable and similar in effect, 6ero-rated transactions differ
from effectively 6ero-rated transactions a) t% thei- )%(-*e.
Ce-%--ate$ t-a)a*ti%) generally refer to the export sale of goods and
supply of services. The tax rate is set at 6ero. 3hen 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.
E//e*ti'e"& 2e-%--ate$ t-a)a*ti%)+ 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 'hilippines is a signatory effectively
sub1ects such transactions to a 6ero rate. Again, as applied to the tax base,
such rate does not yield any tax chargeable against the purchaser. The seller
who charges 6ero output tax on such transactions can also claim a refund of or
a tax credit certificate for the VAT previously charged by suppliers.2
The decision went on to say %under the subheading ;ero 8ating and
Nxemption($
.Applying the ,estination p)inciple to the exportation of goods, a(t%#ati* 2e-%
-ati! is primarily intended to be en1oyed by the seller who is directly and
legally liable for the VAT, maFing such seller internationally competitive by
allowing the refund or credit of input taxes that are attributable to export sales.
E//e*ti'e 2e-% -ati!, on the contrary, is intended to benefit the purchaser
who, not being directly and legally liable for the payment of the VAT, will
ultimately bear the burden of the tax shifted by the suppliers.2 %Nmphasis
supplied.(
C,"8 v. #eagate Technology %'hilippines(, &8 @o. 1<)=>>, 11 0eb. 00<.D
P$ &ive examples of effectively 6ero-rated sales of services pursuant to special laws.
* "n CIR v. 0cesite (Philippines) Fotel Co)po)ation, Acesite was the operator of
5oliday "nn Ianila 'avilion 5otel. "t leased a portion of its premises to
'A&,?8 for casino operations. "t also catered food and beverages to
'A&,?8Bs casino patrons. The issue was whether Acesite could refund the
VAT it paid on its rental income and sale of food and beverages to 'A&,?8.
The #upreme ,ourt, pursuant to 'A&,?8Bs charter %'H @o. 1=>G and all
amendments thereto(, found that AcesiteBs sale of services to 'A&,?8 was
6ero-rated under #ection 10=%7(%)( of the 1GGK Tax ,ode.
C,"8 v. Acesite %'hilippines( 5otel ,orporation, &8 @o. 1+KG<, 1> 0eb.
00K.D
** "n the case of San Ro?+e Po@e) Co)po)ation v. CIR, #an 8o*ue 'ower
,orporation was engaged in the sale of electricity to @',. The #upreme ,ourt
T05 $ S677048S
9:0N 7I76 ;. GR840
S-6 $%11<$%1$
G
ruled that #8',Bs sale of service to @', was 6ero-rated, pursuant to @',Bs
charter and under #ection 10=%7(%)( of the 1GGK Tax ,ode. "t explained the
rationale for the effective 6ero-rating of @', in this manner$
."t bears emphasis that effective 6ero-rating is not intended as a benefit to the
person legally liable to pay the tax, such as petitioner, but to relieve certain
exempt entities, such as the @',, from the burden of indirect tax so as to
encourage the development of particular industries. 7efore, as well as after,
the adoption of the VAT, certain special laws were enacted for the benefit of
various entities and international agreements were entered into by the
'hilippines with foreign governments and institutions exempting sale of goods
or supply of services from indirect taxes at the level of their suppliers. Nffective
6ero-rating was intended to relieve the exempt entity from being burdened with
the indirect tax which is or which will be shifted to it had there been no
exemption. "n this case, petitioner is being exempted from paying VAT on its
purchases to relieve @', of the burden of additional costs that petitioner may
shift to @', by adding to the cost of the electricity sold to the latter.2
C#an 8o*ue 'ower ,orporation v. ,"8, &8 @o. 1=0)+<, < @ov. 00G.D
.7H9=:9K: Sa"e %/ Se-'i*e) t% Pe-)%) E!a!e$ i Ite-ati%a" Shi,,i! %- Ai-
T-a),%-t O,e-ati%)
.7H9=:9<: Sa"e %/ Se-'i*e) /%- Ex,%-t-O-iete$ Ete-,-i)e
.7H9=:9I: T-a),%-t %/ Pa))e!e-) a$ Ca-!% b& Ai- %- Sea" Ve))e") /-%# the
Phi"i,,ie) t% a F%-ei! C%(t-&
.7H9=:98: Sa"e %/ P%3e- Gee-ate$ th-%(!h Ree3ab"e S%(-*e) %/ Ee-!&
(ec. +,1, 2xempt Transactions
P$ Histinguish between an exempt transaction and an exempt party.
* CIR v. Seagate Technology (Philippines) made a distinction between exempt
transaction exempt party in this wise$
HAn 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 ,ode, without regard to the tax status -- VAT-exempt or not -- of
the party to the t)ansaction. "ndeed, such transaction is not sub1ect to the VAT,
but the seller is not allowed any tax refund of or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT
exemption under the Tax ,ode, a special law or an international agreement to
which the 'hilippines is a signatory, and by virtue of which its taxable
transactions become exempt from the VAT. #uch pa)ty is also not sub1ect to
the VAT, but may be allowed a tax refund of or credit for input taxes paid,
depending on its registration as a VAT or non-VAT taxpayer.2 %Nmphasis
supplied.(
C,"8 v. #eagate Technology %'hilippines(, &8 @o. 1<)=>>, 11 0eb. 00<.D
P$ &ive examples of exempt transactions.
.7G9A: Sa"e %- I#,%-tati% %/ A!-i*("t(-a" a$ >a-ie F%%$ P-%$(*t) i Thei-
O-i!ia" State
* =isa'is >)iental 0ssociation o( Coco T)a,e)s, Inc. v. 9>" interpreted the
provisions of the .G88 Tax ,ode. 5owever, it is instructive as to the issue of
who determines or classifies a certain product, i.e., whether it is food or non-
food. According to the decision, as between the 7ureau of 0ood and Hrug and
the 7ureau of "nternal 8evenue, the classification made by the latter would
prevail.
CIisamis ?riental Association of ,oco Traders, "nc. v. H?0, &8 @o. 10=<+,
10 @ov. 1GG+.D
.7G9G: >e$i*a"+ Deta"+ H%),ita"+ a$ Vete-ia-& Se-'i*e)+ ex*e,t Th%)e
Re$e-e$ b& P-%/e))i%a")
* #ection 10G%&( of the Tax ,ode provides that transactions involving medical,
dental, hospital, and veterinary services are VAT-exempt transactions. "n the
case of CIR v. Philippine Fealth Ca)e P)ovi,e)s, Inc., it was found that
'hilippine 5ealth ,are 'roviders, "nc. did not render medical, dental, hospital,
and veterinary services, but merely arranged for the same. 5ence, its services
were not VAT-exempt.
C,"8 v. 'hilippine 5ealth ,are 'roviders, "nc., &8 @o. 1>=1G, + Apr. 00K.D
.7G9I: Se-'i*e) Re$e-e$ b& I$i'i$(a") ,(-)(at t% a E#,"%&e--E#,"%&ee
Re"ati%)hi,
* Son.a v. 04S<C4N 4)oa,casting Co)po)ation differentiated between services
rendered pursuant to an employer-employee relationship %which is an exempt
transaction( and services rendered by an independent contractor pursuant to a
contractual relationship %which is sub1ect to VAT(. The #upreme ,ourt ruled
that #on6a was an independent contractor. As such, he was sub1ect to VAT on
the services that he rendered.
C#on6a v. A7#-,7@ 7roadcasting ,orporation, &8 @o.1)=0<1, 10 Eune 00+.D
.7G9L: T-a)a*ti%) Whi*h a-e Exe#,t ($e- Ite-ati%a" A!-ee#et) t%
Whi*h the Phi"i,,ie) i) a Si!at%-& %- ($e- S,e*ia" La3)+ ex*e,t Th%)e
($e- PD N%. <1G
* "n Philippine 0'+se'ent G Ga'ing Co)po)ation v. CIR, the #upreme ,ourt
held that 'A&,?8 was exempt from payment of VAT. "t cited, among others,
the VAT exemption of 'A&,?8Bs transactions by virtue of its charter %'H @o.
1=>G and all amendments thereto( in relation to #ection 10G%Q( of the 1GGK
Tax ,ode.
C'hilippine Amusement O &aming ,orporation v. ,"8, &8 @o. 1K0=K, 1< Iar.
011.D
.7G9U: Se-'i*e) %/ =aB)+ N%-=aB Fia*ia" Ite-#e$ia-ie) Pe-/%-#i! Q(a)i-
=aBi! F(*ti%)+ a$ Othe- N%-=aB Fia*ia" Ite-#e$ia-ie)
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10
* #ection 10G%/( of the 1GGK Tax ,ode provides that transactions involving
services rendered by banFs, non-banF financial intermediaries performing
*uasi-banFing functions, and other non-banF financial intermediaries shall be
VAT-exempt. The case of "i)st Plante)s Pa@nshop, Inc. v. CIR pertained to a
taxable period prior to the adoption of the present wording of #ection 10G%/( of
the 1GGK Tax ,ode. 5owever, the decision is relevant in that it discussed the
tax treatment of a pawnshop business. The #upreme ,ourt held that
pawnshops are non-banF financial intermediaries.
C0irst 'lanters 'awnshop, "nc. v. ,"8, &8 @o. 1K+1)+, )0 Euly 00=.D
(ec. ++,, Tax "redits
..79A: C-e$itab"e I,(t Tax
P$ Histinguish between .input tax2 and .output tax.2
* The case of CIR v. 4eng+et Co)po)ation defined .input tax2 and .output tax.2
."nput VAT or input tax represents the actual payments, costs and expenses
incurred by a VAT-registered taxpayer in connection with his purchase of
goods and services. Thus, 5i,(t tax5 #ea) the 'a"(e-a$$e$ tax ,ai$ b& a
VAT--e!i)te-e$ ,e-)%6etit& i the *%(-)e %/ hi)6it) t-a$e %- b()ie)) %
the i#,%-tati% %/ !%%$) %- "%*a" ,(-*ha)e) %/ !%%$) %- )e-'i*e) /-%# a
VAT--e!i)te-e$ ,e-)%.
?n the other hand, when that person or entity sells his4its products or services,
the VAT-registered taxpayer generally becomes liable for 10! of the selling
price as output VAT or output tax. 5ence, 5%(t,(t tax5 i) the 'a"(e-a$$e$
tax % the )a"e %/ taxab"e !%%$) %- )e-'i*e) b& a& ,e-)% -e!i)te-e$ %-
-e0(i-e$ t% -e!i)te- ($e- Se*ti% .78 %/ the 9%"$: Tax C%$e.
The VAT system of taxation allows a VAT-registered taxpayer to recover its
input VAT either by %1( passing on the 10! output VAT on the gross selling
price or gross receipts, as the case may be, to its buyers, or %( if the input tax
is attributable to the purchase of capital goods or to 6ero-rated sales, by filing
a claim for a refund or tax credit with the 7"8.
#imply stated, a taxpayer sub1ect to 10! output VAT on its sales of goods and
services may recover its input VAT costs by passing on said costs as output
VAT to its buyers of goods and services but it cannot claim the same as a
refund or tax credit, while a taxpayer sub1ect to 0! on its sales of goods and
services may only recover its input VAT costs by filing a refund or tax credit
with the 7"8.2
C,"8 v. 7enguet ,orporation, &8 @o. 1+<<<G, 1+ Euly 00>.D
..79=: Ex*e)) O(t,(t %- I,(t Tax
..79C: Dete-#iati% %/ C-e$itab"e I,(t Tax
(ec. +++, Transitional3)resumptive #nput Tax "redits
...9A: T-a)iti%a" I,(t Tax C-e$it)
...9=: P-e)(#,ti'e I,(t Tax C-e$it)
(ec. ++4, $efunds or Tax "redits of #nput Tax
..19A: Ce-%-Rate$ %- E//e*ti'e"& Ce-%-Rate$ Sa"e)
P$ Histinguish between 6ero-rated transactions Ce.g., #ec. 10=%7(%1(-%(D and
effectively 6ero-rated transactions Ce.g., #ec. 10=%7(%)(D.
* The case of CIR v. Seagate Technology (Philippines) addressed this issue. "t
stated that$
.Although both are taxable and similar in effect, 6ero-rated transactions differ
from effectively 6ero-rated transactions a) t% thei- )%(-*e.
Ce-%--ate$ t-a)a*ti%) generally refer to the export sale of goods and
supply of services. The tax rate is set at 6ero. 3hen 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.
E//e*ti'e"& 2e-%--ate$ t-a)a*ti%)+ 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 'hilippines is a signatory effectively
sub1ects such transactions to a 6ero rate. Again, as applied to the tax base,
such rate does not yield any tax chargeable against the purchaser. The seller
who charges 6ero output tax on such transactions can also claim a refund of or
a tax credit certificate for the VAT previously charged by suppliers.2
The decision went on to say %under the subheading ;ero 8ating and
Nxemption($
.Applying the ,estination p)inciple to the exportation of goods, a(t%#ati* 2e-%
-ati! is primarily intended to be en1oyed by the seller who is directly and
legally liable for the VAT, maFing such seller internationally competitive by
allowing the refund or credit of input taxes that are attributable to export sales.
E//e*ti'e 2e-% -ati!, on the contrary, is intended to benefit the purchaser
who, not being directly and legally liable for the payment of the VAT, will
ultimately bear the burden of the tax shifted by the suppliers.2 %Nmphasis
supplied.(
C,"8 v. #eagate Technology %'hilippines(, &8 @o. 1<)=>>, 11 0eb. 00<.D
P$ 3hat are the re*uirements for a claim for VAT refund4creditA
* The cases of Intel Technology Philippines, Inc. v. CIR and San Ro?+e Po@e)
Co)po)ation v CIR enumerated the re*uirements, thus$
%1( the taxpayer is engaged in sales which are 6ero-rated or effectively 6ero-
ratedM
%( the taxpayer is VAT-registeredM
%)( the claim must be filed within two years after the close of the taxable
*uarter when such sales were madeM
%+( the input taxes are due or paidM
%<( the input taxes are not transitional input taxesM
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11
%>( the input taxes have not been applied against output taxes during and in
the succeeding *uartersM
%K( the input taxes claimed are attributable to 6ero-rated or effectively 6ero-
rated salesM
%=( in certain types of 6ero-rated sales, the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with
7#' rules and regulations C#ections 10>%A(%(%a(%1( and %(M #ection 10>%7(M
#ections 10=%7(%1( and %(DM and
%G( where there are both 6ero-rated or effectively 6ero-rated sales and taxable
or exempt sales, and the input taxes cannot be directly and entirely attributable
to any of these sales, the input taxes shall be proportionately allocated on the
basis of sales volume.
C"ntel Technology 'hilippines, "nc. v. ,"8, &8 @o. 1>>K), K Apr. 00KM #an
8o*ue 'ower ,orporation v. ,"8, &8 @o. 1=0)+<, < @ov. 00G.D
P$ "n claims for VAT refund4credit, what is the recFoning point for the two-year
prescriptive periodA
* "n 00K, the #upreme ,ourt promulgated its decision in 0tlas Consoli,ate,
=ining an, 9evelop'ent Co)po)ation v. CIR which essentially held that in
claims for VAT refund4credit, the prescriptive period for filing administrative and
1udicial claims shall be two years recFoned /-%# the $ate %/ /i"i! %/ the VAT
0(a-te-"& -et(-.
A year later, in the highly publici6ed case of CIR v. =i)ant Pag#ilao
Co)po)ation, the #upreme ,ourt changed its mind and ruled that the two-year
prescriptive period in claims for VAT refund4credit must be counted not from
the date of filing of the VAT *uarterly return, but /-%# the *"%)e %/ the taxab"e
0(a-te- 3he the -e"e'at )a"e) 3e-e #a$e.
CAtlas ,onsolidated Iining and Hevelopment ,orporation v. ,"8, &8 @os.
1+110+ O 1+=K>), = Eune 00KM ,"8 v. Iirant 'agbilao ,orporation, &8 @o.
1K1G, 1 #ept. 00=.D
..19=: Ca*e""ati% %/ VAT Re!i)t-ati%
..19C: Pe-i%$ 3ithi 3hi*h Re/($ %- Tax C-e$it %/ I,(t Taxe) Sha"" =e >a$e
P$ 3hen are administrative and 1udicial claims for VAT refund4credit filedA
* "n 00K, the #upreme ,ourt promulgated its decision in 0tlas Consoli,ate,
=ining an, 9evelop'ent Co)po)ation v. CIR which essentially held that claims
for VAT refund4credit must be filed within the two-year prescriptive period.
"n 010, the #upreme ,ourt came out with the controversial case of CIR v.
0ichi "o)ging Co'pany o( 0sia, Inc. which mandated compliance of
administrative and 1udicial claims with b%th the two-year prescriptive period
C#ection 11%A(D a$ the 10-)0 day period rule C#ection 11%,(D. ?therwise,
claims would be ad1udged as either filed out of time or prematurely filed.
CAtlas ,onsolidated Iining and Hevelopment ,orporation v. ,"8, &8 @os.
1+110+ O 1+=K>), = Eune 00KM ,"8 v. Aichi 0orging ,ompany of Asia, "nc.,
&8 @o. 1=+=), > ?ct. 010.D
..19D: >ae- %/ Gi'i! Re/($
(ec. ++5, #nvoicing and &ccounting $e6uirements for *&T-$egistered )ersons
..E9A: I'%i*i! Re0(i-e#et)
P$ "s there a difference between an invoice and an official receiptA
* CIR v. =anila =ining Co)po)ation defined these terms, to wit$
.A Bsales or commercial invoiceB is a written account of goods sold or services
rendered indicating the prices charged therefor or a list by whatever name it is
Fnown which is used in the ordinary course of business evidencing sale and
transfer or agreement to sell or transfer goods and services.
A RreceiptB on the other hand is a written acFnowledgment of the fact of
payment in money or other settlement between seller and buyer of goods,
debtor or creditor, or person rendering services and client or customer.2
C,"8 v. Ianila Iining ,orporation, &8 @o. 1<)0+, )1 Aug. 00<.D
** "n 0TGT Co''+nications Se)vices Philippines, Inc. v. CIR, ATOT was
engaged in the business of providing information, promotional, supportive, and
liaison services to foreign corporations. "t filed a claim for tax refund4credit for
alleged unutili6ed input VAT on said sales of services and presented sales
invoices to substantiate the same. "n giving credence to the sales invoices %not
necessarily official receipts(, the #upreme ,ourt said that$
.#ales invoices are recogni6ed commercial documents to facilitate trade or
credit transactions. They are proofs that a business transaction has been
concluded, hence, should not be considered bereft of probative value. ?nly the
preponderance of evidence threshold as applied in ordinary civil cases is
needed to substantiate a claim for tax refund proper.2
CATOT ,ommunications #ervices 'hilippines, "nc. v. ,"8, &8 @o. 1=)>+, )
Aug. 010.D
*** ?n other hand, the case of ;epco Philippines Co)po)ation v. CIR made a
distinction between a VAT invoice and a VAT receipt, such that only a VAT
invoice might be presented to substantiate a sale of goods or properties, while
only a VAT receipt could substantiate a sale of services. 'ertinent portion of
the decision read$
."n other words, the VAT invoice is the sellerBs best proof of the sale of the
goods or services to the buyer while the VAT receipt is the buyerBs best
evidence of the payment of goods or services received from the seller. Nven
though VAT invoices and receipts are normally issued by the supplier4seller
alone, the said invoices and receipts, taFen collectively, are necessary to
substantiate the actual amount or *uantity of goods sold and their selling price
%p)oo( o( t)ansaction(, and the best means to prove the input VAT payments
%p)oo( o( pay'ent(. 5ence, VAT invoice and VAT receipt should not be
confused as referring to one and the same thing. ,ertainly, neither does the
law intend the two to be used alternatively.2
CQepco 'hilippines ,orporation v. ,"8, &8 @o. 1=1=<=, + @ov. 010.D
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1
..E9=: I/%-#ati% C%taie$ i the VAT I'%i*e %- VAT O//i*ia" Re*ei,t
* #ection 11)%7(%(%c( of the 1GGK Tax ,ode provides that certain information
must be indicated on the VAT invoice or VAT official receipt, and that .if the
sale is sub1ect to 6ero percent %0!( value-added tax, the term R6ero-rated saleB
shall be written or printed prominently on the invoice or receipt.2
The 7ureau of "nternal 8evenue, the Hivisions of the ,ourt of Tax Appeals, the
,ourt of Tax Appeals Nn 7anc, and the #upreme ,ourt has conflicting opinions
on whether the term .6ero-rated sale2 must be written, stamped, or imprinted.
5owever, as enunciated in recent cases, the term .6ero-rated sale2 must be
imprinted, and not merely written or stamped. ?therwise, such claims for VAT
refund4credit substantiated by non-conforming VAT invoices or VAT official
receipts shall be disallowed.
C'anasonic ,ommunications "maging ,orporation of the 'hilippines, &8 @o.
1K0=0G0, = 0eb. 010M E8A 'hilippines, "nc. v. ,"8, &8 @o. 1KK1K, 11 ?ct.
010M 5itachi &lobal #torage Technologies 'hilippines ,orporation v. ,"8, &8
@o. 1K+1, 0 ?ct. 010M Iicrosoft 'hilippines, "nc., v. ,"8, &8 @o. 1=01K),
> Apr. 011.D
..E9C: A**%(ti! Re0(i-e#et)
..E9D: C%)e0(e*e) %/ I))(i! E--%e%() VAT I'%i*e %- VAT O//i*ia" Re*ei,t
..E9E: T-a)iti%a" Pe-i%$
(ec. ++7, $eturn and )ayment of *alue-&dded Tax
..K9A: I Gee-a"
..K9=: Whe-e t% Fi"e the Ret(- a$ Pa& the Tax
..K9C: Withh%"$i! %/ Va"(e-A$$e$ Tax
(ec. ++8, )ower of the "ommissioner to (uspend the usiness 9perations of a
Taxpayer
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1)