CIR v. Seagate Technology Phils., G.R. No.

153866 dated February 11, 2005

(concept of VAT; effectively zero-rated transactions with PEZA)

FACTS:
Respondent is a RFC registered with the SEC, with address at Special Economic Zone, Cebu. It
is registered with PEZA and has been issued Certificate to engage in the manufacture of
recording components primarily used in computers for export. It is a VAT-registered entity as
evidenced by VAT Registration Certification. VAT returns for the period 1 April 1998 to 30
June 1999 have been filed by respondent. A claim for refund of VAT input taxes
(P28,369,226.38) was filed with RDO 83, Talisay, Cebu. No final action has been received from
petitioner on respondent’s claim for VAT refund. Hence, respondent elevated to CTA to toll
running of 2-year prescriptive period. Petitioner is sued in official capacity, because of its duty to
approve claims for refund or tax credit.

PROCEDURAL HISTORY:
CTA - rendered a decision granting the claim of respondent for refund.
CA - affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit
certificate (TCC) in favor of respondent in the reduced amount of P12,122,922.66.

PETITIONER’S ARGUMENTS:
1. Since taxes are presumed to have been collected in accordance with laws, respondent has
the burden of proof that taxes sought to be refunded were erroneously collected.

2. Citibank, N.A. vs. Court of Appeals: "A claimant has the burden of proof to establish the
factual basis of his or her claim for tax credit/refund."

3. Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the taxpayer.
They partake of the nature of an exemption from tax. Failure on the part of respondent to
prove the same is fatal to its claim for tax credit.

ISSUE:
WON respondent is entitled to the refund or issuance of Tax Credit Certificate over the alleged
unutilized input VAT paid on capital goods for the period 1 April 1998 to 30 June 1999

RULING: YES

GRUBA on Concept of VAT:

VAT is a uniform 12% tax levied on every importation of goods, whether or not in the course of
trade or business, or imposed on each sale, barter, exchange or lease of goods or properties or on
each rendition of services in the course of trade or business as they pass along the production and
distribution chain, the tax being limited only to the value added to such goods, properties or
services by the seller, transferor or lessor.

It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services. As such, it should be understood not in the context of the person or
entity that is primarily, directly and legally liable for its payment, but in terms of its nature as a
tax on consumption. In either case, though, the same conclusion is arrived at.
The law that originally imposed the VAT in the country, as well as the subsequent amendments
of 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 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 outputs the
VAT paid on its purchases, inputs and imports.

GRUBA on Effectively Zero-Rated Transactions with PEZA:

If at the end of a taxable quarter the output taxes charged by seller are equal to the input taxes
passed on by suppliers, no payment is required. It is when the output taxes exceed the input taxes
that excess has to be paid. If, however, input taxes exceed output taxes, the excess shall be
carried over to the succeeding quarter/s. Should the input taxes result from zero-rated or
effectively zero-rated transactions or from the acquisition of capital goods, any excess over the
output taxes shall instead be refunded to the taxpayer or credited against other internal revenue
taxes.

OTHER RULING:
To summarize, special laws expressly grant preferential tax treatment to business establishments
registered and operating within an ecozone, which by law is considered as a separate customs
territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and
regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5
percent preferential tax regime. As a matter of law and procedure, its registration status entitling
it to such tax holiday can no longer be questioned. Its sales transactions intended for export may
not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the
effective zero rating of its transactions is necessary. Being VAT-registered and having
satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input
VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit.
Panasonic Communications Imaging Corporation of the Philippines v. CIR
GR No. 178090 dated February 8, 2010 (concept of VAT)

FACTS:
Petitioner exports plain paper copiers, their parts, & components. It is a registered VAT
enterprise.
From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner
generated export sales amounting to US$12,819,475.15 and US$11,859,489.78, respectively, for
a total of US$24,678,964.93. Believing that these export sales were zero-rated for VAT under
Section 106(A)(2)(a)(1) of the 1997 National Internal Revenue Code as amended by Republic
Act (R.A.) 8424 (1997 NIRC), Panasonic paid input VAT of ₱4,980,254.26 and ₱4,388,228.14
for the two periods or a total of ₱9,368,482.40 attributable to its zero-rated sales.

Claiming that the input VAT it paid remained unutilized or unapplied, petitioner filed with BIR,
two separate applications for refund or tax credit. When BIR did not act, petitioner filed a
petition for review with CTA, averring the inaction of the respondent CIR on its applications.

PROCEDURAL HISTORY:
CTA First Division - denied petition for lack of merit. It said that, while petitioner’s export
sales were subject to 0% VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC,
it did not qualify for zero-rating because the word "zero-rated" was not
printed on petitioner’s export invoices. This omission violates the
invoicing requirements of Sec 4.108-1 of Revenue Regulations 7-95.4.
CTA En Banc - upheld decision of the First Division; dismissed petitioner’s petition.

ISSUE:
WON CTA En Banc correctly denied petitioner’s claim for refund of the VAT it paid as a zero-
rated taxpayer on the ground that its sales invoices did not state that its sales were "zero-rated"

RULING: YES

GRUBA on Concept of VAT:

VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on
to his customers. Under the VAT method of taxation, which is invoice-based, an entity can
subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs
and imports. For example, when a seller charges VAT on its sale, it issues an invoice to the
buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller
subjected to the payment of VAT on his sales, he can use the invoice issued to him by his
supplier to get a reduction of his own VAT liability. The difference in tax shown on invoices
passed and invoices received is the tax paid to the government. In case the tax on invoices
received exceeds that on invoices passed, a tax refund may be claimed.

OTHER RULINGS:
Unable to submit the proper invoices, petitioner was unable to substantiate its claim for refund.
To put the word "zero-rated" on its invoices is one which is specifically included in the
enumeration provided by Section 4.108-1 of RR 7-95 (Consolidated Value-Added Tax
Regulations). Thus, BIR correctly denied petitioner’s claim for tax refund.
This Court will not set aside lightly the conclusions reached by CTA which, by the very nature of
its functions, is dedicated exclusively to the resolution of tax problems and has accordingly
developed an expertise on the subject, unless there has been an abuse or improvident exercise of
authority. Besides, statutes that grant tax exemptions are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to VAT are in the
nature of exemptions. The general rule is that claimants of tax refunds bear the burden of proving
the factual basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that
allow exemptions are construed strictly against the grantee and liberally in favor of the
government.
CIR v. Benguet Corporation, GR No. 145559 dated July 14, 2006
(concept of input tax and output tax)

FACTS:
Respondent is a domestic corporation engaged in mining, exploration, development, operation of
mining properties for commercial production, and marketing of mine products. It is a VAT-
registered enterprise. Respondent filed an application for zero-rating of its sales of mine
products, which was approved petitioner.

Deputy CIR Eufracio Santos issued VAT Ruling No. 378-88 which declared that the sale of gold
to the Central Bank is considered an export sale and therefore subject to VAT at 0% rate. Santos
also issued Revenue Memorandum Circular No. 59-88, again declaring that the sale of gold by a
VAT-registered taxpayer to the Central Bank is subject to the zero-rate VAT. No less than five
Rulings were issued by petitioner from 1988 to 1990 reiterating and confirming its position that
the sale of gold by a VAT-registered taxpayer to the Central Bank is subject to the zero-rate
VAT.
Respondent, during the 6 taxable quarters in question, sold gold to the Central Bank and treated
these sales as zero-rated – that is, subject to the 0% VAT. During that period, respondent
incurred input taxes attributable to said sales to Central Bank. Respondent filed with petitioner
applications for the issuance of Tax Credit Certificates for input VAT Credits attributable to its
export sales - that is, inclusive of direct export sales and sale of gold to the Central Bank.

Meanwhile then CIR Jose Ong issued VAT Ruling No. 008-92 declaring and holding that sales
of gold to the Central Bank are considered domestic sales subject to 10% VAT instead of 0%
VAT as previously held in BIR Issuances from 1998 to 1990.
Then, VAT Ruling No. 59-92 were issued by petitioner reiterating the treatment of sales of gold
to the Central Bank as domestic sales, and expressly countenancing the Retroactive application
of VAT Ruling No. 008-92 to all such sales made starting January 1, 1988, ratiocinating, that
mining companies will not be unduly prejudiced by a retroactive application of VAT Ruling 008-
92 because their claim for refund of input taxes are not lost because the same are allowable on its
output taxes on the sales of gold to Central Bank; on its output taxes on other sales; and as
deduction to income tax under Sec 29 of the Tax Code.

On the basis of the aforequoted BIR Issuances, petitioner treated respondent's sales of gold to the
Central Bank as domestic sales subject to 10% VAT but allowed respondent a total tax credit of
only P81,991,810.91 which corresponded to VAT input taxes attributable to its direct export
sales. Notwithstanding this finding of petitioner, respondent was not refunded the said amounts
of tax credit claimed. Thus, to suspend the running of the two-year prescriptive period for
claiming refunds or tax credits, respondent instituted Petition for Review with CTA, praying for
the issuance of "Tax Credit Certificates" for the following input VAT credits attributable to those
export sales.

PROCEDURAL HISTORY:
CTA - dismissed respondent's Petition; denied whole amount of its claim for tax credit (P131M).
CA - affirmed in toto; but on MR, it reversed itself and ordered petitioner to issue a tax credit.
ISSUE:
WON CA erred in rejecting the retroactive application of VAT Ruling No. 008-92, subjecting
sales of gold to the Central Bank to 10% VAT to respondent's sales of gold

RULING: NO. Retroactive application of VAT Ruling No. 008-92 is prejudicial to respondent.

GRUBA on Concept of Input Tax and Output Tax:

Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-
registered taxpayer in connection with his purchase of goods and services. Thus, "input tax"
means the value-added tax paid by a VAT-registered person/entity in the course of his/its trade
or business on the importation of goods or local purchases of goods or services from a VAT-
registered person.
On the other hand, when that person or entity sells his/its products or services, the VAT-
registered taxpayer generally becomes liable for 10% of the selling price as output VAT or
output tax. Hence, "output tax" is the value-added tax on the sale of taxable goods or services by
any person registered or required to register under Section 107 of the (old) Tax Code.
The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either
by (1) passing on the 10% output VAT on the gross selling price or gross receipts, as the case
may be, to its buyers, or (2) if the input tax is attributable to the purchase of capital goods or to
zero-rated sales, by filing a claim for a refund or tax credit with the BIR.
A taxpayer subject to 10% output VAT on its sales of goods and services may recover its input
VAT costs by passing on said costs as output VAT to its buyers of goods and services but it
cannot claim the same as a refund or tax credit, while a taxpayer subject to 0% on its sales of
goods and services may only recover its input VAT costs by filing a refund or tax credit with the
BIR.

OTHER RULING:
It is a rule that rulings and circulars, rules and regulations, promulgated by CIR, would have no
retroactive application if it would be prejudicial to the taxpayers. But even if prejudicial to a
taxpayer, retroactive application is still allowed where: (a) taxpayer deliberately misstates or
omits material facts from his return or any document required by the BIR; (b) where subsequent
facts gathered by the BIR are materially different from which the ruling is based; and (c) where
the taxpayer acted in bad faith. Respondent's case does not fall under any of the above
exceptions.
Contex Corporation v. CIR, GR No. 151135 dated July 2, 2004
(liability for the tax vs. burden of the tax)

FACTS:
Petitioner is a domestic corporation engaged in manufacturing hospital textiles and garments and
other hospital supplies for export. Its place of business is at the Subic Bay Freeport Zone. It is
registered with the Subic Bay Metropolitan Authority as a Subic Bay Freeport Enterprise,
pursuant to the provisions of RA 7227. As an SBMA-registered firm, petitioner is exempt from
all local and national internal revenue taxes except for the preferential tax provided for in Section
12 (c) of RA 7227. It is also registered with BIR as a non-VAT taxpayer.

Petitioner purchased materials necessary in conduct of its manufacturing business. Suppliers of

these goods shifted to petitioner the 10% VAT on the items, which led petitioner to pay input
taxes.
Believing that it was exempt from all national and local taxes, including VAT, petitioner filed
two applications for tax refund or tax credit. Revenue District Officer denied the application
letter.
Petitioner filed another application for tax refund/credit directly with the regional director. When
no response came, petitioner elevated to CTA, in a petition for review. Petitioner stressed that
Section 112(A)7 if read in relation to Section 106(A)(2)(a)8 of NIRC and Section 12(b)9 and (c)
of RA 7227 would show that it was not liable in any way for any VAT.

In opposing the claim for tax refund or tax credit, BIR asked CTA to apply the rule that claims
for refund are strictly construed against the taxpayer. Since petitioner failed to establish both its
right to a tax refund or tax credit and its compliance with the rules on tax refund as provided for
in Sections 20410 and 22911 of the Tax Code, its claim should be denied, says the BIR.

PROCEDURAL HISTORY:
CTA - Respondent is ORDERED to REFUND or in the alternative to ISSUE A TAX
CREDIT CERTIFICATE in favor of Petitioner, for the erroneously paid input VAT.
CA - appealed decision is REVERSED AND SET ASIDE. Petitioner’s claim for refund of
erroneously paid taxes is DENIED.

ISSUE:
WON THE EXEMPTION FROM ALL LOCAL AND NATIONAL INTERNAL REVENUE
TAXES PROVIDED IN RA 7227 COVERS VAT PAID BY PETITIONER

RULING: YES

GRUBA on Liability for the Tax vs. Burden of the Tax:

VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services
bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to
the buyer, transferee or lessee. Unlike a direct tax, such as the income tax, which primarily taxes
an individual’s ability to pay based on his income or net wealth, an indirect tax, such as the
VAT, is a tax on consumption of goods, services, or certain transactions involving the same. The
VAT, thus, forms a substantial portion of consumer expenditures.
Further, in indirect taxation, there is a need to distinguish between the liability for the tax and the
burden of the tax. The amount of tax paid may be shifted or passed on by the seller to the buyer.
What is transferred in such instances is not the liability for the tax, but the tax burden. In adding
or including the VAT due to the selling price, the seller remains the person primarily and legally
liable for the payment of the tax. What is shifted only to the intermediate buyer and ultimately to
the final purchaser is the burden of the tax. Stated differently, a seller who is directly and legally
liable for payment of an indirect tax, such as the VAT on goods or services is not necessarily the
person who ultimately bears the burden of the same tax. It is the final purchaser or consumer of
such goods or services who, although not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax.

OTHER RULINGS:
Petitioner rightly claims that it is indeed VAT-Exempt, and this fact is not controverted by the
respondent. In fact, petitioner is registered as a NON-VAT taxpayer per Certificate of
Registration issued by the BIR. As such, it is exempt from VAT on all its sales and importations
of goods and services. While it is true that the petitioner should not have been liable for the VAT
inadvertently passed on to it by its supplier since such is a zero-rated sale on the part of the
supplier, the petitioner is not the proper party to claim such VAT refund. Since the transaction is
deemed a zero-rated sale, petitioner’s supplier may claim an Input VAT credit with no
corresponding Output VAT liability. Congruently, no Output VAT may be passed on to the
petitioner.

Petitioner is registered as a NON-VAT taxpayer; thus, is exempt from VAT. As an exempt VAT
taxpayer, it is not allowed any tax credit on VAT previously paid. Even if we are to assume that
exemption from the burden of VAT on petitioner’s purchases exists, petitioner is still not entitled
to any tax credit/refund on the input tax previously paid as petitioner is an exempt VAT
taxpayer.
Rather, it is the petitioner’s suppliers who are the proper parties to claim the tax credit and
accordingly refund the petitioner of the VAT erroneously passed on to the latter.
Accordingly, we find that CA did not commit any reversible error of law in holding that
petitioner’s VAT exemption under RA 7227 is limited to the VAT on which it is directly liable
as a seller and hence, it cannot claim any refund or exemption for any input VAT it paid, if any,
on its purchases of raw materials and supplies.
CIR v. Magsaysay Lines, G.R. No. 146984 dated July 28, 2006
(No VAT on sale not made in the course of trade or business)

FACTS:
NDC decided to sell its NMC shares and five of its ships. The NMC shares and the vessels were
offered for public bidding. Among the stipulated terms and conditions was that the winning
bidder was to pay "a VAT of 10% on the value of the vessels. Respondent offered to buy the
shares and the vessels for P168M. The bid was approved, and a Notice of Award was issued to
respondent.
COS was executed. Contract stipulated that "VAT, if any, shall be for the account of the
PURCHASER." Per arrangement, an irrevocable confirmed Letter of Credit was accepted by
NDC as security for the payment of VAT, if any. By this time, a formal request for a ruling on
whether or not the sale of the vessels was subject to VAT had already been filed with the BIR.
Thus, parties agreed that should no favorable ruling be received from the BIR, NDC was
authorized to draw on the Letter of Credit upon written demand the amount needed for the
payment of the VAT.

Respondents received VAT Ruling No. 568-88, holding that sale of the vessels was subject to
10% VAT. The ruling cited that NDC was a VAT-registered enterprise, thus its "transactions
incident to its normal VAT registered activity of leasing out personal property including sale of
its own assets that are tangible objects which are appropriable or transferable are subject to the
10% VAT."
Respondents filed Petition for Refund with the CTA. They prayed for the reversal of VAT
Rulings, and refund of the VAT payment made. CIR opposed the petition, first arguing that
respondents were not the real parties in interest as they were not the transferors or sellers. CIR
also defended the VAT rulings holding the sale of the vessels liable for VAT, especially citing
Section 3 of R.R. No. 5-87, which provided that "VAT is imposed on any sale or transactions
‘deemed sale’ of taxable goods (including capital goods, irrespective of the date of acquisition)."
CIR argued that sale of the vessels were among those transactions "deemed sale," as enumerated
in Section 4 of R.R. No. 5-87. It seems that CIR particularly emphasized Section 4(E)(i) of the
Regulation, which classified "change of ownership of business" which gave rise to a "deemed
sale" transaction.

PROCEDURAL HISTORY:
CTA - sale is not subject to VAT.
CA - affirmed CTA’s decision.

ISSUE:
WON the sale by the National Development Company of five of its vessels to respondents is
subject to VAT under the National Internal Revenue Code of 1986 (Tax Code)

RULING: NO. The fact that the sale was not in the course of the trade or business of NDC is
sufficient in itself to declare the sale as outside the coverage of VAT.

GRUBA on No VAT on sale not made in the course of trade or business:

VAT is ultimately a tax on consumption, even though it is assessed on many levels of
transactions on the basis of a fixed percentage. It is the end user of consumer goods or services
which ultimately shoulders the tax, as the liability therefrom is passed on to the end users by the
providers of these goods or services who in turn may credit their own VAT liability (or input
VAT) from the VAT payments they receive from the final consumer (or output VAT). The final
purchase by the end consumer represents the final link in a production chain that itself involves
several transactions and several acts of consumption. The VAT system assures fiscal adequacy
through the collection of taxes on every level of consumption yet assuages the manufacturers or
providers of goods and services by enabling them to pass on their respective VAT liabilities to
the next link of the chain until finally the end consumer shoulders the entire tax liability.

Yet VAT is not a singular-minded tax on every transactional level. Its assessment bears direct
relevance to the taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99
of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or
exchange of goods or services by persons who engage in such activities, in the course of trade or
business. These transactions outside the course of trade or business may invariably contribute to
the production chain, but they do so only as a matter of accident or incident. As the sales of
goods or services do not occur within the course of trade or business, the providers of such goods
or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability
as against their own accumulated VAT collections since the accumulation of output VAT arises
in the first place only through the ordinary course of trade or business.

OTHER RULINGS:
The conclusion that the sale was not in the course of trade or business, which the CIR does not
dispute before this Court, should have definitively settled the matter. Any sale, barter or
exchange of goods or services not in the course of trade or business is not subject to VAT.
Accordingly, the Court rules that given the undisputed finding that the transaction in question
was not made in the course of trade or business of the seller, NDC that is, the sale is not subject
to VAT pursuant to Section 99 of the Tax Code, no matter how the said sale may hew to those
transactions deemed sale as defined under Section 100.
MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISIIONER OF INTERNAL
REVENUE/ MINDANAO GEOTHERMAL PARTNERSHIP I vs. COMMISSIONER OF
INTERNAL REVENUE
G.R. No. 193301 & G.R. No. 194637, March 11, 2013, J. Carpio
In the case of Mindanao II Geothermal v. CIR , GR No. 193301, 2013, Mindanao II’s business is to
covert the steam supplied to it by PNOC-EDC into electricity and to deliver the electricity to National
Power Corp. In the course of its business, Mindanao bought and eventually sold a Nissan Patrol (part of
Mindanao’s property, plant and equipment prior to sale). The sale of the Nissan Patrol is considered as
incidental transaction made in the course of business. An isolated transaction may be considered an
incidental transaction for purposes of imposition of VAT.
FACTS

 Mindanao II allegedly entered into a BOT contract with the Philippine National Oil Corporation –
Energy Development Company (PNOCEDC) for finance, engineering, supply, installation,
testing, commissioning, operation, and maintenance of a 48.25 megawatt geothermal power plant.
 Mindanao II alleges that its sale of generated power and delivery of electric capacity and energy
of Mindanao II to NPC for and in behalf of PNOCEDC is its only revenue generating activity
which is in the ambit of VAT zero-rated sales under the EPIRA Law.
 The amendment of the NIRC of 1997 modified the VAT rate applicable to sales of generated
power by generation companies from 10% to 0%.
 Mindanao II makes domestic purchases of goods and services and accumulates therefrom
creditable input taxes.
 Pursuant to NIRC, Mindanao II alleges that it can use its accumulated input tax credits to offset
its output tax liability.
 Mindanao II filed an application for refund and/or issuance of tax credit certificate with the BIR
 The application for refund by Mindanao II remains unacted upon by the CIR.
 Hence, these three petitions.
 The Court of Tax Appeals’ Ruling: found that Mindanao II satisfied the twin requirements for
VAT zero rating under EPIRA: (1) it is a generation company, and (2) it derived sales from
power generation.
 The CTA First Division found that Mindanao II is entitled to a refund in the modified amount of
P7,703,957.79, after disallowing P522,059.91 from input VAT and deducting P18,181.82 from
Mindanao II’s sale of a fully depreciated P200,000.00 Nissan Patrol.
 The input taxes amounting to P522,059.91 were disallowed for failure to meet invoicing
requirements, while the input VAT on the sale of the Nissan Patrol was reduced by P18,181.82
because the output VAT for the sale was not included in the VAT declarations.
 Mindanao II filed a motion for partial reconsideration.
 It stated that the sale of the fully depreciated Nissan Patrol is a onetime transaction and is not
incidental to its VAT zero-rated operations.

ISSUE Whether or not the transaction is governed by VAT?

RULING
YES. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No.
7716.
The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental thereto, by any person regardless of whether or not
the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of
its net income and whether or not it sells exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being rendered in the course of trade or
business.
Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction. 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.
COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS and
COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION
G.R. No. 125355             March 30, 2000
** In the case of CIR v. CA, COMASERCO, being a non-stock and non-profit organization, contended
that it was operating on a reimbursement-of-cost basis, that of business,” and that therefore, it was not
liable to pay VAT. The Supreme Court held that Section 105 of the 1997 Tax Code was clear and
unambiguous in stating that non-stock non-profit organizations were liable to pay VAT on the sale of
goods or services. [CIR v. CA, GR No. 125355, 30 Mar. 2000.]
FACTS:
Commonwealth Management and Services Corporation (COMASERC), is a corporation duly organized
and existing under the laws of the Philippines. It is an affiliate of Philippine American Life Insurance Co.
(Philamlife), organized by the latter to perform collection, consultative and other technical services,
including functioning as an internal auditor, of Philamlife and its other affiliates.
Petitioner, Commissioner of the Bureau of Internal Revenue (BIR) issued an assessment to private
respondent COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable
year 1988.
With this, COMASERCO filed with the BIR, a letter-protest objecting to the latter’s finding of deficiency
VAT. In lieu however, the Commissioner of Internal Revenue sent a collection letter to COMASERCO
demanding payment of the deficiency VAT.
As a result, COMASERCO filed with the Court of Tax Appeals  a petition for review contesting the
Commissioner’s assessment asserting that the services it rendered to Philamlife and its affiliates, relating
to collections, consultative and other technical assistance, including functioning as an internal auditor,
were on a “no-profit, reimbursement-of-cost-only” basis. It averred that it was not engaged in the business
of providing services to Philamlife and its affiliates. COMASERCO stressed that it was not profit-
motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable
year 1988, hence not liable to pay VAT.
The Court of Tax Appeals rendered decision in favor of the Commissioner of Internal Revenue.
On its appeal with the Court of Appeals, the appellate court rendered decision reversing that of the Court
of Tax Appeals. Court of Appeals held that COMASERCO was not liable to pay VAT for it was not
engaged in the business of selling services.
Hence, this case.
ISSUE: Whether or not COMASERCO was engaged in the sale of services, and thus liable to pay VAT
thereon?
RULING:
YES.
The Court agreed with the Petitioner that to “engage in business” and to “engage in the sale of services”
are two different things. Petitioner maintains that the services rendered by COMASERCO to Philamlife
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.
Pursuant to Republic Act No. 7716, the Expanded VAT Law (EVAT), amending among other sections,
Section 99 of the Tax Code, it is provided that:
Sec. 105. Persons Liable. — Any person who, in the course of trade or business, sells, barters, exchanges,
leases goods or properties, renders services, and any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 and 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing sale or
lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716.
The definition of the term “in the course of trade or business” present law applies to all transactions even
to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of
trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The
present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to
pay VAT for the sale of goods and services.
Sec. 108 of the National Internal Revenue Code of 1997 defines the phrase “sale of services” as the
“performance of all kinds of services for others for a fee, remuneration or consideration.” It includes “the
supply of technical advice, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking or project.” 
Hence, 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.
COMMISSIONER OF INTERNAL REVENUE VS. SONY PHILIPPINES, INC.
G.R. NO. 178697, NOVEMBER 17, 2010
635 SCRA 234
* In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of several advertising
companies. Due to Sony Philippines’ dire economic conditions, Sony International Singapore handed
Sony Philippines a dole-out to answer for the expenses payable to the advertising companies. Sony
Philippines was thereafter assessed deficiency VAT for the transaction, i.e., dole-out, between Sony
International Singapore and Sony Philippines. The Supreme Court ruled that the dole-out or subsidy from
the Singaporean company to the Philippine company neither constituted a sale of goods or properties, nor
a sale of services. Hence, Sony Philippines was not liable to pay VAT on the same. [CIR v. Sony
Philippines, Inc., GR No. 178697, 17 Nov. 2010.]
FACTS:
The CIR, through a LOA (Letter of Authority) examined Sony Philippines, Inc. (Sony)’s books of
accounts for the period 1997 and unverified prior years. A preliminary assessment for 1997 deficiency
taxes and penalties was issued by the CIR which Sony protested. The CTA-First Division partly granted
Sony’s petition by cancelling the deficiency VAT assessment but upheld a modified deficiency EWT
assessment as well as the penalties.
Sony International Singapore (SIS) has granted to Sony a subsidy equivalent to the latter’s advertising
expenses, due to adverse economic conditions. The CIR argued that Sony’s advertising expense could not
be considered as an input VAT credit because the same was eventually reimbursed by SIS and that since
Sony’s advertising expense was reimbursed by SIS, the former never incurred any advertising expense.
As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said advertising expense
should be for the account of SIS, and not Sony.
ISSUE: WON Sony is liable for deficiency VAT
HELD:
NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it paid for certain
advertising costs. This is sufficient to accord it the benefit of input VAT credits and where the money
came from to satisfy said advertising billings is another matter but does not alter the VAT effect. In the
same way, Sony Philippines can not be deemed to have received the reimbursable as a fee for a VAT-
taxable activity. The reimbursable was couched as an aid for Sony Philippines by SIS in view of the
company’s “dire or adverse economic conditions”. More importantly, the absence of a sale, barter or
exchange of goods or properties supports the non-VAT nature of the reimbursement. This was
distinguished from the COMASERCO case where even if there was similarly a reimbursement-on-cost
arrangement between affiliates, there was in fact an underlying service. Here, the advertising services
were rendered in favor of Sony Philippines not SIS.
COMMISSIONER OF INTERNAL REVENUE, Petitioners vs. BENGUET
CORPORATION, Respondent

G.R. Nos. 134587 & 134588 July 8, 2005

Distinguish between VAT rating and zero-rating.

* The case of CIR v. Benguet Corporation explained VAT rating visas-vis zero-rating in principle, as well
as by way of illustration, to wit: “In transactions taxed at a 10% rate, when at the end of any given taxable
quarter the output VAT exceeds the input VAT, the excess shall be paid to the government; when the
input VAT exceeds the output VAT, the excess would be carried over to VAT liabilities for the
succeeding quarter or quarters. On the other hand, transactions which are taxed at zero-rate do not result
in any output tax. Input VAT attributable to zero-rated sales could be refunded or credited against other
internal revenue taxes at the option of the taxpayer.

To illustrate, in a zero-rated transaction, when a VAT-registered person (“taxpayer”) purchases materials

from his supplier at P80.00, P7.30[39] of which was passed on to him by his supplier as the latter’s 10%
output VAT, the taxpayer is allowed to recover P7.30 from the BIR, in addition to other input VAT he
had incurred in relation to the zero-rated transaction, through tax credits or refunds. When the taxpayer
sells his finished product in a zerorated transaction, say, for P110.00, he is not required to pay any output
VAT thereon. In the case of a transaction subject to 10% VAT, the taxpayer is allowed to recover both the
input VAT of P7.30 which he paid to his supplier and his output VAT of P2.70 (10% the P30.00 value he
has added to the P80.00 material) by passing on both costs to the buyer. Thus, the buyer pays the total
10% VAT cost, in this case P10.00 on the product.” (Emphasis supplied.) [CIR v. Benguet Corporation,
GR Nos. 134587 & 134588, 8 July 2005.]

FACTS:

Benguet Corporation is a domestic corporation engaged in the exploration, development and operation of
mineral resources, and the sale or marketing thereof to various entities. It is a VAT registered enterprise.

The transactions in question occurred during the period between 1988 and 1991. Under Sec. 99 of NIRC
as amended by E.O. 273 s. 1987 then in effect, any person who, in the course of trade or business, sells,
barters or exchanges goods, renders services, or engages in similar transactions and any person who
imports goods is liable for output VAT at rates of either 10% or 0% (zero-rated) depending on the
classification of the transaction under Sec. 100 of the NIRC.

In January of 1988, Benguet applied for and was granted by the BIR zero-rated status on its sale of gold
to Central Bank. On 28 August 1988 VAT Ruling No. 3788-88 was issued which declared that the sale of
gold to Central Bank is considered as export sale subject to zero-rate pursuant to

Section 100 of the Tax Code, as amended by EO 273.

Relying on its zero-rated status and the above issuances, Benguet sold gold to the Central Bank during the
period of 1 August 1989 to 31 July 1991 and entered into transactions that resulted in input VAT incurred
in relation to the subject sales of gold. It then filed applications for tax refunds/credits corresponding to
input VAT.
However, such request was not granted due to BIR VAT Ruling No. 008-92 dated 23 January 1992 that
was issued subsequent to the consummation of the subject sales of gold to the Central Ban`k which
provides that sales of gold to the Central Bank shall not be considered as export sales and thus, shall be
subject to 10% VAT. BIR VAT Ruling No. 008-92 withdrew, modified, and superseded all inconsistent
BIR issuances.

Both petitioner and Benguet agree that the retroactive application of VAT Ruling No. 008-92 is valid only
if such application would not be prejudicial to the Benguet pursuant Sec. 246 of the NIRC.

ISSUE: WON Benguet’s sale of gold to the Central Bank during the period when such was classified by
BIR issuances as zero-rated could be taxed validly at a 10% rate after the consummation of the
transactions involved

HELD:

NO. At the time when the subject transactions were consummated, the prevailing BIR regulations relied
upon by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR interpreted
Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold sold to the
Central Bank shall be considered export and therefore shall be subject to the export and premium duties.
In coming out with this interpretation, the BIR also considered Sec. 169 of Central Bank Circular No. 960
which states that all sales of gold to the Central Bank are considered constructive exports. Respondent
should not be faulted for relying on the BIR’s interpretation of the said laws and regulations . While it is
true, as petitioner alleges, that government is not estopped from collecting taxes which remain unpaid on
account of the errors or mistakes of its agents and/or officials and there could be no vested right arising
from an erroneous interpretation of law, these principles must give way to exceptions based on and in
keeping with the interest of justice and fairplay, as has been done in the instant matter. For, it is
primordial that every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
Contex Corp vs. CIR
FACTS:
 Petitioner is a domestic corporation engaged in the business of manufacturing hospital
textiles and garments and other hospital supplies for export. Petitioner's place of business is
at the Subic Bay Freeport Zone (SBFZ).
 From January 1, 1997 to December 31, 1998, petitioner purchased various supplies and
materials necessary in the conduct of its manufacturing business. The suppliers of these
goods shifted unto petitioner the 10% VAT on the purchased items, which led the petitioner
to pay input taxes in the amounts of P539,411.88 and P504,057.49 for 1997 and 1998,
respectively
 Acting on the belief that it was exempt from all national and local taxes, including VAT,
pursuant to Rep. Act No. 7227, petitioner filed two applications for tax refund or tax credit of
the VAT it paid. Mr. Edilberto Carlos, revenue district officer of BIR RDO No. 19, denied
the first application letter, dated December 29, 1998.
 When no response was forthcoming from the BIR Regional Director, petitioner then elevated
the matter to the Court of Tax Appeals, in a petition for review docketed as CTA Case No.
5895. Petitioner stressed that Section 112(A)[7] if read in relation to Section 106(A)(2)(a)[8]
of the National Internal Revenue Code, as amended and Section 12(b)[9] and (c) of Rep. Act
No. 7227 would show that it was not liable in any way for any value-added tax. The petition
was subsequently denied, hence, this petition.
ISSUES:
 Differentiate VAT exemption and Zero-rating. (GRUBA)
 WoN Contex Corp is liable to pay the VAT.
RULING:
(GRUBA)
“Exemptions from VAT are granted by express provision of the Tax Code or special laws. Under
VAT, the transaction can have preferential treatment in the following ways:
(a) VAT Exemption. An exemption means that the sale of goods or properties and/or
services and the use or lease of properties is not subject to VAT (output tax) and the
seller is not allowed any tax credit on VAT (input tax) previously paid. This is a case
wherein the VAT is removed at the exempt stage (i.e., at the point of the sale, barter or
exchange of the goods or properties).
The person making the exempt sale of goods, properties or services shall not bill any
output tax to his customers because the said transaction is not subject to VAT. On the
other hand, a VAT-registered purchaser of VAT-exempt goods/properties or services
which are exempt from VAT is not entitled to any input tax on such purchase despite the
issuance of a VAT invoice or receipt.
 (b) (Zero-Rated Sales. These are sales by VAT-registered persons which are subject to 0%
rate, meaning the tax burden is not passed on to the purchaser. 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 purchases of goods, properties or
services related to such zero-rated sale shall be available as tax credit or refund in
accordance with these regulations.
(c) Under zero-rating, all VAT is removed from the zero-rated goods, activity or firm. In
contrast, exemption only removes the VAT at the exempt stage, and it will actually
increase, rather than reduce the total taxes paid by the exempt firm’s business or non-
retail customers. It is for this reason that a sharp distinction must be made between zero-
rating and exemption in designating a value-added tax.”
(2nd Issue)
Yes. Section 99 of the National Internal Revenue Code of 1986 provides that: “Any person
who, in the course of trade or business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person, who, imports goods shall be subject to VAT
imposed in Sections 100 to 102 of this Code. The Higher Court clarified the meaning of the term
“in the course of trade or business” by citing Section 105 of RA 8424 which took effect on
January 1, 1998. The phrase “in the course of trade or business” means the regular conduct or
pursuit of a commercial or an economic activity, including transactions incidental thereto, by any
person regardless of whether or not the person engaged therein is a non-stock, non-profit
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.
It is immaterial whether the primary purpose of a corporation indicates that it receives payments
for services rendered to its affiliates on a reimbursement-of-cost basis only, without realizing
profit, for purposes of determining liability for VAT on services rendered. As long as the entity
provides services for a fee, remuneration or consideration, then the service rendered is subject to
VAT.
CIR vs. Seagate
FACTS:
 Respondent is a resident foreign corporation duly registered with the Securities and
Exchange Commission to do business in the Philippines. Respondent is registered with the
Philippine Export Zone Authority (PEZA) and has been issued PEZA Certificate No. 97-044
pursuant to Presidential Decree No. 66, as amended, to engage in the manufacture of
recording components primarily used in computers for export. Such registration was made
on 6 June 1997.
 VAT returns were filed for the period 1 April 1998 to 30 June 1999. With supporting
documents, a claim for refund of VAT input taxes in the amount of 28 million pesos
(inclusive of the 12-million VAT input taxes subject of this Petition for Review) was filed on
4 October 1999.
 CIR did not act promptly upon STP's claim so the latter elevated the case to the CTA for
review in order to toll the running of the two-year prescriptive period.
 On appeal, CIR 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 in the VAT business, and no VAT refund or credit is due.
ISSUE:
 (Gruba) Differentiate VAT exemption, Zero-rating, and Effectively Zero-rated.
 Is STP entitled to refund or tax credit for puchases
RULING:
(GRUBA)
“In terms of the VAT computation, zero rating and exemption are the same, but the extent of
relief that results from either one of them is not. [In] zero rating, there is total relief for the
purchaser from the burden of the tax. But in an exemption there is only partial relief, because the
purchaser is not allowed any tax refund of or credit for input taxes paid.”
“Although both are taxable and similar in effect, zero-rated transactions differ from effectively
zero-rated transactions as to their source.
Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax
rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable
against the purchaser. The seller of such transactions charges no output tax, but can claim a
refund of or a tax credit certificate for the VAT previously charged by suppliers.
Effectively zero-rated transactions, 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 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.”
The decision went on to say (under the subheading Zero Rating and Exemption):
“Applying the destination principle to the exportation of goods, automatic zero rating is
primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT,
making such seller internationally competitive by allowing the refund or credit of input taxes that
are attributable to export sales. Effective zero rating, on the contrary, is intended to benefit the
purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately
bear the burden of the tax shifted by the suppliers.”

(2nd Issue)
Yes, Seagate is entitled to refund or credit. As a PEZA-registered enterprise within a special
economic zone, respondent is entitled to the fiscal incentives and benefit provided for in either
PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions
under both Republic Act Nos. (RA) 7227 and 7844.
Respondent, which as an entity is exempt, is different from its transactions which are not exempt.
The end result, however, is that it is not subject to the VAT. The non-taxability of transactions
that are otherwise taxable is merely a necessary incident to the tax exemption conferred by law
upon it as an entity, not upon the transactions themselves.
CIR vs Cebu Toyo Corporation
FACTS:
 Cebu Toyo Corp. (Cebu) is a domestic subsidiary of Toyo Lens Corporation Japan, engaged
in the manufacture of lenses and various optical components. It is a zone export enterprise
registered with the Philippine Economic Zone Authority (PEZA), pursuant PD 66 and is also
registered with the BIR as a VAT taxpayer.
 The sales of respondent are considered export sales subject to VAT at 0% rate under Section
106 of the NIRC, as amended.
 On March 30, 1998, it filed an application for tax credit/refund of VAT paid for the period
April 1996 to December 1997 amounting to about P4.4 million representing excess VAT
input payments. They argued that as a VAT-registered exporter of goods, it is subject to VAT
at the rate of 0% on its export sales that do not result in any output tax. Hence, the unutilized
VAT input taxes on its purchases of goods and services related to such zero-rated activities
are available as tax credits or refunds.
 The CIR oppose such stating that they are not entitled to the tax credit as the claims for
refund are strictly construed against respondents as it is of the nature of tax exemption.
ISSUE:
 (Gruba) Differentiate VAT exemption and Zero-rating.
 WoN it is correct to grant a refund representing unutilized input VAT on goods and services.
RULING:
(GRUBA)
“In principle, the purpose of applying a zero percent (0%) rate on a taxable transaction is to
exempt the transaction completely from VAT previously collected on inputs. It is thus the only
true way to ensure that goods are provided free of VAT. While the zero rating and the exemption
are computationally the same, they actually differ in several aspects, to wit:
(a) 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;
(b) 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;
(c) Persons engaged in transactions which are zero-rated, being subject to VAT, are required
to register while registration is optional for VAT-exempt persons.”
(2nd Issue)
Yes, the grand of refund is correct. Cebu Toyo is entitled to the P2.1M tax refund/credit.
Petitioner’s contention that respondent is not entitled to refund for being exempt form VAT is
untenable. Under RA 7916, Cebu Toyo has to options with respect to its tax burden. It could
avail of an income tax holiday pursuant to EO 226, thus exempting it from income taxes for a
number of years (in this case, 4 years) but not from other internal revenue taxes such as VAT; or
it could avail of the tax exemption on all taxes, including VAT under PD 66 and pay only the
preferential rate of 5% under RA 7916. Thus, availing of the first option, respondent is not
exempt from VAT and it correctly registered itself as a VAT taxpayer.
In fine, it is engaged in a taxable rather than exempt transactions. In taxable transactions, the
seller (Cebu) shall be entitled to tax credit for the VAT paid on purchases and leases of goods
properties or services.
CIR vs Toshiba
FACTS:
 Toshiba is registered with the Philippine Economic Zone Authority (PEZA) as an
ECOZONE Export Enterprise, with principal office in Laguna Technopark, Biñan, Laguna.
 Toshiba filed its VAT returns for the first and second quarters of taxable year 1996, reporting
input VAT of P13,118,542 and P5,128,761.94, respectively.
 Toshiba claimed that the input VAT was from its purchases of capital goods and services
which remained unutilized since it had not yet engaged in any business activity or transaction
for which it may be liable for any output VAT. Consequently, on 27 March 1998, Toshiba
filed with the Department of Finance (DOF) applications for tax credit/refund of its
unutilized input VAT for a total of P19,338,422.07
 However, the CIR said that Toshiba cannot claim for refund of input tax because the capital
goods and services it purchased are considered not used in VAT taxable business and
therefore, it is not entitled to refund of input taxes.
 On appeal to the CTA, Toshiba argued that it is PEZA-registered and located within the
ecozone and therefore, they are VAT-exempt entity.
 The CTA ordered the CIR to refund, or in the alternative, to issue a tax credit certificate to
Toshiba in the amount of P16,188,045.44. The Court of Appeals dismissed the CIR's Petition
for Review and affirmed the CTA Decision. Hence, the present petition.
ISSUE:
 (GRUBA) What is the cross-border doctrine?
 Whether or not Toshiba is entitled to refund for the input tax it paid on unutilized capital
goods.
RULING:
(GRUBA)
The Philippines adheres to the cross-border doctrine which means that “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%) [now 12%] VAT.” Sales made by an
enterprise within a non-ECOZONE territory to an enterprise within an ECOZONE territory shall
be free of VAT.
(2nd Issue)
Toshiba, a PEZA-registered and located within a ecozone is a VAT-exempt entity because of Sec
8 of Ta 7916 which establishes the fiction that ecozones are foreign territory. Therefore, a
supplier from the custom territory cannot pass on output VAT to an ecozone enterprise, like
Toshiba, since it is exempt.
CIR failed to differentiate between VAT-exempt transactions from VAT-exempt entities. An
exempt transaction are transactions specifically listed in and expressly exempted from VAT
under the Tax Code without regard to the tax status, VAT-exempt or not, of the taxpayer. An
exempt party, on the other hand, is a person or entity granted VAT-exemption under the Tax
Code, 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.
Toshiba Information Equipment (Phils.) Inc. v. CIR
(WALA SA GRUBA)
FACTS:
 Toshiba is a domestic corporation principally engaged in the business of manufacturing and
exporting of electric machinery, equipment systems, accessories, parts, components,
materials and goods of all kinds.
 1997 it filed for VAT returns for the first and second quarter where it declared an input VAT
payment on its domestic purchases of taxable goods in the aggregate sum of P3.875M.
 Later, it submitted an amended VAT return before the BIR but in zero-rated sales totaling to
P7.494M
 1999, it filed for two separate tax credit/refund for the VAT input payments amounting to
P3.685M. And the next day after, it filed with the CTA a Petition for Review to toll the
running of the two-year prescriptive period under Section 230 of the Tax Code of 1977, as
amended.
 The CIR denied their application. On appeal, the CTA ruled that Toshiba is entitled to the
credit/refund of the input VAT paid on its purchases of goods and services relative to such
zero-rated export sales.
 The Court of Appeals reversed the decision of the CTA in the petition for review stating that
Toshiba is a tax-exempt entity under R.A. No. 7916 thus not entitled to refund the VAT
payments made in the domestic purchase of goods and services.
ISSUE:
 Differentiate between VAT zero-rating and VAT exemption (topic given under the syllabus)

RULING:
(1st issue – syllabus)
An exemption means that the sale of goods or properties and/or services and the use or lease of
properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT
(input tax) previously paid.
The person making the exempt sale of goods, properties or services shall not bill any output tax
to his customers because the said transaction is not subject to VAT. On the other hand, a VAT-
registered purchaser of VAT-exempt goods, properties or services which are exempt from VAT
is not entitled to any input tax on such purchase despite the issuance of a VAT invoice or receipt.
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 purchases of goods, properties or
services related to such zero-rated sale shall be available as tax credit or refund in accordance
with these regulations.
A VAT-registered seller of goods and/or services who made zero-rated sales can claim tax credit
or refund of the input VAT paid on its purchases of goods, properties, or services relative to such
zero-rated sales
(2nd issue)
Yes. Toshiba is herein claiming the refund of unutilized input VAT payments on its local
purchases of goods and services attributable to its export sales for the first and second quarters of
1997. Such export sales took place before October 15, 1999, when the old rule on the VAT
treatment of PEZA-registered enterprises still applied. Under this old rule, it was not only
possible, but even acceptable, for Toshiba, availing itself of the income tax holiday option under
Section 23 of Republic Act No. 7916, in relation to Section 39 of the Omnibus Investments Code
of 1987, to be subject to VAT, both indirectly (as purchaser to whom the seller shifts the VAT
burden) and directly (as seller whose sales were subject to VAT, either at ten percent [10%] or
zero percent [0%]).
Intel Technology Philippines, Inc. v. CIR, GR No. 166732 dated April 27, 2007
(proof of export sales)

G NOTES : The case of Intel Technology Philippines, Inc. v. CIR is a claim for tax refund/credit
of alleged unutilized input VAT on local purchases of goods and services which are attributable
to export sales for the second quarter of 1998. To prove that it was engaged in the “sale and
actual shipment of goods from the Philippines to a foreign country,” Intel Technology presented
documentary evidence such as summary of export sales, sales invoices, official receipts, airway
bills, and export declarations. And, to prove that payment was made “in acceptable foreign
currency or its equivalent in goods or services, and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP),” a certification of inward remittances
was presented by Intel Technology. The Supreme Court found that Intel Technology’s evidence
sufficiently established that it was engaged in export sales. [Intel Technology Philippines, Inc.v.
CIR, GR No. 166732, 27 Apr. 2007.]

FACTS:
Petitioner is a domestic corporation engaged primarily in the business of designing, developing,
manufacturing and exporting advanced and large- scale integrated circuit components (ICs). It is
registered with the BIR as a value-added tax (VAT) entity. It is likewise registered with the
PEZA as an Ecozone export enterprise.

In May 1999, petitioner filed with the Commission of Internal Revenue, through its One-Stop
Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance, a claim
for tax credit/refund of VAT input taxes on its domestic purchases of goods and services directly
used in its commercial operations. Petitioner’s claim for refund amounted to P11,770,181.70
covering the period April 1, 1998 to June 30, 1998.
To prove that it was engaged in the “sale and actual shipment of goods from the Philippines to a
foreign country,” Intel Technology presented documentary evidence such as summary of export
sales, sales invoices, official receipts, airway bills, and export declarations. And, to prove that
payment was made “in acceptable foreign currency or its equivalent in goods or services, and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP),” a certification of inward remittances was presented by Intel Technology

When the two-year prescriptive period to file a refund was about to lapse without any action by
the CIR on its claim, petitioner filed with the CTA a petition for review and prayed for the
issuance of a tax credit certificate.
 
The CTA rendered judgment denying petitioner’s claim for refund or issuance of a tax credit
certificate. The tax court acknowledged that petitioner is legally entitled to a refund or issuance
of a tax credit certificate of its unutilized VAT input taxes on domestic purchases of goods and
service attributable to its zero-rated sales. However, the export invoices adduced in evidence
by petitioner could not be considered as competent evidence to prove its zero-rated sales of
goods for VAT purposes and for refund or issuance of a tax credit certificate because no
BIR authority to print said invoices was indicated thereon. The CTA also observed that
some of the invoices do not contain the Taxpayer’s Identification Number-VAT (TIN-V) of
petitioner as required in Section 113, in conjunction with Section 237, of the Tax Code.

On appeal, the CA affirmed the CTA ruling. Hence, this petition.

ISSUES:
W/N Intel is not entitled to a tax refund/credit for failure to comply with the invoicing
requirements (NO)

RATIO:
Export sales, or sales outside the Philippines, are subject to VAT at 0% rate if made by a
VATregistered person—the seller of such transactions charges no output tax, but can claim
a refund or tax credit certificate for the VAT previously charged by suppliers

Under Sections 106 (A)(2)(a)(1) in relation to 112(A) of the Tax Code, a taxpayer engaged in
zero-rated or effectively zero-rated transactions may apply for a 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
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 correctly argued by petitioner, there is no law or BIR rule or regulation requiring

petitioner’s authority from the BIR to print its sales invoices (BIR authority to print) to be
reflected or indicated therein. Under the tax code and the rules, while entities engaged in
business are required to secure from the BIR an authority to print receipts or invoices and to
issue duly registered receipts or invoices, it is not required that the BIR authority to print be
reflected or indicated therein. Only the following items are required to be indicated in the
receipts or invoices:
 a statement that the seller is a VAT-registered entity followed by its TIN-V;
 the total amount which the purchaser pays or is obligated to pay to the seller with the
indication that such amount includes the value-added tax;
 date of the transaction;
 quantity of merchandise;
 unit cost;
 description of merchandise or nature of service;
 the name, business style, if any, and address of the purchaser, customer or client in the
case of sales, receipt or transfers in the amount of P100.00 or more, or regardless of the
amount, where the sale or transfer is made by a person liable to VAT to another person
also liable to VAT, or where the receipt is issued to cover payment made as rentals,
commissions, compensations or fees; and
 the TIN of the purchaser where the purchaser is a VAT-registered person.

The law and revenue regulations do not provide that failure to reflect or indicate in the invoices
or receipts the BIR authority to print, as well as the TIN-V, would result in the outright
invalidation of these invoices or receipts. Neither is it provided therein that such omission or
failure would result in the outright denial of a claim for tax credit/refund. Instead, Section 264 of
the Tax Code imposes the penalty of fine and imprisonment for, among others.

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.
Atlas Consolidated Mining and Development Corporation v. CIR,
GR No. 146221 dated September 25, 2007
(minimum 70% export sales to qualify for VAT zero- rating)

G NOTES : Give an example of a sale of raw materials to an export-oriented enterprise.

* Section 106(A)(2)(a)(iii) of the 1997 Tax Code pertains to the sale of raw materials or
packaging materials to an export-oriented enterprise whose export sales exceed 70% of total
annual production. With respect to the extent of the relief, the Supreme Court held that: “Thus,
the 0% rate applies to the total sale of raw materials or packaging materials to an export-
oriented enterprise and not just the percentage of the sale in proportion to the actual exports of
the enterprise.”

Facts:
 Petitioner Atlas Consolidated Mining and Development Corporation (petitioner) is a
domestic corporation engaged in the business of mining, production, and sale of various
mineral products consisting principally of copper concentrates and gold.
 In 1988, petitioner filed VAT returns for the four quarters of 1988. Petitioner submitted
corresponding applications for excess input VAT refunds resulting from the claimed
zero-VAT nature of its sales of gold to the Bangko Sentral ng Pilipinas (BSP), copper
concentrates to the Philippine Smelting and Refining Corporation (PASAR), and pyrite to
the Philippine Phosphate, Inc. (Philphos).
 When BIR failed to act on its request, petitioner filed with the Court of Tax Appeals
(CTA) four separate petitions corresponding to the four quarters in 1988, reiterating its
claims for refund. Petitioner claimed the following amounts representing its excess input
VAT: (1) P33,489,768 for the first quarter of 1988; (2) P54,633,476.07 for the second
quarter of 1988; (3) P30,190,111.06 for the third quarter of 1988; and (4) P49,048,911.76
for the fourth quarter of 1988. The four cases were later consolidated.
 CTA granted the petition but only up to the amount of P13,451,536.15, Atlas and CIR
filed an MR and the CTA denied the MR of the CIR, the Atlas MR is also denied, CTA
found that petitioner failed to show proof that it had paid input taxes in 1988. Atlas
appealed to CA and dismissed the same and found that the Summary Amount of VAT
Listings submitted by petitioner cannot be relied upon in the absence of the actual
receipts and invoices which petitioner never offered as evidence. MR – denied, Hence
this appeal

Issue: WHETHER THE REQUIREMENT OF REVENUE REGULATION NO. 2-88 THAT

BOI- AND EPZA-REGISTERED ENTERPRISES MUST HAVE AT LEAST 70%
EXPORT SALES IN ORDER FOR THE SALES TO SAID ENTERPRISES BE
CONSIDERED ZERO-RATED IS VALID.

Ruling:
 The submission of photocopies of purchase invoices and receipts is indispensable
when applying for tax credit or refund. In fact, the original copy of the invoices or
receipts must be presented for cancellation prior to the issuance of a tax credit
certificate or refund. The requisites for claiming refunds or tax credits for input tax
are set forth in Section 2 of Revenue Regulations No. 3-88.

 Petitioner submits that the zero-rating of sales to export-oriented entities applies in its
entirety and should not be limited merely to the proportion of the sales to the actual
exports of the export-oriented entities. Petitioner alleges that the Court of Appeals
failed to rule on this issue. The Court of Appeals may have deemed this issue
superfluous considering petitioner’s failure to offer as evidence the purchase invoices
or receipts to substantiate its claim for refund. Nevertheless, the Court has already
resolved this issue in Atlas Consolidated Mining & Dev’t Corp. v. CIR, 318 SCRA
386 (1999), which incidentally involves the same parties as in this case. The Court
held: [A]n examination of Section 4.100.2 of Revenue Regulation 7-95 in relation to
Section 102(b) of the Tax Code shows that sales to an export-oriented enterprise
whose export sales exceed 70 percent of its annual production are to be zero-rated,
provided the seller complies with other requirements, like registration with the BOI
and the EPZA. The said regulation does not even hint, much less expressly mention,
that only a percentage of the sales would be zero-rated. The Internal Revenue
Commissioner cannot, by administrative fiat, amend the law by making compliance
therewith more burdensome. Thus, the 0% rate applies to the total sale of raw
materials
Panasonic Communications Imaging Corporation of the Philippines v. CIR,
GR No. 178090 dated February 8, 2010, supra
(example of export sales under the Omnibus Investment Code of 1987 and other special laws)

G NOTES Q: Give an example of export sales under the Omnibus Investment Code of 1987 and
other special laws.

* In Panasonic Communications Imaging Corporation of the Philippines v. CIR, Panasonic

produced and exported paper copiers and their sub-assemblies, parts, and components. It was
registered with the Board of Investments as a preferred pioneer enterprise under the Omnibus
Investment Code of 1987; it was a registered VAT enterprise; and its export sales were zero-
rated.

Facts:
Petitioner Panasonic Communications Imaging Corporation of the Philippines (Panasonic)
produces and exports plain paper copiers and their sub-assemblies, parts, and components. It is
registered with the Board of Investments as a preferred pioneer enterprise under the Omnibus
Investments Code of 1987. It is also a registered VAT enterprise.

From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner
Panasonic generated export sales for a total of US$24,678,964.93. Believing that these export
sales were zero-rated for VAT under Section 106(A)(2)(a)(1) of the  NIRC, Panasonic paid a
total of P9,368,482.40 input VAT attributable to its zero-rated sales.

Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and
July 20, 1999 petitioner Panasonic filed with the BIR two separate applications for refund or tax
credit of what it paid. When the BIR did not act on the same, Panasonic filed on December 16,
1999 a petition for review with the CTA, averring the inaction of the respondent CIR on its
applications.

The petition was denied for lack of merit.

ISSUE:
Whether or not the CTA en banc correctly denied petitioner Panasonics claim for refund of the
VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on their
faces that its sales were zero-rated.

Ruling:
 The VAT is a tax on consumption, an indirect tax that the provider of goods or services
may pass on to his customers. Under the VAT method of taxation, which is invoice-
based, an entity can subtract from the VAT charged on its sales or outputs the VAT
it paid on its purchases, inputs and imports. For example, when a seller charges VAT
on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged.
For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he
can use the invoice issued to him by his supplier to get a reduction of his own VAT
liability. The difference in tax shown on invoices passed and invoices received is the tax
paid to the government. In case the tax on invoices received exceeds that on invoices
passed, a tax refund may be claimed.
 This Court will not set aside lightly the conclusions reached by the CTA which, by the
very nature of its functions, is dedicated exclusively to the resolution of tax problems and
has accordingly developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority. Besides, statutes that grant tax exemptions are
construed strictissimi juris against the taxpayer and liberally in favor of the taxing
authority. Tax refunds in relation to the VAT are in the nature of such exemptions.
The general rule is that claimants of tax refunds bear the burden of proving the factual
basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of the
government.
 For the effective zero rating of such transactions, however, the taxpayer has to be
VAT-registered and must comply with invoicing requirements. Interpreting these
requirements, respondent CIR ruled that under Revenue Memorandum Circular (RMC)
42-2003, the taxpayer’s failure to comply with invoicing requirements will result in the
disallowance of his claim for refund.
 Zero-rated transactions generally refer to the export sale of goods and services. The
tax rate in this case is set at zero. When applied to the tax base or the selling price of the
goods or services sold, such zero rate results in no tax chargeable against the foreign
buyer or customer. But, although the seller in such transactions charges no output tax, he
can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys
automatic zero rating, which allows him to recover the input taxes he paid relating to the
export sales, making him internationally competitive.
San Roque Power Corporation v. CIR,
GR No. 180345 dated November 25, 2009
(transaction deemed sale)

GNOTES : Q: Give an example of a transaction deemed sale under this provision.

* In San Roque Power Corporation v. CIR, San Roque Power Corporation was engaged in the
supply of electricity to the National Power Corporation. Such sale of service qualified as a zero-
rated transaction under Section 108(B)(3) of the 1997 Tax Code. A portion of SRPC’s claim for
tax refund/credit for alleged unutilized input VAT was attributable to a “sale” of electricity to
NPC that was made during the testing period sometime in 2002, for which SRPC was paid an
amount of Php 42.5 million. The issue was whether such “sale” qualified for zero-rating. The
Supreme Court held that although the “sale” was not a commercial sale or in the normal course
of business, it was a “transaction deemed sale” under Section 106(B)(1) of the 1997 Tax Code.
It thus qualified for zero-rating.
Facts:
 San Roque Corporation was incorporated for the sole purpose of building and operating
the San Roque Multipurpose Project in San Manuel, Pangasinan. It is registered with the
Board of Investments (BOI) on a preferred pioneer status to engage in and operate
electric power-generating plants and related activities.
 In 1997, San Roque entered into a Power Purchase Agreement (PPA) with the National
Power Corporation (NPC) to develop the hydro potential of the Lower Agno River.
Under the PPA, the NPC shall purchase all the electricity generated by the Power Plant.
Because of the exclusive nature of the PPA between San Roque and the NPC, San Roque
was granted five Certificates of Zero Rate by the BIR. Based on these certificates, the
zero-rated status of San Roque commenced on 27 September 1998 and continued
throughout the year 2002.
 San Roque filed with the BIR four separate administrative claims for refund and/or
issuance of a tax credit certificate in the total amount of P 249,397,620.18 representing
Unutilized Input Value Added Tax (VAT) for the period covering January to December
2002. The claim was filed in accordance with Section 112 of the NIRC of 1997 covering
unutilized input VAT paid on zero-rated or effectively zero-rated sales and purchases of
capital goods.
 The CIR failed to act on the request for tax refund or credit of San Roque, which
prompted the latter to file, on 5 April 2004, a Petition for Review with the CTA Division,
 before it could be barred by the two-year prescriptive period within which to file its
claim.
 The CTA Second Division denied the claim for refund/credit and likewise denied the
motion for reconsideration. The CTA Second Division ruled that San Roque failed to
establish that it had incurred zero-rated sales or effectively zero-rated sales for the taxable
year 2002 and likewise failed to prove that it paid input VAT on capital goods purchased.
 The CTA En Banc denied San Roque's appeal. MR was likewise denied. Hence, San
Roque filed a petition for review under Rule 45 with the Supreme Court.

Issue: was whether such “sale” qualified for zero-rating

Ruling:
 The CTA denied petitioner's claim solely on this ground. The tax courts based this
conclusion on the audited report stating that San Roque made no sale of electricity to
NPC in 2002. Moreover, the affidavit of Echevarria, San Roque's Vice President and
Director for Finance, contained an admission that no commercial sale of electricity had
been made in favor of NPC in 2002 since the project was still under construction at that
time.
 However, in the same affidavit, Echevarria stated that San Roque produced and
transferred electricity to NPC during the testing period (2002) in exchange for the amount
of P42.5Million. Hence, in the fourth quarter tax return for the year 2002, San Roque
reported a zero-rated sale in the amount of P42.5Million. The Court is not unmindful of
the fact that the transaction described 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.
 The Court finds it an equitable construction of the law that when the term "sale" is made
to include certain transactions for the purpose of imposing a tax, these same transactions
should be included in the term "sale" when considering the availability of an exemption
or tax benefit from the same revenue measures. It is undisputed that during the fourth
quarter of 2002, petitioner transferred to NPC all the electricity that was produced during
the trial period. The fact that it was not transferred through a commercial sale or in the
normal course of business does not deflect from the fact that such transaction is deemed
as a sale under the law.
 The fact that it had filed its claim for refund or credit during the quarter when the transfer
of electricity had taken place, instead of at the close of the said quarter does not make San
Roque any less entitled to its claim.
 It bears emphasis that effective zero-rating is not intended as a benefit to the person
legally liable to pay the tax (such as San Roque) but to relieve certain exempt entities
(such as the NPC) from the burden of indirect tax so as to encourage the development of
particular industries. Before, as well as after, the adoption of the VAT, certain special
laws were enacted for the benefit of various entities and international agreements were
entered into by the Philippines with foreign governments and institutions exempting sale
of goods or supply of services from indirect taxes at the level of their suppliers. Effective
zero-rating was intended to relieve the exempt entity from being burdened with the
indirect tax which is or which will be shifted to it had there been no exemption. In this
case, San Roque is being exempted from paying VAT on its purchases to relieve NPC of
the burden of additional costs that San Roque may shift to NPC by adding to the cost of
the electricity sold to the latter.
CIR v. Seagate Technology Phils.,
G.R. No. 153866 dated February 11, 2005, supra
(VAT on importation)

G NOTES: Q: Does VAT apply on every importation of goods?

* In explaining value-added tax, CIR v. Seagate Technology (Philippines) stated that VAT shall
be imposed on every importation of goods, whether or not in the course of trade or business.
This is unlike VAT on sale of goods or properties which must be in the course of trade or
business. Otherwise, the person/transaction shall not be liable to pay VAT. Pertinent portion of
the decision read:
“Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent
[now 12 percent] levied on every importation of goods, whether or not in the course of trade or
business, or imposed on each sale, barter, exchange or lease of goods or properties or on each
rendition of services in the course of trade or business as they pass along the production and
distribution chain, the tax being limited only to the value added to such goods, properties or
services by the seller, transferor or lessor.

Facts:
 A VAT-registered enterprise, Seagate Technology Phils (STP ) has principal office
address at the new Cebu Township One, Special Economic Zone, Barangay Cantao-an,
Naga, Cebu. STP is registered with the Philippine Export Zone Authority (PEZA) and
certified to engage in the manufacture of recording components primarily used in
computers for export. VAT returns were filed for the period 1 April 1998 to 30 June
1999. With supporting documents, a claim for refund of VAT input taxes in the amount
of 28 million pesos (inclusive of the 12-million VAT input taxes subject of this Petition
for Review) was filed on 4 October 1999.
 CIR did not act promptly upon STP's claim so the latter elevated the case to the CTA for
review in order to toll the running of the two-year prescriptive period.
 On appeal, CIR asserted that by virtue of the PEZA registration alone of STP, the latter is
not subject to the VAT. According to CIR, STP's sales transactions intended for export
are not exempt.

Issue: Is STP entitled to refund or tax credit for puchases?

Ruling: Yes, STP is entitled to refund or tax credit

 As a PEZA-registered enterprise within a special economic zone, STP is entitled to the
fiscal incentives and benefit provided for in either PD 66 or EO 226. It shall, moreover,
 enjoy all privileges, benefits, advantages or exemptions under both Republic Act Nos.
(RA) 7227 and 7844.
 RA 7227 provides that no local or national taxes shall be imposed in the zone. RA 7227
tax and duty-free importation of raw materials, capital and equipment. Availment of RA
7227 benefits does not stop the ecozone benefits under RA 7916.
 A privilege available to respondent under the provision in RA 7227 on tax and duty-free
importation of raw materials, capital and equipment[18] -- is, ipso facto, also accorded to
the zone[19] under RA 7916.  Furthermore, the latter law -- notwithstanding other
existing laws, rules and regulations to the contrary -- extends[20] to that zone the
provision stating that no local or national taxes shall be imposed therein.[21]  No
exchange control policy shall be applied; and free markets for foreign exchange, gold,
securities and future shall be allowed and maintained.[22] Banking and finance shall also
be liberalized under minimum Bangko Sentral regulation with the establishment of
foreign currency depository units of local commercial banks and offshore banking units
of foreign banks.
 From the above-cited laws, it is immediately clear that petitioner enjoys preferential tax
treatment.[27] It is not subject to internal revenue laws and regulations and is even
entitled to tax credits.  The VAT on capital goods is an internal revenue tax from which
petitioner as an entity is exempt.  Although the transactions involving such tax are not
exempt, petitioner as a VAT-registered person,[28] however, is entitled to their credits
 Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10
percent levied on every importation of goods, whether or not in the course of trade or
business, or imposed on each sale, barter, exchange or lease of goods or properties or
on each rendition of services in the course of trade or business as they pass along the
production and distribution chain, the tax being limited only to the value added to such
goods, properties or services by the seller, transferor or lessor. It is an indirect tax that
may be shifted or passed on to the buyer, transferee or lessee of the goods, properties
or services. As such, it should be understood not in the context of the person or entity
that is primarily, directly and legally liable for its payment, but in terms of its nature as
a tax on consumption. In either case, though, the same conclusion is arrived at.
 Its sales transactions intended for export may not be exempt, but like its purchase
transactions, they are zero-rated. No prior application for the effective zero rating of its
transactions is necessary. Being VAT-registered and having satisfactorily complied with
all the requisites for claiming a tax refund of or credit for the input VAT paid on capital
goods purchased, STP is entitled to such VAT refund or credit.
 STP, which as an entity is exempt, is different from its transactions which are not exempt.
The end result, however, is that it is not subject to the VAT. The non-taxability of
transactions that are otherwise taxable is merely a necessary incident to the tax exemption
conferred by law upon it as an entity, not upon the transactions themselves.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. SONY PHILIPPINES,
INC., Respondent.
G.R. No. 178697 | 2010-11-17

GRUBA: The Supreme Court ruled that the dole-out or subsidy from the Singaporean company
to the Philippine company neither constituted a sale of goods or properties, nor a sale of services.
Hence, Sony Philippines was not liable to pay VAT on the same.

FACTS:
 Sony was subjected to tax audit by the BIR. After the audit, the CIR was collecting
deficiency VAT from Sony. Sony’s deficiency VAT assessment stemmed from the CIR’s
disallowance of the input VAT credits that should have been realized from the
advertising expense of the latter.
 CTA – First Division – cancelled the deficiency VAT assessment
 CTA – En Banc – affirmed first division. Hence, this review.
 The CIR contends that since Sony’s advertising expense was reimbursed by Sony
International Singapore (SIS), the former never incurred any advertising expense. As a
result, Sony is not entitled to a tax credit. At most, the CIR continues, the said advertising
expense should be for the account of SIS, and not Sony.

ISSUE: W/N the “reimbursement” transaction constitutes a sale of goods or services.

HELD: NO.
 Under Sec. 106 of the NIRC, there must be a sale, barter or exchange of goods or
properties before any VAT may be levied. Certainly, there was no such sale, barter or
exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in
payment for goods or properties sold, bartered or exchanged by Sony.
 Sony did not render any service to SIS at all. The services rendered by the advertising
companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just
gave assistance to Sony in the amount equivalent to the latter’s advertising expense but
never received any goods, properties or service from Sony.
QUEZON CITY and THE CITY TREASURER OF QUEZON CITY, Petitioners,versus
ABS-CBN BROADCASTING CORPORATION, Respondent.
G.R. No. 166408 | 2008-10-06

GRUBA: ABS-CBN, being a broadcasting company with yearly gross receipts exceeding Php
10 million, was found liable to pay VAT.

FACTS:
 ABS-CBN was granted the franchise to install and operate radio and television
broadcasting stations in the Philippines under R.A. No. 7966.
 ABS-CBN had been paying local franchise tax imposed by Quezon City. However, in
view of the above provision in R.A. No. 9766 that it "shall pay a franchise tax x x x in
lieu of all taxes," the corporation developed the opinion that it is not liable to pay the
local franchise tax imposed by Quezon City. Consequently, ABS-CBN paid under protest
the local franchise tax imposed by Quezon City, to which a claim for refund was filed.
 For failure to obtain any response from the Quezon City Treasurer, ABS-CBN filed a
complaint before the RTC in Quezon City seeking the declaration of nullity of the
imposition of local franchise tax by the City Government of Quezon City for being
unconstitutional. It likewise prayed for the refund of local franchise tax.
 RTC – ABS-CBN shall instead be liable to pay 3% franchise tax under Sec. 119; ordered
to refund the local franchise tax.
 CA – dismissed the appeal. Hence, this petition.

ISSUE: W/N ABS-CBN is liable for VAT.

HELD: YES.
 Under the law (and its latest amendments), Radio and/or television companies whose
annual gross receipts do not exceed P10,000,000.00 were granted the option to choose
between paying 3% national franchise tax or 10% VAT. On the other hand, radio and/or
television companies with yearly gross receipts exceeding P10,000,000.00 were subject
to 10% VAT, pursuant to Section 102 of the NIRC.
 ABS-CBN is subject to the payment of VAT. It does not have the option to choose
between the payment of franchise tax or VAT since it is a broadcasting company with
yearly gross receipts exceeding Ten Million Pesos (P10,000,000.00).
 In sum, ABS-CBN's claims for exemption must fail on twin grounds. First, the "in lieu of
all taxes" clause in its franchise failed to specify the taxes the company is sought to be
exempted from. Neither did it particularize the jurisdiction from which the taxing power
is withheld. Second, the clause has become functus officio because as the law now
stands, ABS-CBN is no longer subject to a franchise tax. It is now liable for VAT.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. COURT OF APPEALS and
COMMONWEALTH MANAGEMENT AND SERVICES CORPORATION, respondents.
G.R. No. 125355 | 2000-03-30

GRUBA: The Supreme Court held that any sale of services for a fee, remuneration or
consideration is subject to VAT, regardless of any profit derived therefrom.

FACTS:
 COMASERCO is an affiliate of Philippine American Life Insurance Co. (Philamlife),
organized by the letter to perform collection, consultative and other technical services,
including functioning as an internal auditor, of Philamlife and its other affiliates.
 The Bureau of Internal Revenue (BIR) issued an assessment to private respondent
COMASERCO for deficiency value-added tax (VAT).
 COMASERCO asserted that the services it rendered to Philamlife and its affiliates,
relating to collections, consultative and other technical assistance, including functioning
as an internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis.
COMASERCO stressed that it was not profit-motivated, thus not engaged in business. In
fact, it did not generate profit but suffered a net loss in taxable year 1988. COMASERCO
averred that since it was not engaged in business, it was not liable to pay VAT.
 CTA – in favor of CIR; CA – reversed CTA. Hence, this petition.

ISSUE: W/N COMASERCO is engaged in sale of services, and thus liable for VAT.

HELD: YES.
 Even a non-stock, non-profit, organization or government entity, is liable to pay VAT on
the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the
distribution process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto. The term "in
the course of trade or business" requires the regular conduct or pursuit of a commercial or
an economic activity, regardless of whether or not the entity is profit-oriented.
 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.
 At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that
allow exemptions are construed strictly against the grantee and liberally in favor of the
government. Otherwise stated, any exemption from the payment of a tax must be clearly
stated in the language of the law; it cannot be merely implied therefrom. In the case of
VAT, Section 109, Republic Act 8424 clearly enumerates the transactions exempted from
VAT. The services rendered by COMASERCO do not fall within the exemptions.
COMMISSIONER OF INTERNAL REVENUE, Petitioner, versus SM PRIME
HOLDINGS, INC. and FIRST ASIA REALTY DEVELOPMENT CORPORATION,
Respondents
G.R. No. 183505 | 2010-02-26

GRUBA: The Supreme Court conceded that the enumeration of services subject to VAT under
Section 108 of the 1997 Tax Code was not exhaustive. However, “lease of motion picture films,
films, tapes and discs” did not equate to “showing or exhibition of motion pictures or films.” SM
Prime and First Asia were not liable to pay VAT.

FACTS:
 SM Prime and First Asia are both domestic corporations engaged in the business of
operating cinema houses, among others.
 The Bureau of Internal Revenue (BIR) assessed SM Prime and First Asia for value added
tax (VAT) deficiency on cinema ticket sales. The deficiency taxes were paid under
protest.
 CTA Division – in favor of SM Prime and First Asia
 CTA EB – affirmed the division. Hence, this petition.
 The CIR argued that the enumeration of services subject to VAT in Section 108 of the
NIRC is not exhaustive because it covers all sales of services unless exempted by law.
CIR maintains that the exhibition of movies by cinema operators or proprietors to the
paying public, being a sale of service, is subject to VAT.

ISSUE: W/N the gross receipts derived by operators or proprietors of cinema/theater houses
from admission tickets are subject to VAT.

HELD: NO.
 While the enumeration of services subject to VAT in Sec. 108 is not exhaustive, the
developments in the VAT law reveal the legislative intent not to impose VAT on persons
already covered by the amusement tax. To hold otherwise would impose an unreasonable
burden on cinema/theater houses operators or proprietors, who would be paying an
additional 10% VAT on top of the 30% amusement tax imposed by Section 140 of the
LGC of 1991, or a total of 40% tax. Such imposition would result in injustice, as persons
taxed under the NIRC of 1997 would be in a better position than those taxed under the
LGC of 1991. We need not belabor that a literal application of a law must be rejected if it
will operate unjustly or lead to absurd results. Thus, we are convinced that the legislature
never intended to include cinema/theater operators or proprietors in the coverage of VAT.
 Unless a statute imposes a tax clearly, expressly and unambiguously, what applies is the
equally well-settled rule that the imposition of a tax cannot be presumed. In fact, in case
of doubt, tax laws must be construed strictly against the government and in favor of the
taxpayer.
Sonza v. ABS-CBN (2004)
G.R. No. 138051 | 2004-07-10

GRUBA: SC differentiated between services rendered pursuant to an employer-employee

relationship and services rendered by an independent contractor pursuant to a contractual
relationship. Subsumed under the latter, professionals such as talent and television and radio
broadcasters are liable to pay VAT.

FACTS:
 ABS-CBN listed the services of SONZA to be co-host of Mel & Jay program.
 SONZA wrote a letter to ABS-CBN’s President wherein in view of his resignation, he
wanted to rescind the agreement. He filed a complaint against ABS-CBN before the
DOLE wherein he complained that ABS-CBN did not pay his salaries and other benefits.
 ABS-CBN argued that there is no employer-employee relationship existed between the
parties.
 LA – Sonza was not a regular employee; NLRC – affirmed LA; CA – dismissed the
petition of Sonza. Hence, this petition.

ISSUE: W/N Sonza is liable for VAT.

HELD: YES.
 The National Internal Revenue Code ("NIRC") in relation to Republic Act No. 7716, as
amended by Republic Act No. 8241, treats talents, television and radio broadcasters
differently. Under the NIRC, these professionals are subject to the 10% (now 12%)
value-added tax ("VAT") on services they render. Exempted from the VAT are those
under an employer-employee relationship. This different tax treatment accorded to talents
and broadcasters bolters our conclusion that they are independent contractors, provided
all the basic elements of a contractual relationship are present as in this case.
CIR vs American Express International Inc.
Facts:
Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with
servicing a unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK
receivables from card members situated in the Philippines and payment to service establishments
in the Philippines.

It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis
Section 110B of the 1997 Tax Code, which held that “xxx Any input tax attributable to the
purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be
refunded or credited against other internal revenue taxes, subject to the provisions of Section
112.”

In addition, respondent relied on VAT Ruling No. 080-89, which read, “In Reply, please be
informed that, as a VAT registered entity whose service is paid for in acceptable foreign
currency which is remitted inwardly to the Philippine and accounted for in accordance with the
rules and regulations of the Central Bank of the Philippines, your service income is automatically
zero rated xxx”

Petitioner claimed, among others, that the claim for refund should be construed strictly against
the claimant as they partake of the nature of tax exemption.

CTA rendered a decision in favor of respondent, holding that its services are subject to zero-rate
(Sec. 108, like eto lang nagiisang banggit sa Sec. 108). CA affirmed this decision and further
held that respondent’s services were “services other than the processing, manufacturing or
repackaging of goods for persons doing business outside the Philippines” and paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of
BSP.

Issue:
W/N AMEX Phils is entitled to refund

Held:
Yes. Section 108 of the Tax Code provides for the VAT on sale of services and use or lease of
properties. Section 108B particularly provides for the services or transactions subject to 0% rate:
(1)    Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP;

(2)    Services other than those mentioned in the preceding subparagraph, e.g. those rendered by
hotels and other service establishments, the consideration for which is paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP

Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other

than the processing, manufacturing or repackaging of goods for persons doing business outside
the Philippines), when paid in acceptable foreign currency and accounted for in accordance with
the R&R of BSP, are zero-rated. Respondent renders service falling under the category of zero
rating.

As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed.
Thus, exports are zero-rated, while imports are taxed.

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

However, the law clearly provides for an exception to the destination principle; that is 0% VAT
rate for services that are performed in the Philippines, “paid for in acceptable foreign currency
and accounted for in accordance with the R&R of BSP.” The respondent meets the following
requirements for exemption, and thus should be zero-rated:
(1)    Service be performed in the Philippines

(2)    The service fall under any of the categories in Section 108B of the Tax Code

(3)    It be paid in acceptable foreign currency accounted for in accordance with BSP R&R.

BOOK: In CIR v. American Express International, Inc., Amex Phils. facilitated in the
Philippines the collection and payment of receivables belonging to its Hong Kong-based foreign
client, Amex HK, and getting paid for it in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP. The Supreme Court ruled that the
facilitation services Amex Phils. rendered in the Philippines fell under Section 108(B)(2) of the
1997 Tax Code. [CIR v. American Express International, Inc., GR No. 152609, 29 June 2005.]
CIR vs Placer Dome

Facts:

 24 March 1996, at the San Antonio Mines in Marinduque owned by Marcopper Mining
Corporation (Marcopper), mine tailings from the Taipan Pit started to escape through the
Makulapnit Tunnel and Boac Rivers, causing the cessation of mining and milling
operations, and causing potential environmental damage to the rivers and the immediate
area. To contain the damage and prevent the further spread of the tailing leak, Placer
Dome, Inc. (PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up
and rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary. To
accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-
resident foreign corporation with office in Canada, to carry out the project. In turn,
PDTSL engaged the services of Placer Dome Technical Services (Philippines), Inc.
(respondent), a domestic corporation and registered Value-Added Tax (VAT) entity, to
implement the project in the Philippines.
 Due to the urgency and potentially significant damage to the environment, respondent
had agreed to immediately implement the project, and the Implementation Agreement
stipulated that all implementation services rendered by respondent even prior to the
agreement's signing shall be deemed to have been provided pursuant to the said
Agreement. The Agreement further stipulated that PDTSL was to pay respondent "an
amount of money, in U.S. funds, equal to all Costs incurred for Implementation Services
performed under the Agreement,"5 as well as "a fee agreed to one percent (1%) of such
Costs."
 Respondent filed an administrative claim for the refund of its reported total input VAT
payments in relation to the project it had contracted from PDTSL, amounting
to P43,015,461.98. In support of this claim for refund, respondent argued that the
revenues it derived from services rendered to PDTSL, pursuant to the Agreement,
qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it was
paid in foreign currency inwardly remitted to the Philippines. When the Commissioner of
Internal Revenue (CIR) did not act on this claim, respondent duly filed a Petition for
Review with the Court of Tax Appeals (CTA), praying for the refund of its total reported
excess input VAT totaling P42,837,933.60.
 CTA supported respondent's legal position that its sale of services to PDTSL constituted
a zero-rated transaction under the Tax Code, as these services were paid for in acceptable
foreign currency which had been inwardly remitted to the Philippines in accordance with
the rules and regulations of the BSP. Appellate court affirmed the CTA rulings.

Issue: W/N the services rendered by PDTS Phil are zero-rated?

Held:
As explicitly provided in the law, a zero-rated VAT transaction includes services by VAT-
registered persons other than processing, manufacturing or repacking goods for other persons
doing business outside the Philippines, which goods are subsequently exported, the consideration
for which is paid in foreign currency and accounted for in accordance with the rules and
regulations of the BSP.

The sales of services subject to zero percent (0%) VAT under Section 108(B)(2), of the Tax
Code of 1997, are limited to such sales which are destined for consumption outside of the
Philippines in that such services are tacked-in as part of the cost of goods exported. The zero-
rating also extends to project studies, information services, engineering and architectural designs
and other similar services sold by a resident of the Philippines to a non-resident foreign client
because these services are likewise destined to be consumed abroad. The phrase 'project studies,
information services, engineering and architectural designs and other similar services' does not
include services rendered by travel agents to foreign tourists in the Philippines following the
doctrine of ejusdem generis, since such services by travel agents are not of the same class or of
the same nature as those enumerated under the aforesaid section.

Considering that the services by your client to foreign tourists are basically and substantially
rendered within the Philippines, it follows that the onus of taxation of the revenue arising
therefrom, for VAT purposes, is also within the Philippines. For this reason, it is our considered
opinion that the tour package services of your client to foreign tourists in the Philippines cannot
legally qualify for zero-rated (0%) VAT but rather subject to the regular VAT rate of 10%.

The law is very clear. Under the last paragraph [of Section 102(b)], services performed by VAT-
registered persons in the Philippines (other than the processing, manufacturing or repacking of
goods for persons doing business outside the Philippines), when paid in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP, are zero-
rated.

BOOK: In CIR v. Placer Dome Technical Services (Phils.) Inc., Placer Dome Canada engaged
the services of Placer Dome Phils. To perform the clean-up and rehabilitation of the Makalupnit
and Boac Rivers in Marinduque. Placer Dome Phils. argued that its sale of services to Placer
Dome Canada was a zero-rated transaction under Section 108(B)(2) of the 1997 Tax Code.
Citing CIR v.
American Express International, Inc., the Supreme Court upheld Placer Dome Phils.’ argument.
[CIR v. Placer Dome Technical Services (Philippines), Inc., GR No. 164365, 8 June 2007.]
CIR vs Burmeister

Facts:

 [Respondent] is a domestic corporation duly organized and existing under and by virtue
of the laws of the Philippines. It is represented that a foreign consortium composed of
Burmeister and Wain Scandinavian Contractor A/S (BWSC-Denmark), Mitsui
Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with
the National Power Corporation (NAPOCOR) for the operation and maintenance of
[NAPOCOR’s] two power barges. The Consortium appointed BWSC-Denmark as its
coordination manager.

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

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

 NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies
(Mark, Yen, and Peso). The freely convertible non-Peso component is deposited directly
to the Consortium’s bank accounts in Denmark and Japan, while the Peso-denominated
component is deposited in a separate and special designated bank account in the
Philippines. On the other hand, the Consortium pays [respondent] in foreign currency
inwardly remitted to the Philippines through the banking system.

 In order to ascertain the tax implications of the above transactions, [respondent] sought a
ruling from the BIR which responded with BIR Ruling No. 023-95 dated February 14,
1995, declaring therein that if [respondent] chooses to register as a VAT person and the
consideration for its services is paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the
aforesaid services shall be subject to VAT at zero-rate.

 On January 7,1999, [respondent] was able to secure VAT Ruling No. 003-99 from the
VAT Review Committee which reconfirmed BIR Ruling No. 023-95 "insofar as it held
that the services being rendered by BWSCMI is subject to VAT at zero percent (0%)."

 On the strength of the aforementioned rulings, [respondent] on April 22,1999, filed a

claim for the issuance of a tax credit certificate with Revenue District No. 113 of the BIR.
[Respondent] believed that it erroneously paid the output VAT for 1996 due to its
availment of the Voluntary Assessment Program (VAP) of the BIR.
  CTA ordered petitioner to issue a tax credit certificate for P6,994,659.67 in favor of
respondent. CA affirmed and rejected petitioner’s view that since respondent’s services
are not destined for consumption abroad, they are not of the same nature as project
studies, information services, engineering and architectural designs, and other similar
services mentioned in Section 4.102-2(b)(2) of Revenue Regulations No. 5-96 7 as subject
to 0% VAT. 

Issue:  Are the receipts of Burmeister entitled to VAT zero-rated status?

Held:

PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period
covered prior to the filing of CIR’s Answer in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by
Burmeister, was deemed doing business within the Philippines since its 15-year O&M with NPC
can not be interpreted as an isolated transaction.

In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other
than those in (1)’ of Sec. 102 both require (i) payment in foreign currency; (ii) inward
remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is doing business
outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just
by stipulating payment in foreign currency.
The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-
rating of its sales to foreign consortium. However, the ruling is only valid until the time that CIR
filed its Answer in the CTA which is deemed revocation of the previously-issued ruling. The
Court said the revocation can not retroact since none of the instances in Section 246 (bad faith,
omission of facts, etc.) are present.
BOOK: In CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., Burmeister
was engaged in the actual operation and management of two power barges in Mindanao. It
claimed that its transactions were subject to zero-rating under Section 108(B)(2) of the 1997 Tax
Code. The Supreme Court denied Burmeister’s claim on the ground that Section 108(B)(2) of the
1997 Tax Code additionally required that the payer-recipient of the services must be doing
business outside the Philippines. It ruled in this manner:

“The Tax Code not only requires that the services be other than ‘processing, manufacturing or
repacking of goods’ and that payment for such services be in acceptable foreign currency
accounted for in accordance with BSP rules. Another essential condition for qualification to
zero-rating under Section 102(b)(2) is that the recipient of such services is doing business
outside the
Philippines. While this requirement is not expressly stated in the second paragraph of Section
102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services
must be ‘for other persons doing business outside the Philippines.’
The phrase “for other persons doing business outside the Philippines” not only refers to the
services enumerated in the firstparagraph of Section 102(b), but also pertains to the general term
“services” appearing in the second paragraph of Section 102(b). Inshort, services other than
processing, manufacturing, or repacking of goods must likewise be performed for persons doing
business outside the Philippines.”
CIR vs Acesite
 FACTS:
 Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leases 6,768.53 square
meters of the hotel’s premises to the Philippine Amusement and Gaming Corporation for casino
operations and caters food and beverages to PAGCOR’s casino patrons through the hotel’s restaurant
outlets.
 For the period January 96 to April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its
rental income and sale of food and beverages to PAGCOR during said period. Acesite tried to shift the
said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to
pay the taxes on account of its tax-exempt status.1awphi1.net 
 PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT
to the Commissioner of Internal Revenue. However, Acesite belatedly arrived at the conclusion that its
transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.
 Acesite filed an administrative claim for refund with the CIR but the latter failed to
resolve the same. Acesite filed a petition with the Court of Tax Appeals
 CTA Decision: Petitioner is subject to zero percent tax insofar as its gross income from rentals and sales
to PAGCOR, a tax-exempt entity by virtue of a special law. Accordingly, the amounts of
P21,413,026.78and P8,739,865.24, representing the 10% EVAT on its sales of food and services and
gross rentals, respectively from PAGCOR shall be refunded to the petitioner..CA Decision: PAGCOR
was not only exempt from direct taxes but was also exempt from indirect taxes like the VAT and
consequently, the transactions between respondent Acesite and PAGCOR were "effectively zero-rated"
because they involved the rendition of services to an entity exempt from indirect taxes.

ISSUE/S:
 
(1) whether PAGCOR’s tax exemption privilege includes the indirect tax of VAT to entitle Acesite to
zero percent (0%) VAT rate; and
(2) whether the zero percent (0%) VAT rate under then Section 102 (b) (3) of the Tax Code (now Section 108 (B)
(3) of the Tax Code of 1997) legally applies to Acesite.

HELD:

1. Yes. PAGCOR is exempt from payment of indirect taxes

It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of
taxes. Section 13 of P.D. 1869 pertinently provides exemption. Under the above provision [Section 13 (2) (b) of
P.D. 1869], the term "Corporation" or operator refers to PAGCOR. Although the law does not specifically
mention PAGCOR’s exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because
the law exempts from taxes persons or entities contracting with PAGCOR in casino operations.
Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes.

In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino
operations. The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither
is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424. (Emphasis
supplied.)
2. The manner of charging VAT does not make PAGCOR liable to said tax
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or leased, in
which case it is computed as 1/11 of such value, or charged as an additional 10% to the value. Verily, the seller or
lessor has the option to follow either way in charging its clients and customer. In the instant case, Acesite
followed the latter method, that is, charging an additional 10% of the gross sales and rentals. Be
that as it may, the use of either method, and in particular, the first method, does not denigrate the fact that
PAGCOR is exempt from an indirect tax, like VAT.

VAT exemption extends to Acesite

Thus, while it was proper for PAGCOR not to pay the 10% VAT charged by Acesite, the latter is not liable forthe
payment of it as it is exempt in this particular transaction by operation of law to pay the indirect tax.
Suchexemption 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 thesale 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 internationalagreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero (0%)rate (emphasis supplied).

BOOK:
* In CIR v. Acesite (Philippines) Hotel Corporation, Acesite was the operator of Holiday Inn
Manila Pavilion Hotel. It leased a portion of its premises to PAGCOR for casino operations. It
also catered food and beverages to PAGCOR’s casino patrons. The issue was whether Acesite
could refund the VAT it paid on its rental income and sale of food and beverages to PAGCOR.
The Supreme Court, pursuant to PAGCOR’s charter (PD No. 1869 and all amendments thereto),
found that Acesite’s sale of services to PAGCOR was zero-rated under Section 108(B)(3) of the
1997 Tax Code. [CIR v. Acesite (Philippines) Hotel Corporation, GR No. 147295, 16 Feb.
2007.]
San Roque Power Corporation vs CIR
Facts:
 Petition for Review on Certiorari, under Rule 45 of the Revised Rules of Court,
petitioner San Roque Power Corporation assails the Decision1 of the Court of Tax
Appeals (CTA) En Banc dated 20 September 2007 in CTA EB No. 248, affirming the
Decision2 dated 23 March 2006 of the CTA Second Division in CTA Case No. 6916,
which dismissed the claim of petitioner for the refund and/or issuance of a tax credit
certificate in the amount of Two Hundred Forty-Nine Million Three Hundred Ninety-
Seven Thousand Six Hundred Twenty Pesos and 18/100 (P249,397,620.18) allegedly
representing unutilized input Value Added Tax (VAT) for the period covering January to
December 2002.
 Petitioner is a domestic corporation organized under the corporate laws of the Republic
of the Philippines. On 14 October 1997, it was incorporated for the sole purpose of
building and operating the San Roque Multipurpose Project in San Manuel, Pangasinan,
which is an indivisible project consisting of the power station, the dam, spillway, and
other related facilities. The PPA provides that petitioner shall be responsible for the
design, construction, installation, completion and testing and commissioning of the
Power Station and it shall operate and maintain the same, subject to the instructions of the
NPC. During the cooperation period of 25 years commencing from the completion date
of the Power Station, the NPC shall purchase all the electricity generated by the Power
Plant.
 Because of the exclusive nature of the PPA between petitioner and the NPC, petitioner
applied for and was granted five Certificates of Zero Rate by the BIR, through the Chief
Regulatory Operations Monitoring Division, now the Audit Information, Tax Exemption
& Incentive Division. Based on these certificates, the zero-rated status of petitioner
commenced on 27 September 1998 and continued throughout the year 2002.
 For the period January to December 2002, petitioner filed with the respondent its
Monthly VAT Declarations and Quarterly VAT Returns. Its Quarterly VAT Returns
showed excess input VAT payments on account of its importation and domestic
purchases of goods and services. Petitioner filed with the BIR four separate
administrative claims for refund of Unutilized Input VAT paid for the period January to
March 2002, April to June 2002, July to September 2002, and October to December
2002, respectively. In these letters addressed to the BIR, Carlos Echevarria (Echevarria),
the Vice President and Director of Finance of petitioner, explained that petitioner's sale of
power to NPC are subject to VAT at zero percent rate, in accordance with Section 108(B)
(3) of the NIRC.10 Petitioner sought to recover the total amount of P250,258,094.25,
representing its unutilized excess VAT on its importation of capital and other taxable
goods and services for the year 2002
 Petitioner amended its Quarterly VAT Returns, particularly the items on (1) Input VAT
on Domestic Purchases during the first quarter of 2002; (2) Input VAT on Domestic
Purchases for the fourth quarter of 2002; and (3) Input VAT on Importation of Goods for
the fourth quarter of 2002. On 30 May 2003 and 31 July 2003, petitioner filed two letters
 with the BIR to amend its claims for tax refund or credit for the first and fourth quarter of
2002, respectively. Petitioner sought to recover a total amount of P249,397,620.18
representing its unutilized excess VAT on its importation and domestic purchases of
goods and services for the year 2002.
 Respondent failed to act on the request for tax refund or credit of petitioner, which
prompted the latter to file on 5 April 2004, with the CTA in Division, a Petition for
Review. Petition for Review is DENIED. CTA En Banc denied.
Issue: whether or not petitioner may claim a tax refund or credit in the amount
of P249,397,620.18 for creditable input tax attributable to zero-rated
Held:
Court finds that petitioner's claim for refund or credit is justified under Section 112(A) of the
NIRC.
The main dispute in this case is whether or not petitioner's claim complied with the sixth
requirement the existence of zero-rated or effectively zero-rated sales, to which creditable input
taxes may be attributed. 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, marked as Exhibit "J-2,"
stating that petitioner made no sale of electricity to NPC in 2002. 29 Moreover, the affidavit of
Echevarria (Exhibit "L"), petitioner's Vice President and Director for Finance, contained an
admission that no commercial sale of electricity had been made in favor of NPC in 2002 since
the project was still under construction at that time.30

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 P42,500,000.00.31 In the Affidavit of Echevarria dated
9 February 2005 (Exhibit "L"), which was uncontroverted by respondent, the affiant stated that
although no commercial sale was made in 2002, petitioner produced and transferred electricity to
NPC during the testing period in exchange for the amount of P42,500,000.00, to wit:32

A: San Roque Power Corporation has had no sale yet during 2002. The P42,500,000.00 which
was paid to us by Napocor was something similar to a more cost recovery scheme. The pre-
agreed amount would be about equal to our costs for producing the electricity during the testing
period and we just reflected this in our 4th quarter return as a zero-rated sale. x x x.

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

 Court finds it an equitable construction of the law that when the term "sale" is made to include
certain transactions for the purpose of imposing a tax, these same transactions should be included
in the term "sale" when considering the availability of an exemption or tax benefit from the same
revenue measures. It is undisputed that during the fourth quarter of 2002, petitioner transferred to
NPC all the electricity that was produced during the trial period. The fact that it was not
transferred through a commercial sale or in the normal course of business does not deflect from
the fact that such transaction is deemed as a sale under the law.
It bears emphasis that effective zero-rating is not intended as a benefit to the person legally liable
to pay the tax, such as petitioner, but to relieve certain exempt entities, such as the NPC, from the
burden of indirect tax so as to encourage the development of particular industries. Before, as well
as after, the adoption of the VAT, certain special laws were enacted for the benefit of various
entities and international agreements were entered into by the Philippines with foreign
governments and institutions exempting sale of goods or supply of services from indirect taxes at
the level of their suppliers. Effective zero-rating was intended to relieve the exempt entity from
being burdened with the indirect tax which is or which will be shifted to it had there been no
exemption. In this case, petitioner is being exempted from paying VAT on its purchases to
relieve NPC of the burden of additional costs that petitioner may shift to NPC by adding to the
cost of the electricity sold to the latter.
BOOK: ** In the case of San Roque Power Corporation v. CIR, San Roque Power Corporation
was engaged in the sale of electricity to NPC. The Supreme Court ruled that SRPC’s sale of
service to NPC was zero-rated, pursuant to NPC’s charter and under Section 108(B)(3)of the
1997 Tax Code. It explained the rationale for the effective zero-rating of NPC in this manner:

“It bears emphasis that effective zero-rating is not intended as a benefit to the person
legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities, such
as the NPC, from the burden of indirect tax so as to encourage the development of
particular industries. Before, as well as after, the adoption of the VAT, certain special
laws were enacted for the benefit of various entities and international agreements were
entered into by the Philippines with foreign governments and institutions exempting sale
of goods or supply of services from indirect taxes at the level of their suppliers. Effective
zero-rating was intended to relieve the exempt entity from being burdened with the
indirect tax which is or which will be shifted to it had there been no exemption. In this
case, petitioner is being exempted from paying VAT on its purchases to relieve NPC of
the burden of additional costs that petitioner may shift to NPC by adding to the cost of
the electricity sold to the latter.” [San Roque Power Corporation v. CIR, GR No. 180345,
25 Nov. 2009.]
CIR v. Seagate Technology Phils., G.R. No. 153866 dated February 11, 2005
(exempt transaction v. exempt party)

FACTS:
Respondent is a RFC registered with the SEC, with address at Special Economic Zone, Cebu. It is
registered with PEZA and has been issued Certificate to engage in the manufacture of recording
components primarily used in computers for export. It is a VAT-registered entity as evidenced by VAT
Registration Certification. VAT returns for the period 1 April 1998 to 30 June 1999 have been filed by
respondent. A claim for refund of VAT input taxes (P28,369,226.38) was filed with BIR RDO 83,
Talisay, Cebu. No final action has been received from petitioner on respondent’s claim for VAT refund.
Hence, respondent elevated to CTA to toll running of 2-year prescriptive period. Petitioner is sued in
official capacity, because of its duty to approve claims for refund or tax credit.

PROCEDURAL HISTORY:
CTA - rendered a decision granting the claim of respondent for refund.
CA - affirmed the Decision of the CTA granting the claim for refund or issuance of a tax credit
certificate (TCC) in favor of respondent in the reduced amount of P12,122,922.66.

PETITIONER’S ARGUMENTS:
1. Since taxes are presumed to have been collected in accordance with laws, respondent has the
burden of proof that taxes sought to be refunded were erroneously collected.
2. Citibank, N.A. vs. Court of Appeals: "A claimant has the burden of proof to establish the factual
basis of his or her claim for tax credit/refund."
3. Claims for tax refund/tax credit are construed in ‘strictissimi juris’ against the taxpayer. They
partake of the nature of an exemption from tax. Failure on the part of respondent to prove the same is fatal
to its claim for tax credit.

ISSUE:
WON respondent is entitled to the refund or issuance of Tax Credit Certificate over the alleged unutilized
input VAT paid on capital goods for the period 1 April 1998 to 30 June 1999

RULING: YES

GRUBA on exempt transaction v. exempt party:

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. Indeed, such transaction is not subject to the
VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid.

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 the VAT. Such party is also not subject to the VAT but may
be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or non-
VAT taxpayer.

OTHER RULING:
To summarize, special laws expressly grant preferential tax treatment to business establishments
registered and operating within an ecozone, which by law is considered as a separate customs territory.
As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations
pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax
regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no
longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase
transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is
necessary. Being VAT-registered and having satisfactorily complied with all the requisites for claiming a
tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such
VAT refund or credit.
 
G.R. No. 108524 November 10, 1994
MISAMIS ORIENTAL ASSOCIATION OF COCO TRADERS, INC., petitioner, vs.
DEPARTMENT OF FINANCE SECRETARY, COMMISSIONER OF THE BUREAU OF INTERNAL
REVENUE (BIR), AND REVENUE DISTRICT OFFICER, BIR MISAMIS ORIENTAL, respondents.

GRUBA: Misamis Oriental Association of Coco Traders, Inc. v. DOF interpreted the provisions of the
1977 Tax Code. However, it is instructive as to the issue of who determines or classifies a certain product,
i.e., whether it is food or non-food. According to the decision, as between the Bureau of Food and Drug
and the Bureau of Internal Revenue, the classification made by the latter would prevail

FACTS:
Petitioner Misamis Oriental Association of Coco Traders, Inc. is a domestic corporation whose members,
individually or collectively, are engaged in the buying and selling of copra in Misamis Oriental.
Respondents represent departments of the executive branch of government charged with the generation of
funds and the assessment, levy and collection of taxes and other imposts.
The petitioner alleges that prior to the issuance of Revenue Memorandum Circular 47-91 on June 11,
1991, which implemented VAT Ruling 190-90, copra was classified as agricultural food product under $
103(b) of the National Internal Revenue Code and, therefore, exempt from VAT at all stages of
production or distribution.
Said circular classified copra as an agricultural non-food product and declared it “exempt from VAT only
if the sale is made by the primary producer pursuant to section 103(a) of the Tax Code as amended.”
Petitioner sought to nullify Revenue Memorandum Circular 47-91 and enjoin the collection by respondent
revenue officials of the Value Added Tax (VAT) on the sale of copra by members of petitioner
organization as the classification had the effect of denying to the petitioner the exemption it previously
enjoyed when copra was classified as an agricultural product under Sec. 103(b) of the NIRC.
Petitioner contends that the Bureau of Food and Drug of the Department of Health and not the BIR is the
competent government agency to determine the proper classification of food products. Petitioner cites the
opinion of Dr. Quintin Kintanar of the Bureau of Food and Drug to the effect that copra should be
considered "food" because it is produced from coconut which is food and 80% of coconut products are
edible.
On the other hand, respondents argue that the opinion of the BIR, as the government agency charged with
the implementation and interpretation of the tax laws, is entitled to great respect.
ISSUE: WON the BIR is the proper and competent agency to determine the proper classification of food
products
HELD: YES.
In interpreting §103(a) and (b) of the NIRC, the Commissioner of Internal Revenue gave it a strict
construction consistent with the rule that tax exemptions must be strictly construed against the taxpayer
and liberally in favor of the state. Indeed, even Dr. Kintanar said that his classification of copra as food
was based on "the broader definition of food which includes agricultural commodities and other
components used in the manufacture/processing of food."
As the government agency charged with the enforcement of the law, the opinion of the Commissioner of
Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight.
Indeed, the ruling was made by the Commissioner of Internal Revenue in the exercise of his power under
§ 245 of the NIRC to "make rulings or opinions in connection with the implementation of the provisions
of internal revenue laws, including rulings on the classification of articles for sales tax and similar
purposes."
 
COMMISSIONER OF INTERNAL REVENUE vs. PHILIPPINE HEALTH CARE PROVIDERS, INC.
G.R. No. 168129 April 24, 2007

FACTS:
• Philippine Health Care Providers, Inc., (PHCPI) is a corporation whose purpose is to establish,
maintain, conduct and operate a prepaid group practice health care delivery system or a health
maintenance organization (HMO) and to provide for the administrative, legal, and financial
responsibilities of the organization.
• EO 273 was issued by Pres. Corazon Aquino, imposing VAT on sale of goods and services. Took
effect on 1 Jan 1988.
• Prior to the effectivity of said EO, 10 Dec 1987, respondent wrote to the Commissioner of
Internal Revenue (CIR), petitioner, inquiring whether the services it provides to the participants in its
health care program are exempt from the payment of the VAT.
• 8 Jun 1988, CIR responded that they are exempt from VAT.
• 1 Jan 1998, NIRC of 1997 came into effect.
• 27 January 27 2000, petitioner CIR sent respondent a letter demanding payment of "deficiency
VAT" in the amount of ₱100,505,030.26 and DST in the amount of ₱124,196,610.92, or a total of
₱224,702,641.18 for taxable years 1996 and 1997. Attached to the demand letter were four (4) assessment
notices.
• Respondent filed a protest with the BIR. Another protest was filed questioning the assessment
notices on February 23, 2000 by which the CIR did not take action on the protests. Hence, on September
21, 2000, PHCPI filed with the CTA a petition for review.
• On April 5, 2002, the CTA rendered its Decision partially granting the petition. Instead of P100M
VAT and P124M DST, they lowered it to P22M and P31M respectively, both inclusive of 25% surcharge
and 20% interest.
• Upon MR to CTA, it held that the PHCPI is a service contractor subject to VAT since it does not
actually render medical service but merely acts as a conduit between the members and petitioner’s
accredited and recognized hospitals and clinics. Hence, the case.

ISSUE: WoN respondent PhilHealth is liable for VAT.

RULING: YES.

GRUBA: “In the case of CIR v. Philippine Health Care Providers, Inc., it was found that Philippine
Health Care Providers, Inc. did not render medical, dental, hospital, and veterinary services, but merely
arranged for the same. Hence, its services were not VAT-exempt. “
Section 103 (109 na ngayon) of the NIRC exempts taxpayers engaged in the performance of medical,
dental, hospital, and veterinary services from VAT. But, in Philhealth's letter requesting of its VAT-
exempt status, it was held that it showed Philhealth provides medical service only between their members
and their accredited hospitals, that it only provides for the provision of pre-need health care services, it
contracts the services of medical practitioners and establishments for their members in the delivery of
health services. Thus, Philhealth does not fall under the exemptions provided in Section 103, but merely
arranges for such, making Philhealth not VAT-exempt.
Sonza v. ABS-CBN (2004)
G.R. No. 138051 | 2004-07-10
GRUBA: SC differentiated between services rendered pursuant to an employer-employee relationship and
services rendered by an independent contractor pursuant to a contractual relationship. Subsumed under
the latter, professionals such as talent and television and radio broadcasters are liable to pay VAT.
FACTS:
• ABS-CBN listed the services of SONZA to be co-host of Mel & Jay program.
• SONZA wrote a letter to ABS-CBN’s President wherein in view of his resignation, he wanted to
rescind the agreement. He filed a complaint against ABS-CBN before the DOLE wherein he complained
that ABS-CBN did not pay his salaries and other benefits.
• ABS-CBN argued that there is no employer-employee relationship existed between the parties.
• LA – Sonza was not a regular employee; NLRC – affirmed LA; CA – dismissed the petition of
Sonza. Hence, this petition.
ISSUE: W/N Sonza is liable for VAT.
HELD: YES.
• The National Internal Revenue Code ("NIRC") in relation to Republic Act No. 7716, as amended
by Republic Act No. 8241, treats talents, television and radio broadcasters differently. Under the NIRC,
these professionals are subject to the 10% value-added tax ("VAT") on services they render. Exempted
from the VAT are those under an employer-employee relationship. This different tax treatment accorded
to talents and broadcasters bolters our conclusion that they are independent contractors, provided all the
basic elements of a contractual relationship are present as in this case.
 
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), Petitioner, vs. THE
BUREAU OF INTERNAL REVENUE (BIR), represented herein by HON. JOSE MARIO BUÑAG, in
his official capacity as COMMISSIONER OF INTERNAL REVENUE, Public Respondent,JOHN DOE
and JANE DOE, who are persons acting for, in behalf, or under the authority of Respondent. Public and
Private Respondents.
G.R. No. 172087 | 2011-03-15

GNotes: Supreme Court held that PAGCOR was exempt from payment of VAT. It cited, among others,
the VAT exemption of PAGCOR’s transactions by virtue of its charter (PD No. 1869 and all
amendments thereto) in relation to Section 109(K) of the 1997 Tax Code

Facts:
• PAGCOR was created pursuant to Presidential Decree (P.D.) No. 1067-A2 on January 1, 1977.
Simultaneous to its creation, P.D. No. 1067-B3 (supplementing P.D. No. 1067-A) was issued exempting
PAGCOR from the payment of any type of tax, except a franchise tax of five percent (5%) of the gross
revenue.4 Thereafter, on June 2, 1978, P.D. No. 1399 was issued expanding the scope of PAGCOR's
exemption.
• PAGCOR's tax exemption was removed in June 1984 through P.D. No. 1931, but it was later
restored by Letter of Instruction No. 1430, which was issued in September 1984.
• The National Internal Revenue Code of 1997, took effect. Section 27 (c) of R.A. No. 8424
provides that government-owned and controlled corporations (GOCCs) shall pay corporate income tax,
except petitioner PAGCOR, the Government Service and Insurance Corporation, the Social Security
System, the Philippine Health Insurance Corporation, and the Philippine Charity Sweepstakes Office
• R.A. No. 933710 on May 24, 2005, certain sections of the National Internal Revenue Code of
1997 were amended. The particular amendment that is at issue in this case is Section 1 of R.A. No. 9337,
which amended Section 27 (c) of the National Internal Revenue Code of 1997 by excluding PAGCOR
from the enumeration of GOCCs that are exempt from payment of corporate income tax,
• Different groups came to this Court via petitions for certiorari and prohibition11 assailing the
validity and constitutionality of R.A. No. 9337. The Court dismissed all the petitions and upheld the
constitutionality of R.A. No. 9337.
• respondent BIR issued Revenue Regulations (RR) No. 16-Â-2005,13 specifically identifying
PAGCOR as one of the franchisees subject to 10% VAT imposed under Section 108 of the National
Internal Revenue Code of 1997, as amended by R.A. No. 9337. The said revenue regulation, in part,
reads:
 Sec. 4. 108-3. Definitions and Specific Rules on Selected Services. -
Gross Receipts of all other franchisees, other than those covered by Sec. 119 of the Tax Code, regardless
of how their franchisees may have been granted, shall be subject to the 10% VAT imposed under Sec.108
of the Tax Code. This includes, among others, the Philippine Amusement and Gaming Corporation
(PAGCOR), and its licensees or franchisees.
• Hence, the present petition for certiorari.
Issue: whether or not PAGCOR is still exempt from corporate income tax and VAT with the enactment of
R.A. No. 9337

Ruling:

Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof, the following
transactions shall be exempt from the value-added tax:

(k) Transactions which are exempt under international agreements to which the Philippines is a signatory
or under special laws, except Presidential Decree No. 529.37
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.
Moreover, the exemption of PAGCOR from VAT is supported by Section 6 of R.A. No. 9337, which
retained Section 108 (B) (3) of R.A. No. 8424,
Although R.A. No. 9337 introduced amendments to Section 108 of R.A. No. 8424 by imposing VAT on
other services not previously covered, it did not amend the portion of Section 108 (B) (3) that subjects to
zero percent rate services performed by VAT-registered persons 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.
As to other entities or individuals dealing with PAGCOR in casino operations, by extending the tax
exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting
PAGCOR from being liable to indirect taxes.
It is true that VAT can either be incorporated in the value of the goods, properties, or services sold or
leased, in which case it is computed as 1/11 of such value, or charged as an additional 10% to the value.
Verily, the seller or lessor has the option to follow either way in charging its clients and customer. In the
instant case, Acesite followed the latter method, that is, charging an additional 10% of the gross sales and
rentals. Be that as it may, the use of either method, and in particular, the first method, does not denigrate
the fact that PAGCOR is exempt from an indirect tax, like VAT.
 
FIRST PLANTERS PAWNSHOP v CIR

GRUBA: The case of First Planters Pawnshop, Inc. v. CIR pertained to a taxable period prior to the
adoption of the present wording of Section 109(V) of the 1997 Tax Code. However, the decision is
relevant in that it discussed the tax treatment of a pawnshop business. The Supreme Court held that
pawnshops are non-bank financial intermediaries. [First Planters Pawnshop, Inc. v. CIR, GR No. 174134,
30 July 2008.]

FACTS:
• In a Pre-assessment Notice, petitioner was informed by the BIR that it has an existing tax
deficiency on its VAT and Documentary Stamp Tax (DST) liabilities for the year 2000. Petitioner
protested the assessment for lack of legal and factual bases.
• Petitioner subsequently received a Formal Assessment Notice, directing payment of VAT
deficiency and DST deficiency, inclusive of surcharge and interest. Petitioner filed a protest, which was
denied by the Acting Regional Director.
• Petitioner then filed a petition for review with the CTA, which upheld the deficiency assessment.
Petitioner filed an MR which was denied.
• Petitioner appealed to the CTA En Banc which denied the Petition for Review. Petitioner sought
reconsideration but this was denied by the CTA.. Hence, the present petition for review under Rule 45 of
the ROC.
• The core of petitioner’s argument is that it is not a lending investor within the purview of Section
108(A) of the NIRC, as amended, and therefore not subject to VAT. Petitioner also contends that a pawn
ticket is not subject to DST because it is not proof of the pledge transaction, and even assuming that it is
so, still, it is not subject to tax since a DST is levied on the document issued and not on the transaction.

ISSUE: W/N Petitioner liable for VAT

HELD:
1. NO
The determination of petitioner’s tax liability depends on the tax treatment of a pawnshop business. It was
the CTA’s view that the services rendered by pawnshops fall under the general definition of “sale or
exchange of services” under Section 108(A) of the Tax Code of 1997.

The Court finds that pawnshops should have been treated as non-bank financial intermediaries from the
very beginning, subject to the appropriate taxes provided by law.
At the time of the disputed assessment, that is, for the year 2000, pawnshops were not subject to 10%
VAT under the general provision on “sale or exchange of services” as defined under Section 108(A) of
the Tax Code of 1997. Instead, due to the specific nature of its business, pawnshops were then subject to
10% VAT under the category of non-bank financial intermediaries, as provided in the same Section
108(A), which reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. –
(A) xx
The phrase “sale or exchange of services” means the performance of all kinds or services in the
Philippines for others for a fee, remuneration or consideration, including x x x services of banks, non-
bank financial intermediaries and finance companies; and non-life insurance companies (except their crop
insurances), including surety, fidelity, indemnity and bonding companies..xx

Coming now to the issue at hand – Since petitioner is a non-bank financial intermediary, it is subject to
10% VAT for the tax years 1996 to 2002; however, with the levy, assessment and collection of VAT from
non-bank financial intermediaries being specifically deferred by law, then petitioner is not liable for VAT
during these tax years. But with the full implementation of the VAT system on non-bank financial
intermediaries starting January 1, 2003, petitioner is liable for 10% VAT for said tax year. And
beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it
is subject to percentage tax on gross receipts from 0% to 5 %, as the case may be.
 
CIR v. Benguet Corporation, GR No. 145559 dated July 14, 2006
(concept of input tax and output tax)

FACTS:
Respondent is a domestic corporation engaged in mining, exploration, development, operation of mining
properties for commercial production, and marketing of mine products. It is a VAT-registered enterprise.
Respondent filed an application for zero-rating of its sales of mine products, which was approved
petitioner.

Deputy CIR Eufracio Santos issued VAT Ruling No. 378-88 which declared that the sale of gold to the
Central Bank is considered an export sale and therefore subject to VAT at 0% rate. Santos also issued
Revenue Memorandum Circular No. 59-88, again declaring that the sale of gold by a VAT-registered
taxpayer to the Central Bank is subject to the zero-rate VAT. No less than five Rulings were issued by
petitioner from 1988 to 1990 reiterating and confirming its position that the sale of gold by a VAT-
registered taxpayer to the Central Bank is subject to the zero-rate VAT.
Respondent, during the 6 taxable quarters in question, sold gold to the Central Bank and treated these
sales as zero-rated – that is, subject to the 0% VAT. During that period, respondent incurred input taxes
attributable to said sales to Central Bank. Respondent filed with petitioner applications for the issuance of
Tax Credit Certificates for input VAT Credits attributable to its export sales - that is, inclusive of direct
export sales and sale of gold to the Central Bank.
Meanwhile then CIR Jose Ong issued VAT Ruling No. 008-92 declaring and holding that sales of gold to
the Central Bank are considered domestic sales subject to 10% VAT instead of 0% VAT as previously
held in BIR Issuances from 1998 to 1990. Then, VAT Ruling No. 59-92 were issued by petitioner
reiterating the treatment of sales of gold to the Central Bank as domestic sales, and expressly
countenancing the Retroactive application of VAT Ruling No. 008-92 to all such sales made starting
January 1, 1988, ratiocinating, that mining companies will not be unduly prejudiced by a retroactive
application of VAT Ruling 008-92 because their claim for refund of input taxes are not lost because the
same are allowable on its output taxes on the sales of gold to Central Bank; on its output taxes on other
sales; and as deduction to income tax under Sec 29 of the Tax Code.
On the basis of the aforequoted BIR Issuances, petitioner treated respondent's sales of gold to the Central
Bank as domestic sales subject to 10% VAT but allowed respondent a total tax credit of only
P81,991,810.91 which corresponded to VAT input taxes attributable to its direct export sales.
Notwithstanding this finding of petitioner, respondent was not refunded the said amounts of tax credit
claimed. Thus, to suspend the running of the two-year prescriptive period for claiming refunds or tax
credits, respondent instituted Petition for Review with CTA, praying for the issuance of "Tax Credit
Certificates" for the following input VAT credits attributable to those export sales.

PROCEDURAL HISTORY:
CTA - dismissed respondent's Petition; denied whole amount of its claim for tax credit (P131M).
CA - affirmed in toto; but on MR, it reversed itself and ordered petitioner to issue a tax credit.
ISSUE:
WON CA erred in rejecting the retroactive application of VAT Ruling No. 008-92, subjecting sales of
gold to the Central Bank to 10% VAT to respondent's sales of gold
RULING: NO. Retroactive application of VAT Ruling No. 008-92 is prejudicial to respondent.

GRUBA on Concept of Input Tax and Output Tax:

Input VAT or input tax represents the actual payments, costs and expenses incurred by a VAT-registered
taxpayer in connection with his purchase of goods and services. Thus, "input tax" means the value-added
tax paid by a VAT-registered person/entity in the course of his/its trade or business on the importation of
goods or local purchases of goods or services from a VAT-registered person.
On the other hand, when that person or entity sells his/its products or services, the VAT-registered
taxpayer generally becomes liable for 10% of the selling price as output VAT or output tax. Hence,
"output tax" is the value-added tax on the sale of taxable goods or services by any person registered or
required to register under Section 107 of the (old) Tax Code.

The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either by (1)
passing on the 10% output VAT on the gross selling price or gross receipts, as the case may be, to its
buyers, or (2) if the input tax is attributable to the purchase of capital goods or to zero-rated sales, by
filing a claim for a refund or tax credit with the BIR.

A taxpayer subject to 10% output VAT on its sales of goods and services may recover its input VAT costs
by passing on said costs as output VAT to its buyers of goods and services but it cannot claim the same as
a refund or tax credit, while a taxpayer subject to 0% on its sales of goods and services may only recover
its input VAT costs by filing a refund or tax credit with the BIR.

OTHER RULING:
It is a rule that rulings and circulars, rules and regulations, promulgated by CIR, would have no
retroactive application if it would be prejudicial to the taxpayers. But even if prejudicial to a taxpayer,
retroactive application is still allowed where: (a) taxpayer deliberately misstates or omits material facts
from his return or any document required by the BIR; (b) where subsequent facts gathered by the BIR are
materially different from which the ruling is based; and (c) where the taxpayer acted in bad faith.
Respondent's case does not fall under any of the above exceptions.
 
Fort Bonifacio vs CIR (2009)
G.R. No. 158885 and G.R. No. 170680 | 2009-04-02
GRUBA: NONE.

FACTS:
• Fort Bonifacio Development Corporation (FBDC) is engaged in the development and sale of real
property. In 1995, FBDC purchased from the national government a vast tract of land that formerly
formed part of the Fort Bonifacio military reservation, located in what is now the Fort Bonifacio Global
City (Global City) in Taguig City. Since the sale was consummated prior to the enactment of Rep. Act
No. 7716, no VAT was paid thereon. FBDC then proceeded to develop the tract of land, and from
October 1966 onwards, has been selling lots located in the Global City to interested buyers.
• On January 1, 1996, RA 7716 took effect. Under RA 7716, VAT was imposed for the first time
on the sale of real properties. As the vendor, FBDC from thereon had become obliged to remit output
VAT payments it received from the sale of its properties.
• On October 14,1996, FBDC executed in favor of Metro Pacific Corporation two contracts to sell
over two parcels of land within the Global City, both payable in installments. As a result of the sale,
FBDC became liable for VAT to the BIR.
• In remitting its output VAT payments to the BIR, FBDC paid a total of P269,340,469.45 and
utilized a portion of its then total transitional/presumptive input tax credit and its regular input tax credit.
• BIR – disallowed the claimed presumptive input tax credit; CIR issued a letter disallowing the
presumptive input tax credit arising from the land inventory hence, the deficiency VAT for the 4th quarter
of 1996.
• CTA – affirmed the assessment
• CA – affirmed CTA, but removed the surcharge, interests and penalties. Hence, this petition.
• CIR argues that according to RR 7-95 provision, the application of the 8% transitional input tax
credit should only be based on the improvements on the real property. FBDC, on the other hand, contends
that the NIRC did not provide such limitation hence, RR 7-95’s limitation is discordant with the NIRC.

ISSUE: W/N the transitional input tax credit is only applicable to the improvements on the real property.

HELD: NO.
• Under Section 105, the beginning inventory of "goods" forms part of the valuation of the
transitional input tax credit. Goods, as commonly understood in the business sense, refers to the product
which the VAT-registered person offers for sale to the public. With respect to real estate dealers, it is the
real properties themselves which constitute their "goods." Such real properties are the operating assets of
the real estate dealer.
• Section 4.100-1 of RR No. 7-95 itself includes in its enumeration of "goods or properties" such
"real properties held primarily for sale to customers or held for lease in the ordinary course of trade or
business." Said definition was taken from the very statutory language of Section 100 of the Old NIRC. By
limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only contravened the
definition of "goods" as provided in the Old NIRC, but also the definition which the same revenue
regulation itself has provided.

In relation to Presumptive input tax:

• CTA adopts the thesis that the transitional input tax credit applies only when taxes were
previously paid on the properties in the beginning inventory. It presents the argument that the term
"presumptive input tax credit" implies that the transitional input tax credit involves a presumption that
there was a previous payment of taxes.
• Presumptive input tax credit is creditable against the output VAT. It necessarily has come into
existence in our tax structure only after the introduction of the VAT. E.O. No. 273 provided for a
"presumptive input tax credit" as one of the transitory measures in the shift from sales taxes to VAT, but
such presumptive input tax credit was never integrated in the NIRC itself. It was only in 1997, or eleven
years after the VAT was first introduced, that the presumptive input tax credit was first incorporated in
the NIRC, more particularly in Section 111(B) of the New NIRC. Under the provision, the presumptive
input tax credit is highly limited in application as it may be claimed only by "persons or firms engaged in
the processing of sardines, mackerel and milk, and in manufacturing refined sugar and cooking oil;" and
"public works contractors.” There is utterly no sense then in latching on to the term as having any
significant meaning for the purpose of the cases at bar.
• [NOTE: Transitional input tax and presumptive input tax are different, though parehas silang
makikita sa Sec 111 ng NIRC. Inaargue kasi ng CTA (and dissent) na since “presumptive input tax” ang
tawag, it creates a presumption na there was previously paid taxes. Ang sabi ni SC, no sense na mag-rely
doon sa tawag na “presumptive input tax” dahil limited in application lang ang presumptive input tax na
nasa Sec. 111B ng NIRC.)