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PRE-WEEK NOTES ON VAT

Prepared by Dr. Jeannie P. Lim

Under the TRAIN LAW, (Beginning January 1, 2018) (a) sale of goods and/or services by a VAT-registered persons to
enterprises registered with PEZA and to tourism enterprises operating within the Freeport economic zone (FEZ) is subject to
12% VAT, (b) electric cooperatives are now subject to 12% VAT..

Exempt from 12% VAT under TRAIN:

1) Senior citizens

2) Persons with disability (PWD)

3) Cooperatives registered with the CDA

4) Food and agricultural products in their original state

5) Health services

6) Education

7) Renewable energy

8) Tourism enterprises

9) BPO operating within the Special Economic Zone

10) Lease of real properties for residential purposes Php 15,000 and below per month

11) Association dues, membership dues and other charges collected by homeowners’ Association and Condominium
Corporations.

12) Medicines for diabetes, high cholesterol and hypertension – exempt from 12% VAT beginning 2019

13) Vacant lot valued at Php 1.5 million and below and house and lot valued at Php 2.5 million and below (low cost housing
purposes) – exemption from 12% VAT is retained from 2018 – 2020 only.

14) Socialized housing, mass housing projects in and out of NCR (Php 2.0 million and below) – exemption from 12% VAT
continues from 2012. By 2021 only real properties sold by real estate dealers (RED group) valued at Php 2.0 and below shall
be exempt from VAT.

15) Failure or refusal to issue sales receipts or invoices – a fine of not less than Php 500,000 – Php 10.0 million shall be imposed
in addition to other penalties.

16) Transfers as provided under Sec. 40(C)(2) – VAT exempt

17) Amortization of input VAT for capital goods – to be repealed by 2022.

18) GOCCs, SUC, national government agencies – Shift to subsidy through the tax expenditure fund (TEF) in the national budget.

19) The CIR, tax official, agent or employee of the BIR is required to act on application for refund of unutilized input taxes under
the Zero-rate sales within 90 days otherwise subject person will be criminally liable.

PROBLEM EXERCISES:

1. “A” is a non-resident person invited to share his knowledge (sale of services) on the latest technology on paint
manufacturing. He stayed here for only two (2) weeks? Is he subject to business taxes?

A non-resident person who performs services in the Philippines is deemed to be making sales in the course of business or trade
even if the performance of services is NOT regular. Hence, he is subject to business tax.

2. Distinctions between businessmen registered as VAT and NON-VAT taxpayers:

VAT Registered Businessman Non-VAT Registered Businessman

Realized a GS/GR of more than Php 3.0 M the preceding year Did not realized a GS/GR of more than Php 3.0M the
preceding year
Subject to 12% VAT Subject to 3% percentage tax
Pay VAT monthly to the government Pay 3% Tax quarterly
1

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VAT Registered Businessman Non-VAT Registered Businessman

Passes the 12% VAT to the end consumer
Seller’s sales invoices must clearly show the 12% VAT passed
on to customers
Seller is entitled to credit input taxes against the output tax
payable.
Seller cannot add the 12% VAT to his customers’ purchases
because he is not Vatable.
The VAT is not billed separately but it is deemed to be
incorporated in the purchase price.
No credit of input taxes is allowed

3. Tax on persons exempt from VAT:

a) Any person whose sales or receipts are exempt under Sec. 109 (z) of the NIRC from payment of VAT and who is not a VAT-
registered person shall pay a tax equivalent to 3% of his gross quarterly sales or receipts.

b) Any business where the gross sales or receipts do not exceed Php 100,000.00 during any 12-month period shall be exempt
from the payment of VAT and from the applicable percentage tax imposed under the NIRC.

4. Cite ten (10) business activities exempt from VAT:

a) VAT-covered transaction with gross annual sales/receipt not exceeding Php 1,919,500.00
b) Services rendered by an individual under an employer-employee relationship.
c) Importation of personal and household effects or returning residents and non-residents settling in the Philippines (except car,
and other goods of any kind in commercial quantity)
d) Sale by government of government owned land to private persons is not Vatable.
e) Educational services rendered by private schools, tuition fees and textbooks, if sold by the school are non-Vatable.
f) Sale of medical, dental and veterinary services including laboratory services by hospitals is not Vatable. (but when sold by
professionals in their private clinics = Vatable)
g) .All kinds of services that are still subject to percentage tax under Title V of the Tax Code, as amended.
h) Purchases of foods, medicines, transportation and accommodation facilities of senior citizens are Non-Vatable
i) Sale or distribution of electricity by electric cooperatives duly registered with the CDA.
j) Sale, importation, printing of newspaper, books, and magazine provided it is not principally for advertising purposes.

5. The two (2) components of the VAT: (a) Input tax and (b) Output tax.

6. Differentiate an input tax from an output tax:

A. Input tax defined:

® It is the tax on the purchase price of goods that is passed on or shifted to a buyer/purchaser by the supplier/seller.

® It is the VAT paid on the purchases or lease of goods, properties or services.

® It is the VAT paid by a VAT-registered person in the course of his trade or business on importation of goods or local
purchases of goods or services, including lease or use of property from a VAT-registered person. It shall also include the
transitional input or presumptive input tax determined in accordance with Sec. 111 of the Tax Code.

® It includes input taxes that can be directly attributed to transaction subject to the VAT plus a ratable portion of any input
tax that cannot be directly attributed to either the taxable or the exempt activity.

B. Output tax defined:

® The VAT due on the sale or lease of taxable goods/ services or properties by any person registered or required to register
for VAT purposes.

® The taxpayer who paid the input tax now sells the goods or renders the service, and when he sells the goods or services,
he shall be subject to VAT that is known as the Output Tax.
.
Input VAT Output VAT
The VAT paid by a VAT-registered person in the course
of his trade or business of imported goods, local goods The VAT due on the sale or lease of taxable goods or
or services, including lease or use of property, to a VAT- properties or services by any person registered or
registered person. It includes the transitional input tax required to register under the VAT Law.
and the presumptive input tax.

7. What are the different sources of input tax?

a) Purchase or importation of goods (a) for sale; or (b) for conversion into or intended to form part of a finished product for sale,
including packaging materials, or (c) for use as supplies in the course of business, or (d) for use as raw materials supplied in
the sale of services, or (e) for use in trade or business for which deduction for depreciation or amortization is allowed un the
Tax Code,

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b) Purchase of services in which a VAT has actually been paid;

c) Purchase of real properties for which a VAT has actually been paid;

d) Transactions deemed sale for VAT purposes;

e) Transitional input tax;

f) Presumptive input tax

g) Transitional input tax credits allowed under the transitory and other provisions under VAT Regulations.

8. Persons who can avail of the input tax credit: (RA 8424)

a) The purchaser of the domestic goods or properties upon consummation of the sale and on the importation of said goods or
properties;

b) The importer upon payment of VAT prior to the release of goods from customs custody;

c) The purchaser of services or the lessee or licensee upon of the compensation, rental, royalty or fee.

9. When may input tax be credited against output tax in a domestic sale subject to 12% VAT?

Any input tax on the purchase or importation of goods -

a) For sale or for conversion into or intended to form part of a finished product for sale or for use in the course of business, or
b) For use as supplies in the course of business, or
c) For use as materials supplied in the sale of service, or
d) For use in trade or business for which deduction for depreciation is allowed under the VAT law except automobiles, aircrafts
and yacht;
e) Sale of tax exempt products domestically by the PIONEER industries registered under BOI as of August 1, 1986 to VAT-
registered person, the VAT otherwise due on such products shall also be considered as input tax creditable against the output
tax payable;
f) Purchase of real properties for which a VAT has actually been paid;
g) Purchase for services for which a VAT has actually been paid;
h) Transactions “deemed” sale;
i) Presumptive input tax; and
j) Service performed by a VAT-registered person shall be credited against the output tax payable by the VAT-registered person,
provided the invoice or receipt was issued therefore by a VAT-registered person in a manner prescribed under the VAT law.

NOTE: A VAT-registered person who is also engaged in transactions not subject to VAT shall be allowed input tax credit as follows:
(a) Total input tax which can be directly attributed to transactions subject to VAT, and (b) a ratable portion of any input tax
which cannot be directly attributed to either activity.

10. Distinctions: (a) Automatic Zero-rate VAT? (b) Effectively Zero-rate VAT? And (c) Exempt VAT?

Automatic Zero-Rate VAT Effectively Zero-rate VAT VAT exempt transaction

1. This refers to the export sale of
goods and supply of services by a
VAT-registered person.
2. The tax rate is set at zero, when
applied to the tax base, such rate
results in no tax chargeable against
the purchaser.
3. The seller charges no output tax, but
can claim a tax refund of the input
tax by way of tax credit for the VAT
previously charged by his suppliers.
4. No need to file an application form
and to get BIR approval before the
sale.
1. This refers to the local sale of goods or
supply of services by a VAT-registered
person to persons or entities who was
granted indirect tax exemption under
special laws or international
agreements.
2. The seller charges no output tax, but
can claim a refund of tax credit for the
VAT previously charged to him by
suppliers.
3. Approval is necessary before the
transaction may be considered
effectively zero-rated.
1. Sale of goods or properties and/or
services and the use or lease of
properties that is NOT subject to
output tax and the seller is NOT
allowed any tax credit of input tax on
purchases.
2. Businessmen who are not
VATABLE because they have not
meet the Php 3.0M of gross sales or
gross receipt the preceding year.
3. They shall be covered by the
percentage tax of 3% instead of the
12% VAT.

 VAT follows the destination principle also referred to as the Cross Border Doctrine – No VAT shall be imposed to form part of
the cost of the goods destined for consumption outside the territorial border of the taxing authority. Hence, goods are taxed
only in the country where these are consumed.

 Sale of goods and services to government, and “REC” is subject to 12% VAT.

 Sale of medicine by drug stores inside the hospital to outpatients is Vatable. BUT, sale of medicine to in-patients are exempt.

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 If the importer is exempt from VAT and such goods imported were subsequently sold, transferred or exchanged in the
Philippines to a non-exempt person or entity, the non-exempt purchaser, transferee or recipient shall be considered as the
importer and shall be liable for VAT due on such importation. (Tax exemption is non-transferrable)

11. An excise tax is an indirect tax like the VAT. The burden of taxation is allowed to be shifted to another person. Excise taxes are
taxes on certain goods whether (a) locally manufactured or produced in the Philippines for domestic consumption or for any
other disposition and (b) to things imported. X bought excisable goods from the manufacturers and importers. The excise
taxes were passed on to it by the sellers. Thereafter X sought the refund of the taxes shifted to it contending that it should not
be liable because it is not the manufacturer or the importer of the goods. The BIR denied the claim. Is the denial valid? (Diageo
Phils., Inc. vs. CIR, November 12, 2012)

Yes, the denial is legal. When indirect taxes are passed on to the buyer it is no longer in the nature or considered a tax but the
same forms part of the purchase price of the goods sold or services rendered. X cannot claim the excise taxes because this is different
from the unutilized creditable input taxes that businessmen claims under the VAT law particularly in cases of zero-rated or effectively
zero-rated sales.

NOTE: In the event that there is an invalid payment of an indirect tax, the claimant is the payor even if the burden of taxation has
been shifted to another person.

12. X failed to register as a VAT-Registered businessman notwithstanding the fact that he has realized gross sales of Php 3.0M the
preceding year. What are the tax implications of such failure for VAT purposes?

(a) A shall be held liable to pay output tax as if he was a VAT-registered person and (b) he cannot claim the benefit of input tax credit for
the period he was not properly registered.

13. What are transactions deemed sale for VAT purposes?

a) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the
course of business.
b) Distribution or transfer of goods to shareholders or investors representing share in the profits of VAT-registered person
c) Distributions or transfer to creditors of goods in payment of debts,
d) Consignment of goods if actual sale is not made within 60 days following date of consignment,
e) Retirement or cessation of business with respect to inventories of taxable goods existing as of such time.
f) Change of ownership of the business,
g) Dissolution of partnership and creation of a new one which takes over the business.

14. X, Y and Z formed a business partnership. It is a VAT-registered entity for tax purposes. Today, the partners decided to cease
operation due to poor business activities. After paying their creditors some goods are left. The partners distributed the
remaining inventories among themselves. Is there any tax implication under the given facts?

Retirement from or cessation of business with respect to inventories of taxable goods (including capital goods) then existing, when
distributed to the partners are considered liquidating dividends to the partners, the value thereof is Vatable. The tax base shall be the
acquisition cost or current market price whichever is lower as determined by the CIR.

15. Are clubs organized and operated exclusively for pleasure, recreation and other non-profit purposes subject to VAT?

Income of recreational clubs from whatever source, including but not limited to membership fees, assessment dues, rental income
and service fees are subject to income tax. Gross receipts of recreational clubs, including but not limited to membership fees,
assessment dues, rental income and service fees are subject to VAT. (RMC No. 35-2112, August 3, 2012)

x NS-NP organization or GOCC is liable to pay VAT on their sale of goods and services.

16. X, a real estate developer sells lots, house and lots and other residential dwelling. One of the small lots is valued at Php 1.2
million only. Y bought the same and bought a parking space beside the lot at Php 500K. Is the sale of X to Y VATable?

The lot sold at Php 2.0 million is below the threshold of Php 2.5M, it is not VATable. However, the parking lot not being a residential
lot is VATABLE regardless of the price.

17. X is a dual citizen and he owns a condominium unit in Makati City. Since X does not stay here permanently and he leases the
unit to his friend Y. The lease contract was executed abroad and the monthly rent payment is transmitted by Y from Makati City
directly to the savings account of X in Chicago, USA. Is the lease of real property Vatable?

NO. The lease of real property is not Vatable even if the property is located in the Philippines because (a) X is not a VAT registered
businessman in the Philippines and (b) the lease is not done in the course of trade or business of X in the Philippines.

If X is VAT-Registered (natural or juridical) person (businessman) and the property is located in the Philippines, the rent is Vatable
regardless of where the contract of lease and/or payment is made.

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18. X is engaged in lease subsequently decided to sell the property leased. Is the sale VATable? (CIR vs. Magsaysay Lines, July 26.
2006)

The regular conduct or pursuit of a commercial or economic activity including transactions incident thereto, by any person
regardless of whether or not the person engage therein is non-stock, non-profit private organization (regardless of the disposition of the
income) and whether or not it sells exclusively to members or their guests or government entity is VATable.

NOTE: If the sale conducted is in the pursuit of a commercial activity resulted to a loss, the sale is still VATable.

19. X is a foreign corporation not engaged in trade or business in the Philippines. Y is a PEZA entity operation inside the Freeport
economic zone, Y leased machines from X to be used by it for animation production. Is VAT imposable under the given facts?

Since X is a non-resident lessor and a non-VAT registered taxpayer, the rental fees paid by Y to X shall be exempt from VAT rather
than subject to zero rate VAT.

20. X a VAT-registered person and he operates a grocery store. His books show gross sales of Php 3.1M in his first year of
operation and Php 2.9M in his second year. Is he liable for VAT in his second year of operation?

YES. Being a VAT registered person, he remains subject to VAT although the gross annual sales in his second year of operation
(Php 2.9M) did not exceed the minimum turnover of Php 3.0M. Any person who is registered under the VAT system shall be subject to
VAT regardless of the amount of his gross annual sales/receipts during the year.

21. X, owns an electronics repair shop. His gross receipts from the sale of services during the year were Php 3.2M. But he has not
taken the necessary steps to register under the VAT system. What is his tax liability?

Notwithstanding the fact that he is not registered under the VAT system, X is subject to VAT, because operating a repair shop (sale
of services) is a VATable activity, and his annual gross receipts exceed the prescribed minimum turnover of Php 3.0M. X may not be
allowed to claim any input taxes during the period of his non-registration as a VAT businessman. Any person who is engaged in VAT
taxable business and whose annual gross sales or receipts exceed Php 3.0M shall be subject to VAT, whether or not he is registered
under the VAT system.

22. X, operates a gift shop and a beauty parlor. The annual gross receipts from the gift shop was Php 2.4M while the beauty parlor
had an annual gross receipt of Php 820K. She has not registered for VAT purposes. What is her tax liability?

The operation of both gift shop and beauty parlor are VATable activities, X is subject to VAT because the aggregate annual gross
receipts from her two (2) businesses was more than Php 3.0M. Even if she did not register for VAT purposes she is still liable for the
12% VAT because her gross receipts/sales from all here businesses exceeded the threshold of Php 3.0M.

23. X, is a manager of a local bank. He decided to sell his residential house and lot where he and his family stay as a result of job
promotion to another city. X sold his property for Php 5.8M. Is he subject to VAT on the sale?

No. The house and lot, which are residential properties, are non-business assets. The sale thereof is an isolated, non-business
transaction. To be subject to VAT, the sale (or lease) must be in the course of trade or business. X is not a businessman selling and
buying real properties on a regular basis. Hence, he is not VATable. However, he shall be subject to the 6% Capital Gains Tax and Doc.
Stamps Tax 0f 1.5% on the sale of his house and lot (capital asset).

24. X, imported the latest model of a foreign car for Php 10.0M. The car is exclusively for the personal use of his family only. Is he
subject to VAT on the importation?

Importation of goods, whether for own use or for commercial purposes is always VATABLE. Hence, X shall be subject to 12% on his
imported car and likewise he shall be subject to excise tax on the said car.

25. X is PEZA-Registered. Sometimes it engages in activities which are not registered with PEZA. Is income derived from
unregistered activities of X taxable? (Sutherland Global Services, Phil. Inc. vs. CIR, CTA case No. 8180, January 13, 2014, CIR vs.
First Sumiden Realty, Inc. CTA EB No. 975, January 7, 2014)

The income tax exemption of a PEZA-Registered Enterprise applies only to income derived from its registered activities. When X
engages in activities which are not registered with PEZA, the income or receipts derived from all its unregistered activities shall be
subject to regular internal revenue tax, such as VAT. In such case, X is obliged to register as a VAT taxpayer and issue a VAT official
receipt or invoice for every sale or transaction which is subject to VAT, Should X use its VAT official receipt or invoice to evidence its
VAT exempt sale, the words “VAT Exempt Sale” must be prominently printed on the VAT official receipts/invoice as failure to do so make
it liable to account for the VAT as if the sale is not VAT exempt.

x Sale of fixed assets used in PEZA-Registered activities is subject to ordinary income tax. (BIR Ruling 291-2012, April 25, 2012)
x Enterprises registered with PEZA, BOI and BOI-ARMM is NOW subject to ordinary tax investigation following the revocation of
MOA with PEZA, BOI and BOI-ARMM. (RR No. 14-2012, April 2, 2012)

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26. BIR contends that since PAGCOR is now subject to corporate income tax it should likewise be subject to the 12% VAT. Is the
BIR Correct? (PAGCOR vs. BIR, March 15, 2011)

RR No. 16-2005 subjecting PAGCOR to the VAT is invalid for being contrary to RA No. 9337. Nowhere is it provided under RA 9337
that PAGCOR can be subjected to VAT. The said law removed the exemption of PAGCOR from corporate income tax but retained its
exemption from other direct and indirect taxes like VAT which is provided by its charter (PD 1869), a special law that granted it tax
exemption.

In the case of CIR vs. Acesite (Phils.) Hotel Corporation, the Supreme Court recognized the tax exemption of PAGCOR from VAT
and held that services rendered to it are effectively subject to the 0% rate VAT.

27. X Corporation enjoys blanket tax exemption under PD 1869 (the Charter creating PAGCOR). X rents a building from Y where it
operates its casino activities. Y passes to X the VAT on lease as required by law. X refused to pay invoking its blanket tax
exemption. Y paid the subject taxes for fear of the legal consequences of non-payment of the tax to the BIR. Thereafter, albeit
belatedly Y realized it should not have paid because the transactions it had with X is subject to “zero rate” VAT. Immediately, Y
filed an administrative claim for tax refund with the CIR, but the latter failed to resolve in favor of Y. Is the refusal of the CIR on
Y’s claim for refund valid? Reason. . [CIR vs. Acecite (Phils.) Hotel Corporation, February 16, 2007]

The blanket tax exemption of X under PD 1869 applies to both direct and indirect taxes which extend to entities and individuals
dealing with it in its casino operations. Considering that Y paid the tax under a mistake of fact and was not aware at the time of payment
that the transactions it has with X is “zero-rated”, the invalid payment can be recovered or refunded. The principle of solution indebeti”
applies to the Government as well, the basis thereto is grounded upon the right of recovery of money paid through misapprehensions of
facts belongs in equity and in good conscience to the person who paid it and the government cannot enrich itself at the expense of
another

28. What the requisites for a valid claim of unutilized input tax credit?

a) The taxpayer-claimant must be a VAT registered taxpayer

b) He is engaged in sales which are zero-rated or effectively zero-rated;
c) The claim is filed within 2 years after the close of the taxable quarter when such sales were made, and
d) The creditable input VAT due or paid must be attributable to such sales, except the transitional input VAT, to the extent that
such input tax has not been applied against the output VAT.

An application for tax refund or credit must be accompanied by copies of the taxpayer’s VAT return(s) for taxable quarter(s)
concerned showing that the claimant is entitled to the refund or credit of input VAT and the same has not been applied against its output
VAT-liabilities. (Atlas Consolidated Mining and Development Corp., vs. CIR, January 26, 2011)

29. Procedures in claiming for the unutilized creditable input VAT? (Nippon Express (Phils.) Corp., vs. CIR, March 13, 2013)

a) An administrative claim (before the CIR) must be filed within 2 years after the close of the taxable quarter when the zero-rated
or effectively zero-rated sales were made,
b) The CIR has 120 days (90 days under the TRAIN Law) from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant the credit or issue a tax credit certificate.
c) If the 120-day period expires (90- days under TRAIN Law) without any decision of the CIR, such inaction may be considered
an implied denial of the claim,
d) A judicial claim with the CTA must be filed within 30 days from receipt of a denial of said claim or from the expiry of the 120-
day period (90 days under TRAIN Law) without a decision from the CIR.

NOTE: The Doctrine of the Twin Prescriptive Period for invalid payments under Sec. 229, NIRC and RA 1125, DOES NOT
APPLY TO AN APPEAL BEFORE THE CTA INVOLVING CLAIMS FOR UNUTILIZED INPUT TAXES.

30. May a taxpayer who has pending claims for unutilized input tax credit or refund, set-off said claims against his other tax
liabilities? Reason.

No. Taxes and claims for refund cannot be set-off (legal compensation) for the simple reason that the government and the taxpayer
are not creditors and debtors of each other. There is material distinction between a tax and a claim for refund. Claims for refunds just like
debts are due from the government in its corporate capacity, while taxes are due to the government in its sovereign capacity.

Moreover, set-off is available only if both obligations are due, demandable and fully liquidated, Liquidated debts are those where the
exact amounts have already been determined. In the instant case, the claim of the taxpayer for VAT refund is still pending and the
amount is still to be determined. A fortiori, the liquidated obligation of the taxpayer to the government cannot therefore, be set-off against
the unliquidated claim which the taxpayer conceived to exist in his favor.

31. X is a VAT registered taxpayer. It is engaged in export activities. The goods it produced were actually exported abroad on
August 24, 2012. All receipts and documents relative to the export are intact and available. Thereafter, X applied for the refund
of its unutilized creditable input taxes. The BIR disallowed the claim for reason that the sales receipts of X did not indicate that
the transaction was a “Zero-rated Sales.” X contends that such requirement is not provided under the Tax Code. Is the BIR’s
disallowance valid? (Eastern Telecommunication Phils., Inc. vs. CIR, August 12, 2012, Microsoft Phils., Inc., vs. CIR, April 67, 2011)

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Sec. 244 of the Tax Code explicitly grants the Sec. of Finance the authority to promulgate the necessary rules and regulations for
the effective enforcement of the provisions of the Tax Code. The invoicing requirements he set under RR No. 7-95 was integrated with
Sec. 113 of the NIRC when RA 9337 was adopted. Thus, the need for taxpayers engaged in export activities to indicate in their receipts
and invoices that fact that the sale is “zero-rated” is mandatory. Failure to comply will warrant the disallowance for any claim for credit of
unutilized input taxes. Hence, BIR is correct.

The SC ruled that the printing of the word “zero-rated” is required to be placed on VAT invoices covering the zero-rated sales in
order to be entitled to claim for tax credit or refund. This requirement prevents buyers from falsely claiming input VAT from their
purchases when no VAT is actually paid. Absent of such word, the government may be refunding taxes it did not collect. (Microsoft
Phils., Inc., vs. CIR, April 6, 2011, Panasonic vs. CIR)

32. X, is a VAT-registered businessman engage in export activities. X filed a claim for tax credit of his unutilized input taxes within
the reglamentary period. X has submitted all documents in support of said claim. CIR denied his claim for reason that the word
“Zero-Rated Sales” is not duly imprinted in X’s sales invoices and receipts but was merely rubber stamped in violation of the
invoicing requiring under the VAT law. Is the denial valid?

The words “Zero-Rated Sales” although merely stamped and not pre-printed in the sales invoices and receipts constitutes sufficient
compliance with law. Since the imprinting of the words “ZRS” was required merely to distinguish sales subject to 12% VAT from those
that are subject to 0% VAT and exempt sales, to enable the BIR to properly implement and enforce the other VAT provisions of the Tax
Code. The CIR should not literally interpret the provisions of the Tax Code to the extent of denial of taxpayer’s right when the later has
proven compliance to all requisites of law. (Toledo Power, Inc. vs. CIR, January 20, 2014)

33. X is a VAT registered corporation that is engaged in export activities. It seeks from the BIR the refund of its unutilized input
taxes. All necessary documents in support of its claim were attached to the application for tax credit. Upon verification and
investigation, the BIR denied the claim for reason that X’s sales invoices failed to reflect the authority of print (ATP) said
receipt. X contends that there is no such requirement provided under the Tax Code. Is the denial of the BIR on that basis valid?
(Silicon Phils., Inc. vs. CIR, January 17, 2011)

The denial has no legal basis. X is correct – there is no law or regulation requiring it to reflect the ATP in its sales invoices. In the
absence of such law or regulation or failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim
or the invalidation of the invoices or receipts for purposes of claiming a refund. What is required under the Tax Code is the printing of the
words “Zero-Rated Sale” in the sales invoices if such is the case and failure thereof is fatal to its claim. The BIR can simply verify
whether the invoices or receipts are duly registered by requiring the claimant to present the ATP from the BIR.

34. X Corporation (an exporter of native products) filed its claim for tax credit of its unutilized input taxes. It submitted to the BIR
all its documents in support of said claim. The BIR denied the claim for reason that the BIR’s permit to print its sales invoices
(ATP) was not properly indicated in the sales invoices used by X. Is the denial valid?

In the case of Philex Mining Corp. vs. CIR, CTA case No. 8371, April 15, 2014, the court held that there is no law or regulation
requiring it, failure to print the ATP on invoices or receipts should not result in outright denial of a claim or the invalidation of invoices or
receipts for purposes of claiming a refund. The BIR can just require the taxpayer to produce its permit to print sales invoices or receipts
to check whether the authority exists.

NOTE: The absence or non-printing of the word ‘ZERO-RATED” sale in the sales invoices of the VAT businessman is FATAL to a
claim for refund and/or credit of unutilized input tax attributable to zero-rated sales per requirement under a valid revenue regulation.

35. Who are the customers or recipient of services under a “Zero-Rated Sales” for VAT purposes? (Accenture, Inc. vs. CIR, July 11,
2011)
It is not enough that the recipient of the services be proven to be a foreign corporation doing business outside of the Philippines; it
must be specifically proven that the recipient of services must a non-resident foreign corporation as well.

36. X is a domestic corporation operating a “call center.” The recipients of its services are entities doing business outside of the
Philippines. If X is VAT registered taxpayer its transactions with the non-resident foreign corporations abroad the payment of
which is in foreign currency inwardly remitted to X. Is the sale a zero-rated transaction? Can X claim for tax credit on its
unutilized input taxes? (Accenture, Inc. vs. CIR, July 11, 2012)

Yes, the sale is zero-rated sales. It is allowed to claim input tax credit.

37. X is a domestic corporation operating a “call center.” The recipients of its services are entities doing business outside of the
Philippines. If X is VAT registered taxpayer its transactions with the non-resident foreign corporations abroad the payment of
which is in foreign currency inwardly to X. Is the sale a zero-rated transaction? Can X claim for tax credit on its unutilized input
taxes? (Accenture, Inc. vs. CIR, July 11, 2012)

Yes, the sale is zero-rated sales. It is allowed to claim input tax credit.

38. X is a service provider to entities doing businesses in the Philippines. Some of its customers are branches of foreign
corporations. The payment of X’s services to these foreign branches operating in the Philippines are course thru inward
remittances in foreign currency by their head offices. Are the services of X under the given facts subject to 12% VAT?
(Accenture, Inc. vs. CIR, July 11, 2012)

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If the provider and recipient of services are both doing business in the Philippines, the payment of foreign currency in
irrelevant. The transaction is subject to the regular 12% VAT.

39. X is a domestic corporation. It is operating a call center and all its customers are non-resident corporations abroad. (a) Is X
entitled to claim for its unutilized input taxes? (b) What are the prescriptive periods for filing a tax refund or tax credit of its
unutilized input taxes under the VAT Law?

a) Yes, X is entitled to claim its UIT under its zero-rate sales. An administrative claim must be filed with the CIR within 2 years
after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made.

b) The CIR has 120 days (90 days under the TRAIUN Law) from the date of submission of complete documents in support of the
administrative claim within which to decide whether to grant a refund or issue a tax credit certificate. The 120-day period (90
days under the TRAIN Law) may be outside of the two-year period of claim due to the fact that the claim was filed on the last
day of the prescriptive period. If the 120-day period expires without any decision from the CIR, the administrative claim may be
considered to be denied by inaction.

c) A judicial claim must be filed with the CTA within 30 days from receipt of the CIR’s decision denying the administrative claim or
from the expiration of the 120-day period (90-days under the TRAIN Law) without any action from the CIR because inaction is
deemed an implied denial of the claim.

40. X is a service provider to entities doing businesses in the Philippines. Some of its customers are branches of foreign
corporations operating here. The payment of X’s services to these foreign branches operating in the Philippines are course
thru inward remittances in foreign currency by their head offices. Are the services of X under the given facts subject to 12%
VAT? (Accenture, Inc. vs. CIR, July 11, 2012)

If the provider and the recipient of services are both doing business in the Philippines, the payment of foreign currency in irrelevant.
The transaction is subject to the regular 12% VAT.

41. X is a business man registered as a non-VAT taxpayer. He sells his products to businesses inside the export-processing zone
in Cavite. At the end of the 4th quarter of 2011, X has unutilized input taxes in the amount of Php 350,000.00. May he avail of the
privilege of tax refund of the same?

No X is not qualified to claim any unutilized input taxes on his inward exports to businesses inside the ecozone because his is not a
VAT registered taxpayer. Only VAT-registered businessmen or corporations may avail of the tax refund/credit of unutilized input taxes on
their export activities.

42. X is a VAT registered enterprise engaged in export activities. In January 2010 it bought plenty of raw materials. The purchase
invoices reflected the value of input taxes X absorbed from all its purchases. Today, it seeks for the refund of its unutilized
input taxes. If X comes to you to effect the claim can you still do it in its behalf knowing that the claim must be done within 2
years from payment?

The prescriptive period of 2 years to claim from payment of an IR tax does not apply to export activities. Rather, it applies to invalid
payments such as overpayment, illegal or erroneous payment and for penalties imposed in relation thereto. The prescriptive period to
claim unutilized input taxes for export activities is 2 years and the reckoning point is not from payment but from the end of the quarter of
actual export.

43. X filed its claim for unutilized input taxes. The BIR denied the claim for failure of X to submit complete documents in support of
said administrative claim. X filed a judicial claim before the CTA within 30 days from receipt of the denial. Will his appeal
prosper? (Ayala Corp. vs. CIR, CTA case No. 8262, March 21, 2014)

Failure to submit complete documents in support of taxpayer’s administrative claim for refund of unutilized input tax is NOT FATAL
to judicial claim. Judicial claims before the CTA are litigated DE NOVO and decided based on what has been presented and formally
offered by parties during the trial. When a taxpayer’s claim reaches the judicial level or when claim is elevated to CTA, the Rules of Court
and the Revised CTA Rules govern the matter of proving the claim.

44. X is a VAT registered taxpayer. Its business is to convert the steam supplied to it by PNOC-EDC into electricity and to deliver
the electricity to NAPOCOR. In the course of X’s business, it bought and eventually sold a Nissan Patrol to NAPOCOR. The BIR
assessed VAT on the sale of the motor vehicle. X contends that the sale is an isolated transaction and not a transaction done
“in the course of trade or business”, hence it is not VATable. Is X correct? (Mindanao II Geothermal Partnership vs. CIR, March 11,
2013)

While the sale of the vehicle is an isolated transaction, it does not follow that an isolated transaction cannot be an incidental
transaction for purposes of the VAT liability of the seller. Sec. 105, NIRC would show that a transaction “in the course of trade or
business” includes “transactions incidental thereto.” Prior to the sale, the Nissan Patrol was part of X’s property, plant and equipment.
Therefore, the sale is an incidental transaction made in the course of X’s business which should be liable for VAT.

45. X, a non-profit, non-stock affiliate of Y Insurance Company organized by the latter to perform collection, consultative and other
technical services, including functioning as an internal auditor of Y and its other affiliates. The BIR assessed X for deficiency
VAT. X contends that the services it rendered to Y were on a “non-profit, reimbursement-of-cost-only” basis, that it was not
engaged in the business of providing services to Y and its affiliates. X was established to ensure operational orderliness and
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administrative efficiency of Y and its affiliates, and not in the sale of services. Thus, since it was not engaged in business, it
was not VATable. Is X’s contention valid? (CIR vs. CA & Commonwealth Management & Services Corp. March 30, 2000)

The services of X to Y and its affiliates for a fee or consideration are subject to VAT. VAT is a tax on the value added by the
performance of the service. It is immaterial whether profit is derived from rendering the service or not. The Tax Code provides that even
a non-stock, non-profit organization or government entity, is liable to pay VAT on the sale of goods or services even in the absence of
profit attributable thereto, provided the sale or performance of the services were made in the course of trade or business which requires
that the regular conduct or pursuit of a commercial or an economic activity regardless of whether or not the entity is profit-oriented.

46. The local branch of American Express is facilitating the collection of receivables from credit card members situated in the
Philippines and payment to service establishments in the Philippines in behalf of its Hong Kong based clients. Are the services
of the local branch of American Express subject to VAT and other business taxes? (CIR vs. Am. Express, Int’l. Inc. (Phil. Branch)
June 29, 2005)

Yes, for the following reasons:

a) It regularly renders in the Philippines the service of facilitating the collection and payment of receivables belonging to a foreign
company that is clearly a separate and distinct entity;
b) Such service is commercial in nature
c) For such service, American Express is clearly paid consideration in foreign currency;
d) It is not an entity exempt under any of our laws or international agreements.

47. X is a VAT-registered businessman engaged in export activities. He exported his products on April 26, 2011. At the end of April
2011 he has Php 1.0 million unutilized input taxes. (a) When may he file a claim for the refund or credit of his unutilized input
taxes? (b) What is the possible remedy of X if there is inaction of the CIR on his claim?

a) The 2-year period to claim for the refund or credit of unutilized input taxes is reckoned from the end of the quarter of date of export
and not from payment of the input taxes.

b) The CIR is mandated to resolve the claim for refund or credit of unutilized input taxes within 120 days (90 days under TRAIN Law)
from claim thereof. The inaction of the CIR within the 120 days (90 days under TRAIN Law) is an implied denial of X’s claim.
Thereafter, X may file a petition for review with the CTA.

48. X, a VAT-registered businessman is engaged in export activities. He has unutilized input VAT payments not otherwise used for
any internal revenue tax. What is the prescriptive period within which he must claim the input tax credit? [CIR vs. Mirant
Pagbilao Corp., 565 SCRA 154 (2008)]

The unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two (2)
years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of
whether said tax was paid or not. Hence, the reckoning frame would always be the end of the quarter when the pertinent sales or
transactions was made, regardless of when the input VAT was paid.

NOTE: The “2-year from payment” under Secs. 204(C) and 229 of the NIRC applies only to instances of invalid payments –
overpayment, illegal payment, erroneous payment or penalties imposed without authority.

49. X corporation cease operation due to very poor business activities. It has excess income tax payments and decided to claim
refund thereof. Where is the reckoning point of the 2-year prescriptive period to validly claim the same? (Mindanao Geothermal
Partnership vs. CIR, CTA case No. 8250, November 9, 2012)

In case of DISSOLUTION, the 2-YEAR prescriptive period to file claim for refund of IR taxes begins 30 DAYS AFTER APPROVAL
BY SEC of dissolution.

50. X ceased business operations effective December 31, 2012. On July 1, 2013, it filed an Application for Registration Update with
the BIR. On July 7, 2013, it filed an administrative claim for issuance of a Tax Credit Certificate (TCC) of its unutilized input VAT
with the BIR. The BIR denied the claim for being premature. Is the denial correct?

The administrative claim for issuance of TCC is prematurely filed since the effectivity date of X’s formal cessation of business is
reckoned from the first day of the following month, or on August 1, 2013, where the Application for Registration Update (notice of
dissolution) was filed on July 1, 2013. (Associated Swedish Steels Phils., Inc. vs. CIR, CTA EB case No. 854, August 23, 2012)

51. What is the prescriptive period to claim for a refund of taxes of an enterprise duly registered under the EPZA Law?
(Commissioner of Customs vs. Phil. Phosphate Fertilizer Corp., September 1, 2004).

The EPZA Law itself is silent on the matter, and the prescriptive periods under the TCC and other revenue laws are inapplicable by
specific mandate of Sec 17(1) of the EPZA Law. This does not mean however, that the prescriptive period will not lie. The provisions on
solutio indebiti of the Civil Code may find application. Solutio indebiti is a quasi-contract, thus the claim for refund must be commenced
within six (6) years from date of payment pursuant to Art. 1145(2) of the New Civil Code. (This is an isolated exemption to the 2-year
prescriptive period for refund under the Tax Code)

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52. Are the legal services of lawyers’ Vatable? Yes, if he is not under an employer-employee relationship and his gross receipts for the
preceding year exceeded Php 3.0M If the lawyer is a member of a law firm with compensation income, his legal services are not
VATable.

 Zero-rate VAT on legal services shall apply to – (a) legal services rendered to a person engaged in business conducted
outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services
are performed, the consideration for which is paid for in acceptable foreign currency and accounted with the rules and
regulations of the BSP (Payment of professional fee must be in acceptable foreign currency and accounted for in accordance
with BSP rules), (b) Legal services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services to 0% rate (payment of
professional fee in foreign currency is NOT required), (c) legal services rendered to persons engaged in international shipping,
air transport operations, including leases of property for use thereof (payment of professional fee in foreign currency is not
required.)

53. X ceased business operations effective December 31, 2012. On July 1, 2013, it filed an Application for Registration Update with
the BIR. On July 7, 2013, it filed an administrative claim for issuance of a Tax Credit Certificate (TCC) of its unutilized input VAT
with the BIR. The BIR denied the claim for being premature. Is the denial correct?

The administrative claim for issuance of TCC is prematurely filed since the effectivity date of X’s formal cessation of business is
reckoned from the first day of the following month, or on August 1, 2013, where the Application for Registration Update (notice of
dissolution) was filed on July 1, 2013. (Associated Swedish Steels Phils., Inc. vs. CIR, CTA EB case No. 854, August 23, 2012)

54. Under the Tax Code the CIR is given 120 days to resolve a claim for unutilized input taxes. Where is the reckoning point of the
120-day period? (CIR vs. CE Casecnan Water and Energy Co., CTA En Banc case No. 971, January 7, 2014)

The 120 day-day period is reckoned from the submission of the “complete documents” necessary to support the application for tax
credit as determined by the taxpayer. Should the taxpayer decide to submit only certain documents, or should the taxpayer fail, or opted
not to submit any document at all, in support of its application for refund or tax credit certificate under Sec. 112, NIRC, it is reasonable to
conclude that the reckoning date of the 120-day period thereunder, should be reckoned from the filing of the said application. Hence, the
completeness of documents to support a claim is determined by the taxpayer.

55. X exported his goods on September 22, 2010. On January 24, 2012 it filed an administrative claim for unutilized input taxes and
on March 16, 2012 X submitted complete documents to the BIR in support of the claim. Where is the reckoning period of the
120-day for the CIR to act on the claim? (CE Cebu Geothermal Power Co., Inc. vs. CIR, CTA case No. 7740, September 2, 2011)

The administrative claim was filed on September 22, 2010 and the complete documents in support of such claim were filed only on
March 16, 2012. The Court held that the CIR had 120 days from the latter date, or until July 16, 2012 within which to decide the claim.

56. Under the VAT law, the CTA does not acquire jurisdiction over a judicial claim for unutilized input taxes in zero-rated sales that
is filed before the expiration of the 120-day period because the 120+30 day periods are mandatory and jurisdictional. What are
the exceptions to this rule? (CIR vs. San Roque Power Corp/ Taganito Mining Corp vs. CIR/ Philex Mining Corp. vs. CIR, February 12,
2013)

Under the doctrine of equitable promissory estoppel, such as (a) if the CIR, through specific ruling, misleads a particular taxpayer to
prematurely file a judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer and (b) where the CIR,
through a general interpretative rule issued under Sec. 4 of the NIRC, misleads the taxpayer into filing prematurely judicial claims with
the CTA. In these cases, the CIR cannot be allowed to later on question the CTA’s assumption of jurisdiction over such claim since
equitable estoppel has set in as expressly authorized under Sec. 246 of the NIRC. Taxpayers should not be prejudiced by an erroneous
interpretation by the CIR, particularly on a difficult question of law. BIR Ruling No. DA-489-03 is a general interpretative rule because it
was a response to a query made, NOT by a particular taxpayer, but by a government agency tasked with processing tax refunds and
credits.

57. What is the Doctrine of Operative Fact?

This principle has been incorporated in Sec. 226 of the NIRC (The non-retroactivity of rulings). This rule provides that taxpayers
may rely upon a rule or ruling issued by the CIR from the time the rule or ruling is issued up to its reversal by the CIR or by the Court.
Any reversal is not given retroactive effect.

NOTE: Administrative practices, not formalized into a rule or ruling are not covered by this doctrine because a mere administrative
practice may not be uniformly and consistently applied. They are usually not known to the general public and can be availed of only
by those with informal contacts with the government agency.

58. X is covered by the Zero (0%) Rated VAT. As of the last day of the third quarter of 2010 it has unutilized input taxes. In
September 1, 2012 it filed a claim for tax credit. Together with the application X has submitted all documents and proof of its
entitlement thereto. Within 30 days from the expiration of the 2-year prescriptive period to claim X filed a judicial claim before
the CTA contending that the inaction/silence of the CIR is an implied denial of its claim. BIR argues that the judicial claim is
time barred having been filed beyond the 2-year period to claim and moved for the dismissal of the petition for review. Is the
tax official correct? (CIR vs. Mindanao II Geothermal Partnership, January 15, 2014)

In a claim for refund for unutilized input VAT, only the administrative claim (before the CIR) must be filed within the 2-year
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prescriptive period, which begins to run from the close of the taxable quarter when relevant sales were made. However, the claim for
unutilized input taxes is different from the claim for refund/credit of an invalid payment. In the former, after an administrative claim of the
taxpayer, the CIR is given a 120-day period to resolve the validity of the claim. If CIR denies the claim within said period the taxpayer can
file a judicial claim before the CTA within 30 days from receipt of the denial or in case there is inaction and the 120-day period has
expired without resolution on the claim, the taxpayer may within 30 days from expiration of the 120-day period to resolve, file a judicial
claim with the CTA. The 120+30 days periods are mandatory.

59. WHAT ARE THE RULES ON DETERMINING THE PRESCRIPTIVE PERIOD FOR CLAIMING A REFUND OR CREDIT OF
UNUTILIZED INPUT TAX UNDER THE TAX CODE?

I. (a) The administrative claim (before the CIR) must be filed within the two-year period prescriptive period (Aichi Doctrine)

(b) The proper reckoning date for the 2-year prescriptive period is the close of the taxable quarter when the relevant sales were
made (San Roque Doctrine)

II. The taxpayer can file a judicial claim (before the CTA) in two ways: (a) file within 30 days after CIR denies the administrative claim
within the 120 days resolution time or (b) file a judicial claim within 30 days from the expiration of the 120-day period if CIR does
not act within the 120-day period.

Taxpayer MUST wait for a resolution of his administrative claim within 120 days from submission of complete documents in
support of his claim before he can appeal before the CTA or in case of CIR’s inaction, taxpayer can appeal within 30 days from
lapsed of the 120-day without a resolution on his claim. A judicial claim with the CTA without a decision of the CIR filed before the
lapse of the 120-day period is premature whereas, a judicial claim filed after the lapsed of the 30-day with the CTA when there is
inaction is a claim filed out of time. (CIR vs. Silicon Phils., Inc. March 12, 2014)

III. The 30-day period always applies whether there is a denial or inaction on the part of the CIR. IV. As a general rule, the 30-day
period of appeal is both mandatory and jurisdictional. (Aichi and San Roque)

IV. Doctrine of the Twin Prescriptive period does not apply to a claim for unutilized input taxes but to a claim for tax refund or credit
under an invalid payment.

NOTE: The above rules do not apply to EPZA-REGISTERED ENTITIES because they are exempt from the enforcement of
Customs Laws and other Rules and Regulations, such as the prescriptive periods and/or procedural requirements of the Tariff and
Customs Code of the Philippines to a refund claim. (Phil. Associated Smelting & Refining (PASAR) Corp. vs. Comm. Of Customs
and Bureau of Customs, CTA case No. 8404, February 20, 2014)

60. Prescriptive period for filing a tax refund or tax credit of unutilized input taxes under the VAT Law: [Nippon Express (Phils.) Corp.
vs. CIR, March 12, 2013]

a. An administrative claim must be filed with the CIR within 2 years after the close of the taxable quarter when the zero-rated or
effectively zero-rated sales were made.

b. The CIR has 120 days from the date of submission of complete documents in support of the administrative claim within which to
decide whether to grant a refund or issue a tax credit certificate. The 120-day period may extend beyond the two-year period from
the filing of the administrative claim if the claim is filed in the later part of the two—year period to claim. If the 120-day period expires
without any decision from the CIR, the administrative claim may be considered to be denied by inaction.

c. A judicial claim must be filed with the CTA within 30 days from receipt of the CIR’s decision denying the administrative claim or from
the expiration of the 120-day period within any action from the CIR.

O–O–O–O–O-O–O

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