SYLLABUS IN TAX 2
CIR vs. Magsaysay Lines GR No.
A. Value-Added Tax - (Secs. 105 to 115 of
the NIRC as amended by RA 10963)
I. VAT In General
It is a tax on consumption levied on the
sale, barter, exchange or lease of goods
or properties or services in the
Philippines and on importation of goods
into the Philippines
a. Nature and characteristic of VAT in general
Sec. 4.105.-2 of RR No. 16-05
 It is an indirect tax.
 It is a tax on value added of the
taxpayer (Value Added). It is the value
added to the raw materials or to the
purchases, other than the labor
component of the goods or service by
the producer before its sale.
 It is a transparent form of sales tax (it
is required that it is shown as a
separate item in the Vat invoice/
receipt)
 It is broad based there is VAT on every
stage of the taxable sales of goods,
properties or services
 It is collected through tax credit
method or invoice method—the input
tax shifted by the seller to the buyer is
credited against the buyer’s output
taxes when he in turn sells the taxable
goods, properties or services.
 It does not cascade (tax on tax) hence
there is no tax pyramiding. Cascading,
tax passed on by previous seller which
is now a component of gross selling
price/ receipts of the seller is again
subjected to tax.
 It adopts the tax-inclusive method.
Unless otherwise stated, any price
charged by a VAT registered person
shall be deemed to include the VAT
charged.
 It follows the Destination Principle/
Cross Boarder Doctrine (goods and
services are taxed only in the country
where these are consumed.
146984, July 28, 2006
Facts: Pursuant to a government program of privatization,
National Devt Co 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.
(Magsaysay Lines) offered to buy the shares and the vessels
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).4 The bid was approved by the Committee on
Privatization, and a Notice of Award dated 1 July 1988 was
issued to Magsaysay Lines.
A Contract of Sale was executed between NDC and
Magsaysay wherein it was stipulated that the "[v]alue-added
tax shall be shouldered by the purchaser.
Per arrangement, an irrevocable confirmed Letter of Credit
previously filed as bidders bond was accepted by NDC as
security for the payment of VAT, if any. By this time, 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) by the law firm of Sycip Salazar
Hernandez & Gatmaitan, presumably in behalf of private
respondents.
Thus, the parties agreed that should no favorable ruling be
received from the BIR, NDC was authorized to draw on the
Letter of Credit upon written demand the amount needed for
the payment of the VAT on the stipulated due date, 20
December 1988.6
In January of 1989, private respondents through counsel
received VAT Ruling No. 568-88 dated 14 December 1988
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]."7
Private respondents moved for the reconsideration but was
denied. On 10 April 1989, private respondents filed an
Appeal and Petition for Refund with the CTA
CTA granted the petition and ruled that the sale of a vessel
was an "isolated transaction," not done in the ordinary
course of NDC’s business, and was thus not subject to VAT,
which under Section 99 of the Tax Code, was applied only to
sales in the course of trade or business.
CIR appealed to CA which reversed the decision of CTA.
However, the Court of Appeals reversed itself upon
reconsidering the case, through a Resolution dated 5
February 2001.13 This time, the appellate court ruled that the
"change of ownership of business" as contemplated in R.R.
1
No. 5-87 must be a consequence of the "retirement from or
cessation of business" by the owner of the goods, as
provided for in Section 100 of the Tax Code. The Court of
Appeals also agreed with the CTA that the classification of
transactions "deemed sale" was a classification statute, and
not an exemption statute, thus warranting the resolution of
any doubt in favor of the taxpayer.14
Issue: Whether the sale by the National Development
Company (NDC) of five (5) of its vessels to the private
respondents is subject to value-added tax (VAT) under the
National Internal Revenue Code of 1986 (Tax Code) then
prevailing at the time of the sale.
The conclusion that the sale was not in the course of trade or
business, which the CIR does not dispute before this
Court,24 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.
Accordingly, the Court rules that given the undisputed finding
that the transaction in question was not made in the course
of trade or business of the seller, NDC that is, the sale is not
subject to VAT pursuant to Section 99 of the Tax Code, no
matter how the said sale may hew to those transactions
deemed sale as defined under Section 100.
CIR vs. Seagate Technology (Phils) GR
No. 153866 February 11, 2005
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. 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) pursuant to Presidential Decree No. 66, as
amended, to engage in the manufacture of recording
components primarily used in computers for export.
Respondent is VAT registered entity
VAT returns for the period 1 April 1998 to 30 June 1999 have
been filed by [respondent]. The administrative claim for
refund by the [respondent] on October 4, 1999 was not acted
upon by the [petitioner] prompting the [respondent] to elevate
the case to [the CTA]
Petitioner asserted ‘taxes are presumed to have been
collected in accordance with laws and regulations,’ the
[respondent] has the burden of proof that the taxes sought to
be refunded were erroneously or illegally collected. A
claimant has the burden of proof to establish the factual
basis of his or her claim for tax credit/refund."
The CA affirmed the Decision of the CTA granting the claim
for refund or issuance of a tax credit certificate (TCC) in
favor of respondent in the reduced amount
of P12,122,922.66. This sum represented the unutilized but
substantiated input VAT paid on capital goods purchased for
the period covering April 1, 1998 to June 30, 1999. Hence
this Petition.5
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."6
Ruling: Entitlement of a VAT-Registered PEZA Enterprise to
a Refund of or Credit for Input VAT
No doubt, as a PEZA-registered enterprise within a special
economic zone,7 respondent is entitled to the fiscal incentives
and benefits8 provided for in either PD 66 9 or EO 226.10 It
shall, moreover, enjoy all privileges, benefits, advantages or
exemptions under both Republic Act Nos. (RA) 722711 and
7844.12
A company registered with the Philippine Economic Zone
Authority as a resident withholding agent operating within an
economic zone, cannot bear the burden of VAT since it is an
entity exempt from internal revenue laws under RA 7916.
Considering that the resident withholding agent is a PEZA
registered enterprise operating within an economic zone, it
can neither be directly charged with VAT nor indirectly made
to bear the VAT as added cost.
Business companies registered in and operating from the
Special Economic Zone in Naga, Cebu -- like herein
respondent -- are entities exempt from all internal revenue
taxes and the implementing rules relevant thereto, including
the value-added taxes or VAT. Although export sales are not
deemed exempt transactions, they are nonetheless zero-
rated. Respondent, a VAT-registered enterprise, has
complied with all requisites for claiming a tax refund of or
credit for the input VAT it paid on capital goods it purchased.
Thus, the Court of Tax Appeals and the Court of Appeals did
not err in ruling that it is entitled to such refund or credit.
b. VAT as an indirect tax
It is an indirect tax. The amount of
tax maybe shifted on by the seller to
the buyer, transferee or lessee of
goods, properties or services.
Contex vs. CIR GR No. 151135 dated
July 2, 2004
Facts: Petitioner is a domestic corporation engaged
in the business of manufacturing hospital textiles
and garments and other hospital supplies for export.
Petitioner’s place of business is at the Subic Bay
Freeport Zone (SBFZ). It is duly registered with the
Subic Bay Metropolitan Authority (SBMA) as a Subic
Bay Freeport Enterprise, pursuant to the provisions
of Republic Act No. 7227. As an SBMA-registered
4
firm, petitioner is exempt from all local and national
internal revenue taxes except for the preferential tax
provided for in Section 12 (c) of Rep. Act No. 7227.
5
2
Petitioner also registered with the Bureau of Internal
Revenue (BIR) as a non-VAT taxpayer under
Certificate of Registration RDO Control No. 95-180-
000133.
From January 1, 1997 to December 31, 1998,
petitioner purchased various supplies and materials
necessary in the conduct of its manufacturing
business. The suppliers of these goods shifted unto
petitioner the 10% VAT on the purchased items,
which led the petitioner to pay input taxes in the
amounts of P539,411.88 and P504,057.49 for 1997
and 1998, respectively. 6
Acting on the belief that it was exempt from all
national and local taxes, including VAT, pursuant to
Rep. Act No. 7227, petitioner filed two applications
for tax refund or tax credit of the VAT it paid. But it
was denied.
Issue: Simply stated, we shall resolve now the
issues concerning: (1) the correctness of the finding
of the Court of Appeals that the VAT exemption
embodied in Rep. Act No. 7227 does not apply to
petitioner as a purchaser; and (2) the entitlement of
the petitioner to a tax refund on its purchases of
supplies and raw materials for 1997 and 1998.
At this juncture, it must be stressed that the VAT is
an indirect tax. As such, the amount of tax paid on
the goods, properties or services bought,
transferred, or leased may be shifted or passed on
by the seller, transferor, or lessor to the buyer,
transferee or lessee. Unlike a direct tax, such as
17
the income tax, which primarily taxes an individual’s
ability to pay based on his income or net wealth, an
indirect tax, such as the VAT, is a tax on
consumption of goods, services, or certain
transactions involving the same. The VAT, thus,
forms a substantial portion of consumer
expenditures.
Further, in indirect taxation, there is a need to
distinguish between the liability for the tax and the
burden of the tax. As earlier pointed out, the amount
of tax paid may be shifted or passed on by the seller
to the buyer. What is transferred in such instances is
not the liability for the tax, but the tax burden. In
adding or including the VAT due to the selling price,
the seller remains the person primarily and legally
liable for the payment of the tax. What is shifted only
to the intermediate buyer and ultimately to the final
purchaser is the burden of the tax. Stated 18
differently, a seller who is directly and legally liable
for payment of an indirect tax, such as the VAT on
goods or services is not necessarily the person who
ultimately bears the burden of the same tax. It is the
final purchaser or consumer of such goods or
services who, although not directly and legally liable
for the payment thereof, ultimately bears the burden
of the tax.
19
Under Zero-rating, all VAT is removed from the zero-
rated goods, activity or firm. In contrast, exemption
only removes the VAT at the exempt stage, and it
will actually increase, rather than reduce the total
taxes paid by the exempt firm’s business or non-
retail customers. It is for this reason that a sharp
distinction must be made between zero-rating and
exemption in designating a value-added tax. 23
On the second issue, it may not be amiss to re-
emphasize that the petitioner is registered as a
NON-VAT taxpayer and thus, is exempt from VAT.
As an exempt VAT taxpayer, it is not allowed any tax
credit on VAT (input tax) previously paid. In fine,
even if we are to assume that exemption from the
burden of VAT on petitioner’s purchases did exist,
petitioner is still not entitled to any tax credit or
refund on the input tax previously paid as petitioner
is an exempt VAT taxpayer.
Rather, it is the petitioner’s suppliers who are the
proper parties to claim the tax credit and accordingly
refund the petitioner of the VAT erroneously passed
on to the latter.
c. Persons Liable (Sec. 105)
(1) Persons liable in general
 Any person who in the course of trade
or business
o Sells, barters, or exchanges
goods or properties, leases
goods or properties
o Renders services
 Imports goods(importer) the person
who brings goods into the Philippines
whether or not made in the course of
trade or business
CIR vs. CA & CMS GR No. 125355,
March 30, 2000
(2) Who are required to register for VAT
Sec. 236(G), [Sec. 9.236-1 of RR
No. 16-05]
a. Person who in the ocurse of trade
or business, sells, barters or
exchanges goods or properties or
engages in the sale or exchange of
services, shall be liable to register
for VAT if:
i. His gross sales or
receipts for the past 12
months other than
those that are exempt
under Section 109A to
U have exceeded
P1919500
ii. There are reasonable
3
 grounds to believe that
his gross sales or
receipts for the next 12
months other than
those that are exempt
under Section 109A to
U will exceed
P1919500
b. Any person who is required to
register but failed to do so. As a
form of penalty he shall not be
liable to output tax in his taxable
sales
(3) Optional VAT Registration (Sec. 236 H)
[Sec. 9.236-1 of RR No. 16-05]
(1) Any person who is not required
to register for value-added tax under
Subsection (G) hereof may elect to
register for value-added tax by
registering with the Revenue District
Office that has a jurisdiction over
the head office of that person, and
paying the annual registration fee in
Subsection (B) hereof.
(2) Any person who elects to register
under this Subsection shall not be
entitled to cancel his registration
under Subsection (F) (2) for the next
three (3) years.
For purposes of Title IV of this code,
any person who has registered
value-added tax as a tax type in
accordance with the provisions of
Subsection (C) hereof shall be
referred to as a "VAT-registered
person" who shall be assigned only
one Taxpayer Identification Number
(TIN).
d. Meaning of the phrase “in the course of
trade of business” (Sec. 105)
Sec. 4.105-3 of RR No. 16-05
SEC. 105. Persons Liable. - Any
person who, in the course of trade or
business, sells barters, exchanges,
leases goods or properties, renders
services, and any person who
imports goods shall be subject to
the value-added tax (VAT) imposed in
Sections 106 to 108 of this Code.
The value-added tax is an indirect
tax and the amount of tax may be
shifted or passed on to the buyer,
transferee or lessee of the goods,
properties or services. This rule
shall likewise apply to existing
contracts of sale or lease of goods,
properties or services at the time of
the effectivity of Republic Act No.
7716.
The phrase "in the course of trade or
business" means the regular
conduct or pursuit of a commercial
or an economic activity, including
transactions incidental thereto, by
any person regardless of whether or
not the person engaged therein is a
non-stock, nonprofit private
organization (irrespective of the
disposition of its net income and
whether or not it sells exclusively to
members or their guests), or
government entity.
The rule of regularity, to the
contrary notwithstanding, services
as defined in this Code rendered in
the Philippines by nonresident
foreign persons shall be considered
as being rendered in the course of
trade or business.
CIR vs. Magsaysay Lines GR No.
146984 dated July 28, 2006
Mindanao II Geothermal Partnership
vs. CIR, GR No. 193301 dated March
11,2013
the sale of motor vehicle forming part of the
taxpayer’s property and equipment which is an
incidental transaction made in the course of the
taxpayer’s business is subject to tax
4
 CIR vs. Sony Phils, Inc. G.R. No.
178697, November 17, 2010
Power Sector Assets and Liabilities
Management Corporation vs. CIR, GR
No. 198146 dated August 8, 2017
e. Exceptions to the Rule of Regularity
f. Output Tax vs. Input Taxes
(1) Sources of Input Tax (Sec. 110
A)
(2) Excess Output or Input Tax (Sec.
110 B)
(3) Rule on Input Tax on Capital
Goods (Sec. 4.110-3 of RR No.
16-05)
1. Sec. 4.110-3 of RR No. 16-05
as amended by Sec. 16 of RR 4-
2007
2. Sec. 4.110-3 of RR No. 13-
2018
(4) Substantiation of Input Tax
Credits (Sec. 4.110-8 of RR No.
16-05)
CIR vs. Sony Phils, Inc. G.R. No.
178697, November 17, 2010
II. Vatable Transactions
1. Vatable Sale on Goods & Services
a. Definition of goods and services
(Sec. 106 and Sec. 108)
b. VAT base for goods and services
(Sec. 106 and Sec.108)
c. Meaning of gross selling price
and gross receipts (Sec. 106 and
Sec.108)
Sec. 11 of RR No. 4-07
Medicard Philippines, Inc. vs.
CIR, GR No. 222743 dated
April 5, 2017
d. Rules on sales of Real Property
(1) Rule on Sales on Instalment
[RR No. Sec. 4.106-3 of RR
No. 16-05 as amended by
Sec. 3 of RR No. 4-07]
(2) Rule on sale of real property
used in business (Sec. 14 (l)
of RR No. 4-07)
(3) Correlate with Sec. 109 on
exempt sales of Real
Property
(4) Amendments of Section 109
on Enumerated VAT-exempt
Transactions under Rep. Act
No. 10963 (TRAIN) on
Threshold of Real Property
exempt from VAT.
e. Transactions deemed sale (Sec.
106 B)
(1) Rationale of Imposition
(2) Enumeration – Sec. 4.106-7
RR No. 16-05
(3) Tax Base of Transactions
Deemed Sale
f. Rules for Certain Services
(1) Common Carriers
Secs. 108, 109(S) 116, 117
and 118 (as amended by RA
10963)
Sec. 4.108-2 Nos. 11 and 12
of RR No. 16-05
Sec. 4.108-3 of RR No. 16-05
(2) Lease of Properties
Sec. 4.108-3 of RR No. 16-05
Lease of Residential Units -
[Sec. 4.109-1 (B)(q) of RR
No. 16-05]
Amendments of Section 109
on Enumerated VAT-exempt
Transactions under Rep. Act
No. 10963 (TRAIN) on
Threshold of Lease of
Residential Units exempt
from VAT.
(3) Professional Services
(4) Medical Services
Sec. 4.109-1 (B)(g) of RR No.
16-05
Philippine Healthcare
Providers vs. CIR GR No.
168129 April 24, 2007
(5) Cinema Operators
/Proprietors
CIR vs. SM Prime Holdings,
Inc. GR No. 183505 dated
February 26, 2010
(6) VAT on Toll Fees
Diaz vs. The Secretary of
Finance and CIR, GR No.
193007. July 19, 2011
(7) Franchise Grantees
CIR vs. SM Prime Holdings,
Inc. GR No. 183505 dated
February 26, 2010
2. VAT on Importations
a. VAT Imposition on Importation
(Sec. 107)
a. Exempt Importations under Sec.
109
b. Transfer of Goods by Tax-exempt
Persons (Sec. 107 B)
c. Amendments of Section 109 on
5
 Enumerated VAT-exempt
Transactions under Rep. Act No.
10963 (TRAIN)
III. Zero-rated Sales & VAT-exempt
Transactions
a. Nature of Zero Rated Sales
b. Zero Rated Sale of Goods (Sec.
106) (See Sec 2 RR 13-2018
amending Sec 4.106-5 of RR 16-
2005)
c. Zero Rated Sale of Services (Sec.
108 B) (See Sec 2 RR 13-2018
amending Sec 4.108-5 of RR 16-
2005)
CIR vs. American Express GR No.
152609 dated June 29, 2005
CIR vs. Burmeister and Wain GR
No. 153205 dated Jaunary22,
2007
CIR vs. Acesite GR No. GR No.
147295 dated February 16, 2007
d. Automatic zero-rate vs.
Effectively zero-rate
CIR vs. Seagate Technology
(Phils) GR No. 153866 February
11, 2005
CIR vs. Toshiba Information
Equipment GR No. 150154 dated
August 9, 2005
e. Destination principle and cross
border doctrine
CIR vs. American Express GR No.
152609 dated June 29, 2005
CIR vs. Toshiba Information
Equipment GR No. 150154 dated
August 9, 2005
f. Zero Rated Sales vs. Exempt
Sales
CIR vs. Cebu Toyo Corp. GR No.
149073 dated February 16, 2005
g. Enumeration of Exempt
Transactions (Sec. 109)
Sec. 4.109-1 (B) of RR No. 16-05
as amended by RR 13-2018
h. Exempt Persons vs. Exempt
Transactions
CIR vs. Seagate Technology
(Phils) GR No. 153866 February
11, 2005
i. Amendments under Rep. Act No.
10378
j. Amendments of Section 106 on
Enumerated Export Sales under
Rep. Act No. 10963 (TRAIN) &
the Vetoed Provisions
k. Amendments of Section 108 on
Enumerated Zero-Rated
Services under Rep. Act No.
10963 (TRAIN) & the Vetoed
Provisions
l. Amendments of Section 109 on
Enumerated VAT-exempt
Transactions under Rep. Act No.
10963 (TRAIN)
IV. Transitional & Presumptive Input
Taxes
a. Sec. 4.111-1 of RR No. 16-05
Fort Bonifacio Development vs.
CIR GR No. 158885 dated April 2,
2009
V. VAT Claim for Refund
a. Compare with Sec. 204 and 229
b. Grounds
c. Periods
Sec. 112 of the NIRC (as amended
by RA 10963)
RMC No. 17-2018
Contex vs. CIR GR No. 151135
dated July 2, 2004
Atlas Consolidated Mining vs. CIR
GR Nos. 141104 and 148763 June
8, 2007
CIR vs. Mirant Pagbilao Corp. GR
No. 172129 dated September 12,
2008
CIR vs. Mirant Pagbilao Corp. GR
No. 172129 dated September 12,
2008
CIR vs. San Roque Power (GR No.
187485 dated February 12,
2013) and other cases (take
note of old rule and compare
with new provision under the
TRAIN Law)
Microsoft Phils., Inc. vs. CIR, GR
No. 180173 dated April 6, 2011
Coca-Cola Bottlers Philippines,
Inc. vs. CIR, GR No. 222428 dated
February 19, 2018
d. Amendments of Section 112
under Rep. Act No. 10963
(TRAIN) on Change of Period
from 120 to 90 days and No
Inaction Provisions and
Penalties for BIR Inaction. (See
Sec 2 RR 13-2018 amending Sec
4.112-1 of RR 16-2005)
VI. Other Matters
a. Invoicing Requirements
(Sec. 113) [Sec. 4.1113-1 of RR
No. 16-05]
Silicon Phils., Inc. vs. CIR, GR
No. 172378 dated January 17,
2011 (take note of
RMO No. 12-2013)
b. Information which must be
contained (Sec. 113)
6
c. Consequences of Issuing
Erroneous VAT Invoice
(Sec. 113) [ RR No. 4.113-4 of
RR No. 16-05]
d. Filing of Monthly and Quarterly
VAT Returns and Payment of
VAT (Sec. 114)
e. Amendments of Section 114
under Rep. Act No. 10963
(TRAIN) on Changes in Filing
to Quarterly Filing of VAT
Return (See Sec 2 RR 13-2018
amending Sec 4.114-1 of RR 16-
2005)
f. Withholding VAT (Sec. 114 C)
[Sec. 4.114-2 of RR No. 16-05 as
amended by Sec. 22 of RR No. 4-
07 and RR 13-2018]
(1) Government payments
(2) Amendments of Section
114 under Rep. Act No.
10963 (TRAIN) on Change
from Final Withholding
VAT to Creditable
Withholding VAT on
Government Payments
(3) Services Rendered by Non-
residents
(4) Withholding VAT
Returns/Time of Payment
(5) Power of the Commissioner
to Suspend Business
Operations (Sec.5) [Sec.
4.115-1 of RR No. 16-05]