Updated 22 Feb 2013

PM REYES NOTES ON TAXATION II:

VALUE-ADDED TAX
In general
Q1.Define Value-Added Tax (VAT).
A Value-Added Tax is a tax assessed, levied, and
collected 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.
Q1.1. What is the current VAT rate?
The current VAT rate is 12%.
Q3.In general, who are liable to pay the
VAT?
1. Any person who, in the course of trade or
business, sells, barters, exchanges or leases
goods or properties, or renders services
Except: A person, whether or not VAT-
registered, whose annual gross sales or receipts
does not exceed P1.5 million.1
2. Any person who imports goods, whether in the
course of trade or business or not.
(see SECTION 105, T AX CODE)
Q4.How does the VAT taxpayer determine
his tax liability?2

The taxpayer determines his tax liability by computing

Q2.What are the characteristics of the VAT?
1. It is a percentage tax imposed at every stage of
the distribution process on the sale, barter, or
exchange or lease of goods or properties and on
the performance os service in the course of trade
or business or on the importation of goods,
whether for business or non-business.
2. It is a business tax levied on certain transactions
involving a wide range of goods, properties and
services, such tax being payable by the seller,
lessor or transferor.
3. It is an excise tax or a tax on the privilege of
engaging in the business of selling goods or
services or in the importation of goods
4. It is an indirect tax, the amount of which may be
shifted to or passed on the buyer, transferee or
lessee of the goods, properties or services.
5. It is an ad valorem tax as its amount or rate is
based on gross selling price or gross value in
money or gross receipts derived from the
transaction
the tax on the gross selling price or gross receipt
(output tax) and subtracting or crediting the earlier
VAT on the purchase or importation of goods or on
the purchase of service (input tax) against the tax
due on his own sale.
As otherwise stated by the Supreme Court in CIR V.
SEAGATE T ECHNOLOGY [FEBRUARY 11, 2005]:
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.
1
If the annual gross sales or receipts does not exceed P1.5
million, he shall be liable instead for the 3% percentage tax on
small business enterprises (see Section 116, Tax Code).
2
This shall be discussed in greater detail under “Input Vat”

PM REYES NOTES ON TAXATION II: VALUE-ADDED TAX

BY PIERRE M ARTIN DE LEON REYES

This reviewer is a compilation of personal notes in Taxation Two and notes and lectures from Atty. Gruba and Atty. Montero and research and
memoranda made during the author‟s internship at SyCip Salazar Gatmaitan and Hernandez (SSGH). References have also been made to
the following books: DE LEON & DE LEON, JR. THE FUNDAMENTALS OF TAXATION (2012); DE LEON & DE LEON, JR. COMPREHENSIVE REVIEW OF
TAXATION (2010); VITUG & ACOSTA. TAX LAW AND JURISPRUDENCE (2006); DOMONDON, TAXATION VOLUME II: INCOME TAX (2009); CO-UNTIAN, JR.
TAX DIGEST (2009); MAMALATEO , REVIEWER ON TAXATION (2008). This reviewer is best used with SACADALAN-CASASOLA, NIRC AND OTHER LAWS
(2012).

Possessors are granted the right to reproduce and distribute this reviewer as well as the right to convert the work to any medium for the
purpose of preservation and/or continued distribution provided that the author‟s name remains clearly associated with the work and that no
alterations of the form and content are made.

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
Q4.1. Differentiate “output tax” from
“input tax”
As differentiated by the Supreme Court in CIR V.
BENGUET CORPORATION [JULY 14, 2006]:
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% (now
12%) 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 the Tax Code.
Basic Elements
Q5.What are the elements of a VAT-taxable
sale?3
1. Sale of goods and services, lease of property
including “deemed sale” transactions
2. In the course of trade or business4 (except
importation5) and including incidental
transactions
3. The transaction is not a VAT zero-rated or a
VAT-exempt transaction.
Q5.1. What are considered as “goods or
properties” for VAT purposes?
All tangible and intangible objects which are capable
of pecuniary estimation, including:
1. Real properties held primarily for sale to
customers or held for lease in the ordinary course
of business
3 through a commercial sale or in the normal course of
One more element should be added: the annual gross sales or
receipts must exceed P1.5 million. Otherwise, it is subject to the
3% percentage tax on small business enterprises.
4
As opposed to isolated transactions. Note, however, that services
rendered by non-resident foreign persons shall be considered as
being rendered in the course of trade or business.
5
An importation is VAT-taxable whether made in the course of
trade or business or not.
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
2. The right or privilege to use patent, copyright,
design or model, plan, secret formula or process,
good will, trademark, trade brand, or other like
property or right
3. The right or privilege to use in the Philippines of
any industrial, commercial or scientific equipment
4. The right or the privilege to use motion picture
files, films tapes and discs
5. Radio, television, satellite transmission and cable
television line (see SECTION 106(A)(1), T AX CODE)
Q5.2. What are transactions deemed
sales
1. Transfer of goods or properties not in the course
of business (originally intended for sale or for use
in the course of business)
2. Property dividends (transfer to shareholders as
share in the profits of VAT-registered persons or
to creditors in payment of debt)
3. Consignment of goods without the sale being
made within 60 days
4. Retirement from or cessation of business with
respect to inventories of taxable goods existing
(see SECTION 106(B), T AX CODE)
Q5.2.1. San Roque Power entered into a
purchase power agreement with
NAPOCOR to develop the
hydroelectric potential of the
Lower Agno River. During the
testing period, electricity was
transferred by San Roque to
NAPOCOR. Can the transfer be
considered a sale of electricity?
Yes. In SAN ROQUE POWER CORP. V. CIR [NOVEMBER
25, 2009], the Supreme Court held that although the
transfer was not a commercial sale, 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 VAT, does not limit the
term sale to commercial sales, rather it extends the
term to transactions that are deemed sale. In the said
case, it was undisputed that San Roque transferred
to NPC all the electricity that was produced during
the trial period. The fact that it was not transferred
business does not deflect from the fact that such
transaction is deemed as a sale.
2

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
Q5.3. What is meant by “in the course of
trade or business”
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
private organization or a government entity.6
Q5.3.1. Pursuant to the government’s
privatization program, NDC
decided its shares in the National
Marine Corp. and 5 vessels.
Magsaysay Lines bought the
shares and vessels. The CIR
contends that the sale of the 5
vessels is incidental to its NDC’s
VAT registered activity of leasing
out personal property and thus
VAT-taxable. Is the CIR correct?
No. In CIR V. MAGSAYSAY LINES [JULY 28, 2006], the
Supreme Court found that any sale, barter or
exchange of goods or services not in the course of
trade or business is not subject to VAT. In this case,
the sale of the vessels was an isolated transaction,
not done in the ordinary course of NDC‟s business
and is thus not subject to VAT.
Q5.4. Is the profit element required for
VAT to be imposed?
No. 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. (see CIR V.
CA AND COMASERCO [MARCH 30, 2000])
Q5.4.1. COMASERCO is a non-stock, non-
profit organization, affiliated with
Philamlife and organized to perform
collection, consultative or technical
services. The BIR assessed
COMASERCO for deficiency VAT.
COMASERCO argues that the services
rendered to Philamlife were on a “no-
profit, reimbursement-of-cost-only”
basis and, as such, the services are
6
Note that services rendered by non-resident foreign persons shall
be considered as being rendered in the course of trade or
business.
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
not VAT-taxable. Is COMASERCO
correct?
No. In CIR V. CA AND COMASERCO [MARCH 30,
2000] , the Supreme Court opined that 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 definition of the term “in the course of
trade or business” applies to all transactions. Even a
non-stock, non-profit corporation or government
entity is liable to pay VAT for the sale of goods and
services. In this case, even if the services rendered
for a fee were on a reimbursement-on-cost
arrangement and without realizing profit, the
payments are still subject to VAT.
Q5.4.2. Sony Philippines engaged the
services of several advertising
companies. Due to dire economic
conditions, Sony International
Singapore (SIS) gave Sony Philippines
a dole-out to pay for said advertising
expenses. Sony Philippines claimed
as input VAT credits that VAT paid for
the advertising expenses. The CIR
disallowed this and assessed Sony
Philippines deficiency VAT on the
reimbursable received by it from SIS.
The CIR contends that the
reimbursable was a fee for a VAT-
taxable activity. Is the CIR correct?
No. The Supreme Court held in CIR v. SONY
PHILIPPINES [NOVEMBER 17, 2010] that Sony
Philippines cannot be deemed to have received the
reimbursable as a fee for a VAT-taxable activity. The
absence of a sale, barter or exchange of goods or
properties supports the non-VAT nature of the
reimbursable. The Supreme Court distinguished this
from CIR V. CA AND COMASERCO [MARCH 30, 2000]
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.
VAT on Importations
Q6.Does VAT apply to every importation?
Yes. The 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
3

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
business. Otherwise, the person/transaction shall not
be liable to pay VAT. (see CIR V. SEAGATE
T ECHNOLOGY [FEBRUARY 11, 2005]).
Q6.1. Give the tax base of VAT on
importation of goods.
The tax base is the total value used by the BOC in
determining tariff and customs duties plus customs
duties, excise taxes, if any, and other charges.
Where the customs duties are determined on the
basis of the quantity or volume of the goods, the VAT
shall be based on the landed cost plus excise taxes,
if any.
Q7.What is technical importation?
Technical importation is the subsequent sale,
transfer or exchange of imported goods by VAT-
exempt persons to non-exempt persons or entities.
Q7.1. What is the legal consequence of
technical importation?
The non-exempt buyers, transferees, or recipients
shall be deemed the importers of the taxable goods
and shall be liable for the VAT due on such
importation. (see SECTION 107(B), T AX CODE)
VAT-taxable transactions
VAT-taxable sale of goods
Q8.Give the basis of VAT on sale, barter or
exchange of goods or properties.
The base is the gross selling price or gross value in
money of the taxable goods or properties sold,
bartered or exchanged.
Q8.1. What is gross selling price in
relation to the VAT?
Gross selling price is the total amount of money or its
equivalent which the purchaser pays or is obligated
to pay to the seller in consideration of the sale, barter
or exchange of the goods or properties excluding the
VAT. Any excise tax, if any, on such goods or
properties shall form part of the GSP. (see SECTION
4.106-4, RR 16-2005 [SEPTEMBER 1, 2005])
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
Q8.2. What is the basis if the
consideration of a sale is not
wholly in money as in a part-
exchange or barter transaction?
The base is the price that would have been charged
in an open market sale for purely monetary
consideration.
VAT-taxable sale of real properties
Q8.3. Is the sale of real properties
subject to VAT?
Yes as to the sale of real properties held primarily for
sale to customers or held for lease in the ordinary
course of trade or business of the seller.
In the case of sale of real properties on the
installment plan, the real estate dealer shall be
subject to VAT on the installment payments, including
interest and penalties, actually and/or constructively
received by the seller.(see SECTION 4.106-3, RR 16-
2005 [SEPTEMBER 1, 2005])
Q8.3.1. What is the gross selling price for
the sale of real properties subject
to VAT?
The gross selling price shall mean the consideration
stated in the sales document or the fair market
value,7 whichever is higher. (see SECTION 4.106-4,
RR 16-2005 [SEPTEMBER 1, 2005])
Q8.3.2. How is VAT imposed on real
property transactions?
1. If cash or deferred payment (payment is more
than 25%), then the VAT on the whole amount is
already imposed
2. If installment (less than 25% for a year), then the
VAT is imposed on each payment
3. There is no VAT imposed on Section 40(C)(2)
exchanges.
Q8.3.3. Assuming a VAT-taxable
transaction, is the advance
7
The fair market value shall mean whichever is the higher of (1)
the fair market value as determined by the CIR (zonal value) or (2)
the air market value as shown in the schedule of values of the
provincial and city assessors (real property tax declaration). In the
absence of a zonal value, gross selling price shall refer to the
market value shown in the latest real property tax declaration or
the consideration, whichever is higher.
4

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
payment in a real estate
transaction subject to VAT?
Of the amounts typically covering an advance
payment, only the pre-paid rent is subject to VAT.
Other forms of advance payment such as option
money, security deposit, etc. are not subject to VAT.
Q8.3.4. Is the sale of a residential lot,
residential house and lot or other
residential dwelling subject to
VAT?
Yes as to the sale of a residential lot with a GSP
8
exceeding P1,919,500 and the sale of a residential
house and lot or other residential dwelling with GSP
9
exceeding P3,199,200 are subject to VAT.
Installment sale of a residential house and lot or other
residential dwellings exceeding P1 million10 shall be
subject to VAT.
(See SECTION 4.106-4, RR 16-2005 [SEPTEMBER 1,
2005], AS AMENDED BY RR 04-07 [FEBRUARY 7, 2007],
RR 16-2011 [OCTOBER 27, 2011], RR 3-2013
[FEBRUARY 20, 2012] AND RR 13-2012 [OCTOBER 12,
2012].
Q8.3.5. A bought two adjacent
condominium units which he
intended to combine so as to fit
his family. Each unit has a GSP of
2 million. The two units were
separately documented. After 2
years, A decided to sell the two
units. A contends that the units
are exempt from VAT as the GSP
did not exceeding 2.5 million. Is A
correct?
No. By virtue of the amendment introduced by RR 13-
2012 [OCTOBER 12, 2012], the sale of real properties
subject to VAT shall include the sale, transfer, or
disposal within a 12-month period of two or more
adjacent residential lots, house and lots, or other
residential dwellings in favor of a buyer. Such
adjacent real properties although covered by
separate titles and/or separate tax declarations, when
sold to one and the same buyer, whether covered by
one or separate deeds of conveyance, shall be
8
Previously 1.5 million. New figure is based on the amendment
introduced by RR 16-2011 [May 7, 2004] on the new thresholds for
VAT exemptions on the sale of real property.
9
Previously 2.5 million.
10
This value has not been changed by the amendments.
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
presumed as a sale of one residential lot, house and
lot or residential dwelling.
Q8.3.6. Is the sale of the parking lot
included in the sale of a
condominium unit?
No. The sale of parking lots is a separate and distinct
transaction and is not covered by the rules on the
threshold amount not being a residential lot, house
and lot, or a residential dwelling and thus should be
subject to VAT regardless of the amount of selling
price. (see RR 13-2012 [OCTOBER 12, 2012])
VAT-taxable sale of services including lease
of properties
Q9.Give the basis of VAT on sale of services
and use or lease of properties?
The basis shall be the gross receipts derived from the
sale or exchange of services including the use or
lease of properties. (see Section 108(A), Tax Code)
Q9.1. What are gross receipts in relation
to the VAT?
Gross receipts means the total amount of money or
its equivalent representing the contract price,
compensation, service fee, rental or royalty actually
or constructively received during the taxable quarter
for the services performed or to be performed for
another person.
Q9.2. Is the place of execution of the
contract of lease material on the
VAT-taxability of the use or lease
of a property?
No. The use or lease of properties shall be subject to
VAT irrespective of the place where the contract of
lease or licensing agreement was executed if the
property is leased or used in the Philippines.
Q9.3. Is the lease of residential units
subject to VAT?
Yes as to the lease of residential units with a monthly
rental per unit exceeding P12,800, regardless of the
amount of aggregate rentals received by the lessor
during the year
5

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
Q9.3.1. What is the tax treatment of the
lease of residential units, where
some are leased out for
exceeding P12,800 while others
are leased out for more than
P12,800?
The tax treatment shall be as follows:
1. The gross receipts from rentals not exceeding
P12,800 per month per unit shall be exempt from
VAT regardless of aggregate gross receipts
2. The gross receipts from rentals exceeding
P12,800 shall be subject to VAT if the aggregate
annual gross receipts from said units exceeds
P1,919,500,000.11
Q9.4. What is a sale or exchange of
services?
A sale of exchange of services means the
performance of all kinds of services in the Philippines
for others for a fee, remuneration or consideration.
(See SECTION 108(A), T AX CODE for an extensive
enumeration of the type of services including in said
definition)
Q9.4.1. Are toll fees collected by tollway
operators subject to VAT?
Yes. The Supreme Court in DIAZ V. SECRETARY OF
FINANCE [JULY 10, 2011] answered this issue in the
affirmative. The court held that VAT is imposed on
“all kinds of services” and tollway operations who are
engaged in construction, maintaining, and operating
expressways are no different from lessors of
property, transportation contractors, etc. Further, they
also come under those described as “all other
franchise grantees” which is not confined only to
legislative franchise grantees since the law does not
distinguish. They are also not a franchise grantee
under Section 119 of the Tax Code which would have
made them subject to percentage tax instead. Neither
are the services part of the enumeration under
Section 109 on VAT-exempt transactions.
Q9.4.2. Are the gross receipts derived by
operators or proprietors of
cinema/theater houses from
admission tickets subject to VAT?
11
Otherwise, the gross receipts will be subject to the 3% tax
imposed under Section 116 of the Tax Code.
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
No. The Supreme Court in CIR v. SM PRIME
HOLDINGS [FEBRUARY 26, 2010] held that although the
enumeration of services subject to VAT under
Section 108 of the 1997 Tax Code is not exhaustive.
Among those included in the enumeration is the
“lease of motion picture films, films, tapes and discs.”
This, however, is not the same as the showing or
exhibition of motion pictures or films. Hence, since
the showing or exhibition of motion pictures or films Is
not in the enumeration, such is not a VAT-taxable
transaction.
VAT-exempt transactions
Q10. What are VAT-exempt transactions?
VAT-exempt transactions refer to the sale of goods
or properties and/or services and the use or lease of
properties that is not subject to VAT (output tax) and
the seller is not allowed any tax credit of VAT (input
tax) on purchases.
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.
Q10.1. Enumerate the exempt
transactions12
SECTION 109(A) TO (V) provides for the following:
a) Sale or importation of agricultural and marine
food products in their original state.13
b) Sale or importation of fertilizers; seeds, seedlings
and fingerlings; fish, prawn, livestock and poultry
feeds14
c) Importation of personal and household effects
belonging to the residents of the Philippines
returning from abroad
d) Importation of professional instruments and
implements, wearing apparel, domestic animals
and personal household effects belonging to
12
Those underlined are the notable VAT-exempt transactions.
These enumeration is exclusive.
13
Such products are still considered in their original state even if
they have undergone simple processes of preparation or
preservation for the market, such as freezing, drying, salting,
broiling, roasting, smoking, or stripping. Polished and/or husked
rice, corn grits, raw cane sugar and molasses, ordinary salt and
copra shall be considered in their original state.
14
Does not include specialty feeds for race hourses, fighting
cocks, aquarium fish, zoo animals, and other animals generally
considered as pets.
6

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
persons coming to settle for the first time in the
Philippines
e) Services subject to percentage tax
f) Services by agricultural contract growers and
milling for others of palay into rice, corn into grits
and sugarcane into raw sugar
g) Medical, dental, hospital and veterinary services
15
except those rendered by professionals
h) Educational services rendered by private
educational institutions duly accredited by
DEPED, CHED, and TESDA and those by
governmental educational institutions
i) Services rendered pursuant to an employee-
employer relationship
j) Services rendered by regional or area
headquarters established in the Philippines
k) Transactions which are exempt under
international agreements to which the Philippines
is a signatory or under special laws
l) Sales by agricultural cooperatives duly registered
with the Cooperative Development Authority
m) Gross receipts from lending activities by credit or
multi-purpose cooperatives duly registered with
the Cooperative Development Authority whose
lending is limited to members
n) Sales by non-agricultural, non-electric and non-
credit cooperatives duly registered with the
Cooperative Development Authority16
o) Export sales by persons who are not VAT-
registered
p) Sales of real properties not primarily held for sale
to customers or held for lease in the ordinary
course of trade or business or sales within the
low-cost cap of below 1,919,50017 for a
residential lot and P3,199,20018 for a house and
lot and other residential dwelling
q) Lease of a residential unit with a monthly rental
not exceeding P12,80019
r) Sale, importation, printing or publication of books
and any newspaper, magazine, review or bulletin
which appears at regular intervals with fixed
prices for subscription and sale and is not
devoted principally to publication of paid
advertisements
s) Sale, importation, or lease of passenger or cargo
vessels and aircraft 20
15
But see Q10.3 on VAT exemption of doctors registered with the
PRC and lawyers registered with the IBP.
16
Provided that the share capital contribution of each member
does not exceed P15,000
17
Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27,
2011].
18
Previously 2.5 million. Amended by RR 16-2011 [OCTOBER 27,
2011].
19
Previously P10,000. Amended by RR 16-2011 [OCTOBER 27,
2011].
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
t) Importation of fuels, goods and supplies by
persons engaged in international shipping or air
transport operations
u) Services of banks, non-bank financial
intermediaries performing quasi-banking
functions and other non-bank financial
intermediaries
v) Sale or lease of goods or properties or
performance of services other than the
transactions mentioned in the preceding
paragraphs, the gross annual sales and/or
receipts do not exceed the amount of
P1,919,500.21.
Q10.2. Are senior citizens exempt from
the 12% VAT?
Yes. RA No. 9994 [February 15, 2010], otherwise
known as the Expanded Senior Citizens Act of 2010
exempts senior citizens from paying 12-percent VAT
on goods and services.
Q10.3. Are medical services rendered b
doctors registered with the PRC
and legal services rendered by
lawyers registered with the IBP
subject to VAT?
No. RR 7-2004 [MAY 7, 2004] excludes services by
doctors registered with the PRC and services by
lawyers registered with the IBP as well as GPPs for
the sole and exclusive purport of practising law or
medicine from the coverage of VAT on services
Q10.4. Are pawnshops liable to pay VAT?
No. As explained by the Supreme Court in
T AMBUNTING PAWNSHOP V. CIR [JANUARY 21, 2010]:
Prior to the passage of the EVAT Law in 1994,
pawnshops were treated as lending investors subject
to lending investor‟s tax.22 Subsequently, pawnshops
were treated jurisprudentially as VAT-able
20
Includes engine, equipment, and spare parts thereof for
domestic or international transport operations.
21
Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27,
2011].
22
Note that in FIRST PLANTERS PAWNSHOP VS. CIR [JULY 30, 2008],
the Supreme Court held that First Planters Pawnshop was subject
to VAT as it was a lending investor. It must be noted that the
factual circumstances of the said case pertained to a taxable
period prior to RA No. 9238. What is important to note in this case
is that the Supreme Court stated that pawnshops should now be
treated as non-bank financial intermediaries and, as such, not
subject to VAT.
7

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
enterprises under the general classification of “sale or
exchange of services.” RA No. 9238 which passed in
2004 finally classified pawnshops as “other non-bank
financial intermediaries.
Q10.5. Is a health maintenance
organization liable to pay VAT?
Yes. In CIR V. PHILIPPINE HEALTH CARE PROVIDERS,
INC. [APRIL 24, 2007], PHCPI claimed that its services
were exempt from VAT and sought a BIR ruling in
this regard. The BIR ruled that PHCPI was exempt.
The CIR, however, later assessed PHCPI for
deficiency VAT taxes. The CIR contended that
PHCPI does not actually render medical service but
merely acts as a conduit between the members and
PHCPI‟s accredited and recognized hospitals and
clinics. The Supreme Court opined that the services
of an entity which does not actually provide medical
and/or hospital services but merely arranges for the
same are subject to VAT. The Court, however, ruled
PHCPI cannot be faulted for its reliance on the BIR
ruling as such was issued when the term “health
maintenance organization” had no significance for
taxation purposes at the time. The failure of PHCPI to
describe itself as a “health maintenance organization”
subject to VAT does not amount to bad faith.
Q10.6. Is the sale of copra subject to
VAT?
No. RA 9337 amended Section 109(A) to include
copra as those that should be considered in their
original state. Previously in MISAMIS ORIENTAL V. DOF
[NOVEMBER 10, 1994], the Supreme Court opined that
copra is not food and is not intended for human
consumption. Thus, it is not exempt from VAT. The
rule now is the sale of copra is VAT-exempt.
Q10.7. Is PAGCOR’s sale of services
subject to VAT?
No. In PAGCOR V. CIR [MARCH 15, 2011], the
Supreme Court held that RA 9337 only withdrew
PAGCOR‟s exemption from corporate income taxes
but does not contain any provision that subjects the
same to VAT. PAGCOR is exempt from the payment
of VAT, because PAGCOR's charter, P.D. No. 1869,
is a special law that grants it 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, thus:
Services rendered to persons or entities whose
exemption under special laws or international
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to
zero percent (0%) rate
Q10.8. S and ABS-CBN entered into an
agreement where S will provide his
services exclusively to ABS-CBN
as a talent for the latter’s TV and
radio shows. Is he liable to pay
VAT?
No provided that there exists no employer-employee
relationship between S and ABS-CBN. In SONZA V.
ABS-CBN [JUNE 10, 2004], the Supreme Court held
that an independent contractor is liable to pay VAT.
Section 109 only exempts from VAT services
rendered pursuant to an employer-employee
relationship.
VAT zero-rated transactions
Q11. What are zero-rated transactions?
A VAT zero-rated transaction 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.
Q11.1. Distinguish VAT rating from zero
rating.
As explained by the Supreme Court in CIR V.
BENGUET CORPORATION [JULY 14, 2006]:
In transactions taxed at a 10% rate (now 12%), 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
8
 Updated 22 Feb 2013
PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
Q11.1.1. Illustrate the distinction made exemption under special
above. laws or international
agreements to which the
Assume that VAT-registered person purchases Philippines is a signatory
materials from his supplier at P100, P9.6 of which effectively subjects such
was passed on to him by his supplier as the latter‟s transactions to a zero rate.
12% output VAT. In a zero-rated transaction, the The tax rate is set at zero. As applied to the tax base,
taxpayer can recover the P9.6 from the BIR either When applied to the tax such rate does not yield
through a refund or a tax credit. When the taxpayer base, such rate obviously any tax chargeable against
sells his finished product for let‟s say P120, he is not results in no tax the purchaser
required to pay the output VAT of P2.4 (12% of the chargeable against the
P20 value he has added to the P100 material). purchaser
The seller of such The seller who charges
In a transaction subject to VAT, however, he may transactions charges no zero output tax on such
recover both the input VAT of P9.6 which he paid to output tax, but can claim a transactions can also
the supplier and his output VAT of P2.4 by passing refund of or a tax credit claim a refund of or a tax
both these costs to the buyer. The buyer then pays certificate for the VAT credit certificate for the
P12, the total 12% VAT. previously charged by VAT previously charged by
suppliers suppliers
Q11.2. Distinguish zero rating from VAT- intended to be enjoyed by intended to benefit the
exemption. the seller who is directly purchaser who, not being
and legally liable for the directly and legally liable
As differentiated by the Supreme Court in CIR v. VAT, making such seller for the payment of the
CEBU T OYO CORPORATION [FEBRUARY 16, 2005]: internationally competitive VAT, will ultimately bear
by allowing the refund or the burden of the tax
Zero-rated VAT-Exempt credit of input taxes that shifted by the suppliers.
It is a taxable transaction Not subject to the output are attributable to export
but does not result in an tax sales.
output tax
The input VAT on the The seller in an exempt Q11.4. Enumerate the requisites that
purchases of a VAT- transaction is not entitled must be complied with in order to
registered person with to any input tax on his be entitled to a refund or issuance
zero-rated sales may be purchases despite the of a TCC for input VAT due or paid
allowed as tax credits or issuance of a VAT invoice attributable to zero-rated or
refunded or receipt; effectively zero-rated sales.
Persons engaged in Registration is optional for
transactions which are VAT-exempt persons. 1. There must be zero‐rated or effectively zero‐rated
zero-rated, being subject sales;
to VAT, are required to 2. Input taxes were incurred or paid;
register 3. Such input taxes are directly attributable to
zero‐rated or effectively zero‐rated sales;
Q11.3. Distinguish zero-rated from 4. Input taxes were not applied against any output
effectively zero-rated VAT liability; and
transactions.23 5. The claim for refund was filed within the two‐year
prescriptive period.
As distinguished by the Supreme Court in CIR V.
SEAGATE T ECHNOLOGY [FEBRUARY 11, 2006]: (see SITEL PHILIPPINES CORPORATION V. CIR [CTA
CASE NO. 7623, MARCH 3, 2010])
Zero-rated Effectively zero-rated
generally refers to the refers to the sale of goods
export sale of goods and or supply of services to
supply of services persons or entities whose

23
See enumeration of zero-rated sales of goods in Q11.5.

PIERRE MARTIN DE LEON REYES 9


PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
Zero-rated sales of goods
Q11.5. Enumerate the zero-rated sales of
goods.
SECTION 106(A)(2) provides for the following:
a) Export Sales (IF GONE)
a) Sale and actual shipment of goods from the
Philippines to a Foreign country
b) Sale of raw materials or packaging materials
to a Non-resident buyer for delivery to a
resident local export-oriented enterprise
c) Sale of raw materials or packaging materials
to Export-oriented enterprise whose export
sales exceed 70% of total annual production
d) Sale of Gold to the BSP
e) Those that are not considered export sales
under the Omnibus Investment Code and
other special laws
f) Sale of goods, supplies, and equipment and
fuel to persons engaged in International
shipping or international air transport
operations.
b) Foreign currency denominated sale – the sale to
a non-resident of goods assembled or
manufactured in the Philippines for delivery to a
resident in the Philippines paid in acceptable
foreign currency and accounted for in accordance
with BSP rules and regulations
c) Sales to persons or entities whose exemption
under special laws and international agreements
to which the Philippines is a signatory subjects
such sales to 0% rate (effectively zero-rated
transactions)
Q11.5.1. Explain the VAT treatment of
PEZA-registered enterprises
prior to and after the effectivity
of RMC 74-99 [OCTOBER 15,
1999].
Prior to RMC 74-99:
Whether a PEZA-registered enterprise was exempt
or subject to VAT depended on the type of fiscal
incentives availed of by the said enterprise. PEZA
entities can avail of two alternative or subsequent
incentives of income tax holiday (ITH) or 5%
preferential tax rate on gross income. If the entity
avails of the 5% preferential tax rate, it is exempt
from all taxes including VAT but if it avails of the ITH,
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
it shall be exempt from income taxes for a number of
years but not VAT (see CIR v. SEKISUI JUSHI
PHILIPPINES [JULY 21, 2006]).
This explains the decisions in CIR V. T OSHIBA
INFORMATION EQUIPMENT [AUGUST 9, 2005] and CIR v.
CEBU T OYO CORPORATION [FEBRUARY 16, 2005]
where in both cases the Supreme Court held that the
PEZA-registered enterprise is entitled to a VAT
refund/credit because it opted to avail itself of the
income tax holiday. Having availed of the income tax
holiday and its export sales being a zero-rated
transaction, the PEZA-registered enterprise was
entitled to refund or credit for its unutilized input
taxes. In both cases, the transactions were made
prior to the effectivity of RMC 74-99.
After the effectivity of RMC 74-99:
The tax treatment of sales of goods and services of
PEZA-registered enterprises is now based on the
principles of “separate custom territory” and “cross
border doctrine.”
As explained by the Court in the cases of CIR V.
SEAGATE T ECHNOLOGY [FEBRUARY 11, 2005], CIR v.
SEKISUI JUSHI PHILIPPINES [JULY 21, 2006], CIR V.
T OSHIBA I NFORMATION EQUIPMENT [AUGUST 9, 2005],
CIR V. CONTEX [JULY 2, 2004]:
PEZA-registered enterprises, which would
necessarily be located within ecozones, are VAT-
exempt entities not because of Section 24 of RA
7926 (which imposes the 5% preferential tax rate on
gross income of PEZA-registered enterprises in lieu
of all taxes) but rather because of Section 8 of the
same which establishes the fiction that ecozones are
foreign territory. As a result, sales made by a supplier
in the Customs Territory (national territory of the
Philippines outside the borders of the ecozone) to a
purchaser in the ecozone shall be considered as
exportation from the Customs Territory. Conversely,
sales made by a supplier from the ecozone to a
purchaser in the Customs Territory shall be
considered as an importation into the Customs
Territory.
The Philippine VAT system 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
10

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
with ten percent (10%) (now 12% VAT). Sales made
by an enterprise within a non-ecozone territory, i.e.,
Customs Territory, to an enterprise within an ecozone
territory shall be free of VAT.
Q11.5.2. Summarize the current tax
treatment of PEZA-registered
enterprises
Currently, the VAT treatments of sale of goods and
services to and by PEZA-registered within and
without the ecozones are as follows:
1. Any sale of goods, property or services by a
VAT-registered supplier from the customs-
territory to any Ecozone-registered enterprise –
regardless of incentive availed – is zero-rated on
the part of the VAT-registered seller because
ecozones are foreign soil by fiction and thus the
sale is considered an export sale.
2. Sales to an ecozone enterprise made by a non-
VAT or unregistered supplier would only be
exempt from VAT and the supplier shall not be
able to claim credit/refund for its input VAT
because, under Section 109(O) of the Tax Code,
Updated 22 Feb 2013
export sales by persons who are not VAT-
registered are exempt transactions.
3. If the ecozone-enteprise is an exporter, its input
VAT are subject to refund not because of the
incentives it availed but because of the nature of
its transactions (export sales).
4. Any sale of goods or property by an ecozone-
registered enterprise to a buyer in the customs
territory shall be subject to 12% VAT because it
shall be considered an importation. The tax is
imposed on the buyer/importer.
5. Any sale of services by an ecozone-registered
enterprise to a buyer in the customs territory shall
either be subject to 12% VAT or to percentage
tax depending on the nature of the service. The
tax is imposed on the ecozone-enterprise.
6. Any sale of goods or property between ecozone-
registered enterprises (intra-ecozone sales) are
tax-exempt.
7. Any sale of services between ecozone-registered
enterprises is exempt from VAT or percentage
tax if PEZA-registered enterprise seller is subject
to 5% preferential tax rate and 0% if PEZA-
registered enterprise seller is subject to the Tax
Code.

SUMMARY OF VAT TREATMENT OF SALES OF GOODS AND SERVICES TO AND BY

PEZA-REGISTERED ENTERPRISES WITHIN AND WITHOUT THE ECOZONE 24

Sale of Goods Sale of Services

VAT - registered supplier from 0% VAT 0% VAT

customs territory to PEZA -
registered enterprise
(regardless of whether or not
the PEZA - registered enterprise
is subject to the 5% "in lieu of all
tax" regime)

VAT-exempt supplier from VAT exempt VAT exempt

customs territory to PEZA-
registered enterprise
(regardless of whether or not
the PEZA-registered buyer is
subject to tax under the NIRC,
or to the 5% special tax regime)

24
Original summary made by Atty. B.P. Panigbatan. Updated and annotated by PM Reyes during 2011 SyCip Internship.

PIERRE MARTIN DE LEON REYES 11


PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
PEZA-registered enterprise to 12% VAT imposed on buyer in
buyer from customs territory addition to the import tax and
(local/domestic sales) customs duties
PEZA - registered enterprise VAT exempt
to another PEZA registered
enterprise (intra-ecozone
sales)
Q11.5.3. Benguet Corporation treated its
sale of gold to the BSP as export sales
and as such, they are zero-rated. The BIR
issued a VAT Ruling affirmed such
treatment. This was reiterated in
subsequent rulings. BIR then disallowed
refund of input VAT contending that a
subsequent ruling was issued revoking
the zero-rated status and that this could
retroact because no prejudice would
result to Benguet as it can offset it
against its output and that it can claim the
same as cost. Is the BIR correct?
No. In CIR V. BENGUET CORPORATION [JULY 14,
2006], the Supreme Court found that (1) Benguet did
not have enough output to offset the input VAT it
accumulated precisely because believing it was zero-
rated it did not pass on output VAT and (2) assuming
that that there is a right to refund overpaid income tax
which would result if additional cost is taken up, only
32% of the amount would be recovered and it does
not solve Benguet‟s other disadvantageous
situations.
IN this regard, Supreme Court differentiated VAT
rating and zero-rating. A taxpayer subject to 10%
(now 12%) 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.” In said case, by providing for retroactive
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
12% VAT imposed on the
PEZA-registered enterprise
seller or to the percentage tax
plus normal tax on income.
Exempt from Vat or any
percentage tax if PEZA -
registered enterprise seller is
subject to 5% special tax regime
0% VAT if PEZA - registered
enterprise seller is subject to
Tax Code
application of the VAT ruling declaring sales of gold
to the CB as subject to 10% VAT (12%), Benguet‟s
application for refund/tax credit was denied. Clearly,
the retroactive application is prejudicial to Benguet.
Q11.5.4. Acesite is the operator of Holiday
Inn Hotel. It leases part of its premises to
PAGCOR and caters food and beverages
to its patrons. Acesite contends that the
sale of food and beverages to PAGCOR is
zero-rated and thus entitling them to
claim a tax refund/credit. Is Acesite
correct?
Yes. In CIR v. ACESITE PHILIPPINES [FEBRUARY 16,
2007], the Supreme Court stated that services
rendered to persons or entities whose exemption
under special laws or international agreements to
which the Philippines is a signatory effectively
subjects the supply of such services to zero (0%) rate
shall be subject to 0%. Since the law clearly provides
for PAGCOR‟s exemption, the sale of services of
Acesite to PAGCOR is effectively zero-rated. Hence,
Acesite may refund the VAT it paid on its sale of food
and beverages to PAGCOR.
Zero-rated sales of services
Q11.6. Enumerate the zero-rated sales of
services.
SECTION 108(B) provides for the following:
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
12

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
accordance with the rules and regulations of the
BSP
2. Services Other than those mentioned in the
preceding paragraph rendered to a person
engaged in business conducted outside the
Philippines or a nonresident person not engaged
in business who is outside the Philippines when
the services were performed, the consideration
for which is paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the BSP.
3. Services rendered to person or entities whose
exemption under Special Laws or International
Agreements effectively subjects the supply of
such services to a 0% rate.
4. Sale of Services to Persons Engaged in
International Shipping or Air Transport
Operations
5. Sale of Services for Export-Oriented Enterprise
whose export sales exceed 70% of total annual
production
6. Transport of Passengers and Cargo by Air or
Seal Vessels from the Philippines to a Foreign
Country
7. Sale of Power Generated through Renewable
Sources of Energy
Q11.6.1. What is the destination principle
and are there any exceptions
thereto?
As a general rule, the value-added tax (VAT) system
uses the destination principle. This means that goods
and services are taxed only in the country where they
are consumed.
Exceptions to the destination principle are found in
Section 108(B) of the 1997 Tax Code. They are
deemed exceptions because although the services
are performed in the Philippines, the sales of such
services are zero-rated provided the following
requisites are met:
1. The service is performed in the Philippines
2. The service falls under any of the categories
provided in Section 108(B)
3. It is paid for in acceptable foreign currency that is
accounted for in accordance with the regulations
of the Bangko Sentral ng Pilipinas
4. The recipient of such services is doing business
25
outside the Philippines.
25
Note that CIR V. BURMEISTER AND WAIN SCANDINAVIAN
CONTRACTOR M INDANAO, INC. [JANUARY 22, 2007] added this
requisite
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
Q11.6.2. American Express Philippines
(AMEX-P) is a Philippine Branch
of AMEX International. AMEX-P
is a servicing unit of AMEX
Hong Kong (AMEX-HK) and
facilitates the collections of
AMEX-HK receivables from card
members in the Philippines.
AMEX-P claimed a refund for its
input taxes arising from zero-
rated sales of services to AMEX-
HK. CIR argues that AMEX-P’s
services must be consumed
abroad in order to be zero-rated.
Is the CIR correct?
No. In AMERICAN EXPRESS I NTERNATIONAL V. CIR
[JUNE 29, 2005], the Supreme Court opined that while
as a general rule, the VAT system uses the
destination principle as a basis for the jurisdictional
reach of the tax such that goods and services are
taxed only in the country where they are consumed,
exceptions to the destination principle are found in
Section 108(B) of the 1997 Tax Code. In this case,
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. As such, they are deemed
exceptions because although the services are
performed in the Philippines, the sales of such
services are considered zero-rated.
Q11.6.3. Placer Dome Inc (PDI) owns
39.9% of Marcopper. It
undertook to clean-up and
rehabilitate the Makalupnit and
Boac Rivers in Marinduque
which was affected by its mining
operations. PDI engaged the
services of Placer Dome
Technical Services Limited (PD
Canada), a non-resident foreign
corporation in Canada which, in
turn, engaged the services of
Placer Dom Technical Services
Philippines (PD Philippines). PD
Philippines filed for a claim for
tax credit/refund and contends
that its sale of services to Placer
Dome Canada was zero-rated.
The CIR invokes the destination
principle, contending that Placer
13

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
Dome Philippines’ services,
while rendered to a non-resident
foreign corporation, are not
destined to be consumed
abroad. Is the CIR correct?
No. In CIR V. PLACER DOME [JUNE 8, 2007], the
Supreme Court reiterated its ruling in AMERICAN
EXPRESS I NTERNATIONAL V. CIR [JUNE 29, 2005] to the
effect that the services enumerated in Section 108B
constitute as exceptions to the destination principle
and are zero-rated. Since Placer Dome Philippines‟
services meet the requirements of Section 108(B)(2),
it is zero-rated.
Q11.6.4. A foreign consortium composed
of Burmeister Denmark and
Mitsui Engineering entered into
a contract with NAPOCOR for
the operation and maintenance
of two barges.. The Consortium
appointed Burmeister Denmark
as coordination manager.
Burmeister Denmark established
Burmeister Mindanao which
subcontracted the operation and
maintenance of the two barges.
NAPOCOR paid the foreign
consortium while the
consortium, in turn, paid
Burmeister Philippines foreign
currency inwardly remitted into
the Philippines. The BIR refused
to grant a refund since the
services were not destined for
consumption abroad. Are the
services of Burmeister
Philippines entitled to zero-rated
status?
Yes. In CIR V. BURMEISTER AND WAIN SCANDINAVIAN
CONTRACTOR MINDANAO, INC. [JANUARY 22, 2007],
they are entitled to zero-rated satus and to the refund
but only for the period covered prior to the filing of the
CIR‟s answer in the CTA. This is so because prior,
Burmeister was able to secure a ruling from the BIR
allowing zero-rating of its sales. However, such ruling
is valid only until the time that the CIR filed its answer
in the CTA which amounted to a revocation of the
said ruling. The revocation cannot be made
retroactive.
It must be noted, however, that without this special
circumstance, Burmeister would not have been
entitled to a zero-rated status. This is because the
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
Consortium which was the recipient of the services
rendered by Burmeister was deemed doing business
within the Philippines. While the Consortium‟s
principal members are non-resident foreign
corporations, the Consortium itself is doing business
in the Philippines. Hence, the transactions of BWSC
Mindanao are not subject to VAT at zero percent.
Q11.6.5. ABC is a business process
outsourcing company and is
engaged in the business of
providing call center services
from the Philippines to
domestic and offshore
businesses. Can ABC claim
for a refund or issuance of a
TCC for its excess input tax
paid on domestic purchases of
goods and services which
were allegedly attributable to
ABC’s zero-rated sales of
services?
Yes provided it meets the following requisites:
1. the services must be other than processing,
manufacturing or repacking of goods;
2. payment for such services must be in acceptable
foreign currency accounted for in accordance
with the BSP rules and regulations; and
3. the recipient of such services is doing business
outside the Philippines.
In SITEL PHILIPPINES CORPORATION V. CIR [CTA CASE
NO. 7623, MARCH 3, 2010], ACCENTURE VS.
COMMISSIONER OF I NTERNAL REVENUE [C.T.A. CASE
NO. 7046, SEP. 22, 2009], PARLANCE SYSTEMS VS.
COMMISSIONER OF I NTERNAL REVENUE [C.T.A. CASE
NO. 7459, JUL. 9, 2009], business process
outsourcing companies were refused a refund of their
excess input VAT because their sale of services were
not zero-rated because they failed to prove that their
clients were non-resident foreign corporations doing
business outside the Philippines.
Input VAT
Q12. What is the “tax credit method” in
relation to the VAT?
Under the tax credit method, an entity can credit
against or subtract from the VAT charged on its sales
14

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
or outputs the VA paid on its purchases, inputs and
imports.26
SECTION 110(A) provides that any input tax evidenced
by a VAT invoice or official receipt on purchase or
importation of goods or for purchase of services shall
be creditable against output tax.27
Q12.1. Give the three possible scenarios
that may arise in computing the
VAT payable.
If at the end of any taxable month or quarter:
Output tax = input tax No VAT payable
Output tax > input tax The excess shall be paid by
the VAT-registered person
Output tax < input tax The excess shall be carried
over to the succeeding
quarter or quarters
Note that if input vat results from zero-rated or
effectively zero-rated transactions, any excess over
the output taxes shall be refunded to the taxpayer or
credited against other internal revenue taxes, at the
taxpayer‟s option.
Q12.2. Section 8 of RA No. 9337,
otherwise known as the Expanded
VAT Law, imposes a 70% limitation
on the input tax. Thus, a VAT
taxpayer can credit his input tax
only up to the extent of 70% of the
output tax. It was argued that (1)
this makes the VAT regressive and
unconstitutional and (2) it in effect
leads to a retention of tax
collection in the hands of VAT-
registered establishments which
violates the principle that a tax
should be for public purposes.
Updated 22 Feb 2013
In ABAKADA GURO PARTY LIST V. ERMITA
[SEPTEMBER 1, 2005], the Supreme Court ruled
that as to (1) it is wrong to assume that when the
input tax exceeds 70% of the output tax, the input tax
in excess of the 70% remains uncredited. It was
reiterated that the excess input tax is retained in the
business‟ books and remains creditable in the
succeeding quarters as explicitly allowed by Section
110(B). Further, a VAT-registered person is allowed
to apply for the issuance of a TCC for any unused
input taxes to the extent that such input taxes have
not yet been applied to output taxes. As to (2), the
Supreme Court stated that there is no retention of
any tax collection because the taxpayer has already
previously paid the input tax to a seller, and the seller
will subsequently remit such input tax to the BIR. The
party directly liable for VAT is the seller. What only
needs to be done is for the taxpayer/buyer to apply or
credit these input taxes against his output taxes.
This was affirmed in the motion of reconsidation,. In
ABAKADA GURO PARTY LIST V. ERMITA [OCTOBER 18,
2005], the Supreme Court opined that the right to
credit input tax as against output tax is a privilege
created by law, a privilege that also the law can limit.
A person has no vested right in statutory privileges.
Q12.3. Is the source of the money used to
pay the input tax paid for a
business expense by a company
material to a claim for excess input
VAT?
No. In CIR v. SONY PHILIPPINES [NOVEMBER 17,
2010], Sony Philippines claimed as input VAT credits
the VAT it paid for the advertising expenses using
reimbursables from its affiliate in Singapore. The CIR
disallowed this and assessed Sony Philippines
deficiency VAT. The Supreme Court held that it is
evident under Section 110 of the Tax Code that an
advertising expense duly covered by a VAT invoice is
a legitimate business expense. Sony incurred such
advertising expense. Where the money came from is
another matter all together but will definitely not
change the VAT effect.

Q12.4. Is a taxpayer entitled to a refund of

26
As explained in ABAKADA GURO PARTY LIST V. ERMITA excess input tax for rendition of
[SEPTEMBER 1, 2005], the VAT system was previously a single services to an entity which the law
stage system under a “cost deduction method” and was payable exempts from indirect taxes?
only by the original sellers. Now, the VAT system is a multi-stage
system – a mixture of the cost deduction method and the tax credit
method. Yes. In CIR v. ACESITE PHILIPPINES [FEBRUARY 16,
27
Again, input tax is the tax paid by a person, passed on to him by 2007], the Supreme Court held that given that
the seller, when he buys goods. Output tax is the tax due to the
person when he sells goods.
PAGCOR was exempt from indirect taxes, the

PIERRE MARTIN DE LEON REYES 15

 Updated 22 Feb 2013
PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
transactions between Acesite and PAGCOR were Input tax on sale of exempt goods - P2,000
effectively zero-rated. As such, Acesite is entitled to Input tax on sale to government - P4,000
the refund or credit of any excess over the output Input tax on depreciable capital - P20,000
taxes. Not attributable to any specific activity
(monthly amortization for 60 months)
Q12.5. Explain the rule on the
apportionment of input VAT on The creditable input VAT available for each of the
mixed transactions and illustrate respective type of transactions entered into by ABC
its application? Corp are as follows:

SECTION 4.110-4 OF RR16-2005 [SEPTEMBER 1, 2005]
provides that a VAT-registered taxpayer who is also
engaged in transactions not subject to VAT shall be
allowed to recognize input tax credit on transactions
subject to VAT as follows:
1. All the input taxes that can be directly attributed
to transactions subject to VAT may be
recognized for input tax credit
1. For the sales subject to 12% VAT – (i) actual
input of P5,000 and (ii) ratable portion of P5,000
2. For the sales subject to 0% VAT – (i) actual input
VAT of 3,000 and (ii) ratable portion of P5,000
3. For sale of exempt goods – no input VAT is
creditable as the transactions are VAT-exempt
4. For the sales to government – no input VAT is
creditable as the law imposes a 5% FWT
obligation on the government agency-payor.

Exception: Input taxes that can be directly Q12.5.1. In the above illustration, how
was the ratable portion of
attributable to VAT taxable sales to the
Government or any of its political subdivisions, creditable input VAT for VAT-
instrumentalities or agencies shall not be credited taxable and zero-rated sales
against output taxes arising from sales to non- computed?
Government entities.
For input VAT creditable on VAT-taxable sales:
2. If any input tax cannot be directly attributed to
either a VAT-taxable or VAT-exempt transaction,
the input tax shall be pro-rated to the VAT
taxable and VAT-exempt transactions and only
the ratable portion pertaining to transactions
subject to VAT may be recognized for input tax
credit.

For input VAT creditable on VAT zero-rated sales

To illustrate:

ABC Corporation had the following sales during the

month:

Sale to private entities subject to 12% - P100,000

Sale to private entities subject to 0% - P100,000
Sale of exempt goods - P100,000
Sale to gov‟t subject to 5% FWT - P100,000
Total Sales for the month - P400,000

The following input taxes were passed on by its VAT

suppliers:

Input tax on taxable goods at 12% - P5,000

Input tax on zero-rated sales - P3,000

PIERRE MARTIN DE LEON REYES 16


PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
Withholding, Presumptive and Transitional
Input VAT
Q13. What does the withholding of VAT
apply?
1. Payments are made to a non-resident whose
services are considered as VAT-taxable in which
case the 12% will be withheld by the payor
2. Payments by government agencies, in which
case the government entity will withhold 5% on
its payments.
Q13.1. What is the rule on withholding of
VAT by government agencies?
SECTION 114(C) provides that the government or any
of its political subdivisions, instrumentalities or
agencies, including GOCCs, shall, before making
payment on account of each purchase of goods or
services subject to VAT, deduct and withhold a final
VAT equivalent to 5% of the gross payment thereof
provided that the payment for lease or use of
properties or property rights to non-resident owners
shall be subject to 10% withholding tax at the time of
payment.
Q13.2. Is a party dealing with a
government entity deprived of its
entitlement to the input VAT it
accumulated considering the VAT
withholding tax mechanism?
The 7% difference (12%-5%) is the presumed input
VAT cost of the entity dealing with the government
agency. If the actual input VAT is below 7%, then the
taxpayer will realize additional income. However, if
the actual input VAT is above 7%, then the difference
between the actual input VAT and the 7% is
considered as additional cost.
Q13.3. LVM Construction Corp. was
engaged by the DPWH for the
construction of roads and bridges.
LVM subcontracted one of the
projects to a Joint Venture. After
completion, the JV demanded full
payment to which LVM responded
that they discovered that no
deductions for VAT were made on
previous payments and as such
they were going to deduct 8.5%
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
(now 5%) from the payments still
due. The JV disputed this and
argued that all the receipts issued
to LVM would have made JV
subject to VAT and, hence, LVM
could claim such as input tax. Can
LVM rightfully deduct the amount
representing the withholding VAT
due on its transaction with DPWH?
No. In LVM CONSTRUCTION CORPORATION V. SANCHEZ
[DECEMBER 5, 2011], the Supreme Court held that as
an entity which dealt directly with the government
insofar as the main constract was concerned, LVM
was itself required by law to pay the 8.5% (now 5%)
VAT which was withheld by DPWH. Given that the JV
complied with their own obligation when they paid
their VAT from their gross receipts and the fact that
the contract between LVM and the JV did not
stipulate any obligation on LVM assuming the VAT,
LVM has no basis to withhold payments. Although
the burden to pay an indirect tax like the VAT can be
passed on, the liability to pay the same remains with
the seller. IN this case, both LVM and the JV are
liable for their respective VAT obligations as
respective sellers.
Q14. What is the rule on transitional input
credits?
SECTION 111(A) provides that a person who becomes
liable to VAT or any person who elects to be VAT-
registered shall, subject to the filing of an inventory,
be allowed input tax on his beginning inventory of
goods, materials and supplies equivalent to 2% of the
value of such inventory or the actual VAT paid on
such goods, materials and supplies, whichever is
higher, which shall be creditable against the output
tax.
Q14.1. Fort Bonifacio Development Corp
(FBDC) is a real estate developer
that bought from the national
government a parcel of land which
used to be a military reservation.
At the time of the sale, there was
yet no VAT on sales of real
property. Subsequently, when VAT
was already imposed on sales of
real property, FBDC sold two
parcels of land to Metro Pacific
Corp. FBDC claimed transitional
17

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
input VAT corresponding to its
inventory of land. The BIR
disallowed the claim. It contended
that under RR 7-95, real estate
developers may avail of the
transitional input tax m only on
improvements on the real property
belonging to their beginning
inventory. (1) Is the FBDC entitled
to claim transitional input vat (2) If
yes, is the transitional input vat
applicable only to improvements
and (3) should there be a previous
payment for the transitional input
VAT to be creditable.
The issues were first resolved in the case of FORT
BONIFACIO DEVELOPMENT CORP. V. CIR [APRIL 2,
2009] and was affirmed in a motion for
reconsideration in FORT BONIFACIO DEVELOPMENT
CORP. V. CIR [OCTOBER 2, 2009]. The recent case of
FORT BONIFACIO DEVELOPMENT CORP. V. CIR
[SEPTEMBER 4, 2012] simply reaffirmed the doctrines
laid down in the previous cases, which are as follows:
As to (1): Yes, FBDC is entitled to claim transitional
input VAT by virtue of Section 111(A) (previously
Section 105)
As to (2): No, RR 7-95 cannot limit the application
and coverage of Section 105 (now Section 111(A) by
stating that in the case of real estate dealers, the
basis of the presumptive input tax shall be the
improvements. This is a legislative act beyond
authority of the CIR and the Secretary of Finance.
The term “goods and properties” includes “real
properties held primarily for sale to customers or held
for lease in the ordinary course of business. Thus,
FBDC is entitled to claim transitional input VAT based
not only the improvements but also on the value of
the entire real property and regardless of whether or
not there was actual payment on the purchase price
of the real property or not.
As to (3): No, the transitional input tax operates to the
benefit of newly VAT-registered persons, whether or
not they previously paid taxes in the acquisition of
their beginning inventory of goods, materials and
supplies.
Q15. What is the rule on presumptive input
tax credits?
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
Section 111(B) provides that persons or firms
engaged in the processing of sardines, mackerel and
milk, and in the manufacturing or refined sugar,
cooking oil and packed noodle-based instant meals,
shall be allowed a presumptive input tax, creditable
against the output tax, equivalent to 4% of the gross
value in money of their purchases of primary
agricultural products which are used as inputs to their
production.
VAT Refunds
Q16. What are the requirements for a claim
for VAT refund/credit?
1. The taxpayer is engaged in sales which are zero-
rated or effectively zero-rated
2. The taxpayer is VAT-registered
3. The claim must be filed within two years after the
close of the taxable quarter when such sales
were made
4. The input taxes are due or paid;
5. The input taxes are not transitional input taxes
6. The input taxes have not been applied against
output taxes during and in the succeeding
quarters
7. The input taxes claimed are attributable to zero-
rated or effectively zero-rated sales
8. In certain types of zero-rated sales, the
acceptable foreign currency exchange proceeds
thereof had been duly accounted for in
accordance with BSP rules and regulations
[Sections 106(A)(2)(a)(1) and (2); Section 106(B);
Sections 108(B)(1) and (2)]
9. Where there are both zero-rated or effectively
zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and
entirely attributable to any of these sales, the
input taxes shall be proportionately allocated on
the basis of sales volume.
(See INTEL T ECHNOLOGY PHILIPPINES V. CIR [APRIL
27, 2007])
Q16.1. In claims for VAT refund/credit,
what is the reckoning point for the
two-year prescriptive period?
The reckoning period is from the close of the taxable
when the relevant sales were made. In CIR V. MIRANT
PAGBILAO CORP. [SEPTEMBER 12, 2008], Mirant
generated power which it sells to NAPOCOR in which
connection it secured the services of Mitsubishi
Corporation of Japan. In the belief that its sale of
18
 Updated 22 Feb 2013
PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
power generation services to the NPC was VAT zero- b) If no action on the claim for tax credit
rated because of NAPOCOR‟s tax exempt status, certificate/refund has been taken by the CIR
Mirant filed an application for effective zero-rating. after the 120 day period in which he must
The BIR issued a ruling stating that the supply of decide, the taxpayer may appeal to the CTA
electricity by Mirant to NAPOCOR shall be subject to within 30 days from the lapse of the 120 day
0% VAT. On April 14, 1998, Mirant paid Mitsubishi period.
the VAT component billed by the latter for services
rendered. Mirant files its quarterly VAT return for the Claim for tax refund/credit from VAT
nd
2 quarter of 1998, where it reflected the input VAT
paid to Mitsubishi. Subsequently, on December 20, Filing and Payment
1999, Mirant filed an administrative claim for refund
of unutilized input VAT arising from purchase of
capital goods from Mitsubishi and its domestic
purchase of goods and services attributable to its
Administrative claim filed with the CIR w/in
zero-rated sales of power-generation services to
2 years from the close of the taxable
NAPOCOR. The claim was denied for being filed
quarter when the relevant sales were made
beyond the prescriptive period of two years. The
Supreme Court held that Mirant‟s claim has
prescribed. Unutilized input VAT payments must be
claimed within two years reckoned from the close of
the taxable quarter when the relevant sales were Submission of additional relevant
made pertaining to the input VAT even if the payment supporting documents w/in 60 days from
28
for the VAT was made some quarters after that. filing of claim
The fact that there was a pending request for zero-
rating cannot be a basis for the late filing of return
and payment of taxes. Further, Mirant cannot avail Appeal to CTA Division w/in 30 days from
itself of the provisions of either Section 204(C) or 229 receipt of notice of denial or from lapse of
of the NIRC which, for the purpose of refund, 120 days of inaction counted from
prescribes the payment of the tax as the starting submission of documents to CIR. The
point for the two-year prescriptive limit for the filing of appeal need not be made within the 2 year
a claim. These provisions apply only to instances of prescriptive period.
erroneous payment or illegal collection of internal
revenue taxes.

Q16.2. What is the period within which tax

refund/credit of input taxes shall
Follow mode of appeal to CTA En Banc up
be made?
to SC
SECTION 112(C) provides that:
Q16.2.1. Aichi Forging is a VAT-
registered corporation engaged
1. The CIR shall grant a tax credit certificate/refund in manufacturing and
for creditable input taxes within 120 days from processing of steel. Aichi filed a
the date of submission of complete documents in tax credit/refund for its
support of the application. unutilized input tax from
2. In case of full or partial denial of the claim for tax purchases and importation
credit certificate/refund: attributed to its zero-rated sales.
a) The taxpayer may appeal to the CTA within The CIR and CTA ruled that the
30 days from the receipt of said denial,
administrative and judicial
otherwise the decision shall be come final claims were filed beyond the
period allowed by law.
Moreover, the CIR puts in issue
28
Note that previously in ATLAS CONSOLIDATED MINING V. CIR the fact that the administrative
[JUNE 8, 2007], the rule was that the two-year prescriptive period claim and the judicial claim were
for filing a claim for refund/credit of input VAT on zero-rated sales filed on the same day. The CIR
was counted from the date of filing of the return

PIERRE MARTIN DE LEON REYES 19


PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
opines that simultaneous filing
of the claims contravenes the
NIRC which requires the prior
filing of an administrative claim.
Is the CIR and CTA correct?
Yes. In CIR V. AICHI FORGING COMPANY OF ASIA [
OCTOBER 6, 2010], the court first reiterated that the
unutilized input VAT must be claimed within two
years after the close of the taxable quarter when the
sales were made as laid down in CIR V. MIRANT
PAGBILAO CORP. [SEPTEMBER 12, 2008]. Going to the
administrative and judicial claims, the Court ruled that
the administrative claim was timely filed while the
judicial claim was premature. In this case, applying
the Administrative Code which states that a year is
composed of 12 calendar months instead of the Civil
Code ( a year is equivalent to 365 days), it is clear
that Aichi timely filed its administrative claim within
the two-year prescriptive period. On the other hand,
the claim of Aichi must be denied for non-observance
of the 120-day period Where the taxpayer did not
wait for the decision of the CIR or the lapse of the
120-day period, it having simultaneously filed the
administrative and the judicial claims, the filing of the
said judicial claim with the CTA is premature. The
non-observance of the 120-day period is fatal to the
filing of a judicial claim. The claim of Aichi that such
non-observance is not fatal as long as both the
administrative and judicial claim is filed within the 2-
year prescriptive period is without legal basis. The 2
year prescriptive period refers to applications for
refund/credit filed with the CIR and not to appeals
made to the CTA. Applying the two-year period to
judicial claims would render nugatory Section 112(D)
of the NIRC, which already provides for a specific
period within which a taxpayer should appeal the
decision or inaction of the CIR. The 120-day period is
crucial in filing an appeal with the CTA.
Q16.2.2. How do we reconcile CIR V.
MIRANT PAGBILAO CORP.
[SEPTEMBER 12, 2008] and CIR V.
AICHI FORGING COMPANY OF ASIA [
OCTOBER 6, 2010]?
In both Mirant The 2-year prescriptive period is
and Aichi counted from the end of the
taxable quarter when the sales
were made.
In Mirant The 2-year prescriptive period
applies to both the administrative
and judicial claim. Thus, both
claims must be filed within 2 years
from the end of the taxable quarter
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
when the sales were made
In Aichi The 2-year prescriptive period only
applies to the administrative claim.
Thus:
1. For the administrative claim, file
within 2 years from end of the
taxable quarter when sales were
made.
2. For judicial claim, BIR has 120
days to decide. If adverse decision
within the 120 day period, 30 days
from receipt of decision to appeal
to CTA. If no BIR decision within
th
120 days, 30 days from the 120
day to appeal to the CTA.
Thus, Aichi affirmed the Court‟s ruling in Mirant in
that the 2-year prescriptive period shall be reckoned
from the end of the taxable quarter when the relevant
sales were made but clarified that such prescriptive
period applies only to the filing of the administrative
claim.
Q16.3. For a claim for tax refund/credit, is
it sufficient that the applicant was
able to prove entitlement to the
grant of the claim under
substantive law?
No. In WESTERN MINDANAO POWER CORP. V. CIR
[JUNE 13, 2012], WMPC filed for a claim for refund of
excess and unutilized input VAT. The CIR objected to
this contending that WMPC was not entitled to such
in view of its failure to comply with invoicing
requirements, particularly the failure of the invoice
covering its zero-rated sales to show the word “zero-
rated.” WMPC argues that such was not an
indispensable requirement to establish the claim. The
Supreme Court held that in a claim for tax refund or
tax credit, the applicant must prove not only
entitlement to the grant of the claim under
substantive law. It must also show satisfaction of all
the documentary and evidentiary requirements for an
administrative claim for a refund or tax credit. Hence,
the mere fact that petitioner‟s application for zero-
rating has been approved by the CIR does not, by
itself, justify the grant of a refund or tax credit. The
taxpayer claiming the refund must further comply with
the invoicing and accounting requirements mandated
by the NIRC, as well as by revenue regulations
implementing them. Under the NIRC, a creditable
input tax should be evidenced by a VAT invoice or
20

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
official receipt, which may only be considered as
such when it complies with the requirements of RR 7-
95, particularly Section 4.108-1. This section
requires, among others, that “(i)f the sale is subject to
zero percent (0%) value-added tax, the term „zero-
rated sale‟ shall be written or printed prominently on
the invoice or receipt.
Administrative Provisions
Q17. What information should be contained
in the VAT invoice or VAT official
receipt?
1. A statement that the seller is a VAT-registered
person, followed by his taxpayer's identification
number (TIN);
2. 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:
Provided, That:
a) The amount of the tax shall be shown as a
separate item in the invoice or receipt;
b) If the sale is exempt from value-added tax,
the term "VAT-exempt sale" shall be written
or printed prominently on the invoice or
receipt;
c) If the sale is subject to zero percent (0%)
value-added tax, the term "zero-rated sale"
shall be written or printed prominently on the
invoice or receipt;
d) If the sale involves goods, properties or
services some of which are subject to and
some of which are VAT zero-rated or VAT-
exempt, the invoice or receipt shall clearly
indicate the breakdown of the sale price
between its taxable, exempt and zero-rated
components, and the calculation of the value-
added tax on each portion of the sale shall
be shown on the invoice or receipt: Provided,
That the seller may issue separate invoices
or receipts for the taxable, exempt, and zero-
rated components of the sale.
3. The date of transaction, quantity, unit cost and
description of the goods or properties or nature of
the service; and
4. In the case of sales in the amount of one
thousand pesos (P1,000) or more where the sale
or transfer is made to a VAT-registered person,
the name, business style, if any, address and
taxpayer identification number (TIN) of the
purchaser, customer or client.
PIERRE MARTIN DE LEON REYES
Updated 22 Feb 2013
Q17.1. Is there a difference between an
invoice and official receipt for
purposes of substantiation?
Yes. In CIR v. MANILA MINING CORPORATION [AUGUST
31, 2005], the Supreme Court defined a ‟sales or
commercial invoice‟ is a written account of goods
sold or services rendered indicating the prices
charged therefor or a list by whatever name it is
known which is used in the ordinary course of
business evidencing sale and transfer or agreement
to sell or transfer goods and services. A „receipt‟ on
the other hand is a written acknowledgment of the
fact of payment in money or other settlement
between seller and buyer of goods, debtor or creditor,
or person rendering services and client or customer.”
In KEPCO PHILIPPINES V. CIR [NOVEMBER 24, 2010], in
ruling on Kepco‟s contention that an invoice and an
official receipt are interchangeable, the Supreme
Court stated that only a VAT invoice might be
presented to substantiate a sale of goods or
properties, while only a VAT receipt could
substantiate a sale of services. The VAT invoice is
the seller‟s best proof of the sale of the goods or
services to the buyer while the VAT receipt is the
buyer‟s best evidence of the payment of goods or
services received from the seller. Even though VAT
invoices and receipts are normally issued by the
supplier/seller alone, the said invoices and receipts,
taken collectively, are necessary to substantiate the
actual amount or quantity of goods sold and their
selling price (proof of transaction), and the best
means to prove the input VAT payments (proof of
payment). Hence, VAT invoice and VAT receipt
should not be confused as referring to one and the
same thing. Certainly, neither does the law intend the
two to be used alternatively
Q17.2. Kepco filed a claim for refund of
unutilized input VAT based on its
zero-rated sale of power to
NAPOCOR. A substantial portion
of the claim was denied for having
been supported by VAT invoices
which only had the INT-VAT
stamped and not printed. There
were also certain sales by Kepco
which failed to indicate the words
“zero-rated.” Is Kepco entitled to
the claim for refund?
21

PM REYES NOTES ON TAXATION II:
VALUE-ADDED TAX
No. In KEPCO PHILIPPINES V. CIR [NOVEMBER 24,
2010], the Supreme Court ruled that the requirement
that the TIN be imprinted and not merely stamped is
a reasonable requirement imposed by the BIR.
Moreover, the requirement of the appearance of the
words “zero-rated” on the face of the invoice prevents
the buyers from falsely claiming input VAT from their
purchases when no VA was actually paid. The failure
to adhere to these rules will not only expose the
taxpayer to penalties but should also serve to
disallow the claim.
Q17.3. What are the consequences of
issuing erroneous VAT invoices or
VAT official receipts?
1. If a person who is not VAT-registered issues an
invoice or receipt showing his TIN, followed by
the word “VAT”, the erroneous issuance shall
result to the following:
Updated 22 Feb 2013
3. The monthly VAT Declarations of taxpayers
whether large or not shall be filed and the taxes
paid not later than the 20th day following the end
of each month
SECTION 114(B) provides for where the return shall
be filed and the tax paid.
Except as the Commissioner otherwise permits, the
return shall be filed with and the tax paid to:
1. An authorized agent bank
2. Revenue Collection Officer; or
3. Duly authorized city or municipal Treasurer in the
Philippines located within the revenue district
where the taxpayer is registered or required to
register.

a) The Non-VAT person shall be liable to the:

i. percentage taxes applicable

ii. VAT due on the transactions without
the benefit of any input tax credit
iii. 50% surcharge as penalty

b) The VAT shall, if the other requisite

information required is shown on the invoice
or receipt, be recognized as an input tax
credit to the purchaser.

2. If a VAT-registered person issues a VAT invoice

or VAT official receipt for a VAT-exempt
transaction, but fails to display prominently on the
invoice or receipt the term “VAT-exempt Sale,”
the issuer shall be liable to account for the VAT
imposed. The purchaser shall be entitled to claim
an input tax credit on said purchase.

Q18. What are the rules to follow with regard

to the return and payment of VAT?

SECTION 114(A) provides for the who will file the

return and pay the VAT and when shall the return be
filed and the tax be paid.

1. VAT returns shall be filed by persons liable to pay

VAT.
2. A quarterly VAT return of the amount of his gross
sales or receipts within 25 days after the close of
each taxable quarter prescribed for each
taxpayer.

PIERRE MARTIN DE LEON REYES 22