Silicon Philippines Intel Philippines Manufacturing vs.

CIR

2.

Facts:

3.

Silicon Philippines, Inc. is a corporation duly organized and

existing under the laws of the Philippines. It is registered with the
BIR das a VAT-taxpayer and with the BOI as a preferred pioneer
enterprise.

4.

Then, on May, 1999, Silicon filed with the CIR an application for
credit/refund of unutilized input VAT for the period of Oct. 1,
1998 to Dec. 31, 1998.
Due to the inaction of the CIR, Silicon, on Dec. 27, 2000, filed a
Petition for Review with the CTA Division. Silicon alleged that
the 4th quarter of 1998, it generated and recorded zero-rated
export sales paid to Silicon in acceptable foreign currency and
that for the said period, Silicon paid input VAT in the total amount
which have not been applied to any output VAT.
The CIR, on the other hand, raised the defenses that: 1. Silicon
did not show that it complied with the provisions of Sec. 229 of
the Tax Code; 2. That claims for refund are construed strictly
against the claimant similar to the nature of exemption from
taxes; and that Silicon failed to prove that is entitled for refund.
The CTA Division granted Silicons claim for refund of unutilized
input VAT on capital goods. However, it denied Silicons claim
for credit/refund of input VAT attributable to its zero-rated export
sales. It is because Silicon failed to present an Authority to Print
(ATP) from the BIR neither did it print on its export sales invoices
the ATP and the word zero-rated.
Silicon moved for reconsideration claiming that it is not required
to secure an ATP since it has a Permit to Adopt Computerized
Accounting Documents such as Sales Invoice and Official
Receipts from the BIR. And that the printing of the word zerorated on its export sales invoices is not necessary because all its
finished products are exported to its mother company, Intel Corp.,
a non-resident corporation and a non-VAT registered entity.
ISSUE: W/N Silicon entitled to claim from refund of Input VAT
attributable to its zero-rated sales.
Ruling: no.
There are two types of input VAT credits:
1.
2.

A credit/refund of input VAT attributable to zero-rated

sales under Sec. 112(A) of the NIRC; and
A credit/refund of input VAT on capital goods pursuant
to Sec. 112(B) of the same Code.

To claim for credit/refund of input VAT attributable to zero-rated

sales, Sec. 112(A) laid down 4 requisites:
1.

The taxpayer must be a VAT-registered;

The taxpayer must be engaged in sales which are zerorated or effectively zero-rated;
The claim must be filed within 2 years after the close of
the taxable quarter when such sales were made; and
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 tax.

A. Printing the ATP on the invoices or receipts is not

required.
In a case, the SC ruled that ATP need not be reflected or
indicated in the invoices or receipts because there is no law
or regulation requiring it.
Thus, failure to print the ATP on the invoices or receipts
should not result in the outright denial of a claim or the
invalidation of the invoices or receipts for purposes of
claiming a refund.
B. ATP must be secured from the BIR
Sec. 238 of the NIRC expressly requires persons engaged in
business to secure an ATP from the BIR prior to printing
invoices or receipts. Failure to do so, makes the person liable
under Sec. 264 of the Tax Code.
W/N a claimant for unutilized input VAT on zero-rated sales
is required to present proof that it has secured an ATP from
the BIR prior to the printing of its invoices or receipts.
YES. Since ATP is not indicated in the invoices or receipts, the
only way to verify whether the invoices or receipts are duly
registered is by requiring the claimant to present its ATP from the
BIR. Without which, the invoices would have no probative value
for the purpose of refund.
Failure to print the word zero-rated on the sales invoices is
fatal to a claim for refund of input VAT.
In compliance with Sec. 4.108-1 of RR 7-95, requiring the
printing of the word zero-rated on the invoice covering zerorate sales is essential as this regulation proceeds from the
rulemaking authority of the Secretary of Finance under Sec. 244
of the NIRC.
In this case, Silicon failed to present its ATP and to print the word
zero-rated on its export sales invoices.
Thus, the claim for credit/refund of input VAT attributable to its
zero-rated sales must be denied.

ATLAS CONSOLIDATED VS. CIR

Facts:
Atlas Consolidated is a zero-rated VAT person for being an
exporter of copper concentrates. On January 1994, Atlas filed its
VAT return for the fourth quarter of 1993, showing a total input
tax and an excess VAT credit. Then, on January 1996, Atlas filed
for a tax refund or tax credit certificate with CIR.
However, the CTA denied Atlas claim for refund due to Atlas
failure to comply with the documentary requirements prescribed
under Sec. 16 of RR No. 5-87, as amended by RR No. 3-88.
CTA denied Atlas MR stating that Atlas has failed to substantiate
its claim that it has not applied its alleged excess in put taxes to
any of its subsequent quarters output tax liability.
The CA affirmed CTAs ruling.
ISSUE: What are the documents required to claim for VAT input
refund?
W/N Atlas is entitled to claim to a tax refund.
Ruling:
When claiming tax refund/credit, the VAT-registered taxpayer
must be able to establish that it does not have refundable or
creditable input VAT, and the same has not been applied against
its output VAT liabilities information which are supposed to be
reflected in the taxpayers VAT returns.
Thus, an application for tax refund/credit must be accompanied
by copies of the taxpayers VAT return/s for the taxable quarter/s
concerned.
The formal offer of evidence of Atlas failed to include photocopy
of its export documents, as required. Without the export
documents, the purchase invoice/receipts submitted by Atlas as
proof of its input taxes cannot be verified as being directly
attributable to the goods so exported.
Atlas claim for credit or refund of input taxes cannot be granted
due to its failure to show convincingly that the same has not been
applied to any of its output tax liability as provided under Sec.
106(a) of the Tax Code.

National Internal Revenue Code; value-added tax; claim for credit

or refund of input value-added tax; documentary
requirements. When claiming tax refund or credit, the valueadded taxpayer must be able to establish that it does have
refundable or creditable input value-added tax (VAT), and the
same has not been applied against its output VAT liabilitiesinformation which are supposed to be reflected in the taxpayers
VAT returns. Thus, an application for tax refund or credit must be
accompanied by copies of the taxpayers VAT return or returns for
taxable quarter or quarters concerned. Atlas Consolidated Mining
and Development Corporation vs Commissioner of Internal
Revenue, G.R. No. 159471, January 26, 2011.
In the recent case of Mirant Pagbilao Corporation vs. CIR (G.R.
No. 172129, September 12, 2008), the Supreme Court had ruled
that the claim for refund of unutilized input VAT payments must
be filedwithin two (2) years from the close of the taxable quarter
when the relevant sales were made. Said
ruling, however, should not be made to apply to the present case
but should be applied prospectively pursuant to and consistent
with the numerous rulings of the Supreme Court, given that
petitioner Kepco's claim involves unutilized input taxes for the
3rd quarter of 2000. Hence, the prescriptive period applicable in
the instant case would still be the period enunciated in the case of
Atlas Consolidated Mining and Development Corporation vs.
CIR (G.R. Nos. 141104 & 148763, June 8, 2007), where it was
held that the counting of the two-year prescriptive period is
reckoned from the filing of the quarterly VAT returns. Kepco
Ilijan Corporation v. Commissioner of Internal Revenue, C.T.A.
E.B. Case No. 528 (C.T.A. Case No. 6550), October 14, 201

CIR vs. Sony Philippines, Inc.

COMMISSIONER OF INTERNAL REVENUE VS. SONY

PHILIPPINES, INC.- Value Added Tax, Final
Withholding Tax, Letter of Authority

On Dec. 6, 1999 CIR issued a preliminary assessment for 1997

deficiency taxes and penalties to Sony, which it protested.

FACTS:
Sony Philippines was ordered examined for the period 1997 and
unverified prior years as indicated in the Letter of Authority. The
audit yielded assessments against Sony Philippines for deficiency
VAT and FWT, viz: (1) late remittance of Final Withholding Tax
on royalties for the period January to March 1998 and (2)
deficiency VAT on reimbursable received by Sony Philippines
from its offshore affiliate, Sony International Singapore (SIS).

Facts:

A petition for review was filed by Sony before the CTA, within
30 days after the lapse of the 180 days from the submission of the
supporting documents to the CIR.
CTA-1st Division disallowed the deficiency VAT assessment the
subsidized advertising expense paid by Sony was duly covered by
a VAT invoice resulted in an input VAT credit. However, for the
EWT, the deficiency assessment was upheld.
CIR sought reconsideration on the ground that Sony should be
liable for the deficiency VAT. It contends that Sonys advertising
expense cannot be considered as an input VAT credit because the
same was eventually reimbursed by Sony International Singapore
(SIS). As a result, Sony is not entitled to a tax credit and that the
said advertising expense should be for the account of SIS.
ISSUE: W/N the source of the payment of tax is relevant to
determine
Ruling: NO.
Sonys deficiency VAT assessment derived from the CIRs
allowance of the input VAT credits that should have been realized
from advertising expense of the latter.
Under Sec. 110 of the 1997 Tax Code, an advertising expense
duly covered by a VAT invoice is a legitimate business expense. It
cannot be denied that Sony incurred advertising expense. CIRs
own witness Aluquin even testified that advertising companies
issued invoices in the name of Sony and the latter paid for the
same.
Hence, Sony incurred and paid for advertising expense services.
Where the money came from is another matter all together.
Before any VAT is levied, there must be sale, barter or exchange
of goods or property.
In this case, there was no sale, barter, exchange in the subsidy
given by SIS to Sony. It was but a dole out and not in payment for
the goods or properties sold, bartered or exchanged by Sony.

ISSUES:
(1) Is Petitioner liable for deficiency Value Added Tax?
(2) Was the investigation of its 1998 Final Withholding Tax return
valid?
HELD:
(1) NO. Sony Philippines did in fact incur expenses supported by
valid VAT invoices when it paid for certain advertising costs. This
is sufficient to accord it the benefit of input VAT credits and
where the money came from to satisfy said advertising billings is
another matter but does not alter the VAT effect. In the same way,
Sony Philippines can not be deemed to have received the
reimbursable as a fee for a VAT-taxable activity. The reimbursable
was couched as an aid for Sony Philippines by SIS in view of the
companys dire or adverse economic conditions. More
importantly, the absence of a sale, barter or exchange of goods or
properties supports the non-VAT nature of the reimbursement.
This was distinguished from the COMASERCO case where even
if there was similarly a reimbursement-on-cost arrangement
between affiliates, there was in fact an underlying service. Here,
the advertising services were rendered in favor of Sony
Philippines not SIS.
(2) NO. A Letter of Authority should cover a taxable period not
exceeding one year and to indicate that it covers unverified prior
years should be enough to invalidate it. In addition, even if the
Final Withholding Tax was covered by Sony Philippines fiscal
year ending March 1998, the same fell outside of the period
1997 and was thus not validly covered by the Letter of
Authority.

Diaz and Timbol vs. CIR

Facts:
Petitioners Diaz and Timbol filed a petition for declaratory relief
assailing the validity of the imposition of VAT by BIR on the
collections of the tollway operators.
They claim that VAT would result in increased toll fees. That the
Congress in enacting the Tax Code, did intend to not include toll
fees within the meaning of sale of services that are subject to
VAT; that toll fee is a users tax, not a sale of services; that to
impose VAT on toll fees would amount to a tax on public service.
The OSG, on the other hand, stated that the Tax Code imposes
VAT on all kinds of services of franchise grantees, including
tollway operations, except where the law provides otherwise.
ISSUE: ARE TOLLWAY OPERATORS COVERED BY VAT?
Ruling: YES, BECAUSE THEY RENDER SERVICES FOR A
FEE. THEY ARE JUST LIKE LESSORS, WAREHOUSE
OPERATORS , AND OTHER GROUPS EXPRESSLY
MENTIONED IN THE LAW.
Issue: Now, do tollway operators render services for a fee?
Presidential Decree (P.D.) 1112 or the Toll Operation Decree
establishes the legal basis for the services that tollway operators
render. Essentially, tollway operators construct, maintain, and
operate expressways, also called tollways, at the operators
expense. Tollways serve as alternatives to regular public
highways that meander through populated areas and branch out to
local roads. Traffic in the regular public highways is for this
reason slow-moving. In consideration for constructing tollways
at their expense, the operators are allowed to collect governmentapproved fees from motorists using the tollways until such
operators could fully recover their expenses and earn reasonable
returns from their investments.
When a tollway operator takes a toll fee from a motorist,
the fee is in effect for the latters use of the tollway facilities over
which the operator enjoys private proprietary rights[8][12] that its
contract and the law recognize. In this sense, the tollway operator
is no different from the following service providers under Section
108 who allow others to use their properties or facilities for a fee:
1.
Lessors of property, whether personal or real;
2.
Warehousing service operators;
3.
Lessors or distributors of cinematographic films;
4.
Proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts;
5.
Lending investors (for use of money);
6.
Transportation contractors on their transport of goods or
cargoes, including persons who transport goods or cargoes for
hire and other domestic common carriers by land relative to their
transport of goods or cargoes; and

7.
Common carriers by air and sea relative to their transport of
passengers, goods or cargoes from one place in thePhilippinesto
another place in thePhilippines.
It does not help petitioners cause that Section 108 subjects to
VAT all kinds of services rendered for a fee regardless of
whether or not the performance thereof calls for the exercise or
use of the physical or mental faculties. This means that
services to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that require
the use of human knowledge and skills.
XXXXXXXXXXXXXXXXX
ISSUE: GOVERNMENT ARGUES THAT TOLL OPERATORS
ARE FRANCHISEES AND THEREFORE EXPRESSLY
COVERED BY VAT LAW. PETITIONERS ARGUE THAT
THEY ARE NOT FRANCHISEES BECAUSE THEY DO NOT
HAVE LEGISLATIVE FRANCHISE. WHAT IS CORRECT?
Toll operators are francishees because franchise covers
government grants of a special right to do an act or series of acts
of public concern. The construction, operation, and maintenance
of toll facilities on public improvements are activities of public
consequence that necessarily require a special grant of authority
from the state. Also, the VAT law does not define franchisees as
only those who have legislative franchise.
And not only do tollway operators come under the broad
term all kinds of services, they also come under the specific
class described in Section 108 as all other franchise grantees
who are subject to VAT, except those under Section 119 of this
Code.
Tollway operators are franchise grantees and they do not
belong to exceptions (the low-income radio and/or television
broadcasting companies with gross annual incomes of less
than P10 million and gas and water utilities) that Section
119[9][13] spares from the payment of VAT. The word
franchise broadly covers government grants of a special right to
do an act or series of acts of public concern.
Petitioners, of course contend that tollway operators cannot be
considered franchise grantees under Section 108 since they do
not hold legislative franchises. But nothing in Section 108
indicates that the franchise grantees it speaks of are those who
hold legislative franchises. Petitioners give no reason, and the
Court cannot surmise any, for making a distinction between
franchises granted by Congress and franchises granted by some
other government agency. The latter, properly constituted, may
grant franchises. Indeed, franchises conferred or granted by local
authorities, as agents of the state, constitute as much a legislative
franchise as though the grant had been made by Congress itself.
The term franchise has been broadly construed as referring, not
only to authorizations that Congress directly issues in the form of
a special law, but also to those granted by administrative agencies
to which the power to grant franchises has been delegated by
Congress.

Tollway operators are, owing to the nature and object of their

business, franchise grantees. The construction, operation, and
maintenance of toll facilities on public improvements are
activities of public consequence that necessarily require a special
grant of authority from the state. Indeed, Congress granted
special franchise for the operation of tollways to the Philippine
National Construction Company, the former tollway
concessionaire for the North and South Luzon Expressways.
Apart from Congress, tollway franchises may also be granted by
the TRB, pursuant to the exercise of its delegated powers under
P.D. 1112.[13][17] The franchise in this case is evidenced by a
Toll Operation Certificate.[14][18]
XXXXXXXXXXXXXXXXXX
ISSUE: PETITIONERS CONTEND THAT TOLL FEES ARE
OF PUBLIC NATURE AND THEREFORE NOT SALE OF
SERVICES. IS THEIR CONTENTION CORRECT?
No. The law in the same manner includes electric utilities,
telephone, telegraph, and broadcasting companies in its list of vatcovered businesses. Their services are also of public nature.
Petitioners contend that the public nature of the services rendered
by tollway operators excludes such services from the term sale
of services under Section 108 of the Code. But, again, nothing
in Section 108 supports this contention. The reverse is true. In
specifically including by way of example electric utilities,
telephone, telegraph, and broadcasting companies in its list of
VAT-covered businesses, Section 108 opens other companies
rendering public service for a fee to the imposition of VAT.
Businesses of a public nature such as public utilities and the
collection of tolls or charges for its use or service is a franchise.
XXXXXXXXXXXXXXXXX
ISSUE: PETITIONERS ARGUE THAT THE STATEMENTS
MADE BY SOME LAWMAKERS DURING THE THE
DELIBERATIONS ON THE VAT LAW SHOW INTENT TO
EXEMPT TOLLWAY OPERATORS. CAN THE
STATEMENTS OF THESE LAWMAKERS BE
CONSIDERED BINDING ON THE INTERPRETATION OF
VAT COVERAGE?
No. Statements made by individual members of congress in the
consideration of a bill do not necessarily reflect the sense of that
body and are, consequently, not controlling in the interpretation of
law. The congressional will is ultimately determined by the
language of the law that the lawmakers voted on.

XXXXXXXXXXXXXXXX
ISSUE: IS TOLL FEE A USERS TAX AND SO VAT ON TOLL
FEE WOULD BE TAX ON TAX?

No. Toll fee is not a tax. It is not collected by bir or by the govt. It
does not go to government coffers. It is not collected for a public
purpose.
ISSUE: BUT IN THE CASE OF MIAA VS. CA FEES PAID TO
AIRPORTS WERE CONSIDERED TAX. DOES THE CASE OF
MIAA APPLY?
No. The subject of the maiaa case is terminal fee which goes to
the government. Also the issue in the miaa case is whether
paranaque city can sell at auction property of the national
government. The discussion on the terminal fee is just to
emphasize the fact that the local government cannot tax the
national government.
Two. Petitioners argue that a toll fee is a users tax and to
impose VAT on toll fees is tantamount to taxing a tax.
Actually, petitioners base this argument on the following
discussion in Manila International Airport Authority (MIAA) v.
Court of Appeals:
No one can dispute that properties of public dominion mentioned
in Article 420 of the Civil Code, like roads, canals, rivers,
torrents, ports and bridges constructed by the State, are owned
by the State. The term ports includes seaports and airports. The
MIAA Airport Lands and Buildings constitute a port
constructed by the State. Under Article 420 of the Civil Code, the
MIAA Airport Lands and Buildings are properties of public
dominion and thus owned by the State or the Republic of the
Philippines.
x x x The operation by the government of a tollway does not
change the character of the road as one for public use. Someone
must pay for the maintenance of the road, either the public
indirectly through the taxes they pay the government, or only
those among the public who actually use the road through the toll
fees they pay upon using the road. The tollway system is even a
more efficient and equitable manner of taxing the public for the
maintenance of public roads.
The charging of fees to the public does not determine the
character of the property whether it is for public dominion or not.
Article 420 of the Civil Code defines property of public dominion
as one intended for public use. Even if the government collects
toll fees, the road is still intended for public use if anyone can
use the road under the same terms and conditions as the rest of the
public. The charging of fees, the limitation on the kind of vehicles
that can use the road, the speed restrictions and other conditions
for the use of the road do not affect the public character of the
road.
The terminal fees MIAA charges to passengers, as well as the
landing fees MIAA charges to airlines, constitute the bulk of the
income that maintains the operations of MIAA. The collection of
such fees does not change the character of MIAA as an airport for
public use. Such fees are often termed users tax. This means

taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the
particular public facility. A users tax is more equitable a
principle of taxation mandated in the 1987 Constitution.
Petitioners assume that what the Court said above, equating
terminal fees to a users tax must also pertain to tollway fees.
But the main issue in the MIAA case was whether or not
Paraaque City could sell airport lands and buildings under
MIAA administration at public auction to satisfy unpaid real
estate taxes. Since local governments have no power to tax the
national government, the Court held that the City could not
proceed with the auction sale. MIAA forms part of the national
government although not integrated in the department
framework. Thus, its airport lands and buildings are properties of
public dominion beyond the commerce of man under Article
420(1)[21][25] of the Civil Code and could not be sold at public
auction.
As can be seen, the discussion in the MIAA case on toll roads and
toll fees was made, not to establish a rule that tollway fees are
users tax, but to make the point that airport lands and buildings
are properties of public dominion and that the collection of
terminal fees for their use does not make them private properties.
Tollway fees are not taxes. Indeed, they are not assessed and
collected by the BIR and do not go to the general coffers of the
government.
It would of course be another matter if Congress enacts a law
imposing a users tax, collectible from motorists, for the
construction and maintenance of certain roadways. The tax in
such a case goes directly to the government for the replenishment
of resources it spends for the roadways. This is not the case here.
What the government seeks to tax here are fees collected from
tollways that are constructed, maintained, and operated by private
tollway operators at their own expense under the build, operate,
and transfer scheme that the government has adopted for
expressways. Except for a fraction given to the government, the
toll fees essentially end up as earnings of the tollway operators.
In sum, fees paid by the public to tollway operators for use
of the tollways, are not taxes in any sense. A tax is imposed under
the taxing power of the government principally for the purpose of
raising revenues to fund public expenditures. Toll fees, on the
other hand, are collected by private tollway operators as
reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well
as to assure them a reasonable margin of income. Although toll
fees are charged for the use of public facilities, therefore, they are
not government exactions that can be properly treated as a tax.
Taxes may be imposed only by the government under its
sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of
ownership.

Parenthetically, VAT on tollway operations cannot be

deemed a tax on tax due to the nature of VAT as an indirect tax. In
indirect taxation, a distinction is made between the liability for
the tax and burden of the tax. The seller who is liable for the VAT
may shift or pass on the amount of VAT it paid on goods,
properties or services to the buyer. In such a case, what is
transferred is not the sellers liability but merely the burden of the
VAT.
Thus, the seller remains directly and legally liable for payment of
the VAT, but the buyer bears its burden since the amount of VAT
paid by the former is added to the selling price. Once shifted, the
VAT ceases to be a tax[26][30] and simply becomes part of the
cost that the buyer must pay in order to purchase the good,
property or service.
Consequently, VAT on tollway operations is not really a tax on the
tollway user, but on the tollway operator. Under Section 105 of
the Code, [27][31] VAT is imposed on any person who, in the
course of trade or business, sells or renders services for a fee. In
other words, the seller of services, who in this case is the tollway
operator, is the person liable for VAT. The latter merely shifts the
burden of VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax
even if toll fees were deemed as a users tax. VAT is assessed
against the tollway operators gross receipts and not necessarily
on the toll fees. Although the tollway operator may shift the VAT
burden to the tollway user, it will not make the latter directly
liable for the VAT. The shifted VAT burden simply becomes part
of the toll fees that one has to pay in order to use the tollways.[28]
[32]
XXXXXXXXXXXXXXXX
ISSUE: DOES PETITIONER TIMBOL HAVE A
PERSONALITY AS PETITIONER?
No. She will not be affected by the reduction of profits. The right
to recover investments belong to the tollway investors.

PAGCOR vs. BIR:

ISSUE : W/N PAGCOR IS EXEMPTED FROM VAT. YES.
Facts:
With the passage of Republic Act No. (RA) 9337, the Philippine
Amusement and Gaming Corporation (PAGCOR) has been
excluded from the list of government-owned and -controlled
corporations (GOCCs) that are exempt from tax under Section
27(c) of the Tax Code;
PAGCOR is now subject to corporate income tax.
The Supreme Court (SC) held that the omission of PAGCOR
from the list of tax-exempt GOCCs by RA 9337 does not violate
the right to equal protection of the laws under Section 1, Article
III of the Constitution, because PAGCORs exemption from
payment of corporate income tax was not based on classification
showing substantial distinctions; rather, it was granted upon the
corporations own request to be exempted from corporate
income tax. Legislative records likewise reveal that the legislative
intention is to require PAGCOR to pay corporate
income tax.
With regard to the issue that the removal of PAGCOR from the
exempted list violates the non-impairment clause contained in
Section 10, Article III of the Constitution which provides that
no law impairing the obligation of contracts shall be passed the
SC explained that following its previous ruling in the case of
Manila Electric Company v. Province of Laguna 366 Phil. 428
(1999), this does not apply.
Franchises such as that granted to PAGCOR partake of the nature
of a grant, and is thus beyond the purview of the non-impairment
clause of the Constitution.
As regards the liability of PAGCOR to VAT, the SC finds Section
4.108-3 of Revenue Regulations No. (RR) 16-2005,
which subjects PAGCOR and its licensees and franchisees to
VAT, null and void for being contrary to the National Internal
Revenue Code (NIRC), as amended by RA 9337. According to
the SC, RA 9337 does not contain any provision that subjects
PAGCOR to VAT. Instead, the SC finds support to the VAT
exemption of PAGCOR under Section 109(k) of the
Tax Code, which provides that transactions exempt under
international agreements to which the Philippines is a signatory or
under special laws [except Presidential Decree No. (PD) 529] are
exempt from VAT. Considering that PAGCORs charter, i.e., PD
1869 which grants PAGCOR exemption from taxes is a
special law, it is exempt from payment of VAT.
Accordingly, the SC held that the BIR exceeded its authority in
subjecting PAGCOR to VAT, and thus declared RR 16-05 null and
void insofar as it subjects PAGCOR to VAT for being
contrary to the NIRC, as amended by RA 9337.

PAGCOR is subject to income tax but remains exempt from

the imposition of value-added tax.
With the amendment by R.A. No. 9337 of Section 27 (c) of the
National Internal Revenue Code of 1997 by omitting PAGCOR
from the list of government corporations exempt for income tax,
the legislative intent is to require PAGCOR to pay corporate
income tax. However, nowhere in R.A. No. 9337 is it provided
that PAGCOR can be subjected to VAT. Thus, the provision of RR
No. 16-2005, which the respondent BIR issued to implement the
VAT law, subjecting PAGCOR to 10% VAT is invalid for being
contrary to R.A. No. 9337. (Philippine Amusement and Gaming
Corporation vs. BIR, G.R. No. 172087, March 15, 2011)
With the passage of Republic Act No. (RA) 9337, the Philippine
Amusement and Gaming Corporation (PAGCOR) has been
excluded from the list of government-owned and controlled
corporations (GOCCs) that are exempt from tax under Section
27(c) of the Tax Code; PAGCOR is now subject to corporate
income tax. The Supreme Court (SC) held that the omission of
PAGCOR from the list of tax-exempt GOCCs by RA 9337 does
not violate the right to equal protection of the laws under Section
1, Article III of the Constitution, because PAGCORs exemption
from payment of corporate income tax was not based on
classification showing substantial distinctions; rather, it was
granted upon the corporations own request to be exempted from
corporate income tax. Legislative records likewise reveal that the
legislative intention is to require PAGCOR to pay corporate
income tax.
With regard to the issue that the removal of PAGCOR from the
exempted list violates the non-impairment clause contained in
Section 10, Article III of the Constitution which provides that
no law impairing the obligation of contracts
shall be passed the SC explained that following its previous
ruling in the case of
Manila Electric Company v. Province of Laguna 366 Phil. 428
(1999), this does not apply. Franchises such as that granted to
PAGCOR partake of the nature of a grant, and is thus beyond the
purview of the non-impairment clause of the Constitution. As
regards the liability of PAGCOR to VAT, the SC finds Section
4.108-3 of Revenue Regulations No. (RR) 16-2005, which
subjects PAGCOR and its licensees and franchisees to VAT, null
and void for being contrary to the National Internal Revenue
Code (NIRC), as amended by RA 9337.
According to the SC, RA 9337 does not contain any provision
that subjects PAGCOR to VAT. Instead, the SC finds support to
the VAT exemption of PAGCOR under Section 109(k) of the Tax
Code, which provides that transactions exempt under international
agreements to which the Philippines is a signatory or under
special laws [except Presidential Decree No. (PD) 529] are
exempt from VAT. Considering that PAGCORs charter, i.e., PD
1869 which grants PAGCOR exemption from taxes is a
special law, it is exempt from payment of VAT. Accordingly, the
SC held that the BIR exceeded its authority in subjecting
PAGCOR to VAT, and thus declared RR 16-05 null and void
insofar as it subjects PAGCOR to VAT for being contrary to
the NIRC, as amended by RA 9337. [Philippine Amusement and
Gaming Corporation (PAGCOR) v. the Bureau of Internal
Revenue (BIR), et. al., GR 172087, March 15, 2011.