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The Philippine American Life and General Insurance

versus The Secretary of Finance and The Commissioner of Internal Revenue


G.R. No. 210987. November 24, 2014
Third Division, Velasco, Jr., J.

Facts: Petitioner Philamlife sold its shares in PhilamCare through competitive


bidding, for P 104, 259, 330, to STI Investment as highest bidder.

Petitioner filed an application for a certificate authorizing registration/tax


clearance with the BIR to facilitate the transfer of the shares. Months later,
petitioner was informed that it needed to secure the BIR ruling in connection
with its application due to potential donor's tax liability. Petitioner requested a
ruling to confirm that the sale was not subject to donor's tax, pointing out the
following: that the transaction cannot attract donor's tax liability since there was
no donative inent and, ergo, no tax donationm, citing a BIR Ruling that the
shares were sold at their actual fair market value and at arm's length––such that
a bona fide business arrangement of the dealings is done inthe ordinary course
of business––a sale for less than an adequate consideration is not subject to
donor’s tax; and that donor’s tax does not apply to saleof shares sold in an open
bidding process.

Respondent CIR denied the request. As such, respondent held, donor's tax
became imposable on the price difference pursuant to Sec. 100 of the NIRC.

The case was elevated to CA and it was dismissed due to lack of jurisdiction,
then the case was elevated to SC.

SC affirmed that the case must be elavated to CTA and not to CA, but it
discussed the issue on donor's tax.

Issue: WON the price difference in the adverted sale of shares in PhilamCare
attracts donor's tax.

Held: Yes. The price difference is subject to donor's tax.

Petitioner's substantive arguments are unavailing. The absence of donative


intent, if that be the case, does not exempt the sales of stock transaction from
donor's tax since Sec. 100 of the NIRC categorically states that the amount by
which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift.1âwphi1 Thus, even if there is no actual
donation, the difference in price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but
merely sets the parameters for determining the "fair market value" of a sale of
stocks. Such issuance was made pursuant to the Commissioner's power to
interpret tax laws and to promulgate rules and regulations for their
implementation.

Lourdes College
versus Commissioner of Internal Revenue
CTA EB No. 1164. February 2, 2016
En Banc, Ringpis-Liban, J.

Facts: Pursuant to the Letter of Authority, the Revenue Officer examined


petitioner's books of accound and other accounting records for all internal
revenue taxes.

As a result, a Formal Letter of Demand was send to the petitioner demanding


payment of deficiency expanded withholding tax and deficiency fringe benefit
tax in the total amount of P4,222,510.10, inclusive of sucharges, interest and
compromise penalty.

Petitioner protested the said assessments. In response, respondent revised and


reduced the previous assesments, but included a new assessment for donor's tax
in the amount of P1,031814.68.

CTA in division rendered in favor of the Respondent CIR.

Aggrived, petitioner filed before the Court En Banc for petition for review.

Petitioner argues that the amount paid by the School to the Congrogation for
the services rendered by the 10 sisters were actually paid by the School to the
Congregation, since the sisters are not allowed to receive income under their
vow of poverty. Hence the amount paid was not a donation but an income of
the corporation.

Issue: WON petitioner can invoke the exemption from payment of donor's tax.

Held: No. This Court agrees with the findings of the Court in Division that
petitioner cannot invoke exemption from payment of donor's tax since
petitioner failed to prove that the amount of P2,326,01 0.52 paid by petitioner
to the Congregation is considered as income of the latter.
As correctly ruled by the Court in Division in the Assailed Resolution:
"Notwithstanding the admission of petitioner that the
payment was made for the services rendered by the ten sisters, it
should have presented documents such as withholding certificate
for compensation, SSS remittance forms or any similar
documents, that would prove that the amount of P2,316,010.52,
represents petitioner's payment to the Congregation for the
services rendered. Without any supporting documents, this Court
cannot determine the intent of petitioner as to the sum of money
given to the Congregation. Considering so, petitioner cannot
invoke its exemption from donor's tax pursuant to Section
101 (A) (3) of the 1997 Tax Code; particularly, whether or not
more than thirty percent (30%) of said gifts is used by such donee
for administration purposes:

Sec. 101. Exemption of Certain Gifts.- The following gifts


or donations shall be exempt from the tax provided for in this
Chapter:
(A) In the Case of Gifts Made by a Resident.-
"(1) X X y
CTA EB NO. 1164 {CTA Case No. 8038)
DECISION
Page8of13
"3) Gift in favor of an educational and/ or charitable,
religious, cultural or social welfare corporation,
institution, accredited nongovernmental organization, trust
or philanthropic organization or research institution or
organization: Provided, however, That not more than thirty
percent (30%) of said gifts shall be used by such donee for
administration purposes. x x x" (Emphasis supplied.)
In addition, Section 99(B) of the 1997 Tax Code provides
that the tax payable by the donor if the donee is a stranger is thirty
percent (30%) of the net gifts. For the purpose of said tax, a
stranger is a person who is not a:
(1) Brother, sister (whether by whole or half-blood),
spouse, ancestor, and lineal descendant; or
(2) Relative by consanguinity in the collateral line within the
fourth degree of relationship
(3) Any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign
purposes shall be governed by the Election Code, as
amended."
Based on the foregoing provision, those amounts that were
actually paid to the Congregation are considered donations to
strangers, since the Congregation is not considered as one of
those enumerated in the abovementioned provision. Thus, the tax
rate of 30°/o of the net gift will apply."

Toenec Philippines, Inc.


versus Commissioner of Internal Revenue
CTA Case No. 8653. January 27, 2016
First Division, Del Rosario, P.J.

Facts: Toenec Corp. (Toenec Japan), a corporation organized and existing


under the laws of Japan.

Petitioner Toenec Philippines, and Toenec Japan executed a Capital Infusion


Agreement, wherein Toenec Japan contributied P30,000,000.00 as additional
paid-in capital.

Petitioner received the FAN with attached Assessment Notice assessing and
demanding from the petitioner the payment of deficiency donor's tax relative to
the Capital Infusion Agreement of P16,467,534.25 and compromise penalty of
P50,000.00

Issue: WON Petitioner is liable to the deficiency donor's tax

Held: No. petitioner is the entity that received the P30,000,000.00


cash and, thus, considered as the donee. Consequently, as the donee,
petitioner is not liable to pay donor's tax, pursuant to Section 98 of the
NIRC of 1997, as amended.
The liability to pay donor's tax is not transferable. The burden to pay
the donor's tax is imposed upon the donor and not upon the donee. While the
imposition of tax is a matter of law, mere exigency and convenience may not
be used as an excuse to collect donor's tax from a donee simply because the
latter is located in the Philippines. Basic is the rule that laws imposing tax
are strictly construed against the taxing authority and in favor of the
taxpayer.

Mr. Urbano L. Velasco


versus Bureau of Internal Revenue
CTA Case No. 8497. May 17, 2016
First Division, Del Rosario, P.J.

Facts: Petitioner sold to Gervel Inc. and Metropolitan Management Corporation


a total of 532,180 shares of stocks for a total consideration of P86,428,514.07.
The BIR treated as deemed gift subject to donor's tax under Sec. 100 of the NIRC
of 1997 the difference between the book value (P122m) and selling price
(P86m).

Petitioner filed a protest letter stating that the sale of stocks were made without
donative intent and it was an arms length transaction; thus, it is not subject to
donor's tax.

Petitioner received a Formal Assessment Notice finding petitioner liable for


deficiency donor's tax due against petitioner in the total amount of
P23,067,007.72.

Issue: WON the difference between the book value and selling price of the
shares sold is considered as a gift subject to donor's tax under Sec. 100 of the
NIRC

Held: Yes. Donor's tax is imposed upon the transfer by any person of the
property b~ gift as provided under Section 98 of the NIRC of 1997, as
amended. 9
While the NIRC of 1997, as amended, does not define transfer
· of property by gift, donation is defined in Article 725 of the Civil Code
as an act of liberality whereby a person disposes gratuitously of a
thing or right in favor of another, who accepts it. 50 Donation has the
following elements: (a) the reduction of the patrimony of the donor;
(b) the increase in the patrimony of the donee; and, (c) the intent to
do an act of liberality <:>r animus donandi.

under Section 7 (c.1.4) of Revenue Regulations No.


6-2008, "in case the fair market value of the shares of stock sold,
bartered, or exchanged is greater than the amount of money and/or
fair market value of the property received, the excess of the fair
market value of the shares of stock sold, bartered or exchanged
over the amount of money and the fair market value of the property,
if any, received as consideration shall be deemed a gift subject
to the donor's tax under Sec. 100 of the Tax Code, as amended."
Section 7(c.2.2) of same Revenue Regulations further provides that
"in the case of shares of stock not listed and traded in the local stock
exchanges, the boo~ value of the shares of stock as shown in the
financial statements duly certified by an independent certified public
accountant nearest to the date of sale shall be the fair market
value."

In The Philippine American Life and General Insurance


Company vs. The Secretary of Finance and The Commissioner
of Internal Revenue, 53 the Supreme Court made the following
pronouncements, viz.:
"The price difference is subject to donor's tax
Petitioner's substantive arguments are unavailing.
The absence of donative intent, if that be the case,
does not exempt the sales of stock transaction from
donor's tax since Sec. 100 of the NIRC categorically
states that the amount by which the fair market value
of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if
there is no actual donation, the difference in price is
considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not
alter Sec. 100 of the NIRC but merely sets the
parameters for determining the "fair market value" of
a sale of stocks. Such issuance was made pursuant
to the Commissioner's power to interpret tax laws
and to promulgate rules and regulations for their
implementation."

Commissioner of Internal Revenue


versus Sara Lee Kiwi Holdings, LLC.,
CTA EB No. 1396. February 13, 2017
En Banc, Uy, J.

Facts: Respondent Sara Lee Kiwi Holdings, LLC. is a non-resident


foreign corporation, organized and existing under, and by virtue of the
laws of the State of Delaware, U.S.A., with office address at 400
South Jefferson Street, Chicago, Illinois, 60607, United States
(formerly at 3500 Lacey Road, Downer's Grove, Illinois, 60615,
United States of America).

On April 4, 2011, respondent sold its entire holdings and


interest, consisting of 1 ,460, 736 common shares and subscription
rights in Sara Lee Household Care (Philippines), Inc., (SLHCPI) to
S.C. Johnson & Son, Inc. (SC Johnson) for the price of P235,291,254.30

On May 4, 2011, respondent filed a Capital Gains Tax Return


on the said sale, showing a net capital loss of P192,765,334.75

Thereafter, respondent filed a Donor's Tax Return


with the BIR and paid the Donor's Tax due in the amount of P57,829,600.50
respondent and SC Johnson executed an
Amendment Agreement (to the Deed of Absolute Sale of shares of
Stock and Assignment of Subscription Rights dated April 4, 2011 ),
whereby both parties agreed to an upward adjustment in the
purchase price, in the amount of P50,558,877.19, as additional price. This
increased the purchase price to P285,850,131.49.

respondent amended its application for t


tax refund, requesting the refund of the entire donor's tax paid on
December 5, 2011 in the amount of P57,829,600.50, allegedly
representing capital loss arising from the sale of shares of stock of
SLHCPI to SC Johnson.

the Court
in Division ruled in favor of respondent, and granted the latter's
Petition for Review, ordering petitioner to refund in its favor the
amount of P57,829,600.50, representing erroneously paid donor's
tax. It found that the sale by respondent of the SLHCPI shares is not
subject to donor's tax, since the fair market value thereof did not
exceed the value of the consideration.

Issue: WON respondent is liable for donor's tax

Held: No. the Court in Division is correct when it used or


referred to the Audited Financial Statements of SLHCPI for fiscal year
ended June 30, 2011 to determine the fair market value of the latter's
shares of stock; and when it found that the sale by respondent of the
SLHCPI shares is not subject to donor's tax.

Commissioner of Internal Revenue


versus Benguet Corporation
GR Nos. 134587 & 134588, July 8, 2005
Second Division, Tinga, J.

Facts: Respondent applied for and granted zero-rated status on its sale of gold
to Central Bank. BIR issued VAT Ruling which declared that "the sale of gold to
Central Bank is considered as export sale subject to zero-rate pursuant to Sec.
100 of the Tax Code. The BIR came out with at least 6 other issuances reiterating
the zero-rating of the sale of gold.

Relying on its zero-related status, respondent sold gold to the Central Bank and
entered into transactions that resulted in input VAT incurred in relation to the
subject sales of gold. It then filed applications for tax refunds/credits
corresponding to input VAT for the amounts of P46m, 19m, and 84m.
Respondent's application were either unacted upon or expressly disallowed by
petitioner.

The express disallowance of respondent’s application for refunds/credits and


the issuance of deficiency assessments against it were based on a BIR ruling-BIR
VAT Ruling No. 008-92 dated 23 January 1992-that was issued subsequent to the
consummation of the subject sales of gold to the Central Bank which provides
that sales of gold to the Central Bank shall not be considered as export sales
and thus, shall be subject to 10% VAT. In addition, BIR VAT Ruling No. 008-92
withdrew, modified, and superseded all inconsistent BIR issuances. The relevant
portions of the ruling provides, thus:

1. In general, for purposes of the term "export sales" only direct export sales and
foreign currency denominated sales, shall be qualified for zero-rating.

....

4. Local sales of goods, which by fiction of law are considered export sales (e.g.,
the Export Duty Law considers sales of gold to the Central Bank of the
Philippines, as export sale). This transaction shall not be considered as export
sale for VAT purposes.

....

[A]ll Orders and Memoranda issued by this Office inconsistent herewith are
considered withdrawn, modified or superseded." (Emphasis supplied)

CTA dismissed the respondent's petitions noting that no prejudice had befallen
respondent by virtue of the retroactive application of BIR VAT Ruling No. 008-92,
and that, consequently, the application did not violate Sec. 246 of the NIRC.,

The CA reversed the decision and ordered the CIR to award tax credits to the
respondent.

Issue: WON the retroactive application was prejudicial to respondent and could
not be applied retroactively.

Held: Yes. At the time when the subject transactions were consummated, the
prevailing BIR regulations relied upon by respondent ordained that gold sales to
the Central Bank were zero-rated. The BIR interpreted Sec. 100 of the NIRC in
relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold sold to the
Central Bank shall be considered export and therefore shall be subject to the
export and premium duties. In coming out with this interpretation, the BIR also
considered Sec. 169 of Central Bank Circular No. 960 which states that all sales
of gold to the Central Bank are considered

constructive exports.45 Respondent should not be faulted for relying on the BIR’s
interpretation of the said laws and regulations.46 While it is true, as petitioner
alleges, that government is not estopped from collecting taxes which remain
unpaid on account of the errors or mistakes of its agents and/or officials and
there could be no vested right arising from an erroneous interpretation of law,
these principles must give way to exceptions based on and in keeping with the
interest of justice and fairplay, as has been done in the instant matter. For, it is
primordial that every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.

This Court is not unaware of the well-entrenched principle that the [g]overnment
is never estopped from collecting taxes because of mistakes or errors on the
part of its agents. But, like other principles of law, this also admits of exceptions in
the interest of justice and fairplay.

Respondent, in this case, has similarly been put on the receiving end of a grossly
unfair deal. Before respondent was entitled to tax refunds or credits based on
petitioner’s own issuances. Then suddenly, it found itself instead being made to
pay deficiency taxes with petitioner’s retroactive change in the VAT
categorization of respondent’s transactions with the Central Bank. This is the sort
of unjust treatment of a taxpayer which the law in Sec. 246 of the NIRC abhors
and forbids.

Abakada Guro Party List, et. al.,


versus The Honorable Executive Secretary Eduardo Ermita, et. al.,
GR No. 168065, September 1, 2005
En Banc, Austria-Martinez, J.

Facts: The two Houses of Congress passed the a law on E-VAT. On the day of its
effectivity, the Court issued a TRO.

Petitioners in this case filed petitions for certiorary and prohibitions stating that
the said law violates the provisions of the Constitution.

As a prelude, the Court deems it apt to restate the general principles and
concepts of value-added tax (VAT), as the confusion and inevitably, litigation,
breeds from a fallacious notion of its nature.
The VAT is a tax on spending or consumption. It is levied on the sale, barter,
exchange or lease of goods or properties and services.8 Being an indirect tax on
expenditure, the seller of goods or services may pass on the amount of tax paid
to the buyer,9 with the seller acting merely as a tax collector.10 The burden of
VAT is intended to fall on the immediate buyers and ultimately, the end-
consumers.

In contrast, a direct tax is a tax for which a taxpayer is directly liable on the
transaction or business it engages in, without transferring the burden to someone
else.11 Examples are individual and corporate income taxes, transfer taxes, and
residence taxes.12

In the Philippines, the value-added system of sales taxation has long been in
existence, albeit in a different mode. Prior to 1978, the system was a single-stage
tax computed under the "cost deduction method" and was payable only by the
original sellers. The single-stage system was subsequently modified, and a
mixture of the "cost deduction method" and "tax credit method" was used to
determine the value-added tax payable.13 Under the "tax credit method," an
entity can credit against or subtract from the VAT charged on its sales or outputs
the VAT paid on its purchases, inputs and imports.

Issue: WON RA 9337 is unconstitutional, specifically the provision which


delegates the President to raise the rate of VAT from 10% to 12% after a year.

Held. No.

Petitioners allege that the grant of the stand-by authority to the President to
increase the VAT rate is a virtual abdication by Congress of its exclusive power
to tax because such delegation is not within the purview of Section 28 (2),
Article VI of the Constitution, which provides:

The Congress may, by law, authorize the President to fix within specified limits,
and may impose, tariff rates, import and export quotas, tonnage and wharfage
dues, and other duties or imposts within the framework of the national
development program of the government.

With respect to the Legislature, Section 1 of Article VI of the Constitution provides


that "the Legislative power shall be vested in the Congress of the Philippines
which shall consist of a Senate and a House of Representatives." The powers
which Congress is prohibited from delegating are those which are strictly, or
inherently and exclusively, legislative. Purely legislative power, which can never
be delegated, has been described as the authority to make a complete law –
complete as to the time when it shall take effect and as to whom it shall be
applicable – and to determine the expediency of its enactment.
Arturo Tolentino
versus The Secretary of Finance, et. al.,
G.R. No. 115525, August 25, 1994
En Banc, Mendoza, J.

Facts: The value-added tax (VAT) is levied on the sale, barter or exchange of
goods and properties as well as on the sale or exchange of services. It is
equivalent to 10% of the gross selling price or gross value in money of goods or
properties sold, bartered or exchanged or of the gross receipts from the sale or
exchange of services. Republic Act No. 7716 seeks to widen the tax base of the
existing VAT system and enhance its administration by amending the National
Internal Revenue Code.

These are various suits for certiorari and prohibition, challenging the
constitutionality of Republic Act No. 7716 on various grounds.

The Philippine Press Institute (PPI), petitioner in G.R. No. 115544, is a nonprofit
organization of newspaper publishers established for the improvement of
journalism in the Philippines. On the other hand, petitioner in G.R. No. 115781, the
Philippine Bible Society (PBS), is a nonprofit organization engaged in the printing
and distribution of bibles and other religious articles. Both petitioners claim
violations of their rights under § § 4 and 5 of the Bill of Rights as a result of the
enactment of the VAT Law.

The PPI questions the law insofar as it has withdrawn the exemption previously
granted to the press under § 103 (f) of the NIRC. Although the exemption was
subsequently restored by administrative regulation with respect to the
circulation income of newspapers, the PPI presses its claim because of the
possibility that the exemption may still be removed by mere revocation of the
regulation of the Secretary of Finance. On the other hand, the PBS goes so far as
to question the Secretary's power to grant exemption for two reasons: (1) The
Secretary of Finance has no power to grant tax exemption because this is
vested in Congress and requires for its exercise the vote of a majority of all its
members 26 and (2) the Secretary's duty is to execute the law.

§ 103 of the NIRC contains a list of transactions exempted from VAT. Among the
transactions previously granted exemption were:

(f) Printing, publication, importation or sale of books and any newspaper,


magazine, review, or bulletin which appears at regular intervals with fixed prices
for subscription and sale and which is devoted principally to the publication of
advertisements.
Republic Act No. 7716 amended § 103 by deleting ¶ (f) with the result that print
media became subject to the VAT with respect to all aspects of their operations.
Later, however, based on a memorandum of the Secretary of Justice,
respondent Secretary of Finance issued Revenue Regulations No. 11-94, dated
June 27, 1994, exempting the "circulation income of print media pursuant to § 4
Article III of the 1987 Philippine Constitution guaranteeing against abridgment of
freedom of the press, among others." The exemption of "circulation income" has
left income from advertisements still subject to the VAT.

Issue: WON RA 7716 violates constitutional rights of Press Freedom, Freedom of


Thought, and Religious Freedom

Held: No. The law does not abridge freedom of speech, expression or the press,
nor interfere with the free exercise of religion, nor deny to any of the parties the
right to an education.

PPI contends that by withdrawing the exemption previously granted to print


media transactions involving printing, publication, importation or sale of
newspapers, Republic Act No. 7716 has singled out the press for discriminatory
treatment and that within the class of mass media the law discriminates against
print media by giving broadcast media favored treatment. We have carefully
examined this argument, but we are unable to find a differential treatment of
the press by the law, much less any censorial motivation for its enactment. If the
press is now required to pay a value-added tax on its transactions, it is not
because it is being singled out, much less targeted, for special treatment but
only because of the removal of the exemption previously granted to it by law.
The withdrawal of exemption is all that is involved in these cases. Other
transactions, likewise previously granted exemption, have been delisted as part
of the scheme to expand the base and the scope of the VAT system. The law
would perhaps be open to the charge of discriminatory treatment if the only
privilege withdrawn had been that granted to the press. But that is not the case.

Atlas Consolidated Mining and Development Corp.


versus Commisioner of Internal Revenue
G.R. Nos. 141104 & 148763, June 8 2007
Third Division, Chico-Nazario, J.

Facts: Petitioner filed with the BIR its VAT Return. It alleged that it likewise filed
with the BIR the corresponding application for the refund/credit of its input VAT
on its purchases of capital goods and on its zero-rated sales in the amount of
P26,030,460.00. When its application for refund/credit remained unsolved,
petitioner filed its Petition for Review with the CTA. CTA denied the on the
ground that at least 70% of sales of the firm must consist of exports for zero-rating
to apply.

Petitioner contends that CTA failed to consider the sales to PASAR and Philphos
within EPZA as zero-rated export sales, and that the claim has not yet
prescribed.

ISSUE: WON the petitioner sufficiently establish the factual bases for its
applications for refund/credit of input VAT

HELD: No. The Court ruled that the petitioner corporation has failed to establish
the factual bases.

Although the Court agreed with the petitioner corporation that the two-year
prescriptive period for the filing of claims for refund/credit of input VAT must be
counted from the date of filing of the quarterly VAT return, and that sales to
PASAR and PHILPOS inside the EPZA are taxed as exports because these export
processing zones are to be managed as a separate customs territory from the
rest of the Philippines, and thus, for tax purposes, are effectively considered as
foreign territory, it still denies the claims of petitioner corporation for refund of its
input VAT on its purchases of capital goods and effectively zero-rated sales
during the period claimed for not being established and substantiated by
appropriate and sufficient evidence.

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation


of the sovereign authority, and should be construed in strictissimi juris against the
person or entity claiming the exemption. The taxpayer who claims for
exemption must justify his claim by the clearest grant of organic or statute law
and should not be permitted to stand on vague implications.

Commissioner of Internal Revenue


versus American Express Int'l, Inc. (Phil. Branch)
G.R. No. 152609, june 29, 2005
Third Division, Panganiban, J.

Facts: "[Respondent] is a Philippine branch of American Express International,


Inc. It is a servicing unit of American Express International, Inc. - Hongkong
Branch and is engaged primarily to facilitate the collections of Amex-HK
receivables from card members situated in the Philippines and payment to
service establishments in the Philippines.

[respondent] filed with the BIR a letter-request for the refund of its 1997 excess
input taxes in the amount of ₱3,751,067.04, which amount was arrived at after
deducting from its total input VAT paid of ₱3,763,060.43 its applied output VAT
liabilities only for the third and fourth quarters of 1997 amounting to ₱5,193.66
and ₱6,799.43, respectively.

CA reversed the ruling of the CTA and ordered the petitioner to refuld to
respondent the amount of 3.3m representing the latter's excess input VAT paid
for the year 1997.

Issue: WON the services performed by the respondents are zero-rated.

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

Respondent is a VAT-registered person that facilitates the collection and


payment of receivables belonging to its non-resident foreign client, for which it
gets paid in acceptable foreign currency inwardly remitted and accounted for
in conformity with BSP rules and regulations. Certainly, the service it renders in
the Philippines is not in the same category as "processing, manufacturing or
repacking of goods" and should, therefore, be zero-rated. In reply to a query of
respondent, the BIR opined in VAT Ruling No. 080-89 that the income respondent
earned from its parent company’s regional operating centers (ROCs) was
automatically zero-rated effective January 1, 1988.

As a general rule, the value-added tax (VAT) system uses the destination
principle. However, our VAT law itself provides for a clear exception, under
which the supply of service shall be zero-rated when the following requirements
are met: (1) the service is performed in the Philippines; (2) the service falls under
any of the categories provided in Section 102(b) of the Tax Code; and (3) it is
paid for in acceptable foreign currency that is accounted for in accordance
with the regulations of the Bangko Sentral ng Pilipinas. Since respondent’s
services meet these requirements, they are zero-rated. Petitioner’s Revenue
Regulations that alter or revoke the above requirements are ultra vires and
invalid.