SPIT | B2015

CASE DIGESTS

Microsoft Phil. v. CIR

April 6, 2011
Carpio, J.
Francis G. Francisco

SUMMARY: Microsoft sought a tax credit for its zero-rated

transactions for 2001. CTA and CTA en Banc disallowed the
claim for failure of Microsoft to imprint the word zerorated on its official receipts. The SC affirmed the CTA by
stating that such requirement are provided in the laws and
Section 4.108-1 of RR 7-95 and by prior jurisprudence.
DOCTRINE: A "VAT invoice" is an invoice that meets the
requirements of Section 4.108-1 of RR 7-95. Contrary to
Microsoft's claim, RR 7-95 expressly states that "All
purchases covered by invoices other than a VAT invoice
shall not give rise to any input tax." Microsoft's invoice,
lacking the word "zero-rated," is not a "VAT invoice," and
thus cannot give rise to any input tax.
FACTS: Microsoft Philippines, Inc. (Microsoft) is a VAT
taxpayer which renders marketing services to Microsoft
Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc.
(MLI), both affiliated non-resident foreign corporations. The
services are paid for in acceptable foreign currency and
qualify as zero-rated sales for VAT purposes under Section
108(B)(2) of the National Internal Revenue Code (NIRC) of
1997.
Microsoft filed a claim for tax credit of VAT input taxes in the
amount of P11,449,814.99 with the BIR for its 2001
transactions. Microsoft claimed to be entitled to a refund of
unutilized input VAT attributable to its zero-rated sales and
prayed that judgment be rendered directing the claim for
tax credit or refund of VAT input taxes for taxable year 2001.
CTA 2nd Division denied the claim for tax credit of VAT input
taxes. The CTA explained that Microsoft failed to comply
with the invoicing requirements of Sections 113 and 237 of

the NIRC as well as Section 4.108-1 of RR 7-95. The CTA

stated that Microsoft's official receipts do not bear the
imprinted word "zero-rated" on its face, thus, the official
receipts cannot be considered as valid evidence to prove
zero-rated sales for VAT purposes. CTA En Banc affirmed the
2nd division.
ISSUES: WON Microsoft is entitled to a claim for a tax credit
or refund of VAT input taxes on domestic purchases of goods
or services attributable to zero-rated sales for the year 2001
even if the word "zero-rated" is not imprinted on Microsoft's
official receipts.
HELD: No, such requirement of imprinting the word zerorated is required by a revenue regulation and supported by
past jurisprudence.
RATIO: Sections 113(A) and 237 of the NIRC provide for the
invoicing requirements for VAT-registered persons.
Note: The said sections of the NIRC do not specifically
provide for the requirement that the word "zero-rated" be
imprinted on the face of the receipt.
Related to these provisions, Section 4.108-1 of RR 7-95
enumerates the information which must appear on the face
of the official receipts or invoices for every sale of goods by
VAT-registered persons. At the time Microsoft filed its claim
for credit of VAT input tax, RR 7-95 was already in effect.
The provision states:
Sec. 4.108-1. Invoicing Requirements. All VAT-registered
persons shall, for every sale or lease of goods or properties
or services, issue duly registered receipts or sales or
commercial invoices which must show:
1. the name, TIN and address of seller;
2. date of transaction;

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CASE DIGESTS

3. quantity, unit cost and description of merchandise or

nature of service;
4. the name, TIN, business style, if any, and address of the
VAT-registered purchaser, customer or client;
5. the word "zero-rated" imprinted on the invoice
covering zero-rated sales; and
6. the invoice value or consideration.
xxx
Only VAT-registered persons are required to print
their TIN followed by the word "VAT" in their invoices
or receipts and this shall be considered as a "VAT
invoice." All purchases covered by invoices other
than a "VAT invoice" shall not give rise to any input
tax.
A "VAT invoice" is an invoice that meets the requirements of
Section 4.108-1 of RR 7-95. Contrary to Microsoft's claim, RR
7-95 expressly states that "All purchases covered
by invoices other than a VAT invoice shall not give
rise to any input tax." Microsoft's invoice, lacking the
word "zero-rated," is not a "VAT invoice," and thus cannot
give rise to any input tax.
The subsequent enactment of RA 9337 on November 1,
2005 elevating provisions of RR 7-95 into law merely
codified into law administrative regulations that already had
the force and effect of law. Such codification does not mean
that prior to the codification the administrative regulations
were not enforceable.
The SC has ruled in several cases(decisions date from 20102011) that the printing of the word "zero-rated" is required
to be placed on VAT invoices or receipts covering zero-rated
sales in order to be entitled to claim for tax credit or refund.
In Panasonic v. Commissioner of Internal Revenue(dated
February 8, 2010, the earliest among cited cases), the SC
held that the appearance of the word "zero-rated" on the
face of invoices covering zero-rated sales prevents buyers

from falsely claiming input VAT from their purchases when

no VAT is actually paid. Absent such word, the government
may be refunding taxes it did not collect.
DISPOSITIVE: CTA en banc decision is AFFIRMED. Microsoft
cannot claim the tax refund for failure to imprint the words
zero-rated on the face of the invoice.