VAT

1. ABAKADA GURO PARTYLIST v. EXEC SEC ERMITA (consti of VAT)

FACTS: On May 24, 2005, the President signed into law Republic Act 9337 or the VAT
Reform Act. Before the law took effect on July 1, 2005, the Court issued a TRO
enjoining government from implementing the law in response to a slew of petitions for
certiorari and prohibition questioning the constitutionality of the new law.

The challenged section of R.A. No. 9337 is the common proviso in Sections 4, 5 and 6:
“That the President, upon the recommendation of the Secretary of Finance, shall,
effective January 1, 2006, raise the rate of value-added tax to 12%, after any of the
following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%);

or (ii) National government deficit as a percentage of GDP of the previous year exceeds
one and one-half percent (1½%)”

Petitioners allege that the grant of stand-by authority to the President to increase the VAT
rate is an abdication by Congress of its exclusive power to tax because such delegation is
not covered by Section 28 (2), Article VI Consti. They argue that VAT is a tax levied on
the sale or exchange of goods and services which can’t be included within the purview of
tariffs under the exemption delegation since this refers to customs duties, tolls or tribute
payable upon merchandise to the government and usually imposed on imported/exported
goods.

Petitioners further alleged that delegating to the President the legislative power to tax is
contrary to republicanism. They insist that accountability, responsibility and transparency
should dictate the actions of Congress and they should not pass to the President the
decision to impose taxes. They also argue that the law also effectively nullified the
President’s power of control, which includes the authority to set aside and nullify the acts
of her subordinates like the Secretary of Finance, by mandating the fixing of the tax rate
by the President upon the recommendation of the Secretary of Justice

ISSUE:
1. Whether or not R.A. No. 9337 has violated the provisions in Article VI, Section 24, and
Article VI, Section 26 (2) of the Constitution
2. Whether or not there was an undue delegation of legislative power in violation of Article
VI Sec 28 Par 1 and 2 of the Constitution.
3. Whether or not there was a violation of the due process and equal protection under
Article III Sec. 1 of the Constitution
HELD:
A. R.A. No. 9337 has not violated the provisions. The revenue bill exclusively originated
in the House of Representatives, the Senate was acting within its constitutional power to
introduce amendments to the House bill when it included provisions in Senate Bill No.
1950 amending corporate income taxes, percentage, excise and franchise taxes. Verily,
Article VI, Section 24 of the Constitution does not contain any prohibition or limitation
on the extent of the amendments that may be introduced by the Senate to the House
revenue bill.

B. 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 is 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. It is the nature of the power and not the liability of its use or the manner of its
exercise which determines the validity of its delegation.

The exceptions are:

(a) delegation of tariff powers to President under Constitution

(b) delegation of emergency powers to President under Constitution

(c) delegation to the people at large

(d) delegation to local governments

(e) delegation to administrative bodies

For the delegation to be valid, it must be complete and it must fix a standard. A sufficient
standard is one which defines legislative policy, marks its limits, maps out its boundaries
and specifies the public agency to apply it.

In this case, it is not a delegation of legislative power BUT a delegation of ascertainment

of facts upon which enforcement and administration of the increased rate under the law is
contingent. The legislature has made the operation of the 12% rate effective January 1,
2006, contingent upon a specified fact or condition. It leaves the entire operation or non-
operation of the 12% rate upon factual matters outside of the control of the executive. No
discretion would be exercised by the President. Highlighting the absence of discretion is
the fact that the word SHALL is used in the common proviso. The use of the word
SHALL connotes a mandatory order. Its use in a statute denotes an imperative obligation
and is inconsistent with the idea of discretion.
 Thus, it is the ministerial duty of the President to immediately impose the 12% rate upon
the existence of any of the conditions specified by Congress. This is a duty, which cannot
be evaded by the President. It is a clear directive to impose the 12% VAT rate when the
specified conditions are present.

Congress just granted the Secretary of Finance the authority to ascertain the existence of
a fact--- whether by December 31, 2005, the VAT collection as a percentage of GDP of
the previous year exceeds 2 4/5 % or the national government deficit as a percentage of
GDP of the previous year exceeds one and 1½%. If either of these two instances has
occurred, the Secretary of Finance, by legislative mandate, must submit such information
to the President.

In making his recommendation to the President on the existence of either of the two
conditions, the Secretary of Finance is not acting as the alter ego of the President or even
her subordinate. He is acting as the agent of the legislative department, to determine and
declare the event upon which its expressed will is to take effect. The Secretary of Finance
becomes the means or tool by which legislative policy is determined and implemented,
considering that he possesses all the facilities to gather data and information and has a
much broader perspective to properly evaluate them. His function is to gather and collate
statistical data and other pertinent information and verify if any of the two conditions laid
out by Congress is present.

Congress does not abdicate its functions or unduly delegate power when it describes what
job must be done, who must do it, and what is the scope of his authority; in our complex
economy that is frequently the only way in which the legislative process can go forward.

There is no undue delegation of legislative power but only of the discretion as to the
execution of a law. This is constitutionally permissible. Congress did not delegate the
power to tax but the mere implementation of the law.

C. Supreme Court held no decision on this matter. The power of the State to make
reasonable and natural classifications for the purposes of taxation has long been
established. Whether it relates to the subject of taxation, the kind of property, the rates to
be levied, or the amounts to be raised, the methods of assessment, valuation and
collection, the State’s power is entitled to presumption of validity. As a rule, the judiciary
will not interfere with such power absent a clear showing of unreasonableness,
discrimination, or arbitrariness.

2. MINDANAO II GEOTHERMAL PARTNERSHIP v. CIR (120 – 130 days period)

FACTS: Petitioner, a partnership duly registered with the Securities and Exchange
Commission, is a VAT-registered entity with VAT/ Tax Identification No. 004-766-953, and
is engaged in the generation, collection, and distribution of electricity. On March 11, 1997, it
entered into a Build-Operate-Transfer Contract with the Philippine National Oil Company-
Energy Development Corporation (PNOC-EDC) for the finance, engineering, supply,
installation, testing, commissioning, operation, and maintenance of a 48.25 megawatt
geothermal power plant, provided that the PNOC-EDC shall supply and deliver steam to
petitioner at no cost. In turn, petitioner shall convert the steam into electric capacity and
energy for the PNOC-EDC, and shall deliver the same to the National Power Corporation for
and on behalf of the PNOC-EDC. or this purpose, petitioner's 48.25 megawatt geothermal
power plant was accredited by the Department of Energy as a Block Power Production
Facility, pursuant to the provisions of Executive Order No. 215.
On April 24, 2008, July 25, 2008, October 24, 2008, and January 2, 2009, petitioner filed its
quarterly VAT returns for the four (4) quarters of 2008 reflecting the amount of
P6,149,256.25 as unutilized/excess input VAT.
On December 28, 2009, petitioner filed before the Bureau of Internal Revenue (BIR) District
Office No. 108 of Kidapawan City, Cotabato an administrative claim for refund/credit of its
unapplied and unutilized input VAT for the year 2008 in the aforesaid amount. About two (2)
months later, or on May 27, 2010, petitioner filed its judicial claim for refund/credit of its
unutilized/excess input VAT for the second to fourth quarters of 2008 in the amount of
P4,524,652.92 before the CTA, docketed as CTA Case No. 8106. Eventually, the two cases
were consolidated by the CTA.
On December 7, 2010, respondent Commissioner of Internal Revenue (CIR) filed a Motion
to Dismiss praying for the dismissal of CTA Case No. 8082 on the ground of lack of
jurisdiction. Relying on the case of CIR v. Aichi Forging Company of Asia, Inc. (Aichi), the
CIR contended that since the judicial claim for refund/credit in Case No. 8082 was filed only
107 days from the filing of the administrative claim, it should be dismissed for being
prematurely filed for petitioner's failure to comply with the 120-day period prescribed under
Section 112 (D) of the National Internal Revenue Code (NIRC).
CTA - It agreed with the CIR's contention and held that pursuant to jurisprudence laid down
in Aichi, the expiration of the 120-day period is crucial before a taxpayer may file a judicial
claim for refund before the CTA.
ISSUE: The primordial issue for the Court's resolution is whether or not the CTA En
Banc correctly affirmed the CTA Division's dismissal of petitioner's judicial claim for
refund/credit of input VAT in CTA Case No. 8082 for being prematurely filed.
HELD: The petition is meritorious.
Section 112 of the NIRC, as amended by RA 9337,[31] provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-Rated or Effectively Zero-Rated Sales. any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the
taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
 transitional input tax, to the extent that such input tax has not been applied against
output tax: x x x.

xxxx

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of
submission of complete documents in support of the application filed in accordance
with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the Commissioner to act on the application within the period prescribed
above, the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.
In the Aichi case cited by both the CTA Division and the CTA En Banc, the Court held that
the observance of the 120-day period is a mandatory and jurisdictional requisite to the
filing of a judicial claim for refund/credit of input VAT before the CTA. Consequently,
its non-observance would lead to the dismissal of the judicial claim on the ground of lack of
jurisdiction. Aichi also clarified that the two (2)-year prescriptive period applies only
to administrative claims and not to judicial claims. Succinctly put, once the administrative
claim is filed within the two (2)-year prescriptive period, the claimant must wait for the 120-
day period to end and, thereafter, he is given a 30-day period to file his judicial claim before
the CTA, even if said 120-day and 30-day periods would exceed the aforementioned two (2)-
year prescriptive period.
However, in CIR v. San Roque Power Corporation (San Roque),[34]the Court recognized an
exception to the mandatory and jurisdictional nature of the 120-day period. It ruled that BIR
Ruling No. DA-489-03 dated December 10, 2003 provided a valid claim for equitable
estoppel under Section 246 of the NIRC. In essence, the aforesaid BIR Ruling stated that
the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review.
Reconciling the pronouncements in the Aichi and San Roque cases, the rule must therefore
be that during the period December 10, 2003 (when BIR Ruling No. DA-489-03 was
issued) to October 6, 2010 (when the Aichi case was promulgated), taxpayers-claimants
need not observe the 120-day period before it could file a judicial claim for refund of
excess input VAT before the CTA. Before and after the aforementioned period (i.e.,
December 10, 2003 to October 6, 2010), the observance of the 120-day period is
mandatory and jurisdictional to the filing of such claim.
3. CIR v. MAGSAYSAY LINES INC. (In the course of business)
FACTS: Pursuant to a government program of privatization, NDC decided to sell to private
enterprise all of its shares in its wholly owned subsidiary the National Marine Corporation
(NMC). The NDC decided to sell in one lot its NMC shares and five (5) of its ships. The
NMC shares and the vessels were offered for public bidding. Among the stipulated terms and
conditions for the public auction was that the winning bidder was to pay "a value added tax
of 10% on the value of the vessels." On 3 June 1988, private respondent Magsaysay Lines,
Inc. (Magsaysay Lines) offered to buy the shares and the vessels. The bid was made by
Magsaysay Lines, purportedly for a new company still to be formed composed of itself,
Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong
(collectively, private respondents). The implementing Contract of Sale was executed. A
formal request for a ruling on whether or not the sale of the vessels was subject to VAT had
already been filed with the Bureau of Internal Revenue (BIR). Private respondents through
counsel received VAT Ruling No. 568-88 from the BIR, holding that the sale of the vessels
was subject to the 10% VAT. The ruling cited the fact that NDC was a VAT-registered
enterprise, and thus its "transactions incident to its normal VAT registered activity of leasing
out personal property including sale of its own assets that are movable, tangible objects
which are appropriable or transferable are subject to the 10% [VAT]."Private respondents
moved for the reconsideration but the same was denied. It then filed an appeal with the CTA
with a prayer of reversal of the VAT ruling.
PETITIONER’S ARGUMENTS:
The CIR defended the VAT rulings holding the sale of the vessels liable for VAT, especially
citing Section 3 of Revenue Regulation No. 5-87, which provided that
"[VAT] is imposed on any sale or transactions ‘deemed sale’ of taxable goods
(including capital goods, irrespective of the date of acquisition)." The CIR argued that the
sale of the vessels were among those transactions "deemed sale," as enumerated inspection 4
of R.R. No. 5-87. It seems that the CIR particularly emphasized Section4(E)(i) of the
Regulation, which classified "change of ownership of business" as a circumstance that gave
rise to a transaction "deemed sale."
ISSUE: Whether or not the sale of the vessels was transaction subject to VAT
HELD: NO, A brief reiteration of the basic principles governing VAT is in order. VAT is
ultimately a tax on consumption, even though it is assessed on many levels of transactions on
the basis of a fixed percentage. It is the end user of consumer goods or services which
ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the
providers of these goods or services who in turn may credit their own VAT liability (or input
VAT) from the VAT payments they receive from the final consumer (or output VAT). The
final purchase by the end consumer represents the final link in a production chain that itself
involves several transactions and several acts of consumption. The VAT system assures
fiscal adequacy through the collection of taxes on every level of consumption yet assuages
the manufacturers or providers of goods and services by enabling them to pass on their
respective VAT liabilities to the next link of the chain until finally the end consumer
shoulders the entire tax liability.
That the sale of the vessels was not in the ordinary course of trade or business of NDC.
The conclusion that the sale was not in the course of trade or business, which the CIR does
not dispute before this Court, should have definitively settled the matter. Any sale, barter or
exchange of goods or services not in the course of trade or business is not subject to VAT.
What Section 100 and Section 4(E)(i) of R.R. No. 5-87 elaborate on is not the meaning of in
the course of trade or business, but instead the identification of the transactions which may be
deemed as sale. It would become necessary to ascertain whether under those two provisions
the transaction may be deemed a sale, only if it is settled that the transaction occurred in the
course of trade or business in the first place. If the transaction transpired outside the course of
trade or business, it would be irrelevant for the purpose of determining VAT liability whether
the transaction may be deemed sale, since it anyway is not subject to VAT.
4. Commissioner v. CA (even non profit non stock, liable sa VAT provided it renders
service with a fee)
FACTS: Commonwealth Management and Services Corporation (COMASERCO) is a
domestic corporation. It is an affiliate of Philippine American Life Insurance Co.
(Philamlife). It was organized by the latter to perform collection, consultative and other
technical services, including functioning as an internal auditor, of Philamlife and its
other affiliates.
In 1992, the Bureau of Internal Revenue (BIR) issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.00 for
taxable year 1988. In the same year, COMASERCO filed with the BIR, a letter-protest
objecting to the latter’s finding of deficiency VAT. Afterwards, the Commissioner of Internal
Revenue sent a collection letter to COMASERCO demanding payment of the deficiency
VAT. The following month of the same year, COMASERCO filed with the CTA a
petition for review contesting the Commissioner’s assessment. COMASERCO asserted
that: 1) it was on a “no-profit, reimbursement-of-cost-only” basis; 2) it was not engaged
in the business of providing services to Philamlife and its affiliates; 3) COMASERCO
was established to ensure operational orderliness and administrative efficiency of
Philamlife and its affiliates, not on the sale of services; and 4) it even did not generate
profit but suffered a net loss in taxable year 1988. Thus, it was not liable to pay VAT.
In 1995, the CTA rendered a decision in favor of the Commissioner with slight
modifications. COMASERCO was liable to pay the amount of P335,831.01. During the same
year, COMASERCO filed with the CA, a petition for review of the decision of the CTA. The
CA ruled in favor of the respondent and based its decision in another tax case involving the
same parties where it was held that COMASERCO was not liable to pay fixed and
contractor’s tax and it was not engaged in business of providing services to Philamlife
and its affiliates. Hence, this petition was filed before the SC.
ISSUE: Whether or not COMASERCO is engaged in the sale of services, thus liable to pay
VAT.
HELD: Yes. Contrary to COMASERCO’s contention, Sec. 105 of the Tax Code states that
even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the
sale of goods or services. 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.
As long as the entity provides service for a fee, remuneration or consideration, then the
service rendered is subject to VAT. Because taxes are the lifeblood of the nation, statutes that
allow exemptions are construed strictly against the grantee and liberally in favor of the
government. Section 109 of the Tax Code enumerates the transactions exempted from VAT.
The services rendered by COMASERCO do not fall within the exemptions. It falls under
Section 108 of the Tax Code in which it defines the phrase “sale of services” as the
performance of all kinds of services for others for a fee, remuneration or consideration.
5. CIR v. SONY PHIL. INC.
FACTS: On November 24, 1998, the CIR issued Letter of Authority No. 000019734 (LOA
19734) authorizing certain revenue officers to examine Sonys books of accounts and other
accounting records regarding revenue taxes for the period 1997 and unverified prior
years. On December 6, 1999, a preliminary assessment for 1997 deficiency taxes and
penalties was issued by the CIR which Sony protested.
Sony sought re-evaluation of the aforementioned assessment by filing a protest on February
2, 2000. Sony submitted relevant documents in support of its protest on the 16th of that same
month.
On October 24, 2000, within 30 days after the lapse of 180 days from submission of the said
supporting documents to the CIR, Sony filed a petition for review before the CTA.
The CIR further argues that Sony itself admitted that the reimbursement from SIS was
income and, thus, taxable. In support of this, the CIR cited a portion of Sonys protest filed
before it:

The fact that due to adverse economic conditions, Sony-Singapore has

granted to our client a subsidy equivalent to the latters advertising expenses will
not affect the validity of the input taxes from such expenses. Thus, at the most, this
is an additional income of our client subject to income tax. We submit further that
our client is not subject to VAT on the subsidy income as this was not derived from
the sale of goods or services
Insofar as the above-mentioned subsidy may be considered as income and, therefore,
subject to income tax, the Court agrees. However, the Court does not agree that the same
subsidy should be subject to the 10% VAT. To begin with, the said subsidy termed by the
CIR as reimbursement was not even exclusively earmarked for Sonys advertising expense
for it was but an assistance or aid in view of Sonys dire or adverse economic conditions
and was only equivalent to the latters (Sonys) advertising expenses.

ISSUE:
1. Whether or not respondent (Sony) is liable for the deficiency VAT in the amount of
P11,141,014.41
2. Whether or not the commission expense in the amount of P2,894,797.00 should be
subjected to 10% withholding tax instead of the 5% tax rate
3. Whether or not the withholding assessment with respect to the 5% withholding tax on
rental deposit in the amount of P10,523,821.99 is proper
4. Whether or not the remittance of final withholding tax on royalties covering the period
January to March 1998 was filed outside of time.
HELD: Section 106 of the Tax Code explains when VAT may be imposed or exacted. Thus:

SEC. 106. Value-added Tax on Sale of Goods or Properties.

(A) Rate and Base of Tax. There shall be levied, assessed and collected on
every sale, barter or exchange of goods or properties, value-added tax
equivalent to ten percent (10%) of the gross selling price or gross value
in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor.

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.

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. The case, however, is not applicable to the present case. 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. This is not true in the present case. Sony did not render any service to SIS at all.
The services rendered by the advertising companies, paid for by Sony using SIS dole-out, were
for Sony and not SIS. SIS just gave assistance to Sony in the amount equivalent to the latters
advertising expense but never received any goods, properties or service from Sony.
6. CIR v. SEAGATE TECH
FACTS: [Respondent] is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines, with principal office address at the new
Cebu Township One, Special Economic Zone, Barangay Cantao-an, Naga, Cebu
[Petitioner] is sued in his official capacity, having been duly appointed and empowered to
perform the duties of his office, including, among others, the duty to act and approve claims for
refund or tax credit
[Respondent] is registered with the Philippine Export Zone Authority (PEZA) and has been
issued PEZA Certificate No. 97-044 pursuant to Presidential Decree No. 66, as amended, to
engage in the manufacture of recording components primarily used in computers for export.
Such registration was made on 6 June 1997. VAT [(Value Added Tax)]-registered entity
VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by [respondent]; An
administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with
supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition
for Review), was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu. No
final action has been received by [respondent] from [petitioner] on [respondents] claim for VAT
refund.
[petitioner] x x x raised the following Special and Affirmative Defenses
Claims for tax refund/tax credit are construed in strictissimi juris against the taxpayer. This is
due to the fact that claims for refund/credit [partake of] the nature of an exemption from tax.
Thus, it is incumbent upon the [respondent] to prove that it is indeed entitled to the refund/credit
sought. Failure on the part of the [respondent] to prove the same is fatal to its claim for tax
credit. He who claims exemption must be able to justify his claim by the clearest grant of organic
or statutory law. An exemption from the common burden cannot be permitted to exist upon
vague implications
ISSUE: Whether or not respondent is entitled to the refund or issuance of Tax Credit Certificate
in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital
goods purchased for the period April 1, 1998 to June 30, 1999.
HELD:
No doubt, as a PEZA-registered enterprise within a special economic zone, respondent is entitled
to the fiscal incentives and benefits provided for in either PD 66 or EO 226. It shall, moreover,
enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos. (RA)
7227 and 7844.
If it avails itself of PD 66, notwithstanding the provisions of other laws to the contrary,
respondent shall not be subject to internal revenue laws and regulations for raw materials,
supplies, articles, equipment, machineries, spare parts and wares, except those prohibited by law,
brought into the zone to be stored, broken up, repacked, assembled, installed, sorted, cleaned,
graded or otherwise processed, manipulated, manufactured, mixed or used directly or indirectly
in such activities.[13]Even so, respondent would enjoy a net-operating loss carry over; accelerated
depreciation; foreign exchange and financial assistance; and exemption from export taxes, local
taxes and licenses
Comparatively, the same exemption from internal revenue laws and regulations applies if EO
226 is chosen. Under this law, respondent shall further be entitled to an income tax holiday;
additional deduction for labor expense; simplification of customs procedure; unrestricted use of
consigned equipment; access to a bonded manufacturing warehouse system; privileges for
foreign nationals employed; tax credits on domestic capital equipment, as well as for taxes and
duties on raw materials; and exemption from contractors taxes, wharfage dues, taxes and duties
on imported capital equipment and spare parts, export taxes, duties, imposts and fees,[16] local
taxes and licenses, and real property taxes
under RA 7916. Furthermore, the latter law -- notwithstanding other existing laws, rules and
regulations to the contrary – extends to that zone the provision stating that no local or national
taxes shall be imposed therein. No exchange control policy shall be applied; and free markets for
foreign exchange, gold, securities and future shall be allowed and maintained. Banking and
finance shall also be liberalized under minimum Bangko Sentral regulation with the
establishment of foreign currency depository units of local commercial banks and offshore
banking units of foreign banks.
under RA 7844 from negotiable tax credits for locally-produced materials used as inputs. Aside
from the other incentives possibly already granted to it by the Board of Investments, it also
enjoys preferential credit facilities and exemption from PD 1853
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. 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.
Zero rated and effectively zero rated transactions
Zero-rated transactions generally refer to the export sale of goods and supply of services. The
tax rate is set at zero. 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.
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.
Zero rating and exemption
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.
Exempt transaction and exempt party
exempt transaction, on the one hand, involves goods or services which, by their nature, are
specifically listed in and expressly exempted from the VAT under the Tax 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 allowed any tax refund of or credit for any input
taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax
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.
If respondent enters into such sales transactions with a purchaser -- usually in a foreign
country -- for use or consumption outside the Philippines, these shall be subject to 0
percent. If entered into with a purchaser for use or consumption in the Philippines, then these
shall be subject to 10 percent, unless the purchaser is exempt from the indirect burden of the
VAT, in which case it shall also be zero-rated.
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. Its
exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate,
because the ecozone within which it is registered is managed and operated by the PEZA as
a separate customs territory
Sales made by a VAT-registered person in the customs territory to a PEZA-registered entity are
considered exports to a foreign country; conversely, sales by a PEZA-registered entity to a VAT-
registered person in the customs territory are deemed imports from a foreign country. An ecozone
-- indubitably a geographical territory of the Philippines -- is, however, regarded in law as foreign
soil. This legal fiction is necessary to give meaningful effect to the policies of the special law
creating the zone. 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.

VAT Registration, Not Application for Effective Zero Rating, Indispensable to VAT Refund
Registration is an indispensable requirement under our VAT law. Petitioner alleges that respondent
did register for VAT purposes with the appropriate Revenue District Office. However, it is now
too late in the day for petitioner to challenge the VAT-registered status of respondent, given the
latters prior representation before the lower courts and the mode of appeal taken by petitioner
before this Court.
The PEZA law, which carried over the provisions of the EPZA law, is clear in exempting from
internal revenue laws and regulations the equipment -- including capital goods -- that registered
enterprises will use, directly or indirectly, in manufacturing. EO 226 even reiterates this privilege
among the incentives it gives to such enterprises. Petitioner merely asserts that by virtue of the
PEZA registration alone of respondent, the latter is not subject to the VAT. Consequently, the
capital goods and services respondent has purchased are not considered used in the VAT business,
and no VAT refund or credit is due.

Compliance with All Requisites for VAT Refund or Credit

First, respondent is a VAT-registered entity. This fact alone distinguishes the present case from
Contex, in which this Court held that the petitioner therein was registered as a non-VAT taxpayer.

Second, the input taxes paid on the capital goods of respondent are duly supported by VAT
invoices and have not been offset against any output taxes.

And third, no question as to either the filing of such claims within the prescriptive period or the
validity of the VAT returns has been raised.
7. ATLAS CONSOLIDATED v. CIR
FACTS: Petitioner corporation, a VAT-registered taxpayer engaged in mining, production, and
sale of various mineral products, filed claims with the BIR for refund/credit of input VAT on its
purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990
and 1992. BIR did not immediately act on the matter prompting the petitioner to file a petition
for review before the CTA. The latter denied the claims on the grounds that for zero-rating to
apply, 70% of the company's sales must consists of exports, that the same were not filed within
the 2-year prescriptive period (the claim for 1992 quarterly returns were judicially filed only on
April 20, 1994), and that petitioner failed to submit substantial evidence to support its claim for
refund/credit. The petitioner, on the other hand, contends that CTA failed to consider the
following: sales to PASAR and PHILPOS within the EPZA as zero-rated export sales; the 2-year
prescriptive period should be counted from the date of filing of the last adjustment return which
was April 15, 1993, and not on every end of the applicable quarters; and that the certification of
the independent CPA attesting to the correctness of the contents of the summary of suppliers’
invoices or receipts examined, evaluated and audited by said CPA should substantiate its claims.
ISSUE: Did the petitioner corporation sufficiently establish the factual bases for its applications
for refund/credit of input VAT?
HELD: No. 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.
8. CIR v AMERICAN EXPRESS INTERNATIONAL
FACTS: Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked
with servicing a unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK
receivables from card members situated in the Philippines and payment to service establishments
in the Philippines.

It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis
Section 110B of the 1997 Tax Code, which held that “xxx Any input tax attributable to the
purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue taxes, subject to the provisions of Section
112.”

In addition, respondent relied on VAT Ruling No. 080-89, which read, “In Reply, please be
informed that, as a VAT registered entity whose service is paid for in acceptable foreign
currency which is remitted inwardly to the Philippine and accounted for in accordance with the
rules and regulations of the Central Bank of the Philippines, your service income is automatically
zero rated xxx”

Petitioner claimed, among others, that the claim for refund should be construed strictly against
the claimant as they partake of the nature of tax exemption.

CTA rendered a decision in favor of respondent, holding that its services are subject to zero-rate.
CA affirmed this decision and further held that respondent’s services were “services other than
the processing, manufacturing or repackaging of goods for persons doing business outside the
Philippines” and paid for in acceptable foreign currency and accounted for in accordance with
the rules and regulations of BSP.

ISSUE: Whether or not AMEX Phil entitled to refund

HELD: Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or
lease of properties. Section 102B particularly provides for the services or transactions subject to
0% rate:
(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP;

(2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered by
hotels and other service establishments, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP

Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other

than the processing, manufacturing or repackaging of goods for persons doing business outside
the Philippines), when paid in acceptable foreign currency and accounted for in accordance with
the R&R of BSP, are zero-rated. Respondent renders service falling under the category of zero
rating.

As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed.
Thus, exports are zero-rated, while imports are taxed.
In the present case, the facilitation of the collection of receivables is different from the utilization
of consumption of the outcome of such service. While the facilitation is done in the Philippines,
the consumption is not. The services rendered by respondent are performed upon its sending to
its foreign client the drafts and bulls it has gathered from service establishments here, and are
therefore, services also consumed in the Philippines. Under the destination principle, such
service is subject to 10% VAT.

However, the law clearly provides for an exception to the destination principle; that is 0% VAT
rate for services that are performed in the Philippines, “paid for in acceptable foreign currency
and accounted for in accordance with the R&R of BSP.” The respondent meets the following
requirements for exemption, and thus should be zero-rated:
(1) Service be performed in the Philippines

(2) The service fall under any of the categories in Section 102B of the Tax Code

(3) It be paid in acceptable foreign currency accounted for in accordance with BSP R&R.

9. CORAL BAY NICKEL CORP v. CIR

FACTS: The petitioner, a domestic corporation engaged in the manufacture of nickel and/or
cobalt mixed sulphide, is a VAT entity registered with the Bureau of Internal Revenue (BIR). It
is also registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export
Enterprise at the Rio Tuba Export Processing Zone under PEZA Certificate of Registration dated
December 27, 2002.

On August 5, 2003,2 the petitioner filed its Amended VAT Return declaring unutilized input tax
from its domestic purchases of capital goods, other than capital goods and services, for its third
and fourth quarters of 2002 totalling P50,124,086.75. On June 14, 2004,3 it filed with Revenue
District Office No. 36 in Palawan its Application for Tax Credits/Refund (BIR Form 1914)
together with supporting documents.

Due to the alleged inaction of the respondent, the petitioner elevated its claim to the CTA on July
8, 2004 by petition for review, praying for the refund of the aforesaid input VAT (CTA Case No.
7022).4chanrobleslaw

After trial on the merits, the CTA in Division promulgated its decision on March 10,
20085 denying the petitioner's claim for refund on the ground that the petitioner was not entitled
to the refund of alleged unutilized input VAT following Section 106(A)(2)(a)(5) of the National
Internal Revenue Code (NIRC) of 1997, as amended, in relation to Article 77(2) of the Omnibus
Investment Code and conformably with the Cross Border Doctrine. In support of its ruling, the
CTA in Division cited Commissioner of Internal Revenue v. Toshiba Information Equipment
(Phils) Inc. (Toshiba)6 and Revenue Memorandum Circular ("RMC") No. 42-03.
ISSUE: Was the petitioner, an entity located within an ECOZONE, entitled to the refund of its
unutilized input taxes incurred before it became a PEZA registered entity?

HELD: The petitioner filed with the BIR on June 10, 2004 its application for tax refund or credit
representing the unutilized input tax for the third and fourth quarters of 2002. Barely 28 days
later, it brought its appeal in the CTA contending that there was inaction on the part of the
petitioner despite its not having waited for the lapse of the 120-day period mandated by Section
112 (D) of the 1997 NTRC.

As pronounced in Silicon Philippines Inc. vs. Commissioner of Internal Revenue,15 the exception
to the mandatory and jurisdictional compliance with the 120+30 day-period is when the claim for
the tax refund or credit was filed in the period between December 10, 2003 and October 5, 2010
during which BIR Ruling No. DA-489-03 was still in effect. Accordingly, the premature filing of
the judicial claim was allowed, giving to the CTA jurisdiction over the appeal.

This old rule clearly did not take into consideration the Cross Border Doctrine essential to the
VAT system or the fiction of the ECOZONE as a foreign territory. It relied totally on the choice
of fiscal incentives of the PEZA-registered enterprise. Again, for emphasis, the old VAT rule for
PEZA-registered enterprises was based on their choice of fiscal incentives: (1) If the PEZA-
registered enterprise chose the five percent (5%) preferential tax on its gross income, in lieu of
all taxes, as provided by Rep. Act No. 7916, as amended, then it would be VAT-exempt; (2) If
the PEZA-registered enterprise availed of the income tax holiday under Exec. Order No. 226, as
amended, it shall be subject to VAT at ten percent (10%). Such distinction was abolished by
RMC No. 74-99, which categorically declared that all sales of goods, properties, and services
made by a VAT-registered supplier from the Customs Territory to an ECOZONE enterprise
shall be subject to VAT, at zero percent (0%) rate, regardless of the tatter's type or class of
PEZA registration; and, thus, affirming the nature of a PEZA-registered or an ECOZONE
enterprise as a VAT-exempt entity.

This Court agrees, however, that PEZA-registered enterprises, which would necessarily be
located within ECQZONES, are VAT-exempt entities, not because of Section 24 of Rep. Act
No. 7916, as amended, which imposes the five percent (5%) preferential tax rate on gross income
of PEZA-registered enterprises, in lieu of all taxes; but, rather, because of Section 8 of the same
statute which establishes the fiction that ECOZONES are foreign territory.

It is important to note herein that respondent Toshiba is located within an ECOZONE. An

ECOZONE or a Special Economic Zone has been described as —

. . . [S]elected areas with highly developed or which have the potential to be developed into agro-
industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers
whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE
may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs),
free trade zones and tourist/recreational centers.

The national territory of the Philippines outside of the proclaimed borders of the ECOZONE
shall be referred to as the Customs Territory.
Section 8 of Rep. Act No. 7916, as amended, mandates that the PEZA shall manage and operate
the ECOZONES as a separate customs territory; thus, creating the fiction that the ECOZONE
is a foreign territory. As a result, sales made by a supplier in the Customs Territory to a
purchaser in the ECOZONE shall be treated as an exportation from the Customs
Territory. Conversely, sales made by a supplier from the ECOZONE to a purchaser in the
Customs Territory shall be considered as an importation into the Customs Territory.

10. ACCENTURE INC v. CIR (failure to prove that the service rendered if for a corpo
outside phil)

FACTS: Petitioner Accenture, a VAT registered entity, is a corporation engaged in the business
of providing management consulting, business strategies development, and selling and/or
licensing of software. The monthly and quarterly VAT returns of Accenture show that,
notwithstanding its application of the input VAT credits earned from its zero-rated transactions
against its output VAT liabilities, it still had excess or unutilized input VAT credits in the
amount of P37,038,269.18. Thus, Accenture filed with the Department of Finance (DoF) an
administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC). When the
DoF did not act on the claim, Accenture filed a Petition for Review with CTA praying for the
issuance of a TCC in its favour. The CIR answered that the sale by Accenture of goods and
services to its clients are not zero-rated transactions and that Accenture has failed to prove that
it is entitled to a refund, because its claim has not been fully substantiated or documented. Ruling
that Accenture’s services would qualify for zero-rating under the 1997 National Internal Revenue
Code of the Philippines (Tax Code)only if the recipient of the services was doing business
outside of the Philippines, the Division of the CTA ruled that since Accenture had failed to
present evidence to prove that the foreign clients to which the former rendered services did
business outside the Philippines, it was not entitled to refund. On appeal before the CTA en banc,
Accenture argued that because the case pertained to the third and the fourth quarters of taxable
year 2002, the applicable law was the 1997 Tax Code, and not R.A. 9337 and that prior to the
amendment introduced by (R.A.)9337, there was no requirement that the services must be
rendered to a person engaged in business conducted outside the Philippines to qualify for zero-
rating. Nevertheless, the CTA en banc affirmed the decision of the division. Hence this present
petition for review before the SC

ISSUE:

1. Should the recipient of the services be "doing business outside the Philippines" for the
transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code?

2. Accenture able to prove that the recipient of its service do business outside Phil

HELD:

1. We rule that the recipient of the service must be doing business outside the Philippines for the
transaction to qualify for zero-rating under Section 108(B) of the Tax Code.

Lastly, it is worth mentioning that prior to the promulgation of Burmeister, Congress had already
clarified the intent behind Sections 102(b)(2) of the 1977 Tax Code and 108(B)(2) of the 1997
Tax Code amending the earlier provision. R.A. 9337 added the following phrase: “rendered to a
person engaged in business conducted outside the Philippines or to a nonresident person not
engaged in business who is outside the Philippines when the services are performed.”

2. The evidence presented by Accenture may have established that its clients are foreign. This
fact does not automatically mean, however, that these clients were doing business outside the
Philippines. After all, the Tax Code itself has provisions for a foreign corporation engaged in
business within the Philippines and vice versa, to wit:

SEC. 22. Definitions - When used in this Title: x x x x x x x x x (H) The term “resident foreign
corporation” applies to a foreign corporation engaged in trade or business within the Philippines.
(I) The term ‘nonresident foreign corporation’ applies to a foreign corporation not engaged in
trade or business within the Philippines. (Emphasis in the original) Consequently, to come within
the purview of Section 108(B)(2), it is not enough that the recipient of the service be proven to
be a foreign corporation; rather, it must be specifically proven to be a nonresident foreign
corporation.

A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual basis of
that claim. Tax refunds, like tax exemptions, are construed strictly against the taxpayer. 54
Accenture failed to discharge this burden. It alleged and presented evidence to prove only that its
clients were foreign entities. However, as found by both the CTA Division and the CTA En
Bane, no evidence was presented by Accenture to prove the fact that the foreign clients to whom
petitioner rendered its services were clients doing business outside the Philippines.