1. CIR v.

Seagate Technology
Issue:

Whether or not respondent is entitled to the refund or issuance of Tax Credit

Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid
on capital goods purchased for the period April 1, 1998 to June 30, 1999.
Ruling: YES, respondent is entitled to a refund. (see discussions below)
SUMMARY:
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 VATregistered 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.
Discussion:
I.

Nature of the VAT and Tax Credit Method

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.
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.
* tax credit method
(1) If at the end of a taxable quarter the output taxes charged by a seller are equal to the
input taxes passed on by the suppliers, no payment is required.
(2) It is when the output taxes exceed the input taxes that the excess has to be paid.
(3)If, however, the input taxes exceed the output taxes, the excess shall be carried over
to the succeeding quarter or quarters.
(4) 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.
II.

Zero-Rated and Effectively vs. Zero-Rated Transactions

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.
It 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.
Effectively zero-rated transactions - 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.
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.
*Tax Exemption - 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 both instances of
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.
III.

Exempt Transaction and Exempt Party

The object of exemption from the VAT may either be the transaction itself or any of
the parties to the transaction.
An exempt transaction on the one hand, involves goods or services
nature, are specifically listed in and expressly exempted from the
Tax Code, without regard to the tax status VAT-exempt or not
the transaction. 60 Indeed, such transaction is not subject to the VAT, but
allowed any tax refund of or credit for any input taxes paid.

which, by their
VAT under the
of the party to
the seller is not

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. 61 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.
*VAT is a tax on consumption, the amount of which may be shifted or passed on by the seller
to the purchaser of the goods, properties or services. While the liability is imposed on one
person, the burden may be passed on to another. Therefore, if a special law merely
exempts a party as a seller from its direct liability for payment of the VAT, but does
not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by
its VAT-registered suppliers, the purchase transaction is not exempt. Applying this
principle to the case at bar, the purchase transactions entered into by respondent are not
VAT-exempt.

Its sales transactions, however, will either be zero-rated or taxed at the standard rate of 10
percent, depending again on the application of the destination principle.
If respondent enters into such sales transactions with a purchaser usually in a foreign
country for use or consumption outside the Philippines, these shall be subject to 0
percent. If entered into with a purchaser for use or consumption in the Philippines,
then these shall be subject to 10 percent, unless the purchaser is exempt from the indirect
burden of the VAT, in which case it shall also be zero-rated.
Since the purchases of respondent are not exempt from the VAT, the rate to be applied is
zero. Its exemption under both PD 66 and RA 7916 effectively subjects such transactions to
a zero rate, because the ecozone within which it is registered is managed and operated by
the PEZA as a separate customs territory. This means that in such zone is created the legal
fiction of foreign territory. Under the cross-border principle of the VAT system being
enforced by the Bureau of Internal Revenue (BIR), 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. If exports of goods and services from the Philippines to a foreign
country are free of the VAT, then the same rule holds for such exports from the national
territory except specifically declared areas to an ecozone.
Sales made by a VAT-registered person in the customs territory to a PEZAregistered entity are considered exports to a foreign country; conversely, sales by
a PEZA registered entity to a VAT-registered person in the customs territory are
deemed imports from a foreign country. An ecozone indubitably a geographical
territory of the Philippines is, however, regarded in law as foreign soil. This legal fiction is
necessary to give meaningful effect to the policies of the special law creating the zone. If
respondent is located in an export processing zone within that ecozone, sales to the export
processing zone, even without being actually exported, shall in fact be viewed as
constructively exported under EO 226.
Considered as export sales, such purchase
transactions by respondent would indeed be subject to a zero rate.
ANSWER TO MAIN ISSUE:
Applying the special laws we have earlier discussed, respondent as an entity is exempt from
internal revenue laws and regulations. This exemption covers both direct and indirect taxes,
stemming from the very nature of the VAT as a tax on consumption, for which the direct
liability is imposed on one person but the indirect burden is passed on to another.
Respondent, as an exempt entity, can neither be directly charged for the VAT on
its sales nor indirectly made to bear, as added cost to such sales, the equivalent
VAT on its purchases.
To be sure, statutes that grant tax exemptions are construed strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. Tax refunds are in the nature of such
exemptions. Accordingly, the claimants of those refunds bear the burden of proving the
factual basis of their claims; and of showing, by words too plain to be mistaken, that the
legislature intended to exempt them. In the present case, all the cited legal provisions are
teeming with life with respect to the grant of tax exemptions too vivid to pass unnoticed. In
addition, respondent easily meets the challenge. 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.
Ratio: Under EO 226, the "State shall encourage . . . foreign investments in
industry . . . which shall . . meet the tests of international competitiveness[,] accelerate

development of less developed regions of the country[,] and result in increased volume and
value of exports for the economy." All these statutory policies are congruent to the
constitutional mandates of providing incentives to needed investments, 128 as well as of
promoting the preferential use of domestic materials and locally produced goods and
adopting measures to help make these competitive. Tax credits for domestic inputs
strengthen backward linkages. Rightly so, "the rule of law and the existence of credible and
efficient public institutions are essential prerequisites for sustainable economic
development."
Having determined that respondent's purchase transactions are subject to a zero
VAT rate, the tax refund or credit is in order. As correctly held by both the CA and the
Tax Court, respondent had chosen the fiscal incentives in EO 226 over those in RA 7916 and
PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential
tax regime. The latter scheme is not a perfunctory aftermath of a simple registration under
the PEZA law, 148 for EO 226 149 also has provisions to contend with. These two
regimes are in fact incompatible and cannot be availed of simultaneously by the
same entity. While EO 226 merely exempts it from income taxes, the PEZA law exempts it
from all taxes.
Therefore, respondent can be considered exempt, not from the VAT, but only from the
payment of income tax for a certain number of years, depending on its registration as a
pioneer or a non-pioneer enterprise. Besides, the remittance of the aforesaid 5 percent of
gross income earned in lieu of local and national taxes imposable upon business
establishments within the ecozone cannot outrightly determine a VAT exemption. Being
subject to VAT, payments erroneously collected thereon may then be refunded or credited.
Even if it is argued that respondent is subject to the 5 percent preferential tax
regime in RA 7916, Section 24 thereof does not preclude the VAT. One can, therefore,
counterargue that such provision merely exempts respondent from taxes imposed on
business. To repeat, the VAT is a tax imposed on consumption, not on business.
Although respondent as an entity is exempt, the transactions it enters into are
not necessarily so. The VAT payments made in excess of the zero rate that is
imposable may certainly be refunded or credited.
IV.

VAT Registration, Not Application

Indispensable to VAT Refund

for

Effective

Zero

Rating,

Registration is an indispensable requirement under our VAT law. Petitioner alleges

that respondent did register for VAT purposes with the appropriate Revenue District Office.
However, it is now too late in the day for petitioner to challenge the VAT-registered
status of respondent, given the latter's prior representation before the lower
courts and the mode of appeal taken by petitioner before this Court. The PEZA
law, which carried over the provisions of the EPZA law, is clear in exempting from
internal revenue laws and regulations the equipment including capital goods
that registered enterprises will use, directly or indirectly, in manufacturing. EO
226 even reiterates this privilege among the incentives it gives to such enterprises.
Petitioner merely 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.
This is a non sequitur. By the VAT's very nature as a tax on consumption, the capital
goods and services respondent has purchased are subject to the VAT, although at
zero rate. Registration does not determine taxability under the VAT law.
V.

Requirements for a VAT Refund / Credit (Complied with in this case)

1. Taxpayer must be a VAT-REGISTERED ENTITY.

2. The input taxes paid on the capital goods of respondent are duly supported
by VAT invoices and have not been offset against any output taxes
(Substantiation requirement).
3. No question as to either the filing of such claims within the prescriptive
period or the validity of the VAT returns has been raised.
2. Mindanao Geothermal v. CIR
Issue: WON sale of the fully depreciated Nissan Patrol is an isolated transaction not
incidental to its VAT zero-rated operations thus not subject to VAT
Ruling:
Sale of Nissan Patrol, although isolated transaction, is subject to VAT.
Under Sec. 105 of Tax Code, a transaction "in the course of trade/business" includes
transactions incidental thereto. It does not follow that an isolated transaction cannot be an
incidental trabsaction for purposes of VAT liability.
In the course of its business, Mindanao II bought & eventually sold a Nissan Patrol. Prior to
the sale, Nissan Patrol was part of Mindanao II properties. Therefore, sale of the Nissan Patrol
is an incidental transaction made in the course of Mindanao II's business which should be
liable for VAT.

3. CIR v. CA (Comaserco)
Issue: Whether COMASERCO was engaged in the sale of services, and thus liable to pay VAT
thereon.
Held: YES
Petitioner avers 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.
We agree with the Commissioner.
Section 99 of the National Internal Revenue Code of 1986, as amended by Executive Order
(E.O.) No. 273 in 1988, provides that:
"Section 99. Persons liable. - 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 the value-added tax (VAT) imposed in Sections 100
to 102 of this Code."[9]

On January 1, 1998, Republic Act 8424, the National Internal Revenue Code of 1997, took
effect. The amended law provides 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 valueadded 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 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 organization
(irrespective of the disposition of its net income and whether or not
it sells exclusively to members of 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."
Contrary to COMASERCO's contention the above provision clarifies that 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.
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.
Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that
the services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. As
pointed out by the Commissioner, the performance of all kinds of services for others for a
fee, remuneration or consideration is considered as sale of services subject to VAT. 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.
4. Diaz v. Secretary of Finance
Issue:

1. WON the government is unlawfully expanding VAT coverage by including tollway

operations in the terms of franchise grantees and sale of services under
Section 108 of the NIRC?
2. WON the imposition of the VAT on tollway operators amounts to a tax on a tax
and not a tax on services?
Ruling:
I.
-

II.

NO.
Under Sec. 108 of the NIRC, VAT is levied, assessed, and collected, on the
gross receipts derived from the sale or exchange of services as well as from
the use or lease of properties.
The term sale or exchange of services means the performance of all kinds
of services in the Philippines for others for a fee or consideration, including
those performed by construction and service contractors, real estate, (very long
enumeration jump to), services of franchise grantees of electric utilities, telephone,
telegraph, radio and television broadcasting and all other franchise grantees, except
those under Section 119 of this code and non-life insurance companies, including
surety, fidelity, etc..
It is clear that the law imposes VAT on all kinds of services rendered in the
Philippines for a fee, and the enumeration of affected services is not exclusive.
Because the word services is qualified by the words all kinds, giving the term
services an all-encompassing meaning.
In the case at hand, toll way operators renders services for a fee, it takes a toll
fee from the motorist, the fee is in effect for the latters use of the tollway facilities
which the operator enjoys private proprietary rights. In this sense, toll way operators
is no different from the following service providers mentioned under Section 108 of
the NIRC who allow others to use their properties or facilities for a fee.
Toll way operators are, owing to the nature and object of their business, franchise
grantees, and thus fall under the term all other franchise grantees in Section
108 of the NIRC. The construction, operation, and maintenance of toll facilities on
public improvements are activities of public consequence that necessarily require a
special grant of authority from the state. Congress granted the tollway
concessionaire for the North and South Luzon Expressways. The franchise in this
case is evidenced by a Toll Operation Certificate.
NO

The petitioners base their arguments in the case of MIAA vs Court of Appeals. In MIAA vs CA
the Supreme Court said that:
The terminal fees MIAA charges to its passengers, as well as landing fees to airlines,
constitute the bulk of the income that maintains the operations of the MIAA. Such fees are
often termed as users tax. This means taxing those among the public who actually use a
public facility, instead of taxing all the public including those who never use the particular
public facility.
Petitioners assume that when the court was equating terminal fees to a users tax it must
also pertain to tollway fees. However the Supreme Court said that the main issue in the
MIAA was whether or not Paranaque City could sell airport lands and buildings under MIAA
administration to satisfy real estate taxes. The Court said that the discussion in the MIAA

case on toll roads was not made to establish a rule that tollway fees are users tax, but to
make a point that airport lands and buildings are properties of the public dominion. (Dili daw
related so sayop sila quote)
-

The Supreme Court ruled that the fees paid by the public to tollway operators for the
use of tollways are not taxes in any sense.
o A tax is imposed under the taxing power of the government principally for the
purpose of raising revenues to fund public expenditures. Taxes are imposed by
the government under its sovereign authority.
o Toll fees, on the other hand, are collected by private toll way operators as
reimbursement for the costs and expenses incurred in the construction,
maintenance, and operation of the tollways, as well as to assure them a
reasonable margin of income. Tollways are demanded by either the
government or private individuals or entities.
It also said that the VAT on tollway operations cannot be deemed a tax on a tax due
to the nature of the VAT as an indirect tax. In indirect taxation, a distinction is
to be made between the liability for the tax and the burden of the tax. The seller
who is liable for the VAT may shift or pass the amount of VAT it paid on goods,
properties, or services to the buyer. In such case, what is transferred is not the
sellers liability but merely the burden of the VAT.
Thus, the seller remains directly liable for the payment of the VAT, but the buyer
bears its burden since the amount of VAT paid by the buyer is added to the selling
price. Once shifted, the VAT ceases to be a tax and simply becomes part of
the cost that the buyer must pay in order to purchase the good, property or
service.
Even so, VAT on toll way operations cannot be a tax on a tax even if toll fees were
deemed as users tax. Because VAT is assessed against tollway operators gross
receipts and not necessarily on toll fees. Although the toll way operator may shift the
VAT burden to the tollway user, still it will not make the tollway user directly liable to
VAT.

Lastly, if the legislative intent was to exempt toll way operations from VAT, then it
would have been well for the law to clearly say so. The grant of tax exemptions
must be justified by clear statutory grant. But as the law is written, no such
exemption obtains for toll way operations.

5. CIR v. SM Prime Holdings

Issue:
WON gross receipts derived from admission tickets by cinema/theater operators or
proprietors are subject to VAT
Side dish: WON the enumeration in the NIRC of what services are to be covered by
VAT is exhaustive
Held:
No. Gross receipts derived from admission tickets by cinema/theater
operators or proprietors are not subject to VAT

The enumeration of services subject to VAT under Section 108 of the NIRC is not
exhaustive
A cursory reading of the Sec. 108 clearly shows that the enumeration of the sale or
exchange of services subject to VAT is not exhaustive. The words, including, similar services,
and shall likewise include, indicate that the enumeration is by way of example only. 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.
Since the activity of showing motion pictures, films or movies by cinema/ theater
operators or proprietors is not included in the enumeration, it is incumbent upon the court to
the determine whether such activity falls under the phrase similar services. The intent of the
legislature must therefore be ascertained. The legislature never intended operators or
proprietors of cinema/theater houses to be covered by VAT
History of amusement tax imposition:
(1)
Historically, the activity of showing motion pictures, films or movies by
cinema/theater operators or proprietors has always been considered as a form of
entertainment subject to amusement tax.
(2)
Prior to the Local Tax Code, all forms of amusement tax were imposed
by the national government.
(3)
When the Local Tax Code was enacted, amusement tax on admission
tickets from theaters, cinematographs, concert halls, circuses and other places of
amusements were transferred to the local government.
(4)
Under the NIRC of 1977, the national government imposed amusement
tax only on proprietors, lessees or operators of cabarets, day and night clubs, Jai-Alai
and race tracks.
(5)
The VAT law was enacted to replace the tax on original and subsequent
sales tax and percentage tax on certain services.
(6)
When the VAT law was implemented, it exempted persons subject to
amusement tax under the NIRC from the coverage of VAT.
(7)
When the Local Tax Code was repealed by the LGC of 1991, the local
government continued to impose amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places of amusements.

(8)
Amendments to the VAT law have been consistent in exempting persons
subject to amusement tax under the NIRC from the coverage of VAT.

(9)
Only lessors or distributors of cinematographic films are included in the
coverage of VAT.

These reveal the legislative intent not to impose VAT on persons already covered by
the amusement tax. This holds true even in the case of cinema/theater operators taxed

under the LGC of 1991 precisely because the VAT law was intended to replace the
percentage tax on certain services. The mere fact that they are taxed by the local
government unit and not by the national government is immaterial. The Local Tax Code, in
transferring the power to tax gross receipts derived by cinema/theater operators or
proprietor from admission tickets to the local government, did not intend to treat
cinema/theater houses as a separate class. No distinction must, therefore, be made between
the places of amusement taxed by the national government and those taxed by the local
government.
To hold otherwise would impose an unreasonable burden on cinema/theater houses
operators or proprietors, who would be paying an additional 10% [55] 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.
Additional:

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the
imposition of VAT
CIRs argument:

Basically, it was acknowledged that a cinema/theater operator was then subject to

amusement tax under the NIRC. With the enactment of the Local Tax Code, the power of
imposing taxes on gross receipts from admission of persons to cinema/theater and other
places of amusement had, thereafter, been transferred to the provincial government, to the
exclusion of the national or municipal government. However, the said provision containing
the exclusive power of the provincial government to impose amusement tax, had also been
repealed and/or deleted by Republic Act (RA) No. 7160, otherwise known as the Local
Government Code of 1991, enacted into law on October 10, 1991. Accordingly, the
enactment of RA No. 7160, thus, eliminating the statutory prohibition on the
national government to impose business tax on gross receipts from admission of
persons to places of amusement, led the way to the valid imposition of the VA.
SC said: Wrong ka CIR
The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the
imposition of VAT on the gross receipts of cinema/theater operators or proprietors derived
from admission tickets. The removal of the prohibition under the Local Tax Code did not
grant nor restore to the national government the power to impose amusement tax on
cinema/theater operators or proprietors. Neither did it expand the coverage of VAT. Since the
imposition of a tax is a burden on the taxpayer, it cannot be presumed nor can it be
extended by implication. A law will not be construed as imposing a tax unless it does so
clearly, expressly, and unambiguously.[59] As it is, the power to impose amusement tax on
cinema/theater operators or proprietors remains with the local government.

Rule on tax exemption does not apply

Moreover, contrary to the view of petitioner, respondents need not prove their
entitlement to an exemption from the coverage of VAT. The rule that tax
exemptions should be construed strictly against the taxpayer presupposes that
the taxpayer is clearly subject to the tax being levied against him.

6. Tambunting Pawnshop v. CIR

ISSUE:
WON Tambunting is liable to pay deficiency VAT for taxable year 1999?

RULING:
NO, Tambunting is NOT liable to pay deficiency VAT for the taxable year 1999 since
the levy and collection of the 10% VAT on non-bank financial intermediaries was deferred
until 2003. Moreover, beginning 2004, non-bank financial intermediaries are finally
exempted from VAT.

History of VAT on Non-bank Financial Intermediaries as discussed in First Planters

Pawnshop, Inc. v. Commissioner of Internal Revenue (2008)

Before the passage of E-VAT Law (1994) PAWNSHOPS WERE TREATED AS

LENDING INVESTORS SUBJECT TO LENDING INVESTOR'S TAX
Upon the passage of E-VAT Law (1994) 10% VAT imposed on banks and nonbank financial intermediaries and financial institutions under Section 102 of
the Tax Code of 1977
RA 8241 (1997), amending E-VAT Law moved the effectivity of 10% VAT on banks
and non-bank financial intermediaries to January 1, 1998
R.A. No. 8424 (1997) or the Tax Reform Act of 1997 likewise imposed a 10% VAT
under Section 108 but the levy, collection and assessment thereof were again
deferred until December 31, 1999
RA 8761 (2000) again deferred the levy, collection and assessment of the 10% VAT
until December 31, 2000
RA 9010 (2001) further deferred the levy, collection and assessment of the 10% VAT
until December 31, 2002; hence, the levy, collection and assessment of the 10% VAT
was finally pushed through beginning January 1, 2003
In CIR v. Lhuiller (2003) pawnshops were then treated as VAT-able enterprises
under the general classification of "sale or exchange of services" under
Section 108 (A) of the Tax Code of 1997
Upon the passage of RA 9238 (2004) pawnshops were finally classified as as Other
Non-bank Financial Intermediaries which are made SPECIFICALLY EXEMPTED
from VAT

Here, since Tambunting is a NON-BANK FINANCIAL INTERMEDIARY, it is

subject to 10% VAT for the tax years 1996 to 2002 . HOWEVER, Tambunting is still
NOT LIABLE for VAT during these years since the levy, assessment and collection
of VAT from non-bank financial intermediaries was being specifically deferred by
law.
But with the full implementation of the VAT system on non-bank financial
intermediaries starting January 1, 2003, Tambunting is liable for 10% VAT for said
tax year (2003).

Yet, 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.
Thus, since the imposition of VAT on pawnshops, which are non-bank
financial intermediaries, was deferred for the tax years 1996 to 2002, petitioner is
not liable for VAT for the tax year 1999.

7. CIR v. Philippine Health Care Providers

1.
2.

ISSUES:
Whether Philhealth is subject to VAT.
Whether VAT Ruling No. 231-88 exempting Philhealth from payment of VAT has
retroactive application.
RULING:
YES. Section 103 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.

YES. Generally, the NIRC has no retroactive application except when:

where the taxpayer deliberately misstates or omits material facts from his return or
in any document required of him by the Bureau of Internal Revenue;
2.
where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based, or
3.
where the taxpayer acted in bad faith.
1.

The Court held that Philhealth acted in good faith. The term health maintenance
organization was first recorded in the Philippine statute books in 1995. It is apparent that
when VAT Ruling No. 231-88 was issued in Philhealth's favor, the term health maintenance
organization was unknown and had no significance for taxation purposes. Philhealth,
therefore, believed in good faith that it was VAT exempt for the taxable years 1996 and 1997
on the basis of VAT Ruling No. 231-88. The rule is that the BIR rulings have no retroactive
effect where a grossly unfair deal would result to the prejudice of the taxpayer.
8. PAGCOR v. BIR (March 15, 2011)
Issue:
Whether or not PAGCOR is still exempt from corporate income tax and VAT with the
enactment of R.A. No. 9337.
Held:
Income tax NO

VAT YES (page 4) k under Sec 109 k exempt ang transactions nga exempted under
special laws- pagcor charter.
Under Section 1 of R.A. No. 9337, amending Section 27 (c) of the National Internal Revenue
Code of 1977, petitioner is no longer exempt from corporate income tax as it has
been effectively omitted from the list of GOCCs that are exempt from it.
Petitioner argues that such omission is unconstitutional, as it is violative of its right to equal
protection of the laws.
Legislative bodies are allowed to classify the subjects of legislation. If the
classification is reasonable, the law may operate only on some and not all of the people
without violating the equal protection clause. The classification must, as an indispensable
requisite, not be arbitrary. To be valid, it must conform to the following requirements:
1) It must be based on substantial distinctions.
2) It must be germane to the purposes of the law.
3) It must not be limited to existing conditions only.
4) It must apply equally to all members of the class.18
A perusal of the legislative records of the Bicameral Conference Meeting of the Committee
on Ways on Means dated October 27, 1997 would show that the exemption of PAGCOR
from the payment of corporate income tax was due to the acquiescence of the
Committee on Ways on Means to the request of PAGCOR that it be exempt from
such tax.20
The exemption of PAGCOR from paying corporate income tax was not based on a
classification showing substantial distinctions which make for real differences, but to
reiterate, the exemption was granted upon the request of PAGCOR that it be exempt from
the payment of corporate income tax.
With the subsequent enactment of R.A. No. 9337, amending R.A. No. 8424, PAGCOR has
been excluded from the enumeration of GOCCs that are exempt from paying corporate
income tax. The records of the Bicameral Conference Meeting dated April 18, 2005, of the
Committee on the Disagreeing Provisions of Senate Bill No. 1950 and House Bill No. 3555,
show that it is the legislative intent that PAGCOR be subject to the payment of corporate
income tax.
Taxation is the rule and exemption is the exception. 23 The burden of proof rests upon the
party claiming exemption to prove that it is, in fact, covered by the exemption so
claimed.24 As
a
rule,
tax
exemptions
are
construed
strongly
against
the
claimant.25Exemptions must be shown to exist clearly and categorically, and supported by
clear legal provision.26

In this case, PAGCOR failed to prove that it is still exempt from the payment of corporate
income tax, considering that Section 1 of R.A. No. 9337 amended Section 27 (c) of the
National Internal Revenue Code of 1997 by omitting PAGCOR from the exemption. The
legislative intent, as shown by the discussions in the Bicameral Conference Meeting, is to
require PAGCOR to pay corporate income tax; hence, the omission or removal of PAGCOR
from exemption from the payment of corporate income tax. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or consequence excludes all
others as expressed in the familiar maxim expressio unius est exclusio alterius. 27 Thus, the
express mention of the GOCCs exempted from payment of corporate income tax excludes all
others. Not being excepted, petitioner PAGCOR must be regarded as coming within the
purview of the general rule that GOCCs shall pay corporate income tax, expressed in the
maxim: exceptio firmat regulam in casibus non exceptis.28
PAGCOR cannot find support in the equal protection clause of the Constitution, as the
legislative records of the Bicameral Conference Meeting dated October 27, 1997, of the
Committee on Ways and Means, show that PAGCORs exemption from payment of corporate
income tax, as provided in Section 27 (c) of R.A. No. 8424, or the National Internal Revenue
Code of 1997, was not made pursuant to a valid classification based on substantial
distinctions and the other requirements of a reasonable classification by legislative bodies,
so that the law may operate only on some, and not all, without violating the equal protection
clause. The legislative records show that the basis of the grant of exemption to PAGCOR
from corporate income tax was PAGCORs own request to be exempted.
Petitioner further contends that Section 1 (c) of R.A. No. 9337 is null and void ab initio for
violating the non-impairment clause of the Constitution. Petitioner avers that laws form
part of, and is read into, the contract even without the parties expressly saying so. Petitioner
states that the private parties/investors transacting with it considered the tax exemptions,
which inure to their benefit, as the main consideration and inducement for their decision to
transact/invest with it. Petitioner argues that the withdrawal of its exemption from corporate
income tax by R.A. No. 9337 has the effect of changing the main consideration and
inducement for the transactions of private parties with it; thus, the amendatory provision is
violative of the non-impairment clause of the Constitution.
Petitioners contention lacks merit.
The non-impairment clause is contained in Section 10, Article III of the Constitution, which
provides that no law impairing the obligation of contracts shall be passed. The nonimpairment clause is limited in application to laws that derogate from prior acts or contracts
by enlarging, abridging or in any manner changing the intention of the parties.29There is
impairment if a subsequent law changes the terms of a contract between the parties,
imposes new conditions, dispenses with those agreed upon or withdraws remedies for the
enforcement of the rights of the parties.30
As regards franchises, Section 11, Article XII of the Constitution 31 provides that no
franchise or right shall be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common
good so requires.32

In Manila Electric Company v. Province of Laguna, 33 the Court held that a franchise partakes
the nature of a grant, which is beyond the purview of the non-impairment clause of the
Constitution.
While the Court has, not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for carrying on
the franchise, these exemptions, nevertheless, are far from being strictly contractual in
nature. Contractual tax exemptions, in the real sense of the term and where the nonimpairment clause of the Constitution can rightly be invoked, are those agreed to by the
taxing authority in contracts, such as those contained in government bonds or debentures,
lawfully entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity. Truly,
tax exemptions of this kind may not be revoked without impairing the obligations of
contracts. These contractual tax exemptions, however, are not to be confused with tax
exemptions granted under franchises. A franchise partakes the nature of a grant which is
beyond the purview of the non-impairment clause of the Constitution. Indeed, Article XII,
Section 11, of the 1987 Constitution, like its precursor provisions in the 1935 and the 1973
Constitutions, is explicit that no franchise for the operation of a public utility shall be granted
except under the condition that such privilege shall be subject to amendment, alteration or
repeal by Congress as and when the common good so requires. 35
In this case, PAGCOR was granted a franchise to operate and maintain gambling casinos,
clubs and other recreation or amusement places, sports, gaming pools, i.e., basketball,
football, lotteries, etc., whether on land or sea, within the territorial jurisdiction of the
Republic of the Philippines.36 Under Section 11, Article XII of the Constitution, PAGCORs
franchise is subject to amendment, alteration or repeal by Congress such as the amendment
under Section 1 of R.A. No. 9377. Hence, the provision in Section 1 of R.A. No. 9337,
amending Section 27 (c) of R.A. No. 8424 by withdrawing the exemption of PAGCOR from
corporate income tax, which may affect any benefits to PAGCORs transactions with private
parties, is not violative of the non-impairment clause of the Constitution.
Anent the validity of RR No. 16-2005, the Court holds that the provision subjecting
PAGCOR to 10% VAT is invalid for being contrary to R.A. No. 9337. Nowhere in R.A.
No. 9337 is it provided that petitioner can be subjected to VAT. R.A. No. 9337 is clear only as
to the removal of petitioner's exemption from the payment of corporate income tax.
As pointed out by the OSG, R.A. No. 9337 itself exempts petitioner from VAT pursuant to
Section 7 (k) thereof, which reads:
Sec. 7. Section 109 of the same Code, as amended, is hereby further amended to read as
follows:
Section 109. Exempt Transactions. - (1) Subject to the provisions of Subsection (2) hereof,
the following transactions shall be exempt from the value-added tax:
xxxx

(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 PAGCORs 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, thus:
[R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A. No. 8424), as amended, is
hereby further amended to read as follows:
SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties.
(A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties: x x x
xxxx
(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in
the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate;
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero percent (0%) rate;
x x x x38
As pointed out by petitioner, 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.
Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been
thoroughly and extensively discussed in Commissioner of Internal Revenue v. Acesite
(Philippines) Hotel Corporation.39 Acesite was the owner and operator of the Holiday Inn
Manila Pavilion Hotel. It leased a portion of the hotels premises to PAGCOR. It incurred VAT
amounting to P30,152,892.02 from its rental income and sale of food and beverages to
PAGCOR from January 1996 to April 1997. Acesite tried to shift the said taxes to PAGCOR by
incorporating it in the amount assessed to PAGCOR. However, PAGCOR refused to pay the
taxes because of its tax-exempt status. PAGCOR paid only the amount due to Acesite minus
VAT in the sum of P30,152,892.02. Acesite paid VAT in the amount of P30,152,892.02 to the
Commissioner of Internal Revenue, fearing the legal consequences of its non-payment. In

May 1998, Acesite sought the refund of the amount it paid as VAT on the ground that its
transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity.
The Court ruled that PAGCOR and Acesite were both exempt from paying VAT, thus:
xxxx
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:
Sec. 13. Exemptions.
xxxx
(2) Income and other taxes. - (a) Franchise Holder: No tax of any kind or form, income or
otherwise, as well as fees, charges or levies of whatever nature, whether National or Local,
shall be assessed and collected under this Franchise from the Corporation; nor shall any
form of tax or charge attach in any way to the earnings of the Corporation, except a
Franchise Tax of five (5%) percent of the gross revenue or earnings derived by the
Corporation from its operation under this Franchise. Such tax shall be due and payable
quarterly to the National Government and shall be in lieu of all kinds of taxes, levies, fees or
assessments of any kind, nature or description, levied, established or collected by any
municipal, provincial, or national government authority.
(b) Others: The exemptions herein granted for earnings derived from the operations
conducted under the franchise specifically from the payment of any tax, income or
otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and
extend to corporation(s), association(s), agency(ies), or individual(s) with whom the
Corporation or operator has any contractual relationship in connection with the operations of
the casino(s) authorized to be conducted under this Franchise and to those receiving
compensation or other remuneration from the Corporation or operator as a result of
essential facilities furnished and/or technical services rendered to the Corporation or
operator.
A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes
with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling
that PAGCOR is also exempt from indirect taxes, like VAT, as follows:
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.)

Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the
legislature clearly granted exemption also from indirect taxes. It must be noted that the
indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee,
or lessee of the goods, properties, or services subject to VAT. Thus, 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.
The manner of charging VAT does not make PAGCOR liable to said tax.
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 for the payment of it as it is exempt in this particular transaction by operation of
law to pay the indirect tax. Such exemption falls within the former Section 102 (b) (3) of the
1977 Tax Code, as amended (now Sec. 108 [b] [3] of R.A. 8424), which provides:
Section 102. Value-added tax on sale of services.- (a) Rate and base of tax - There shall be
levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts
derived by any person engaged in the sale of services x x x; Provided, that the following
services performed in the Philippines by VAT registered persons shall be subject to 0%.
xxxx
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively subjects the
supply of such services to zero (0%) rate (emphasis supplied).
The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the
extension of such exemption to entities or individuals dealing with PAGCOR in casino
operations are best elucidated from the 1987 case of Commissioner of Internal
Revenue v.John Gotamco & Sons, Inc., where the absolute tax exemption of the World Health
Organization (WHO) upon an international agreement was upheld. We held in said case that
the exemption of contractee WHO should be implemented to mean that the entity
or person exempt is the contractor itself who constructed the building owned by
contractee WHO, and such does not violate the rule that tax exemptions are
personal because the manifest intention of the agreement is to exempt the
contractor so that no contractor's tax may be shifted to the contractee WHO. Thus,
the proviso in P.D. 1869, extending the exemption to entities or individuals dealing with
PAGCOR in casino operations, is clearly to proscribe any indirect tax, like VAT, that may be
shifted to PAGCOR.40
Although the basis of the exemption of PAGCOR and Acesite from VAT in the case of The
Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation was Section 102
(b) of the 1977 Tax Code, as amended, which section was retained as Section 108 (B) (3) in
R.A. No. 8424,41 it is still applicable to this case, since the provision relied upon has
been retained in R.A. No. 9337.42

It is settled rule that in case of discrepancy between the basic law and a rule or regulation
issued to implement said law, the basic law prevails, because the said rule or regulation
cannot go beyond the terms and provisions of the basic law. 43 RR No. 16-2005, therefore,
cannot go beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under
R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No.
16-2005; hence, the said regulatory provision is hereby nullified.
WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337,
amending Section 27 (c) of the National Internal Revenue Code of 1997, by excluding
petitioner Philippine Amusement and Gaming Corporation from the enumeration of
government-owned and controlled corporations exempted from corporate income tax is valid
and constitutional, while BIR Revenue Regulations No. 16-2005 insofar as it subjects PAGCOR
to 10% VAT is null and void for being contrary to the National Internal Revenue Code of
1997, as amended by Republic Act No. 9337.

9. Silicon Philippines Inc. v. CIR

ISSUES:
1. Whether the CTA En Banc erred in denying petitioners claim for credit/refund of input VAT
attributable to its zero-rated sales in the amount of P16,732,425.00 due to its failure: (a) to show
that it secured an ATP from the BIR and to indicate the same in its export sales invoices; and (b) to
print the word zero-rated in its export sales invoices;
2. Whether the CTA En Banc erred in ruling that only the amount of P9,898,867.00 can be classified
as input VAT paid on capital goods
ARGUMENTS PRESENTED:
Petitioners Arguments
Petitioner posits that the denial by the CTA En Banc of its claim for refund of input VAT attributable
to its zero-rated sales has no legal basis because the printing of the ATP and the word zero-rated on
the export sales invoices are not required under Sections 113 and 237 of the National Internal
Revenue Code (NIRC). It cited Intel Technology Philippines, Inc. v. Commissioner of Internal
Revenue, where Intels failure to print the ATP on the sales invoices or receipts did not result in the
outright denial of its claim for tax credit/refund. Hence, failure to print of the word zero-rated on the
sales invoices should not result in the denial of a claim.
As to the claim for refund of input VAT on capital goods, petitioner insists that it has sufficiently
proven through testimonial and documentary evidence that all the goods purchased were used in
the production and manufacture of its finished products which were sold and exported.
Respondents Arguments
Respondent asserts that the printing of the ATP on the export sales invoices, which serves as a
control mechanism for the BIR, is mandated by Section 238 of the NIRC;
While the printing of the word zero-rated on the export sales invoices, which seeks to prevent
purchasers of zero-rated sales or services from claiming non-existent input VAT credit/refund is
required under RR No. 7-95, promulgated pursuant to Section 244 of the NIRC.

With regard to the unutilized input VAT on capital goods, respondent counters that petitioner failed
to show that the goods it purchased/imported are capital goods as defined in Section 4.106-1 of RR
No. 7-95.
RULING: NO for both. The petition is bereft of merit.
There are two types of input VAT credits. One is a credit/refund of input VAT attributable
to zero-rated sales under Section 112 (A) of the NIRC, and the other is a credit/refund of
input VAT on capital goods pursuant to Section 112 (B) of the same Code.
Credit/refund of input VAT on zero-rated sales
In a claim for credit/refund of input VAT attributable to zero-rated sales, Section 112 (A) of the NIRC
lays down four requisites, to wit:
1) the taxpayer must be VAT-registered;
2) the taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;
3) the claim must be filed within two years after the close of the taxable quarter when such sales
were made; and
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.
Printing the ATP on the invoices or receipts is
not required
It has been settled in Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue
that the ATP need not be reflected or indicated in the invoices or receipts because there is no law or
regulation requiring it. Thus, in the absence of such law or regulation, failure to print the ATP on the
invoices or receipts should not result in the outright denial of a claim or the invalidation of the
invoices or receipts for purposes of claiming a refund.
ATP must be secured from the BIR
But while there is no law requiring the ATP to be printed on the invoices or receipts, Section
238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior
to printing invoices or receipts. Failure to do so makes the person liable under Section 264 of the
NIRC.
This brings us to the question of whether a claimant for unutilized input VAT on zerorated sales is required to present proof that it has secured an ATP from the BIR prior to
the printing of its invoices or receipts.
We rule in the affirmative.
Without this proof, the invoices or receipts would have no probative value for the purpose of
refund. Indeed, what is important with respect to the BIR authority to print is that it has

been secured or obtained by the taxpayer, and that invoices or receipts are duly
registered.
Failure to print the word zero-rated on the
sales invoices is fatal to a claim for refund of
input VAT
The compliance with Section 4.108-1 of RR 7-95, requiring the printing of the word zero rated on
the invoice covering zero-rated sales, is essential as this regulation proceeds from the rule-making
authority of the Secretary of Finance under Section 244of the NIRC.
The non-presentation of the ATP and the failure to indicate the word zero-rated in the
invoices or receipts are fatal to a claim for credit/refund of input VAT on zero-rated sales. In this case,
petitioner failed to present its ATP and to print the word zero-rated on its export sales invoices. Thus,
we find no error on the part of the CTA in denying outright petitioners claim for credit/refund of input
VAT attributable to its zero-rated sales.
Credit/refund of input VAT on capital goods
Capital goods are defined under Section 4.1061(b) of RR No. 7-95
To claim a refund of input VAT on capital goods, Section 112 (B)[56] of the NIRC requires that:
1. the claimant must be a VAT registered person;
2. the input taxes claimed must have been paid on capital goods;
3. the input taxes must not have been applied against any output tax liability; and
4. the administrative claim for refund must have been filed within two (2) years after
the close of the taxable quarter when the importation or purchase was made.
We find no reason to deviate from the findings of the CTA that training materials, office supplies,
posters, banners, T-shirts, books, and the other similar items reflected in petitioners Summary of
Importation of Goods are not capital goods. A reduction in the refundable input VAT on capital goods
from P15,170,082.00 to P9,898,867.00 is therefore in order.
WHEREFORE, the Petition is hereby DENIED.
10. Fort Bonifacio Development v. CIR
Issues:
1. Whether or not Fort Bonifacio Development Corporation is entitled to claim
TRANSITIONAL INPUT TAX CREDIT even if it has not paid any input VAT in
the acquisition of its properties (it being acquired through a tax-free sale)mao ni main issue I think hehe.
2. Whether or not the basis for the transitional input tax should be the value
of the improvements only (as held in RR No. 7-95)
RULING:

1. Whether or not Fort Bonifacio Development Corporation is entitled to claim

TRANSITIONAL INPUT TAX CREDIT even if it has not paid any input VAT in
the acquisition of its properties (it being acquired through a tax-free sale)YES
Prior payment of taxes is not required for a taxpayer to avail of the 8%
transitional input tax credit
Contrary to the view of the CTA and the CA, there is nothing in the above-quoted
provision (Section 105 of the old NIRC) to indicate that prior payment of taxes is
necessary for the availment of the 8% transitional input tax credit. Obviously, all
that is required is for the taxpayer to file a beginning inventory with the BIR.
The fact that it acquired the Global City property under a tax-free transaction
makes no difference as prior payment of taxes is not a pre-requisite.
To require prior payment of taxes, as proposed in the Dissent is not only tantamount to
judicial legislation but would also render nugatory the provision in Section 105 of the old
NIRC that the transitional input tax credit shall be "8% of the value of [the beginning]
inventory or the actual [VAT] paid on such goods, materials and supplies, whichever is
higher" because the actual VAT (now 12%) paid on the goods, materials, and supplies would
always be higher than the 8% (now 2%) of the beginning inventory which, following the view
of Justice Carpio, would have to exclude all goods, materials, and supplies where no taxes
were paid. Clearly, limiting the value of the beginning inventory only to goods,
materials, and supplies, where prior taxes were paid, was not the intention of the
law. Otherwise, it would have specifically stated that the beginning inventory excludes
goods, materials, and supplies where no taxes were paid. As retired Justice Consuelo YnaresSantiago has pointed out in her Concurring Opinion in the earlier case of Fort Bonifacio:
If the intent of the law were to limit the input tax to cases where actual VAT was paid, it
could have simply said that the tax base shall be the actual value-added tax paid. Instead,
the law as framed contemplates a situation where a transitional input tax credit is claimed
even if there was no actual payment of VAT in the underlying transaction. In such cases, the
tax base used shall be the value of the beginning inventory of goods, materials and
supplies.39
Moreover, prior payment of taxes is not required to avail of the transitional input
tax credit because it is not a tax refund per se but a tax credit. Tax credit is not
synonymous to tax refund.
Tax Refund
Tax refund is defined as the
money that a taxpayer overpaid
and is thus returned by the
taxing authority.
Prior payment of taxes is a
prerequisite for availment.

Tax Credit
Tax credit, on the other hand, is an
amount subtracted directly from
ones total tax liability. It is any
amount given to a taxpayer as a
subsidy, a refund, or an incentive to
encourage investment.
Prior payment of taxes is NOT a
prerequisite for availment. (CIR v.
Central Luzon Drug Corp.)

Tax LIABILITY is necessary but prior

PAYMENT is not required.

The Tax Code is in fact replete with provisions granting or allowing tax credits, even though
no taxes have been previously paid.
Examples: (PEDE RA DILI BASAHON GUYSSSSS BASTA KAI DI DAW REQUIRED ang
payment HAHA)
1. Section 86(E)- tax credit for estate taxes paid to a foreign country (kai an prior
payment ani di daw sa ato country. Hehe)
2. Section 101(C)- donors taxes paid to foreign country pud same reason.
3. Section 110- creditable input tax credit (can be either a.) VAT on the purchase or
importation of goods or services that is merely due from -- not necessarily paid
by -- such VAT-registered person in the course of trade or business; b.) the
transitional input tax determined in accordance with Section 111(A). No tax is
actually paid prior to the availment of such credit.
4. Section 111(B)- presumptive input tax credit (for purchase of primary agricultural
products)- no prior payment of tax needed.
5. More important, a VAT-registered person whose sales are zero-rated or effectively
zero-rated may, under Section 112(A), apply for the issuance of a tax credit
certificate for the amount of creditable input taxes merely due -- again not
necessarily paid to -- the government and attributable to such sales, to the extent
that the input taxes have not been applied against output taxes.
6. It may be argued that Section 28(B)(5)(b) of the Tax Code is another illustration of a
tax credit allowed, even though no prior tax payments are not required.
7. In contrast, Section 34(C)(3), in relation to Section 34(C)(7)(b), categorically allows as
credits, against the income tax imposable under Title II, the amount of income taxes
merely incurred -- not necessarily paid -- by a domestic corporation during a taxable
year in any foreign country. Moreover, Section 34(C)(5) provides that for such taxes
incurred but not paid, a tax credit may be allowed, subject to the condition precedent
that the taxpayer shall simply give a bond with sureties satisfactory to and approved
by petitioner, in such sum as may be required; and further conditioned upon payment
by the taxpayer of any tax found due, upon petitioners redetermination of it.
8. In addition to the above-cited provisions in the Tax Code, there are also tax treaties
and special laws that grant or allow tax credits, even though no prior tax payments
have been made. (kai di nasad sa ato government gibayad)
9. Under special laws that particularly affect businesses, there can also be tax credit
incentives. In order to avail of such credits under the said law and still achieve its
objectives, no prior tax payments are necessary.

From all the foregoing instances, it is evident that prior tax payments are not indispensable
to the availment of a tax credit.
In this case, when petitioner realized that its transitional input tax credit was not applied in
computing its output VAT for the 1st quarter of 1997, it filed a claim for refund to recover the
output VAT it erroneously or excessively paid for the 1st quarter of 1997. In filing a claim for
tax refund, petitioner is simply applying its transitional input tax credit against the output
VAT it has paid. Hence, it is merely availing of the tax credit incentive given by law to first
time VAT taxpayers. As we have said in the earlier case of Fort Bonifacio , the
provision on transitional input tax credit was enacted to benefit first time VAT
taxpayers by mitigating the impact of VAT on the taxpayer .45 Thus, contrary to the
view of Justice Carpio, the granting of a transitional input tax credit in favor of petitioner,
which would be paid out of the general fund of the government, would be an appropriation
authorized by law, specifically Section 105 of the old NIRC.
Transitional input tax credit is no longer related to previously paid sales taxes
(because VAT na daw ta. Yet Congress has reenacted the transitional input tax credit several
times; that fact simply belies the absence of any relationship between such tax credit and
the long-abolished sales taxes.)
What transitional actually means:
There is hardly any constricted definition of "transitional" that will limit its
possible meaning to the shift from the sales tax regime to the VAT regime. Indeed,
it could also allude to the transition one undergoes from not being a VAT-registered person to
becoming a VAT-registered person. The clear language of the law entitles new trades or
businesses to avail of the tax credit once they become VAT-registered. The transitional input
tax credit, whether under the Old NIRC or the New NIRC, may be claimed by a newly-VAT
registered person such as when a business as it commences operations. If we view the
matter from the perspective of a starting entrepreneur, greater clarity emerges on the
continued utility of the transitional input tax credit.
The interpretation proffered by the CTA would exclude goods and properties which are
acquired through sale not in the ordinary course of trade or business, and those acquired
through donation or through succession, from the beginning inventory on which the
transitional input tax credit is based. This prospect all but highlights the ultimate absurdity
of the respondents position. Again, nothing in the Old NIRC (or even the New NIRC) speaks
of such a possibility or qualifies the previous payment of VAT or any other taxes on the
goods, materials and supplies as a pre-requisite for inclusion in the beginning inventory.
It is apparent that the transitional input tax credit operates to benefit newly VATregistered persons, whether or not they previously paid taxes in the acquisition of
their beginning inventory of goods, materials and supplies. During that period of
transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the
impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is
obliged to remit a significant portion of the income it derived from its sales as output VAT.
The transitional input tax credit mitigates this initial diminution of the taxpayer's income by
affording the opportunity to offset the losses incurred through the remittance of the output
VAT at a stage when the person is yet unable to credit input VAT payments.

2. Whether or not the basis for the transitional input tax should be the value
of the improvements only (as held in RR No. 7-95)- NO.
RR 7-95 is null and void as it limits the 8% transitional input tax credit to the
value of the improvements of the land, contrary to the provision of Section 105 of
the old NIRC in relation to Section 100 as amended by RA 7716 which defines
goods or properties.
In fact, in our Resolution dated October 2, 2009, in the related case of Fort Bonifacio, we
ruled that Section 4.105-1 of RR 7-95, insofar as it limits the transitional input tax credit to
the value of the improvement of the real properties, is a nullity.
To be valid, an administrative rule or regulation must conform, not contradict, the provisions
of the enabling law.An implementing rule or regulation cannot modify, expand, or subtract
from the law it is intended to implement. Any rule that is not consistent with the statute
itself is null and void.
As we see it then, the 8% transitional input tax credit should not be limited to the
value of the improvements on the real properties but should include the value of
the real properties as well.
In this case, since petitioner is entitled to a transitional input tax credit of P 5,698,200,256,
which is more than sufficient to cover its output VAT liability for the first quarter of 1997, a
refund of the amount of P 359,652,009.47 erroneously paid as output VAT for the said
quarter is in order.

11. Accenture Inc. v. CIR

Issues:
1. Should the recipient of the services be doing business outside the Philippines for the
transaction to be zero-rated under section 108(B)(2) of the 1997 Tax Code?
2. Has Accenture successfully proven that its clients are entities doing business outside the
Philippines?
3. Is Accenture entitled to tax refund?
Ruling:
1. Recipient of services must be doing business outside the Philippines for the
transactions to qualify as zero-rated.
Accenture anchors its refund claim on Section 112(A) of the 1997 Tax Code, which allows the
refund of unutilized input VAT earned from zero-rated or effectively zero-rated sales. The
provision reads:
SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax: Provided, however,
That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section
108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been
duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods of properties or
services, and the amount of creditable input tax due or paid cannot be directly and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the basis of
the volume of sales. Section 108(B) referred to in the foregoing provision was first seen
when Presidential Decree No. (P.D.) 199431 amended Title IV of P.D. 1158,32 which is also
known as the National Internal Revenue Code of 1977. Several Decisions have referred to
this as the 1986 Tax Code, even though it merely amended Title IV of the 1977 Tax Code.
Two years thereafter, or on 1 January 1988, Executive Order No. (E.O.) 273 33 further
amended provisions of Title IV. E.O. 273 by transferring the old Title IV provisions to Title VI
and filling in the former title with new provisions that imposed a VAT.
The VAT system introduced in E.O. 273 was restructured through Republic Act No. (R.A.)
7716.34 This law, which was approved on 5 May 1994, widened the tax base. Section 3
thereof reads:
SECTION 3. Section 102 of the National Internal Revenue Code, as amended, is hereby
further amended to read as follows:
"SEC. 102. Value-added tax on sale of services and use or lease of properties. x x x
xxx

xxx

xxx

"(b) Transactions subject to zero-rate. The following services performed in the Philippines
by VAT-registered persons shall be subject to 0%:
"(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 Bangko Sentral ng Pilipinas (BSP).
"(2) Services other than those mentioned in the preceding sub-paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP)."
Essentially, Section 102(b) of the 1977 Tax Codeas amended by P.D. 1994, E.O. 273, and
R.A. 7716provides that if the consideration for the services provided by a VAT-registered
person is in a foreign currency, then this transaction shall be subjected to zero percent rate.

The 1997 Tax Code reproduced Section 102(b) of the 1977 Tax Code in its Section 108(B), to
wit:
(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT- registered persons shall be subject to zero percent (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 Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
x x x.
On 1 November 2005, Section 6 of R.A. 9337, which amended the foregoing provision,
became effective. It reads:
SEC. 6. Section 108 of the same Code, as amended, is hereby further amended to read as
follows:
"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties. (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (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 Bangko Sentral ng Pilipinas (BSP);
"(2) Services other than those mentioned in the preceding paragraph rendered to a
person engaged in business conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the Philippines when the services are
performed, the consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP); x x x." (Emphasis supplied)
We rule that the recipient of the service must be doing business outside the
Philippines for the transaction to qualify for zero-rating under Section 108(B) of
the Tax Code.
This Court upholds the position of the CTA en banc that, because Section 108(B) of the 1997
Tax Code is a verbatim copy of Section 102(b) of the 1977 Tax Code, any interpretation of
the latter holds true for the former.

Moreover, even though Accentures Petition was filed before Burmeister was promulgated,
the pronouncements made in that case may be applied to the present one without violating
the rule against retroactive application. When this Court decides a case, it does not pass a
new law, but merely interprets a preexisting one. 42 When this Court interpreted Section
102(b) of the 1977 Tax Code in Burmeister, this interpretation became part of the law from
the moment it became effective. It is elementary that the interpretation of a law by this
Court constitutes part of that law from the date it was originally passed, since this Court's
construction merely establishes the contemporaneous legislative intent that the interpreted
law carried into effect.
That the recipient of the service should be doing business outside the Philippines to qualify
for zero-rating is the only logical interpretation of Section 102(b)(2) of the 1977 Tax Code , as
we explained in Burmeister:
This can only be the logical interpretation of Section 102 (b) (2). If the provider and recipient
of the "other services" are both doing business in the Philippines, the payment of foreign
currency is irrelevant. Otherwise, those subject to the regular VAT under Section 102 (a) can
avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by
the recipient of services. To interpret Section 102 (b) (2) to apply to a payer-recipient of
services doing business in the Philippines is to make the payment of the regular VAT under
Section 102 (a) dependent on the generosity of the taxpayer. The provider of services can
choose to pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly
remitted by the payer-recipient. Such interpretation removes Section 102 (a) as a tax
measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory
exaction, not a voluntary contribution.
Further, when the provider and recipient of services are both doing business in the
Philippines, their transaction falls squarely under Section 102 (a) governing domestic sale or
exchange of services. Indeed, this is a purely local sale or exchange of services subject to
the regular VAT, unless of course the transaction falls under the other provisions of Section
102 (b).
Thus, when Section 102 (b) (2) speaks of "services other than those mentioned in the
preceding subparagraph," the legislative intent is that only the services are different
between subparagraphs 1 and 2. The requirements for zero-rating, including the essential
condition that the recipient of services is doing business outside the Philippines, remain the
same under both subparagraphs. (Emphasis in the original)46
Lastly, it is worth mentioning that prior to the promulgation of Burmeister, Congress had
already clarified the intent behind Sections 102(b)(2) of the 1977 Tax Code and 108(B)(2) of
the 1997 Tax Code amending the earlier provision. R.A. 9337 added the following phrase:
"rendered to a person engaged in business conducted outside the Philippines or to a
nonresident person not engaged in business who is outside the Philippines when the
services are performed."
2. Accenture has failed to establish that the recipients of its services do business outside the
Philippines.
In the CTAs opinion, however, the documents presented by Accenture merely substantiate
the existence of the sales, receipt of foreign currency payments, and inward remittance of

the proceeds of these sales duly accounted for in accordance with BSP rules. Petitioner
presented no evidence whatsoever that these clients were doing business outside the
Philippines.50
Accenture insists, however, that it was able to establish that it had rendered services to
foreign corporations doing business outside the Philippines, unlike in Burmeister, which
allegedly involved a foreign corporation doing business in the Philippines.
3. We deny Accentures Petition for a tax refund.
The evidence presented by Accenture may have established that its clients are
foreign.1wphi1 This fact does not automatically mean, however, that these clients were
doing business outside the Philippines. After all, the Tax Code itself has provisions for a
foreign corporation engaged in business within the Philippines and vice versa, to wit:
SEC. 22. Definitions - When used in this Title:
(H) The term "resident foreign corporation" applies to a foreign corporation engaged
in trade or business within the Philippines.
(I) The term nonresident foreign corporation applies to a foreign corporation not
engaged in trade or business within the Philippines. (Emphasis in the original)
Consequently, to come within the purview of Section 108(B)(2), it is not enough that the
recipient of the service be proven to be a foreign corporation; rather, it must be specifically
proven to be a nonresident foreign corporation.
There is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting"
business. We ruled thus in Commissioner of Internal Revenue v. British Overseas Airways
Corporation:52
x x x. There is no specific criterion as to what constitutes "doing" or "engaging in" or
"transacting" business. Each case must be judged in the light of its peculiar environmental
circumstances. The term implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the exercise of some of
the functions normally incident to, and in progressive prosecution of commercial gain or for
the purpose and object of the business organization. "In order that a foreign corporation may
be regarded as doing business within a State, there must be continuity of conduct and
intention to establish a continuous business, such as the appointment of a local agent, and
not one of a temporary character."53
A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual
basis of that claim.1wphi1 Tax refunds, like tax exemptions, are construed strictly against
the taxpayer.54
Accenture failed to discharge this burden. It alleged and presented evidence to prove only
that its clients were foreign entities. However, as found by both the CTA Division and the CTA
En Banc, no evidence was presented by Accenture to prove the fact that the foreign clients
to whom petitioner rendered its services were clients doing business outside the Philippines.

12. Nippon Express v. CIR

Issues:
1. Did the CTA acquire jurisdiction over the controversy?
2. Is there a difference between invoicing requirements and receipt requirements in
zero-rated transactions?
Ruling:
1. No, the CTA did not acquire jurisdiction over the case.
The SC stated that strict compliance with the prescriptive periods in claiming for refund
of creditable input tax due or paid attributable to any zero-rated or effectively zero-rated
sales. (Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining
Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue)

SC summarizes the rules on the determination of the prescriptive period for filing a tax
refund or credit of unutilized input VAT as provided in Section 112 of the 1997 Tax Code, as
follows:
(1) An administrative claim must be filed with the CIR within two years after the close of the
taxable quarter when the zero-rated or effectively zero-rated sales were made.
(2) The CIR has 120 days from the date of submission of complete documents in support of
the administrative claim within which to decide whether to grant a refund or issue a tax
credit certificate. The 120-day period may extend beyond the two-year period from the filing
of the administrative claim if the claim is filed in the later part of the twoyear period. If the
120-day period expires without any decision from the CIR, then the administrative claim may
be considered to be denied by inaction.
(3) A judicial claim must be filed with the CTA within 30 days from the receipt of the CIRs
decision denying the administrative claim or from the expiration of the 120-day period
without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on October 6, 2010,
as an exception to the mandatory and jurisdictional 120+30 day periods.

Hence, petitioner Corporation has failed to comply with the 120 + 30 day period, which
is mandatory and jurisdictional in filing its petition for review. The 120 day period for the
administrative office to act ended on September 22, 2001. Since petitioners judicial claim
for the aforementioned quarters for taxable year 2000 was filed before the CTA only on 24
April 2002,32 which was way beyond the mandatory 120+30 days to seek judicial recourse,
such noncompliance with the mandatory period of 30 days is fatal to its refund claim on the
ground of prescription.
2. A VAT invoice is necessary for every sale, barter or exchange of goods or properties
while a VAT official receipt properly pertains to every lease of goods or properties,

and every sale, barter or exchange of services. 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 interchangeably.