1

PRINCIPLES/CONCEPTS
OF ESTATE TAX & VAT

I. Estate tax
Post-mortem dispositions typically

(1) Convey no title or ownership to the transferee before the death of

the transferor; or, what amounts to the same thing, that the transferor
should retain the ownership (full or naked) and control of the property
while alive;

(2) That before the [donors] death, the transfer should be revocable
by the transferor at will, ad nutum; but revocability may be provided
for indirectly by means of a reserved power in the donor to dispose of
the properties conveyed;

(3) That the transfer should be void if the transferor should survive the
transferee;

[4] [T]he specification in a deed of the causes whereby the act may be
revoked by the donor indicates that the donation is inter vivos, rather
than a disposition mortis causa;

[5] That the designation of the donation as mortis causa, or a provision

in the deed to the effect that the donation is to take effect at the
death of the donor are not controlling criteria; such statements are to
be construed together with the rest of the instrument, in order to give
effect to the real intent of the transferor; and

(6) That in case of doubt, the conveyance should be deemed

donation inter vivos rather than mortis causa, in order to avoid uncertainty as
to the ownership of the property subject of the deed. (GONZALO VILLANUEVA
vs. SPOUSES FROILAN, G.R. No. 172804, January 24, 2011)

The conveyance in question is not, first of all, one of mortis causa, which should be
embodied in a will. In this case, the monies subject of savings account were in the
nature of conjugal funds. In the case relied on, Rivera v. People's Bank and Trust
Co., we rejected claims that a survivorship agreement purports to deliver one
party's separate properties in favor of the other, but simply, their joint holdings.
(ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA
FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)

But although the survivorship agreement is per se not contrary to law its operation
or effect may be violative of the law. For instance, if it be shown in a given case that
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such agreement is a mere cloak to hide an inofficious donation, to transfer property

in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed
and annulled upon such grounds. (ROMARICO G. VITUG vs. THE HONORABLE COURT
OF APPEALS and ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)

As held in Propstra v. U.S., where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from deducting
the entire amount of the claim for estate tax purposes. These pronouncements
essentially confirm the general principle that post-death developments are not
material in determining the amount of the deduction. (RAFAEL ARSENIO S. DIZON
vs. COURT OF TAX APPEALS, G.R. No. 140944, April 30, 2008)

We express our agreement with the date-of-death valuation rule. There is no law,
nor do we discern any legislative intent in our tax laws, which disregards the date-
of-death valuation principle and particularly provides that post-death developments
must be considered in determining the net value of the estate. It bears emphasis
that tax burdens are not to be imposed, nor presumed to be imposed, beyond what
the statute expressly and clearly imports, tax statutes being construed strictissimi
juris against the government. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)

Such construction finds relevance and consistency in our Rules on Special

Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his death. Therefore, the claims existing
at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. (RAFAEL ARSENIO S. DIZON vs. COURT OF
TAX APPEALS, G.R. No. 140944, April 30, 2008)

Administration expenses, as an allowable deduction from the gross estate of the

decedent for purposes of arriving at the value of the net estate, have been
construed by the federal and state courts of the United States to include all
expenses "essential to the collection of the assets, payment of debts or the
distribution of the property to the persons entitled to it." In other words, the
expenses must be essential to the proper settlement of the estate and expenditures
incurred for the individual benefit of the heirs, devisees or legatees are not
deductible. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 123206, March 22, 2000)

Thus, in Lorenzo v. Posadas, the Court construed the phrase "judicial expenses of
the testamentary or intestate proceedings" as not including the compensation paid
to a trustee of the decedent's estate when it appeared that such trustee was
appointed for the purpose of managing the decedent's real estate for the benefit of
the testamentary heir. In another case, the Court disallowed the premiums paid on
the bond filed by the administrator as an expense of administration since the giving
of a bond is in the nature of a qualification for the office, and not necessary in the
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settlement of the estate. Neither may attorney's fees incident to litigation incurred
by the heirs in asserting their respective rights be claimed as a deduction from the
gross estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 123206, March 22, 2000)

The notarial fee paid for the extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro Pajonar's estate to his lawful
heirs. Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro
Pajonar's property should also be considered as a deductible administration expense
as PNB provided a detailed accounting of decedent's property and gave advice as to
the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.
(COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 123206,
March 22, 2000)

Neither is the survivorship agreement a donation inter vivos, for obvious reasons,
because it was to take effect after the death of one party. Secondly, it is not a
donation between the spouses because it involved no conveyance of a spouse's
own properties to the other. (ROMARICO G. VITUG vs. THE HONORABLE COURT OF
APPEALS and ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)

In the case at bar, when the spouses Vitug opened savings account, they merely put
what rightfully belonged to them in a money-making venture. They did not dispose
of it in favor of the other, which would have arguably been sanctionable as a
prohibited donation. (ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS
and ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)

The granting clause shows that Diego donated the properties out of love and
affection for the donee which is a mark of a donation inter vivos; second, the
reservation of lifetime usufruct indicates that the donor intended to transfer the
naked ownership over the properties; third, the donor reserved sufficient properties
for his maintenance in accordance with his standing in society, indicating that the
donor intended to part with the six parcels of land; lastly, the donee accepted the
donation. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF
APPEALS, G.R. No. 111904, October 5, 2000)

In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an
acceptance clause is a mark that the donation is inter vivos. Acceptance is a
requirement for donations inter vivos. Donations mortis causa, being in the form of
a will, are not required to be accepted by the donees during the donors' lifetime.
(SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF APPEALS,
G.R. No. 111904, October 5, 2000)

Crucial in resolving whether the donation was inter vivos or mortis causa is the
determination of whether the donor intended to transfer the ownership over the
properties upon the execution of the deed. (SPS. AGRIPINO GESTOPA and ISABEL
SILARIO GESTOPA vs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000)
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A remuneratory donation is one where the donee gives something to reward past or
future services or because of future charges or burdens, when the value of said
services, burdens or charges is less than the value of the donation. (De Luna v.
Abrigo, G.R. No. L-57455, January 18, 1990)

B. Value-Added Tax (VAT)

1. Concept

As its name implies, the Value-Added Tax system is a tax on the value added by the
taxpayer in the chain of transactions. For simplicity and efficiency in tax collection,
the VAT is imposed not just on the value added by the taxpayer, but on the entire
selling price of his goods, properties or services. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12,
2013)

However, the taxpayer is allowed a refund or credit on the VAT previously paid by
those who sold him the inputs for his goods, properties, or services. The net effect is
that the taxpayer pays the VAT only on the value that he adds to the goods,
properties, or services that he actually sells. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12,
2013)

VAT is a tax on transactions, imposed at every stage of the distribution process on

the sale, barter, exchange of goods or property, and on the performance of services,
even in the absence of profit attributable thereto. The term "in the course of trade
or business" requires the regular conduct or pursuit of a commercial or an economic
activity, regardless of whether or not the entity is profit-oriented. (COMMISSIONER
OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000)

The VAT is not a license tax; it is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for
revenue purposes. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

2. Characteristics/Elements of a VAT-Taxable transaction

VAT is not a singular-minded tax on every transactional level; its assessment bears
direct relevance to the taxpayer's role or link in the production chain. Hence, as
affirmed by Section 99 [now Sec. 105] of the Tax Code and its subsequent
incarnations, the tax is levied only on the sale, barter or exchange of goods or
services by persons who engage in such activities, in the course of trade or
business. (COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R.
No. 146984. July 28, 2006)
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The Court rules that given the undisputed finding that the transaction in question
was not made in the course of trade or business of the seller, NDC that is, the sale is
not subject to VAT pursuant to Section 99 [now Sec. 105] of the Tax Code, no matter
how the said sale may hew to those transactions deemed sale as defined under
Section 100 [now Sec. 106]. (COMMISSIONER OF INTERNAL REVENUE vs.
MAGSAYSAY LINES, INC., G.R. No. 146984. July 28, 2006)

Thus, there must be a sale, barter or exchange of goods or properties before any
VAT may be levied. Certainly, there was no such sale, barter or exchange in the
subsidy given by SIS to Sony; it was but a dole out by SIS and not in payment for
goods or properties sold, bartered or exchanged by Sony. (COMMISSIONER OF
INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R. No. 178697, November 17,
2010)

Goods or properties must be used directly or indirectly in the production or sale of

taxable goods and services. (Kepco Philipppines Corp. v. CIR, G.R. No. 179356,
December 14, 2009)

it is immaterial whether the primary purpose of a corporation indicates that it

receives payments for services rendered to its affiliates on a reimbursement-on-cost
basis only, without realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT. (COMMISSIONER OF
INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000)

3. Impact of tax

Under Section 105 of the Tax Code, 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. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE,
G.R. No. 193007, July 19, 2011)

4. Incidence of 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 seller's liability but merely the burden of the VAT. (RENATO V. DIAZ and AURORA
MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

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 and simply becomes part of
the cost that the buyer must pay in order to purchase the good, property or service.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R.
No. 193007, July 19, 2011)
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A seller who is directly and legally liable for the payment of an indirect tax, such as
the VAT on goods or services is not necessarily the person who ultimately bears the
burden of the same tax. It is the final purchaser of consumer of such goods or
services who, although not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax. (Contex v. CIR, G.R. No. 151135, July 2,
2004)

In the case of the VAT, the law minimizes the regressive effects of indirect taxation
by providing for zero rating of certain transactions, while granting exemptions to
other transactions. On the other hand, the transactions which are subject to the VAT
are those which involve goods and services which are used or availed of mainly by
higher income groups. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)

According to the Destination Principle, goods and services are taxed only in the
country where these are consumed. In connection with the said principle, the Cross
Border Doctrine mandates that no VAT shall be imposed to form part of the cost of
the goods destined for consumption outside the territorial border of the taxing
authority. Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT, while those destined for use or consumption
within the Philippines shall be imposed with 10% VAT. (ATLAS CONSOLIDATED
MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007)

Applying the destination principle to the exportation of goods, automatic zero

rating is primarily intended to be enjoyed by the seller who is directly and legally
liable for the VAT, making such seller internationally competitive by allowing the
refund or credit of input taxes that are attributable to export sales. (COMMISSIONER
OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)

Under the cross-border principle of the VAT system being enforced by the Bureau of
Internal Revenue (BIR), no VAT shall be imposed to form part of the cost of goods
destined for consumption outside of the territorial border of the taxing authority. If
exports of goods and services from the Philippines to a foreign country are free of
the VAT, then the same rule holds for such exports from the national territory
except specifically declared areas to an ecozone. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11,
2005)

While an ecozone is geographically within the Philippines, it is deemed a separate

customs territory and is regulated in laws as foreign soul. Sales by supplies outside
the borders of ecozone to this separate customs territory are deemed exports and
treated as export sales. (CIR v. Seksui Jushi Phils, Inc. G.R. No. 149671, July 21,
2006)
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For as long as the goods remain within the zone, whether we call it an economic
zone or a freeport zone, for as long as we say in this law that all goods entering this
particular territory will be duty-free and tax-free, for as long as they remain there,
consumed there or re-exported or destroyed in that place, then they are not subject
to duties and taxes in accordance with the laws of the Philippines. (Coconut Oil
Refiners Association v. Executive Secretary, G.R. No. 132527, July 29, 2005)

8. VAT on sale of goods or properties

Goods, as commonly understood in the business sense, refer to the product which
the VAT-registered person offers for sale to the public. With respect to real estate
dealers, it is the real properties themselves which constitute their goods. Such real
properties are the operating assets of the real estate dealer. (Fort Bonifacio
Development Corporation vs. CIR, G.R. Nos. 158885 and 170630, April 2, 2009)

a) Requisites of taxability of sale of goods or properties

Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction.

However, it does not follow that an isolated transaction cannot be an incidental
transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the
1997 Tax Code would show that a transaction "in the course of trade or business"
includes "transactions incidental thereto." (MINDANAO II GEOTHERMAL
PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March
11, 2013)

Prior to the sale, the Nissan Patrol was part of Mindanao IIs property, plant, and
equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction
made in the course of Mindanao IIs business which should be liable for VAT.
(MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 193301, March 11, 2013)

9. Zero-rated sales of goods or properties, and effectively zero-rated sales

of goods or properties

Zero-rated transactions generally refer to the export sale of goods and supply of
services. The tax rate is set at zero and when applied to the tax base, such rate
obviously results in no tax chargeable against the purchaser. The seller of such
transactions charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers. (COMMISSIONER OF
INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)

Effectively zero-rated transactions, however, refer to the sale of goods or supply of

services to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such
transactions to a zero rate. Again, as applied to the tax base, such rate does not
yield any tax chargeable against the purchaser. The seller who charges zero output
tax on such transactions can also claim a refund of or a tax credit certificate for the
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VAT previously charged by suppliers. (COMMISSIONER OF INTERNAL REVENUE vs.

SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

If respondent is located in an export processing zone within that ecozone, sales to

the export processing zone, even without being actually exported, shall in fact be
viewed as constructively exported under EO 226. Considered as export sales, such
purchase transactions by respondent would indeed be subject to a zero
rate. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY
(PHILIPPINES), G.R. No. 153866, February 11, 2005)

PAGCOR's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been
thoroughly and extensively discussed in Commissioner of Internal Revenue v.
Acesite (Philippines) Hotel Corporation. Acesite sought the refund of the amount it
paid as VAT on the ground that its transaction with PAGCOR was subject to zero rate
as it was rendered to a tax-exempt entity. The Court ruled that PAGCOR and Acesite
were both exempt from paying VAT. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE, G.R. No. 172087,
March 15, 2011)

No prior application for the effective zero rating of its transactions is necessary. The
BIR regulations additionally requiring an approved prior application for effective zero
rating cannot prevail over the clear VAT nature of respondent's transactions. Other
than the general registration of a taxpayer the VAT status of which is aptly
determined, no provision under our VAT law requires an additional application to be
made for such taxpayer's transactions to be considered effectively zero-rated.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)

The Omnibus Investments Code of 1987 recognizes as export sales the sales of
export products to another producer or to an export trader, provided that the export
products are actually exported. For purposes of VAT zero-rating, such producer or
export trader must be registered with the BOI and is required to actually export
more than 70% of its annual production. (ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
Nos. 141104 & 148763, June 8, 2007)

In terms of the VAT computation, zero rating and exemption are the same, but
the extent of relief that results from either one of them is not. In both instances of
zero rating, there is total relief for the purchaser from the burden of the tax but in
an exemption there is only partial relief, because the purchaser is not allowed any
tax refund of or credit for input taxes paid. (COMMISSIONER OF INTERNAL REVENUE
vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

13. VAT on sale of service and use or lease of properties

Service has been defined as the art of doing something useful for a person or
company for a fee or useful labor or work rendered or to be rendered another for a
fee. (CIR v. American Express International, Inc., G.R. No. 152609, June 29, 2005)
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By qualifying "services" with the words "all kinds," Congress has given the term
"services" an all-encompassing meaning. The listing of specific services are
intended to illustrate how pervasive and broad is the VAT's reach rather than
establish concrete limits to its application; thus, every activity that can be imagined
as a form of "service" rendered for a fee should be deemed included unless some
provision of law especially excludes it. (RENATO V. DIAZ and AURORA MA. F. TIMBOL
vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

Tollway operators not only 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 spares
from the payment of VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

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. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)

In the case of CIR v. Court of Appeals (CA), the Court had the occasion to rule that
services rendered for a fee even on reimbursement-on-cost basis only and without
realizing profit are also subject to VAT. In that case, COMASERCO rendered service to
its affiliates and, in turn, the affiliates paid the former reimbursement-on-cost which
means that it was paid the cost or expense that it incurred although without profit.
(COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R.
No. 178697, November 17, 2010)

Among those included in the enumeration is the lease of motion picture films, films, tapes
and discs. This, however, is not the same as the showing or exhibition of motion pictures
or films. The legislative intent is not to impose VAT on persons already covered by the
amusement tax and this holds true even in the case of cinema/theater operators taxed
under the LGC of 1991 precisely because the VAT law was intended to replace the
percentage tax on certain services. (CIR v. SM Prime Holdings, Inc. and First Asia
Realty Development Corp., G.R. No. 183505, February 26, 2010)

15. VAT exempt transactions

An exempt transaction involves goods or services which, by their nature, are

specifically listed in and expressly exempted from the VAT under the Tax Code,
without regard to the tax status VAT-exempt or not of the party to the
transaction. Indeed, such transaction is not subject to the VAT, but the seller is not
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allowed any tax refund of or credit for any input taxes paid. (COMMISSIONER OF
INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)

An exempt party, on the other hand, is a person or entity granted VAT exemption
under the Tax Code, a special law or an international agreement to which the
Philippines is a signatory, and by virtue of which its taxable transactions become
exempt from the VAT. Such party is also not subject 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. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)

a) VAT exempt transactions, in general

By extending the exemption to entities or individuals dealing with PAGCOR, the

legislature clearly granted exemption also from indirect taxes. It must be noted that
the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer,
transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by
extending the tax exemption to entities or individuals dealing with PAGCOR in
casino operations, it is exempting PAGCOR from being liable to indirect taxes.
(PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU
OF INTERNAL REVENUE, G.R. No. 172087, March 15, 2011)

The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the
extension of such exemption to entities or individuals dealing with PAGCOR in casino
operations are best elucidated from the 1987 case of Commissioner of Internal
Revenue v. John Gotamco & Sons, Inc., where the absolute tax exemption of the
World Health Organization (WHO) upon an international agreement was upheld. We
held in said case that the exemption of contractee WHO should be implemented to
mean that the entity or person exempt is the contractor itself who constructed the
building owned by contractee WHO, and such does not violate the rule that tax
exemptions are personal because the manifest intention of the agreement is to
exempt the contractor so that no contractor's tax may be shifted to the contractee
WHO. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE
BUREAU OF INTERNAL REVENUE, G.R. No. 172087, March 15, 2011)

Pawnshops- considered as non-bank financial intermediary is exempted from VAT

but liable to percentage tax. (Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085,
January 21, 2010)

16. Input tax and output tax, defined

Under the present method that relies on invoices, an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
inputs and imports. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
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If at the end of a taxable quarter the output taxes charged by a seller are equal to
the input taxes passed on by the suppliers, no payment is required. It is when the
output taxes exceed the input taxes that the excess has to be
paid. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY
(PHILIPPINES), G.R. No. 153866, February 11, 2005)

Prior payment of taxes is not necessary before a taxpayer could avail of the 8%
transitional input tax credit: first, it was never mentioned in Section 105 of the old
NIRC [now Sec. 111] that prior payment of taxes is a requirement; second, since the
law (Section 105 of the NIRC) does not provide for prior payment of taxes, to require
it now would be tantamount to judicial legislation which, to state the obvious, is not
allowed; third, a transitional input tax credit is not a tax refund per se but a tax
credit; fourth, if the intent of the law were to limit the input tax to cases where
actual VAT was paid, it could have simply said that the tax base shall be the actual
value-added tax paid; and fifth, this Court had already declared that prior payment
of taxes is not required in order to avail of a tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)

Section 112 of the Tax Code does not prohibit cash refund or tax credit of
transitional input tax in the case of zero-rated or effectively zero-rated VAT
registered taxpayers, who do not have any output VAT. The phrase "except
transitional input tax" in Section 112 of the Tax Code was inserted to distinguish
creditable input tax from transitional input tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)

It is apparent that the transitional input tax credit operates to benefit newly VAT-
registered persons, whether or not they previously paid taxes in the acquisition of
their beginning inventory of goods, materials and supplies. During that period of
transition from non-VAT to VAT status, the transitional input tax credit serves to
alleviate the impact of the VAT on the taxpayer. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425,
January 22, 2013)

In a VAT-exempt transaction, the seller is not allowed to charge VAT to his customer.
Since no output tax is shifted by the seller, there is no output tax against which the
related input taxes may be credited. Neither can he credit this input tax against the
VAT due on other sales. In this case, he is treated as the end user who will shoulder
the cost of the input VAT. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE
POWER CORPORATION, G.R. No. 187485, February 12, 2013)

Unlike the input taxes related to exempt sales, input taxes related to zero-rated
sales may be credited against output taxes on other sales and in case it is not fully
utilized, the excess may be carried over to the succeeding quarter or quarters and
there is no prescription period for the carry-over. The law gives the taxpayer
another option for the recovery of used input taxes: application for refund or tax
 12

credit certificate. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER

CORPORATION, G.R. No. 187485, February 12, 2013)

If, however, the input taxes exceed the output taxes, the excess shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zero-
rated or effectively zero-rated transactions or from the acquisition of capital goods,
any excess over the output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11,
2005)

While a tax liability is essential to the availment or use of any tax credit, prior tax
payments are not. On the contrary, for the existence or grant solely of such credit,
neither a tax liability nor a prior tax payment is needed. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)

As regards Section 110, while the law only provides for a tax credit, a taxpayer who
erroneously or excessively pays his output tax is still entitled to recover the
payments he made either as a tax credit or a tax refund. In this case, since
petitioner still has available transitional input tax credit, it filed a claim for refund to
recover the output VAT it erroneously or excessively paid for the 1st quarter of
1997. Thus, there is no reason for denying its claim for tax refund/credit. (FORT
BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)

Even if the law does not expressly state that the Ironcons excess creditable VAT
withheld is refundable, it may be the subject-of a claim for refund as an erroneously
collected tax under Sec. 204 (C) and 229 of the NIRC. It should be clarified that this
ruling only refers to creditable VAT withheld pursuant to Sec. 114 of the NIRC prior
to its amendment. After its amendment by R.A. 9337, the amount withheld under
Sec. 114 of the NIRC is now treated as final VAT, no longer under the creditable
withholding tax system (CIR v. Ironcon Builders and Development Corp., G.R. No.
180042, February 8, 2010)

The input VAT is not "excessively" collected as understood under Section 229
because at the time the input VAT is collected the amount paid is correct
and proper. The person legally liable for the input VAT cannot claim that he
overpaid the input VAT by the mere existence of an "excess" input VAT. The term
"excess" input VAT simply means that the input VAT available as credit exceeds the
output VAT, not that the input VAT is excessively collected because it is more than
what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim
for refund or credit of the input VAT as "excessively" collected under Section 229.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION,
G.R. No. 187485, February 12, 2013)

If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be
able to seek a refund or credit for such "excess" input VAT whether or not he has
 13

output VAT. The VAT System does not allow such refund or credit and such "excess"
input VAT is not an "excessively" collected tax under Section 229. (COMMISSIONER
OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485,
February 12, 2013)

Who may claim for refund/apply for issuance of tax credit certificate

Having determined that respondent's purchase transactions are subject to a zero

VAT rate, the tax refund or credit is in order. To repeat, the VAT is a tax imposed on
consumption, not on business. Although respondent as an entity is exempt, the
transactions it enters into are not necessarily so. The VAT payments made in excess
of the zero rate that is imposable may certainly be refunded or credited.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)

Period to file claim/apply for issuance of tax credit certificate

The Court, in San Roque, ruled that equitable estoppel had set in when respondent
issued BIR Ruling No. DA-489-03 which was a general interpretative rule, which
effectively misled all taxpayers into filing premature judicial claims with the CTA.
Thus, taxpayers could rely on the ruling from its issuance on 10 December 2003 up
to its reversal on 6 October 2010, when CIR v. Aichi Forging Company of Asia,
lnc. was promulgated. (PROCTER & GAMBLE ASIA PTE LTD. vs.COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 202071, February 19, 2014)
In a nutshell, the rules on the determination of the prescriptive period for filing a tax
refund or credit of unutilized input VAT, as provided in Section 112 of the Tax Code,
are as follows:

(1) An administrative claim must be filed with the CIR within two years after
the close of the taxable quarter when the zero-rated or effectively zero-rated
sales were made.

(2) The CIR has 120 days from the date of submission of complete documents
in support of the administrative claim within which to decide whether to grant
a refund or issue a tax credit certificate. The 120-day period may extend
beyond the two-year period from the filing of the administrative claim if the
claim is filed in the later part of the two-year period. If the 120-day period
expires without any decision from the CIR, then the administrative claim may
be considered to be denied by inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the receipt
of the CIRs decision denying the administrative claim or from the expiration
of the 120-day period without any action from the CIR.

(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on 10 December 2003 up to its reversal by this Court in
Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional
 14

120+30 day periods. (COMMISSIONER OF INTERNAL REVENUE vs.TOLEDO

POWER, INC., G.R. No. 183880, January 20, 2014)

Its summary:

A. Two-Year Prescriptive Period

1. It is only the administrative claim that must be filed within the two-year
prescriptive period. (Aichi)

2. The proper reckoning date for the two-year prescriptive period is the close
of the taxable quarter when the relevant sales were made. (San Roque)

3. The only other rule is the Atlas ruling, which applied only from 8 June 2007
to 12 September 2008. Atlas states that the two-year prescriptive period for
filing a claim for tax refund or credit of unutilized input VAT payments should
be counted from the date of filing of the VAT return and payment of the tax.
(San Roque)

B. 120+30 Day Period

1. The taxpayer can file an appeal in one of two ways: (1) file the judicial
claim within thirty days after the Commissioner denies the claim within the
120-day period, or (2) file the judicial claim within thirty days from the
expiration of the 120-day period if the Commissioner does not act within the
120-day period.

2. The 30-day period always applies, whether there is a denial or inaction on

the part of the CIR.

3. As a general rule, the 3 0-day period to appeal is both mandatory and

jurisdictional. (Aichi and San Roque)

4. As an exception to the general rule, premature filing is allowed only if filed

between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-
489-03 was still in force. (San Roque)

5. Late filing is absolutely prohibited, even during the time when BIR Ruling
No. DA-489-03 was in force. (San Roque) (COMMISSIONER OF INTERNAL
REVENUE vs. MINDANAO II GEOTHERMAL PARTNERSHIP, G.R. No. 191498,
January 15, 2014)

It is indisputable that compliance with the 120-day waiting period is mandatory and
jurisdictional. Failure to comply with the 120-day waiting period violates a
mandatory provision of law. It violates the doctrine of exhaustion of administrative
remedies and renders the petition premature and thus without a cause of action,
 15

with the effect that the CTA does not acquire jurisdiction over the taxpayers
petition. (MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)

Stated otherwise, the two-year prescriptive period does not refer to the filing of the
judicial claim with the CTA but to the filing of the administrative claim with the
Commissioner. As held in Aichi, the "phrase within two years x x x apply for the
issuance of a tax credit or refund refers to applications for refund/credit with the
CIR and not to appeals made to the CTA." (MINDANAO II GEOTHERMAL
PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March
11, 2013)

San Roque's failure to comply with the 120-day mandatory period renders its
petition for review with the CTA void as Article 5 of the Civil Code provides, "Acts
executed against provisions of mandatory or prohibitory laws shall be void, except
when the law itself authorizes their validity." San Roque's void petition for review
cannot be legitimized by the CTA or this Court because Article 5 of the Civil Code
states that such void petition cannot be legitimized "except when the law itself
authorizes [its] validity," and there is no law authorizing the petition's validity.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION,
G.R. No. 187485, February 12, 2013)

Sec. 112(A) clearly provides in no uncertain terms that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer must
be claimed within two years reckoned from the close of the taxable quarter
when the relevant sales were made pertaining to the input VAT regardless
of whether said tax was paid or not. The reckoning frame would always be the
end of the quarter when the pertinent sales or transaction was made, regardless
when the input VAT was paid. (COMMISSIONER OF INTERNAL REVENUE vs. MIRANT
PAGBILAO CORPORATION, G.R. No. 172129. September 12, 2008)

This prescriptive period has no relation to the date of payment of the

"excess" input VAT since the "excess" input VAT may have been paid for more than
two years but this does not bar the filing of a judicial claim for "excess" VAT under
Section 112 (A), which has a different reckoning period from Section 229. Moreover,
the person claiming the refund or credit of the input VAT is not the person who
legally paid the input VAT. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE
POWER CORPORATION, G.R. No. 187485, February 12, 2013)

The mere filing by a taxpayer of a judicial claim with the CTA before the expiration
of the 120-day period cannot operate to divest the Commissioner of his jurisdiction
to decide an administrative claim within the 120-day mandatory period, unless the
Commissioner has clearly given cause for equitable estoppel to apply as expressly
recognized in Section 246 of the Tax Code. (COMMISSIONER OF INTERNAL REVENUE
vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013)
 16

Because the 120+30 day period is jurisdictional, the issue of whether petitioner
complied with the said time frame may be broached at any stage, even on appeal.
(NIPPON EXPRESS (PHILIPPINES) CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 196907, March 13, 2013)

For a judicial claim for refund to prosper, however, respondent must not only prove
that it is a VAT registered entity and that it filed its claims within the prescriptive
period. It must substantiate the input VAT paid by purchase invoices or official
receipts: 1) A "sales or commercial invoice" is a written account of goods sold or
services rendered indicating the prices charged therefor or a list by whatever name
it is known which is used in the ordinary course of business evidencing sale and
transfer or agreement to sell or transfer goods and services; and 2) A "receipt" on
the other hand is a written acknowledgment 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. (ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
Nos. 141104 & 148763, June 8, 2007)

a) Invoicing requirements in general

The requisite that the receipt be issued showing the name, business style, if any,
and address of the purchaser, customer or client is precise so that when the books
of accounts are subjected to a tax audit examination, all entries therein could be
shown as adequately supported and proven as legitimate business transactions. The
absence of official receipts issued in the taxpayer's name is tantamount to non-
compliance with the substantiation requirements provided by law. (BONIFACIO
WATER CORPORATION (formerly BONIFACIO VIVENDI WATER CORPORATION) vs. THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142, July 22, 2013)

Taxpayers claiming for a refund or tax credit certificate must comply with the strict
and mandatory invoicing and accounting requirements provided under the 1997
NIRC, as amended, and its implementing rules and regulations. Thus, the change of
petitioner's name to "Bonifacio GDE Water Corporation," being unauthorized and
without approval of the SEC, and the issuance of official receipts under that name
which were presented to support petitioner's claim for tax refund, cannot be used to
allow the grant of tax refund or issuance of a tax credit certificate in petitioner's
favor. (BONIFACIO WATER CORPORATION (formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142,
July 22, 2013)

Failure to print the word zero-rated on the invoices or receipts is fatal to a claim
for credit of refund of input VAT on zero-rated sales (J.R.A. Philippines, Inc. v. CIR,
G.R. No. 177127, October 11, 2010)

If the claim for refund/ tax credit certificate is based on the existence of zero-rated
sales by the taxpayer but it fails to comply with the invoicing requirements in the
issuance of sales invoices (e.g. failure to indicate the TIN), its claim for tax
credit/refund of VAT on its purchases shall be denied considering that the invoice it
 17

is issuing to its customers does not depict its being a VAT-registered taxpayer whose
sales are classified as zero-rated sales. Nonetheless, this treatment is without
prejudice to the right of the taxpayer to charge the input taxes to the appropriate
expense account or asset account subject to depreciation, whichever is applicable
(Panasonic Comm. Imaging Corp. of the Phil. v. CIR, G.R. No. 178090, February 8,
2010)