VAT business" requires the regular conduct or pursuit of a commercial or an
economic activity, regardless of whether or not the entity is profit-oriented.
1. Basic Elements
CIR v. Commonwealth Management
Commonwealth Management and Services Corporation (COMASERCO,
for brevity), is a corporation duly organized and existing under the laws of
the Philippines. It is an affiliate of Philippine American Life Insurance Co.
(Philamlife), organized by the letter to perform collection, consultative and
other technical services, including functioning as an internal auditor, of
Philamlife and its other affiliates.
It was assessed a deficiency VAT. COMASERCO asserted that the services
it rendered to Philamlife and its affiliates, relating to collections,
consultative and other technical assistance, including functioning as an
internal auditor, were on a "no-profit, reimbursement-of-cost-only" basis. It
averred that it was not engaged in the business of providing services to
Philamlife and its affiliates. COMASERCO was established to ensure
operational orderliness and administrative efficiency of Philamlife and its
affiliates, and not in the sale of services. COMASERCO stressed that it was
not profit-motivated, thus not engaged in business. In fact, it did not
generate profit but suffered a net loss in taxable year 1988. COMASERCO
averred that since it was not engaged in business, it was not liable to pay
VAT.
CA reversed CTA cancelling the assessment of deficiency tax. The Court of
Appeals anchored its decision on the ratiocination in another tax case
involving the same parties, where it was held that COMASERCO was not
liable to pay fixed and contractor's tax for services rendered to Philamlife
and its affiliates. The Court of Appeals, in that case, reasoned that
COMASERCO was not engaged in business of providing services to
Philamlife and its affiliates.
WN COMASERCO was engaged in the sale of services, and thus liable
to pay VAT thereon. YES.
Contrary to COMASERCO's contention the NIRC 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
Section 108 of the NIRC of 1997 defines the phrase "sale of services" as the
"performance of all kinds of services for others for a fee, remuneration or
consideration." It includes "the supply of technical advice, assistance or
services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking or
project."
Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates
on a reimbursement-on-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered. As long
as the entity provides service for a fee, remuneration or consideration,
then the service rendered is subject to VAT.
Mindanao Geothermal v CIR
[Mindanao II] allegedly entered into a Built (sic)-Operate-Transfer (BOT)
contract with the Philippine National Oil Corporation – Energy
Development Company (PNOC-EDC) for finance, engineering, supply,
installation, testing, commissioning, operation, and maintenance of a 48.25
megawatt geothermal power plant, provided that PNOC-EDC shall supply
and deliver steam to Mindanao II at no cost. In turn, Mindanao II shall
convert the steam into electric capacity and energy for PNOC-EDC and
shall deliver the same to the National Power Corporation (NPC) for and in
behalf of PNOC-EDC. Mindanao II alleges that its sale of generated power
and delivery of electric capacity and energy of Mindanao II to NPC for and
in behalf of PNOC-EDC is its only revenue-generating activity, which is in
the ambit of VAT zero-rated sales under the EPIRA Law.
It applied for a refund because it has accumulated creditable input VAT
from its only income generating company. CTA granted its refund but
disallowed the input VAT on the sale of the fully Nissan Patrol because the
output VAT for the same was not included in the VAT declarations.
WN the sale of the fully depreciated Nissan Patrol is an incidental
transaction in the course of trade or business and hence subject to
VAT? YES.
Mindanao II’s sale of the Nissan Patrol is said to be an isolated transaction.
However, it does not follow that an isolated transaction cannot be an
incidental transaction for purposes of VAT liability. Indeed, a reading of
Section 105 of the 1997 Tax Code would show that a transaction "in the
course of trade or business" includes "transactions incidental thereto."
Mindanao II’s business is to convert the steam supplied to it by PNOC-EDC
into electricity and to deliver the electricity to NPC. In the course of its
business, Mindanao II bought and eventually sold a Nissan Patrol. Prior to
the sale, the Nissan Patrol was part of Mindanao II’s property, plant, and
equipment. Therefore, the sale of the Nissan Patrol is an incidental
transaction made in the course of Mindanao II’s business which should be
liable for VAT.
CIR v. Magsaysay Lines
Pursuant to a government program of privatization, NDC decided to sell
to private enterprise all of its shares in its wholly-owned subsidiary the
National Marine Corporation (NMC). The NDC decided to sell in one lot its
NMC shares and five (5) of its ships, which are 3,700 DWT Tween-Decker,
Kloeckner type vessels. The vessels were constructed for the NDC between
1981 and 1984, then initially leased to Luzon Stevedoring Company, also
its wholly-owned subsidiary. Subsequently, the vessels were transferred and
leased, on a bareboat basis, to the NMC.
The NMC shares and the vessels were offered for public bidding. Among
the stipulated terms and conditions for the public auction was that the
winning bidder was to pay a value added tax of 10% on the value of the
vessels. Magsaysay Lines, offered to buy the shares and the vessels
for P168M.
WN the sale of the vessels is subject to VAT?NO.
VAT is ultimately a tax on consumption, even though it is assessed on many
levels of transactions on the basis of a fixed percentage. It is the end user of
consumer goods or services which ultimately shoulders the tax, as the
liability therefrom is passed on to the end users by the providers of these
goods or services who in turn may credit their own VAT liability (or input
VAT) from the VAT payments they receive from the final consumer (or
output VAT). The final purchase by the end consumer represents the final
link in a production chain that itself involves several transactions and
several acts of consumption. The VAT system assures fiscal adequacy
through the collection of taxes on every level of consumption, yet assuages
the manufacturers or providers of goods and services by enabling them to
pass on their respective VAT liabilities to the next link of the chain until
finally the end consumer shoulders the entire tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its
assessment bears direct relevance to the taxpayer’s role or link in the
production chain. Hence, as affirmed by Section 99 of the Tax Code and its
subsequent incarnations, the tax is levied only on the sale, barter or
exchange of goods or services by persons who engage in such activities, in
the course of trade or business. These transactions outside the course of
trade or business may invariably contribute to the production chain, but they
do so only as a matter of accident or incident. As the sales of goods or
services do not occur within the course of trade or business, the providers of
such goods or services would hardly, if at all, have the opportunity to
appropriately credit any VAT liability as against their own accumulated
VAT collections since the accumulation of output VAT arises in the first
place only through the ordinary course of trade or business.
Imperial v. Collector of Internal Revenue, the term carrying on
business does not mean the performance of a single disconnected act, but
means conducting, prosecuting and continuing business by performing
progressively all the acts normally incident thereof; while doing
business conveys the idea of business being done, not from time to time,
but all the time. Course of business is what is usually done in the
management of trade or business.
The conclusion that the sale was not in the course of trade or business,
which the CIR does not dispute before this Court, should have definitively
settled the matter. Any sale, barter or exchange of goods or services not in
the course of trade or business is not subject to VAT.
Diaz v. SOF
Petitioners allege that the BIR attempted during the administration of
President GMA to impose VAT on toll fees. The imposition was deferred,
however, in view of the consistent opposition of Diaz and other sectors to
such move. But, upon President Benigno C. Aquino IIIs assumption of
office in 2010, the BIR revived the idea and would impose the challenged
tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC,
intend to include toll fees within the meaning of sale of services that are
subject to VAT; that a toll fee is a users tax, not a sale of services; that to
impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.
WN tollway fees are subject to VAT? YES.

VAT is levied, assessed, and collected, according to Section 108, on the
gross receipts derived from the sale or exchange of services as well as from
the use or lease of properties.
By qualifying services with the words all kinds, Congress has given the
term services an all-encompassing meaning. The listing of specific services
are intended to illustrate how pervasive and broad is the VATs reach rather
than establish concrete limits to its application. Thus, every activity that can
be imagined as a form of service rendered for a fee should be deemed
included unless some provision of law especially excludes it.
Section 108 subjects to VAT all kinds of services rendered for a fee
regardless of whether or not the performance thereof calls for the exercise
or use of the physical or mental faculties. This means that services to be
subject to VAT need not fall under the traditional concept of services, the
personal or professional kinds that require the use of human knowledge and
skills.
CIR v. Sony PH
On November 24, 1998, the CIR issued a LOA authorizing certain revenue
officers to examine Sony’s books of accounts and other accounting records
regarding revenue taxes for the period 1997 and unverified prior years.
After trial, the CTA-First Division disallowed the deficiency VAT
assessment because the subsidized advertising expense paid by Sony which
was duly covered by a VAT invoice resulted in an input VAT credit.
CIRs argument, that Sony’s advertising expense could not be considered as
an input VAT credit because the same was eventually reimbursed by Sony
International Singapore (SIS). The CIR contends that since Sonys
advertising expense was reimbursed by SIS, the former never incurred any
advertising expense. As a result, Sony is not entitled to a tax credit. At most,
the CIR continues, the said advertising expense should be for the account of
SIS, and not Sony.
WN input VAT on advertising expense should be disallowed because it
was eventually reimbursed by Sony SG. NO. It should be allowed.
It was a legitimate business expense covered by an invoice. This is
confirmed by no less than CIRs own witness, Revenue Officer
Aluquin. There is also no denying that Sony incurred advertising
expense. Aluquin testified that advertising companies issued invoices in the
name of Sony and the latter paid for the same. Indubitably, Sony incurred
and paid for advertising expense/ services. Where the money came from is
another matter all together but will definitely not change said fact.
WN the subsidy granted by Sony SG to Sony PH in order to minimize
business reverses was subject to VAT? NO.
At most, subsidy may be considered as income and, therefore, subject to
income tax.
No sale occurred. Sony did not render any service to SIS at all. The services
rendered by the advertising companies, paid for by Sony using SIS dole-out,
were for Sony and not SIS. SIS just gave assistance to Sony in the amount
equivalent to the latters advertising expense but never received any goods,
properties or service from Sony.
Comaserco case is not applicable. COMASERCO rendered service to its
affiliates and, in turn, the affiliates paid the former reimbursement-on-cost
which means that it was paid the cost or expense that it incurred although
without profit. This is not true in the present case. Sony did not render any
service to SIS at all. The services rendered by the advertising companies,
paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just
gave assistance to Sony in the amount equivalent to the latters advertising
expense but never received any goods, properties or service from Sony.
Lapanday v. CIR
Petitioner was assessed deficiency VAT of 7.8M which resulted from the
interest income derived from the inter-co loans to affiliates as a form of
financial assistance in the course of trade or business. Petitioner asserts it is
not a lending investor nor a dealer in securities or a financing company.
WN Lapanday is liable for deficiency VAT in on interest from
intercompany loans? YES.
Lapanday is engaged in managing, promoting, administering or assisting in
any business or activity of corporations, partnerships, associations,
individual or firm. When it extended loans, it provided assistance to
corporations and thus performed services incidental to its business.
A loan assistance to its affiliates is incidental to its business and deemed in
the course of trade and business.
Course of trade or business: regular pursuit of commercial or economic
activity including incidental transactions.
Incidental: appertaining to something else primary
2. Normal VAT Transactions and Importations
CIR v. SM Prime
Respondents, SM Prime Holdings, Inc. (SM Prime) and First Asia Realty
Development Corporation (First Asia) are domestic corporations duly
organized and existing under the laws of the Republic of
the Philippines. Both are engaged in the business of operating cinema
houses, among others. SM Prime is a majority shareholder of First Asia.
BIR sent SM Prime a Preliminary Assessment Notice (PAN) for VAT
deficiency on cinema ticket sales in the amount of 119M for taxable year
2000.
BIR sent First Asia a PAN for VAT deficiency on
cinema ticket sales:
- 1999- 35M.
- 2000- 35M
- 2002- 32.8M
- 2003- 28M
CTA DIV decision:
Resorting to the language used and the legislative history of the law, it ruled
that the activity of showing cinematographic films is not a service covered
by VAT under the National Internal Revenue Code (NIRC) of 1997, as
amended, but an activity subject to amusement tax under RA 7160,
otherwise known as the Local Government Code (LGC) of 1991.
held that the House of Representatives resolved that there should only be
one business tax applicable to theaters and movie houses, which is the 30%
amusement tax imposed by cities and provinces under the LGC of
1991. Further, it held that consistent with the States policy to have a viable,
sustainable and competitive theater and film industry, the national
government should be precluded from imposing its own business tax in
addition to that already imposed and collected by local government units.
CTA En Banc
Section 108 of the NIRC actually sets forth an exhaustive enumeration of
what services are intended to be subject to VAT. And since the showing or
exhibition of motion pictures, films or movies by cinema operators or
proprietors is not among the enumerated activities contemplated in the
phrase sale or exchange of services, then gross receipts derived by cinema/
theater operators or proprietors from admission tickets in showing motion
pictures, film or movie are not subject to VAT.
WN the gross receipts derived by operators or proprietors of cinema/theater
houses from admission tickets are subject to VAT. No.
A cursory reading of the foregoing provision 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.
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
Persons subject to amusement tax under the NIRC of 1977, as amended,
however, were exempted from the coverage of VAT.
On February 19, 1988, then Commissioner Bienvenido A. Tan, Jr. issued
RMC 8-88, which clarified that the power to impose amusement tax on
gross receipts derived from admission tickets was exclusive with the local
government units and that only the gross receipts of amusement places
derived from sources other than from admission tickets were subject to
amusement tax under the NIRC of 1977,
On October 10, 1991, the LGC of 1991 was passed into law. The local
government retained the power to impose amusement tax on proprietors,
lessees, or operators of theaters, cinemas, concert halls, circuses, boxing
stadia, and other places of amusement at a rate of not more than thirty
percent (30%) of the gross receipts from admission fees under Section 140
thereof.
MEDICARD PHILIPPINES, INC VS. CIR
MEDICARD is a Health Maintenance Organization (HMO) that provides
prepaid health and medical insurance coverage to its clients. Individuals
enrolled in its health care programs pay an annual membership fee and are
entitled to various preventive, diagnostic and curative medical services
provided by duly licensed physicians, specialists and other professional
technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.
CIR assessed it with deficiency VAT based on its entire gross receipts
without any deduction.
MEDICARD argued that: (1) the services it renders is not limited merely to
arranging for the provision of medical and/or hospital services by hospitals
and/or clinics but include actual and direct rendition of medical and
laboratory services; in fact, its 2006 audited balance sheet shows that it
owns x-ray and laboratory facilities which it used in providing medical and
laboratory services to its members; (2) out of the P1.9 Billion membership
fees, P319 Million was received from clients that are registered with the
Philippine Export Zone Authority (PEZA) and/or Bureau of Investments;
(3) the processing fees amounting to P11.5 Million should be excluded from
gross receipts because P5.6 Million of which represent advances for
professional fees due from clients which were paid by MEDICARD while
the remainder was already previously subjected to VAT; (4) the
professional fees in the amount of P11 Million should also be excluded
because it represents the amount of medical services actually and directly
rendered by MEDICARD and/or its subsidiary company; and (5) even
assuming that it is liable to pay for the VAT, the 12% VAT rate should not
be applied on the entire amount but only for the period when the 12% VAT
rate was already in effect, i.e., on February 1, 2006. It should not also be
held liable for surcharge and deficiency interest because it did not pass on
the VAT to its members.
WN the amounts that MEDICARD earmarked and eventually paid to
the medical service providers still form part of its gross receipts for
VAT purposes? – NO
No. An HMO like MEDICARD is principally engaged in the sale of
services. Its VAT base and corresponding liability is, thus, determined
under Section 108(A) of the Tax Code, as amended. The term gross receipts
as elsewhere mentioned as the tax base under the NIRC does not contain
any specific definition. Therefore, absent a statutory definition, the term has
been construed in its plain and ordinary meaning, that is, ‘gross receipts’ is
understood as comprising the entire receipts without any deduction.
Under Section 108, however, the scope of the term gross receipts for VAT
purposes is limited only to the amount that the taxpayer received for the
services it performed or to the amount it received as advance payment for
the services it will render in the future for another person.
The CIR’s argument that the act of earmarking or allocation is by itself an
act of ownership and management over the funds is not correct. On the
contrary, the act of earmarking or allocating a certain percentage of the
membership fee at the time of payment weakens the ownership imputed to
MEDICARD. The act of earmarking or allocating indicates the unequivocal
recognition by MEDICARD that its possession of the funds is not in the
concept of owner but as a mere administrator of the same. For this reason, at
most, MEDICARD’s right in relation to these amounts is a mere inchoate
owner which would ripen into actual ownership if, and only if, there is
underutilization of the membership fees at the end of the fiscal year. Prior to
that, MEDICARD is bound to pay from the amounts it had allocated as an
administrator once its members avail of the medical services of its
healthcare providers.
Before the Court, the parties were one in submitting the legal issue of
whether the amounts MEDICARD earmarked, corresponding to 80% of its
enrollment fees, and paid to the medical service providers should form part
of its gross receipt for VAT purposes, after having paid the VAT on the
amount comprising the 20%. It is significant to note in this regard that
MEDICARD established that upon receipt of payment of membership fee it
actually issued two official receipts, one pertaining to the VAT able portion,
representing compensation for its services, and the other represents the non-
vatable portion pertaining to the amount earmarked for medical utilization.
Therefore, the absence of an actual and physical segregation of the amounts
pertaining to two different kinds of fees cannot arbitrarily disqualify
MEDICARD from rebutting the presumption under the law and from
proving that indeed services were rendered by its healthcare providers for
which it paid the amount it sought to be excluded from its gross receipts.
Hence, for purposes of determining the VAT liability of an HMO, like
MEDICARD, the amounts earmarked and actually spent for medical
utilization of its members should not be included in the computation of its
gross receipts
3. Zero –rated Transactions
CIR v. Seagate
1. Seagate Technology is a resident foreign corporation duly registered w/
SEC to do business in the PH w/ principal office address at the new
Cebu Township One, Special Economic Zone, Barangay Cantaa-an,
Naga, Cebu.
2. Seagate is registered w/ PEZA and has been issued PEZA Cert. No. 97-
044 pursuant to PD No. 66, as amended, to engage in manufacture of
recording components primarily used in computers for export.
3. It filed an administrative claim for refund of VAT input taxes in the
amount of 28M w/ supporting documents. However, no action was not
acted upon.
4. Hence, it filed a petition for review with CTA to toll the 2-year
prescriptive period.
5. BIR argued among others that:
a. If Seagate is a PEZA registered Ecozone Enterprise, then its business is
NOT subject to VAT. As Seagate’s business is not subject to VAT, the
capital goods and services it alleged to have purchased are considered
not used in VAT taxable business. As such, it is not entitled to refund of
input taxes on such capital goods and on services pursuant to revenue
regulations.
6. CTA granted the tax refund.
7. CA affirmed Decision of CTA for refund/issuance of a tax credit
certificate in favor of Seagate in the amount of P12,122,922.66.
a. CA reasoned that since Seagate availed itself only of the fiscal
incentives under E.O 226 (Omnibus Investment Code) and not under PD
66, as amended and Sec. 24, RA 7916, it is therefore considered exempt
only from the payment of income tax when it opted for the income tax
holiday 1 rather than the 5 percent preferential tax on gross income
earned.
b. As a VAT-registered entity, it was still subject to payment of other
national internal revenue taxes like VAT. Since Seagate paid the
input VAT on the capital goods it purchased, it correctly filed the
administrative and judicial claims for its refund. These payments
were duly supported by VAT invoices or official receipts, and were not
offset against any output VAT liability.
Issue: Whether Seagate is entitled to refund? YES.
Ratio:
As a PEZA-registered enterprise within a special economic zone, Seagate is
entitled to the fiscal incentives and benefits provided for in either PD 66 or
EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or
exemptions under both Republic Act Nos. (RA) 7227 and 7844. (SEE
OTHER NOTES)
1 If VAT-registered entity avails of income tax holiday – it is exempt from income taxes for a
number of years, but not from
other national internal revenue taxes like the VAT; but if it
avails of 5 percent preferential tax, it is exempt from all taxes, including VAT
Seagate enjoys preferential tax treatment based on the aforementioned laws.
Is not subject to internal revenue laws and regulations and is even entitled to
tax credits. The VAT on capital goods is an internal revenue tax from
which Seagate as an entity is exempt. Although the transactions
involving such tax are not exempt, Seagate as a VAT-registered person,
however, is entitled to their credits.
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.
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. Under the present method that relies on invoices, an entity can
credit against or subtract from the VAT charged on its sales or outputs the
VAT paid on its purchases, inputs and imports.
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.
It is when the output taxes exceed the input taxes that the excess has to
be paid. If, however, the input taxes exceed the output taxes, the excess
shall be carried over to the succeeding quarter or quarters. 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.
Zero-Rated vs. Effectively Zero-Rated Transactions
Zero-rated transactions - 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
results in no tax chargeable against the purchaser. The seller of such
transactions charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers.
Effectively zero-rated transactions - 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.
Zero Rating and Exemption
In terms of the VAT computation, zero rating and exemption are the same,
except extent of relief that results from either.
Applying the destination principle2, to the exportation of goods, automatic
zero rating is primarily intended to be enjoyed by the seller who is
directly and legally liable for the VAT, making such seller internationally
competitive by allowing the refund or credit of input taxes that are
attributable to export sales. However, in effective zero rating, it 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.
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.
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 which,
by their nature, are specifically listed in and expressly exempted from the
VAT under the Tax Code, without regard to the tax status (VAT-exempt or
not) of the party to the transaction. The transaction is not subject to the
VAT, but the seller is not allowed any tax refund of or credit for any input
taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT
exemption under the Tax Code, a special law or an international agreement
2 ACCDG to ingles book: exports are zero-rated while imports are taxed
to which the Philippines is a signatory, and by virtue of which its taxable
transactions become exempt from the VAT. The party is 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 Seagate are not VAT-exempt.
Special laws may certainly exempt transactions from VAT. However, the
Tax Code provides that those falling under PD 66 are not, the special law
under w/c Seagate is registered.
Hence, the purchase transactions Seagate entered into are, therefore,
not VAT-exempt. These are subject to the VAT. 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 Seagate 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
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 to an ecozone except specifically declared areas.

Sales made by a VAT-registered person in the customs territory to a PEZA-
registered 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,
while w/in the geographical territory of the Philippines, is considered as
foreign soil. This legal fiction is necessary to give meaningful effect to the
policies of the special law creating the zone.
If Seagate 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.
Tax Exemptions: Broad and Express
Seagate 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.
Seagate, 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.
Tax Refund as Tax Exemption
Statutes that grant tax exemptions are construed strictly against taxpayer
and liberally in favor of the taxing authority. Tax refunds are in the nature
of such exemptions. Accordingly, the claimants of those refunds must bear
the burden of proving their entitlement to the refund. this case, Seagate was
able to prove that it is entitled to the refund.
Seagate, 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.
Nonetheless, its exemption as an entity and the non-exemption of its
transactions lead to the same result for the following considerations:
1. RMC 74-99 clearly and correctly provides that any VAT-registered
suppliers sale of goods, property or services from the customs
territory to any registered enterprise operating in the ecozone
regardless of the class or type of the latter’s PEZA registration is
legally entitled to a zero rate.
2. Policies of the law should prevail. All these statutory policies3 are
congruent to the constitutional mandates of providing incentives to
needed investments, 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.
VAT Registration and not application for Effective Zero Rating is
indispensable to VAT Refund
Registration is an indispensable requirement under our VAT law. However,
it is too late for CIR to challenge the status of Seagate as VAT-Registed
person.
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.
The BIR regulations additionally requiring an approved prior application for
effective zero rating cannot prevail over the clear VAT nature of
respondents transactions. The scope of such regulations is not within the
statutory authority granted by the legislature.
1. Mere administrative issuance, like a BIR regulation, cannot amend
the law.
a. Other than the general registration of a taxpayer the VAT
status of which is aptly determined, no provision under
our VAT law requires an additional application to be
made for such taxpayers transactions to be considered
effectively zero-rated.
b. An effectively zero-rated transaction does not and
cannot become exempt simply because an application
was not made or, if made, was denied. To allow the
additional requirement is to give unfettered discretion to
those officials or agents who, without fluid consideration,
are bent on denying a valid application.
2. There is a presumption of regularity in the performance of official
duty (application for effective zero rating was filed & it was
proved).
3 PD 66, RA7916, EO 226, RA7227, RA 7916, RA 7844 and Tax Code
 3. Special laws exempt Seagate not only from internal revenue laws
and regulations. Leniency in the implementation of the VAT in
ecozones is an imperative for economic growth & attain global
competitiveness.
A VAT-registered status, as well as compliance with the invoicing
requirements, is sufficient for the effective zero rating of the
transactions of a taxpayer. The nature of its business and transactions can
easily be determined from the VAT registration papers and attached
documents. Hence, its transactions cannot be exempted by its mere failure
to apply for their effective zero rating. Otherwise, VAT exemption would be
determined, not by their nature, but by the taxpayers negligence, a result not
at all contemplated.
Having determined that Seagate’s purchase transactions are subject to a zero
VAT rate, it is then entitled to tax refund/credit.
Moreover, respondent complied w/ requisites for claiming a VAT refund or
credit.
1. Seagate is a VAT-registered entity.
2. Input taxes paid on the capital goods of Seagate are duly supported
by VAT invoices and have not been offset against any output
taxes.
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
Other Notes:
Even if it is argued that Seagate is subject to the 5 percent preferential tax
regime, this does not preclude the VAT. It can be argued that such provision
under RA 7916 merely exempts Seagate 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.
Preferential Tax Treatment Under Special Laws
PD 66 - Notwithstanding the provisions of other laws to the contrary,
Seagate shall not be subject to internal revenue laws and regulations for raw
materials, supplies, articles, equipment, machineries, spare parts and wares,
except those prohibited by law, brought into the zone to be stored, broken
up, repacked, assembled, installed, sorted, cleaned, graded or otherwise
processed, manipulated, manufactured, mixed or used directly or indirectly
in such activities. Even so, Seagate would enjoy a net-operating loss carry
over; accelerated depreciation; foreign exchange and financial assistance;
and exemption from export taxes, local taxes and licenses.
EO – 226 – Exemption from internal revenue laws and regulations applies.
Under this law, Seagate shall also be entitled to an income tax holiday;
additional deduction for labor expense; simplification of customs procedure;
unrestricted use of consigned equipment; access to a bonded manufacturing
warehouse system; privileges for foreign nationals employed; tax credits on
domestic capital equipment, as well as for taxes and duties on raw materials;
and exemption from contractors taxes, wharfage dues, taxes and duties on
imported capital equipment and spare parts, export taxes, duties, imposts
and fees, local taxes and licenses, and real property taxes.
RA 7227 - Tax and duty-free importation of raw materials, capital and
equipment is, ipso facto, also accorded to the zone under RA 7916.
RA 7916 - Notwithstanding other existing laws, rules and regulations to the
contrary extends to that zone the provision stating that no local or national
taxes shall be imposed. No exchange control policy shall be applied; and
free markets for foreign exchange, gold, securities and future shall be
allowed and maintained.[Banking and finance shall also be liberalized under
minimum Bangko Sentral regulation with the establishment of foreign
currency depository units of local commercial banks and offshore banking
units of foreign banks.
Seagate also benefits under RA 7844 from negotiable tax credits for locally-
produced materials used as inputs. Aside from the other incentives possibly
already granted to it by the Board of Investments, it also enjoys preferential
credit facilities and exemption from PD 1853.
SOF v. Lazatin
1. In response to reports of smuggling of petroleum and petroleum
products and to ensure the correct taxes are paid and collected, petitioner
Secretary of Finance Cesar V. Purisima — pursuant to his authority to
interpret tax laws and upon the recommendation of petitioner
Commissioner of Internal Revenue (CIR) Kim S. Jacinto- Henares
signed RR 2-2012 on February 17, 2012.
2. The RR requires the payment of value-added tax (VAT) and excise tax
on the importation of all petroleum and petroleum products coming
directly from abroad and brought into the Philippines, including
Freeport and economic zones (FEZs). It then allows the credit or refund
of any VAT or excise tax paid if the taxpayer proves that the petroleum
 previously brought in has been sold to a duly registered FEZ locator and
used pursuant to the registered activity of such locator.
3. In other words, an FEZ locator must first pay the required taxes upon
entry into the FEZ of a petroleum product, and must thereafter prove the
use of the petroleum product for the locator's registered activity in order
to secure a credit for the taxes paid.
4. Lazatin posits that Republic Act No. (RA) 9400 treats the Clark Special
Economic Zone and Clark Freeport Zone (together hereinafter referred
to as Clark FEZ) as a separate customs territory and allows tax and duty-
free importations of raw materials, capital and equipment into the zone.
Thus, the imposition of VAT and excise tax, even on the importation of
petroleum products into FEZs (like Clark FEZ), directly contravenes the
law.
5. EPEC, a respondent, claims that, as a Clark FEZ locator, it stands to
suffer when RR 2-2012 is implemented. EPEC insists that RR 2-2012's
mechanism of requiring even locators to pay the tax first and to
subsequently claim a credit or to refund the taxes paid effectively
removes the locators' tax-exempt status.
WN the RR is invalid YES.
1. The RR is unconstitutional for two reasons:
a. It illegally imposes taxes upon FEZ enterprises, which, by
law, enjoy tax- exempt status; and
b. It effectively amends the law (i.e., RA 7227, as amended
by RA 9400) and thereby encroaches upon the legislative
authority reserved exclusively by the Constitution for
Congress.
The Court discussed the implications of RA 9400 first. To wit —
RA 9400 and its Implementing Rules grant the following:
First, the law provides that importation of raw materials and capital
equipment into the FEZs shall be tax- and duty-free. It is the specific
transaction (i.e., importation) that is exempt from taxes and duties.
Second, the law also grants FEZ enterprises tax- and duty-free
importation and a preferential rate in the payment of income tax, in
lieu of all national and local taxes. These incentives exempt the
establishment itself from taxation.
Thus, the Legislature intended FEZs to enjoy tax incentives in general —
whether with respect to the transactions that take place within its special
jurisdiction, or the persons/establishments within the jurisdiction. From this
perspective, the tax incentives enjoyed by FEZ enterprises must be
understood to necessarily include the tax exemption of importation of
selected articles into the FEZ.
FEZ enterprises are exempt from both direct and indirect internal revenue
taxes. In particular, they are considered VAT-exempt entities.
The Court also addressed the argument of SoF that FEZ enterprises are
qualifiedly exempted from paying importation taxes and that should they
prove that they are exempt, they may refund. The court dismissed the
argument stating thus —
First, FEZ enterprises bringing goods into the FEZ should not be
considered as importers subject to tax in the same manner that the very
act of bringing goods into these special territories does not make them
taxable importations. The Court emphasized that the exemption from
taxes and duties under RA 9400 are granted not only to importations
into the FEZ, but also specifically to each FEZ enterprise. As discussed,
the tax exemption enjoyed by FEZ enterprises necessarily includes the tax
exemption of the importations of selected articles into the FEZ.
Second, the essence of a tax exemption is the immunity or freedom from
a charge or burden to which others are subjected. It is a waiver of the
government's right to collect the amounts that would have been collectible
under our tax laws. Thus, when the law speaks of a tax exemption, it
should be understood as freedom from the imposition and payment of a
particular tax.
CIR v. Sekisui Jushi
1. Respondent Sekisui Jushi is a domestic corporation duly organized and
existing under and by virtue of PH laws with principal office located at
the Special Export Processing Zone, Laguna Technopark, Bian,
Laguna.
a. It is principally engaged in the business of manufacturing,
importing, exporting, buying, selling, or otherwise dealing in, at
wholesale such goods as strapping bands and other packaging
materials and goods of similar nature, and any and all equipment,
materials, supplies used or employed in or related to the
manufacture of such finished products.
2. As a registered VAT taxpayer, Sekisui Jushi filed its quaterly returns
with the BIR for Jan. 1 - June 30, 1997 w/c reflected input taxes in the
amount of P4,631,132.70 paid by it in connection with its domestic
purchase of capital goods and services.
3. These input taxes remained unutilized since Sekisui Jushi has not
engaged in any business activity/transaction for which it may be liable
for output tax and for which said input tax may be credited.
4. Respondent then filed w/ the One-Stop-Shop Inter-Agency Tax Credit
and Duty Drawback Center of the Department of Finance (CENTER-
DOF) 2 separate applications for tax credit/refund of VAT input taxes
under Sec. 112(B) of 1997 NIRC paid for the period of Jan 1-March 31,
1997 and April 1 - June 30, 1997.
5. Since its application was not acted upon, it filed w/in the 2-year
prescriptive period under Sec. 229 of the Tax Code, a petition for
review with the CTA.
6. CIR filed its Answer praying for the denial of respondent's petition. It
argues that:
a. claim for tax credit/refund is subject to administrative routinary
investigation by the BIR;
b. respondent failed to show that the amount claimed as VAT input
taxes were erroneously collected or that the same were properly
documented;
c. taxes due and collected are presumed to have been made in
accordance with law, hence, not refundable;
d. burden of proof is on the taxpayer to establish his right to a refund;
e. respondent should show that it complied w/ provisions of Section
204 in relation to Section 229 of the 1997 Tax Code;
f. claims for refund are strictly construed against the taxpayer as it
partakes of the nature of a tax exemption.
7. CTA ruled that respondent was entitled to a refund. While respondent
was registered with PEZA as an ecozone and was, as such, exempt
from income tax, it availed itself of the fiscal incentive under E.O. No.
226. Thus, it subjected itself to other internal revenue taxes like the
VAT. However, only input taxes amounting to P4,377,102.26 were
proven and may be refunded.
8. CA upheld CTA's Decision. It ruled that respondent complied w/
procedural & substantive requirements of a claim by submitting
receipts, invoices and supporting papers as evidence, paying subject
input taxes as capital goods, not applying the input taxes against any
ouptut liability and filing claim w/in 2 yrs.
9. Hence, this petition.
10. CIR argues that since respondent is registered with PEZA as an
ecozone export enterprise, its business is not subject to VAT in relation
to Section 103 (now Sec. 109) of the Tax Code, as amended by R.A.
7716. Since respondent is EXEMPT from VAT, the capital goods and
services it purchased are considered not used in VAT taxable business,
hence, is NOT allowed any tax credit/refund on VAT input tax
previously paid on such capital goods pursuant to Section 4.106-1 of
Revenue Regulations No. 7-95, and of input taxes paid on services
pursuant to Section 4.103-1 of the same regulations.
Whether respondent is entitled to refund/issuance of tax credit
certificate (for unutilized input taxes paid on domestic purchase of
capital goods and services)? YES. CA & CTA correct.
This issue has already been resolved by the Courts in a number of cases.
An entity registered with the PEZA as an ecozone may be covered by the
VAT system. R.A. 7916, Sec. 23, as amended, gives a PEZA-registered
enterprise the option to choose between two fiscal incentives:
1. a five percent preferential tax rate on its gross income under the said
law; or
 If the entity avails of this scheme, it is exempt from all taxes,
including VAT
2. an income tax holiday provided under Executive Order No. 226 or the
Omnibus Investment Code of 1987, as amended.
 exempt from income taxes for a number of years, but not from

other national internal revenue taxes like the VAT.
CA and CTA found that respondent availed of the fiscal incentive of an
income tax holiday under EO 226. Their factual findings shall be respected.
By availing itself of the income tax holiday, Sekisui Jushi became subject to
the VAT. It correctly registered as a VAT taxpayer, because its transactions
were not VAT-exempt.
Notably, while an ecozone is geographically within the Philippines, it is
deemed a separate customs territory and is regarded in law as foreign
soil. Sales by suppliers from outside the borders of the ecozone to this
separate customs territory are deemed as exports and treated as export
sales. These sales are zero-rated or subject to a tax rate of zero percent.
Notwithstanding the fact that its purchases should have been zero-rated,
respondent was able to prove that it had paid input taxes in the amount of
P4,377,102.26. The CTA found, and the CA affirmed, that this amount was
substantially supported by invoices and ORs.
On the other hand, since 100% of the products of respondent are exported,
all its transactions are deemed export sales and are thus VAT zero-rated. It
has been shown that Sekisui Jushi has no output tax with which it could
offset its paid input tax. Since the subject input tax it paid for its domestic
purchases of capital goods and services remained unutilized, it can claim a
refund for the input VAT previously charged by its supplier.
 CORAL BAY NICKEL CORPORATION v. CIR
 Petitioner, a domestic corporation engaged in the manufacture of nickel
and/or cobalt mixed sulphide, is a VAT entity registered with the
BIR. It is also registered with PEZA as an Ecozone Export Enterprise
at the Rio Tuba Export Processing Zone under PEZA Certificate of
Registration dated December 27, 2002.
 On August 5, 2003, the petitioner filed its Amended VAT Return
declaring unutilized input tax from its domestic purchases of capital
goods, other than capital goods and services, for its third and fourth
quarters of 2002 totalling ₱50,124,086.75.
 On June 14, 2004, it filed with RDO 36 in Palawan its Application for
Tax Credits/Refund (BIR Form 1914) together with supporting
documents.
 Due to the alleged inaction of the respondent, petitioner elevated its
claim to CTA by petition for review, praying for the refund of the
aforesaid input VAT
o CA Division denied the petitioner's claim for refund.
o Ground: Petitioner was not entitled to the refund of alleged
unutilized input VAT following Section 106(A)(2)(a)(5) of the
NIRC in relation to Article 77(2) of the Omnibus Investment
Code and conformably with the Cross-Border Doctrine.
o In support of its ruling, the CTA cited CIR v. Toshiba and
RMC No. 42-03.
 CTA Division denied MR  Petitioner elevated to CTA En Banc 
also denied the petition through the assailed decision promulgated on
May 29, 2009  CTA En Banc denied MR
 Appealed to SC
o Petitioner contends that Toshiba is not applicable inasmuch as
the unutilized input VAT subject of its claim was incurred
from May 1, 2002 to Dec. 31, 2002 as a VAT-registered
taxpayer, not as a PEZA-registered enterprise
 During the period subject of its claim, it was not yet
registered with PEZA because it was only on Dec.
27, 2002 that its Certificate of Registration was
issued; that until then, it could not have refused the
payment of VAT on its purchases because it could
not present any valid proof of zero-rating to its
VAT-registered suppliers; and that it complied with
all the procedural and substantive requirements under
the law and regulations for its entitlement to the
refund.
Whether Petitioner, an entity located within an ECOZONE, is entitled to the
refund of its unutilized input taxes incurred BEFORE it became a PEZA-
registered entity? – NO
 CTA En Banc is correct.
 The petitioner's insistence, that Toshiba is not applicable because
Toshiba, the taxpayer involved thereat, was a PEZA-registered
entity during the time subject of the claim for tax refund or credit,
is unwarranted.
o The most significant difference between Toshiba and this
case is that RMC 74-99 was not yet in effect at the time
Toshiba brought its claim for refund. Regardless of the
distinction, however, Toshiba actually discussed the VAT
implication of PEZA-registered enterprises and
ECOZONE-located enterprises in its entirety, which
renders Toshiba applicable to the petitioner's case.
 Prior to the effectivity of RMC 74-99, the old VAT rule for
PEZA-registered enterprises was based on their choice of fiscal
incentives, namely:
o if the PEZA-registered enterprise chose the 5%
preferential tax on its gross income in lieu of all taxes, as
provided by RA 79164, then it was VAT-exempt; and
o if the PEZA-registered enterprise availed itself of the
income tax holiday under EO 226, it was subject to VAT
at 10% (now, 12%).
 Based on this old rule, Toshiba allowed the claim for refund or
credit on the part of Toshiba, Inc.
 The same is not true with Petitioner
o With the issuance of RMC 74-99, the distinction under
the old rule was disregarded and the new circular took
into consideration the two important principles of the PH
VAT System: the Cross-Border Doctrine and the
Destination Principle
 The old rule did not take into consideration the Cross-Border
Doctrine essential to the VAT System or the fiction of the
ECOZONE as a foreign territory  it relied totally on the choice
of incentives of PEZA-registered enterprises (exempt or be subject
to VAT)
o The distinction was abolished by RMC 74-99, which
categorically declared that ALL sales of goods,
properties, and services made by a VAT-registered
supplier from the Customs Territory to an ECOZONE
4 Special Economic Zone Act
 enterprise shall be subject to VAT, at ZERO
PERCENT (0%) RATE, regardless of the latter’s type
or class of PEZA registration; thus affirming the
nature of a PEZA-registered or an ECOZONE
enterprise as a VAT-exempt entity.
On the ECOZONE as a separate customs territory
 RA 7916 mandates that PEZA shall manage and operate the
ECOZONE as a separate customs territory
o The provision thereby establishes the fiction that an
ECOZONE is a foreign territory separate and distinct
from the customs territory. Accordingly, the sales made
by suppliers from a customs territory to a purchaser
located within an ECOZONE will be considered as
exportations.
o Following the Philippine VAT system's adherence to the
Cross-Border Doctrine and Destination Principle, the
VAT implications are that "no VAT shall be imposed to
form part of the cost of goods destined for consumption
outside of the territorial border of the taxing authority"
 In the Toshiba Case, the Court held that:
o PEZA-registered enterprises, which would necessarily
be located within ECOZONES, are VAT-exempt
entities, not because of Section 24 of RA 7916, as
amended, which imposes the five percent (5%)
preferential tax rate on gross income of PEZA-registered
enterprises, in lieu of all taxes; but, rather, because of
Section 8 of the same statute which establishes the
fiction that ECOZONES are foreign territory
 Toshiba is located within an ECOZONE
 Sec. 8 of RA 7916 mandates that PEZA shall
manage and operate the ECOZONES as a
separate customs territory; thus, creating the
fiction that the ECOZONE is a foreign territory.
As a result, sales made by a supplier in the
Customs Territory to a purchaser in the
ECOZONE shall be treated as an exportation
from the Customs Territory.
On the claim for tax refund
 The petitioner's principal office was located in Barangay Rio Tuba,
Bataraza, Palawan. Its plant site was specifically located inside the
Rio Tuba Export Processing Zone - a special economic zone
(ECOZONE) created by Proclamation No. 304, in relation to
Republic Act No. 7916. As such, the purchases of goods and
services by the petitioner that were destined for consumption
within the ECOZONE should be free of VAT; hence, no input
VAT should then be paid on such purchases, rendering the
petitioner not entitled to claim a tax refund or credit. Verily, if the
petitioner had paid the input VAT, the CTA was correct in holding
that the petitioner's proper recourse was not against the
Government but against the seller who had shifted to it the output
VAT following RMC No. 42-03
CIR v. American Express
Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and
was tasked with servicing a unit of AMEX-Hongkong Branch and
facilitating the collections of AMEX-HK receivables from card members
situated in the Philippines and payment to service establishments in the
Philippines. It filed with BIR a letter-request for the refund of its 1997
excess input taxes, citing as basis Section 110B of the 1997 Tax Code,
which held that “xxx Any input tax attributable to the purchase of capital
goods or to zero-rated sales by a VAT-registered person may at his option
be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 112.” In addition, respondent relied on VAT Ruling
No. 080-89, which read, “In Reply, please be informed that, as a VAT
registered entity whose service is paid for in acceptable foreign currency
which is remitted inwardly to the Philippine and accounted for in
accordance with the rules and regulations of the Central Bank of the
Philippines, your service income is automatically zero rated xxx” Petitioner
claimed, among others, that the claim for refund should be construed strictly
against the claimant as they partake of the nature of tax exemption. CTA
rendered a decision in favor of respondent, holding that its services are
subject to zero-rate. CA affirmed this decision and further held that
respondent’s services were “services other than the processing,
manufacturing or repackaging of goods for persons doing business outside
the Philippines” and paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of BSP.
Is AMEX Phils is entitled to refund? Yes. Section 102 of the Tax Code
provides for the VAT on sale of services and use or lease of properties.
Section 102B particularly provides for the services or transactions subject to
0% rate:
(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP.
(2) Services other than those mentioned in the preceding subparagraph,
e.g. those rendered by hotels and other service establishments, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the BSP.
Under subparagraph 2, services performed by VAT-registered persons in
the Philippines (other than the processing, manufacturing or repackaging of
goods for persons doing business outside the Philippines), when paid in
acceptable foreign currency and accounted for in accordance with the R&R
of BSP, are zero-rated. Respondent renders service falling under the
category of zero rating.
As a general rule, the VAT system uses the destination principle as a basis
for the jurisdictional reach of the tax. Goods and services are taxed only in
the country where they are consumed. Thus, exports are zero-rated, while
imports are taxed. In the present case, the facilitation of the collection of
receivables is different from the utilization of consumption of the outcome
of such service. While the facilitation is done in the Philippines, the
consumption is not. The services rendered by respondent are performed
upon its sending to its foreign client the drafts and bulls it has gathered from
service establishments here, and are therefore, services also consumed in the
Philippines. Under the destination principle, such service is subject to 10%
VAT.
However, the law clearly provides for an exception to the destination
principle; that is 0% VAT rate for services that are performed in the
Philippines, “paid for in acceptable foreign currency and accounted for in
accordance with the R&R of BSP.” The respondent meets the following
requirements for exemption, and thus should be zero-rated: (1) Service be
performed in the Philippines (2) The service fall under any of the
categories in Section 102B of the Tax Code (3) It be paid in acceptable
foreign currency accounted for in accordance with BSP R&R.
DOCTRINE: 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.
4* under subsequent cases- recipient of the services must be doing business in the
PH.
Zero Rating of
Other Services
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.
Services Subject to
Zero VAT
As a general rule, the VAT system uses the destination principle as a basis
for the jurisdictional reach of the tax. Goods and services are taxed only in
the country where they are consumed. Thus, exports are zero-rated, while
imports are taxed.
Confusion in zero rating arises because petitioner equates
the performance of a particular type of service with the consumption of its
output abroad. In the present case, the facilitation of the collection of
receivables is different from the utilization or consumption of the outcome
of such service. While the facilitation is done in the Philippines,
the consumption is not. Respondent renders assistance to its foreign clients -
- the ROCs outside the country -- by receiving the bills of service
establishments located here in the country and forwarding them to the
ROCs abroad.
Consumption is the use of a thing in a way that thereby exhausts it. Applied
to services, the term means the performance or successful completion of a
contractual duty, usually resulting in the performers release from any past or
future liability x x x. The services rendered by respondent are performed or
successfully completed upon its sending to its foreign client the drafts and
bills it has gathered from service establishments here. Its services, having
been performed in the Philippines, are therefore also consumed in the
Philippines.
Respondents Services Exempt
from the Destination Principle
However, the law clearly provides for an exception to the destination
principle; that is, for a zero percent VAT rate for services that are performed
in the Philippines, paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the [BSP]. Thus, for the
supply of service to be zero-rated as an exception, the law merely requires
that first, the service be performed in the Philippines; second, the service
fall under any of the categories in Section 102(b) of the Tax Code;
and, third, it be paid in acceptable foreign currency accounted for in
accordance with BSP rules and regulations.
Indeed, these three requirements for exemption from the destination
principle are met by respondent. Its facilitation service is performed in the
Philippines. It falls under the second category found in Section 102(b) of
the Tax Code, because it is a service other than processing, manufacturing
or repacking of goods as mentioned in the provision. Undisputed is the fact
that such service meets the statutory condition that it be paid in acceptable
foreign currency duly accounted for in accordance with BSP rules. Thus, it
should be zero-rated.
Commissioner of Internal Revenue v Burmeister | GR No
166134 | January 22, 2007
 Burmeister is a domestic corporation duly organized and existing
under and by virtue of the laws of the Philippines. A foreign
consortium composed of Burmeister and Wain Scandinavian
Contractor A/S (BWSC- Denmark), Mitsui Engineering and
Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract
with the National Power Corporation (NAPOCOR) for the
operation and maintenance of NAPOCOR’s two power barges.
 The Consortium appointed BWSC-Denmark as its coordination
manager. BWSC-Denmark established Burmeister (respondent)
which subcontracted the actual operation and maintenance of
NAPOCOR’s two power barges as well as the performance of
other duties and acts which necessarily have to be done in the
Philippines.
 NAPOCOR paid capacity and energy fees to the Consortium in a
mixture of currencies (Mark, Yen, and Peso). The freely
convertible non-Peso component is deposited directly to the
Consortium’s bank accounts in Denmark and Japan, while the
Peso-denominated component is deposited in a separate and
special designated bank account in the Philippines. On the other
hand, the Consortium pays the respondent in foreign currency
inwardly remitted to the Philippines through the banking system.
In order to ascertain the tax implications of the transactions,
Burmeister sought a ruling from the BIR which responded that if
Burmeister chooses to register as a VAT person and the
consideration for its services is paid for in acceptable
foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas, the
aforesaid services shall be subject to VAT at zero-rate.
 For 1996, Burmeister filed VAT Returns reflecting a total zero-
rated sales of P 147,000,000 with VAT input taxes of P3,300,000.
The next year, it availed of the Voluntary Assessment Program
(VAP) of the BIR, allegedly misrepresented certain regulations to
be applicable to its case.
WON respondent is entitled to the refund of the erroneously paid
output VAT for the year 1996? NO
Court declares that the denial of the instant petition is not on the ground that
respondent’s services are subject to 0% VAT. Rather, it is based on the
non- retroactivity of the prejudicial revocation of BIR Ruling No. 023-95
and VAT Ruling No. 003-99, which held that respondent’s services are
subject to 0% VAT and which respondent invoked in applying for refund of
the output VAT.
The Tax Code enumerates which services are zero-rated, thus:
(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);
(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
rate;
(4) Services rendered to vessels engaged exclusively in
international shipping; and
(5) Services performed by subcontractors and/or contractors in
processing, converting, or manufacturing goods for an enterprise
whose export sales exceed seventy percent (70%) of total annual
production.
Another essential condition for qualification to zero-rating under the tax
code is that the recipient of such services is doing business outside the
Philippines. Services other than processing, manufacturing, or repacking of
goods must likewise be performed for persons doing business outside the
Philippines. 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. A
tax is a mandatory exaction, not a voluntary contribution.
When Section 102(b)(2) stipulates payment in acceptable foreign currency
under BSP rules, the law clearly envisions the payer-recipient of services to
be doing business outside the Philippines. Only those not doing business in
the Philippines can be required under BSP rules to pay in acceptable foreign
currency for their purchase of goods or services from the Philippines.
Services covered by Section 102(b) (1) and (2) are in the nature of export
sales since the payer-recipient of services is doing business outside the
Philippines. Under BSP rules, the proceeds of export sales must be reported
to the Bangko Sentral ng Pilipinas. Thus, there is reason to require the
provider of services under Section 102(b) (1) and (2) to account for the
foreign currency proceeds to the BSP. 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. Thus, when Section 102(b)(2) speaks of [s]ervices
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.
Significantly, the amended Section 108(b) previously Section 102(b)] of the
present Tax Code clarifies this legislative intent. Expressly included among
the transactions subject to 0% VAT are [s]ervices other than those
mentioned in the [first] paragraph [of Section 108(b)] 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 BSP.
In this case, the payer-recipient of respondent’s services is the Consortium
which is a joint-venture doing business in the Philippines. While the
Consortium’s principal members are non-resident foreign corporations, the
Consortium itself is doing business in the Philippines.
Respondent, as subcontractor of the Consortium, operates and
maintains NAPOCOR’s power barges in the Philippines. NAPOCOR pays
the Consortium, through its non-resident partners, partly in foreign currency
outwardly remitted. In turn, the Consortium pays respondent also
in foreign currency inwardly remitted and accounted for in accordance
with BSP rules. This payment scheme does not entitle respondent to 0%
VAT.
Also, the recipient of the services is the Consortium, which is doing
business not outside, but within the Philippines because it has a 15-year
contract to operate and maintain NAPOCORs two 100-megawatt
power barges in Mindanao.
 Accenture Inc. v CIR | G.R. 190102 | July 11, 2012
FACTS:
a. Accenture Inc. is a corporation engaged in the business of
providing management consulting, business strategies development
and selling and/or licensing of software. It is duly registered with
the BIR as a VAT taxpayer. Accenture filed its Monthly VAT
Return for the period of July 1 – August 31, 2002. Its Quarterly
VAT Return for the 4th Q of 2002 was filed on Sept. 2002 and an
amended quarterly vat return on June 21, 2004. In its subsequent
returns that were filed, it can be seen that notwithstanding
Accenture’s application of the input VAT credits earned from its
zero-rated transactions against its output VAT liabilities, it still had
excess or unutilized input VAT credits.
b. The excess input VAT (during 2002) was not applied to any output
VAT that Accenture was liable for in the same quarter when the
amount was earned or to any of the succeeding quarters. Instead, it
was carried forward to petitioner’s 2nd Q VAT return for 2003.
Thus, Accenture filed with the DOF an admin. Claim for refund or
the issuance of TCC. When DOF did not act on the claim,
Accenture filed with the CTA, praying for the issuance of TCC in
its favor. CTA Division denied the petition due to Accenture’s
failure to prove that its sale of services qualified for zero percent
VAT. According to the CTA, Accenture failed to present evidence
to prove that the foreign clients to which the former rendered
services did business outside the PH. Since Accenture’s services
failed to qualify for zero-rating under the provisions of the NIRC,
Accenture is not entitled to the tax refund. Accenture filed a MR.
MR denied. Accenture then filed an appeal with the CTA En Banc.
c. Before the CTA En Banc, Accenture argued that prior to the
amendment of the relevant provision of NIRC by RA 9337, there
was no requirement that the services must be rendered to a person
engaged in business conducted outside the PH to qualify for zero-
rating. CTA En Banc agreed that since the tax returns pertained to
the 3rd and 4th taxable Q of 2002, the applicable law was the 1997
Tax Code and not RA 9337. BUT, since the amended provision
was a mere reenactment of the 1977 Tax Code, the ruling in
Burmeister requiring recipients of services to be engaged in
business outside the PH to qualify for zero rating also applies in
the present case.
ISSUE: W/N the recipient of services should be doing business outside the
PH for the transaction to be zero-rated? – YES
W/N Accenture was able to successfully prove that its clients are entities
doing business outside of the PH? – NO
HELD:
a. Accenture anchors its claim for refund on Section 112 (A) 5 of the
1997 Tax Code, which allows the refund of unutilized input VAT
earned from zero-rated or effectively zero-rated transactions. Sec.
108 (B) 6 referred to in the said provision enumerates the
transactions which are subject to zero VAT rate. Section 108 (B) of
the present Tax Code is a mere reproduction of Sec. 102(b) of the
1977 Tax Code. Under the old 1977 Tax Code, it provides that IF
the consideration for the services provided by a VAT-registered
person is in foreign currency, then this transaction shall be
subjected to zero percent rate. Accenture’s argument is that
nowhere in Sec. 108 is it provided that services, to be zero-rated,
should be rendered to clients doing business outside of the PH. The
requirement, prior to the amendment, is that the consideration for
the services must be in foreign currency and in accordance with the
rules of BSP. Since Accenture has complied with all the conditions
imposed, it is then entitled to the refund prayed for. Accenture
further supports its arguments by relying in the ruling of the SC in
the case of Amex. SC ruled that petitioner’s reliance in the case of
Amex is misplaced. In that case, the SC held that Sec. 102 of the
5 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. cralaw
6 (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);(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;(4) Services rendered to vessels engaged exclusively in
international shipping; and(5) Services performed by subcontractors and/or contractors in processing,
converting, of manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of
total annual production.
 1977 Tax Code (old version of the present Sec. 108) does not Tax Code itself has provisions for a foreign corporation engaged in the
require that the services be consumed abroad to be zero-rated. business within the PH. For one to come within the purview of Sec.
However, nowhere in that case did the Court discuss the necessary 108(B)(2), it is not enough that the recipient of the services be proven to be
qualification of the recipient of the service since that matter was a foreign corporation; it must be specifically proven to be a NON-RES.
never put into question. In fact, the recipient of the service in that Foreign corporation. The documents presented by Accenture merely
case is a Non-Res. Foreign client. Meanwhile, in the case of substantiated the existence of sales, receipt of foreign currency payments
Burmeister (which is the case relied upon by the CTA in denying and inward remittance of the proceeds of such sales dully accounted for in
petitioner’s claim for refund), the issue was whether the recipient accordance with the BSP rules – all of which were devoid of any evidence
of services should be doing business outside of the PH for the that the clients were doing business outside of the PH.
transaction to qualify for zero-rating. In that case, the SC held that
the recipient should be doing business OUTSIDE of the PH.
The rulings in the two cases relied upon by the parties in this case are not
conflicting. In Amex, the SC held that the place of performance and/or
consumption of service is immaterial. The zero-rating of services performed
in Amex was affirmed by the SC, because although the services rendered
were both performed and consumed in the PH, the recipient of the service
was an entity doing business outside of the PH. In Burmeister, the SC held
that although the place of consumption of the service does not affect the
entitlement of a transaction to zero-rating, the place where the recipient
conducts its business does. Citing the case of Burmeister, the SC further
held that this is the only logical interpretation of the provision. For if the
provider and recipient of the services are both doing business in the PH, the
payment of foreign currency is irrelevant. Otherwise, those subject to
regular VAT can avoid paying VAT by simply stipulating that payment in
foreign currency be inwardly remitted by the recipient of the services.

b. Accenture argues that based on the documents presented by it, it

was able to establish the ff circumstances
i. Records of the SEC show that its clients have not
established any branch/office in which to do
business in the PH
ii. For these services, Accenture bills another corp,
which is likewise a foreign corp with no presence
in the PH
iii. Only those not doing business in the PH can be
required under BSP rules to pay in acceptable
currency for their purchase of goods and services
from the PH. Thus, in a domestic transaction
where the provider and recipient are both doing
business in the PH, the BSP cannot require any
party to make payment in foreign currency.
The SC, however, held that evidence presented by Accenture only
established that its clients are foreign. Such fact does not automatically
mean that these clients were doing business outside the PH. After all, the
 PSALM v. CIR
Petitioner Power Sector Assets and Liabilities Management Corporation
(PSALM) is a government-owned and controlled corporation created under
Republic Act No. 9136 (RA 9136), also known as the Electric Power
Industry Reform Act of 2001 (EPIRA). Section 50 of RA 9136 states that
the principal purpose of PSALM is to manage the orderly sale, disposition,
and privatization of the National Power Corporation (NPC) generation
assets, real estate and other disposable assets, and Independent Power
Producer (IPP) contracts with the objective of liquidating all NPC financial
obligations and stranded contract costs in an optimal manner.
BIR demanded deficiency VAT which was the subject of a MOA entered
into by the two. In compliance with the MOA, PSALM remitted under
protest to the BIR the amount of ₱3, 813, 080, 472, representing the total
basic VAT due.
CIR argues that the previous exemption of NPC from VAT under Section
13 of Republic Act No. 6395 (RA 6395) was expressly repealed by Section
24 of RA 9337.
As a consequence, the CIR posits that the VAT exemption accorded to
PSALM under BIR Ruling No. 020-02 is also deemed revoked since
PSALM is a successor-in-interest of NPC
PSALM contends that the sale was not made in the ordinary course of
business.
WN or not the sale of the Pantabangan-Masiway and Magat Power
Plants to private entities under the mandate of the EPIRA is subject to
VAT.
When petitioner was created under Section 49 of R.A. No. 9136, for the
principal purpose to manage the orderly sale, disposition, and privatization
of NPC generation assets, real estate and other disposable assets, IPP
contracts with the objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner, there was, by operation of
law, the transfer of ownership of NPC assets. Such transfer of ownership
was not carried out in the ordinary course of transfer which must be
accorded with the required elements present for a valid transfer, but in this
case, in accordance with the mandate of the law, that is, EPIRA.
To resolve the issue of whether the sale of the Pantabangan-Masiway and
Magat Power Plants by petitioner PSALM to private entities is subject to
VAT, the Court must determine whether the sale is "in the course of trade or
business" as contemplated under Section 105 of the NIRC, which reads:
In any event, even if PSALM is deemed a successor-in-interest of NPC, still
the sale of the power plants is not "in the course of trade or business" as
contemplated under Section 105 of the NIRC, and thus, not subject to
VAT. The sale of the power plants is not in pursuit of a commercial or
economic activity but a governmental function mandated by law to
privatize NPC generation assets. PSALM was created primarily to
liquidate all NPC financial obligations and stranded contract costs in an
optimal manner. The purpose and objective of PSALM are explicitly stated
in Section 50 of the EPIRA law
The sale of NPC assets by PSALM is not "in the course of trade or
business" but purely for the specific purpose of privatizing NPC assets in
order to liquidate all NPC financial obligations. PSALM is tasked to sell
and privatize the NPC assets within the term of its existence.The EPIRA
law even requires PSALM to submit a plan for the endorsement by the Joint
Congressional Power Commission and the approval of the President of the
total privatization of the NPC assets and IPP contracts.
it is very clear that the sale of the power plants was an exercise of a
governmental function mandated by law for the primary purpose of
privatizing NPC assets in accordance with the guidelines imposed by
the EPIRA law.
In the 2006 case of Commissioner of Internal Revenue v. Magsaysay Lines,
Inc. (Magsaysay),61 the Court ruled that the sale of the vessels of the
National Development Company (NDC) to Magsaysay Lines, Inc. is not
subject to VAT since it was not in the course of trade or business, as it was
involuntary and made pursuant to the government's policy of privatization.
The Court cited the CT A ruling that the phrase "course of business" or
"doing business" connotes regularity of activity. Thus, since the sale of the
vessels was an isolated transaction, made pursuant to the government's
privatization policy, and which transaction could no longer be repeated or
carried on with regularity, such sale was not in the course of trade or
business and was not subject to VAT.
Similarly, the sale of the power plants in this case is not subject to VAT
since the sale was made pursuant to PSALM' s mandate to privatize NPC
assets, and was not undertaken in the course of trade or business. In selling
the power plants, PSALM was merely exercising a governmental function
for which it was created under the EPIRA law.
The CIR alleges that the sale made by NPC and/or its successors-in-interest
of the power plants is an incidental transaction which should be subject to
VAT. This is erroneous. As previously discussed, the power plants are
already owned by PSALM, not NPC. Under the EPIRA law, the ownership
of these power plants was transferred to PSALM for sale, disposition, and
privatization in order to liquidate all NPC financial obligations. Unlike
the Mindanao II case, the power plants in this case were not previously used
in PSALM's business. The power plants, which were previously owned by
NPC were transferred to PSALM for the specific purpose of privatizing
such assets. The sale of the power plants cannot be considered as an
incidental transaction made in the course of NPC's or PSALM's business.
Therefore, the sale of the power plants should not be subject to VAT.
RA 9994: Senior Citizens Act
Section 4 Section 4 of Republic Act No. 7432, as amended by Republic Act
No. 9257, otherwise known as the "Expanded Senior Citizens Act of 2003",
is hereby further amended to read as follows:
"SEC. 4. Privileges for the Senior Citizens. -
The senior citizens shall be entitled to the following:
"(a) the grant of twenty percent (20%) discount and exemption from the
value -added tax (VAT), if applicable, on the sale of the following goods
and services from all establishments, for the exclusive use and enjoyment or
availment of the senior citizen
"(1) on the purchase of medicines, including the purchase of influenza and
pnuemococcal vaccines, and such other essential medical supplies,
accessories and equipment to be determined by the Department of Health
(DOH).
"The DOH shall establish guidelines and mechanism of compulsory rebates
in the sharing of burden of discounts among retailers, manufacturers and
distributors, taking into consideration their respective margins;
"(2) on the professional fees of attending physician/s in all private hospitals,
medical facilities, outpatient clinics and home health care services;
"(3) on the professional fees of licensed professional health providing home
health care services as endorsed by private hospitals or employed through
home health care employment agencies;
"(4) on medical and dental services, diagnostic and laboratory fees in all
private hospitals, medical facilities, outpatient clinics, and home health care
services, in accordance with the rules and regulations to be issued by the
DOH, in coordination with the Philippine Health Insurance Corporation
(PhilHealth);
"(5) in actual fare for land transportation travel in public utility buses
(PUBs), public utility jeepneys (PUJs), taxis, Asian utility vehicles (AUVs),
shuttle services and public railways, including Light Rail Transit (LRT),
Mass Rail Transit (MRT), and Philippine National Railways (PNR);
"(6) in actual transportation fare for domestic air transport services and sea
shipping vessels and the like, based on the actual fare and advanced
booking;
"(7) on the utilization of services in hotels and similar lodging
establishments, restaurants and recreation centers;
"(8) on admission fees charged by theaters, cinema houses and concert
halls, circuses, leisure and amusement; and
"(9) on funeral and burial services for the death of senior citizens;
"(b) exemption from the payment of individual income taxes of senior
citizens who are considered to be minimum wage earners in accordance
with Republic Act No. 9504;
"(c) the grant of a minimum of five percent (5%) discount relative to the
monthly utilization of water and electricity supplied by the public utilities:
Provided, That the individual meters for the foregoing utilities are registered
in the name of the senior citizen residing therein: Provided, further, That the
monthly consumption does not exceed one hundred kilowatt hours (100
kWh) of electricity and thirty cubic meters (30 m3) of water: Provided,
furthermore, That the privilege is granted per household regardless of the
number of senior citizens residing therein;
"(d) exemption from training fees for socioeconomic programs;
"(e) free medical and dental services, diagnostic and laboratory fees such as,
but not limited to, x-rays, computerized tomography scans and blood tests,
in all government facilities, subject to the guidelines to be issued by the
DOH in coordination with the PhilHealth;
"(f) the DOH shall administer free vaccination against the influenza virus
and pneumococcal disease for indigent senior citizen patients;
"(g) educational assistance to senior citizens to pursue pot secondary,
tertiary, post tertiary, vocational and technical education, as well as short-
term courses for retooling in both public and private schools through
provision of scholarships, grants, financial aids, subsides and other
incentives to qualified senior citizens, including support for books, learning
materials, and uniform allowances, to the extent feasible: Provided, That
senior citizens shall meet minimum admission requirements;
"(h) to the extent practicable and feasible, the continuance of the same
benefits and privileges given by the Government Service Insurance System
(GSIS), the Social Security System (SSS) and the PAG- IBIG, as the case
may be, as are enjoyed by those in actual service;
"(i) retirement benefits of retirees from both the government and the private
sector shall be regularly reviewed to ensure their continuing responsiveness
and sustainability, and to the extent practicable and
feasible, shall be upgraded to be at par with the current scale enjoyed by
those in actual service;
"(j) to the extent possible, the government may grant special discounts in
special programs for senior citizens on purchase of basic commodities,
subject to the guidelines to be issued for the purpose by the Department of
Trade and Industry (DTI) and the Department of Agriculture (DA);
"(k) provision of express lanes for senior citizens in all commercial and
government establishments; in the absence thereof, priority shall be given to
them; and
"(l) death benefit assistance of a minimum of Two thousand pesos (Php2,
000.00) shall be given to the nearest surviving relative of a deceased senior
citizen which amount shall be subject to adjustments due to inflation in
accordance with the guidelines to be issued by the DSWD.1avvphi1
"In the availment of the privileges mentioned above, the senior citizen, or
his/her duly authorized representative, may submit as proof of his/her
entitled thereto any of the following:
"(1) an identification card issued by the Office of the Senior Citizen Affairs
(OSCA) of the place where the senior citizen resides: Provided, That the
identification card issued by the particular OSCA shall be honored
nationwide;
"(2) the passport of the senior citizen concerned; and
"(3) other documents that establish that the senior citizen is a citizen of the
Republic and is at least sixty (60) years of age as further provided in the
implementing rules and regulations.
"In the purchase of goods and services which are on promotional discount,
the senior citizen can avail of the promotional discount or the discount
provided herein, whichever is higher.
"The establishment may claim the discounts granted under subsections (a)
and (c) of this section as tax deduction based on the cost of the goods sold
or services rendered: Provided, That the cost of the discount shall be
allowed as deduction from gross income for the same taxable year that the
discount is granted: Provided, further, That the total amount of the claimed
tax deduction net of VAT, if applicable, shall be included in their gross
sales receipts for tax purposes and shall be subject to proper documentation
and to the provisions of the National Internal Revenue Code (NICR), as
amended."
RA 10378
AN ACT RECOGNIZING THE PRINCIPLE OF RECIPROCITY AS
BASIS FOR THE GRANT OF INCOME TAX EXEMPTIONS TO
INTERNATIONAL CARRIERS AND RATIONALIZING OTHER
TAXES IMPOSED THEREON BY AMENDING SECTIONS
28(A)(3)(a), 109, 118 AND 236 OF THE NATIONAL INTERNAL
REVENUE CODE (NIRC), AS AMENDED, AND FOR OTHER
PURPOSES
Section 2. Section 109 of the National Internal Revenue Code of 1997, as
amended, is hereby further amended to read as follows:
"SEC. 109. Exempt Transactions. - The following shall be exempt from the
value-added tax: "(A) xxx;
"xxx
"(S) Transport of passengers by
international carriers;
"(T) Sale, importation or lease of passenger or cargo vessels and aircraft,
including engine, equipment and spare parts thereof for domestic or
international transport operations;
"(U) Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations;
"(V) Services of bank, non-bank financial intermediaries performing quasi-
banking functions, and other non- bank financial intermediaries; and
"(W) Sale or lease of goods or properties or the performance of services
other than the transactions mentioned in the preceding paragraphs, the gross
annual sales and/or receipts do not exceed the amount of One million five
hundred thousand pesos (P1,500,000): Provided, That not later than January
31, 2009 and every three (3) years thereafter, the amount herein stated shall
be adjusted to its present value using the Consumer Price Index, as
published by. the National Statistics-Office (NSO);
Section 3. Section 118 of the National Internal Revenue Code of 1997, as
amended, is hereby further amended to read as follows:
"SEC. 118. Percentage Tax on International Carriers. —
"(A) International air carriers doing; business in the Philippines on their
gross receipts derived from transport of cargo from the Philippines to
another country shall pay a tax of three percent (3%) of their quarterly gross
receipts.
"(B) International shipping carriers doing business in the Philippines on
their gross receipts derived from transport of cargo from the Philippines to
another country shall pay a tax equivalent to three percent (3%) of their
quarterly gross receipts."
Section 4. Section 236 of the National Internal Revenue Code of 1997, as
amended, is hereby further amended to read as follows:
"SEC. 236. Registration Requirements. —1âwphi1
"(A) Requirements. — x x x
"xxx
"(G) Persons Required to Register for Value-Added Tax. —
"(1) Any person who, in the course of trade or business, sells, barters or
exchanges goods or properties, or engages in the sale or exchange of
services, shall be liable to register for value-added tax if:
"(a) His gross sales or receipts for the past twelve (12) months, other than
those that are exempt under Section 109(A) to (V), have exceeded One
million five hundred thousand pesos (P1,500,000); or
"(b) There are reasonable grounds to believe that his gross sales or receipts
for the next twelve (12) months, other than those that are exempt under
Section 109(A) to (V), will exceed One million five hundred thousand pesos
(P1,500,000).
REPUBLIC ACT 10754
AN ACT EXPANDING THE BENEFITS AND PRIVILEGES OF
PERSONS WITH DISABILITY (PWD)
SEC. 32. Persons with disability shall be entitled to:
“(a) At least twenty percent (20%) discount and exemption from the value-
added tax (VAT), if applicable, on the following sale of goods and services
for the exclusive use and enjoyment or availment of the PWD:
“(1) On the fees and charges relative to the utilization of all services in
hotels and similar lodging establishments; restaurants and recreation
centers;
“(2) On admission fees charged by theaters, cinema houses, concert halls,
circuses, carnivals and other similar places of culture, leisure and
amusement;
“(3) On the purchase of medicines in all drugstores;
“(4) On medical and dental services including diagnostic and laboratory
fees such as, but not limited to, x-rays, computerized tomography scans and
blood tests, and professional fees of attending doctors in all government
facilities, subject to the guidelines to be issued by the Department of Health
(DOH), in coordination with the Philippine Health Insurance Corporation
(PhilHealth);
“(5) On medical and dental services including diagnostic and laboratory
fees, and professional fees of attending doctors in all private hospitals and
medical facilities, in accordance with the rules and regulations to be issued
by the DOH, in coordination with the PhilHealth;
“(6) On fare for domestic air and sea travel;
“(7) On actual fare for land transportation travel such as, but not limited to,
public utility buses or jeepneys (PUBs/PUJs), taxis, asian utility vehicles
(AUVs), shuttle services and public railways, including light Rail Transit
(LRT), Metro Rail Transit (MRT) and Philippine National Railways (PNR);
and
“(8) On funeral and burial services for the death of the PWD: Provided,
That the beneficiary or any person who shall shoulder the funeral and burial
expenses of the deceased PWD shall claim the discount under this rule for
the deceased PWD upon presentation of the death certificate. Such expenses
shall cover the purchase of casket or urn, embalming, hospital morgue,
transport of the body to intended burial site in the place of origin, but shall
exclude obituary publication and the cost of the memorial lot.
“(b) Educational assistance to PWD, for them to pursue primary, secondary,
tertiary, post tertiary, as well as vocational or technical education, in both
public and private schools, through the provision of scholarships, grants,
financial aids, subsidies and other incentives to qualified PWD, including
support for books, learning materials, and uniform allowance to the extent
feasible: Provided, That PWD shall meet the minimum admission
requirements;
“(c) To the extent practicable and feasible, the continuance of the same
benefits and privileges given by the Government Service Insurance System
(GSIS), Social Security System (SSS), and Pag-IBIG, as the case may be, as
are enjoyed by those in actual service;
“(d) To the extent possible, the government may grant special discounts in
special programs for PWD on purchase of basic commodities, subject to the
guidelines to be issued for the purpose by the Department of Trade and
Industry (DTI) and the Department of Agriculture (DA); and
“(e) Provision of express lanes for PWD in all commercial and government
establishments; in the absence thereof, priority shall be given to them.
“The abovementioned privileges are available only to PWD who are
Filipino citizens upon submission of any of the following as proof of his/her
entitlement thereto:
“(i) An identification card issued by the city or municipal mayor or the
barangay captain of the place where the PWD resides;
“(ii) The passport of the PWD concerned; or
“(iii) Transportation discount fare Identification Card (ID) issued by the
National Council for the Welfare of Disabled Persons (NCWDP).
“The privileges may not be claimed if the PWD claims a higher discount as
may be granted by the commercial establishment and/or under other
existing laws or in combination with other discount program/s.
“The establishments may claim the discounts granted in subsection (a),
paragraphs (1), (2), (3), (5), (6), (7), and (8) as tax deductions based on the
net cost of the goods sold or services rendered: Provided, however, That the
cost of the discount shall be allowed as deduction from the gross income for
the same taxable year that the discount is granted: Provided, further, That
the total amount of the claimed tax deduction net of value-added tax, if
applicable, shall be included in their gross sales receipts for tax purposes
and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code (NIRC), as amended.”
“SEC. 33. Incentives. – Those caring for and living with a PWD shall be
granted the following incentives:
“(a) PWD, who are within the fourth civil degree of consanguinity or
affinity to the taxpayer, regardless of age, who are not gainfully employed
and chiefly dependent upon the taxpayer, shall be treated as dependents
under Section 35(b) of the NIRC of 1997, as amended, and as such,
individual taxpayers caring for them shall be accorded the privileges
granted by the Code insofar as having dependents under the same section
are concerned; and
REVENUE REGULATIONS NO. 15-2015 issued on December 29, 2015
amends Sections 4.109-1 (B)(1)(s), (t) and (u) of Revenue Regulations (RR)
No. 16-2005, as amended, relative to sale, importation or lease of passenger
or cargo vessels and aircraft, including engine, equipment and spare parts
thereof for domestic or international transport operations, which shall now
read as follows:
RR15-15
“SECTION 4.109-1. VAT-Exempt Transactions. — xxx
(B) Exempt transactions. —
(1) Subject to the provisions of Subsection (2) hereof, the following
transactions shall be exempt from VAT:
19. (s) The transport of passengers by international carriers doing
business in the Philippines shall be exempt from value-added tax
(VAT) pursuant to Sections 109(1)(S) of the NIRC, as amended by
RA No. 10378. The transport of cargo by international carriers
doing business in the Philippines shall be exempt from VAT
pursuant to Sections 109(1)(E) of the NIRC, as amended by RA
No. 10378, as the same is subject to Common Carrier’s Tax
(Percentage Tax on International Carriers) under Section 118 of the
NIRC, as amended. International carriers exempt under Sections
109(1)(S) and 109(1)(E) of the NIRC, as amended, shall not be
allowed to register for VAT purposes.
20. (t) Sale, importation or lease of passenger or cargo vessels and
aircraft, including engine, equipment and spare parts thereof for
domestic or international transport operations; Provided, however,
that the exemption from VAT on the importation and local
purchase of passenger and/or cargo vessels shall be subject to the
requirements on restriction on vessel importation and mandatory
vessel retirement program of MARINA.
21. (u) Importation of fuel, goods and supplies by persons engaged in
international shipping or air transport operations; Provided, that the
said fuel, goods and supplies shall be used exclusively or shall
pertain to the transport of goods and/or passenger from a port in
the Philippines directly to a foreign port, or vice versa, without
docking or stopping at any other port in the Philippines unless the
docking or stopping at any other Philippine port is for the purpose
of unloading passengers and/or cargoes that originated from
abroad, or to load passengers and/or cargoes bound for abroad;
Provided, further, that if any portion of such fuel, goods or supplies
is used for purposes other than that mentioned in this paragraph,
such portion of fuel, goods and supplies shall be subject to twelve
percent (12%) VAT starting February 1, 2006;