Taxation 2

TAX DIGESTS ON VALUE

ADDED TAX (VAT)

Atty. Richard M. Fulleros

CPA, MBA
Tax Digest on Value Added Tax (VAT)
1. CIR vs. CA
G.R. No. 125355 (30 Mar. 2000)
FACTS:

Commonwealth Management and Services Corp. (COMASERCO) is an affiliate of

Phil. Am. Life Insurance. It performs collection, consultative and other technical
services for Phil Am. It functions as an internal auditor for Phil Am.
On 24 Jan. 1992, BIR assessed COMASERCO. It has a VAT deficiency in the
amount of PhP 351,851.01 for 1988.
COMASERCO argued that it experienced net loss in its operations during 1988 in
the amount of P6,077. Thus, it cannot be subject to VAT.
Court of Tax of Appeals (CTA) affirmed the CIR. Court of Appeals (CA) reversed
the CTA. In so ruling, CA cited a case where the parties are similar, and
COMASERCO was held not liable for payment of contractor’s tax.
Supreme Court (SC) reversed CA.

ISSUE:
Whether COMASERCO is liable to pay VAT?

RULING:
Yes.
Value Added Tax (VAT)
VAT is a tax on transactions, imposed at every stage of the distribution process on
the sale, barter, exchange of oods or property, and on the performance of services,
even in the absence of profit attributable thereto.
Non-stock, non-profit orrganization or government entity is liable to pay VAT for
the sale of goods and services.

In the course of trade or business

It requires the regular condut or pursuit of a commercial or an economic activity,
whether or not profit-oriented.

Sales of Services
It is the performance of all kinds of services for others for a fee, remuneration or
consideration.
It includes supply of technical advice, assistance with technical management, as in
this case.
As long as the entity provides service for a fee, remuneration, or consideration, then
the services rendered is subject to VAT.
Any exemption from the tax must be clearly stated in the language of the law.
Ratio: Lifeblood Doctrine.
Thus, construed strictly against the grantee.
 2. American Express vs. Commissioner
COMMISSIONER OF INTERNAL REVENUE - versus - AMERICAN
EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH),
G.R. No. 152609

Facts: Respondent is a VAT taxpayer and is the Philippine Branch of AMERICAN

EXPRESS INTERNATIONAL (USA); it 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. Respondent filed with BIR a letter-request for the refund of its 1997 excess
input taxes, alleging Section 110B of the 1997 Tax Code as the basis, which states 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.” To support its claim, the
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, on the other hand, claimed that the claim for refund should be
construed strictly against the claimant as they partake of the nature of tax exemption. After
hearing the merits of the case, the CTA rendered a decision in favor of respondent, holding
that its services are subject to zero-rate. Upon appeal, the 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 American Express International (AMEX) is 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:

2. SILICON PHILIPPINES, INC., (Formerly INTEL PH

ILIPPINES MANUFACTURING, INC.), - versus - COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 172378

Facts: Petitioner Silicon Philippines, Inc. is a corporation duly organized and existing
under the laws of the Philippines. It is registered with the BIR das a VAT-taxpayer and
with the BOI as a preferred pioneer enterprise. On May, 1999, Silicon filed with the CIR
an application for credit/refund of unutilized input VAT for the period of Oct. 1, 1998
to Dec. 31, 1998.Due to the inaction of the CIR, it, filed a Petition for Review with the
CTA Division. Silicon alleged that the 4th quarter of 1998, it generated and recorded
zero-rated export sales paid to Silicon in acceptable foreign currency and that for the
said period, Silicon paid input VAT in the total amount which have not been applied to
any output VAT.

The Respondent on the other hand, raised the defenses that Petitioner did not show that
it complied with the provisions of Sec. 229 of the Tax Code; that claims for refund are
construed strictly against the claimant similar to the nature of exemption from taxes; and
that Silicon failed to prove that is entitled for refund.

The CTA Division granted Silicon’s claim for refund of unutilized input VAT on capital
goods. However, it denied Silicon’s claim for credit/refund of input VAT attributable to
its zero-rated export sales for the reason that it failed to present an Authority to Print
 (ATP) from the BIR and it did not also it print on its export sales invoices the ATP and
the word zero-rated.

Issue: Whether or not a claimant for unutilized input VAT on zero-rated sales is
required to present proof that it has secured an ATP from the BIR prior to the printing
of its invoices or receipts.

Held: YES. The Court held that since ATP is not indicated in the invoices or receipts,
the only way to verify whether the invoices or receipts are duly registered is by requiring
the claimant to present its ATP from the BIR. Without which, the invoices would have
no probative value for the purpose of refund. Failure to print the word “zero-rated” on
the sales invoices is fatal to a claim for refund of input VAT. In compliance with Sec.
4.108-1 of RR 7-95, requiring the printing of the word “zero-rated” on the invoice
covering zero-rate sales is essential as this regulation proceeds from the rulemaking
authority of the Secretary of Finance under Sec. 244of the NIRC.
In the present case, Silicon Philippines, Inc., failed to present its ATP and to print the
word “zero-rated” on its export sales invoices. Thus, the claim for credit/refund of input
VAT attributable to its zero-rated sales must be denied.

3. CIR vs. Burmeister and Wain

COMMISSIONER OF INTERNAL REVENUE vs. BURMEISTER AND WAIN

SCANDINAVIAN CONTRACTOR MINDANAO, INC.
G.R. No. 153205 January 22, 2007
FACTS: A foreign consortium composed of Burmeister and Wain Scandinavian
Contractor A/S (BWSC- Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui
and Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR)
for the operation and maintenance of [NAPOCOR’s] two power barges. The Consortium
appointed BWSC-Denmark as its coordination manager.

BWSC-Denmark established [respondent] which subcontracted the actual operation and

maintenance of NAPOCOR’s two power barges as well as the performance of other duties
and acts which necessarily have to be done in the Philippines.

NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies
(Mark, Yen, and Peso). The freely convertible non-Peso component is deposited directly
to the Consortium’s bank accounts in Denmark and Japan, while the Peso-denominated
component is deposited in a separate and special designated bank account in the
Philippines. On the other hand, the Consortium pays [respondent] in foreign currency
inwardly remitted to the Philippines through the banking system.
Respondent chose to register as a VAT taxpayer and availed of the Voluntary Assessment
Program (VAP) of the BIR. Thereafter, it paid the amount of P6,994,659.67 through BIR’s
collecting agent, PCIBank, as its output tax liability for the year 1996. On April 22,1999,
filed a claim for the issuance of a tax credit certificate with Revenue District No. 113 of
the BIR. Respondent believed that it erroneously paid the output VAT for 1996 due to its
availment of the Voluntary Assessment Program (VAP) of the BIR.

ISSUE: Whether or not respondent is entitled to the refund of P6,994,659.67 as

erroneously paid output VAT for the year 1996.

HELD: The Tax Code not only requires that the services be other than "processing,
manufacturing or repacking of goods" and that payment for such services be in acceptable
foreign currency accounted for in accordance with BSP rules. Another essential condition
for qualification to zero-rating under Section 102(b)(2) is that the recipient of such services
is doing business outside the Philippines. If the provider and recipient of the "other
services" are both doing business in the Philippines, the payment of foreign currency is
irrelevant. Otherwise, those subject to the regular VAT under Section 102(a) can avoid
paying the VAT by simply stipulating payment in foreign currency inwardly remitted by
the recipient of services.

In this case, the payer-recipient of respondent’s services is the Consortium which is a joint-
venture doing business in the Philippines. While the Consortium’s principal members are
non-resident foreign corporations, the Consortium itself is doing business in the
Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in
foreign currency outwardly remitted. In turn, the Consortium pays respondent also in
foreign currency inwardly remitted and accounted for in accordance with BSP rules. This
payment scheme does not entitle respondent to 0% VAT. The place of payment is
immaterial, much less is the place where the output of the service is ultimately used. An
essential condition for entitlement to 0% VAT under Section 102(b)(1) and (2) is that the
recipient of the services is a person doing business outside the Philippines. Court
recognizes the rule that the VAT system generally follows the "destination principle"
(exports are zero- rated whereas imports are taxed).

4. CIR vs. Magsaysay Lines

Facts:
National Development Company (NDC) decided to sell its National Marine
Corporation (NMC)’s shares and five of its vessels through a public bidding. The sale
comes with an agreement that the winning bidder will have to pay 10% VAT on the
value of the vessels.
They entered into a contract of sale with the respondent company, Magsaysay Lines.
As per arrangement, an irrevocable confirmed Letter of Credit previously filed as
bidder’s bond was accepted by NDC as security for the payment of VAT, if any.
 Meanwhile, Magsaysay filed a formal request for a ruling on whether or not the sale of
the vessels was subject to VAT.
BIR ruled that the sale of the vessels was subject to 10% VAT since NDC was a VAT-
registered enterprise and thus, its transactions incident to its normal VAT registered
activities are subject to such tax. Magsaysay filed an MR but was denied by the BIR.
Hence, NDC drew on the letter of credit.
Magsaysay then filed for an appeal and petition for refund before the CTA. CTA
granted the petition ruling that the sale was an isolated transaction not done in the
ordinary course of business or trade. CA, after its reversal of its earlier decision,
affirmed such ruling of the CTA. Hence, this petition.

Issue:
Whether or not the sale by NDC of its vessels to Magsaysay Lines was subject to VAT

Ruling:

NO. 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 not a singular minded tax on
every transaction level. Its assessment bears direct relevance to the taxpayer’s role or
link in production chain. Hence, as affirmed by Section 99 of the tax code, 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. Transactions outside the course of
trade or business may invariably contribute to the production chain, but they do so only
as a matter of accident or incident.
In the case at bar, sale of the vessels was not in the ordinary course of business or trade
of NDC. Course of trade or business or doing business connotes regularity of activity.
There is no indication that the NDC was created for the primary purpose of selling real
property. CIR didn’t even dispute such conclusion. Hence, such sale was not subject to
VAT.

CIR vs. Seagate Technology Phils.

COMMISSIONER OF INTERNAL REVENUE - versus – SEAGATE
TECHNOLOGY G.R. No. 153866

Facts: Respondent Seagate Technology Philippines is a resident foreign corporation

duly registered with the Securities and Exchange Commission to do business in the
Philippines and is registered with the Philippine Export Zone Authority (PEZA). It
is Value Added Tax-registered entity and filed for the VAT returns.
In 1999, the respondent filed an administrative claim for refund of VAT input taxes
in the amount of P28,369,226.38 with supporting documents, but no final action has
been received by the respondent from the petitioner on the said claim for VAT
refund. Hence, respondent sued the petitioner in his official capacity. The Tax Court
 rendered a decision granting the claim for refund and CTA affirmed the decision.
Hence, the present petition for certiorari.

Issue: Whether or not respondent is entitled to the refund or issuance of Tax Credit
Certificate

Held: The Petition is unmeritorious. As a PEZA-registered enterprise within a

special economic zone, respondent is entitled to the fiscal incentives and benefit
provided for in either PD66 or EO 226. It shall, moreover, enjoy all privileges,
benefits, advantages or exemptionsunder both Republic Act Nos. 7227 and 7844.
Respondent as an entity is exemptfrom internal revenue laws and regulations. This
exemption covers both direct and indirect taxes, stemming from the very nature of
the VAT as a tax on consumption, for which the direct liability is imposed on one
person but the indirectburden is passed on to another. Respondent, as an exempt
entity, can neither be directly charged for the VAT on its sales nor indirectly made
to bear, as added cost to such sales, the equivalent VAT on its purchases.
The exemption is both express and pervasive, among other reasons, since RA 7916
states that:
“No taxes, local and national, shall be imposed on business establishments operating
within the eco zone”
Even though the VAT is not imposed on the entity but on the transaction, it may
still be passed on and, therefore, indirectly imposed on the same entity -- a patent
circumvention of the law. That no VAT shall be imposed directly upon business
establishments operating within the ecozone under RA7916 also means that no VAT
may be passed on and imposed indirectly. As such, respondent is exempt from
allinternal revenue taxes, including the VAT, and regulations pertaining thereto.

5. Microsoft Phils. Vs. CIR

Facts:
Petitioner Microsoft Philippines, Inc. (Microsoft) is a value-added tax (VAT) taxpayer duly
registered with the Bureau of Internal Revenue (BIR). It renders marketing services to
Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), both affiliated
non-resident foreign corporations. The services are paid for in acceptable foreign currency
and qualify as zero-rated sales for VAT purposes under Section 108(B)(2) of the National
Internal Revenue Code (NIRC) of 1997, as amended. Section 108(B)(2) states:
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in
the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing business outside
the Philippines which goods are subsequently exported x x x;
(2) Services other than those mentioned in the preceding paragraph, the consideration for
which is paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas(BSP); x x x
On December 27, 2002, Microsoft filed an administrative claim for tax credit of VAT input
taxes in the amount of P11,449,814.99 with the BIR. The administrative claim for tax
credit was filed within two years from the close of the taxable quarters when the zero-rated
sales were made. Subsequently on April 23, 2003, due to the BIR's inaction, Microsoft
filed a petition for review with the CTA. Microsoft claimed to be entitled to a refund of
unutilized input VAT attributable to its zero-rated sales and prayed that judgment be
rendered directing the claim for tax credit or refund of VAT input taxes for taxable year
2001. However, on 16 June 2003, respondent Commissioner of Internal Revenue (CIR)
filed his answer and prayed for the dismissal of the petition for review.
The CTA Second Division, in a Decision dated August 31, 2006, denied the claim for tax
credit of VAT input taxes. The CTA explained that Microsoft failed to comply with the
invoicing requirements of Sections 113 and 237 of the NIRC as well as Section 4.108-1 of
Revenue Regulations No. 7-95 (RR 7-95). The CTA stated that Microsoft's official receipts
do not bear the imprinted word zero-rated on its face, thus, the official receipts cannot be
considered as valid evidence to prove zero-rated sales for VAT purposes. Microsoft filed
a motion for reconsideration which was denied by the CTA Second Division in a
Resolution dated 8 January 2007.
A petition for review was then filed with the CTA En Banc but on October 24, 2007, the
CTA En Banc denied the petition for review and affirmed in toto the Decision of the CTA
Second Division. Hence, this petition.

Issue:
Whether or not Microsoft is entitled to a claim for a tax credit or refund of VAT input
taxes on domestic purchases of goods or services attributable to zero-rated sales for the
year 2001 even if the word zero-rated is not imprinted on Microsoft's official receipts.

Ruling:
The Court found the petition lack of merit. The Court sees no reason to disturb the CTA's
findings since Microsoft failed to comply with the invoicing requirements of the NIRC and
its implementing revenue regulation to claim a tax credit or refund of VAT input tax for
taxable year 2001.
A tax credit or refund, like tax exemption, is strictly construed against the taxpayer. The
taxpayer claiming the tax credit or refund has the burden of proving that he is entitled to
the refund or credit, in this case VAT input tax, by submitting evidence that he has
complied with the requirements laid down in the tax code and the BIR's revenue regulations
under which such privilege of credit or refund is accorded.
Sections 113(A) and 237 of the NIRC which provide for the invoicing requirements for
VAT-registered persons state:
SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.
(A) Invoicing Requirements. A VAT-registered person shall, for every sale, issue an
invoice or receipt. In addition to the information required under Section 237, the following
information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his taxpayer's
identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax. x x x
SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons subject to an
internal revenue tax shall, for each sale or transfer of merchandise or for services rendered
valued at Twenty-five pesos (P25.00) or more, issue duly registered receipts or sales or
commercial invoices, prepared at least in duplicate, showing the date of transaction,
quantity, unit cost and description of merchandise or nature of service: Provided, however,
That in the case of sales, receipts or transfers in the amount of One hundred pesos (P100.00)
or more, or regardless of the amount, where the sale or transfer is made by a person liable
to value-added tax to another person also liable to value-added tax; or where the receipt is
issued to cover payment made as rentals, commissions, compensations or fees, receipts or
invoices shall be issued which shall show the name, business style, if any, and address of
the purchaser, customer or client: Provided, further, That where the purchaser is a VAT-
registered person, in addition to the information herein required, the invoice or receipt shall
further show the Taxpayer Identification Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer or client
at the time the transaction is effected, who, if engaged in business or in the exercise of
profession, shall keep and preserve the same in his place of business for a period of three
(3) years from the close of the taxable year in which such invoice or receipt was issued,
while the duplicate shall be kept and preserved by the issuer, also in his place of business,
for a like period.
The Commissioner may, in meritorious cases, exempt any person subject to internal
revenue tax from compliance with the provisions of this Section.
Related to these provisions, Section 4.108-1 of RR 7-95 enumerates the information which
must appear on the face of the official receipts or invoices for every sale of goods by VAT-
registered persons. At the time Microsoft filed its claim for credit of VAT input tax, RR 7-
95 was already in effect. The provision states:
Sec. 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for every sale or
lease of goods or properties or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;
3. quantity, unit cost and description of merchandise or nature of service;
4. the name, TIN, business style, if any, and address of the VAT-registered purchaser,
customer or client;
5. the word zero-rated imprinted on the invoice covering zero-rated sales; and
6. the invoice value or consideration.
xxx
Only VAT-registered persons are required to print their TIN followed by the word VAT in
their invoices or receipts and this shall be considered as a VAT invoice. All purchases
covered by invoices other than a VAT invoice shall not give rise to any input tax.
(Emphasis supplied)
The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and
revenue regulations are clear. A VAT-registered taxpayer is required to comply with all
the VAT invoicing requirements to be able to file a claim for input taxes on domestic
purchases for goods or services attributable to zero-rated sales. A VAT invoice is an
invoice that meets the requirements of Section 4.108-1 of RR 7-95. Contrary to Microsoft's
claim, RR 7-95 expressly states that all purchases covered by invoices other than a VAT
invoice shall not give rise to any input tax. Microsoft's invoice, lacking the word zero-
rated, is not a VAT invoice, and thus cannot give rise to any input tax.
The petition was denied and the Decision of the Court of Tax Appeals En Banc in CTA EB
No. 258 was affirmed

6. CIR vs. Sony Phils.

FACTS:
IN NOVEMBER 1998, THE COMMISIONER OF INTERNAL REVENUE ISSUED A
LETTER OF AUTHORITY NUMBERED 19734 (LOA 19734) WHICH AUTHORIZED
CERTAIN REVENUE EXAMINERS TO EXAMINE SONY PHILIPPINES ‘ BOOKS
OF ACCOUNTS REGARDING REVENUE TAXES FOR “THE PERIOD 1997 AND
UNVERIFIED PRIOR YEARS.”

AFTER THE EXAMINATION OF SAID BOOKS, THE CIR FOUND OUT, AMONG
OTHERS, THAT SONY PHILIPPINES IS LIABLE FOR DEFICIENCY TAXES AND
PENALTIES FOR VALUE ADDED TAX AMOUNTING TO ₱11,141,014.41.

SONY PHILIPPINES CONTESTED SUCH FINDING AS IT ARGUED THAT THE

BASIS USED BY THE CIR TO ASSESS SAID DEFICIENCY WERE THE RECORDS
COVERING THE PERIOD OF JANUARY 1998 THROUGH MARCH 1998 WHICH
WAS A PERIOD NOT COVERED BY THE LETTER OF AUTHORITY SO ISSUED.
THE CIR COUNTERED THAT THE LOA PHRASE “THE PERIOD 1997 AND
UNVERIFIED PRIOR YEARS” SHOULD BE UNDERSTOOD TO MEAN THE
FISCAL YEAR ENDING ON MARCH 31, 1998.

EVENTUALLY THE CASE REACHED THE COURT OF TAX APPEALS AND THE
CTA DECIDED AGREED WITH SONY PHILIPPINES ON THIS ONE. SO DID THE
CTA EN BANC.

ISSUES:
1. IS PETITIONER LIABLE FOR DEFICIENCY VALUE ADDED TAX?
2. WAS THE INVESTIGATION OF ITS 1998 FINAL WITHHOLDING TAX
RETURN VALID?

HELD:
1. NO. SONY PHILIPPINES DID AN FACT INCUR EXPENSES SUPPORTED BY
VALID VAT INVOICES WHEN IT PAID FOR CERTAIN ADVERTISING COSTS.
THIS IS SUFFICIENT TO ACCORD IT THE BENEFIT OF INPUT VAT CREDITS
AND WHERE THE MONEY CAME FROM TO SATISFY SAID ADVERTISING
BILLINGS IS ANOTHER MATTER BUT DOES NOT ALTER THE VAT EFFECT. IN
THE SAME WAY, SONY PHILIPPINES CAN NOT BE DEEMED TO HAVE
RECEIVED THE REIMBURSABLE AS A FEE FOR A VAT-TAXABLE ACTIVITY.
THE REIMBURSABLE WAS COUCHED AS AN AID FOR SONY PHILIPPINES BY
SIS IN VIEW OF THE COMPANY’S “DIRE OR ADVERSE ECONOMIC
CONDITIONS” . MORE IMPORTANTLY, THE ABSENCE OF A SALE, BARTER OR
EXCHANGE OF GOODS OR PROPERTIES SUPPORTS THE NON-VAT NATURE OF
THE REIMBURSEMENT. THIS WAS DISTINGUISHED FROM THE COMASERCO
CASE WHERE EVEN IF THERE WAS SIMILARITY A REIMBURSEMENT-ON-
COST ARRANGEMENT BETWEEN AFFILIATES, THERE WAS IN FACT AN
UNDERLYING SERVICE. HERE, THE ADVERTISING SERVICES WERE
RENDERED IN FAVOR OF SONY PHILIPPINES NOT SIS.
2. NO. A LETTER OF AUTHORITY SHOULD COVER A TAXABLE PERIOD
NOT EXCEEDING ONE YEAR AND TO INDICATE THAT IT COVERS
‘UNVERIFIED PRIOR YEARS’ SHOULD BE ENOUGH TO INVALIDATE IT. IN
ADDITION , EVEN IF THE FINAL WITHHOLDING TAX WAS COVERED BY SONY
PHILIPPINES’ FISCAL YEAR ENDING MARCH 1998, THE SAME FELL OUTSIDE
OF ‘THE PERIOD 1997’ AND WAS THUS NOT VALIDLY COVERED BY THE
LETTER OF AUTHORITY.

7. KEPCO Phils. Corp. Vs CIR

FACTS:
Petitioner KEPCO Philippines Corporation (Kepco) is a VAT-registered independent
power producer engaged in the business of generating electricity. It exclusively sells
electricity to National Power Corporation (NPC), an entity exempt from taxes under
Section 13 of Republic Act No. 6395 (RA No. 6395).[3]
Records show that on , Kepco filed an application for zero-rated sales with the Revenue
District Office (RDO) No. 54 of the Bureau of Internal Revenue (BIR). Kepcos
application was approved under VAT Ruling 64-01. Accordingly, for taxable year
2002, it filed four Quarterly VAT Returns declaring zero-rated sales in the aggregate
amount of P3,285,308,055.85. In the course of doing business with NPC, Kepco
claimed expenses reportedly sustained in connection with the production and sale of
electricity with NPC. Based on Kepcos calculation, it paid input VAT amounting to
P11,710,868.86 attributing the same to its zero-rated sales of electricity with NPC. The
table shows the purchases and corresponding input VAT it paid.hus, on , Kepco filed
 before the Commissioner of Internal Revenue (CIR) a claim for tax refund covering
unutilized input VAT payments attributable to its zero-rated sales transactions for
taxable year 2002.Two days later, on , it filed a petition for review before the CTA. n
its Answer, respondent CIR averred that claims for refund were strictly construed
against the taxpayer as it was similar to a tax exemption. It asserted that the burden to
show that the taxes were erroneous or illegal lay upon the taxpayer. Thus, failure on the
part of Kepco to prove the same was fatal to its cause of action because it was its duty
to prove the legal basis of the amount being claimed as a tax refund. The CTA Second
Division likewise disallowed the P5,170,914.20 of Kepcos claimed input VAT due to
its failure to comply with the substantiation requirement. Specifically, the CTA Second
Division wrote:
[i]nput VAT on purchases supported by invoices or official receipts stamped with TIN-
VAT shall be disallowed because these purchases are not supported by VAT Invoices
under the contemplation of the aforequoted invoicing requirement. To be considered a
VAT Invoice, the TIN-VAT must be printed, and not merely stamped. Consequently,
purchases supported by invoices or official receipts, wherein the TIN-VAT are not
printed thereon, shall not give rise to any input VAT. Likewise, input VAT on purchases
supported by invoices or official receipts which are not NON-VAT are disallowed
because these invoices or official receipts are not considered as VAT Invoices. Hence,
the claims for input VAT on purchases referred to in item (e) are properly disallowed.

ISSUE:
Whether or not petitioner is entitled to the claim for refund on the disallowed portion

RULING:
No. The requirement that the Tax Identification Number (TIN) be imprinted and not
merely stamped is a reasonable requirement imposed by the Bureau of Internal Revenue
(BIR). More importantly, the requirement of the appearance of the words “zero-rated”
on the face of the invoice prevents buyers from falsely claiming input VAT from their
purchases when no VAT was actually paid. The failure to adhere to the said rules will
not only expose the taxpayer to penalties but should also serve to disallow the claim.
Finally, the Court disagreed with the portion that invoices and receipts are
interchangeable since the former clearly refer to sale of goods while the latter to
services.

8. AT&T Comm. Serv. Phils vs. CIR

AT&T COMMUNICATIONS SERVICES PHILIPPINES, INC. vs.

COMMISSIONER OF INTERNAL REVENUE
G.R. No. 182364 August 3, 2010

FACTS: AT&T Communications Services Philippines, Inc. is primarily engaged in the

business of providing information, promotional, supportive and liaison services to foreign
corporations such as AT&T Communications Services International Inc., AT&T Solutions,
Inc., AT&T Singapore, Pte. Ltd.,, AT&T Global Communications Services, Inc. and Acer,
Inc., an enterprise registered with the Philippine Economic Zone Authority (PEZA).

For the calendar year 2002, petitioner incurred input VAT when it generated and recorded
zero-rated sales in connection with its Service Agreements in the peso equivalent of
P56,898,744.05. Petitioner also incurred input VAT from purchases of capital goods and
other taxable goods and services, and importation of capital goods.

Despite the application of petitioner’s input VAT against its output VAT, an excess of
unutilized input VAT in the amount of P2,050,736.69 remained. Petitioner then filed with
the Commissioner of Internal Revenue (respondent) an application for tax refund and/or
tax credit of its excess/unutilized input VAT from zero-rated sales. However it ruled:
“considering that the subject revenues pertain to gross receipts from services rendered by
petitioner, valid VAT official receipts and not mere sales invoices should have been
submitted in support thereof. Without proper VAT official receipts, the foreign currency
payments received by petitioner from services rendered for the four (4) quarters of taxable
year 2002 in the sum of US$1,102,315.48 with the peso equivalent of P56,898,744.05
cannot qualify for zero-rating for VAT purposes.

ISSUE: Whether official receipt must be presented, and not sales invoice, to claim the
zero-rated sales.

HELD: Section 113 of the Tax Code does not create a distinction between a sales invoice
and an official receipt.

Sec. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.

(A) Invoicing Requirements. – A VAT-registered person shall, for every sale,
issue an invoice or receipt.

Section 110. Tax Credits – A. Creditable Input Tax. – (1) Any input tax evidenced by a
VAT invoice or official receipt issued in accordance with Section 113 hereof on the
following transactions shall be creditable against the output tax: (b) Purchase of services
on which a value-added tax has actually been paid.

Parenthetically, to determine the validity of petitioner’s claim as to unutilized input VAT,

an invoice would suffice provided the requirements under Sections 113 and 237 of the Tax
Code are met.

Sales invoices are recognized commercial documents to facilitate trade or credit

transactions. They are proofs that a business transaction has been concluded, hence, should
not be considered bereft of probative value. 9 Only the preponderance of evidence
threshold as applied in ordinary civil cases is needed to substantiate a claim for tax refund
proper.

9. Silicon Phils. Inc. Vs. CIR

Facts:
Petitioner Silicon Philippines, Inc., a corporation duly organized and existing under and
by virtue of the laws of the Republic of the Philippines, is engaged in the business of
designing, developing, manufacturing and exporting advance and large-scale integrated
circuit components or ICs. Petitioner is registered with the Bureau of Internal Revenue
(BIR) as a Value Added Tax (VAT) taxpayer and with the Board of Investments (BOI)
as a preferred pioneer enterprise.
On May 21, 1999, petitioner filed with the respondent Commissioner of Internal
Revenue (CIR), through the One-Stop Shop Inter-Agency Tax Credit and
DutyDrawback Center of the Department of Finance (DOF), an application for
credit/refund of unutilized input VAT for the period October 1, 1998 to December 31,
1998 in the amount of P31,902,507.50, broken down as follows:
Amount
Tax Paid on Imported/Locally Purchased
Capital Equipment P 15,170,082.00
Total VAT paid on Purchases per Invoices
Received During the Period for which
this Application is Filed
16,732,425.50
Amount of Tax Credit/Refund Applied For P 31,902,507.50
On November 18, 2003, the CTA Division rendered a Decision partially granting
petitioners claim for refund of unutilized input VAT on capital goods. Out of the
amount of P15,170,082.00, onlyP9,898,867.00 was allowed to be refunded because
training materials, office supplies, posters, banners, T-shirts, books, and other similar
items purchased by petitioner were not considered capital goods under Section 4.106-
1(b) of Revenue Regulations (RR) No. 7-95 (Consolidated Value-Added Tax
Regulations).With regard to petitioners claim for credit/refund of input VAT
attributable to its zero-rated export sales, the CTA Division denied the same because
petitioner failed to present an Authority to Print (ATP) from the BIR;neither did it print
on its export sales invoices the ATP and the word zero-rated.
Undaunted, petitioner elevated the case to the CTA En Banc via a Petition for
Review,docketed as EB Case No. 23.
On September 30, 2005, the CTA En Banc issued the assailed Decision denying the
petition for lack of merit.
Issue:
• Whether the CTA En Banc erred in denying petitioners claim for credit/ refund of
input VAT attributable to its zero-rated sales
• Whether the CTA En Banc erred in ruling that only the amount ofP9,898,867.00
can be classified as input VAT paid on capital goods.
Ruling:
Credit/refund of input VAT on zero-rated sales
• Under Section 112 (A) of the NIRC, a claimant must be engaged in sales which are
zero-rated or effectively zero-rated. To prove this, duly registered invoices or receipts
evidencing zero-rated sales must be presented. However, since the ATP is not indicated
in the invoices or receipts, the only way to verify whether the invoices or receipts are
duly registered is by requiring the claimant to present its ATP from the BIR. Without
this proof, the invoices or receipts would have no probative value for the purpose of
refund.
• Similarly, failure to print the word zero-rated on the sales invoices or receipts is
fatal to a claim for credit/refund of input VAT on zero-rated sales.
• All told, the non-presentation of the ATP and the failure to indicate the word zero-
rated in the invoices or receipts are fatal to a claim for credit/refund of input VAT on
zero-rated sales. The failure to indicate the ATP in the sales invoices or receipts, on the
other hand, is not. In this case, petitioner failed to present its ATP and to print the word
zero-rated on its export sales invoices. Thus, we find no error on the part of the CTA in
denying outright petitioners claim for credit/refund of input VAT attributable to its
zero-rated sales.
Credit/refund of input VAT on capital goods
To claim a refund of input VAT on capital goods, Section 112 (B)of the NIRC requires
that:
the claimant must be a VAT registered person;
• the input taxes claimed must have been paid on capital goods;
• the input taxes must not have been applied against any output tax liability; and
• the administrative claim for refund must have been filed within two (2) years after
the close of the taxable quarter when the importation or purchase was made.
Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital goods as follows:
Capital goods or properties refer to goods or properties with estimated useful life greater
that one year and which are treated as depreciable assets under Section 29 (f)used
directly or indirectly in the production or sale of taxable goods or services.
Based on the foregoing definition, we find no reason to deviate from the findings of the
CTA that training materials, office supplies, posters, banners, T-shirts, books, and the
other similar items reflected in petitioners Summary of Importation of Goods are not
capital goods. A reduction in the refundable input VAT on capital goods from
P15,170,082.00 to P9,898,867.00 is therefore in order.
10. Renato V. Diaz vs. BIR
Facts:
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this petition
for declaratory relief assailing the validity of the impending imposition of value-added
tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of tollway
operators. Court treated the case as one of prohibition.
Petitioners hold the view that Congress did not, when it enacted the NIRC, intend to
include toll fees within the meaning of "sale of services" that are subject to VAT; that
a toll fee is a "user's tax," not a sale of services; that to impose VAT on toll fees would
amount to a tax on public service; and that, since VAT was never factored into the
formula for computing toll fees, its imposition would violate the non-impairment clause
of the constitution.
The government avers that the NIRC imposes VAT on all kinds of services of franchise
grantees, including tollway operations; that the Court should seek the meaning and
intent of the law from the words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several BIR rulings and
circulars.
The government also argues that petitioners have no right to invoke the non-impairment
of contracts clause since they clearly have no personal interest in existing toll operating
agreements (TOAs) between the government and tollway operators. At any rate, the
non-impairment clause cannot limit the State's sovereign taxing power which is
generally read into contracts.

Issue:
May toll fees collected by tollway operators be subjected to VAT (Are tollway
operations a franchise and/or a service that is subject to VAT)?

Ruling:
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the
latter's use of the tollway facilities over which the operator enjoys private proprietary
rights that its contract and the law recognize. In this sense, the tollway operator is no
different from the service providers under Section 108 who allow others to use their
properties or facilities for a fee.
Tollway operators are franchise grantees and they do not belong to exceptions that
Section 119 spares from the payment of VAT. The word "franchise" broadly covers
government grants of a special right to do an act or series of acts of public concern.
Tollway operators are, owing to the nature and object of their business, "franchise
grantees." The construction, operation, and maintenance of toll facilities on public
improvements are activities of public consequence that necessarily require a special
grant of authority from the state.
A tax is imposed under the taxing power of the government principally for the purpose
of raising revenues to fund public expenditures. Toll fees, on the other hand, are
collected by private tollway operators as reimbursement for the costs and expenses
incurred in the construction, maintenance and operation of the tollways, as well as to
assure them a reasonable margin of income. Although toll fees are charged for the use
of public facilities, therefore, they are not government exactions that can be properly
treated as a tax. Taxes may be imposed only by the government under its sovereign
authority, toll fees may be demanded by either the government or private individuals or
entities, as an attribute of ownership.

11. PAGCOR vs. BIR

FACTS:
The Philippine Amusement and Gaming Corporation (PAGCOR) was created by P.D.
No. 1067-A in 1977. Obviously, it is a government owned and controlled corporation
(GOCC).
In 1998, R.A. 8424 or the National Internal Revenue Code of 1997 (NIRC) became
effective. Section 27 thereof provides that GOCC’s are NOT EXEMPT from paying
income taxation but it exempted the following GOCCs:
1. GSIS
2. SSS
3. PHILHEALTH
4. PCSO
5. PAGCOR
But in May 2005, R.A. 9337, a law amending certain provisions of R.A. 8424, was
passed. Section 1 thereof excluded PAGCOR from the exempt GOCCs hence
PAGCOR was subjected to pay income taxation. In September 2005, the Bureau of
Internal Revenue issued the implementing rules and regulations (IRR) for R.A. 9337.
In the said IRR, it identified PAGCOR as subject to a 10% value added tax (VAT) upon
items covered by Section 108 of the NIRC (Sale of Services and Use or Lease of
Properties).
PAGCOR questions the constitutionality of Section 1 of R.A. 9337 as well as the IRR.
PAGCOR avers that the said provision violates the equal protection clause. PAGCOR
argues that it is similarly situated with SSS, GSIS, PCSO, and PHILHEALTH, hence
it should not be excluded from the exemption.

ISSUE:
Whether or not PAGCOR should be subjected to income taxation.

HELD:
Yes. Section 1 of R.A. 9337 is constitutional. It was the express intent of Congress to
exclude PAGCOR from the exempt GOCCs hence PAGCOR is now subject to income
taxation.
PAGCOR’s contention that the law violated the constitution is not tenable. The equal
protection clause provides that all persons or things similarly situated should be treated
alike, both as to rights conferred and responsibilities imposed.
When the Supreme Court looked into the records of the deliberations of the lawmakers
when R.A. 8424 was being drafted, the SC found out that PAGCOR’s exemption was
not really based on substantial distinctions. In fact, the lawmakers merely exempted
PAGCOR from income taxation upon the request of PAGCOR itself. This was changed
however when R.A. 9337 was passed and now PAGCOR is already subject to income
taxation.
Anent the issue of the imposition of the 10% VAT against PAGCOR, the BIR had
overstepped its authority. Nowhere in R.A. 9337 does it state that PAGCOR is subject
to VAT. Therefore, that portion of the IRR issued by the BIR is void. In fact, Section
109 of R.A. 9337 expressly exempts PAGCOR from VAT. Further, PAGCOR’s charter
exempts it from VAT.
To recapitulate, PAGCOR is subject to income taxation but not to VAT.

12. CIR vs. Aichi Forging Company

FACTS:
Respondent Aichi Forging Company of Asia Inc. is a corporation duly organized and
existing under the laws of the Republic of the Philippines, engaged in the
manufacturing, producing, and processing of steel and its by-products. It is registered
with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) enity and its
products, close impression die steel forgings and tool and dies, are registered with the
Board of Investment (BOI) as a pioneer status.
On September 30, 2004, respondent filed a claim for refund or credit of input vat for
the period JUly 1, 2002 to September 30, 2002 in the total amount of P3, 891, 123.82
with the petitioner CIR through the Department of Finance (DOF).
Aichi contended that they are entitled for a refund because they generated and recorded
zero-rated sales in the amount of P131,791,399.00 which was paid pursuant to Sec. 106
(A) (2)(a)(1), (2) and (3) of the NIRC. That for the above stated period, they incurred
and paid input VAT Amounting to P3,912,088.14 from purchases and importation
attributable to its zero-rated sales.
On the other hand, CIR contended that Aichi must prove that the claim was filed within
the two year period prescribed in SEc. 229 of the Tax Code.
The Court of TAx Appeals rendered its decision partially granting Aichi's claim for
refund or credit. For a VAT registered entity whose sales are zero-rated, to validly claim
a refund, Section 112 (A) of the NIRC of 1997 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 refuind 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.
The CTA finds that the first three requirements have been complied with the Aichi. As
regards the fourth requirement, the Court finds that there are some documents and
claims of AIchi thar are baseless and have not been satisfactorily substantiated.
Then, CIR filed a Motion for Reconsideration before the CTA second division,
however, it was denied. CTA En BAnc affirmed the second division decision. Hence,
this is petition.

Issue:
WON Aichi's claim for tax refund or credit were filed within two year prescriptive
period provided in the NIRC.
Ruling:
The SC reversed the decision of CTA En Banc on the grounds that the unutilized input
VAT must be claimed within two years. It is clear that Sec. 112 (A) of the NIRC
providing a two-year prescriptive period reckoned from the close of the taxable quarter
when the relevant sales or transactions were made pertaining to the creditable input
VAT, applies to the instant case, and not to the other actions which refer to erroneous
payment of taxes.

CTA En Banc erroneously apllied Secs. 114 (A) and 229 of the NIRC in computing the
two-year prescriptive period for claiming refund or credit of unutilized input VAT.
Thus, the two year period should be reckoned from the close of the taxable quarter when
the sales were made.

13. Fort Bonifacio Development Corp. Vs. CIR

Facts:
Petitioner Fort Bonifacio Development Corporation (FBDC) is engaged in the
development and sale of real property. In 1995, Fort Bonifacio Development
Corporation purchased from the national government a portion of the Fort Bonifacio
reservation. On January 1, 1996, the enactment of RA 7716 extended the coverage of
VAT to real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business. Thus, FBDC sought to register by submitting to
BIR an inventory of all its real properties, the book value of which aggregated to about
P71 B.
In October 1996, FBDC started selling Global City lots to interested buyers. For the
first quarter of 1997, it paid the output VAT by making cash payments to the BIR and
credited its unutilized input tax credit on purchases of goods and services. Realizing
that its 8% transitional input tax credit was not applied in computing its output VAT
for the first quarter of 1997, FBDC filed with the BIR a claim for refund of the amount
erroneously paid as output VAT for the said period.
The CTA denied refund on the ground that “the benefit of transitional input tax
credit comes with the condition that business taxes should have been paid first.” It
contends that since FBDC acquired the Global City property under a VAT-free sale
transaction, it cannot avail of the transitional input tax credit. The CTA likewise pointed
out that under RR 7-95, implementing Section 105 of the old NIRC, the 8% transitional
input tax credit should be based on the value of the improvements on land such as
buildings, roads, drainage system and other similar structures, constructed on or after
January 1, 1998, and not on the book value of the real property.

Issues:
1. WON prior payment of taxes is required in availing of the transitional input tax
credit
2. WON the transitional input tax credit applies only to the value of improvements

Held:
1. No. First, nothing in Sec 105 of the NIRC indicates that prior payment of taxes is
necessary to avail of the transitional input tax credit. Clearly, all it requires is for the
taxpayer to file a beginning inventory with the BIR. Courts cannot limit the application
or coverage of a law nor can it impose conditions not provided therein because to do so
constitutes judicial legislation.
Second, prior payment of taxes is not required to avail of the transitional input tax credit
because it is not a tax refund per se but a tax credit.
Tax credit is not synonymous to tax refund. Tax refund is defined as the money that
a taxpayer overpaid and is thus returned by the taxing authority. Tax credit, on the other
hand, is an amount subtracted directly from one’s total tax liability. It is any amount
given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment.
Thus, unlike a tax refund, prior payment of taxes is not a prerequisite to avail of a tax
credit.
2. No. Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit
to the value of the improvement of the real properties, is a nullity. The 8% transitional
input tax credit should not be limited to the value of the improvements on the real
properties but should include the value of the real properties as well.
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. At the very beginning, the VAT-registered taxpayer
is obliged to remit a significant portion of the income it derived from its sales as output
VAT. The transitional input tax credit mitigates this initial diminution of the taxpayers
income by affording the opportunity to offset the losses incurred through the remittance
of the output VAT at a stage when the person is yet unable to credit input VAT
payments.
Hence, since FBDC is entitled to the 8% transitional input tax credit which is more
than sufficient to cover its output tax for the first taxable quarter, the amount of VAT
output taxes erroneously paid must be refunded.

14. CIR vs. Benguet Corp.

15. CIR vs. SM Prime Holdings
Facts:
Respondents SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development
Corporation (First Asia) are domestic corporations duly organized and existing under
the laws of the Republic of the Philippines. Both are engaged in the business of
operating cinema houses, among others.
Both received Preliminary Assessment Notice that they have VAT deficiencies.
Subsequently they received They paid under protest. It was denied. Respondents
contended they are not subject to pay VAT because they are not included in the
enumeration provided in Section 105 of the NIRC.
Respondents' Arguments
Respondents, on the other hand, argue that a plain reading of Section 108 of the NIRC
of 1997 shows that the gross receipts of proprietors or operators of cinemas/theaters
derived from public admission are not among the services subject to VAT. Respondents
insist that gross receipts from cinema/theater admission tickets were never intended to
be subject to any tax imposed by the national government. According to them, the
absence of gross receipts from cinema/theater admission tickets from the list of services
which are subject to the national amusement tax under Section 125 of the NIRC of 1997
reinforces this legislative intent. Respondents also highlight the fact that RMC No. 28-
2001 on which the deficiency assessments were based is an unpublished administrative
ruling.
Petitioner's Arguments
Petitioner argues that the enumeration of services subject to VAT in Section 108 of the
NIRC is not exhaustive because it covers all sales of services unless exempted by law.
He claims that the CTA erred in applying the rules on statutory construction and in
using extrinsic aids in interpreting Section 108 because the provision is clear and
unambiguous. Thus, he maintains that the exhibition of movies by cinema operators or
proprietors to the paying public, being a sale of service, is subject to VAT.
Issue:
Whether gross receipts derived from admission tickets by cinema/theater operators or
proprietors are subject to VAT.
Held:
No.A cursory reading of the foregoing provision clearly shows that the enumeration of
the "sale or exchange of services" subject to VAT is not exhaustive. The words,
"including," "similar services," and "shall likewise include," indicate that the
enumeration is by way of example only.
What is Vatable 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. As
pointed out by the CTA En Banc:
"Exhibition" in Black's Law Dictionary is defined as "To show or display. x x x To
produce anything in public so that it may be taken into possession" (6th ed., p. 573).
While the word "lease" is defined as "a contract by which one owning such property
grants to another the right to possess, use and enjoy it on specified period of time in
exchange for periodic payment of a stipulated price, referred to as rent .
Hence it is not subject to VAT.

16. CIR vs. Philippines American Accident Insurance

FACTS:
Respondents are domestic corporations licensed to transact insurance business in the
country. From Aug. 1971 to Sep. 1972, respondents paid the BIR under protest the 3%
tax imposed on lending investors by Sec. 195-A4 of Commonwealth Act No. 466, the
NIRC applicable at that time.
Respondents sent a letter-claim to CIR seeking a refund of the taxes amounting to
P29,595.02, but the latter did not give any response, and so each respondent filed a
petition for review with the CTA. Respondents argued that they we’re not lending
investors and as such, were not subject to the 3% lending investors tax under sec 195-
A.
CTA ruled that respondents we’re not taxable on their lending transactions
indenpendently of their insurance business and were entitled to their refund. In its
decision it also stated that respondents are not taxable as lending investors because the
term “lending investors” does not embrace insurance companies. CIR appealed to CA,
CA affirmed CTA’s decision.

ISSUE:
Whether on not insurance companies are subject to 3% percentage tax as lending
investors under sec. 182 (A)(3)(DD) and 195-A, respectively in relation to sec. 194(U)
all of the NIRC

HELD:
No. SC ruled that respondents are not liable to the 3% percentage tax. The definition of
lending investors under CA No. 466 does not include insurance companies. The court
also said that when a company is taxed on its main business, it is no longer taxable
further for engaging in an activity or work which is merely a part of, incidental to and
is necessary to its main business.
CA No. 466 do not require companies to pay double percentage and fixed taxes.
They merely tax lending investors and not the lending activities. It is against the
doctrine of strict implementation of tax impositions