GUIDE NOTES ON VALUE-ADDED TAX

VALUE-ADDED TAX
Q. WHAT IS THE NATURE AND CONCEPT OF VALUE-ADDED TAXES?
* VAT is a percentage tax. There is a percentage fixed by law which will be applied to the
gross selling price in order to arrive to the VAT to be paid.
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] is a case on a
claim for tax refund/credit of alleged unutilized input VAT paid on capital goods for the period
1 April 1998 to 30 June 1999. It explained the concept of a value-added tax, thus:
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 12% 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.
Situations that may arise: (General Principles)
1. If at the end of a taxable quarter the output taxes charged by a seller are equal to
the input taxes passed on by the suppliers, no payment is required.
2. If at the end of a taxable quarter, the output taxes exceed the input taxes, the
excess has to be paid by the seller.
3. If the input taxes exceed the output taxes, the excess shall be carried over to the
succeeding quarter or quarters
4. If the input taxes result from zero-rated or effectively zero-rated transactions or from
acquisition of capital goods any excess over the output taxes shall be refunded to
the taxpayer or credited against other internal revenue taxes.

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* Citing CIR v. Seagate Technology (Philippines), the case of Panasonic Communications

Imaging Corporation of the Philippines v. CIR explained value-added tax in this wise:
The VAT is a tax on consumption, an indirect tax that the provider of goods or services
may pass on to his customers.
Under the VAT method of taxation, which is invoice-based, an entity can subtract from the
VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports.

For example, when a seller charges VAT on its sale, it issues an invoice to the buyer,
indicating the amount of VAT he charged.
For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he
can use the invoice issued to him by his supplier to get a reduction of his own VAT
liability.
The difference in tax shown on invoices passed and invoices received is the tax paid to
the government.
In case the tax on invoices received exceeds that on invoices passed, a tax refund
may be claimed.

Q: DEFINE AND DIFFERENTIATE INPUT TAX AND OUTPUT TAX.

The case of CIR v. Benguet Corporation defined input tax and output tax.
Input tax
Output tax
Input VAT or input tax represents When that person or entity sells
the actual payments, costs and his/its products or services, the
expenses incurred by a VAT- VAT-registered
taxpayer
registered taxpayer in connection generally becomes liable for 12%
with his purchase of goods and of the selling price as output VAT
services
or output tax.
Hence, "output tax" is the
Thus, "input tax" means the value-added tax on the sale of
value-added tax paid by a VAT- taxable goods or services by
registered person/entity in the any person registered or
course of his/its trade or required to register under
business on the importation of Section 107 of the (old) Tax
goods or local purchases of Code.
goods or services from a VATregistered person
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Q: HOW CAN A VAT-REGISTERED TAXPAYER RECOVER ITS INPUT VAT?

The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT either
by

Xs purchase has an input tax of 1,500 (12,500 x 12%) and his re-sale transaction
has an output tax of 1,800 (15,000 x 12%) The VAT payable by X is the difference of
the output tax and the input tax thus it is 300 (1800-1500)
(b) How much can X claim as a tax credit?

(1) passing on the 12% output VAT on the gross selling price or gross receipts, as the case
may be, to its buyers, or
(2) if the input tax is attributable to the purchase of capital goods or to zero-rated sales, by
filing a claim for a refund or tax credit with the BIR.
Simply stated, a taxpayer subject to 12% output VAT on its sales of goods and services may
recover its input VAT costs by passing on said costs as output VAT to its buyers of goods
and services but it cannot claim the same as a refund or tax credit, while a taxpayer subject
to 0% on its sales of goods and services may only recover its input VAT costs by filing a
refund or tax credit with the BIR.
Q: Illustrate input tax, output tax and VAT payable
X Corp, manufacturer, sold goods to Y, a retailer, for 100,000 plus vat of 12,000 (so Y bought
it for 112,000) Then, Y resold the goods to Z, end-consumer for 150,000 plus VAT of 18,000
(so Z bought it for 168,000)
On the part of Y, the retailer,

X may claim the 1,500 input tax on his purchase as a tax credit. This is why it was
deducted from 1,800.
(c) Can Z claim a tax credit?
No. He is the end-consumer. He ultimately bears the tax burden.
SEC. 105. Persons Liable.
Any person who, in the course of trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act
No. 7716.

-His OUTPUT TAX is 18,000 because this is the tax he passed on to Z.

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental thereto, by any person regardless of whether or
not the person engaged therein is a non-stock, nonp-rofit private organization (irrespective of the
disposition of its net income and whether or not it sells exclusively to members or their guests), or
government entity.

-In this case, Y will pay for/ultimately be liable for the vat of 6,000 on the sale because the
output tax is greater than the input tax. (see 2nd situation in first page)

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in the
Philippines by nonresident foreign persons shall be considered as being course of trade or business.

Q: Illustrative problem (Co-Untian)

Q: UNDER 1ST PARAGRAPH OF SEC 105, WHAT ARE THE VAT-ABLE TRANSACTIONS? [SALE,
IMPORTATION AND SERVICES]

-His INPUT TAX is 12,000 because this tax was passed on to him when he bought goods
from X Corp.

X is a VAT registered person. He bought goods from Y for 12,500, exclusive of VAT. X then
sold these goods to consumer Z for 15,000, exclusive of the VAT
(a) How much is the VAT payable by X to the BIR?
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1. Sale, barter, exchange of goods or properties

2. Transactions deemed sale
3. Importation of goods [does not have to be exercised in the ordinary course of
business]
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4. Sale of services and use or lease of properties

Q: UNDER PAR 2, VAT IS AN INDIRECT TAX. DISTINGUISH BETWEEN LIABILITY FOR THE TAX AND
BURDEN OF THE TAX.
* The case of Contex Corporation v. CIR made a distinction between the two concepts. It
provided [[Contex Corporation v. CIR, GR No. 151135, 2 July 2004.]
At this juncture, it must be stressed that the 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, an indirect tax, such as the VAT, is a tax on
consumption of goods, services, or certain transactions involving the same. The VAT,
thus, forms a substantial portion of consumer expenditures.

Further, in indirect taxation, there is a need to distinguish between the liability for the tax
and the burden of the tax.
As earlier pointed out, the amount of tax paid may be shifted or passed on by the seller
to the buyer.
o What is transferred in such instances is not the liability for the tax, but the
tax burden.
o In adding or including the VAT due to the selling price, the seller remains the
person primarily and legally liable for the payment of the tax. What is shifted only
to the intermediate buyer and ultimately to the final purchaser is the burden of the
tax.
Stated differently, a seller who is directly and legally liable for
payment of an indirect tax, such as the VAT on goods or services is
not necessarily the person who ultimately bears the burden of the
same tax.
It is the final purchaser or consumer of such goods or services who,
although not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax.

was whether such sale was within the coverage of VAT. The Supreme Court found that the
sale of the vessels was not in the ordinary course of trade or business. As such, the
transaction was outside the coverage of VAT.
That the sale of the vessels was not in the ordinary course of trade or business of NDC was
appreciated by both the CTA and the Court of Appeals, the latter doing so even in its first
decision which it eventually reconsidered. We cite with approval the CTAs explanation on
this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97
Phil. 992), 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.
What is clear therefore, based on the aforecited jurisprudence, is that "course of business"
or "doing business" 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 Charte of the NDC which bears no indication that
the NDC was created for the primary purpose of selling real property.
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.
The decision contained an explanation of VAT, to wit:

Q: WHAT IS MEANT BY IN THE COURSE OF TRADE OR BUSINESS?

* The case of CIR v. Magsaysay Lines, Inc GR No. 146984. involved the sale by the
National Development Company of five of its vessels to Magsaysay Lines, Inc. The issue

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A brief reiteration of the basic principles governing VAT is in order. 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
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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 taxpayers 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.
o 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.
o 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)

** In the case of CIR v. CA, COMASERCO, being a non-stock non-profit organization,

contended that it was operating on a reimbursement-of-cost basis, that its operations
were not profit-oriented and not in the course of trade of business, and that
therefore, it was not liable to pay VAT. The Supreme Court held that Section 105 of the 1997
Tax Code was clear and unambiguous in stating that even non-stock non-profit
organizations were liable to pay VAT on the sale of goods or services.
***N.B. Booch Difference of CIR v. Magsaysay v. CIR v. CA, Comaserco:
SEC. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, value-added tax equivalent to twelve percent (12%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax
to be paid by the seller or transferor.

(1) The term 'goods' or 'properties' shall mean all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary course of
trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other like property or right;
(c) The right or the privilege to use in the Philippines of any industrial, commercial or scientific
equipment;
(d) The right or the privilege to use motion picture films, tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
The term 'gross selling price' means the total amount of money or its equivalent which the purchaser
pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or
properties, excluding the value-added tax. The excise tax, if any, on such goods or properties shall
form part of the gross selling price.
Q: WHAT IS A SALE OF GOODS OR PROPERTIES?
* In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of several
advertising companies.
Due to Sony Philippines dire economic conditions, Sony International Singapore handed
Sony Philippines a dole-out to answer for the expenses payable to the advertising
companies. Sony Philippines was thereafter assessed deficiency VAT for the transaction,
i.e., dole-out, between Sony International Singapore and Sony Philippines. The Supreme
Court ruled that the dole-out or subsidy from the Singaporean company to the
Philippine company neither constituted a sale of goods or properties, nor a sale of
services. Hence, Sony Philippines was not liable to pay VAT on the same.
[CIR v. Sony Philippines, Inc., GR No. 178697, 17 Nov. 2010.]
106(A)(2) Zero-Rated Sales of Goods
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

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(a) Export Sales. - The term 'export sales' means:

(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of
any shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident
local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(3) Sale of raw materials or packaging materials to export-oriented enterprise whose export sales
exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Executive Order NO. 226, otherwise known as the Omnibus
Investment Code of 1987, and other special laws.
Q: DISTINGUISH BETWEEN VAT RATING AND ZERO-RATING.
* The case of CIR v. Benguet Corporation explained VAT rating vis-as-vis zero-rating in
principle, as well as by way of illustration, to wit:

In transactions taxed at a 12% rate (VAT rating), when at the end of any given taxable
quarter the output VAT exceeds the input VAT, the excess shall be paid to the
government; when the input VAT exceeds the output VAT, the excess would be carried
over to VAT liabilities for the succeeding quarter or quarters.
On the other hand, transactions which are taxed at zero-rate do not result in any
output tax. Input VAT attributable to zero-rated sales could be refunded or credited
against other internal revenue taxes at the option of the taxpayer.

To illustrate, in a zero-rated transaction, when a VAT-registered person (taxpayer)

purchases materials from his supplier at P80.00, P7.30 of which was passed on to him by
his supplier as the latters 10% output VAT, the taxpayer is allowed to recover P7.30 from
the BIR, in addition to other input VAT he had incurred in relation to the zero-rated
transaction, through tax credits or refunds.
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When the taxpayer sells his finished product in a zero-rated transaction, say, for P110.00, he
is not required to pay any output VAT thereon. In the case of a transaction subject to 10%
VAT, the taxpayer is allowed to recover both the input VAT of P7.30 which he paid to his
supplier and his output VAT of P2.70 (10% the P30.00 value he has added to the P80.00
material) by passing on both costs to the buyer. Thus, the buyer pays the total 10% VAT
cost, in this case P10.00 on the product.
[CIR v. Benguet Corporation, GR Nos. 134587 & 134588, 8 July 2005.]
Q: DISTINGUISH BETWEEN VAT EXEMPTION AND ZERO-RATING.
The case of Contex Corporation v. CIR enumerated two ways by which a transaction could
have preferential treatment under the VAT system, namely: (1) VAT exemption; and (2) zerorating.
Exemptions from VAT are granted by express provision of the Tax Code or special laws.
Under VAT, the transaction can have preferential treatment in the following ways:
Vat Exempt Sales (Vat-Exempt) Zero Rated Sales (Zero Rating)
Simply put, the VAT is removed at These are sales by VATthe exempt stage (e.g. point of registered persons which are
the sale, barter, etc)
subject to 0% rate, meaning the
tax burden is not passed on to the
purchaser.
A zero-rated sale or transaction
by a VAT-registered person,
which is a taxable transaction for
VAT purposes, does not result in
any output tax (still a taxable
transaction)
A VAT-Registered purchaser of
VAT-exempt
goods/properties/services which
are exempt from VAT is not
entitled to any input tax on
such purchase.

The input VAT on the purchases

of a VAT-registered person with
zero-rated sales may be allowed
as tax credits or refunded

The seller of exempt goods

properties or services shall not
bill any output tax.
Exemption only removes the VAT
at the exempt stage, and it will
actually increase, rather than
reduce the total taxes paid by
the exempt firms business or
non-retail customers.

can also claim a refund of or a tax

credit certificate for the VAT
previously charged by suppliers.
Under zero-rating, all VAT is
removed from the zero-rated
goods, activity or firm

Applying the destination principle

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.

[In] zero rating, there is total relief

for the purchaser from the burden
of the tax

There is only partial relief

because the purchase is not
allowed any tax refund or credit
for input taxes paid.

Effective zero rating, on the

contrary, is intended to benefit the
purchaser who, not being directly
and legally liable for the payment
of the VAT, will ultimately bear the
burden of the tax shifted by the
suppliers

106(A)(2)(a) Export Sales

Q: Distinguish
transactions.

between

zero-rated

transactions

and

effectively

zero-rated

The case of CIR v. Seagate Technology (Philippines) addressed this issue. It stated that the
difference is primarily as to their source.
Zero-Rated
Effectively Zero-Rated
Zero-rated
transactions Effectively
zero-rated
generally refer to the export sale transactions refer to the sale of
of goods and supply of services.
goods or supply of services to
persons
or
entities
whose
The tax rate is set at zero.
exemption under special laws or
international agreements to which
When applied to the tax base, the Philippines is a signatory
such rate obviously results in no effectively
subjects
such
tax chargeable against the transactions to a zero rate.
purchaser.
Again, as applied to the tax base,
The seller of such transactions such rate does not yield any tax
charges no output tax, but can chargeable
against
the
claim a refund of or a tax credit purchaser.
certificate for the VAT previously
charged by suppliers
The seller who charges zero
output tax on such transactions
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Q: What is the cross-border doctrine?

* According to CIR v. Toshiba Information Equipment (Phils.), Inc., the Philippines adheres to
the cross-border doctrine which means 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.
Hence:

actual export of goods and services from the Philippines to a foreign country must be
free of VAT;
On the other hand, those destined for use or consumption within the Philippines shall be
imposed with ten percent (10%) [now 12%] VAT.
Additionally, sales made by an enterprise within a non-ECOZONE territory, i.e., Customs
Territory, to an enterprise within an ECOZONE territory shall be free of VAT.

[CIR v. Toshiba Information Equipment (Phils.), Inc., GR No. 150154, 9 Aug. 2005.]
[[106(A)(2)(a)(1) Actual Shipment of Goods from the Philippines to a Foreign Country (ZRT):
The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may influence or determine the transfer of
ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in
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goods or services, and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP)]]
Q: Give examples of export sales in the form of actual shipment of goods from the
Philippines to a foreign country.
* Toshiba Information Equipment (Phils.), Inc. v. CIR is a claim for tax refund/credit of
alleged unutilized input VAT on local purchases of goods and services which are attributable
to export sales for the first and second quarters of 1997. [NOTE: This is different from the
Toshiba Case previously cited.]
In the case at bar, the CIR, in the Joint Stipulation of Facts and Issues, admitted that
Toshiba was a registered VAT entity and that it was subject to 0% VAT on its export
sales. Later, in his Motion for Reconsideration of the adverse Court of Tax Appeals decision,
the CIR would argue that Toshiba was not entitled to its claim for tax refund/credit
because it was VAT-exempt and its export sales were VAT-exempt transactions (CIR
argued this way because if the export sales were VAT exempt, then it would be entitled to
claim any credit from input tax)
The Supreme Court ruled that Toshiba was a registered VAT entity and its export sales were
subject to 0% VAT.
Note: Remember, 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
purchases of goods, properties or services related to such zero-rated sale shall be available
as tax credit or refund in accordance with these regulations
[Toshiba Information Equipment (Phils.), Inc. v. CIR, GR No. 157594, 9 Mar. 2010.]
The case of Intel Technology Philippines, Inc. v. CIR is a claim for tax refund/credit of
alleged unutilized input VAT on local purchases of goods and services which are attributable
to export sales for the second quarter of 1998.

To prove that it was engaged in the sale and actual shipment of goods from the
Philippines to a foreign country and therefore entitled to tax credit of input VAT, Intel
Technology presented documentary evidence such as summary of export sales, sales
invoices, official receipts, airway bills, and export declarations.
And, to prove that payment was made in acceptable foreign currency or its equivalent in
goods or services, and accounted for in accordance with the rules and regulations of the

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Bangko Sentral ng Pilipinas (BSP), a certification of inward remittances was

presented by Intel Technology
The Supreme Court found that Intel Technologys evidence sufficiently established that it
was engaged in export sales.

Note: Based on Sec 106, export sales, or sales outside the Philippines, are subject to VAT
at 0% rate if made by a VAT-registered person. When applied to the tax base, the 0% rate
obviously results in no tax chargeable against the purchaser. The seller of such transactions
charges no output tax, but can claim a refund or tax credit certificate for the VAT previously
charged by suppliers.
Additionally, Under Sections 106 (A)(2)(a)(1) in relation to 112(A) of the Tax Code, a
taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for a refund
or issuance of a tax credit certificate for input taxes paid attributable to such sales upon
complying with the following requisites: (1) the taxpayer is engaged in sales which are zerorated (like export sales) or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the
claim must be filed within two years after the close of the taxable quarter when such sales
were made; (4) the creditable input tax due or paid must be attributable to such sales,
except the transitional input tax, to the extent that such input tax has not been applied
against the output tax; and (5) in case of zero-rated sales under Section 106(A)(2)(a)(1) and
(2), Section 106(B), and Section 108(B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with BSP rules and
regulations. It is added that, "where the taxpayer is engaged in zero-rated or effectively zerorated sale and also in taxable or exempt sale of goods or properties or services, and the
amount of creditable input tax due or paid cannot be directly or entirely attributed to any one
of the transactions, it shall be allocated proportionately on the basis of the volume of the
sales
[Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007.]
106(A)(2)(a)(2) Sale of Raw Materials to a Nonresident Buyer for Delivery to a Resident Local
Export-Oriented Enterprise: Sale of raw materials or packaging materials to a nonresident buyer
for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
106(A)(2)(a)(3) Sale of Raw Materials to Export-Oriented Enterprise: Sale of raw materials or
packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of
total annual production;
7

Q: Give an example of a sale of raw materials to an export-oriented enterprise.

* Section 106(A)(2)(a)(3) of the 1997 Tax Code pertains to the sale of raw materials or
packaging materials to an export-oriented enterprise whose export sales exceed 70% of
total annual production. With respect to the extent of the relief, the Supreme Court held
that:
Thus, the 0% rate applies to the total sale of raw materials or packaging materials to
an export-oriented enterprise and not just the percentage of the sale in proportion to the
actual exports of the enterprise.
[Atlas Consolidated Mining and Development Corporation v. CIR, GR No. 146221, 25 Sept.
2007.]
106(A)(2)(a)(4) Sale of Gold to the BSP
Q: Give an example of a sale of gold to the BSP.
CIR v. Benguet Corporation is a claim for tax refund/credit of alleged unutilized input VAT on
Benguet Corporations sale of gold to the Bangko Sentral ng Pilipinas for the period 1
August 1989 to 31 July 1991. [NOTE: At the time the subject transaction was made, the
treatment of sale of gold to the BSP as export sales was merely based on BIR issuances.
Today, such treatment is already contained in the 1997 Tax Code.]
[CIR v. Benguet Corporation, GR Nos. 134587 & 134588, 8 July 2005.]
106(A)(2)(a)(5) Export Sales under the Omnibus Investment Code of 1987 and Other Special
Laws
Q: Give an example of export sales under the Omnibus Investment Code of 1987 and
other special laws.
In Panasonic Communications Imaging Corporation of the Philippines v. CIR, Panasonic
produced and exported paper copiers and their sub-assemblies, parts, and components. It
was registered with the Board of Investments as a preferred pioneer enterprise under the
Omnibus Investment Code of 1987; it was a registered VAT enterprise; and its export sales
were zero-rated.
[Panasonic Communications Imaging Corporation of the Philippines v. CIR, GR No. 178090,
8 Feb. 2010.]
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106(A)(2)(a)(6) Sale of Goods to Persons Engaged in International Shipping or Air Transport

Operations
106(A)(2)(b) Foreign Currency Denominated Sale: The phrase 'foreign currency denominated sale'
means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or
manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP).
106(A)(2)(c) Zero-Rated Sales pursuant to Special Laws or International Agreements
106(B) Transactions Deemed Sale:
106(B)(1) Transfer Not in the Course of Trade or Business of Goods/Services Originally
Intended for Sale/Use in the Course of Trade or Business
106(B)(2) Other Transactions:
These are:
(1) transfer to shareholders/investors as share in the profits of a VAT-registered person/entity;
(2) transfer to creditors in payment of debt;
(3) consignment of goods, if actual sale is not made within 60 days following the date such goods
were consigned; and
(4) retirement from or cessation of business, with respect to inventories of taxable goods existing as
of such retirement or cessation.
Q: Give an example of a transaction deemed sale under this provision.
* In San Roque Power Corporation v. CIR, San Roque Power Corporation was engaged in
the supply of electricity to the National Power Corporation. Such sale of service
qualified as a zero-rated transaction under Section 108(B)(3) of the 1997 Tax Code.
A portion of SRPCs claim for tax refund/credit for alleged unutilized input VAT was
attributable to a sale of electricity to NPC that was made during the testing period
sometime in 2002, for which SRPC was paid an amount of Php 42.5 million.
The issue was whether such sale qualified for zero-rating. The Supreme Court held that
although the sale was not a commercial sale or in the normal course of business, it was a
8

transaction deemed sale under Section 106(B)(1) of the 1997 Tax Code. It thus qualified
for zero-rating.
[San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]

Singapore and Sony Philippines. The Supreme Court ruled that the dole-out or subsidy
from the Singaporean company to the Philippine company neither constituted a sale of
goods or properties, nor a sale of services. Hence, Sony Philippines was not liable to
pay VAT on the same.
[CIR v. Sony Philippines, Inc., GR No. 178697, 17 Nov. 2010.]

106(C) Changes in or Cessation of Status of a VAT-Registered Person

106(D) Sales Returns, Allowances, and Sales Discounts
106(E) Authority of the Commissioner to Determine the Appropriate Tax Base
Sec. 107, Value-Added Tax on Importation of Goods
Q: Does VAT apply on every importation of goods?
* In explaining value-added tax, CIR v. Seagate Technology (Philippines) stated that
VAT shall be imposed on every importation of goods, whether or not in the course of
trade or business. This is unlike VAT on sale of goods or properties which must be in
the course of trade or business. Otherwise, the person/transaction shall not be liable to
pay VAT. Pertinent portion of the decision read:
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10
percent [now 12 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.
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]
Sec. 108, Value-Added Tax on Sale of Services and Use or Lease of Properties
108(A) Rate and Base of Tax

** Quezon City v. ABS-CBN Broadcasting Corporation dealt with VAT-able sales of

services of franchise grantees of electric utilities, telephone and telegraph, radio and
television broadcasting and all other franchise grantees except those under Section
119 of this Code.
[NOTE: Section 119 of the Tax Code imposes a percentage tax, in the form of a 3%
franchise tax, on radio and television broadcasting companies whose annual gross
receipts do not exceed Php 10 million. Such franchise holders, however, has the
option of paying 3% franchise tax or 12% VAT. On the other hand, radio and television
broadcasting companies whose annual gross receipts exceed Php 10 million are
governed by Section 108 of the 1997 Tax Code. They are liable to pay VAT, and do not
have the option to choose between paying franchise tax or VAT.]
ABS-CBN, being a broadcasting company with yearly gross receipts exceeding Php
10 million, was found liable to pay VAT.
[Quezon City v. ABS-CBN Broadcasting Corporation, GR No. 166408, 6 Oct. 2008.]
*** Section 108 of the 1997 Tax Code defines sale of services as the performance of
all kinds of services in the Philippines for others for a fee, remuneration or
consideration, including supply of technical advice, assistance or services rendered
in connection with technical management or administration of any scientific, industrial
or commercial undertaking, venture, project or scheme. In the case of CIR v. CA,
COMASERCO was a non-stock non-profit organization engaged in the sale of services
of such nature. However, COMASERCO argued that its sales of services were not
subject to VAT because although it charged a fee for such sales, the organization was
operating on a reimbursement-of-cost basis and hence, did not derive profit from such
sales. The Supreme Court held that any sale of services for a fee, remuneration or
consideration is subject to VAT, regardless of any profit derived therefrom.
[CIR v. CA, GR No. 125355, 30 Mar. 2000.]

Q: What is a sale of services?

* In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of several
advertising companies. Due to Sony Philippines dire economic conditions, Sony
International Singapore handed Sony Philippines a dole-out to answer for the
expenses payable to the advertising companies. Sony Philippines was thereafter
assessed deficiency VAT for the transaction, i.e., dole-out, between Sony International
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S/Y 2011-2012

**** Sale of services includes lease of motion picture films, films, tapes and discs. In
CIR v. SM Prime Holdings, Inc., SM Prime and First Asia were engaged in the
business of operating cinema houses. At issue was whether cinema
operators/proprietors were liable to pay VAT, on top of the amusement tax imposed by
the 1991 LGC. The Supreme Court conceded that the enumeration of services subject
to VAT under Section 108 of the 1997 Tax Code was not exhaustive. However, lease
9

of motion picture films, films, tapes and discs did not equate to showing or exhibition
of motion pictures or films. SM Prime and First Asia were not liable to pay VAT.
[CIR v. SM Prime Holdings, Inc., GR No. 183505, 26 Feb. 2010.]

Supreme Court ruled that the facilitation services Amex Phils. rendered in the
Philippines fell under Section 108(B)(2) of the 1997 Tax Code.
[CIR v. American Express International, Inc., GR No. 152609, 29 June 2005.]

***** Sonza v. ABS-CBN Broadcasting Corporation differentiated between services

rendered pursuant to an employer-employee relationship and services rendered by an
independent contractor pursuant to a contractual relationship. Subsumed under the
latter, professionals such as talent and television and radio broadcasters are liable to
pay VAT.
[Sonza v. ABS-CBN Broadcasting Corporation, GR No.138051, 10 June 2004.]

** In CIR v. Placer Dome Technical Services (Phils.) Inc., Placer Dome Canada
engaged the services of Placer Dome Phils. to perform the clean-up and rehabilitation
of the Makalupnit and Boac Rivers in Marinduque. Placer Dome Phils. argued that its
sale of services to Placer Dome Canada was a zero-rated transaction under Section
108(B)(2) of the 1997 Tax Code. Citing CIR v. American Express International, Inc., the
Supreme Court upheld Placer Dome Phils. argument.
[CIR v. Placer Dome Technical Services (Philippines), Inc., GR No. 164365, 8 June
2007.]

108(B) Zero-Rated Sales of Services

Q: What is the destination principle? Are there exceptions to the rule?
* According to CIR v. American Express International, Inc.: 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. The decision proceeded to define
consumption as the use of a thing in a way that thereby exhausts it. Applied to
services, it means the performance or successful completion of a contractual duty,
usually resulting in the performers release from any past or future liability.
Exceptions to the destination principle are found in Section 108(B) of the 1997 Tax
Code. They are deemed exceptions because although the services are performed in
the Philippines, upon compliance with certain requirements, the sales of such services
are zero-rated.
[CIR v. American Express International, Inc. (Philippine Branch), GR No. 152609, 29
June 2005.]
108(B)(1) Processing, Manufacturing, or Repacking Goods for Other Persons Doing
Business outside the Philippines
108(B)(2) Services Other than Those Mentioned in the Preceding Paragraph
Q: Cite examples of services other than processing, manufacturing, or repacking of goods.
* In CIR v. American Express International, Inc., Amex Phils. facilitated in the
Philippines the collection and payment of receivables belonging to its Hong Kongbased foreign client, Amex HK, and getting paid for it in acceptable foreign currency
and accounted for in accordance with the rules and regulations of the BSP. The
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*** In CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., Burmeister
was engaged in the actual operation and management of two power barges in
Mindanao. It claimed that its transactions were subject to zero-rating under Section
108(B)(2) of the 1997 Tax Code. The Supreme Court denied Burmeisters claim on the
ground that Section 108(B)(2) of the 1997 Tax Code additionally required that the
payer-recipient of the services must be doing business outside the Philippines. It ruled
in this manner:
The Tax Code not only requires that the services be other than processing,
manufacturing or repacking of goods and that payment for such services be in
acceptable foreign currency accounted for in accordance with BSP rules. Another
essential condition for qualification to zero-rating under Section 102(b)(2) is that the
recipient of such services is doing business outside the Philippines. While this
requirement is not expressly stated in the second paragraph of Section 102(b), this is
clearly provided in the first paragraph of Section 102(b) where the listed services must
be for other persons doing business outside the Philippines. The phrase for
other persons doing business outside the Philippines not only refers to the services
enumerated in the first paragraph of Section 102(b), but also pertains to the general
term services appearing in the second paragraph of Section 102(b). In short,
services other than processing, manufacturing, or repacking of goods must likewise be
performed for persons doing business outside the Philippines.
[NOTE: In relation to CIR v. American Express International, Inc. and CIR v. Placer
Dome Technical Services (Philippines), Inc. discussed above, said cases stated that
consumption of the services abroad is not a requirement for zero-rating.
However, on the basis of CIR v. Burmeister & Wain Contractor Mindanao, Inc., the
payer-recipient of the services must be doing business outside of the
Philippines.]
[CIR v. Burmeister & Wain Scandinavian Contractor Mindanao, Inc., GR No. 153205,
10

22 Jan. 2007.]
108(B)(3) Zero-Rated Sales pursuant to Special Laws or International Agreements
Q: Distinguish between zero-rated transactions [e.g., Sec. 108(B)(1)-(2)] and effectively
zero-rated transactions [e.g., Sec. 108(B)(3)].
* The case of CIR v. Seagate Technology (Philippines) addressed this issue. It stated
that:
Although both are taxable and similar in effect, zero-rated transactions differ from
effectively zero-rated transactions as to their source.
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.
Effectively zero-rated transactions, however, 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.
The decision went on to say (under the subheading Zero Rating and Exemption):
Applying the destination principle 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. Effective zero rating, on the contrary,
is intended to benefit the purchaser who, not being directly and legally liable for the
payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.
(Emphasis supplied.)
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]
Q: Give examples of effectively zero-rated sales of services pursuant to special laws.
* In CIR v. Acesite (Philippines) Hotel Corporation, Acesite was the operator of Holiday
Inn Manila Pavilion Hotel. It leased a portion of its premises to PAGCOR for casino
operations. It also catered food and beverages to PAGCORs casino patrons. The
issue was whether Acesite could refund the VAT it paid on its rental income and sale of
food and beverages to PAGCOR. The Supreme Court, pursuant to PAGCORs charter
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DEAN LILY K. GRUBA
S/Y 2011-2012

(PD No. 1869 and all amendments thereto), found that Acesites sale of services to
PAGCOR was zero-rated under Section 108(B)(3) of the 1997 Tax Code.
[CIR v. Acesite (Philippines) Hotel Corporation, GR No. 147295, 16 Feb. 2007.]
** In the case of San Roque Power Corporation v. CIR, San Roque Power Corporation
was engaged in the sale of electricity to NPC. The Supreme Court ruled that SRPCs
sale of service to NPC was zero-rated, pursuant to NPCs charter and under Section
108(B)(3) of the 1997 Tax Code. It explained the rationale for the effective zero-rating
of NPC in this manner:
It bears emphasis that effective zero-rating is not intended as a benefit to the person
legally liable to pay the tax, such as petitioner, but to relieve certain exempt entities,
such as the NPC, from the burden of indirect tax so as to encourage the development
of particular industries. Before, as well as after, the adoption of the VAT, certain special
laws were enacted for the benefit of various entities and international agreements
were entered into by the Philippines with foreign governments and institutions
exempting sale of goods or supply of services from indirect taxes at the level of their
suppliers. Effective zero-rating was intended to relieve the exempt entity from being
burdened with the indirect tax which is or which will be shifted to it had there been no
exemption. In this case, petitioner is being exempted from paying VAT on its
purchases to relieve NPC of the burden of additional costs that petitioner may shift to
NPC by adding to the cost of the electricity sold to the latter.
[San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]
108(B)(4) Sale of Services to Persons Engaged in International Shipping or Air
Transport Operations
108(B)(5) Sale of Services for Export-Oriented Enterprise
108(B)(6) Transport of Passengers and Cargo by Air or Seal Vessels from the
Philippines to a Foreign Country
108(B)(7) Sale of Power Generated through Renewable Sources of Energy
Sec. 109, Exempt Transactions
Q: Distinguish between an exempt transaction and an exempt party.
* CIR v. Seagate Technology (Philippines) made a distinction between exempt
transaction exempt party in this wise:
An exempt transaction, on the one hand, involves goods or services which, by their
11

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. Indeed, 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.
An exempt party, on the other hand, is a person or entity granted VAT exemption
under the Tax Code, a special law or an international agreement to which the
Philippines is a signatory, and by virtue of which its taxable transactions become
exempt from the VAT. 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. (Emphasis supplied.)
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]
Q: Give examples of exempt transactions.
109(A) Sale or Importation of Agricultural and Marine Food Products in Their Original
State
* Misamis Oriental Association of Coco Traders, Inc. v. DOF interpreted the provisions
of the 1977 Tax Code. However, it is instructive as to the issue of who determines or
classifies a certain product, i.e., whether it is food or non-food. According to the
decision, as between the Bureau of Food and Drug and the Bureau of Internal
Revenue, the classification made by the latter would prevail.
[Misamis Oriental Association of Coco Traders, Inc. v. DOF, GR No. 108524, 10 Nov.
1994.]
109(G) Medical, Dental, Hospital, and Veterinary Services, except Those Rendered by
Professionals

transaction) and services rendered by an independent contractor pursuant to a

contractual relationship (which is subject to VAT). The Supreme Court ruled that Sonza
was an independent contractor. As such, he was subject to VAT on the services that he
rendered.
[Sonza v. ABS-CBN Broadcasting Corporation, GR No.138051, 10 June 2004.]
109(K) Transactions Which are Exempt under International Agreements to Which the
Philippines is a Signatory or under Special Laws, except Those under PD No. 529
* In Philippine Amusement & Gaming Corporation v. CIR, the Supreme Court held that
PAGCOR was exempt from payment of VAT. It cited, among others, the VAT
exemption of PAGCORs transactions by virtue of its charter (PD No. 1869 and all
amendments thereto) in relation to Section 109(K) of the 1997 Tax Code.
[Philippine Amusement & Gaming Corporation v. CIR, GR No. 172087, 15 Mar. 2011.]
109(U) Services of Banks, Non-Bank Financial Intermediaries Performing QuasiBanking Functions, and Other Non-Bank Financial Intermediaries
* Section 109(U) of the 1997 Tax Code provides that transactions involving services
rendered by banks, non-bank financial intermediaries performing quasi-banking
functions, and other non-bank financial intermediaries shall be VAT-exempt. The case
of First Planters Pawnshop, Inc. v. CIR pertained to a taxable period prior to the
adoption of the present wording of Section 109(U) of the 1997 Tax Code. However, the
decision is relevant in that it discussed the tax treatment of a pawnshop business. The
Supreme Court held that pawnshops are non-bank financial intermediaries.
[First Planters Pawnshop, Inc. v. CIR, GR No. 174134, 30 July 2008.]
Sec. 110, Tax Credits

* Section 109(G) of the Tax Code provides that transactions involving medical, dental,
hospital, and veterinary services are VAT-exempt transactions. In the case of CIR v.
Philippine Health Care Providers, Inc., it was found that Philippine Health Care
Providers, Inc. did not render medical, dental, hospital, and veterinary services, but
merely arranged for the same. Hence, its services were not VAT-exempt.
[CIR v. Philippine Health Care Providers, Inc., GR No. 168129, 24 Apr. 2007.]
109(I) Services Rendered by Individuals pursuant to an Employer-Employee
Relationship
* Sonza v. ABS-CBN Broadcasting Corporation differentiated between services
rendered pursuant to an employer-employee relationship (which is an exempt
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110(A) Creditable Input Tax

Q: Distinguish between input tax and output tax.
* The case of CIR v. Benguet Corporation defined input tax and output tax.
Input VAT or input tax represents the actual payments, costs and expenses incurred
by a VAT-registered taxpayer in connection with his purchase of goods and services.
Thus, "input tax" means the value-added tax paid by a VAT-registered
person/entity in the course of his/its trade or business on the importation of
goods or local purchases of goods or services from a VAT-registered person.
On the other hand, when that person or entity sells his/its products or services, the
12

VAT-registered taxpayer generally becomes liable for 10% of the selling price as
output VAT or output tax. Hence, "output tax" is the value-added tax on the sale of
taxable goods or services by any person registered or required to register under
Section 107 of the (old) Tax Code.
The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT
either by (1) passing on the 10% output VAT on the gross selling price or gross
receipts, as the case may be, to its buyers, or (2) if the input tax is attributable to the
purchase of capital goods or to zero-rated sales, by filing a claim for a refund or tax
credit with the BIR.
Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and
services may recover its input VAT costs by passing on said costs as output VAT to its
buyers of goods and services but it cannot claim the same as a refund or tax credit,
while a taxpayer subject to 0% on its sales of goods and services may only recover its
input VAT costs by filing a refund or tax credit with the BIR.
[CIR v. Benguet Corporation, GR No. 145559, 14 July 2006.]
110(B) Excess Output or Input Tax

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, however, 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.
The decision went on to say (under the subheading Zero Rating and Exemption):
Applying the destination principle 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. Effective zero rating, on the contrary,
is intended to benefit the purchaser who, not being directly and legally liable for the
payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers.
(Emphasis supplied.)
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]

110(C) Determination of Creditable Input Tax

Q: What are the requirements for a claim for VAT refund/credit?
Sec. 111, Transitional/Presumptive Input Tax Credits
111(A) Transitional Input Tax Credits
111(B) Presumptive Input Tax Credits
Sec. 112, Refunds or Tax Credits of Input Tax
112(A) Zero-Rated or Effectively Zero-Rated Sales
Q: Distinguish between zero-rated transactions [e.g., Sec. 108(B)(1)-(2)] and effectively
zero-rated transactions [e.g., Sec. 108(B)(3)].
* The case of CIR v. Seagate Technology (Philippines) addressed this issue. It stated
that:
Although both are taxable and similar in effect, zero-rated transactions differ from
effectively zero-rated transactions as to their source.
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
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S/Y 2011-2012

* The cases of Intel Technology Philippines, Inc. v. CIR and San Roque Power
Corporation v CIR enumerated the requirements, thus:
(1) the taxpayer is engaged in sales which are zero-rated or effectively zero-rated;
(2) the taxpayer is VAT-registered;
(3) the claim must be filed within two years after the close of the taxable quarter when
such sales were made;
(4) the input taxes are due or paid;
(5) the input taxes are not transitional input taxes;
(6) the input taxes have not been applied against output taxes during and in the
succeeding quarters;
(7) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
(8) in certain types of zero-rated sales, the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with BSP rules and
regulations [Sections 106(A)(2)(a)(1) and (2); Section 106(B); Sections 108(B)(1) and
(2)]; and
(9) where there are both zero-rated 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.
13

[Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007; San Roque
Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]
Q: In claims for VAT refund/credit, what is the reckoning point for the two-year prescriptive
period?
* In 2007, the Supreme Court promulgated its decision in Atlas Consolidated Mining
and Development Corporation v. CIR which essentially held that in claims for VAT
refund/credit, the prescriptive period for filing administrative and judicial claims shall be
two years reckoned from the date of filing of the VAT quarterly return.
A year later, in the highly publicized case of CIR v. Mirant Pagbilao Corporation, the
Supreme Court changed its mind and ruled that the two-year prescriptive period in
claims for VAT refund/credit must be counted not from the date of filing of the VAT
quarterly return, but from the close of the taxable quarter when the relevant sales
were made.
[Atlas Consolidated Mining and Development Corporation v. CIR, GR Nos. 141104 &
148763, 8 June 2007; CIR v. Mirant Pagbilao Corporation, GR No. 172129, 12 Sept.
2008.]
112(B) Cancellation of VAT Registration
112(C) Period within which Refund or Tax Credit of Input Taxes Shall Be Made
Q: When are administrative and judicial claims for VAT refund/credit filed?
* In 2007, the Supreme Court promulgated its decision in Atlas Consolidated Mining
and Development Corporation v. CIR which essentially held that claims for VAT
refund/credit must be filed within the two-year prescriptive period.
In 2010, the Supreme Court came out with the controversial case of CIR v. Aichi
Forging Company of Asia, Inc. which mandated compliance of administrative and
judicial claims with both the two-year prescriptive period [Section 112(A)] and the 12030 day period rule [Section 112(C)]. Otherwise, claims would be adjudged as either
filed out of time or prematurely filed.
[Atlas Consolidated Mining and Development Corporation v. CIR, GR Nos. 141104 &
148763, 8 June 2007; CIR v. Aichi Forging Company of Asia, Inc., GR No. 184823, 6
Oct. 2010.]
112(D) Manner of Giving Refund
Sec. 113, Invoicing and Accounting Requirements for VAT-Registered Persons
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113(A) Invoicing Requirements

Q: Is there a difference between an invoice and an official receipt?
* CIR v. Manila Mining Corporation defined these terms, to wit:
A sales or commercial invoice is a written account of goods sold or services rendered
indicating the prices charged therefor or a list by whatever name it is known which is
used in the ordinary course of business evidencing sale and transfer or agreement to
sell or transfer goods and services.
A receipt on the other hand is a written acknowledgment of the fact of payment in
money or other settlement between seller and buyer of goods, debtor or creditor, or
person rendering services and client or customer.
[CIR v. Manila Mining Corporation, GR No. 153204, 31 Aug. 2005.]
** In AT&T Communications Services Philippines, Inc. v. CIR, AT&T was engaged in
the business of providing information, promotional, supportive, and liaison services to
foreign corporations. It filed a claim for tax refund/credit for alleged unutilized input
VAT on said sales of services and presented sales invoices to substantiate the same.
In giving credence to the sales invoices (not necessarily official receipts), the Supreme
Court said that:
Sales invoices are recognized commercial documents to facilitate trade or credit
transactions. They are proofs that a business transaction has been concluded, hence,
should not be considered bereft of probative value. Only the preponderance of
evidence threshold as applied in ordinary civil cases is needed to substantiate a claim
for tax refund proper.
[AT&T Communications Services Philippines, Inc. v. CIR, GR No. 182364, 3 Aug.
2010.]
*** On other hand, the case of Kepco Philippines Corporation v. CIR made a distinction
between a VAT invoice and a VAT receipt, such that only a VAT invoice might be
presented to substantiate a sale of goods or properties, while only a VAT receipt could
substantiate a sale of services. Pertinent portion of the decision read:
In other words, the VAT invoice is the sellers best proof of the sale of the goods or
services to the buyer while the VAT receipt is the buyers best evidence of the payment
of goods or services received from the seller. Even though VAT invoices and receipts
are normally issued by the supplier/seller alone, the said invoices and receipts, taken
collectively, are necessary to substantiate the actual amount or quantity of goods sold
and their selling price (proof of transaction), and the best means to prove the input
VAT payments (proof of payment). Hence, VAT invoice and VAT receipt should not be
14

confused as referring to one and the same thing. Certainly, neither does the law
intend the two to be used alternatively.
[Kepco Philippines Corporation v. CIR, GR No. 181858, 24 Nov. 2010.]
113(B) Information Contained in the VAT Invoice or VAT Official Receipt
* Section 113(B)(2)(c) of the 1997 Tax Code provides that certain information must be
indicated on the VAT invoice or VAT official receipt, and that if the sale is subject to
zero percent (0%) value-added tax, the term zero-rated sale shall be written or
printed prominently on the invoice or receipt.
The Bureau of Internal Revenue, the Divisions of the Court of Tax Appeals, the Court
of Tax Appeals En Banc, and the Supreme Court has conflicting opinions on whether
the term zero-rated sale must be written, stamped, or imprinted.
However, as enunciated in recent cases, the term zero-rated sale must be imprinted,
and not merely written or stamped. Otherwise, such claims for VAT refund/credit
substantiated by non-conforming VAT invoices or VAT official receipts shall be
disallowed.
[Panasonic Communications Imaging Corporation of the Philippines, GR No. 1708090,
8 Feb. 2010; JRA Philippines, Inc. v. CIR, GR No. 177127, 11 Oct. 2010; Hitachi
Global Storage Technologies Philippines Corporation v. CIR, GR No. 174212, 20 Oct.
2010; Microsoft Philippines, Inc., v. CIR, GR No. 180173, 6 Apr. 2011.]
113(C) Accounting Requirements
113(D) Consequences of Issuing Erroneous VAT Invoice or VAT Official Receipt
113(E) Transitional Period
Sec. 114, Return and Payment of Value-Added Tax
114(A) In General
114(B) Where to File the Return and Pay the Tax
114(C) Withholding of Value-Added Tax
Sec. 115, Power of the Commissioner to Suspend the Business Operations of a
Taxpayer

TAX 2 SYLLABUS
DEAN LILY K. GRUBA
S/Y 2011-2012

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