Professional Documents
Culture Documents
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G.R. No. 153866. February 11, 2005.
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* THIRD DIVISION.
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PANGANIBAN, J.:
The Case
1
Before us is a Petition for Review under Rule 45 of the
Rules of2 Court, seeking to set aside the May 27, 2002
Decision of the Court of Appeals (CA) in CA-G.R. SP No.
66093. The decretal portion of the Decision reads as
follows:
The Facts
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“On July 19, 2001,4 the Tax Court rendered a decision granting the
claim for refund.”
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official receipts, and were not yet offset against any output
VAT liability. 5
Hence this Petition.
Sole Issue
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5 The Petition was deemed submitted for decision on April 3, 2003, upon receipt
by the Court of petitioner’s Memorandum, signed by Assistant Solicitors General
Cecilio O. Estoesta and Fernanda Lampas Peralta and Associate Solicitor Romeo
D. Galzote. Respondent’s Memorandum, signed by Attys. Dennis G. Dimagiba and
Franklin A. Prestousa, was filed on March 7, 2003.
138
Sole Issue:
Entitlement of a VAT-Registered PEZA Enterprise to
a Refund of or Credit for Input VAT
No doubt, as a PEZA-registered
7
enterprise within a special
economic zone, respondent
8
is entitled to the9 fiscal
incentives
10
and benefits provided for in either PD 66 or EO
226. It shall, moreover, enjoy all privileges, benefits,
advantages11
or exemptions
12
under both Republic Act Nos.
(RA) 7227 and 7844.
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13 §17(1) of PD 66.
14 §18 of PD 66.
15 Article 77(1), Book VI of EO 226.
16 Article 39 of EO 226, certain paragraphs of which are expressly
repealed by the 2nd paragraph of §20 of RA 7716, otherwise known as the
“Expanded Value Added Tax Law,” deemed effective May 27, 1994. See
Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,
406 SCRA 178, 187, July 15, 2003.
17 Article 78 of EO 226.
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34
The law that originally imposed the VAT in the country,
as well as the subsequent amendments of35 that law, has
been drawn from the tax credit method. Such method
adopted the mechanics and self-enforcement features of the
VAT as first implemented and practiced in Europe 36
and
subsequently adopted in New Zealand and Canada. Under
the present method that relies on invoices, an entity can
credit against or subtract from the VAT charged on its
sales or 37outputs the VAT paid on its purchases, inputs and
imports. 38
If at the end of 39
a taxable quarter the output
40
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
41
exceed the input taxes that the excess has to
be paid. If, however, the input taxes exceed the output
taxes, the excess
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34 EO 273.
35 Vitug, J. and Acosta, Tax Law and Jurisprudence (2nd ed., 2000), p.
227.
See §193(d) of the National Internal Revenue Code of 1977 as further amended by
§1 of Pres. Decree No. 1358 dated April 21, 1978, wherein the tax credit method,
instead of the cost deduction method, was mandated to be applied in computing
the VAT due.
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38 “Output taxes” refer to the VAT due on the sale or lease of taxable
goods, properties or services by a VAT-registered or VAT-registrable
person. See last paragraph of §110(A)(3) and §236 of the Tax Code.
39 Presumed to be VAT-registered.
40 By “input taxes” is meant the VAT due from or paid by a VAT-
registered person in the course of trade or business on the importation of
goods or local purchases of goods or services, including the lease or use of
property from a VAT-registered person. See penultimate paragraph of
§110(A)(3) of the Tax Code.
41 §110(B) of the Tax Code.
VAT-registered persons shall pay the VAT on a monthly basis. §114(A) of the Tax
Code.
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Effectively zero-rated
50
transactions,51 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 52
effectively subjects such transactions to a zero rate. Again,
as applied to the tax base, such rate does not yield any tax
chargeable against the purchaser. The seller who charges
zero output tax on such transactions can also claim a
refund of or a tax credit certificate for the VAT previously
charged by suppliers.
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57
there is only partial relief, because the purchaser is58not
allowed any tax refund of or credit for input taxes paid.
Exempt Transaction
and Exempt Party
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57 Id., p. 121.
58 De Leon, pp. 133 & 135.
59 Deoferio, Jr. and Mamalateo, supra, p. 118.
60 Id., p. 132.
61 Id., pp. 132-133.
62 De Leon, p. 132.
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70
fiction of71
foreign territory. Under the cross-border
principle of the VAT system 72
being enforced by the Bureau
of Internal Revenue (BIR), no VAT shall be imposed to
form part of the cost of goods destined for consumption
outside of the territorial border of the taxing authority. If
exports of goods and services from 73the Philippines to a
foreign country are free of the VAT, then the same rule
holds for such exports from the national territory—except
specifically declared areas—to an ecozone.
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
74
territory are deemed imports from a foreign country. An
ecozone—indubitably a geographical territory of the
Philippines—is,
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A “customs territory” means the national territory of the Philippines outside of the
proclaimed boundaries of the ecozones, except those areas specifically declared by
other laws and/or presidential proclamations to have the status of special economic
zones and/or free ports. §2.g, Rule 1, Part I of the “Rules and Regulations to
Implement Republic Act No. 7916, otherwise known as ‘The Special Economic
Zone Act of 1995.’ ”
987, 1009; 261 SCRA 236, August 29, 1996, per Vitug, J., citing RMC 10-86. See
§2(2), Chapter 1, Book VII of Executive Order No. (EO) 292, otherwise known as
the “Administrative Code of 1987” dated July 25, 1987.
148
75
however, regarded in law as foreign soil. This legal fiction
is necessary to give meaningful 76
effect to the policies of the
special law creating the zone.
77
If respondent is located in
an export processing zone within that ecozone, sales to the
export processing zone, even without being actually
exported, shall78in fact be viewed as constructively
79
exported
under EO 226. Considered as export sales, such purchase
transactions
80
by respondent would indeed be subject to a
zero rate.
Tax Exemptions
Broad and Express
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75 This zone is akin to the former army bases or installations within the
Philippines. Saura Import and Export Co., Inc. v. Meer, 88 Phil. 199, 202,
February 26, 1951.
76 Deoferio, Jr. and Mamalateo, supra, p. 199.
77 An “export processing zone” is a specialized industrial estate located
physically and/or administratively outside customs territory,
predominantly oriented to export production, and may be contained in an
ecozone. §4(a) and (d), Chapter I of RA 7916.
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90
Fifth, export processing zone enterprises registered with
the Board of Investments (BOI) under EO 226 patently
enjoy exemption from national internal revenue taxes on
imported capital equipment reasonably needed 91and
exclusively used for the manufacture of their products; on 92
required supplies and spare part for consigned equipment;
and on foreign and domestic merchandise, raw materials,
equipment and the like—except those prohibited
93
by law—
brought into the zone for manufacturing. In addition, they
are given credits for the value of the national internal
revenue taxes imposed on domestic capital equipment also
reasonably needed and exclusively
94
used for the
manufacture of their products, as well as for the value of
such taxes imposed on domestic raw materials and supplies
that are used in the manufacture
95
of their export products
and that form part thereof.
Sixth, the exemption from
96
local and national taxes
granted 97under RA 7227 are ipso facto accorded to
ecozones. In case of doubt, conflicts with respect to such
tax exemption
98
privilege shall be resolved in favor of the
ecozone.
And seventh, the tax credits under RA 7844—given for
im-ported raw materials primarily used in the production
of
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99
export goods, and for locally produced raw materials,
capital equipment and spare
100
parts used by exporters of
non-traditional products —shall also be continuously
101
enjoyed by similar exporters within the ecozone. Indeed,
the latter exporters are likewise entitled to such tax
exemptions and credits.
Tax Refund as
Tax Exemption
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106 Paseo Realty & Development Corp. v. Court of Appeals, G.R. No.
119286, October 13, 2004, 440 SCRA 235.
107 Surigao Consolidated Mining Co., Inc. v. Collector of Internal
Revenue, 119 Phil. 33, 37; 9 SCRA 728, 732, December 26, 1963.
153
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Registration
131
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 latter’s 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
132
will use, directly or
indirectly, in manufacturing. EO 226 even reiterates this
privilege among
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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 134
in the VAT business, and no VAT refund or credit is due.
This is a non sequitur. By the VAT’s very nature as a tax
on consumption, the capital goods and services respondent
has purchased are subject to the VAT, although at zero
rate. Registration does not determine taxabil-ity under the
VAT law.
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A VAT-registered status,
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as well as compliance with the
invoicing requirements, is sufficient for the effective zero
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Tax Refund or
Credit in Order
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152 This provision has been expressly repealed by the 2nd paragraph of
§20 of RA 7716. See note 94.
153 Legislative Archives, Committee Report No. 01027, House of
Representatives, December 14, 1994, pp. 00132 & 00141.
154 Commissioner of Customs v. Philippine Phosphate Fertilizer Corp.;
supra, pp. 9-10.
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Summary
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