PIROVANO vs. CIR The RTC ordered that the donation was valid.
The RTC ordered that the donation was valid. Thus, the CIR assessed the
Enrico Pirovano was the father Carla Pirovano.
De la Rama Steamship Co. insured the life of said Enrico Pirovano (then
its President and General Manager) with various Philippine and American
insurance companies for 1M, designating itself as the beneficiary.
Enrico Pirovano died during the World War II.
The BOD of De la Rama Steamship Co. adopted a resolution granting the
proceeds expected to be collected on Enricos life insurance policies w/c
was P400k for equal division among his 4 minor children, to be convertible
into 4k shares of stock (1k shares / child0.
The Company received the total sum of P643K as proceeds of the said life
insurance policies obtained from American insurers.
The BOD modified their resolution by renouncing all its rights title, and
interest to the said amount of P643k in favor of the minor children of the
deceased, subject to the express condition that said amount should be
retained by the Company in the nature of a loan to it, drawing interest at
the rate of 5% per annum, and payable to the Pirovano children after the
Company shall have first settled its bonded indebtedness of 5M.
This resolution was allowed by the childrens guardian.
BOD again modified their resolution by providing that the Company shall
pay the proceeds of said life insurance policies to the heirs after the
Company shall have settled in full the balance of its present remaining
bonded indebtedness, but the annual interests accruing on the principal
shall be paid to the heirs of Pirovano whenever the Company is in a
position to meet said obligation.
The mother of the children ACCEPTED this resolution with a PUBLIC
DOCUMENT.
The SH of the Company ratified the resolutions with certain clarifying
modifications that the payment of the donation shall not be effected until
such time as the Company shall have first duly liquidated its present
bonded indebtedness (P3.2M) with the Natl Devt Company and that any
and all taxes, legal fees, and expenses in any way connected with the
above transaction shall be chargeable and deducted from the proceeds of
the life insurance policies.
HOWEVER, the majority stockholders of the Company voted to revoke the
donation.
As a consequence of this revocation and refusal of the Company to pay
the balance of the donation amounting to P564K despite demands, the
PIROVANOS brought an action for the recovery of said amount.
amount of P60K as donees' gift tax against each of the heir, and a donor's
gift tax in the total amount of P34K assessed against De la Rama
Steamship Co., which the latter paid.
The PIROVANOS contested CIRs assessment and imposition of the
donees' gift taxes and donor's gift tax and also made a claim for refund of
the donor's gift tax so collected.
I: W/n the PRIVANOS are obliged to pay donees' gift taxes as well as the
imposition of surcharge and interest on the amount of donees' gift taxes
R: YES.
A donation made by the corporation to the heirs of a deceased officer out
of gratitude for the officer's past services is considered a donation and is
subject to donee's gift tax.
Art. 726 of the CivCode states that When a person gives to another a
thing ... on account of the latter's merits or of the services rendered by him
to the donor, provided they do not constitute a demandable debt, ..., there
is also a donation.
The fact that his services contributed in a large measure to the
success of the company did not give rise to a recoverable debt, and
the conveyances made by the company to his heirs remain a gift or
donation.
ALSO, the value of such services which do not constitute a recoverable
debt is NOT deductible from the donation.
The actual consideration for the cession of the policies was the
Company's gratitude to Pirovano. Gratitude has no economic value and
is not "consideration" in the sense that the word is used under the Tax
Code.
OTHERS:
Sec111 [where property is transferred for less than adequate
consideration, amt exceeding consideration deemed a gift] is NOT
applicable).
Whether remuneratory or simple, the conveyance remained a gift.
The definition of CONSIDERATION is anything that is bargained for by
the promisor and given by the promisee in exchange for the promise
Pirovano's successful activities as officer of the De la Rama Steamship
Co. cannot be deemed such consideration for the gift to his heirs, since
the services were rendered long before the Company ceded the value of
the life policies to said heirs; cession and services were not the result of
one bargain or of a mutual exchange of promises.
A subsequent promise to pay for past services is a nudum pactum i.e., one
 that is unenforceable in view of the common law rule that consideration
must consist in a legal benefit to the promisee or some legal detriment to
the promisor.
SPS. Gestopa vs. CA ad Mercedes Danlag
Diego and Catalina Danlag were owners of 6 parcels of unregistered
lands.
They executed 3 deeds of donation mortis causa in favor of Mercedes
Danlag-Pilapil covering 4 parcels. All deeds contained the reservation of
rights of donors to amend / revoke the donation during their lifetime AND
to sell, mortgage / encumber the properties if necessary.
Diego w/ the consent of Catalina then executed a deed of donation inter
vivos covering the aforementioned lots plus 2 other parcels again in favor
of respondent Mercedes.
This contained two conditions
o (1) that Danlag spouses shall continue to enjoy the fruits of
land during their lifetime
o (2) the donee cannot sell or dispose of the land during the
lifetime of the said spouses w/o their consent.
The Danlags sold parcels 3 and 4 to petitioners Gestopa and executed a
deed of revocation recovering 6 parcels of land subject to deed of donation
inter vivos.
Mecedes filed with RTC against the Gestopas and the Danlags for quieting
of title over the parcels of land.
She alleged that she was an illegitimate daughter of Diego Danlag that
she lived and rendered incalculable beneficial services to Diego and his
mother Maura, when she was still alive.
In recognition of her services, Diego executed Deed of Donation
conveying to her 6 parcels of land.
She accepted the donation in the same instrument, openly and publicly
exercised rights of ownership over the donated properties, and caused the
transfer of the tax declarations in her name.
Through the machination, intimidation and undue influence, Diego
persuaded the husband of Mercedes, Eulalio Pilapil to buy 2 of the 6
parcels covered by the deed of donation. The inter vivos donation was
coupled with conditions she complied with. She alleges she had not been
guilty of any act of ingratitude and that the revocation had no legal basis.
Gestopas and Danlags opposed by saying that the deed of donation was
null and void because it was obtained by Mercedes through machination
and undue influence. Even assuming it was validly executed, the intention
was for the donation to take effect upon death of donor. Further, the
donation was void for it left the donor Diego w/o any property at all.
I: W/n the donation was inter vivos or mortis causa inter vivos
W/n the revocation was valid NO, it was not.
R: The donation is INTER VIVOS. Revocation was not proper. (ruling in
favor of Mercedes)
Crucial in resolving whether the donation was inter vivos or mortis causa
is the determination of whether the donor intended to transfer ownership
over the properties upon the execution of the deed.
In ascertaining the intention of the donor, all the deeds provisions must
be read together:
o IRST, the granting clause shows that Diego donated the
properties out of love and affection for Mercedes. This is a
mark of a donation inter vivos.
o SECOND, the reservation of lifetime usufruct indicates that
the donor intended to transfer the naked ownership of the
properties. As correctly posed by the CA, what was the need
for such reservation if the donor and his spouse remained the
owners of the properties?
o THIRD, the donor reserved sufficient properties for his
maintenance w/ his standing in society, indicating that the
donor intended to part w/ 6 parcels.
o Lastly the donee accepted the donation.
Alejandro vs. Geraldez: An acceptance clause is a mark that the
donation is inter vivos. Acceptance is a requirement for donations inter
vivos.
Donations mortis causa, being in a form of a will, are not required to
be accepted by the donees during the donors lifetime.
THUS, the right to dispose the properties belonged to Mercedes.
Diegos right to give consent was merely intended to protect his
usufructuary interests.
The limitation on the right to sell during the donors lifetime implied that
ownership had passed to the donees and donation was effective
during the donors lifetime.
Circumstances show that the intention of the donor was to transfer
ownership to Mercedes. Prior to the donation inter vivos, the Danlag
spouses already executed 3 donations mortis causa.
 The Danlag spouses were aware of the difference between the two
donations. If they did not intend to donate inter vivos, they would not
again donate the four lots already donated mortis causa.
Was the revocation valid? A valid donation, once accepted,
becomes irrevocable, EXCEPT on account of inofficiousness, failure
by donee to comply with charges imposed in donation, or ingratitude.
The Danlag spouses did NOT invoke any of these. Finally, the records
do not show that the donor-spouses instituted any action to revoke the
donation in accordance w/ Art. 769. The revocation has no legal effect.
Philippine American Life and General Insurance Company vs CIR
FACTS: Philam Life sold its shares in Philam Care Health Systems to STI
Investments Inc., the highest bidder. After the sale was completed, Philam life
applied for a tax clearance and was informed by BIR that there is a need to
secure a BIR Ruling due to a potential donors tax liability on the sold shares.
ISSUE on DONORS TAX:
W/N the sales of shares sold for less than an adequate consideration be
subject to donors tax?
PETITIONERS CONTENTION:
The transaction cannot attract donors tax liability since there was no donative
intent and, ergo, no taxable donation, citing BIR Ruling [DA-(DT-065) 715-09]
dated November 27, 2009; that the shares were sold at their actual fair market
value and at arms length; that as long as the transaction conducted is at arms
lengthsuch that a bonafide business arrangement of the dealings is done in
the ordinary course of businessa sale for less than an adequate
consideration is not subject to donors tax; and that donors tax does not apply
to sale of shares sold in an open bidding process.
CIR DENYING THE REQUEST:
Through BIR Ruling No. 015-12. As determined by the Commissioner, the
selling price of the shares thus sold was lower than their book value based on
the financial statements of Philam Care as of the end of 2008. The
Commissioner held donors tax became imposable on the price difference
pursuant to Sec. 100 of the National Internal Revenue Code (NIRC):
SEC. 100. Transfer for Less Than Adequate and full Consideration. - Where
property, other than real property referred to in Section 24(D), is transferred
for less than an adequate and full consideration in money or moneys worth,
then the amount by which the fair market value of the property exceeded the
value of the consideration shall, for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be included in computing the amount of
gifts made during the calendar year.
RULING:
The price difference is subject to donors tax.
Petitioners substantive arguments are unavailing. The absence of donative
intent, if that be the case, does not exempt the sales of stock transaction from
donors tax since Sec. 100 of the NIRC categorically states that the amount by
which the fair market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there is no actual donation,
the difference in price is considered a donation by fiction of law.
Moreover, Sec. 7(c.2.2) of RR 06-08 does not alter Sec. 100 of the NIRC but
merely sets the parameters for determining the fair market value of a sale of
stocks. Such issuance was made pursuant to the Commissioners power to
interpret tax laws and to promulgate rules and regulations for their
implementation.
Lastly, petitioner is mistaken in stating that RMC 25-11, having been issued
after the sale, was being applied retroactively in contravention to Sec. 246 of
the NIRC.26 Instead, it merely called for the strict application of Sec. 100,
which was already in force the moment the NIRC was enacted.
ISSUE on TAX REMEDIES:
The issue that now arises is thiswhere does one seek immediate recourse
from the adverse ruling of the Secretary of Finance in its exercise of its power
of review under Sec. 4?
Petitioner essentially questions the CIRs ruling that Petitioners sale of shares
is a taxable donation under Sec. 100 of the NIRC. The validity of Sec. 100 of
the NIRC, Sec. 7 (C.2.2) and RMC 25-11 is merely questioned incidentally
since it was used by the CIR as bases for its unfavourable opinion. Clearly,
the Petition involves an issue on the taxability of the transaction rather than a
direct attack on the constitutionality of Sec. 100, Sec.7 (c.2.2.) of RR 06-08
and RMC 25-11. Thus, the instant Petition properly pertains to the CTA under
Sec. 7 of RA 9282.

As a result of the seemingly conflicting pronouncements, petitioner submits
that taxpayers are now at a quandary on what mode of appeal should be taken,
to which court or agency it should be filed, and which case law should be
followed.
Petitioners above submission is specious (erroneous).
CTA, through its power of certiorari, to rule on the validity of a particular
administrative rule or regulation so long as it is within its appellate jurisdiction.
Hence, it can now rule not only on the propriety of an assessment or tax
treatment of a certain transaction, but also on the validity of the revenue
regulation or revenue memorandum circular on which the said assessment is
based.
Guided by the doctrinal teaching in resolving the case at bar, the fact that the
CA petition not only contested the applicability of Sec. 100 of the NIRC over
the sales transaction but likewise questioned the validity of Sec. 7(c.2.2) of RR
06-08 and RMC 25-11 does not divest the CTA of its jurisdiction over the
controversy, contrary to petitioners arguments.
Metro Pacific Corporation vs CIR
DOCTRINE:
In case where property is transferred for less than an adequate and full
consideration in money or money's worth, then the amount by which the fair
market value (FMV) of the property exceeded the value of the consideration
shall be deemed a gift, and shall be included in computing the amount of gifts
made during the calendar year.
FACTS:
Petitioner MPC sold to Colmbus Holdings, Inc. (CHI) 2,597,197 common
shares in Bonifacio Land Corporation (BLC).
Further, petitioner, through Atty. Tagao, requested respondent for
"confirmation that the sale of Bonifacio Land Corporation (BLC) shares of
stocks owned by MPC to Columbus Holdings, Inc. (CHI) is not subject to
donor's tax as provided in Section 100 of the Internal Revenue Code] as it is
an ordinary business transaction negotiated in good faith by unrelated parties
for legitimate business purposes.
Petitioner, as seller, filed CGT Return with the BIR LTS-Regular and the DST.
The said CGT return showed that there was no tax due or paid for the
transaction.
The CIR confirmed that the sales transaction over the BLC shares between
petitioner as seller and CHI as buyer is not subject to donor's tax because it is
an ordinary commercial transaction negotiated in good faith between unrelated
parties and motivated by legitimate business reasons.
Later, petitioner received a Notice for Informal Conference (Notice) from
respondent BIR LTS-Regular, informing petitioner that the subject transaction
is actually subject to donor's tax.
In response, petitioner wrote respondent requesting for the re-evaluation of
the factual information presented by petitioner and for the cancellation of the
tax assessment shown in the Notice, which was received by respondent
through the BIR LTS-Regular.
Petitioner received BIR LTSRegular a Final Assessment Notice (FAN), details
of discrepancy and Audit Result/ Assessment Notice, reiterating its demand
for payment of deficiency donor's tax.
Petitioner filed its formal protest, however, the same was denied by the
respondent.
Thus, the petitioner filed the instant Petition for review.
ISSUE:
Whether or not MPC is liable for the deficiency donor's tax assessment.
HELD:
YES. Petitioners claim for donors tax exemption has no legal basis.
Section 100 of the 1997 NIRC, as amended, is clear that in case where
property is transferred for less than an adequate and full consideration in
money or money's worth, then the amount by which the fair market value
(FMV) of the property exceeded the value of the consideration shall be
deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year. It is thus, important to determine the "fair market
value" (FMV) of the property sold or transferred, and whether it exceeded the
value of the consideration.
Petitioner alleges, on the assumption that the subject shares were sold for less
than their "fair market value", that the subject transaction was an ordinary
business transaction negotiated in good faith by unrelated parties for legitimate
purposes operate to exclude the subject transaction from the coverage of
Section 100 of the NIRC, the same being a transfer which is bona fide, at arm's
length.
After a careful reading of the bases cited by petitioner, the court find that the
alleged exemption/exception from the donor's tax under the said provision of
law was not clearly established therein.
Gibbs v. CIR
Allison and Esther Gibbs executed documents entitled Deed of Sale
and Declaration of Trust whereby they transferred 53, 000 Lepanto
Consolidated Mines shares of stock to their 5 children, in consideration of the
sum of P26, 227.70 to be paid on or before December 1950.
The instituted trustee was Allisons brother, Finley Gibb.
Spouses Gibb sent a letter to the CIR asking for a ruling on whether
or not gift taxes should be paid.
CIR initially assessed the spouses a donee gift tax of P75 on each of
the beneficiaries or a total of about P750. These assessments were based
upon the DIFFERENCE between said market value of the shares of stock and
the stipulated consideration for transfer thereof.
Subsequently, CIR revised the assessment by INCREASING them.
The spouses paid within the period fixed by law but SOUGHT a refund.
Their demand was denied.
Trustee Finley Gibb appealed to the Secretary of Finance and
instituted a civil suit in the CFI for recovery of the amount.
Spouses Gibb again executed 10 additional and separate trusts
containing the same stipulations and conditions.
These additional deeds of trust impelled CIR to assess donor gift
taxes. CIR held that the gift taxes are available on the FULL MARKET VALUE
of all the shares of stock thus placed in trust instead of upon the difference
between said market value and the stipulated considerations. CTA agreed.
I: W/n CTA was correct in ruling that the gift taxes on the transfer of
the shares of stock should be based on the full market value of shares of stock
(NOT diff between market value and stipulated consideration)
R: YES, CTA was correct, tax should be based on full MV.
CTA was correct in finding that the agreements made by the parties
were mere devises to avoid and evade the payment of the corresponding gift
taxes:
o If the trustors were earnestly concerned in providing ample funds to
assure the support, maintenance, care, health, higher education and travel of
their children and the launching of their career after they had become of age,
the trustors would not have really meant to require them to pay the
consideration stipulated in the trust agreements.
o If the intent was really that the stipulated interest be paid, the trustee
could have authorized the trustors to sell, mortgage, hypothecate or otherwise
dispose of the stocks to raise the necessary funds.
o The compromise agreements were made with knowledge of the fact
that the CIR was already investigating whether the stipulated consideration
was real or fictitious.
There being no real consideration for the transfer, gift taxes should be
based on the full market value of the shares of stock at the time of the
respective transfer, and not merely on the difference between the said market
value and the consideration stipulated in the trust agreements.
CIR v. CA and Commonwealth Management and Services Corporation
Commonwealth Management and Services Corporation
(COMASERCO), is a Phil corp w/c is an affiliate of 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 P351k+ for taxable year 1988.
COMASERCO filed with the BIR, a letter-protest objecting to the
latter's finding of deficiency VAT, but the CIR sent a collection letter to
COMASERCO demanding payment of the deficiency VAT.
Thus COMASERCO file with the CTA a petition for review wherein
they averred that it was NOT engaged in the business of providing services to
Philamlife and its affiliates.
 COMASERCO was established to ensure operational orderliness and
administrative efficiency of Philamlife and its affiliates, and NOT in the sale of
services. COMASERCO stressed that it was not profit-motivated, thus not
engaged in business. Thus, it is not liable to pay VAT.
I: W/n COMASERCO was engaged in the sale of services, and thus
liable to pay VAT thereon
R: YES, COMASERCO is liable to pay VAT (reversing CAs decision
and reinstating the decision of the Tax Appeal in favor of the Commissioner)
CIR avers that to "engage in business" and to "engage in the sale of
services" are two different things.
SC agreed w/ CIR in saying that the services rendered by
COMASERCO to Philamlife and its affiliates, for a fee or consideration, are
subject to VAT. VAT is a tax on the value added by the performance of the
service. It is immaterial whether profit is derived from rendering the service.
Sec 99 of the NIRC provides that any person who, in the course of
trade or business, sells, barters or exchanges goods, renders services, or
engages in similar transactions and any person who imports goods shall be
subject to the VAT imposed in Sections 100 to 102 of this Code."
COMASERCO contends that the term "in the course of trade or
business" requires that the "business" is carried on with a view to profit or
livelihood. It avers that the activities of the entity must be profit- oriented.
COMASERCO submits that it is not motivated by profit, as defined by
its primary purpose in the articles of incorporation, stating that it is operating
"only on reimbursement-of-cost basis, without any profit."
HOWEVER, the EVAT Law clarifies that even a non-stock, non-profit,
organization or government entity, is liable to pay VAT on the sale of goods or
services.
VAT is a tax on transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto. The
term "in the course of trade or business" requires the regular conduct or pursuit
of a commercial or an economic activity, regardless of whether or not the entity
is profit-oriented.
The definition of the term "in the course of trade or business"
incorporated in the present law applies to all transactions even to those made
prior to its enactment. Executive Order No. 273 stated that any person who, in
the course of trade or business, sells, barters or exchanges goods and
services, was already liable to pay VAT. The present law merely stresses that
even a nonstock, nonprofit organization or government entity is liable to pay
VAT for the sale of goods and services.
Section 108 of the NIRC defines the phrase "sale of services" as the
"performance of all kinds of services for others for a fee, remuneration or
consideration." It includes "the supply of technical advice, assistance or
services rendered in connection with technical management or administration
of any scientific, industrial or commercial undertaking or project."
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.
DOCTRINE: SUMMARY OF RULES ON PRESCRIPTIVE PERIODS
INVOLVING VAT
(1) An administrative claim must be filed with the CIR within two years after
the close of the taxable quarter when the zero-rated or effectively zero-rated
sales were made.
(2) The CIR has 120 days from the date of submission of complete documents
in support of the administrative claim within which to decide whether to grant
a refund or issue a tax credit certificate. The 120-day period may extend
beyond the two-year period from the filing of the administrative claim if the
claim is filed in the later part of the two-year period. If the 120-day period
expires without any decision from the CIR, then the administrative claim may
be considered denied by inaction
(3) A judicial claim must be filed with the CTA within 30 days from the receipt
of the CIRs decision denying the administrative claim, or from the expiration
of the 120-day period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on 10 December 2003 up to its reversal by this Court in
Aichi on 6 October 2010, as an exception to the mandatory and jurisdictional
120+30 day periods.
FACTS: Mindanao I and II (Mindanao) are value-added taxpayers, and Block
Power Production Facilities accredited by the Department of Energy. They had
a Build-Operate-Transfer contract with the Philippine National Oil Corporation
Energy Development Company (PNOC-EDC), whereby Mindanao converts
steam supplied to it by PNOC-EDC into electricity, and then delivers the
electricity to the National Power Corporation (NPC) in behalf of PNOC-EDC.
The Electric Power Industry Reform Act of 2000 (EPIRA, RA 9136), amended
the Tax Reform Act of 1997 (RA 8424), when it decreed that sales of power
by generation companies shall be subjected to a zero rate of VAT. Pursuant being a
Saturday)
to EPIRA, Mindanao I and II filed their claims for the issuance of tax credit
certificates on unutilized or excess input taxes from their sales of generated
power and delivery of electric capacity and energy to NPC.
The CTA En Banc denied Mindanao IIs claims for refund tax credit for the first
and second quarters of 2003, and Mindanao Is claims for refund/tax credit for CTA (En Banc):
the first, second, third, and fourth quarters of 2003, for being filed out of time. Mindanao IIs judicial claims were filed beyond the period allowed in Sec.
112(A), by which the reckoning of the two-year prescriptive period for filing the
The following are relevant dates: application for refund or credit of input VAT attributable to zero-rated sales or
C Period Close Last day Actual Last Actual
T Cover of for filing date of day Date effectively zero-rated sales shall be counted from the close of the taxable
A ed by quarter applicatio filing for of quarter when the sales were made (regardless of whether the tax was actually
C VAT when n applica filing filing
as Sales sales of tax tion for case case
paid), according to CIR v. Mirant Pagbilao Corporation (Mirant). Also, the sale
e in were refund / tax with with of the fully-depreciated Nissan Patrol is incidental to Mindanao IIs VAT zero-
N 2003 made tax credit refund CTA CTA rated transactions and is VATable pursuant to Sec. 105.
o. certificate / (judici
with the credit al Mindanao Is claims for the first, second, third and fourth quarters of 2003 were
CIR (admin claim) filed out of time. Section 229 is inapplicable in light of Mirant. Moreover, the
claim)
MINDANAO II procedure prescribed under Section 112(C) should be followed first before the
72 1st 31 31 March 13 April 12 22 CTA En Banc can act on Mindanao Is claim.
27 Quarte March 2005 2005 Sept April
r 2003 2005 2005
72 2nd 30 June 30 June 13 April 12 7 July Mindanao I and II went up to the Supreme Court arguing that their claims were
87 Quarte 2003 2005 2005 Sept 2005 timely filed pursuant to the case of Atlas, which was then the controlling ruling
r 2005
73 3rd 30 Sept 30 Sept 13 April 12 9 Sept
at the time of the filing. The Mirant case, which uses the close of the taxable
17 and 2003 2005 2005 Sept 2005 quarter when the sales were made as the reckoning date in counting the two-
4th 2005 year prescriptive period, cannot be applied retroactively to their prejudice.
Quarte
rs
31 Dec. 2 Jan. [1] ISSUE: Whether the reckoning date for counting the two-year prescriptive
2003 2006 (31
Dec. 2005 period in Section 112 should be counted from the end of the taxable quarter
being a when the sales were made (Mirant) or the date of filing the return (Atlas)?
Saturday)
MINDANAO I
72 1st 31 31 March 4 April 1 Sept 22 HELD: Neither Atlas nor Mirant applies, because when Mindanao II and
28 Quarte March 2005 2005 2005 April Mindanao I filed their respective administrative and judicial claims in 2005,
r 2003 2005
72 2nd 30 June 30 June 4 April 1 Sept 7 July neither case had been promulgated. Atlas was promulgated on 8 June 2007,
86 Quarte 2003 2005 2005 2005 2005 Mirant on 12 September 2008. Besides, Atlas merely stated that the two-year
r
prescriptive period should be counted from the date of payment of the output
73 3rd 30 Sept 30 Sept 4 April 1 Sept 9 Sept
18 and 2003 2005 2005 2005 2005 VAT, not from the close of the taxable quarter when the sales involving the
4th input VAT were made. The Atlas doctrine did not interpret, expressly or
Quarte
rs impliedly, the 120+30 day periods.
31 Dec. 2 January
2003 2006
(31 Dec.
Prescriptive Period for the Filing of Administrative Claims
2005
Section 112(A) of the 1997 Tax Code was the applicable law at the time of
filing of the claims in issue, therefore the claims needed to have been filed
within two (2) years after the close of the taxable quarter when the sales were
made. Mindanao I and IIs administrative claims for the first quarter of 2003
had prescribed, but their claims for the second, third and fourth quarters of
2003 were filed on time.
Prescriptive Period for the Filing of Judicial Claims
In determining whether the claims for the second, third and fourth quarters of
2003 had been properly appealed, there is still see no need to refer to either
Atlas or Mirant, or even to Sec. 229. The second paragraph of Sect. 112(C) is
clear that the taxpayer can appeal to the CTA within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period.
The 120+30 day periods are mandatory and jurisdictional. The taxpayer
cannot simply file a petition with the CTA without waiting for the
Commissioners decision within the 120-day period, because otherwise there
would be no decision or deemed a denial decision for the CTA to review.
Moreover, Sec. 112(C) expressly grants a 30-day period to appeal to the CTA,
and this period need not necessarily fall within the two-year prescriptive period,
as long as the administrative claim is filed within such time. The said
prescriptive period does not refer to the filing of the judicial claim with the CTA,
but to the administrative claim with the Commissioner.
San Roque: Recognition of BIR Ruling No. DA-489-03
BIR Ruling No. DA-489-03 provided that the taxpayer-claimant need not wait
for the lapse of the 120-day period before it could seek judicial relief with the
CTA. In the consolidated cases of CIR v. San Roque, however, the Supreme
Court En Banc held that the taxpayer cannot simply file a petition with the CTA
without waiting for the Commissioners decision within the 120-day
jurisdictional period. Notwithstanding, the Court also held in San Roque that
BIR Ruling No. DA-489-03 constitutes equitable estoppel in favor of taxpayers.
Being a general interpretative rule, it can be relied on by all taxpayers from the
time of its issuance on 10 December 2003 up to its reversal by the Court in
Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi) on 6 October 2010, where this Court held that the 120+30 day periods
are mandatory and jurisdictional.
Mindanao II filed its administrative claims for the second, third, and fourth
quarters of 2003 on 13 April 2005. Counting 120 days after filing of the
administrative claim (11 August 2005) and 30 days after the CIRs denial by
inaction, the last day for filing a judicial claim with the CTA for the second, third,
and fourth quarters of 2003 was on 12 September 2005. However, the judicial
claim could not be filed earlier than 11 August 2005, which was the expiration
of the 120-day period for the Commissioner to act.
Mindanao II filed its judicial claim for the second quarter before the expiration
of the 120-day period; it was thus prematurely filed. However, pursuant to San
Roque, the claim qualifies under the exception to the strict application of the
120+30 day periods. Its judicial claims for the third quarter and fourth quarter
of 2003 were filed on time.
Mindanao I filed its administrative claims for the second, third, and fourth
quarters of 2003 on 4 April 2005. Counting 120 days after filing of the
administrative claim with the CIR (2 August 2005) and 30 days after the CIRs
denial by inaction, the last day for filing a judicial claim was on 1 September
2005. However, the judicial claim cannot be filed earlier than 2 August 2005,
which is the expiration of the 120-day period for the Commissioner to act on
the claim. Mindanao I prematurely filed its judicial claim for the second quarter
of 2003 but claim qualifies under the exception in San Roque. Its judicial claims
for the third and fourth quarters of 2003, however, were filed after the
prescriptive period.
[2] ISSUE: Whether the sale of the fully-depreciated Nissan Patrol is a one-
time transaction not incidental to the VAT zero-rated operation of Mindanao II,
thus not VATable?
Mindanao II asserts that the sale of a fully depreciated Nissan Patrol is not an
incidental transaction in the course of its business but an isolated transaction
that should not have been subject to 10% VAT. It does not follow that an
isolated transaction cannot be an incidental transaction for purposes of VAT
liability. Indeed, a reading of Section 105 would show that a transaction in the
course of trade or business includes transactions incidental thereto. In the
course of its business, Mindanao II bought and eventually sold a Nissan Patrol.
Prior to the sale, the Nissan Patrol was part of Mindanao IIs property, plant,
and equipment. Therefore, the sale of the Nissan Patrol is an incidental
transaction made in the course of Mindanao IIs business which should be
liable for VAT.
DISPOSITION: Petitions partially granted. The claim of Mindanao II for the first
quarter of 2003 is DENIED, while its claims for the second, third, and fourth
quarters of 2003 are GRANTED. The claims of Mindanao I for the first, third,
and fourth quarters of 2003 are DENIED while its claim for the second quarter
of 2003 is GRANTED.
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.
Imperial 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.
Diaz vs SEC of Finance
Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed
this petition for declaratory relief assailing the validity of the impending
imposition of value-added tax (VAT) by the Bureau of Internal Revenue (BIR)
on the collections of toll way operators. Court treated the case as one of
prohibition. Petitioners hold the view that Congress did not, when it enacted
the NIRC, intend to include toll fees within the meaning of "sale of services"
that are subject to VAT; that a toll fee is a "user's tax," not a sale of services;
that to impose VAT on toll fees would amount to a tax on public service; and
that, since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution. The
government avers that the NIRC imposes VAT on all kinds of services of
franchise grantees, including toll way operations; that the Court should seek
the meaning and intent of the law from the words used in the statute; and that
the imposition of VAT on toll way operations has been the subject as early as
2003 of several BIR rulings and circulars. The government also argues that
petitioners have no right to invoke the non-impairment of contracts clause
since they clearly have no personal interest in existing toll operating
agreements (TOAs) between the government and toll way operators. At any
rate, the non-impairment clause cannot limit the State's sovereign taxing
power which is generally read into contracts.
Issue: May toll fees collected by toll way operators be subjected to VAT (Are
toll way operations a franchise and/or a service that is subject to VAT)?
Ruling: When a toll way operator takes a toll fee from a motorist, the fee is in
effect for the latter's use of the toll way facilities over which the operator enjoys
private proprietary rights that its contract and the law recognize. In this sense,
the toll way operator is no different from the service providers under
Section108 who allow others to use their properties or facilities for a fee. Toll
way operators are franchise grantees and they do not belong to exceptions
that Section 119 spares from the payment of VAT. The word "franchise"
broadly covers government grants of a special right to do an act or series of
acts of public concern. Toll way operators are, owing to the nature and object
of their business, "franchise grantees." The construction, operation, and
maintenance of toll facilities on public improvements are activities of public
consequence that necessarily require a special grant of authority from the
state. A tax is imposed under the taxing power of the government principally
for the purpose of raising revenues to fund public expenditures. Toll fees, on
the other hand, are collected by private toll way operators as reimbursement
for the costs and expenses incurred in the construction, maintenance and
operation of the toll ways, as well as to assure them a reasonable margin of
income. Although toll fees are charged for the use of public facilities, therefore,
they are not government exactions that can be properly treated as a tax. Taxes
may be imposed only by the government under its sovereign authority, toll fees
may be demanded by either the government or private individuals or entities,
as an attribute of ownership.
CIR vs SONY Philippines
Facts:
In 1998, the CIR issued Letter of Authority authorizing certain revenue officers
to examine Sonys books of accounts and other accounting records regarding
revenue taxes for the period 1997 and unverified prior years. In the following
year, a preliminary assessment for 1997 deficiency taxes and penalties was
issued by the CIR which Sony protested. Afterwards, the CIR issued final
assessment notices, the formal letter of demand and the details of
discrepancies. Then Sony filed a petition for review before the CTA. The CTA-
First Division ruled on the following: 1) disallowed the deficiency VAT
assessment because the subsidized advertising expense paid by Sony which
was duly covered by a VAT invoice resulted in an input VAT credit; 2)
maintained the deficiency EWT assessment on Sonys motor vehicles and on
professional fees paid to general professional partnership; 3) disallowed the
EWT assessment on rental expense; 4) upheld the penalties for the late
payment of VAT on royalties. In sum, the CTA-First Division partly granted
Sonys petition by cancelling the deficiency VAT assessment but upheld a
modified deficiency EWT assessment as well as the penalties. Because the
CTA-First Division denied its motion for reconsideration, CIR filed a petition for
review with the CTA-EB. However, the latter dismissed the petition. Hence,
this petition was filed before the SC.
Issue:
Whether or not Sony Philippines is engaged in the sale of services to Sony
International Singapore (SIS), thus liable to pay VAT.
Held:
No. The deficiency VAT assessment should have been disallowed. CIRs
argument that Sonys advertising expense could not be considered as an input
VAT credit because the same was eventually reimbursed by Sony
International Singapore (SIS) is erroneous.
Sonys deficiency VAT assessment stemmed from the CIRs disallowance of
the input VAT credits that should have been realized from the advertising
expense of the latter. It is evident under Sec. 110 of the 1997 Tax Code that
an advertising expense duly covered by a VAT invoice is a legitimate business
expense. There is also no denying that Sony incurred advertising expense.
However, the Court does not agree that the same subsidy should be subject
to the 10% VAT. The said subsidy termed by the CIR as reimbursement was
not even exclusively earmarked for Sonys advertising expense for it was but
an assistance or aid in view of Sonys dire or adverse economic conditions,
and was only equivalent to the latters (Sonys) advertising expenses.
There must be a sale, barter or exchange of goods or properties before any
VAT may be levied. Certainly, there was no such sale, barter or exchange in
the subsidy given by SIS to Sony. It was but a dole out by SIS and not in
payment for goods or properties sold, bartered or exchanged by Sony.
Sony did not render any service to SIS at all. The service rendered by the
advertising companies, paid for by Sony using SIS dole-out, were for Sony and
not SIS. Therefore, Sony Philippines is not liable to pay VAT because there
was no sale of goods or services provided to SIS.
CIR v SM Primeholdings Inc.
SM Prime and First Asia are both engaged in the business of operating
cinema houses, among others.
BIR sent them both preliminary assessment notices for VAT deficiency
on cinema ticket sales.
 Both protested, but BIR denied their protests, arguing that the list of
enumerated services under Sec. 108 of the NIRC is not exhaustive because it
covers all sales of services. Also, the deficiency assessments were based on
Revenue Memorandum Circular No. 28-2001.
CTA ruled that the activity of showing cinematographic films was NOT
subject to VAT, and should instead be subject to an amusement tax.
CTA en banc affirmed this, saying that section 108 of the NIRC
actually sets forth an exhaustive enumeration of what services are intended to
be subject to VAT, w/c does NOT include the showing films and motion
pictures.
I: W/n the gross receipts derived from admission tickets by
cinema/theater operators or proprietors are subject to VAT
R: NO, it is not subject to VAT.
The enumeration of services subject to VAT under Sec. 108 of the
NIRC is not exhaustive. It is up to the court to determine if showing of films
and motion pictures fall under the phrase similar services of Sec. 108 by
ascertaining the intent of the legislature.
Based on various amendments to the VAT coverage, none pertain to
cinema/theater operators or proprietors. In fact, the activity of showing films
and motion pictures has always been considered as a form of entertainment
subject to amusement tax.
At present, only lessors or distributors of cinematographic films are
subject to VAT, while persons subject to amusement tax are exempt from the
coverage of VAT.
It is therefore clear that the legislature never intended to subject this
kind of activity to VAT. To hold otherwise would impose an unreasonable
burden on cinema/theater houses operators or proprietors, who would be
paying an additional 10% VAT on top of the 30% amusement tax imposed by
Sec. 140 of the Local Govt. Code, or a total of 40% tax.
Such imposition would result in injustice, as persons taxed under the
NIRC of 1997 would be in a better position than those taxed under the LGC of
1991.
The repeal of the Local Tax Code by the LGC of 1991 is not a legal
basis for the imposition of VAT on the gross receipts of cinema/theater
operators or proprietors derived from admission tickets. The removal of the
prohibition under the Local Tax Code did not grant nor restore to the national
government the power to impose amusement tax on cinema/theater operators
or proprietors.
Neither did it expand the coverage of VAT. Since the imposition of a
tax is a burden on the taxpayer, it cannot be presumed nor can it be extended
by implication. As it is, the power to impose amusement tax on cinema/theater
operators or proprietors remains with the local government.
Considering that there is no provision of law imposing VAT on the
gross receipts of cinema/theater operators or proprietors derived from
admission tickets, RMC No. 28-2001 which imposes VAT on the gross receipts
from admission to cinema houses is therefore invalid.
The rule on tax exemptions should be construed strictly against the
taxpayer does not apply in this case. SM Primeholdings and First Asia need
not prove that they are exempted from the coverage of VAT. Such rule
presupposes that the taxpayer is clearly subject to the tax being levied against
him.
The reason is obvious: it is both illogical and impractical to determine
who are exempted without first determining who are covered by the provision.
Thus, unless a statute imposes a tax clearly, expressly and unambiguously,
what applies is the equally well-settled rule that the imposition of a tax cannot
be presumed. In fact, in case of doubt, tax laws must be construed strictly
against the government and in favor of the taxpayer.
Medicard Philippines vs CIR
FACTS: MEDICARD is a health maintenance organization (HMO) that
provides prepaid health and medical insurance coverage to its clients.
Individuals enrolled in its health care programs pay an annual membership fee
and are entitled to various preventive, diagnostic and curative medical services
provided by duly licensed physicians, specialists, and other professional
technical staff participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it.
MEDICARD filed it first, second, and third quarterly VAT Returns through
Electronic Filing and Payment System (EFPS) on April 20, July 25, and
October 25, 2006, respectively, and its fourth quarterly VAT Return on January
25, 2007.
Upon finding some discrepancies between MEDICARDs Income Tax Returns
(ITR) and VAT Returns, the CIR issued a Letter Notice (LN) dated September
20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice
(PAN) against MEDICARD for deficiency VAT. MEDICARD received CIRs
FAN dated December 10, 2007 for allegedly deficiency VAT for taxable year
2006 including penalties.
MEDICARD filed a protest arguing, among others, that that the services it
render is not limited merely to arranging for the provision of medical and/or
hospitalization services but include actual and direct rendition of medical and
laboratory services. On June 19, 2009, MEDICARD received CIRs Final
Decision denying its protest. The petitioner MEDICARD proceeded to file a
petition for review before the CTA.
The CTA Division held that the determination of deficiency VAT is not limited
to the issuance of Letter of Authority (LOA) alone and that in lieu of an LOA,
an LN was issued to MEDICARD informing it if the discrepancies between its
ITRs and VAT Returns and this procedure is authorized under Revenue
Memorandum Order (RMO) No. 30-2003 and 42-2003. Also, the amounts that
MEDICARD earmarked and eventually paid to doctors, hospitals and clinics
cannot be excluded from the computation of its gross receipts because the act
of earmarking or allocation is by itself an act of ownership and management
over the funds by MEDICARD which is beyond the contemplation of RR No.
4-2007. Furthermore, MEDICARDs earnings from its clinics and laboratory
facilities cannot be excluded from its gross receipts because the operation of
these clinics and laboratory is merely an incident to MEDICARDs line of
business as an HMO.
MEDICARD filed a Motion for Reconsideration but it was denied. Petitioner
elevated the matter to the CTA en banc.
CTA en banc partially granted the petition only insofar as 10% VAT rate for
January 2006 is concerned but sustained the findings of the CTA Division.
ISSUES:
Is the absence of the Letter of Authority fatal?
Should the amounts that MEDICARD earmarked and eventually paid to the
medical service providers still form part of its gross receipts for VAT purposes?
RULING:
Yes. The absence of the LOA violated MEDICARDs right to due process. An
LOA is the authority given to the appropriate revenue officer assigned to
perform assessment functions. Under the NLRC, unless authorized by the CIR
himself or by his duly authorized representative, through an LOA, an
examination of the taxpayer cannot ordinarily be undertaken. An LOA is
premised on the fact that the examination of a taxpayer who has already filed
his tax returns is a power that statutorily belongs only to the CIR himself or his
duly authorized representatives. In this case, there is no dispute that no LOA
was issued prior to the issuance of a PAN and FAN against MEDICARD.
Therefore, no LOA was also served on MEDICARD.
No. The VAT is a tax on the value added by the performance of the service by
the taxpayer. It is, thus, this service and the value charged thereof by the
taxpayer that is taxable under the NLRC.
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 competitive by allowing the refund or ultimately bear the burden of the tax
credit of input taxes that are shifted by the suppliers.
o RA 7227- Bases Conversion and Development Act of 1992
attributable to export sales.
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 There is total relief for the purchaser There is partial relief because the
from the burden of the tax since he purchaser is not allowed any tax
from the SEZ in Cebu. These entities are exempt from all internal revenue does not have input VAT and in effect, refund of or credit for input taxes
taxes and the implementing rules relevant thereto, including the VAT. because VAT is at 0%, it does not have paid.
Although export sales are not deemed exempt transactions, they are output VAT.

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.
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.

There is a difference between ZERO-RATED TRANSACTIONS and

EXEMPT / EFFECTIVE ZERO-RATED TRANSACTIONS
Zero-rated
It is automatic zero-rating.
Refers to the export sale of goods and
supply of services.
Intended to be enjoyed by the seller
who is directly and legally liable for the
VAT, making such seller internationally
Exempt
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
Exempt Transaction Exempt Party
- involves goods or services which, by their - a person or entity granted VAT exemption
nature, are specifically listed in and expressly under the Tax Code, a special law or an
exempted from the VAT under the Tax Code, international agreement to which the
without regard to the tax status of the party Philippines is a signatory, and by virtue of
(VAT-exempt or not) to the transaction. which its taxable transactions become
- such transaction is not subject to the VAT, exempt from the VAT.
but the seller is not allowed any tax refund of - Such party is also not subject to the VAT,
or credit for any input taxes paid. 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 VAT-registered suppliers, the purchase transaction is not exempt.
 Applying this principle to the case at bar, the purchase transactions entered into by respondent
are not VAT-exempt.
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 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.
CIR v. SEKISUI
SEKISUI JUSHI is a domestic corporation with principal office located
in the Special Export Processing Zone in Laguna.
It is principally engaged in the business of manufacturing, importing,
exporting, buying, selling wholesale such goods as strapping bands and other
packaging materials.
Having registered with the BIR as a VAT taxpayer, Sekisui filed its
quarterly returns with the BIR, in the amount of P4M paid by it in connection
with its domestic purchase of capital goods and services.
Said input taxes remained unutilized since Sekisui has not engaged in
any business activity or transaction for which it may be liable for output tax and
for which said input taxes may be credited.
Sekisui then filed with the One-Stop-Shop Inter-Agency Tax Credit
and Duty Drawback Center of the Department of Finance (CENTER-DOF) two
separate applications for tax credit/refund of VAT input taxes paid.
CIR denied this, but CTA ruled that Sekisui was entitled to refund.
I: W/n SEKISUI is entitled to the refund/tax credit certificate as alleged
unutilized input taxes paid on domestic purchase of capital goods and services
 R: Yes, it is entitled to refund
Business enterprises registered with the Philippine Export Zone
Authority (PEZA) may choose between two fiscal incentive schemes:
o (1) to pay a 5% preferential tax rate on its gross income and thus be
exempt from all other taxes; or
o (b) to enjoy an income tax holiday, in which case it is not exempt from
applicable national revenue taxes including the value-added tax (VAT).
If the entity avails itself of the 5% preferential tax rate under the first
scheme, it is exempt from all taxes, including the VAT;
Under the second, it is exempt from income taxes for a number of
years, but not from other national internal revenue taxes like the VAT.
A perusal of the pleadings and supporting documents indicates that
Sekisui availed itself of the income tax holiday (second). By doing so, it
became subject to VAT. It correctly registered as a VAT taxpayer, because its
transactions were not VAT-exempt.
Notwithstanding the fact that its purchases should have been zero-
rated, Sekisui was able to prove that it had paid input taxes in the amount of
P4M, as substantially supported by invoices and ORs.
While an ecozone is within the Philippines, it is deemed a separate
customs territory. Sales by suppliers from outside the borders of the ecozone
to this separate customs territory are deemed as exports and treated as export
sales.
Since 100% of Sekisui's products are exported, all its transactions are
deemed export sales and are thus VAT zero-rated. Sekisui has no output tax
with which it could offset its paid input tax. Since the subject input tax it paid
for its domestic purchases of capital goods and services remained unutilized,
it can claim a refund for the input VAT previously charged by its suppliers.
Coral Bay Nickel vs CIR
Doctrine:
VAT is an indirect tax that may be shifted
A company registered in the ecozone is vat exempt
Facts:
This appeal is brought by a taxpayer whose claim for the refund or
credit pertaining to its alleged unutilized input tax for the third and fourth
quarters of the year 2002 amounting to P50,124,086.75
The petitioner, a domestic corporation engaged in the manufacture of
nickel and/or cobalt mixed sulphide, is a VAT entity registered with the Bureau
of Internal Revenue (BIR). It is also registered with the Philippine Economic
Zone Authority (PEZA) as an Ecozone Export Enterprise at the Rio Tuba
Export Processing Zone under PEZA Certificate of Registration dated
December 27, 2002
On August 5, 2003,2 the petitioner filed its Amended VAT Return
declaring unutilized input tax from its domestic purchases of capital goods
On June 14, 2004,3 it filed with Revenue District Office No. 36 in
Palawan its Application for Tax Credits/Refund (BIR Form 1914) together with
supporting documents.
the petitioner elevated its claim to the CTA on July 8, 2004 by petition
for review, praying for the refund of the aforesaid input VAT
CTA division ruling:
the claim for tax refund is denied
petitioner was not entitled to the refund of alleged unutilized input VAT
following Section 106(A)(2)(a)(5) of the National Internal Revenue Code
(NIRC) of 1997, as amended, in relation to Article 77(2) of the Omnibus
Investment Code and conformably with the Cross Border Doctrine.
the CTA in Division cited Commissioner of Internal Revenue v.
Toshiba Information Equipment (Phils) Inc. and Revenue Memorandum
Circular ("RMC") No. 42-03.7chanrobleslaw
CTA en banc ruling :
affirmed division ruling that tax refund should be denied.
The main contention of the corporation?
petitioner contends that Toshiba is not applicable inasmuch as the
unutilized input VAT subject of its claim w(as incurred from May 1, 2002 to
December 31, 2002 as a VAT-registered taxpayer, not as a PEZA-registered
enterprise; that during the period subject of its claim, it was not yet registered
with PEZA because it was only on December 27, 2002 that its Certificate of
Registration was issued;12 that until then, it could not have refused the
payment of VAT on its purchases because it could not present any valid proof
of zero-rating to its VAT-registered suppliers; and that it complied with all the
procedural and substantive requirements under the law and regulations for its
entitlement to the refund.
Sc ruling:
the appeal of the corporation is bereft of merit
The petitioner's insistence, that Toshiba is not applicable because
Toshiba Information Equipment (Phils) Inc., the taxpayer involved thereat, was
a PEZA-registered entity during the time subject of the claim for tax refund or
credit, is unwarranted
 The most significant difference between Toshiba and this case is that
Revenue Memorandum Circular No. 74-9916 was not yet in effect at the time
Toshiba Information Equipment (Phils) Inc. brought its claim for refund.
Regardless of the distinction, however, Toshiba actually discussed the VAT
implication of PEZA-registered enterprises and ECOZONE-located
enterprises in its entirety, which renders Toshiba applicable to the petitioner's
case.
What is the old VAT rule?
(1) if the PEZA-registered enterprise chose the 5% preferential tax on its gross
income in lieu of all taxes, as provided by Republic Act No. 7916, as amended,
then it was VAT-exempt; and
(2) if the PEZA-registered enterprise availed itself of the income tax holiday
under Executive Order No. 226, as amended, it was subject to VAT at
10%17(now, 12%).
Based on this old rule, Toshiba allowed the claim for refund or credit
on the part of Toshiba Information Equipment (Phils) Inc.
With the issuance of RMC 74-99, the distinction under the old rule was
disregarded and the new circular took into consideration the two important
principles of the Philippine VAT system: the
Cross Border Doctrine
and the Destination Principle.
RMC No. 74-99, significance?....
The rule that any sale by a VAT-registered supplier from the Customs
Territory to a PEZA-registered enterprise shall be considered an export sale
and subject to zero percent (0%) VAT was clearly established only on 15
October 1999, upon the issuance of RMC No. 74-99
This old rule clearly did not take into consideration the Cross Border
Doctrine essential to the VAT system or the fiction of the ECOZONE as a
foreign territory.
What is the old rule again? (emphasis)
the old VAT rule for PEZA-registered enterprises was based on their
choice of fiscal incentives: (1) If the PEZA-registered enterprise chose the five
percent (5%) preferential tax on its gross income, in lieu of all taxes, as
provided by Rep. Act No. 7916, as amended, then it would be VAT-exempt;
(2) If the PEZA-registered enterprise availed of the income tax holiday under
Exec. Order No. 226, as amended, it shall be subject to VAT at ten percent
(10%).
This distinction was abolished by RM no. 74-99
RM no. 74-99 ,categorically declared that all sales of goods,
properties, and services made by a VAT-registered supplier from the Customs
Territory to an ECOZONE enterprise shall be subject to VAT, at zero percent
(0%) rate, regardless of the tatter's type or class of PEZA registration; and,
thus, affirming the nature of a PEZA-registered or an ECOZONE enterprise as
a VAT-exempt entity
fiction that an ECOZONE is a foreign tenitory separate and distinct
from the customs territory
Accordingly, the sales made by suppliers from a customs territory to a
purchaser located within an ECOZONE will be considered as exportations.
. Following the Philippine VAT system's adherence to the Cross
Border Doctrine and Destination Principle, the VAT implications are that "no
VAT shall be imposed to form part of the cost of goods destined for
consumption outside of the territorial border of the taxing authority
According to the toshiba case. Why are companys registered in ecozone VAT
exempt?
because of Section 8 of the same statute which establishes the fiction
that ECOZONES are foreign territory.
The petitioner's principal office was located in Barangay Rio Tuba,
Bataraza, Palawan.21 Its plant site was specifically located inside the Rio Tuba
Export Processing Zone a special economic zone (ECOZONE) created by
Proclamation No. 304, Series of 2002, in relation to Republic Act No. 7916. As
such, the purchases of goods and services by the petitioner that were destined
for consumption within the ECOZONE should be free of VAT; hence, no input
VAT should then be paid on such purchases, rendering the petitioner not
entitled to claim a tax refund or credit. Verily, if the petitioner had paid the input
VAT, the CTA was correct in holding that the petitioner's proper recourse was
not against the Government but against the seller who had shifted to it the
output VAT
Vat is an indirect tax which can be shifted
In the meantime, the claim for input tax credit by the exporter-buyer
should be denied without prejudice to the claimant's right to seek
reimbursement of the VAT paid, if any, from its supplier.
Note that the claim of tax refund is in the nature of a tax exemption. It
is therefore the burden of the claimant to prove that it is entitled to such refund.
Petition of corporation is denied.
CIR vs American Express International
Facts:
Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was
tasked with servicing a unit of AMEX-Hongkong Branch and facilitating the
collections of AMEX-HK receivables from card members situated in the
Philippines and payment to service establishments in the Philippines.
It filed with BIR a letter-request for the refund of its 1997 excess input taxes,
citing as basis Section 110B of the 1997 Tax Code, which held that xxx Any
input tax attributable to the purchase of capital goods or to zero-rated sales by
a VAT-registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.
In addition, respondent relied on VAT Ruling No. 080-89, which read, In
Reply, please be informed that, as a VAT registered entity whose service is
paid for in acceptable foreign currency which is remitted inwardly to the
Philippine and accounted for in accordance with the rules and regulations of
the Central Bank of the Philippines, your service income is automatically zero
rated xxx
Petitioner claimed, among others, that the claim for refund should be construed
strictly against the claimant as they partake of the nature of tax exemption.
CTA rendered a decision in favor of respondent, holding that its services are
subject to zero-rate. CA affirmed this decision and further held that
respondents services were services other than the processing,
manufacturing or repackaging of goods for persons doing business outside the
Philippines and paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of BSP.
Issue:
W/N AMEX Phils is entitled to refund
Held:
Yes. Section 102 of the Tax Code provides for the VAT on sale of services and
use or lease of properties. Section 102B particularly provides for the services
or transactions subject to 0% rate:
(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP;
(2) Services other than those mentioned in the preceding subparagraph, e.g.
those rendered by hotels and other service establishments, the consideration
for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP
Under subparagraph 2, services performed by VAT-registered persons in the
Philippines (other than the processing, manufacturing or repackaging of goods
for persons doing business outside the Philippines), when paid in acceptable
foreign currency and accounted for in accordance with the R&R of BSP, are
zero-rated. Respondent renders service falling under the category of zero
rating.
As a general rule, the VAT system uses the destination principle as a basis for
the jurisdictional reach of the tax. Goods and services are taxed only in the
country where they are consumed. Thus, exports are zero-rated, while imports
are taxed.
In the present case, the facilitation of the collection of receivables is different
from the utilization of consumption of the outcome of such service. While the
facilitation is done in the Philippines, the consumption is not. The services
rendered by respondent are performed upon its sending to its foreign client the
drafts and bulls it has gathered from service establishments here, and are
therefore, services also consumed in the Philippines. Under the destination
principle, such service is subject to 10% VAT.
However, the law clearly provides for an exception to the destination principle;
that is 0% VAT rate for services that are performed in the Philippines, paid for
in acceptable foreign currency and accounted for in accordance with the R&R
of BSP. The respondent meets the following requirements for exemption, and
thus should be zero-rated:
(1) Service be performed in the Philippines
(2) The service fall under any of the categories in Section 102B of the Tax
Code
(3) It be paid in acceptable foreign currency accounted for in accordance
with BSP R&R.
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 BWSC-
Mindanao (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 non-Peso
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.
Accenture Inc. vs CIR
FACTS: Accenture filed a Value-Added Tax (VAT) claim for refund on
unutilized input VAT premised on its claim that its sales were zero-rated for
being in connection with services rendered to non-resident recipients. The
Commissioner of Internal Revenue (CIR) denied the claim stating that
Accenture failed to prove that its foreign clients did business outside the
Philippines.
ISSUE: Whether or not Accenture is entitled to the VAT refund
RULING: No. Accenture failed to prove that services were rendered for non-
residents. The Amex case did not rule that the services to recipients need not
be doing business outside the Philippines but only that the consumption need
not be abroad. However, Accenture failed to prove that the clients/service
recipients are doing business outside the Philippines as they only submitted
the Securities and Exchange Commission (SEC) certifications showing that
their clients have not established any branch offices in the Philippines and
billing statements issued to the said clients. The Court ruled that while it did
prove that its clients are foreign, there was no proof that they were doing
business outside the Philippines.
CIR v. Phil Health Care Providers, Inc.
The Philippine Health Care Providers (PHCPI), a health care
organization for sick and disabled persons enrolled in a health care plan, wrote
BIR inquiring whether the services it provides are exempt from the payment of
the VAT.
BIR issued a ruling, confirmed by the BIR Regional Director, stating
that PHCPI was exempt from the VAT coverage.
BIR then sent PHCPI 2 notices for deficiency in its payment of the VAT
and documentary stamp taxes (DST) f P224M+ for taxable years 1996 and
1997.
PHCPI protested, but BIR did not take any action, so PHCPI filed with
the CTA a petition for review.
CTA ordered PHCPI to pay a reduced deficiency VAT and declared
the BIR ruling void, saying that PHCPI is a service contractor subject to VAT
since it does not actually render medical service but merely acts as a conduit
between the members and petitioner's accredited and recognized hospitals
and clinics.
However, after a careful review of the facts of the case, the CTA
resolved to grant petitioner's "Motion for Partial Reconsideration relying on
Sec.246 of the 1977 Tax code which provides that in the absence of showing
of bad faith, the retroactive revocation of the BIR Ruling will be prejudicial to
PHCPI. Accordingly, the VAT assessment issued against PHCPI for the
taxable years 1996 and 1997 was WITHDRAWN and SET ASIDE.
I: 1. W/n PHCPI's services are subject to VAT
R: YES. HOWEVER, because of the VAT ruling exempting PHCPI
from VAT, it cannot be retroactively revoked and therefore, PHCPI is still
exempt.
1) Section 102 of the NIRC as amended provides that there shall be
levied a VAT equivalent to 12% of gross receipts derived from the sale or
exchange of services The phrase "sale or exchange of service" means the
performance of all kinds of services in the Philippines for consideration.
Section 103 of the same Code specifies the exempt transactions from
the provision, which includes medical, dental, hospital and veterinary services
except those rendered by professionals.
It can be seen from PHCPIs letter to BIR that its services that it is not
actually rendering medical service but merely acting as a conduit between the
members and their accredited and recognized hospitals and clinics.
Thus, it does NOT fall under VAT-exempt transactions.
2) Section 246 of the 1997 Tax Code, as amended, provides that
rulings, circulars, rules and regulations promulgated by the CIR have no
retroactive application if to apply them would prejudice the taxpayer.
The exceptions to this rule are:
o (1) where the taxpayer deliberately misstates or omits material facts
from his return or in any document required of him by the BIR
o (2) where the facts subsequently gathered by the BIR are materially
different from the facts on which the ruling is based, or
o (3) where the taxpayer acted in bad faith.
PHCPI did not fall under any of these exceptions.
 PHCPI's failure to refer to itself as a health maintenance organization
is not an indication of bad faith or a deliberate attempt to make false
representations.
The term "health maintenance organization" was first recorded in the
Philippine statute books only upon the passage of "The National Health
Insurance Act of 1995" which defines a "health maintenance org" as one of the
classes of a "health care provider."
Thus, the VAT Ruling was issued in PHCPI's favor, and the term
"health maintenance organization" was yet unknown or had no significance for
taxation purposes. PHCPI therefore, believed in good faith that it was VAT
exempt for the taxable years 1996 and 1997 on the basis of the VAT Ruling.
CIR is precluded from adopting a position contrary to one previously
taken where injustice would result to the taxpayer.
CIR v Acesite (Philippines) Hotel Corporation
Acesite is the owner and operator of the Holiday Inn Manila Pavilion
Hotel. It leases a portion 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.
From 1996 to 1997, Acesite incurred VAT amounting to P30M+ 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.
Thus, PAGCOR paid the amount due to Acesite minus the P30M+
VAT while Acesite paid the VAT to the CIR.
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. In 1998, Acesite filed an administrative claim for refund with
the CIR but CIR failed to resolve the same, so the case was elevated to the
CTA.
I: W/n the 0% VAT rate (under then Sec 108 (B)(3) of the NIRC)
applies to Acesite
R: Yes.
PD 1869 w/c created PAGCOR granted it an exemption from paying
taxes.
A close scrutiny of the provisions of the said law gives PAGCOR a
blanket exemption to taxes with no distinction on whether the taxes are direct
or indirect.
The law even grants tax exempt status to persons dealing with
PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR
is not liable for the P30M+ VAT and neither is Acesite as Acesite is effectively
subject to zero percent rate under the NIRC.
By extending the exemption to entities or individuals dealing with
PAGCOR, the legislature clearly granted exemption also from indirect taxes.
It must be noted that the indirect tax of VAT, as in the instant case, can be
shifted or passed to the buyer, transferee, or lessee of the goods, properties,
or services subject to VAT. Thus, by extending the tax exemption to entities or
individuals dealing with PAGCOR in casino operations, it is exempting
PAGCOR from being liable to indirect taxes.
The NIRC provides that transactions subject to 0% VAT include
services rendered to persons whose exemption under special laws or
international agreements subjects the supply of such services to 0% rate.
OTHERS:
It is true that VAT can either be incorporated in the value of the goods,
properties, or services sold or leased, in which case it is computed as 1/11 of
such value, or charged as an additional 10% to the value. Verily, the seller or
lessor has the option to follow either way in charging its clients and customer.
In the instant case, Acesite followed the latter method, that is, charging
an additional 10% of the gross sales and rentals. Be that as it may, the use of
either method, and in particular, the first method, does not denigrate the fact
that PAGCOR is exempt from an indirect tax, like VAT.
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 equal-footing.
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.
ABAKADA v. Ermita (Oct 18, 2005)
This case is about the Resolution of the Motion for Reconsideration
filed by herein petitioners based on the decision rendered by the court on Sept.
1, 2005, upholding the constitutionality of RA 9337 or the VAT Reform Act.
Relevant issues are as follows:
1. MR of Escudero, et al.: W/N there was grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the Bicameral
Committee when the No Pass-On Provisions for the sale of petroleum
products and power generation services were deleted.
2. MR of Bataan Governor Garcia, Jr.: W/N the VAT law is
unconstitutional for being arbitrary, oppressive and inequitable because it
burdens the consumers because of the price increase.
3. MR of Association of Pilipinas Shell Dealers: W/N the Court erred in
upholding the constitutionality of Section 110(A)(2) and Section 110(B) of the
NIRC as amended by the EVAT Law imposing limitations on the amount of
input VAT that may be claimed as a credit against the output VAT; Section
114(C) of the NIRC as amended by the EVAT Law, requiring the government
or any of its instrumentalities to withhold a 5% final withholding tax on their
gross payments on purchases of goods and services; for finding that the EVAT
Law is not arbitrary, oppressive and confiscatory as to amount a deprivation of
property without due process of law; that it did not violate the equal protection
clause.
R: MRs are DENIED. TRO is lifted.
Escudero, et al. argues that the bicameral committee should not have
touched on the No Pass-On Provisions since both the Senate and the House
of Representatives were in agreement that such provision should be passed
where no VAT Burden shall be passed to the end-consumer and instead will
be shouldered by the sellers.
HOWEVER, the deletion of the No Pass-On Provision made the
present VAT law more in consonance with the very nature of VAT which is a
tax on spending or consumption, thus, the burden thereof is ultimately borne
by the end-consumer.
As to the contention that the right to credit input tax has already
evolved into a vested right, the Court finds that the right to credit the same is
a mere creation of law. Prior to the enactment of multi-stage sales taxation,
the sales taxes paid at every level of distribution are not recoverable from the
taxes payable. With the advent of EO 273 imposing a 10% multi-stage tax on
all sales, it was only then that the crediting of the input tax paid on purchase
or importation of goods and services by VAT-registered persons against the
output tax was established. This continued with the Expanded VAT Law (R.A.
No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit
input tax as against the output tax is clearly a privilege created by law, a
privilege that also the law can limit. It should be stressed that a person has no
vested right in statutory privileges.
 The impact of the 70% limitation on the creditable input tax will
ultimately depend on how one manages and operates its business. Market
forces, strategy and acumen will dictate their moves. With or without these
VAT provisions, an entrepreneur who does not have the ken to adapt to
economic variables will surely perish in the competition. The arguments posed
are within the realm of business, and the solution lies also in business.
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 VAT-
Registered 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 VAT-
registered 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 VAT-registered. 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.
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.