Case title Ruling/Ratio

“In the course of trade or business”

Psalm vs. CIR Even if PSALM is deemed a successor-in-interest of NPC, still the sale of the power plants is
not "in the course of trade or business" as contemplated under Section 105 of the NIRC,
and thus, not subject to VAT. The sale of the power plants is not in pursuit of a commercial
or economic activity but a governmental function mandated by law to privatize NPC
generation assets. PSALM was created primarily to liquidate all NPC financial obligations
and stranded contract costs in an optimal manner.

Unlike the Mindanao II case, the power plants in this case were not previously used in
PSALM's business. The power plants were transferred to PSALM for the specific purpose of
privatizing such assets. The sale of the power plants cannot be considered as an incidental
transaction made in the course of NPC's or PSALM's business. Therefore, the sale of the
power plants should not be subject to VAT.
CIR vs. Magsaysay Lines the sale of the vessels of the NDC to Magsaysay Lines, Inc. is not subject to VAT since it
was not in the course of trade or business, as it was involuntary and made pursuant to the
government's policy of privatization. The Court cited the CTA ruling that the phrase "course
of business" or "doing business" connotes regularity of activity. Thus, since the sale of the
vessels was an isolated transaction, made pursuant to the government's privatization
policy, and which transaction could no longer be repeated or carried on with regularity,
such sale was not in the course of trade or business and was not subject to VAT.
Mindanao Geothermal II Just because a transaction is said to be an isolated one, it does not follow that it cannot be
vs. CIR an incidental transaction. Mindanao II’s sale of the Nissan Patrol is said to be an isolated
transaction.1âwphi1 However, it does not follow that an isolated transaction cannot be an
incidental transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the
1997 Tax Code would show that a transaction "in the course of trade or business" includes
"transactions incidental thereto."

Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC into electricity
and to deliver the electricity to NPC. In the course of its business, Mindanao II bought and
eventually sold a Nissan Patrol. Prior to the sale, the Nissan Patrol was part of Mindanao
II’s property, plant, and equipment. Therefore, the sale of the Nissan Patrol is an incidental
transaction made in the course of Mindanao II’s business which should be liable for VAT.
CIR vs. CA and Even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the
COMASERCO sale of goods or services.

It is immaterial whether the primary purpose of a corporation indicates that it receives

payments for services rendered to its affiliates on a reimbursement-on-cost basis only,
without realizing profit, for purposes of determining liability for VAT on services rendered.
As long as the entity provides service for a fee, remuneration or consideration, then the
service rendered is subject to VAT.
Sale, Barter or Exchange
CIR vs. Sony Philippines, The subsidy for the services rendered by the advertising companies, paid for by the
Inc. taxpayer evidenced by a VAT invoice, using its affiliate’s dole out or assistance in view of
the taxpayer’s dire or adverse economic conditions, in the amount equivalent to the
latter’s advertising expense but the affiliate never received any good, properties, or service
from the taxpayer, is not subject to VAT. The dole-out is not subject to VAT since there is
no sale, barter or exchange in the subsidy given. The reimbursement by the affiliate may be
considered as income of the taxpayer, and, therefore, subject to income tax, but the same
cannot be subject to VAT.
ANPC vs. BIR It is a basic principle that before a transaction is imposed VAT, sale, barter or exchange of
goods or properties, or sale of a service is required. As ANPC aptly pointed out,
 membership fees, assessment dues, and the like are not subject to VAT because in
collecting such fees, the club is not selling its service to the members.

Conversely, the members are not buying services from the club when dues are paid; hence,
there is no economic or commercial activity to speak of as these dues are devoted for the
operations/maintenance of the facilities of the organization. As such, there could be no
"sale, barter or exchange of goods or properties, or sale of a service" to speak of, which
would then be subject to VAT under the 1997 NIRC.
BIR vs First E-bank Tower Even though the Corporation is empowered to levy assessments or dues from the unit
owners, these amounts collected are not intended for the incurrence of profit by the
Corporation or its members, but to shoulder the multitude of necessary expenses that
arise from the maintenance of the Condominium Project.

Association dues, membership fees, and other assessments/charges do not arise from
transactions involving the sale, barter, or exchange of goods or property. Nor are they
generated by the performance of services.
Zero-rated sales
CIR vs. Cebu toyo To begin with, it must be recalled that generally, sale of goods and supply of services
corporation performed in the Philippines are taxable at the rate of 10%. However, export sales, or sales
outside the Philippines, shall be subject to value-added tax at 0% if made by a VAT-
registered person. Under the value-added tax system, a zero-rated sale by a VAT-
registered person, which is a taxable transaction for VAT purposes, shall not result in any
output tax. However, the input tax on his purchase of goods, properties or services related
to such zero-rated sale shall be available as tax credit or refund.

Zero rated sale vs. Exempt transactions:

1. A zero-rated sale is a taxable transaction but does not result in an output tax while
an exempted transaction is not subject to the output tax
2. The input VAT on the purchases of a VAT-registered person with zero-rated sales
may be allowed as tax credits or refunded while the seller in an exempt
transaction is not entitled to any input tax on his purchases despite the issuance of
a VAT invoice or receipt.
3. Persons engaged in transactions which are zero-rated, being subject to VAT, are
required to register while registration is optional for VAT-exempt persons.
San Roque vs. CIR The CTA in Division and en banc denied petitioner’s claim solely on this ground. The tax
courts based this conclusion on the audited report stating that petitioner made no sale of
electricity to NPC in 2002. However, upon closer examination of the records, it appears
that on 2002, petitioner carried out a "sale" of electricity to NPC. The fourth quarter return
for the year 2002, which petitioner filed, reported a zero-rated sale in the amount of
₱42,500,000.00.

The Court is not unmindful of the fact that the transaction described hereinabove was not
a commercial sale. In granting the tax benefit to VAT-registered zero-rated or effectively
zero-rated taxpayers, Section 112(A) of the NIRC does not limit the definition of "sale" to
commercial transactions in the normal course of business. Conspicuously, Section 106(B) of
the NIRC, which deals with the imposition of the VAT, does not limit the term "sale" to
commercial sales, rather it extends the term to transactions that are "deemed" sale.

Any VAT-registered person, whose sales are zerorated or effectively zero-rated may,
within two (2) years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales.
CIR vs. Seagate If a special law merely exempts a party as a seller from its direct liability for payment of the
Technology VAT, but does not relieve the same party as a purchaser from its indirect burden of the
VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not exempt.
Applying this principle to the case at bar, the purchase transactions entered into by
respondent are not VAT-exempt.
Intel Technology Phils., A taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for a
vs. CIR refund or issuance of a tax credit certificate for input taxes paid attributable to such sales
upon complying with the following requisites: (1) the taxpayer is engaged in sales which
are zero-rated (like export sales) or effectively zero-rated; (2) the taxpayer is VAT-
registered; (3) the claim must be filed within two years after the close of the taxable
quarter when such sales were made; (4) the creditable input tax due or paid must be
attributable to such sales, except the transitional input tax, to the extent that such input
tax has not been applied against the output tax; and (5) in case of zero-rated sales under
Section 106(A)(2)(a)(1) and (2), Section 106(B), and Section 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with BSP rules and regulations.

As the Court had the occasion to explain since no output VAT was imposed on the zero-
rated export sales, what the government reimburses or refunds to the claimant is the
input VAT paid – thus, the necessity for the input VAT paid to be substantiated by purchase
invoices or official receipts. These sales invoices or receipts issued by the supplier are
necessary to substantiate the actual amount or quality of goods sold and their selling
price, and, taken collectively, are the best means to prove the input VAT payments of the
claimant.

In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales,
what is to be closely scrutinized is the documentary substantiation of the input VAT paid,
as may be proven by other export documents, rather than the supporting documents for
the zero-rated export sales. And since petitioner has established by sufficient evidence that
it is entitled to a refund or issuance of a tax credit certificate, in accordance with the
requirements of Sections 106 (A)(2)(a)(1) and 112(A) of the Tax Code, then its claim should
not be denied, notwithstanding its failure to state on the invoices the BIR authority to print
and the TIN-V.
“Separate Customs Territory”
CIR vs. Toshiba An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and services by
persons from the Customs Territory to ECOZONE enterprises shall be subject to VAT at
zero percent (0%).

In the case of Commissioner of Internal Revenue v. Seagate Technology (Philippines), this

Court already made such distinction – An exempt transaction, on the one hand, involves
goods or services which, by their nature, are specifically listed in and expressly exempted
from the VAT under the Tax Code, without regard to the tax status – VAT-exempt or not –
of the party to the transaction… An exempt party, on the other hand, is a person or entity
granted VAT exemption under the Tax Code, a special law or an international agreement to
which the Philippines is a signatory, and by virtue of which its taxable transactions become
exempt from VAT…

The Philippine VAT system adheres to the Cross Border Doctrine, according to which, 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. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of VAT; while, those destined for
use or consumption within the Philippines shall be imposed with ten percent (10%) VAT.
 Sales of goods, properties and services by a VAT-registered supplier from the Customs
Territory to an ECOZONE enterprise shall be treated as export sales. If such sales are made
by a VAT-registered supplier, they shall be subject to VAT at 0%. In zero-rated transactions,
the VAT-registered supplier shall not pass on any output VAT to the ECOZONE enterprise,
and at the same time, shall be entitled to claim tax credit/refund of its input VAT
attributable to such sales. Zero-rating of export sales primarily intends to benefit the
exporter (i.e., the supplier from the Customs Territory), who is directly and legally liable for
the VAT, making it internationally competitive by allowing it to credit/refund the input VAT
attributable to its export sales. Meanwhile, sales to an ECOZONE enterprise made by a
non-VAT or unregistered supplier would only be exempt from VAT and the supplier shall
not be able to claim credit/refund of its input VAT.

“Transactions deemed sale”

CIR vs. Magsaysay Lines Section 4 (E)(i) of R.R. No. 5-87 does classify as among the transactions deemed sale those
involving "change of ownership of business." However, Section 4(E) of R.R. No. 5-87,
reflecting Section 100 of the Tax Code, clarifies that such "change of ownership" is only an
attending circumstance to "retirement from or cessation of business[, ] with respect to all
goods on hand [as] of the date of such retirement or cessation."25 Indeed, Section 4(E) of
R.R. No. 5- 87 expressly characterizes the "change of ownership of business" as only a
"circumstance" that attends those transactions "deemed sale," which are otherwise stated
in the same section
San Roque vs. CIR The Court is not unmindful of the fact that the transaction described hereinabove was not
a commercial sale. In granting the tax benefit to VAT-registered zero-rated or effectively
zero-rated taxpayers, Section 112(A) of the NIRC does not limit the definition of "sale" to
commercial transactions in the normal course of business. Conspicuously, Section 106(B) of
the NIRC, which deals with the imposition of the VAT, does not limit the term "sale" to
commercial sales, rather it extends the term to transactions that are "deemed" sale.

“Importation of Goods”
Secretary vs. Lazatin The act of bringing the goods into an FEZ is not a taxable importation. As long as the goods
remain (e.g., sale and/or consumption of the article within the FEZ) in the FEZ or re-
exported to another foreign jurisdiction, they shall continue to be tax-free. However, once
the goods are introduced into the Philippine customs territory, it ceases to enjoy the tax
privileges accorded to FEZs. It shall then be considered as an importation subject to all
applicable national internal revenue taxes and customs duties.

Under RA 9400 and its Implementing Rules, Clark FEZ is considered a customs territory
separate and distinct from the Philippines customs territory. Thus, as opposed to
importations into and establishments in the Philippines customs territory, which are fully
subject to Philippine customs and tax laws, importations into and establishments located
within the Clark FEZ (FEZ Enterprises ) enjoy special incentives, including tax and duty-free
importation. More specifically, Clark FEZ enterprises shall be entitled to the freeport status
of the zone and a 5% preferential income tax rate on its gross income, in lieu of national
and local taxes.

Since the tax exemptions enjoyed by FEZ enterprises under the law extend even to VAT
and excise tax, it follows and we accordingly rule that the taxes imposed by Section 3 of RR
2-2012 directly contravene these exemptions. First, the regulation erroneously considers
petroleum and petroleum products brought into a FEZ as taxable importations. Second, it
unreasonably burdens FEZ enterprises by making them pay the corresponding taxes - an
obligation from which the law specifically exempts them - even if there is a subsequent
 opportunity to refund the payments made
CIR vs. American Express destination principle as a basis for the jurisdictional reach of the tax. Goods and services
International are taxed only in the country where they are consumed. Thus, exports are zero-rated,
while imports are taxed.

In the present case, the facilitation of the collection of receivables is different from the
utilization of consumption of the outcome of such service. While the facilitation is done in
the Philippines, the consumption is not. The services rendered by respondent are
performed upon its sending to its foreign client the drafts and bulls it has gathered from
service establishments here, and are therefore, services also consumed in the Philippines.
Under the destination principle, such service is subject to 10% VAT.

However, the law clearly provides for an exception to the destination principle; that is 0%
VAT rate for services that are performed in the Philippines, “paid for in acceptable foreign
currency and accounted for in accordance with the R&R of BSP.” The respondent meets
the following requirements for exemption, and thus should be zero-rated: (1) Service be
performed in the Philippines(2) The service fall under any of the categories in Section 102B
of the Tax Code (3) It be paid in acceptable foreign currency accounted for in accordance
with BSP R&R.
CIR vs. SM Prime The “lease of motion picture films, films, tapes and discs” under Sec. 108 of the NIRC is not
holdings the same as the showing or exhibition of motion pictures or films. “Exhibition” is defined
as “to show or to display. x xx To produce anything in public so that it may be taken in
possession”. On the other hand, “lease” is defined as “a contract by which one owning
such property grants to another the right to possess, use and enjoy it on specified period
of time in exchange for periodic payment of a stipulated price, referred as rent.” Thus, the
legislature never intended to include cinema/theater operator operators or proprietors in
the coverage of VAT.

Diaz vs. Sec. Of Finance Tollway operators are franchise grantees and they do not belong to exceptions that
Section 119 spares from the payment of VAT. The word "franchise" broadly covers
government grants of a special right to do an act or series of acts of public concern.
Tollway operators are, owing to the nature and object of their business, "franchise
grantees."
CIR vs. Acesite Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the
latter is not liable for the payment of it as it is exempt in this particular transaction by
operation of law to pay the indirect tax. Such exemption falls within the former Section
102 (b) (3) of the 1977 Tax Code, as amended (now Sec. 108 [b] [3]of R.A. 8424), which
provides: Section 102. Value-added tax on sale of services (a) Rate and base of tax. There
shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross
receipts derived by any person engaged in the sale of services x x x; Provided, that the
following services performed in the Philippines by VAT-registered persons shall be subject
to 0%(3) 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 zero (0%)rate.
Pagcor vs. CIR Petitioner is exempt from the payment of VAT, because PAGCOR's charter, P.D. No. 1869,
is a special law that grants petitioner exemption from taxes.

CIR vs. Secretary The CIR argues that PAGCOR' s gambling operations are embraced under the phrase sale
or exchange of services, including the use or lease of properties; that such operations are
not among those expressly exempted from the 10% VAT under Section 3 of R.A. No. 7716;
and that the legislative purpose to withdraw PAGCOR's 5% franchise tax was manifested
 by the language used in Section 20 of R.A. No.7716. The CIR' s arguments lack merit.

Firstly, a basic rule in statutory construction is that a special law cannot be repealed or
modified by a subsequently enacted general law in the absence of any express provision in
the latter law to that effect. R.A. No. 7716, a general law, did not provide for the express
repeal of PAGCOR's Charter, which is a special law; hence, the general repealing clause
under Section 20 of R.A. No. 7716 must pertain only to franchises of electric, gas, and
water utilities, while the term other franchises in Section 102 of the NIRC should refer only
to transport, communications and utilities, exclusive of PAGCOR's casino operations.
CIR vs. Lhuillier While it is true that pawnshops are engaged in the business of lending money, they are not
Pawnshop considered lending investors for the purpose of imposing the 5% percentage taxes.

Pawnshops and lending investors were subjected to different tax treatments as per the
NIRC.
“Sale of services and use or lease of properties - BASIS”
CIR vs. Tours Specialist Although the fee to be paid by said tourists is quoted by the petitioner, the payments of
the hotel room accommodations, food and other personal expenses of said tourists, as a
rule, are paid directly either by tourists themselves, or by their foreign travel agencies to
the local hotels and restaurants or shops, as the case may be. Some tour agencies abroad
request the local tour agencies that the hotel room charges be paid through them. By this
arrangement, the foreign tour agency entrusts to Tours, the fund for hotel room
accommodation, which in turn is paid by petitioner tour agency to the local hotel when
billed.

Ruling:
Gross receipts subject to tax under the Tax Code do not include monies or receipts
entrusted to the taxpayer which do not belong to them and do not redound to the
taxpayer's benefit; and it is not necessary that there must be a law or regulation which
would exempt such monies and receipts within the meaning of gross receipts under the
Tax Code.

Parenthetically, the room charges entrusted by the foreign travel agencies to the private
respondent do not form part of its gross receipts within the definition of the Tax Code. The
said receipts never belonged to the private respondent. The private respondent never
benefited from their payment to the local hotels. As stated earlier, this arrangement was
only to accommodate the foreign travel agencies.

Tourist trade vs. CIR Respondent observed that petitioner charges its lessees for electricity, air-conditioning,
water, common facilities and janitorial services based on the floor area occupied by each
tenant and it is his contention that such service income must be subjected to the VAT.
Petitioner maintains that the payments made by its lessees are mere reimbursements for
whatever advances it had made for the payment of electric, water, and telephone bills and
for the janitorial provided. In effect, petitioner insists that they are not the ones directly
providing for these services thus they cannot be liable for VAT. We agree with petitioner.

Evidence adduced during the trial as well as testimonies made by witnesses reveal that all
electric, water, telephone bills as well as expense for the maintenance of common facilities
and janitorial and security services were all paid by the petitioner and the lessees are
made to reimburse these advances, made in accordance with the lessee agreements.

. It is not the petitioner who directly supplies electricity, water and similar other goods to
the lessees, neither does it render security and janitorial services. What petitioner does is
to pay PLDT, Meralco, MWSS and similar other establishments for the services that they
 render and the goods that they supply for the whole Harrison Plaza Complex. Therefore,
reimbursements sought from the tenants for advances made by petitioner are not subject
to VAT.
Medicard PH vs. CIR As an HMO, MEDICARD primarily acts as an intermediary between the purchaser of
healthcare services (its members) and the healthcare providers (the doctors, hospitals and
clinics) for a fee. By enrolling membership with MED ICARD, its members will be able to
avail of the pre-arranged medical services from its accredited healthcare providers without
the necessary protocol of posting cash bonds or deposits prior to being attended to or
admitted to hospitals or clinics, especially during emergencies, at any given time.

Apart from this, MEDICARD may also directly provide medical, hospital and laboratory
services, which depends upon its member's choice. Thus, in the course of its business as
such, MED ICARD members can either avail of medical services from MEDICARD's
accredited healthcare providers or directly from MEDICARD.

In the former, MEDICARD members obviously knew that beyond the agreement to pre-
arrange the healthcare needs of its ·members, MEDICARD would not actually be providing
the actual healthcare service. Thus, based on industry practice, MEDICARD informs its
would-be member beforehand that 80% of the amount would be earmarked for medical
utilization and only the remaining 20% comprises its service fee. In the latter case,
MEDICARD's sale of its services is exempt from VAT under Section 109(G).

Contention: the act of Medicare in earmarking or allocation is by itself an act of ownership

and management over the funds.

Ruling: Not an act of ownership. By earmarking or allocating 80% of the amount,

MEDICARD unequivocally recognizes that its possession of the funds is not in the concept
of owner but as a mere administrator of the same. For this reason, at most, MEDICARD's
right in relation to these amounts is a mere inchoate owner which would ripen into actual
ownership if, and only if, there is underutilization of the membership fees at the end of the
fiscal year. Prior to that, MEDI CARD is bound to pay from the amounts it had allocated as
an administrator once its members avail of the medical services of MEDICARD's healthcare
providers.
“Zero-rated Sales”
CIR vs. American Express As a general rule, the value-added tax (VAT) system uses the destination principle.
However, our VAT law itself provides for a clear exception, under which the supply of
service shall be zero-rated when the following requirements are met: (1) the service is
performed in the Philippines; (2) the service falls under any of the categories provided in
Section 102(b) of the Tax Code; and (3) it is paid for in acceptable foreign currency that is
accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas. Since
respondent’s services meet these requirements, they are zero-rated. Petitioner’s Revenue
Regulations that alter or revoke the above requirements are ultra vires and invalid.

As a general rule, the VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed only in the country where they
are consumed. Thus, exports are zero-rated, while imports are taxed. Confusion in zero
rating arises because petitioner equates the performance of a particular type of service
with the consumption of its output abroad. In the present case, the facilitation of the
collection of receivables is different from the utilization or consumption of the outcome of
such service. While the facilitation is done in the Philippines, the consumption is not.
Respondent renders assistance to its foreign clients -- the ROCs outside the country -- by
receiving the bills of service establishments located here in the country and forwarding
them to the ROCs abroad. The consumption contemplated by law, contrary to petitioner’s
 administrative interpretation, does not imply that the service be done abroad in order to
be zero-rated.

Tax Situs of a Zero-Rated Service - The law neither makes a qualification nor adds a
condition in determining the tax situs of a zero-rated service. Under this criterion, the place
where the service is rendered determines the jurisdiction to impose the VAT. Performed in
the Philippines, such service is necessarily subject to its jurisdiction, for the State
necessarily has to have "a substantial connection" to it, in order to enforce a zero rate. The
place of payment is immaterial; much less is the place where the output of the service will
be further or ultimately used. (Situs of service principle)
CIR vs. Placer Dome