117. ABAKADA vs Ermita (Sept 1, 2005) Several actions were filed by different petitioners assailing the validity of R.A.

No. 9337 (increasing VAT to 12%) for being unconstitutional, as it violates Art 6, Section 28, w/c provides that The rule of taxation shall be uniform and equitable. The Congress shall evolve a progressive system of taxation. In particular, SHELL, etc. assailed Section 8, amending Section 110 (B) of the NIRC, imposing a 70% limit on the amount of input tax to be credited against the output tax , making it REGRESSIVE and unconstitutional. Specific provision: If at the end of any taxable quarter the output tax exceeds the input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters: PROVIDED that the input tax inclusive of input VAT carried over from the previous quarter that may be credited in every quarter shall not exceed 70% of the output VAT: PROVIDED, HOWEVER, THAT any input tax attributable to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes. . . I: W/n RA 9337 is unconstitutional for violating uniformity, equitability and progressiveness of taxation No, it is VALID. TAX IS UNIFORM. Uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The rule of uniform taxation does not deprive Congress of the power to classify subjects of taxation, and only demands uniformity within the particular class. In this case, the tax law is uniform because: o 1) it provides a standard rate of 0% or 10% (or 12%) on all goods and services; o ) it does not make any distinction as to the type of industry or trade that will bear the 70% limitation on the creditable input tax, 5-year amortization of input tax paid on purchase of capital goods or the 5% final withholding tax by the government. TAX IS EQUITABLE. (Taxes should equally burden all individuals or entities in similar economic circumstances.) The law is equipped with a threshold margin. The VAT rate of 0% or 10% (or 12%) does not apply to sales of goods or services with gross annual sales or receipts not exceeding P1.5M.

Also, basic marine and agricultural food products in their original state are still NOT subject to the tax, thus ensuring that prices at the grassroots level will remain accessible. Although the law outs a premium on businesses with low profit margins, and unduly favors those with high profit margins, Congress equalized the burden the law by likewise imposing a 3% percentage tax on VAT-exempt persons under Section 109(v), i.e., transactions with gross annual sales and/or receipts not exceeding P1.5 Million. This acts as an equalizer because in effect, bigger businesses that qualify for VAT coverage and VAT-exempt taxpayers stand on equalfooting. Moreover, Congress provided under mitigating measures to ease, as well as spread out, the burden of taxation, which would otherwise rest largely on the consumers: o Excise taxes on petroleum products and natural gas were reduced. Percentage tax on domestic carriers was removed. Power producers are now exempt from paying franchise tax. o Income tax rates of corporations, in order to distribute the burden of taxation, were increased o Domestic, foreign, and non-resident corporations are now subject to a 35% income tax rate, from a previous 32%. o Intercorporate dividends of non-resident foreign corporations are still subject to 15% final withholding tax but the tax credit allowed on the corporations domicile was increased to 20%. o PAGCOR is not exempt from income taxes anymore. o Even the sale by an artist of his works or services performed for the production of such works was not spared. On the INPUT TAX LIMIT* (ITO ata yung impt) Petitioner (Shell) assumes that the input tax exceeds 70% of the output tax, and therefore, the input tax in excess of 70% remains uncredited. However, to the extent that the input tax is less than 70% of the output tax, then 100% of such input tax is still creditable. More importantly, the excess input tax, if any, is retained in a businesss books of accounts and remains creditable in the succeeding quarter/s. This is explicitly allowed by Section 110(B), which provides that if the input tax exceeds the output tax, the excess shall be carried over to the succeeding quarter or quarters. In addition, Section 112(B) allows a VAT-registered person to apply for the issuance of a tax credit certificate or refund for any unused input taxes, to the extent that such input taxes have not been applied against the output taxes. Such unused input tax may be used in payment of his other internal revenue taxes.

 The non-application of the unutilized input tax in a given quarter is not ad infinitum, as petitioners exaggeratedly contend. On the other hand, it appears that petitioner Garcia failed to comprehend the operation of the 70% limitation on the input tax. According to petitioner, the limitation on the creditable input tax in effect allows VAT-registered establishments to retain a portion of the taxes they collect, which violates the principle that tax collection and revenue should be for public purposes and expenditures. As earlier stated, the input tax is the tax paid by a person, passed on to him by the seller, when he buys goods. Output tax meanwhile is the tax due to the person when he sells goods. In computing the VAT payable, three possible scenarios may arise: o If output tax = input tax = no payment o If output tax > input tax = person liable for excess, to be paid to BIR o If input tax > output tax = excess shall be carried over to the succeeding quarter or quarters. o IF input tax results from zero-rated or effectively zero-rated transactions, any excess over the output taxes shall be REFUNDED to the taxpayer / credited against other internal revenue taxes, at the taxpayers option. Section 8 of R.A. No. 9337 however, imposed a 70% limitation on the input tax. Thus, a person can credit his input tax only up to the extent of 70% of the output tax. There is no retention of any tax collection because the taxpayer has already previously paid the input tax to a seller, and the seller will subsequently remit such input tax to the BIR. The party directly liable for the payment of the tax is the seller. What only needs to be done is for the person/taxpayer to apply or credit these input taxes, as evidenced by receipts, against his output taxes. TAX IS REGRESSIVE, BUT IT IS NOT INVALID. Taxation is PROGRESSIVE when its rate goes up depending on the resources of the person affected. The Constitution does not really prohibit the imposition of indirect taxes, like the VAT. What it simply provides is that Congress shall "evolve a progressive system of taxation." *NOTE the distinction made by the court: VAT - A tax on spending or consumption. It is levied on the sale, barter, exchange or lease of goods or properties and services. Being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, with the seller acting merely as a tax collector. The

burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers. Direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to someone else. Examples are individual and corporate income taxes, transfer taxes, and residence taxes. 118. CIR v Seagate Seagate is a resident foreign corporation duly registered with the SEC to do business in the Philippines, with principal office address at the Special Economic Zone in Cebu. It is also registered with the Philippine Export Zone Authority (PEZA) to engage in the manufacture of recording components primarily used in computers for export. Furthermore, it is a VAT-registered entity w/c filed VAT returns for the period of April 1998 to 30 June 1999. Subsequently, an administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed. CIR did not act upon this so Seagate elevated the case to CTA. CTA granted the claim for refund but the CA modified it in the reduced amount of P12M, w/c represented the unutilized but substantiated input VAT paid on capital goods purchased for the period covering April 1, 1998 to June 30, 1999. This was because Seagate had availed itself only of the fiscal incentives under EO 226 and NOT of those under both PD 66 and Section 24 of RA 7916. Respondent was, therefore, considered exempt only from the payment of income tax when it opted for the income tax holiday in lieu of the 5% preferential tax on gross income earned. As a VAT-registered entity, though, it was still subject to the payment of other national internal revenue taxes, like the VAT. I: W/n Seagate is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999 R: YES, Seagate is entitled to refund. THERE IS Preferential Tax Treatment Under the following Special Laws: o PD 66- law creating PEZA o EO 226- Omnibus Investments Code" of 1987

and Development Act of 1992 o RA 7916- VAT Law o RA 7844- Export Development Act of 1994; o PD 1853- law requiring deposits of duties upon the opening of letters of credit to cover imports Seagate is one of the business entities registered in and operating from the SEZ in Cebu. These entities are exempt from all internal revenue taxes and the implementing rules relevant thereto, including the VAT. Although export sales are not deemed exempt transactions, they are nonetheless zero-rated, 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 -- except specifically declared areas -to an ecozone. THUS, 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, even though a geographical territory of the Philippines, is however regarded in law as foreign soil. This legal fiction is necessary to give meaningful effect to the policies of the special law creating the zone. There is a difference between ZERO-RATED TRANSACTIONS and EXEMPT / EFFECTIVE ZERO-RATED TRANSACTIONS Zero-rated Exempt

o RA 7227- Bases Conversion

It is automatic zero-rating. Refers to the export sale of goods and supply of services.

It is effective zero rating. Refers to the sale of goods or supply of services to persons or entities whose exemption under special laws or Intl agreements to which the Philippines is a signatory effectively subjects such transactions to a zero rate. 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. There is partial relief because the purchaser is not allowed any tax refund of or credit for input taxes paid.

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. There is total relief for the purchaser from the burden of the tax since he does not have input VAT and in effect, because VAT is at 0%, it does not have output VAT.

Differentiate zero-rated from effectively zero-rated transactions according to Seagate Sir pointed out that: the difference between automatic zero-rated transactions from effectively zero-rated transactions is that with automatic zero-rated transactions, you only have to look at the Tax Code provisions to know which transactions are automatic zero-rated. However, with EXEMPTIONS / effective zero-rated transactions, you have to look at other laws; thus, for effective zero-rated transactions, there is a need to get a prior confirmation or prior approval from the BIR that the transaction is effectively zero-rated. NOTE however that Revenue Regulations of 4-2007 does not provide anymore that there should be an approval before a transaction that is effectively VAT zero-rated to become effectively VAT zero-rated, which could be a legal basis why there is no need for prior confirmation. But Sir does not agree since there is yet no amendment in the Tax Code. Exempt Transaction - involves goods or services which, by their nature, are specifically listed Exempt Party - a person or entity granted VAT exemption under the Tax Code, a

in and expressly exempted from the VAT under the Tax Code, without regard to the tax status of the party (VAT-exempt or not) to the transaction. - such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid.

special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from the VAT. - Such party is also not subject to the VAT, but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT or non-VAT taxpayer. 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 VATregistered suppliers, the purchase transaction is not exempt. Applying this principle to the case at bar, the purchase transactions entered into by respondent are not VAT-exempt.

VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the law does not distinguish, we ought not to distinguish. Tax Refund or Credit is in Order Having determined that respondents purchase transactions are subject to a zero VAT rate, the tax refund or credit is in order. As correctly held by both the CA and the Tax Court, respondent had chosen the fiscal incentives in EO 226 over those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax regime. Therefore, respondent can be considered exempt, not from the VAT, but only from the payment of income tax for a certain number of years, depending on its registration as a pioneer or a non-pioneer enterprise. Summary To summarize, special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit. 120. CONTEX vs CIR FACTS: Petitioner is a domestic corporation engaged in the business of manufacturing hospital textiles and garments and other hospital supplies for export. Petitioners place of business is at the Subic Bay Freeport Zone (SBFZ). It is duly registered with the Subic Bay Metropolitan Authority (SBMA). As an SBMA-registered firm, petitioner is exempt from all local and national internal revenue taxes except for the preferential tax. Petitioner is also registered as a non VAT taxpayer. Petitioner purchased various supplies and materials necessary in the conduct of its manufacturing business. The suppliers of these goods shifted unto petitioner the 10% VAT on the purchased items, which led the

OTHERS: Special laws may certainly exempt transactions from the VAT. However, the Tax Code provides that those falling under PD 66 are not. The purchase transactions it entered into are, therefore, not VAT-exempt. These are subject to the VAT; respondent is required to register. 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 (Under this principle, goods and services are taxed only in the country where these are consumed. Thus, exports are zero-rated, but imports are taxed).
When VAT Rate is at 0% or at 10% 0%- if Seagate enters into such sales transactions with a purchaser (usually in a abroad) for use or consumption OUTSIDE the Philippines 10%- if Seagate entered into with a purchaser for use or consumption IN the Philippines, UNLESS the purchaser is exempt from the indirect burden of the VAT, in which case it shall also be zero-rated. Since the purchases of respondent are not exempt from the VAT, the rate to be applied is zero. The Tax Exemptions are Broad and Express Applying the special laws enumerated above, respondent as an entity is exempt from internal revenue laws and regulations. This exemption covers both direct and indirect taxes, stemming from the very nature of the

petitioner to pay input taxes in the amounts of P539,411.88 and P504,057.49 for 1997 and 1998. Petitioner filed for tax credit or tax refund for the VAT paid which was not acted upon by the CIR. upon appeal, the CTA granted petitioners appeal and ordered the BIR to either grant the refund or apply a tax credit for the amount claimed stating that petitioner should be exempt from VAT pursuant to the Implementing Rules and Regulations of the Bases Conversion and Development Act of 1992. CA reversed CTA ruling stating that tax exemptions are strictly construed against the taxpayer. The Court of Appeals pointed out that under the implementing rules of Rep. Act No. 7227, the exemption of SBFZregistered enterprises from internal revenue taxes is qualified as pertaining only to those for which they may be directly liable. ISSUE: W o N petitioner is liable for VAT HELD: YES! VAT is an indirect tax. As such, the amount of tax paid on the goods, properties or services bought, transferred, or leased may be shifted or passed on by the seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income tax, which primarily taxes an individuals ability to pay based on his income or net wealth. Petitioners claim for exemption from VAT for its purchases of supplies and raw materials is inconsistent with its claim that it is VATExempt, for only VAT-Registered entities can claim Input VAT Credit/Refund. While it is true that the petitioner should not have been liable for the VAT inadvertently passed on to it by its supplier since such is a zero-rated sale on the part of the supplier, the petitioner is not the proper party to claim such VAT refund. Since the transaction is deemed a zero-rated sale, petitioners supplier may claim an Input VAT credit with no corresponding Output VAT liability. Consistently, no Output VAT may be passed on to the petitioner. It is the petitioners suppliers who are the proper parties to claim the tax credit and accordingly refund the petitioner of the VAT erroneously passed on to the latter. 121. CIR vs CA FACTS: Commonwealth Management and Services Corporation (COMASERCO), 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 latter to perform collection, consultative and other technical services, including functioning as an internal auditor, of Philamlife and its other affiliates.

BIR issued an assessment to private respondent COMASERCO for deficiency VAT amounting to P351,851.01 COMASERCO's annual corporate income tax return reflected a net operating loss of P6,077 which prompted it to file a protest letter to the BIR which was subsequently denied by the latter. Upon appeal to the CTA, 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. They claim that 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. CTA ruled in favor of BIR but was subsequently reversed by the CA upon appeal. ISSUE: W o N COMASERCO is liable for VAT HELD: YES! VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity regardless of whether or not the entity is profit-oriented. 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. 122. CIR vs CEBU TOYO FACTS: Respondent Cebu Toyo Corporation is a domestic corporation engaged in the manufacture of lenses and various optical components used in television sets, cameras, compact discs and other similar devices. Its principal office is located at the Mactan Export Processing Zone (MEPZ). Respondent is also a zone export enterprise registered with the Philippine Economic Zone Authority (PEZA), pursuant to the provisions of Presidential Decree No. 66. It is also registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer. As an export enterprise, respondent sells 80% of its products to its mother corporation, the Japan-based Toyo Lens Corporation, pursuant to an Agreement of Offsetting. The rest are sold to various enterprises doing business in the MEPZ. Inasmuch as both sales are considered export sales subject to Value-Added Tax (VAT) at 0% rate under Section 106 of the

National Internal Revenue Code, respondent filed its quarterly VAT returns from April 1, 1996 to December 31, 1997 showing a total input VAT of P4,462,412.63. Respondent filed an application for tax credit/refund of VAT paid for the period April 1, 1996 to December 31, 1997 amounting to P4,439,827.21 representing excess VAT input payments. Respondent also filed a Petition for Review with the CTA to toll the running of the two-year prescriptive period pursuant to Section 2307 of the Tax Code. Respondent claims that as a VAT-registered exporter of goods, it is subject to VAT at the rate of 0% on its export sales that do not result in any output tax. Hence, the unutilized VAT input taxes on its purchases of goods and services related to such zero-rated activities are available as tax credits or refunds. CTA partially granted respondent's petition and BIR was ordered to refund or, in the alternative, to issue a tax credit certificate in favor of Petitioner in the amount of P2,158,714.46 representing unutilized input tax payments. CA affirmed CTA decision. ISSUE: W o N respondent should be granted the tax credit/refund HELD: YES! Respondent should be granted tax credit/refund. Respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions. Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent (10%) or zero percent (0%). In taxable transactions, the seller shall be entitled to tax credit for the value-added tax paid on purchases and leases of goods, properties or services. An exemption on the other hand, means that the sale of goods, properties or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. Thus, a VAT-registered purchaser of goods, properties or services that are VAT-exempt, is not entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt. Export sales, or sales outside the Philippines, shall be subject to value-added tax at 0% if made by a VAT-registered person. Under the valueadded tax system, a zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchase of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund. Since respondent is engaged in the export business and is registered as a VAT taxpayer, it is subject to VAT at 0% rate and is entitled to a refund or credit of the unutilized input taxes.

123. INTEL TECHNOLOGY PHILIPPINES, INC. vs. COMMISSIONER OF INTERNAL REVENUE G.R. No. 166732 FACTS: Petitioner is a domestic corporation engaged primarily in the business of designing, developing, manufacturing and exporting advanced and largescale integrated circuit components (ICs).3 It is registered with the Bureau of Internal Revenue (BIR) as a value-added tax (VAT) entity in 1996 under Certificate of Registration RDO Control No. 96-540-000713.4 It is likewise registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone export enterprise.5 As a VAT-registered entity, petitioner filed with the Commission of Internal Revenue its Monthly VAT Declarations and Quarterly VAT Return for the second quarter of 1998 declaring zero-rated export sales of P2,538,906,840.16 and VAT input taxes from domestic purchases of goods and services in the total amount of P11,770,181.70. Petitioner alleged that its zero-rated export sales were paid for in acceptable foreign currency and were inwardly remitted in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP). On May 18, 1999, petitioner filed with the Commission of Internal Revenue, through its One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the Department of Finance, a claim for tax credit/refund of VAT input taxes on its domestic purchases of goods and services directly used in its commercial operations. Petitioners claim for refund amounted to P11,770,181.70 covering the period April 1, 1998 to June 30, 1998.6 On June 30, 2000, when the two-year prescriptive period to file a refund was about to lapse without any action by the Commission of Internal Revenue on its claim, petitioner filed with the Court of Tax Appeals (CTA) a petition for review with the Commissioner of Internal Revenue (Commissioner) as respondent.7 On April 21, 2003, the CTA rendered judgment denying petitioners claim for refund or issuance of a tax credit certificate. The tax court acknowledged that petitioner is legally entitled to a refund or issuance of a tax credit certificate of its unutilized VAT input taxes on domestic purchases of goods April 27, 2007

and service attributable to its zero-rated sales. However, the export invoices adduced in evidence by petitioner could not be considered as competent evidence to prove its zero-rated sales of goods for VAT purposes and for refund or issuance of a tax credit certificate because no BIR authority to print said invoices was indicated thereon. The CTA also observed that some of the invoices do not contain the Taxpayers Identification Number-VAT (TIN-V) of petitioner as required in Section 113, in conjunction with Section 237, of the Tax Code. ISSUES: (1) whether the absence of the BIR authority to print or the absence of the TIN-V in petitioners export sales invoices operates to forfeit its entitlement to a tax refund/credit of its unutilized input VAT attributable to its zero-rated sales; and (2) whether petitioners failure to indicate "TIN-V" in its sales invoices automatically invalidates its claim for a tax credit certification. RULING: NO. There is no law or BIR rule or regulation requiring petitioners authority from the BIR to print its sales invoices (BIR authority to print) to be reflected or indicated therein. It is clear from the foregoing that while entities engaged in business are required to secure from the BIR an authority to print receipts or invoices and to issue duly registered receipts or invoices, it is not required that the BIR authority to print be reflected or indicated therein. In a claim for refund or issuance of a tax credit certificate attributable to zero-rated sales, what is to be closely scrutinized is the documentary substantiation of the input VAT paid, as may be proven by other export documents, rather than the supporting documents for the zero-rated export sales. And since petitioner has established by sufficient evidence that it is entitled to a refund or issuance of a tax credit certificate, in accordance with the requirements of Sections 106 (A)(2)(a)(1) and 112(A) of the Tax Code, then its claim should not be denied, notwithstanding its failure to state on the invoices the BIR authority to print and the TIN-V.

FACTS: On 24 March 1996, at the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation (Marcopper), mine tailings from the Taipan Pit started to escape through the Makulapnit Tunnel and Boac Rivers, causing the cessation of mining and milling operations, and causing potential environmental damage to the rivers and the immediate area. To contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up and rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary. To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident foreign corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the services of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic corporation and registered Value-Added Tax (VAT) entity, to implement the project in the Philippines. PDTSL and respondent thus entered into an Implementation Agreement signed on 15 November 1996. Due to the urgency and potentially significant damage to the environment, respondent had agreed to immediately implement the project, and the Implementation Agreement stipulated that all implementation services rendered by respondent even prior to the agreements signing shall be deemed to have been provided pursuant to the said Agreement. The Agreement further stipulated that PDTSL was to pay respondent "an amount of money, in U.S. funds, equal to all Costs incurred for Implementation Services performed under the Agreement,"5 as well as "a fee agreed to one percent (1%) of such Costs."6 In August of 1998, respondent amended its quarterly VAT returns for the last two quarters of 1996, and for the four quarters of 1997. In the amended returns, respondent declared a total input VAT payment of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total excess input VAT for the same period. Then on 11 September 1998, respondent filed an administrative claim for the refund of its reported total input VAT payments in relation to the project it had contracted from PDTSL, amounting to P43,015,461.98. In support of this claim for refund, respondent argued that the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly remitted to the Philippines. When the Commissioner of Internal Revenue (CIR) did not act on this claim, respondent duly filed a Petition for Review with the Court of Tax Appeals (CTA), praying for the refund of its total reported excess input VAT totaling P42,837,933.60. In its Answer to the Petition, the CIR merely invoked the presumption that taxes are collected in accordance with law, and

124. COMMISSIONER OF INTERNAL REVENUE vs. PLACER DOME TECHNICAL SERVICES (PHILS.), INC. G.R. No. 164365 June 8, 2007

that claims for refund of taxes are construed strictly against claimants, as the same was in the nature of an exemption from taxation.7 In its Decision dated 19 March 2002,8 the CTA supported respondents legal position that its sale of services to PDTSL constituted a zero-rated transaction under the Tax Code, as these services were paid for in acceptable foreign currency which had been inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). At the same time, the CTA pointed out that of the US$27,544,707.00 paid by PDTSL to respondent, only US$14,750,473.00 was inwardly remitted and accounted for in accordance with the BSP.9 The CTA also noted that not all the reported total input VAT payments of respondent were properly supported by VAT invoices and/or official receipts,10 and that not all of the allowable input VAT of the respondent could be directly attributed to its zero-rated sales.11 In the end, the CTA found that only the resulting input VAT ofP17,178,373.12 could be refunded the respondent.12 ISSUE: W/N the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero-rated sales. RULING: YES. 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. 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. 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 [Bangko Sentral ng Pilipinas], are zero-rated.

125. CIR v. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.

A foreign consortium composed of BWSC-Denmark, Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with NAPOCOR for the operation and maintenance of 2 power barges. BWSC-Denmark, the coordination manager, established BWSCMindanao (domestic corp doing business in Davao) which subcontracted the actual operation and maintenance of NAPOCORs two power barges. NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). The freely convertible nonPeso component is deposited directly to the Consortiums 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 paid BWSC-Mindanao in foreign currency inwardly remitted to the Philippines through the banking system. In order to ascertain the tax implications of the above transactions, BWSC-Mindanao sought a ruling from the BIR, w/c responded with a Ruling declaring that if BWSC-Min chose 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 BSP, the aforesaid services shall be subject to VAT at zero-rate. BSWC-Mindanao chose to register as a VAT taxpayer. In conformity with RR 5-96 allowing zero-rated VAT for services other than processing, manufacturing and repacking of goods, it subjected its sale of services to the Consortium to the 10% VAT and paid the amount of P6M+ as its output tax liability for the year 1996. It then filed a claim for the issuance of a tax credit certificate with the BIR, believing that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program (VAP) of the BIR. CTA ordered BIR to issue a tax credit certificate for the P6M+ in favor of BSCW-Mindanao. This was affirmed by the CA. I: W/n BWSC-Mindanao is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for the year 1996 R: Yes, they are entitled to refund. Their services ARE actually still subject to 10% VAT BUT they are not liable for such given their reliance on BIR Rulings. An essential condition for qualification to zero-rating under Section 102(b)(2) of RR 5-96 is that services other than processing,

manufacturing, or repacking of goods must be performed for persons doing business OUTSIDE the Philippines. In this case, the payer-recipient of BWSC-Mindanaos services is the Consortium which is a joint-venture doing business in the Philippines. While the Consortiums principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines. This is shown clearly in BIR Ruling No. 023-95 which states that the contract between the Consortium and NAPOCOR is for a 15-year term. Considering this length of time, the Consortiums operation and maintenance of NAPOCORs power barges cannot be classified as a single or isolated transaction. The Consortium does not fall under Section 102(b)(2) which requires that the recipient of the services must be a person doing business outside the Philippines. Therefore, BWSC-Mins services to the Consortium, not being supplied to a person doing business outside the Philippines, cannot legally qualify for 0% VAT. The Court recognizes the rule that the VAT system generally follows the "destination principle" (exports are zero-rated whereas imports are taxed). However, as the Court stated in American Express, there is an exception to this rule, which is the 0% VAT on services enumerated in Section 102 and performed in the Philippines. To be exempt from the destination principle under Section 102(b)(1) and (2), the services must be (a) performed in the Philippines; (b) for a person doing business outside the Philippines; and (c) paid in acceptable foreign currency accounted for in accordance with BSP rules. In contrast, this case involves a recipient of services the Consortium which is doing business in the Philippines. Nevertheless, in seeking a refund of its excess output tax, respondent relied on VAT Rulings insofar as they held that the services being rendered by BWSCMI is subject to VAT at zero percent (0%). BWSCs reliance on these BIR rulings binds BIR. BIRs revocation CANNOT be given retroactive effect since it will prejudice the taxpayer, w/c is prohibited by Sec 246 of the NIRC. Changing respondents status will deprive respondent of a refund of a substantial amount representing excess output tax. 126. CIR vs. ACESITE (PHILIPPINES) HOTEL CORPORATION G.R. No. 147295 February 16, 2007 The Facts Acesite is the owner and operator of the Holiday Inn Manila Pavilion Hotel along United Nations Avenue in Manila. It leases 6,768.53 square meters of

the hotels premises to the PAGCOR for casino operations. It also caters food and beverages to PAGCORs casino patrons through the hotels restaurant outlets. For the period January (sic) 96 to April 1997, Acesite incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR during said period. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR but the latter refused to pay the taxes on account of its tax exempt status.1awphi1.n PAGCOR paid the amount due to Acesite minus the P30,152,892.02 VAT while the latter paid the VAT to the CIR as it feared the legal consequences of non-payment of the tax. However, Acesite belatedly arrived at the conclusion that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. On 21 May 1998, Acesite filed an administrative claim for refund with the CIR but the latter failed to resolve the same. Thus on 29 May 1998, Acesite filed a petition with the CTA which was decided in this wise: As earlier stated, Petitioner is subject to zero percent tax pursuant to Section 102 (b)(3) [now 106(A)(C)] insofar as its gross income from rentals and sales to PAGCOR, a tax exempt entity by virtue of a special law. Accordingly, the amounts of P21,413,026.78 and P8,739,865.24, representing the 10% EVAT on its sales of food and services and gross rentals, respectively from PAGCOR shall, as a matter of course, be refunded to the petitioner for having been inadvertently remitted to the respondent. Thus, taking into consideration the prescribed portion of Petitioners claim for refund of P98,743.40, and considering further the principle of solutio indebiti which requires the return of what has been delivered through mistake, Respondent must refund to the Petitioner the amount of P30,054,148.64 computed as follows: Total amount per claim 30,152,892.02 Less Prescribed amount (Exhs A, X, & X-20) January 1996 P 2,199.94

February 1996 26,205.04 March 1996 70,338.42 98,743.40 P30,054,148.64 vvvvvvvvvvvvvv Upon appeal by petitioner, the CA affirmed in toto the decision of the CTA holding that PAGCOR was not only exempt from direct taxes but was also exempt from indirect taxes like the VAT and consequently, the transactions between respondent Acesite and PAGCOR were "effectively zero-rated"

because they involved the rendition of services to an entity exempt from indirect taxes. The Issues (1) whether PAGCORs tax exemption privilege includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate; (2) whether the zero percent (0%) VAT rate under then Section 102 (b)(3) of the Tax Code (now Section 108 (B)(3) of the Tax Code of 1997) legally applies to Acesite. The petition is devoid of merit. In resolving the first issue on whether PAGCORs tax exemption privilege includes the indirect tax of VAT to entitle Acesite to zero percent (0%) VAT rate, we answer in the affirmative. We will however discuss both issues together. PAGCOR is exempt from payment of indirect taxes It is undisputed that P.D. 1869, the charter creating PAGCOR, grants the latter an exemption from the payment of taxes. Section 13 of P.D. 1869 pertinently provides: Sec. 13. Exemptions. x x x x (a) Franchise Holder: No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings of the Corporation x x x x x x x x (b) Others: The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association(s), agency(ies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino(s) authorized to be conducted under this Franchise x x x x A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to PAGCOR. Although the law does not specifically mention PAGCORs exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect

taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30,152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3). R.A. 8424. xxxx (b) Transactions subject to zero percent (0%) rated. xxxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero (0%) rate. WHEREFORE, the petition is DENIED for lack of merit and the November 17, 2000 Decision of the CA is hereby AFFIRMED. No costs. SO ORDERED.

127. CIR v. Magsaysay Lines NDC decided to sell its National Marine Corporation (NMC) shares and 5 of its ships, w/c were offered for public bidding. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a VAT of 10% on the value of the vessels. Magsaysay Lines offered to buy the shares and the vessels for P168M. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong (collectively, private respondents) The bid was approved by the Committee on Privatization, and a Notice of Award was issued to Magsaysay Lines. Private respondents through counsel then received a VAT Ruling from the BIR, holding that the sale of the vessels was subject to the 10% VAT. They filed a motion for reconsideration but their motion was denied so they elevated the case to the CTA. The NDC drew on the Letter of Credit to pay for the VAT, and the amount of P15,120,000.00 in taxes was paid on 16 March 1989. CTA ruled that the sale of a vessel was an "isolated transaction," not done in the ordinary course of NDCs business, and was thus not subject to VAT, which under Section 99 of the Tax Code, was applied only to sales in the course of trade or business. I: W/N the sale is subject to VAT R: No, sale is NOT subject to VAT.

 Any sale, barter or exchange of goods or services not in the course of trade or business is not subject to VAT. mperial v. CIR: 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. Thus, it connotes REGULARITY of activity. In the instant case, the sale was an isolated transaction. The sale which was involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property. This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property. Thus, the sale of the vessels was not in the ordinary course of trade or business of NDC so it should not be subject to VAT. 128. Commissioner of Internal Revenue v. Mirant Pagbilao Corporation Mitsubishi MPC NPC MPC, formerly Southern Energy Quezon, Inc., is a domestic firm engaged in the generation of power which it sells to the National Power Corporation (NPC). For the construction of the electrical and mechanical equipment portion of its Pagbilao, Quezon plant, MPC secured the services of Mitsubishi Corporation (Mitsubishi) of Japan. Under R.A. 6395, NPC is exempt from all taxes (which covers both direct and indirect taxes). In the light of the NPC's tax exempt status, MPC, on the belief that its sale of power generation services to NPC is zero-rated for VAT purposes, filed an Application for Effective Zero Rating. CIR issued a ruling stating that the supply of electricity by MPC to the NPC shall be subject to zero percent (0%) VAT. Consistent with its belief to be zero-rated, MPC opted not to pay the VAT component of the progress billings from Mitsubishi for the period covering April 1993 to September 1996 - for the E & M Equipment Erection Portion of MPC's contract with Mitsubishi. This prompted Mitsubishi to advance the VAT component as this serves as its output VAT which is essential for the determination of its VAT payment.

MPC, while awaiting approval of its application, filed its quarterly VAT return for the second quarter of 1998 where it reflected an input VAT of P148M+, as supported by an OR. MPC filed an administrative claim for refund of unutilized input VAT. BIR failed to act on its claim for refund. MPC went to the CTA via a petition for review to forestall the running of the two-year prescriptive period. BIR asserted that MPC's claim for refund CANNOT be granted since MPC's sale of electricity to NPC is NOT zero-rated for its failure to secure an approved application for zero-rating. The CTA granted MPC's claim for input VAT refund or credit for PhP 10,766,939.48. The CA rendered its assailed decision modifying that of the CTA decision by granting most of MPC's claims for tax refund or credit for P146,760,509.48. I: W/n MPC is entitled to the refund of its input VAT payments made from 1993 to 1996 R: Yes, but only to the extent of P10M+, given that claim has prescribed. Prescription. MP's claim for refund / tax credit for the creditable input VAT was filed beyond the period provided by law for such claim. Sec. 112(A) of the NIRC provides that any VAT-registered person, whose sales are zero-rated may apply for the issuance of tax credit WITHIN 2 YEARS after the close of the taxable quarter when the sales were made. MPC filed a refund in Dec 1999 when it should have filed in Sept 1998 (since the close of the quarter was Sept 1996). Creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a whollytax exempt client, resulting in a zero-rated or effectively zero-rated transaction, does NOT, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation. History of VAT. 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 (practiced in Europe). 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. HOWEVER, when output taxes EXCEED input taxes, the excess has to be paid. On the other hand, if the input taxes EXCEED the output taxes, the excess shall be CARRIED OVER TO THE succeeding quarter/s.

 Should the input taxes result from zero-rated or effectively zerorated transactions or from the acquisition of capital goods, any EXCESS over the output taxes shall be refunded to the taxpayer / credited against other internal revenue taxes. Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. OTHERS: BIR and other tax agencies have a duty to treat claims for refunds and tax credits with proper attention and urgency. Had RDO No. 60 and, later, the BIR proper acted, instead of sitting, on MPC's underlying application for effective zero rating, the matter of addressing MPC's right, or lack of it, to tax credit or refund could have plausibly been addressed at their level and perchance freed the taxpayer and the government from the rigors of a tedious litigation. The official receipt proves payment by MPC of its creditable input VAT relative to its purchases from Mitsubishi. BIR is precluded from requiring additional evidence to prove that input tax had indeed paid or, in fine, that the taxpayer is indeed entitled to a tax refund or credit for input VAT, we agree with the CA's above disposition. As the Court distinctly notes, the law considers a duly-executed VAT invoice or OR referred to in the above provision as sufficient evidence to support a claim for input tax credit. 129. Atlas Consolidated Mining vs. CIR Facts: Atlas filed its VAT return in 1stquarter of 1992 likewise filing its application for tax refund or credit on it zero-rated sales. The application was not acted upon by the BIR. The case wasfiled with the CTA asking that the CIR allowed them to have credit or refund for the VAT ithad paid in 1992. The CIR countered that there is no cause of action the case, the case wasdenied due to prescription of the action. The case was elevated to the CA but upheld theruing of the CTA.Atlas in another case claims refund or credit for the VAT paid covering the 2nd to the 4th quarter of 1990. When the BIR has not acted upon the request, Atlas had filed with the CTApetitions for review. CTA ruled in favor of the CIR also based on prescription.Atlas appealed the case to CA and found that though the action has not yet prescribed therewas a failure to substantiate the claim for refund or credit. Issue:

Whether or not the action is not yet barred by prescription in order to claim for refund orcredit from the VAT paid. Held: The 2-year prescriptive period for filing a claim for refund/tax credit of excess input VAT attributable to zero-rated sales should be counted from the date of filing of the return and payment of the tax due. Unlike corporate income tax that is reported and paid on installment every quarter but is eventually subjected to a final adjustment at the end of the taxable year, the VAT is computed and paid on a purely quarterly basis without need for a final adjustment at the end of the taxable year. Hence, until and unless the taxpayer prepares and submits to the BIR its quarterly VAT return, there is no way of knowing with certainty just how much input VAT the taxpayer may apply against its output VAT; how much output VAT it is due to pay for the quarter or how much excess input VAT it may carry- over to the following quarter; or how much of its input VAT it may claim as refund/tax credit. On the aspect of evidence, the taxpayer-claimant must first establish that its sales qualify for VAT zerorating under the existing laws (legal basis), and then present sufficient evidence that said sales were actually made and resulted in refundable or creditable input VAT in the amount being claimed (factual basis).Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic processing zones were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990 and the first quarter of 1992, for not being established and substantiated by appropriate and sufficient evidence. 130. American Express v. CIR Petitioner Amex-Phil is a Philippine branch of American Express International, Inc., a corporation duly organized under Delaware, US laws. It is a servicing unit of American Express International, Inc. HK branch, engaged primarily to facilitate the collection of Amex HK's receivables from Amex cardholders residing or situated in the Philippines, as well as the payment of Amex HK to American Express accredited service establishments and merchants in the Philippines. Amex-Phil made a request in writing to BIR for qualification as a zero rated VAT enterprise. BIR issued a VAT Ruling declaring that as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted

inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, Amex-Phils service income is automatically zero rated effective January 1, 1988. For this, there is no need to file an application for zero-rate. For the taxable year 1998, petitioner allegedly generated and recorded revenues in the total amount of P81k which were paid for in HK in foreign currency inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the BSP. Amex-Phil asserts that said revenues qualify as zero-rated pursuant Tax Code as confirmed in the VAT Ruling. For the same period, Amex-Phil allegedly paid input VAT amounting to P3.9M+ on its domestic purchases of taxable goods/services. Petitioner nonetheless claims that its output VAT liability for the period amounted only to P4k thereby leaving an unutilized input VAT of P3M averred to be directly attributable to its zerorated sales. Petitioner contends that the input VAT payments in 1998 were paid in the course of its trade or business. Further, the unapplied input VAT payments subject of this case had not been carried over to the succeeding first quarter of 1999. I: W/N Amex-Phil is entitled to a refund of P3,967,561.06 allegedly representing unutilized input VAT payments on domestic purchases of taxable goods/services which are directly attributable to zero-rated sales for the period January 1 to December 31, 1998 R: YES. Petitioner's claim for refund is hereby PARTIALLY GRANTED. Respondent CIR is ORDERED to REFUND to petitioner the sum of P3,967,336.97 representing unutilized input VAT payments for the period January 1 to December 31, 1998. The onus (burden) of taxation under our VAT system is in the country where the goods, property or services are destined and consumed. This is the reason why under our VAT Law, goods, property or services destined to be consumed in the Philippines are subject to the 10% VAT whereas exports are zero-rated. Amexs transactions were considered zero-rated because they were services that were paid for in an acceptable foreign currency & accounted for in accordance w/ the rules & regulations of the BSP since its transactions were paid in HK foreign currency which was inwardly remitted to the Philippines & accounted for in accordance w/ the rules of BSP. The governing law in the case at bar is Section 112(A)[then Section 106(a)] in relation to Section 108(B)(2) of the Tax Code.1 In conformity

with this law, to be entitled to a refund or tax credit of input VAT payments directly attributable to zero-rated or effectively zerorated sales, the following requisites must be complied with: 1) there must be zero-rated or effectively zero-rated sales; 2) that input taxes were incurred or paid; 3) that such input VAT payments are directly attributable to zero-rated sales or effectively zero-rated sales; 4) that the input VAT payments were not applied against any output VAT liability; and 5) that the claim for refund was filed within the two-year prescriptive period. PETITIONER in this case fulfilled all the requirements, except the 3rd (not all of the input VAT payments were attributable to the zero-rated sales), hence the partial grant. 1st requirement: Petitioner's sales of services qualify as zero-rated sales. It is a VAT registered entity and its sales of services to AMEX HK falls under Section 108(B)(2) of the Tax Code. Further, petitioner's service fee earnings amounting to P81k were paid for in acceptable foreign currency (US dollars) and accounted for in accordance with the rules and regulations of the BSP as evidenced by the various telex advices and demand deposit statementsand certification from BPI Forex Corporation. 2ndrequisite: Petitioner submitted various suppliers' invoices and ORs which are valid documents in accordance with Sections 113 and 237 of the Tax Code. From said documents, petitioner established that it paid an input VAT in the sum of P3,972,025.15 on its domestic purchases of taxable goods/services for the year 1998. 3rd requisite: Not all of the substantiated input VAT payments of P3,972,025.15 were directly attributable to petitioner's zero-rated sales. For the year 1998, petitioner had taxable sales in the amount of P46,881.80 with the corresponding output VAT of P4,688.18 Indubitably, only the input VAT of P3,967,336.97, arrived at by deducting the output VAT of P4,688.18 from the substantiated input VAT of P3,972,025.15, can be directly attributed to petitioner's zero-rated sales for the subject period. 4threquirement: Petitioner offered in evidence its quarterly VAT return for the first quarter of 1999 to prove that the subject claim was not applied or carried over to the said quarter. Last requirement: Counting the two-year prescriptive period from the date of filing of petitioner's 1998 first quarterly VAT returns on April 20, 1998, both the administrative (filed on April 18, 2000) and judicial (filed

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).

on April 19, 2000) claims for refund were filed within the two-year period as mandated by law.

132. Fort Bonifacio Dev Corp v CIR Bground: The first VAT law, EO 273 (OLD NIRC), accommodated potential burdens for newly liable VAT-registered persons through providing Transitional Input Tax Credit (TITC). Then, RA 7716 took effect, which amended the OLD NIRC and included sales of real property in the coverage of VAT. RA 8424 (NIRC) was enacted and amended the Transitory Provisions. It also included the concept of Presumptive Input Tax Credit Fort Bonifacio Development Corporation (FBDC) acquired from the National Government a vast tract of land now known as Fort Bonifacio Global City. Because the law then was prior to RA 7716, no VAT was paid. However, at the effectivity of RA 7716, FBDC became a VATRegistered person, liable for VAT and entitled for transactional input tax credit. FBDC executed 2 contracts to sell over lands in Global City in favor of Metro Pacific Corporation. It paid VAT but utilized its transitional input tax credit, which offset each other. Upon FBDC asking the BIR whether the offsetting was valid, BIR recommended that their claim TITC was correct. However, BIR subsequently issued an Assessment where it disallowed the use of TITC on the basis of a Revenue Regulation 7-95 (limit use of 8% transitional input tax to book value of improvements only ). BIR now claims tax deficiency. CTA ruled in favor of the CIR. CA affirmed the decision but removed the penalties and surcharges. FBDC filed 2 petitions to the SC, both claiming TITC. Both were consolidated in this decision. I: W/N Section 105 of the Old NIRC restricts the application by Real Estate Dealers of the Transitional Input Tax only to improvements on the real property belonging to their beginning inventory R: No. The restriction is invalid. The FBDC is allowed to credit its transitional input tax on the sale. In the OLD NIRC, only goods where covered by the VAT. Real properties were only included by an amendment of RA 7716. But when it was amended, there was no differential treatment in transitional input tax for goods or real properties. In addition, the definition of Real Property is being primarily used for sale to

customers or held for lease in the ordinary course of business. Thus, the real property is treated the same way as goods. The issuance of RR 7-95 was erroneous. There is no logic to limit the provision only to improvements. The very idea runs counter to what the tax credit seeks to accomplish. As GOODS in the business sense, refers to the product that the VATregistered person offers for sale the public, real estate dealers treat real properties as their goods. The purpose behind the transitional input tax credit is not confined to the transition from sales to VAT. As proof, Congress has reenacted the transitional input tax both in the OLD NIRC and the NEW NIRC. The transitional aspect of the transitional input tax pertains to the event that the taxpayer starts to become VATregistered. As being covered by the VAT does not merely take place by operation of law, it requires the act of a person to be covered by VAT. For example, A person can be liable for VAT if he decides to start a business. Thus, transitional tax input credit is available, whether under the OLD NIRC or NEW NIRC, to a newly-VAT registered person. The transitional input tax is available, regardless whether the purchase of the goods, materials and supplies in the beginning inventory was subjected to VAT or not. To limit its availability to goods subjected to VAT, would be absurd. Because some goods acquired are not subject to VAT, but still liable for tax like capital gains tax, donors tax and estate tax. It would render the purpose of the law useless. It is apparent that the transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it derived from its sales as output VAT. The transitional input tax credit mitigates this initial diminution of the taxpayers income by affording the opportunity to offset the losses incurred through the remittance of the output VAT at a stage when the person is yet unable to credit input VAT payments. Although the CIR has the power to redefine the concept of goods, it pertains to more technical matters. It cannot go as far as to amend the provision, as it include goods and real property in the course of

business. Thus, in case of conflict between a statue and an administrative order, the statue shall prevail Justice Antonio Carpio dissent: The transitional input tax credit applies only when taxes where paid on the properties in the beginning inventory, but this would constitute a new requisite to the application of transitional input tax credit and would require the taxpayer additional proof of payment of taxes. He also argues that the word presumptive assumes the payment of tax, thus requiring prior payment of taxes. The law necessarily comes into existence only after the introduction of VAT. However, presumptive input tax credit is included in the OLD NIRC but was never integrated until the NEW NIRC took effect, which is more than a decade. Thus, the old meaning is not anymore attached to the word. Only those goods on which input VAT was paid could form the basis of input tax credit. However, this brings about the again absurd situation where goods not subject to VAT are acquired but liable for other tax (estate / donor / capital gains). As a last point, the prohibition of using value of real properties in the beginning inventory in RR 7-95 has already been repealed by RR 6-97. 132. Fort Bonifacio Dev Corp v CIR (MR) RA 7716 took effect on January 1, 1996. It amended Section 100 of the Old NIRC by imposing for the first time VAT on sale of real properties. The provisions of Section 105 of the NIRC remain intact despite the enactment of RA 7716. Section 105 however was amended with the passage of the New NIRC In the April 2, 2009 Decision sought to be reconsidered, the Court struck down Section 4.105-1 of RR 7-95 for being in conflict with the law. It held that the CIR had no power to limit the meaning and coverage of the term "goods" in Section 105 of the Old NIRC to only apply to IMPROVEMENTS on real property belonging to the beginning inventory. I: W/n RR 7-95 is valid, given that 1) Sec 100 of the Old NIRC as amended by RA7716, could not have supplied the distinction between the treatment of real properties or real estate dealers, and the treatment of transactions involving other commercial goods, as said distinction is found in section 105 and, subsequently, revenue regulations no. 7-95 which defines the input tax creditable to a real estate dealer who becomes subject to vat for the first time. 2) Section 4.105.1 and paragraph (a) (iii) of the transitory provisions of revenue regulations no. 7-95 validly limits the 8% transitional input tax to the improvements on real properties.

A law must not be read in truncated parts; its provisions must be read in relation to the whole law. The term "goods or properties" by the unambiguous terms of Section 100 includes "real properties held primarily for sale to costumers or held for lease in the ordinary course of business." Having been defined in Section 100 of the NIRC, the term "goods" as used in Section 105 of the same code could not have a different meaning. Under Section 105, the beginning inventory of "goods" forms part of the valuation of the transitional input tax credit. Goods, as commonly understood in the business sense, refers to the product which the VAT-registered person offers for sale to the public. With respect to real estate dealers, it is the real properties themselves which constitute their "goods." Such real properties are the operating assets of the real estate dealer. Section 4.105-1 of RR 7-95 restricted the definition of "goods", when it stated that in the case of real estate dealers, the basis of the presumptive input tax shall be the improvements, such as buildings, roads, drainage systems, and other similar structures, constructed on or after the effectivity of EO 273 (January 1, 1988). As mandated by Article 7 of the Civil Code an administrative rule or regulation cannot contravene the law on which it is based. RR 7-95 is inconsistent with Section 105 insofar as the definition of the term "goods" is concerned. This is a legislative act beyond the authority of the CIR and the Secretary of Finance. RR 7-95, insofar as it restricts the definition of "goods" as basis of transitional input tax credit under Section 105 is a nullity. 133: SAN ROQUE POWER CORPORATION vs CIR Facts: Petitioner is a domestic corporation organized under the corporate laws of the Republic of the Philippines. On 14 October 1997, it was incorporated for the sole purpose of building and operating the San Roque Multipurpose Project in San Manuel, Pangasinan, which is an indivisible project consisting of the power station, the dam, spillway, and other related facilities. It is registered with the Board of Investments (BOI) on a preferred pioneer status to engage in the design, construction, erection, assembly, as well as own, commission, and operate electric power-generating plants and related activities. On October 11, 1997, petitioner entered into a Power Purchase Agreement (PPA) with the National Power Corporation (NPC) to develop the hydro potential of the Lower Agno River, and to be able to generate additional power and energy for the Luzon Power Grid, by developing and

operating the San Roque Multipurpose Project. The PPA provides that petitioner shall be responsible for the design, construction, installation, completion and testing and commissioning of the Power Station and it shall operate and maintain the same, subject to the instructions of the NPC. During the cooperation period of 25 years commencing from the completion date of the Power Station, the NPC shall purchase all the electricity generated by the Power Plant. Because of the exclusive nature of the PPA between petitioner and the NPC, petitioner applied for and was granted five Certificates of Zero Rate by the BIR, through the Chief Regulatory Operations Monitoring Division, now the Audit Information, Tax Exemption & Incentive Division. Based on these certificates, the zero-rated status of petitioner commenced on 27 September 1998 and continued throughout the year 2002. On 19 June 2002, 25 October 2002, 27 February 2003, and 29 May 2003, petitioner filed with the BIR four separate administrative claims for refund of Unutilized Input VAT paid for the period January to March 2002, April to June 2002, July to September 2002, and October to December 2002, respectively. However, such claims were not granted by the BIR, hence this petition. ISSUE: WON petitioner may claim a tax refund or credit (in the amount of P249,397,620.18) for creditable input tax attributable to zero-rated or effectively zero-rated sales pursuant to Section 112(A) of the NIRC or for input taxes paid on capital goods as provided under Section 112(B) of the NIRC. HELD: YES. To claim refund or tax credit under Section 112(A), petitioner must comply with the following criteria: (1) the taxpayer is VAT registered; (2) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (3) the input taxes are due or paid; (4) the input taxes are not transitional input taxes; (5) the input taxes have not been applied against output taxes during and in the succeeding quarters; (6) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations; (8) where there are both zerorated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; and (9) the claim is filed within two years after the close of the taxable quarter when such sales were made. Based on the evidence presented, petitioner complied with the abovementioned requirements. Firstly, petitioner had adequately proved that it is a VAT registered taxpayer when it presented Certificate of Registration No. OCN98-006-007394, which it attached to its Petition for Review dated 29 March

2004 filed before the CTA in Division. Secondly, it is unquestioned that petitioner is engaged in providing electricity for NPC, an activity which is subject to zero rate, under Section 108(B)(3) of the NIRC. Thirdly, petitioner offered as evidence suppliers VAT invoices or official receipts, as well as Import Entries and Internal Revenue Declarations. Fourthly, the input taxes claimed, which consisted of local purchases and importations made in 2002, are not transitional input taxes, which Section 111 of the NIRC defines as input taxes allowed on the beginning inventory of goods, materials and supplies. Fifthly, the audit report of Aguilar (Court-commissioned CPA) affirms that the input VAT being claimed for tax refund or credit is net of the input VAT that was already offset against output VAT. However, upon closer examination of the records, it appears that on 2002, petitioner carried out a sale of electricity to NPC. The fourth quarter return for the year 2002, which petitioner filed, reported a zero-rated sale in the amount of P42,500,000.00. In the Affidavit of Echevarria dated 9 February 2005, which was uncontroverted by respondent, the affiant stated that although no commercial sale was made in 2002, petitioner produced and transferred electricity to NPC during the testing period in exchange for the amount of P42,500,000.00. The Court is not unmindful of the fact that the transaction described hereinabove was not a commercial sale. In granting the tax benefit to VAT-registered zero-rated or effectively zero-rated taxpayers, Section 112(A) of the NIRC does not limit the definition of sale to commercial transactions in the normal course of business. Conspicuously, Section 106(B) of the NIRC, which deals with the imposition of the VAT, does not limit the term sale to commercial sales, rather it extends the term to transactions that are deemed sale. The seventh requirement regarding foreign currency exchange proceeds is inapplicable where petitioners zerorated sale of electricity to NPC did not involve foreign exchange and consisted only of a single transaction wherein NPC paid petitioner P42,500,000.00 in exchange for the electricity transferred to it by petitioner. Similarly, the eighth requirement is inapplicable to this case, where the only sale transaction consisted of an effectively zero-rated sale and there are no exempt or taxable sales that transpired, which will require the proportionate allocation of the creditable input tax paid. The last requirement determines that the claim should be filed within two years after the close of the taxable quarter when such sales were made. The sale of electricity to NPC was reported at the fourth quarter of 2002, which closed on 31 December 2002. Petitioner had until 30 December 2004 to file its claim for refund or credit. For the period January to March 2002, petitioner filed an amended request for refund or tax credit on 30 May 2003; for the period July 2002 to September 2002, on 27 February 2003; and for the period October 2002 to December 2002, on 31 July 2003. In these three quarters, petitioners seasonably filed its requests for refund and

tax credit. However, for the period April 2002 to May 2002, the claim was filed prematurely on 25 October 2002, before the last quarter had closed on 31 December 2002. 134: KEPCO PHILIPPINES CORPORATION Facts: Korea Electric Power Corporation (KEPCO) Philippines Corporation (petitioner) is an independent power producer engaged in selling electricity to the National Power Corporation (NPC). After its incorporation and registration with the Securities and Exchange Commission on June 15, 1995, petitioner forged a Rehabilitation Operation Maintenance and Management Agreement with NPC for the rehabilitation and operation of Malaya Power Plant Complex in Pililia, Rizal. Petitioner filed with the Commissioner of Internal Revenue (respondent) administrative claims for tax refund for unutilized input Value Added Tax (VAT) payments on domestic purchases of goods and services for the 3rd quarter of 1996 and another for creditable VAT withheld from payments received from NPC for the months of April and June 1996. Petitioner also filed a judicial claim before the Court of Tax Appeals (CTA) based on the above-mentioned grounds. Petitioner filed before respondent on December 28, 1998 still another claim for refund representing unutilized input VAT payments attributable to its zero-rated sale transactions with NPC, including input VAT payments on domestic goods and services for the 4th quarter of 1996. Petitioner also filed the same claim before the CTA on December 29, 1998 By Decision of March 18, 2003, the CTA granted petitioner partial refund with respect to unutilized input VAT payment on domestic goods and services qualifying as capital goods purchased for the 3rd and 4th quarters of 1996 in the amount of P8,325,350.35. All other claims were disallowed. Petitioner filed an urgent motion for reconsideration, claiming an additional amount of P5,012,875.67. By Resolution of July 8, 2003, the CTA denied petitioners motion, it holding that part of the additional amount prayed for P1,557,676.13 involved purchases for the year 1997, and with respect to the remaining amount of P3,455,199.54, it was not recorded under depreciable asset accounts, hence, it cannot be considered as capital goods. ISSUE: WON the purchases amounting to P3,455,199.54, which were disallowed, do not fall within the definition of capital goods, hence cannot be claimed as a refund. HELD: YES. Section 4.106-1 (b) of Revenue Regulations No. 7-95 defines capital goods and its scope in this wise:

xxxx (b) Capital Goods. Only a VAT-registered person may apply for issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased. The refund shall be allowed to the extent that such input taxes have not been applied against output taxes. The application should be made within two (2) years after the close of the taxable quarter when the importation or purchase was made. Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall only be the ratable portion corresponding to taxable operations. Capital goods or properties refer to goods or properties with estimated useful life greater that one year and which are treated as depreciable assets under Section 29 (f) , used directly or indirectly in the production or sale of taxable goods or services. (underscoring supplied) For petitioners purchases of domestic goods and services to be considered as capital goods or properties, three requisites must concur. First, useful life of goods or properties must exceed one year; second, said goods or properties are treated as depreciable assets under Section 34 (f) and; third, goods or properties must be used directly or indirectly in the production or sale of taxable goods and services. From petitioners evidence, the account vouchers specifically indicate that the disallowed purchases were recorded under inventory accounts, instead of depreciable accounts. That petitioner failed to indicate under its fixed assets or depreciable assets account, goods and services allegedly purchased pursuant to the rehabilitation and maintenance of Malaya Power Plant Complex, militates against its claim for refund. As correctly found by the CTA, the goods or properties must berecorded and treated as depreciable assets under Section 34 (F) of the NIRC.