The Philippine American Life and General Insurance

versus The Secretary of Finance and The Commissioner of Internal Revenue

G.R. No. 210987. November 24, 2014
Third Division, Velasco, Jr., J.

Facts: Petitioner Philamlife sold its shares in PhilamCare through competitive bidding, for P 104,
259, 330, to STI Investment as highest bidder.

Petitioner filed an application for a certificate authorizing registration/tax clearance with the
BIR to facilitate the transfer of the shares. Months later, petitioner was informed that it needed
to secure the BIR ruling in connection with its application due to potential donor's tax liability.
Petitioner requested a ruling to confirm that the sale was not subject to donor's tax, pointing
out the following: that the transaction cannot attract donor's tax liability since there was no
donative inent and, ergo, no tax donationm, citing a BIR Ruling that the shares were sold at
their actual fair market value and at arm's length––such that a bona fide business arrangement
of the dealings is done inthe ordinary course of business––a sale for less than an adequate
consideration is not subject to donor’s tax; and that donor’s tax does not apply to saleof shares
sold in an open bidding process.

Respondent CIR denied the request. As such, respondent held, donor's tax became imposable
on the price difference pursuant to Sec. 100 of the NIRC.

The case was elevated to CA and it was dismissed due to lack of jurisdiction, then the case was
elevated to SC.

SC affirmed that the case must be elavated to CTA and not to CA, but it discussed the issue on
donor's tax.

Issue: WON the price difference in the adverted sale of shares in PhilamCare attracts donor's
tax.

Held: Yes. The price difference is subject to donor's tax.

Petitioner's substantive arguments are unavailing. The absence of donative intent, if that be the
case, does not exempt the sales of stock transaction from donor's tax since Sec. 100 of the NIRC
categorically states that the amount by which the fair market value of the property exceeded
the value of the consideration shall be deemed a gift.1âwphi1 Thus, even if there is no actual
donation, the difference in price is considered a donation by fiction of law.

Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but merely sets the
parameters for determining the "fair market value" of a sale of stocks. Such issuance was made
pursuant to the Commissioner's power to interpret tax laws and to promulgate rules and
regulations for their implementation.

Lourdes College
versus Commissioner of Internal Revenue
CTA EB No. 1164. February 2, 2016
En Banc, Ringpis-Liban, J.

Facts: Pursuant to the Letter of Authority, the Revenue Officer examined petitioner's books of
accound and other accounting records for all internal revenue taxes.

As a result, a Formal Letter of Demand was send to the petitioner demanding payment of
deficiency expanded withholding tax and deficiency fringe benefit tax in the total amount of
P4,222,510.10, inclusive of sucharges, interest and compromise penalty.

Petitioner protested the said assessments. In response, respondent revised and reduced the
previous assesments, but included a new assessment for donor's tax in the amount of
P1,031814.68.

CTA in division rendered in favor of the Respondent CIR.

Aggrived, petitioner filed before the Court En Banc for petition for review.

Petitioner argues that the amount paid by the School to the Congrogation for the services
rendered by the 10 sisters were actually paid by the School to the Congregation, since the
sisters are not allowed to receive income under their vow of poverty. Hence the amount paid
was not a donation but an income of the corporation.

Issue: WON petitioner can invoke the exemption from payment of donor's tax.

Held: No. This Court agrees with the findings of the Court in Division that
petitioner cannot invoke exemption from payment of donor's tax since
petitioner failed to prove that the amount of P2,326,01 0.52 paid by petitioner
to the Congregation is considered as income of the latter.
As correctly ruled by the Court in Division in the Assailed Resolution:
"Notwithstanding the admission of petitioner that the
payment was made for the services rendered by the ten sisters, it
should have presented documents such as withholding certificate
for compensation, SSS remittance forms or any similar
documents, that would prove that the amount of P2,316,010.52,
represents petitioner's payment to the Congregation for the
services rendered. Without any supporting documents, this Court
cannot determine the intent of petitioner as to the sum of money
given to the Congregation. Considering so, petitioner cannot
invoke its exemption from donor's tax pursuant to Section
101 (A) (3) of the 1997 Tax Code; particularly, whether or not
more than thirty percent (30%) of said gifts is used by such donee
for administration purposes:

Sec. 101. Exemption of Certain Gifts.- The following gifts

or donations shall be exempt from the tax provided for in this
Chapter:
(A) In the Case of Gifts Made by a Resident.-
"(1) X X y
CTA EB NO. 1164 {CTA Case No. 8038)
DECISION
Page8of13
"3) Gift in favor of an educational and/ or charitable,
religious, cultural or social welfare corporation,
institution, accredited nongovernmental organization, trust
or philanthropic organization or research institution or
organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for
administration purposes. x x x" (Emphasis supplied.)
In addition, Section 99(B) of the 1997 Tax Code provides
that the tax payable by the donor if the donee is a stranger is thirty
percent (30%) of the net gifts. For the purpose of said tax, a
stranger is a person who is not a:
(1) Brother, sister (whether by whole or half-blood),
spouse, ancestor, and lineal descendant; or
(2) Relative by consanguinity in the collateral line within the
fourth degree of relationship
(3) Any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign
purposes shall be governed by the Election Code, as
amended."
Based on the foregoing provision, those amounts that were
actually paid to the Congregation are considered donations to
strangers, since the Congregation is not considered as one of
those enumerated in the abovementioned provision. Thus, the tax
rate of 30°/o of the net gift will apply."

Toenec Philippines, Inc.

versus Commissioner of Internal Revenue
CTA Case No. 8653. January 27, 2016
 First Division, Del Rosario, P.J.

Facts: Toenec Corp. (Toenec Japan), a corporation organized and existing under the laws of
Japan.

Petitioner Toenec Philippines, and Toenec Japan executed a Capital Infusion Agreement,
wherein Toenec Japan contributied P30,000,000.00 as additional paid-in capital.

Petitioner received the FAN with attached Assessment Notice assessing and demanding from
the petitioner the payment of deficiency donor's tax relative to the Capital Infusion Agreement
of P16,467,534.25 and compromise penalty of P50,000.00

Issue: WON Petitioner is liable to the deficiency donor's tax

Held: No. petitioner is the entity that received the P30,000,000.00

cash and, thus, considered as the donee. Consequently, as the donee,
petitioner is not liable to pay donor's tax, pursuant to Section 98 of the
NIRC of 1997, as amended.
The liability to pay donor's tax is not transferable. The burden to pay
the donor's tax is imposed upon the donor and not upon the donee. While the
imposition of tax is a matter of law, mere exigency and convenience may not
be used as an excuse to collect donor's tax from a donee simply because the
latter is located in the Philippines. Basic is the rule that laws imposing tax
are strictly construed against the taxing authority and in favor of the
taxpayer.

Mr. Urbano L. Velasco

versus Bureau of Internal Revenue
CTA Case No. 8497. May 17, 2016
First Division, Del Rosario, P.J.

Facts: Petitioner sold to Gervel Inc. and Metropolitan Management Corporation a total of
532,180 shares of stocks for a total consideration of P86,428,514.07.

The BIR treated as deemed gift subject to donor's tax under Sec. 100 of the NIRC of 1997 the
difference between the book value (P122m) and selling price (P86m).

Petitioner filed a protest letter stating that the sale of stocks were made without donative
intent and it was an arms length transaction; thus, it is not subject to donor's tax.

Petitioner received a Formal Assessment Notice finding petitioner liable for deficiency donor's
tax due against petitioner in the total amount of P23,067,007.72.
Issue: WON the difference between the book value and selling price of the shares sold is
considered as a gift subject to donor's tax under Sec. 100 of the NIRC

Held: Yes. Donor's tax is imposed upon the transfer by any person of the
property b~ gift as provided under Section 98 of the NIRC of 1997, as
amended. 9
While the NIRC of 1997, as amended, does not define transfer
· of property by gift, donation is defined in Article 725 of the Civil Code
as an act of liberality whereby a person disposes gratuitously of a
thing or right in favor of another, who accepts it. 50 Donation has the
following elements: (a) the reduction of the patrimony of the donor;
(b) the increase in the patrimony of the donee; and, (c) the intent to
do an act of liberality <:>r animus donandi.

under Section 7 (c.1.4) of Revenue Regulations No.

6-2008, "in case the fair market value of the shares of stock sold,
bartered, or exchanged is greater than the amount of money and/or
fair market value of the property received, the excess of the fair
market value of the shares of stock sold, bartered or exchanged
over the amount of money and the fair market value of the property,
if any, received as consideration shall be deemed a gift subject
to the donor's tax under Sec. 100 of the Tax Code, as amended."
Section 7(c.2.2) of same Revenue Regulations further provides that
"in the case of shares of stock not listed and traded in the local stock
exchanges, the boo~ value of the shares of stock as shown in the
financial statements duly certified by an independent certified public
accountant nearest to the date of sale shall be the fair market
value."

In The Philippine American Life and General Insurance

Company vs. The Secretary of Finance and The Commissioner
of Internal Revenue, 53 the Supreme Court made the following
pronouncements, viz.:
"The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing.
The absence of donative intent, if that be the case,
does not exempt the sales of stock transaction from
donor's tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value
of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if
there is no actual donation, the difference in price is
considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not
alter Sec. 100 of the NIRC but merely sets the
parameters for determining the "fair market value" of
a sale of stocks. Such issuance was made pursuant
to the Commissioner's power to interpret tax laws
and to promulgate rules and regulations for their
implementation."

Commissioner of Internal Revenue

versus Sara Lee Kiwi Holdings, LLC.,
CTA EB No. 1396. February 13, 2017
En Banc, Uy, J.

Facts: Respondent Sara Lee Kiwi Holdings, LLC. is a non-resident

foreign corporation, organized and existing under, and by virtue of the
laws of the State of Delaware, U.S.A., with office address at 400
South Jefferson Street, Chicago, Illinois, 60607, United States
(formerly at 3500 Lacey Road, Downer's Grove, Illinois, 60615,
United States of America).

On April 4, 2011, respondent sold its entire holdings and

interest, consisting of 1 ,460, 736 common shares and subscription
rights in Sara Lee Household Care (Philippines), Inc., (SLHCPI) to
S.C. Johnson & Son, Inc. (SC Johnson) for the price of P235,291,254.30

On May 4, 2011, respondent filed a Capital Gains Tax Return

on the said sale, showing a net capital loss of P192,765,334.75

Thereafter, respondent filed a Donor's Tax Return

with the BIR and paid the Donor's Tax due in the amount of P57,829,600.50

respondent and SC Johnson executed an

Amendment Agreement (to the Deed of Absolute Sale of shares of
Stock and Assignment of Subscription Rights dated April 4, 2011 ),
whereby both parties agreed to an upward adjustment in the
purchase price, in the amount of P50,558,877.19, as additional price. This increased the
purchase price to P285,850,131.49.

respondent amended its application for t

tax refund, requesting the refund of the entire donor's tax paid on
December 5, 2011 in the amount of P57,829,600.50, allegedly
representing capital loss arising from the sale of shares of stock of
SLHCPI to SC Johnson.
the Court
in Division ruled in favor of respondent, and granted the latter's
Petition for Review, ordering petitioner to refund in its favor the
amount of P57,829,600.50, representing erroneously paid donor's
tax. It found that the sale by respondent of the SLHCPI shares is not
subject to donor's tax, since the fair market value thereof did not
exceed the value of the consideration.

Issue: WON respondent is liable for donor's tax

Held: No. the Court in Division is correct when it used or

referred to the Audited Financial Statements of SLHCPI for fiscal year
ended June 30, 2011 to determine the fair market value of the latter's
shares of stock; and when it found that the sale by respondent of the
SLHCPI shares is not subject to donor's tax.

Commissioner of Internal Revenue

versus Benguet Corporation
GR Nos. 134587 & 134588, July 8, 2005
Second Division, Tinga, J.

Facts: Respondent applied for and granted zero-rated status on its sale of gold to Central Bank.
BIR issued VAT Ruling which declared that "the sale of gold to Central Bank is considered as
export sale subject to zero-rate pursuant to Sec. 100 of the Tax Code. The BIR came out with at
least 6 other issuances reiterating the zero-rating of the sale of gold.

Relying on its zero-related status, respondent sold gold to the Central Bank and entered into
transactions that resulted in input VAT incurred in relation to the subject sales of gold. It then
filed applications for tax refunds/credits corresponding to input VAT for the amounts of P46m,
19m, and 84m. Respondent's application were either unacted upon or expressly disallowed by
petitioner.

The express disallowance of respondent’s application for refunds/credits and the issuance of
deficiency assessments against it were based on a BIR ruling-BIR VAT Ruling No. 008-92 dated
23 January 1992-that was issued subsequent to the consummation of the subject sales of gold
to the Central Bank which provides that sales of gold to the Central Bank shall not be
considered as export sales and thus, shall be subject to 10% VAT. In addition, BIR VAT Ruling
No. 008-92 withdrew, modified, and superseded all inconsistent BIR issuances. The relevant
portions of the ruling provides, thus:

1. In general, for purposes of the term "export sales" only direct export sales and foreign
currency denominated sales, shall be qualified for zero-rating.
....

4. Local sales of goods, which by fiction of law are considered export sales (e.g., the Export Duty
Law considers sales of gold to the Central Bank of the Philippines, as export sale). This
transaction shall not be considered as export sale for VAT purposes.

....

[A]ll Orders and Memoranda issued by this Office inconsistent herewith are considered
withdrawn, modified or superseded." (Emphasis supplied)

CTA dismissed the respondent's petitions noting that no prejudice had befallen respondent by
virtue of the retroactive application of BIR VAT Ruling No. 008-92, and that, consequently, the
application did not violate Sec. 246 of the NIRC.,

The CA reversed the decision and ordered the CIR to award tax credits to the respondent.

Issue: WON the retroactive application was prejudicial to respondent and could not be applied
retroactively.

Held: Yes. At the time when the subject transactions were consummated, the prevailing BIR
regulations relied upon by respondent ordained that gold sales to the Central Bank were zero-
rated. The BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980
which prescribed that gold sold to the Central Bank shall be considered export and therefore
shall be subject to the export and premium duties. In coming out with this interpretation, the
BIR also considered Sec. 169 of Central Bank Circular No. 960 which states that all sales of gold
to the Central Bank are considered

constructive exports.45 Respondent should not be faulted for relying on the BIR’s
interpretation of the said laws and regulations.46 While it is true, as petitioner alleges, that
government is not estopped from collecting taxes which remain unpaid on account of the
errors or mistakes of its agents and/or officials and there could be no vested right arising from
an erroneous interpretation of law, these principles must give way to exceptions based on and
in keeping with the interest of justice and fairplay, as has been done in the instant matter. For,
it is primordial that every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith.

This Court is not unaware of the well-entrenched principle that the [g]overnment is never
estopped from collecting taxes because of mistakes or errors on the part of its agents. But, like
other principles of law, this also admits of exceptions in the interest of justice and fairplay.

Respondent, in this case, has similarly been put on the receiving end of a grossly unfair deal.
Before respondent was entitled to tax refunds or credits based on petitioner’s own issuances.
Then suddenly, it found itself instead being made to pay deficiency taxes with petitioner’s
retroactive change in the VAT categorization of respondent’s transactions with the Central
Bank. This is the sort of unjust treatment of a taxpayer which the law in Sec. 246 of the NIRC
abhors and forbids.

Abakada Guro Party List, et. al.,

versus The Honorable Executive Secretary Eduardo Ermita, et. al.,
GR No. 168065, September 1, 2005
En Banc, Austria-Martinez, J.

Facts: The two Houses of Congress passed the a law on E-VAT. On the day of its effectivity, the
Court issued a TRO.

Petitioners in this case filed petitions for certiorary and prohibitions stating that the said law
violates the provisions of the Constitution.

As a prelude, the Court deems it apt to restate the general principles and concepts of value-
added tax (VAT), as the confusion and inevitably, litigation, breeds from a fallacious notion of its
nature.

The VAT is a tax on spending or consumption. It is levied on the sale, barter, exchange or lease
of goods or properties and services.8 Being an indirect tax on expenditure, the seller of goods
or services may pass on the amount of tax paid to the buyer,9 with the seller acting merely as a
tax collector.10 The burden of VAT is intended to fall on the immediate buyers and ultimately,
the end-consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the transaction or
business it engages in, without transferring the burden to someone else.11 Examples are
individual and corporate income taxes, transfer taxes, and residence taxes.12

In the Philippines, the value-added system of sales taxation has long been in existence, albeit in
a different mode. Prior to 1978, the system was a single-stage tax computed under the "cost
deduction method" and was payable only by the original sellers. The single-stage system was
subsequently modified, and a mixture of the "cost deduction method" and "tax credit method"
was used to determine the value-added tax payable.13 Under the "tax credit method," 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.

Issue: WON RA 9337 is unconstitutional, specifically the provision which delegates the
President to raise the rate of VAT from 10% to 12% after a year.

Held. No.
Petitioners allege that the grant of the stand-by authority to the President to increase the VAT
rate is a virtual abdication by Congress of its exclusive power to tax because such delegation is
not within the purview of Section 28 (2), Article VI of the Constitution, which provides:

The Congress may, by law, authorize the President to fix within specified limits, and may
impose, tariff rates, import and export quotas, tonnage and wharfage dues, and other duties or
imposts within the framework of the national development program of the government.

With respect to the Legislature, Section 1 of Article VI of the Constitution provides that "the
Legislative power shall be vested in the Congress of the Philippines which shall consist of a
Senate and a House of Representatives." The powers which Congress is prohibited from
delegating are those which are strictly, or inherently and exclusively, legislative. Purely
legislative power, which can never be delegated, has been described as the authority to make a
complete law – complete as to the time when it shall take effect and as to whom it shall be
applicable – and to determine the expediency of its enactment.

Arturo Tolentino
versus The Secretary of Finance, et. al.,
G.R. No. 115525, August 25, 1994
En Banc, Mendoza, J.

Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of goods and
properties as well as on the sale or exchange of services. It is equivalent to 10% of the gross
selling price or gross value in money of goods or properties sold, bartered or exchanged or of
the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen
the tax base of the existing VAT system and enhance its administration by amending the
National Internal Revenue Code.

These are various suits for certiorari and prohibition, challenging the constitutionality of
Republic Act No. 7716 on various grounds.

The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit organization of
newspaper publishers established for the improvement of journalism in the Philippines. On the
other hand, petitioner in G.R. No. 115781, the Philippine Bible Society (PBS), is a nonprofit
organization engaged in the printing and distribution of bibles and other religious articles. Both
petitioners claim violations of their rights under § § 4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.

The PPI questions the law insofar as it has withdrawn the exemption previously granted to the
press under § 103 (f) of the NIRC. Although the exemption was subsequently restored by
administrative regulation with respect to the circulation income of newspapers, the PPI presses
its claim because of the possibility that the exemption may still be removed by mere revocation
of the regulation of the Secretary of Finance. On the other hand, the PBS goes so far as to
question the Secretary's power to grant exemption for two reasons: (1) The Secretary of
Finance has no power to grant tax exemption because this is vested in Congress and requires
for its exercise the vote of a majority of all its members 26 and (2) the Secretary's duty is to
execute the law.

§ 103 of the NIRC contains a list of transactions exempted from VAT. Among the transactions
previously granted exemption were:

(f) Printing, publication, importation or sale of books and any newspaper, magazine, review, or
bulletin which appears at regular intervals with fixed prices for subscription and sale and which
is devoted principally to the publication of advertisements.

Republic Act No. 7716 amended § 103 by deleting ¶ (f) with the result that print media became
subject to the VAT with respect to all aspects of their operations. Later, however, based on a
memorandum of the Secretary of Justice, respondent Secretary of Finance issued Revenue
Regulations No. 11-94, dated June 27, 1994, exempting the "circulation income of print media
pursuant to § 4 Article III of the 1987 Philippine Constitution guaranteeing against abridgment
of freedom of the press, among others." The exemption of "circulation income" has left income
from advertisements still subject to the VAT.

Issue: WON RA 7716 violates constitutional rights of Press Freedom, Freedom of Thought, and
Religious Freedom

Held: No. The law does not abridge freedom of speech, expression or the press, nor interfere
with the free exercise of religion, nor deny to any of the parties the right to an education.

PPI contends that by withdrawing the exemption previously granted to print media transactions
involving printing, publication, importation or sale of newspapers, Republic Act No. 7716 has
singled out the press for discriminatory treatment and that within the class of mass media the
law discriminates against print media by giving broadcast media favored treatment. We have
carefully examined this argument, but we are unable to find a differential treatment of the
press by the law, much less any censorial motivation for its enactment. If the press is now
required to pay a value-added tax on its transactions, it is not because it is being singled out,
much less targeted, for special treatment but only because of the removal of the exemption
previously granted to it by law. The withdrawal of exemption is all that is involved in these
cases. Other transactions, likewise previously granted exemption, have been delisted as part of
the scheme to expand the base and the scope of the VAT system. The law would perhaps be
open to the charge of discriminatory treatment if the only privilege withdrawn had been that
granted to the press. But that is not the case.

Atlas Consolidated Mining and Development Corp.

versus Commisioner of Internal Revenue
G.R. Nos. 141104 & 148763, June 8 2007
Third Division, Chico-Nazario, J.
Facts: Petitioner filed with the BIR its VAT Return. It alleged that it likewise filed with the BIR
the corresponding application for the refund/credit of its input VAT on its purchases of capital
goods and on its zero-rated sales in the amount of P26,030,460.00. When its application for
refund/credit remained unsolved, petitioner filed its Petition for Review with the CTA. CTA
denied the on the ground that at least 70% of sales of the firm must consist of exports for zero-
rating to apply.

Petitioner contends that CTA failed to consider the sales to PASAR and Philphos within EPZA as
zero-rated export sales, and that the claim has not yet prescribed.

ISSUE: WON the petitioner sufficiently establish the factual bases for its applications for
refund/credit of input VAT

HELD: No. The Court ruled that the petitioner corporation has failed to establish the factual
bases.

Although the Court agreed with the petitioner corporation that the two-year prescriptive
period for the filing of claims for refund/credit of input VAT must be counted from the date of
filing of the quarterly VAT return, and that sales to PASAR and PHILPOS inside the EPZA are
taxed as exports because these export processing zones are to be managed as a separate
customs territory from the rest of the Philippines, and thus, for tax purposes, are effectively
considered as foreign territory, it still denies the claims of petitioner corporation for refund of
its input VAT on its purchases of capital goods and effectively zero-rated sales during the period
claimed for not being established and substantiated by appropriate and sufficient evidence.

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign
authority, and should be construed in strictissimi juris against the person or entity claiming the
exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant
of organic or statute law and should not be permitted to stand on vague implications.

Commissioner of Internal Revenue

versus American Express Int'l, Inc. (Phil. Branch)
G.R. No. 152609, june 29, 2005
Third Division, Panganiban, J.

Facts: "[Respondent] is a Philippine branch of American Express International, Inc. It is a

servicing unit of American Express International, Inc. - Hongkong Branch and is engaged
primarily to facilitate the collections of Amex-HK receivables from card members situated in the
Philippines and payment to service establishments in the Philippines.

[respondent] filed with the BIR a letter-request for the refund of its 1997 excess input taxes in
the amount of ₱3,751,067.04, which amount was arrived at after deducting from its total input
VAT paid of ₱3,763,060.43 its applied output VAT liabilities only for the third and fourth
quarters of 1997 amounting to ₱5,193.66 and ₱6,799.43, respectively.
CA reversed the ruling of the CTA and ordered the petitioner to refuld to respondent the
amount of 3.3m representing the latter's excess input VAT paid for the year 1997.

Issue: WON the services performed by the respondents are zero-rated.

Held. Yes. The law is very clear. Under the last paragraph quoted above, services performed by
VAT-registered persons in the Philippines (other than the processing, manufacturing or
repacking of goods for persons doing business outside the Philippines), when paid in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP, are
zero-rated.

Respondent is a VAT-registered person that facilitates the collection and payment of

receivables belonging to its non-resident foreign client, for which it gets paid in acceptable
foreign currency inwardly remitted and accounted for in conformity with BSP rules and
regulations. Certainly, the service it renders in the Philippines is not in the same category as
"processing, manufacturing or repacking of goods" and should, therefore, be zero-rated. In
reply to a query of respondent, the BIR opined in VAT Ruling No. 080-89 that the income
respondent earned from its parent company’s regional operating centers (ROCs) was
automatically zero-rated effective January 1, 1988.

As a general rule, the value-added tax (VAT) system uses the destination principle. However,
our VAT law itself provides for a clear exception, under which the supply of service shall be
zero-rated when the following requirements are met: (1) the service is performed in the
Philippines; (2) the service falls under any of the categories provided in Section 102(b) of the
Tax Code; and (3) it is paid for in acceptable foreign currency that is accounted for in
accordance with the regulations of the Bangko Sentral ng Pilipinas. Since respondent’s services
meet these requirements, they are zero-rated. Petitioner’s Revenue Regulations that alter or
revoke the above requirements are ultra vires and invalid.