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GUIDE NOTES ON VALUE-ADDED TAX * Citing CIR v.

Seagate Technology
(Philippines), the case of Panasonic
VALUE-ADDED TAX Communications Imaging Corporation of the
Philippines v. CIR explained value-added tax in
Q. WHAT IS THE NATURE AND CONCEPT OF this wise:
VALUE-ADDED TAXES?
“The VAT is a tax on consumption, an indirect
* VAT is a percentage tax. There is a tax that the provider of goods or services
percentage fixed by law which will be applied to may pass on to his customers.
the gross selling price in order to arrive to the
VAT to be paid. Under the VAT method of taxation, which is
invoice-based, an entity can subtract from the
[CIR v. Seagate Technology (Philippines), GR VAT charged on its sales or outputs the VAT it
No. 153866, 11 Feb. 2005.] is a case on a paid on its purchases, inputs and imports.
claim for tax refund/credit of alleged unutilized
input VAT paid on capital goods for the period  For example, when a seller charges VAT on
1 April 1998 to 30 June 1999. It explained the its sale, it issues an invoice to the buyer,
concept of a value-added tax, thus: indicating the amount of VAT he charged.
 For his part, if the buyer is also a seller
Viewed broadly, the VAT is a uniform tax subjected to the payment of VAT on his
ranging, at present, from 0 percent to 12% sales, he can use the invoice issued to him
levied on every importation of goods, whether by his supplier to get a reduction of his
or not in the course of trade or business, or own VAT liability.
imposed on each sale, barter, exchange or  The difference in tax shown on invoices
lease of goods or properties or on each passed and invoices received is the tax
rendition of services in the course of trade or paid to the government.
business as they pass along the production  In case the tax on invoices received
and distribution chain, the tax being limited exceeds that on invoices passed, a tax
only to the value added to such goods, refund may be claimed.”
properties or services by the seller,
transferor or lessor. Q: DEFINE AND DIFFERENTIATE INPUT TAX AND
OUTPUT TAX.
It is an indirect tax that may be shifted or
passed on to the buyer, transferee or lessee of The case of CIR v. Benguet Corporation defined
the goods, properties or services. As such, it “input tax” and “output tax.”
should be understood not in the context of the Input tax Output tax
person or entity that is primarily, directly and Input VAT or input tax When that person or
legally liable for its payment, but in terms of its represents the actual entity sells his/its
nature as a tax on consumption. payments, costs and products or services,
expenses incurred by a the VAT-registered
Situations that may arise: (General Principles) VAT-registered taxpayer generally
taxpayer in connection becomes liable for
1. If at the end of a taxable quarter the with his purchase of 12% of the selling
output taxes charged by a seller are goods and services price as output VAT
equal to the input taxes passed on by or output tax.
the suppliers, no payment is required. Thus, "input tax" Hence, "output tax"
2. If at the end of a taxable quarter, the means the value- is the value-added
output taxes exceed the input taxes, the added tax paid by a tax on the sale of
excess has to be paid by the seller. VAT-registered taxable goods or
3. If the input taxes exceed the output taxes, person/entity in the services by any
the excess shall be carried over to the course of his/its person registered or
succeeding quarter or quarters trade or business on required to register
4. If the input taxes result from zero-rated or the importation of under Section 107
effectively zero-rated transactions or goods or local of the (old) Tax
from acquisition of capital goods any purchases of goods Code.
excess over the output taxes shall be or services from a
refunded to the taxpayer or credited against VAT-registered
other internal revenue taxes. person

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DEAN LILY K. GRUBA
S/Y 2011-2012
Q: HOW CAN A VAT-REGISTERED TAXPAYER X’s purchase has an input tax of 1,500
RECOVER ITS INPUT VAT? (12,500 x 12%) and his re-sale
transaction has an output tax of 1,800
The VAT system of taxation allows a VAT- (15,000 x 12%) The VAT payable by X is
registered taxpayer to recover its input VAT the difference of the output tax and the
either by input tax thus it is 300 (1800-1500)

(1) passing on the 12% output VAT on the (b) How much can X claim as a tax
gross selling price or gross receipts, as the credit?
case may be, to its buyers, or
X may claim the 1,500 input tax on his
(2) if the input tax is attributable to the purchase as a tax credit. This is why it
purchase of capital goods or to zero-rated was deducted from 1,800.
sales, by filing a claim for a refund or tax credit
with the BIR. (c) Can Z claim a tax credit?

Simply stated, a taxpayer subject to 12% No. He is the end-consumer. He


output VAT on its sales of goods and services ultimately bears the tax burden.
may recover its input VAT costs by passing on
said costs as output VAT to its buyers of goods SEC. 105. Persons Liable. –
and services but it cannot claim the same as a
refund or tax credit, while a taxpayer subject to Any person who, in the course of trade or
0% on its sales of goods and services may only business, sells barters, exchanges, leases
recover its input VAT costs by filing a refund or goods or properties, renders services, and any
tax credit with the BIR. person who imports goods shall be subject to
the value-added tax (VAT) imposed in Sections
Q: Illustrate input tax, output tax and VAT 106 to 108 of this Code.
payable
The value-added tax is an indirect tax and the
X Corp, manufacturer, sold goods to Y, a amount of tax may be shifted or passed on to
retailer, for 100,000 plus vat of 12,000 (so Y the buyer, transferee or lessee of the goods,
bought it for 112,000) Then, Y resold the goods properties or services. This rule shall likewise
to Z, end-consumer for 150,000 plus VAT of apply to existing contracts of sale or lease of
18,000 (so Z bought it for 168,000) goods, properties or services at the time of the
effectivity of Republic Act No. 7716.
On the part of Y, the retailer,
The phrase 'in the course of trade or business'
-His INPUT TAX is 12,000 because this tax means the regular conduct or pursuit of a
was passed on to him when he bought goods commercial or an economic activity, including
from X Corp. transactions incidental thereto, by any person
regardless of whether or not the person
-His OUTPUT TAX is 18,000 because this is engaged therein is a non-stock, nonp-rofit
the tax he passed on to Z. private organization (irrespective of the
disposition of its net income and whether or not
-In this case, Y will pay for/ultimately be liable it sells exclusively to members or their guests),
for the vat of 6,000 on the sale because the or government entity.
output tax is greater than the input tax. (see 2nd
situation in first page) The rule of regularity, to the contrary
notwithstanding, services as defined in this
Q: Illustrative problem (Co-Untian) Code rendered in the Philippines by
nonresident foreign persons shall be
X is a VAT registered person. He bought goods considered as being course of trade or
from Y for 12,500, exclusive of VAT. X then sold business.
these goods to consumer Z for 15,000,
exclusive of the VAT Q: UNDER 1ST PARAGRAPH OF SEC 105, WHAT
ARE THE VAT-ABLE TRANSACTIONS? [SALE,
(a) How much is the VAT payable by X IMPORTATION AND SERVICES]
to the BIR?
1. Sale, barter, exchange of goods or
properties
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S/Y 2011-2012
2. Transactions deemed sale the payment thereof,
3. Importation of goods [does not have to ultimately bears the burden
be exercised in the ordinary course of the tax.
of business]
4. Sale of services and use or lease of Q: WHAT IS MEANT BY “IN THE COURSE OF
properties TRADE OR BUSINESS”?

Q: UNDER PAR 2, VAT IS AN INDIRECT TAX. * The case of CIR v. Magsaysay Lines, Inc GR
DISTINGUISH BETWEEN LIABILITY FOR THE TAX No. 146984. involved the sale by the National
AND BURDEN OF THE TAX. Development Company of five of its vessels to
Magsaysay Lines, Inc. The issue was whether
* The case of Contex Corporation v. CIR made such sale was within the coverage of VAT. The
a distinction between the two concepts. It Supreme Court found that the sale of the
provided [[Contex Corporation v. CIR, GR No. vessels was not in the ordinary course of trade
151135, 2 July 2004.] or business. As such, the transaction was
outside the coverage of VAT.
At this juncture, it must be stressed that the
VAT is an indirect tax. As such, the amount of
tax paid on the goods, properties or services That the sale of the vessels was not in the
bought, transferred, or leased may be shifted ordinary course of trade or business of NDC
or passed on by the seller, transferor, or lessor was appreciated by both the CTA and the Court
to the buyer, transferee or lessee. of Appeals, the latter doing so even in its first
decision which it eventually reconsidered. We
Unlike a direct tax, such as the income tax, cite with approval the CTA’s explanation on this
which primarily taxes an individual’s ability to point:
pay based on his income or net wealth, an
indirect tax, such as the VAT, is a tax on In Imperial v. Collector of Internal Revenue,
consumption of goods, services, or certain G.R. No. L-7924, September 30, 1955 (97 Phil.
transactions involving the same. The VAT, 992), the term "carrying on business" does not
thus, forms a substantial portion of consumer mean the performance of a single
expenditures. disconnected act, but means conducting,
prosecuting and continuing business by
 Further, in indirect taxation, there is a need performing progressively all the acts normally
to distinguish between the liability for the incident thereof; while "doing business"
tax and the burden of the tax. conveys the idea of business being done, not
 As earlier pointed out, the amount of tax from time to time, but all the time.
paid may be shifted or passed on by the
seller to the buyer. "Course of business" is what is usually done
o What is transferred in such in the management of trade or business.
instances is not the liability for the
tax, but the tax burden. What is clear therefore, based on the
o In adding or including the VAT due to aforecited jurisprudence, is that "course of
the selling price, the seller remains business" or "doing business" connotes
the person primarily and legally liable regularity of activity. In the instant case, the
for the payment of the tax. What is sale was an isolated transaction. The sale
shifted only to the intermediate buyer which was involuntary and made pursuant
and ultimately to the final purchaser to the declared policy of Government for
is the burden of the tax. privatization could no longer be repeated or
 Stated differently, a seller carried on with regularity. It should be
who is directly and legally emphasized that the normal VAT-registered
liable for payment of an activity of NDC is leasing personal property.
indirect tax, such as the VAT
on goods or services is not This finding is confirmed by the Revised
necessarily the person who Charte of the NDC which bears no indication
ultimately bears the burden that the NDC was created for the primary
of the same tax. purpose of selling real property.
 It is the final purchaser or
consumer of such goods or The conclusion that the sale was not in the
services who, although not course of trade or business, which the CIR
directly and legally liable for does not dispute before this Court should have
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S/Y 2011-2012
definitively settled the matter. Any sale, barter
or exchange of goods or services not in the ** In the case of CIR v. CA, COMASERCO,
course of trade or business is not subject to being a non-stock non-profit organization,
VAT. contended that it was operating on a
reimbursement-of-cost basis, that its
The decision contained an explanation of VAT, operations were not profit-oriented and not
to wit: “in the course of trade of business,” and that
therefore, it was not liable to pay VAT. The
 A brief reiteration of the basic principles Supreme Court held that Section 105 of the
governing VAT is in order. VAT is ultimately 1997 Tax Code was clear and unambiguous in
a tax on consumption, even though it is stating that even non-stock non-profit
assessed on many levels of transactions on organizations were liable to pay VAT on the
the basis of a fixed percentage. sale of goods or services.
 It is the end user of consumer goods or
services which ultimately shoulders the tax, ***N.B. Booch Difference of CIR v.
as the liability therefrom is passed on to the Magsaysay v. CIR v. CA, Comaserco:
end users by the providers of these goods
or services who in turn may credit their own SEC. 106. Value-Added Tax on Sale of
VAT liability (or input VAT) from the VAT Goods or Properties. -
payments they receive from the final
consumer (or output VAT). (A) Rate and Base of Tax. - There shall be
 The final purchase by the end consumer levied, assessed and collected on every sale,
represents the final link in a production barter or exchange of goods or properties,
chain that itself involves several value-added tax equivalent to twelve percent
transactions and several acts of (12%) of the gross selling price or gross value
consumption. in money of the goods or properties sold,
 The VAT system assures fiscal adequacy bartered or exchanged, such tax to be paid by
through the collection of taxes on every the seller or transferor.
level of consumption, yet assuages the
manufacturers or providers of goods and (1) The term 'goods' or 'properties' shall
services by enabling them to pass on their mean all tangible and intangible objects
respective VAT liabilities to the next link of which are capable of pecuniary estimation
the chain until finally the end consumer and shall include:
shoulders the entire tax liability.
 Yet VAT is not a singular-minded tax on (a) Real properties held primarily for sale to
every transactional level. Its assessment customers or held for lease in the ordinary
bears direct relevance to the taxpayer’s course of trade or business;
role or link in the production chain.
Hence, as affirmed by Section 99 of the Tax (b) The right or the privilege to use patent,
Code and its subsequent incarnations, the copyright, design or model, plan, secret
tax is levied only on the sale, barter or formula or process, goodwill, trademark, trade
exchange of goods or services by brand or other like property or right;
persons who engage in such activities,
in the course of trade or business. (c) The right or the privilege to use in the
o These transactions outside the Philippines of any industrial, commercial or
course of trade or business may scientific equipment;
invariably contribute to the
production chain, but they do so only (d) The right or the privilege to use motion
as a matter of accident or incident. picture films, tapes and discs; and
o As the sales of goods or services do
not occur within the course of trade (e) Radio, television, satellite transmission and
or business, the providers of such cable television time.
goods or services would hardly, if at
all, have the opportunity to The term 'gross selling price' means the total
appropriately credit any VAT liability amount of money or its equivalent which the
as against their own accumulated purchaser pays or is obligated to pay to the
VAT collections since the seller in consideration of the sale, barter or
accumulation of output VAT arises in exchange of the goods or properties, excluding
the first place only through the the value-added tax. The excise tax, if any, on
ordinary course of trade or business)
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S/Y 2011-2012
such goods or properties shall form part of the export sales exceed seventy percent (70%) of
gross selling price. total annual production;

Q: WHAT IS A “SALE OF GOODS OR (4) Sale of gold to the Bangko Sentral ng


PROPERTIES”? Pilipinas (BSP); and

* In CIR v. Sony Philippines, Inc., Sony (5) Those considered export sales under
Philippines engaged the services of several Executive Order NO. 226, otherwise known as
advertising companies. the Omnibus Investment Code of 1987, and
other special laws.
Due to Sony Philippines’ dire economic
conditions, Sony International Singapore Q: DISTINGUISH BETWEEN VAT RATING AND
handed Sony Philippines a dole-out to answer ZERO-RATING.
for the expenses payable to the advertising
companies. Sony Philippines was thereafter * The case of CIR v. Benguet Corporation
assessed deficiency VAT for the transaction, explained VAT rating vis-as-vis zero-rating in
i.e., dole-out, between Sony International principle, as well as by way of illustration, to
Singapore and Sony Philippines. The Supreme wit:
Court ruled that the dole-out or subsidy from
the Singaporean company to the Philippine  In transactions taxed at a 12% rate (VAT
company neither constituted a sale of rating), when at the end of any given
goods or properties, nor a sale of services. taxable quarter the output VAT exceeds the
Hence, Sony Philippines was not liable to pay input VAT, the excess shall be paid to the
VAT on the same. government; when the input VAT exceeds
the output VAT, the excess would be carried
[CIR v. Sony Philippines, Inc., GR No. 178697, over to VAT liabilities for the succeeding
17 Nov. 2010.] quarter or quarters.
 On the other hand, transactions which are
106(A)(2) Zero-Rated Sales of Goods taxed at zero-rate do not result in any
output tax. Input VAT attributable to zero-
(2) The following sales by VAT-registered rated sales could be refunded or credited
persons shall be subject to zero percent against other internal revenue taxes at the
(0%) rate: option of the taxpayer.

(a) Export Sales. - The term 'export sales' To illustrate, in a zero-rated transaction,
means: when a VAT-registered person (“taxpayer”)
purchases materials from his supplier at
(1) The sale and actual shipment of goods P80.00, P7.30 of which was passed on to him
from the Philippines to a foreign country, by his supplier as the latter’s 10% output VAT,
irrespective of any shipping arrangement that the taxpayer is allowed to recover P7.30
may be agreed upon which may influence or from the BIR, in addition to other input VAT he
determine the transfer of ownership of the had incurred in relation to the zero-rated
goods so exported and paid for in acceptable transaction, through tax credits or refunds.
foreign currency or its equivalent in goods or
services, and accounted for in accordance with When the taxpayer sells his finished product in
the rules and regulations of the Bangko Sentral a zero-rated transaction, say, for P110.00, he is
ng Pilipinas (BSP); not required to pay any output VAT thereon. In
the case of a transaction subject to 10%
(2) Sale of raw materials or packaging VAT, the taxpayer is allowed to recover both
materials to a nonresident buyer for delivery to the input VAT of P7.30 which he paid to his
a resident local export-oriented enterprise to be supplier and his output VAT of P2.70 (10% the
used in manufacturing, processing, packing or P30.00 value he has added to the P80.00
repacking in the Philippines of the said buyer's material) by passing on both costs to the
goods and paid for in acceptable foreign buyer. Thus, the buyer pays the total 10%
currency and accounted for in accordance with VAT cost, in this case P10.00 on the product.
the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP); [CIR v. Benguet Corporation, GR Nos. 134587
& 134588, 8 July 2005.]
(3) Sale of raw materials or packaging
materials to export-oriented enterprise whose
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DEAN LILY K. GRUBA
S/Y 2011-2012
Q: DISTINGUISH BETWEEN VAT EXEMPTION AND not allowed any tax
ZERO-RATING. refund or credit for input
taxes paid.
The case of Contex Corporation v. CIR
enumerated two ways by which a transaction
could have preferential treatment under the Q: Distinguish between zero-rated
VAT system, namely: (1) VAT exemption; and transactions and effectively zero-rated
(2) zero-rating. transactions.

Exemptions from VAT are granted by express The case of CIR v. Seagate Technology
provision of the Tax Code or special laws. (Philippines) addressed this issue. It stated that
Under VAT, the transaction can have the difference is primarily as to their source.
preferential treatment in the following ways:
Zero-Rated Effectively Zero-Rated
Zero-rated Effectively zero-
Vat Exempt Sales (Vat- Zero Rated transactions rated transactions
Exempt) Sales (Zero generally refer to the refer to the sale of
Rating) export sale of goods goods or supply of
Simply put, the VAT is These are sales and supply of services to persons or
removed at the exempt by VAT-registered services. entities whose
stage (e.g. point of the persons which exemption under
sale, barter, etc) are subject to 0% The tax rate is set at special laws or
rate, meaning the zero. international
tax burden is not agreements to which
passed on to the When applied to the the Philippines is a
purchaser. tax base, such rate signatory effectively
A zero-rated sale obviously results in no subjects such
or transaction by tax chargeable against transactions to a zero
a VAT-registered the purchaser. rate.
person, which is
a taxable The seller of such Again, as applied to
transaction for transactions charges the tax base, such
VAT purposes, no output tax, but can rate does not yield
does not result claim a refund of or a any tax chargeable
in any output tax credit certificate for against the
tax (still a taxable the VAT previously purchaser.
transaction) charged by suppliers
The seller who
A VAT-Registered The input VAT on charges zero output
purchaser of VAT-exempt the purchases of tax on such
goods/properties/services a VAT-registered transactions can also
which are exempt from person with zero- claim a refund of or a
VAT is not entitled to any rated sales may tax credit certificate
input tax on such be allowed as for the VAT previously
purchase. tax credits or charged by suppliers.”
refunded
The seller of exempt goods Applying the Effective zero rating,
properties or services shall destination principle to on the contrary, is
not bill any output tax. the exportation of intended to benefit the
Exemption only removes Under zero- goods, automatic purchaser who, not
the VAT at the exempt rating, all VAT is zero rating is being directly and
stage, and it will actually removed from the primarily intended to legally liable for the
increase, rather than zero-rated goods, be enjoyed by the payment of the VAT,
reduce the total taxes activity or firm seller who is directly will ultimately bear the
paid by the exempt firm’s and legally liable for burden of the tax
business or non-retail [In] zero rating, the VAT, making such shifted by the
customers. there is total relief seller internationally suppliers
for the purchaser competitive by
There is only partial relief from the burden allowing the refund or
because the purchase is of the tax credit of input taxes
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DEAN LILY K. GRUBA
S/Y 2011-2012
that are attributable to that it was subject to 0% VAT on its export
export sales. sales. Later, in his Motion for Reconsideration
of the adverse Court of Tax Appeals decision,
106(A)(2)(a) Export Sales the CIR would argue that Toshiba was not
entitled to its claim for tax refund/credit
Q: What is the cross-border doctrine? because it was VAT-exempt and its export
sales were VAT-exempt transactions (CIR
* According to CIR v. Toshiba Information argued this way because if the export sales
Equipment (Phils.), Inc., the Philippines were VAT exempt, then it would be entitled to
adheres to the cross-border doctrine which claim any credit from input tax)
means that “no VAT shall be imposed to
form part of the cost of goods destined for The Supreme Court ruled that Toshiba was a
consumption outside of the territorial registered VAT entity and its export sales were
border of the taxing authority. subject to 0% VAT.

Hence: Note: Remember, a zero-rated sale by a VAT-


registered person, which is a taxable
 actual export of goods and services from transaction for VAT purposes, shall not result in
the Philippines to a foreign country must be any output tax. However, the input tax on his
free of VAT; purchases of goods, properties or services
 On the other hand, those destined for use related to such zero-rated sale shall be
or consumption within the Philippines shall available as tax credit or refund in accordance
be imposed with ten percent (10%) [now with these regulations
12%] VAT.
 Additionally, sales made by an enterprise [Toshiba Information Equipment (Phils.), Inc. v.
within a non-ECOZONE territory, i.e., CIR, GR No. 157594, 9 Mar. 2010.]
Customs Territory, to an enterprise within an
ECOZONE territory shall be free of VAT. The case of Intel Technology Philippines, Inc.
v. CIR is a claim for tax refund/credit of alleged
[CIR v. Toshiba Information Equipment (Phils.), unutilized input VAT on local purchases of
Inc., GR No. 150154, 9 Aug. 2005.] goods and services which are attributable to
export sales for the second quarter of 1998.
[[106(A)(2)(a)(1) Actual Shipment of Goods
from the Philippines to a Foreign Country  To prove that it was engaged in the “sale
(ZRT): The sale and actual shipment of goods and actual shipment of goods from the
from the Philippines to a foreign country, Philippines to a foreign country and
irrespective of any shipping arrangement that therefore entitled to tax credit of input VAT,
may be agreed upon which may influence or Intel Technology presented documentary
determine the transfer of ownership of the evidence such as summary of export
goods so exported and paid for in acceptable sales, sales invoices, official receipts,
foreign currency or its equivalent in goods or airway bills, and export declarations.
services, and accounted for in accordance with  And, to prove that payment was made “in
the rules and regulations of the Bangko Sentral acceptable foreign currency or its
ng Pilipinas (BSP)]] equivalent in goods or services, and
accounted for in accordance with the rules
Q: Give examples of export sales in the and regulations of the Bangko Sentral ng
form of actual shipment of goods from the Pilipinas (BSP),” a certification of inward
Philippines to a foreign country. remittances was presented by Intel
Technology
* Toshiba Information Equipment (Phils.), Inc.  The Supreme Court found that Intel
v. CIR is a claim for tax refund/credit of alleged Technology’s evidence sufficiently
unutilized input VAT on local purchases of established that it was engaged in export
goods and services which are attributable to sales.
export sales for the first and second quarters of
1997. [NOTE: This is different from the Toshiba Note: Based on Sec 106, export sales, or
Case previously cited.] sales outside the Philippines, are subject to
VAT at 0% rate if made by a VAT-registered
In the case at bar, the CIR, in the Joint person. When applied to the tax base, the 0%
Stipulation of Facts and Issues, admitted that rate obviously results in no tax chargeable
Toshiba was a registered VAT entity and against the purchaser. The seller of such
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S/Y 2011-2012
transactions charges no output tax, but can Q: Give an example of a sale of raw
claim a refund or tax credit certificate for the materials to an export-oriented enterprise.
VAT previously charged by suppliers.
* Section 106(A)(2)(a)(3) of the 1997 Tax Code
Additionally, Under Sections 106 (A)(2)(a)(1) in pertains to the sale of raw materials or
relation to 112(A) of the Tax Code, a taxpayer packaging materials to an export-oriented
engaged in zero-rated or effectively zero-rated enterprise whose export sales exceed 70%
transactions may apply for a refund or issuance of total annual production. With respect to
of a tax credit certificate for input taxes paid the extent of the relief, the Supreme Court held
attributable to such sales upon complying with that:
the following requisites: (1) the taxpayer is
engaged in sales which are zero-rated (like Thus, the 0% rate applies to the total sale of
export sales) or effectively zero-rated; (2) the raw materials or packaging materials to an
taxpayer is VAT-registered; (3) the claim must export-oriented enterprise and not just the
be filed within two years after the close of the percentage of the sale in proportion to the
taxable quarter when such sales were made; actual exports of the enterprise.”
(4) the creditable input tax due or paid must be [Atlas Consolidated Mining and Development
attributable to such sales, except the Corporation v. CIR, GR No. 146221, 25 Sept.
transitional input tax, to the extent that such 2007.]
input tax has not been applied against the
output tax; and (5) in case of zero-rated sales 106(A)(2)(a)(4) Sale of Gold to the BSP
under Section 106(A)(2)(a)(1) and (2), Section
106(B), and Section 108(B)(1) and (2), the Q: Give an example of a sale of gold to the
acceptable foreign currency exchange BSP.
proceeds thereof had been duly accounted for
in accordance with BSP rules and regulations. CIR v. Benguet Corporation is a claim for tax
It is added that, "where the taxpayer is refund/credit of alleged unutilized input VAT on
engaged in zero-rated or effectively zero-rated Benguet Corporation’s sale of gold to the
sale and also in taxable or exempt sale of Bangko Sentral ng Pilipinas for the period 1
goods or properties or services, and the August 1989 to 31 July 1991. [NOTE: At the
amount of creditable input tax due or paid time the subject transaction was made, the
cannot be directly or entirely attributed to any treatment of sale of gold to the BSP as export
one of the transactions, it shall be allocated sales was merely based on BIR issuances.
proportionately on the basis of the volume of Today, such treatment is already contained in
the sales the 1997 Tax Code.]
[CIR v. Benguet Corporation, GR Nos. 134587
[Intel Technology Philippines, Inc. v. CIR, GR & 134588, 8 July 2005.]
No. 166732, 27 Apr. 2007.]
106(A)(2)(a)(5) Export Sales under the
106(A)(2)(a)(2) Sale of Raw Materials to a Omnibus Investment Code of 1987 and
Nonresident Buyer for Delivery to a Other Special Laws
Resident Local Export-Oriented Enterprise:
Sale of raw materials or packaging materials to Q: Give an example of export sales under
a nonresident buyer for delivery to a resident the Omnibus Investment Code of 1987 and
local export-oriented enterprise to be used in other special laws.
manufacturing, processing, packing or
repacking in the Philippines of the said buyer's In Panasonic Communications Imaging
goods and paid for in acceptable foreign Corporation of the Philippines v. CIR,
currency and accounted for in accordance with Panasonic produced and exported paper
the rules and regulations of the Bangko Sentral copiers and their sub-assemblies, parts, and
ng Pilipinas (BSP); components. It was registered with the Board
of Investments as a preferred pioneer
106(A)(2)(a)(3) Sale of Raw Materials to enterprise under the Omnibus Investment
Export-Oriented Enterprise: Sale of raw Code of 1987; it was a registered VAT
materials or packaging materials to export- enterprise; and its export sales were zero-
oriented enterprise whose export sales exceed rated.
seventy percent (70%) of total annual
production; [Panasonic Communications Imaging
Corporation of the Philippines v. CIR, GR No.
178090, 8 Feb. 2010.]
TAX 2 SYLLABUS 8
DEAN LILY K. GRUBA
S/Y 2011-2012
“transaction deemed sale” under Section
106(A)(2)(a)(6) Sale of Goods to Persons 106(B)(1) of the 1997 Tax Code. It thus
Engaged in International Shipping or Air qualified for zero-rating.
Transport Operations [San Roque Power Corporation v. CIR, GR No.
180345, 25 Nov. 2009.]
106(A)(2)(b) Foreign Currency Denominated
Sale: The phrase 'foreign currency
denominated sale' means sale to a nonresident 106(C) Changes in or Cessation of Status of
of goods, except those mentioned in Sections a VAT-Registered Person
149 and 150, assembled or manufactured in
the Philippines for delivery to a resident in the 106(D) Sales Returns, Allowances, and
Philippines, paid for in acceptable foreign Sales Discounts
currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral 106(E) Authority of the Commissioner to
ng Pilipinas (BSP). Determine the Appropriate Tax Base

106(A)(2)(c) Zero-Rated Sales pursuant to Sec. 107, Value-Added Tax on Importation


Special Laws or International Agreements of Goods

Q: Does VAT apply on every importation of


106(B) Transactions Deemed Sale:
goods?
106(B)(1) Transfer Not in the Course of
* In explaining value-added tax, CIR v.
Trade or Business of Goods/Services
Seagate Technology (Philippines) stated
Originally Intended for Sale/Use in the
that VAT shall be imposed on every
Course of Trade or Business
importation of goods, whether or not in
the course of trade or business. This is
106(B)(2) Other Transactions:
unlike VAT on sale of goods or properties
which must be in the course of trade or
These are:
business. Otherwise, the
(1) transfer to shareholders/investors as share
person/transaction shall not be liable to
in the profits of a VAT-registered person/entity;
pay VAT. Pertinent portion of the decision
(2) transfer to creditors in payment of debt;
read:
(3) consignment of goods, if actual sale is not
“Viewed broadly, the VAT is a uniform tax
made within 60 days following the date such
ranging, at present, from 0 percent to 10
goods were consigned; and
percent [now 12 percent] levied on every
(4) retirement from or cessation of business,
importation of goods, whether or not in
with respect to inventories of taxable goods
the course of trade or business, or
existing as of such retirement or cessation.
imposed on each sale, barter, exchange
or lease of goods or properties or on each
Q: Give an example of a transaction
rendition of services in the course of trade
deemed sale under this provision.
or business as they pass along the
production and distribution chain, the tax
* In San Roque Power Corporation v. CIR, San
being limited only to the value added to
Roque Power Corporation was engaged in the
such goods, properties or services by the
supply of electricity to the National Power
seller, transferor or lessor.”
Corporation. Such sale of service qualified as
[CIR v. Seagate Technology (Philippines),
a zero-rated transaction under Section 108(B)
GR No. 153866, 11 Feb. 2005.]
(3) of the 1997 Tax Code.
Sec. 108, Value-Added Tax on Sale of
A portion of SRPC’s claim for tax refund/credit
Services and Use or Lease of Properties
for alleged unutilized input VAT was
attributable to a “sale” of electricity to NPC
108(A) Rate and Base of Tax
that was made during the testing period
sometime in 2002, for which SRPC was paid
Q: What is a “sale of services”?
an amount of Php 42.5 million.
* In CIR v. Sony Philippines, Inc., Sony
The issue was whether such “sale” qualified for
Philippines engaged the services of
zero-rating. The Supreme Court held that
several advertising companies. Due to
although the “sale” was not a commercial sale
Sony Philippines’ dire economic
or in the normal course of business, it was a
TAX 2 SYLLABUS 9
DEAN LILY K. GRUBA
S/Y 2011-2012
conditions, Sony International Singapore that its sales of services were not subject
handed Sony Philippines a dole-out to to VAT because although it charged a fee
answer for the expenses payable to the for such sales, the organization was
advertising companies. Sony Philippines operating on a reimbursement-of-cost
was thereafter assessed deficiency VAT basis and hence, did not derive profit from
for the transaction, i.e., dole-out, between such sales. The Supreme Court held that
Sony International Singapore and Sony any sale of services for a fee,
Philippines. The Supreme Court ruled that remuneration or consideration is subject
the dole-out or subsidy from the to VAT, regardless of any profit derived
Singaporean company to the Philippine therefrom.
company neither constituted a sale of [CIR v. CA, GR No. 125355, 30 Mar.
goods or properties, nor a sale of 2000.]
services. Hence, Sony Philippines was
not liable to pay VAT on the same. **** “Sale of services” includes “lease of
[CIR v. Sony Philippines, Inc., GR No. motion picture films, films, tapes and
178697, 17 Nov. 2010.] discs.” In CIR v. SM Prime Holdings, Inc.,
SM Prime and First Asia were engaged in
** Quezon City v. ABS-CBN Broadcasting the business of operating cinema houses.
Corporation dealt with VAT-able sales of At issue was whether cinema
“services of franchise grantees of electric operators/proprietors were liable to pay
utilities, telephone and telegraph, radio VAT, on top of the amusement tax
and television broadcasting and all other imposed by the 1991 LGC. The Supreme
franchise grantees except those under Court conceded that the enumeration of
Section 119 of this Code.” services subject to VAT under Section
[NOTE: Section 119 of the Tax Code 108 of the 1997 Tax Code was not
imposes a percentage tax, in the form of exhaustive. However, “lease of motion
a 3% franchise tax, on radio and picture films, films, tapes and discs” did
television broadcasting companies whose not equate to “showing or exhibition of
annual gross receipts do not exceed Php motion pictures or films.” SM Prime and
10 million. Such franchise holders, First Asia were not liable to pay VAT.
however, has the option of paying 3% [CIR v. SM Prime Holdings, Inc., GR No.
franchise tax or 12% VAT. On the other 183505, 26 Feb. 2010.]
hand, radio and television broadcasting
companies whose annual gross receipts ***** Sonza v. ABS-CBN Broadcasting
exceed Php 10 million are governed by Corporation differentiated between
Section 108 of the 1997 Tax Code. They services rendered pursuant to an
are liable to pay VAT, and do not have the employer-employee relationship and
option to choose between paying services rendered by an independent
franchise tax or VAT.] contractor pursuant to a contractual
ABS-CBN, being a broadcasting company relationship. Subsumed under the latter,
with yearly gross receipts exceeding Php professionals such as talent and
10 million, was found liable to pay VAT. television and radio broadcasters are
[Quezon City v. ABS-CBN Broadcasting liable to pay VAT.
Corporation, GR No. 166408, 6 Oct. [Sonza v. ABS-CBN Broadcasting
2008.] Corporation, GR No.138051, 10 June
2004.]
*** Section 108 of the 1997 Tax Code
defines “sale of services” as “the 108(B) Zero-Rated Sales of Services
performance of all kinds of services in the
Philippines for others for a fee, Q: What is the destination principle? Are there
remuneration or consideration,” including exceptions to the rule?
“supply of technical advice, assistance or
services rendered in connection with * According to CIR v. American Express
technical management or administration International, Inc.: “As a general rule, the
of any scientific, industrial or commercial VAT system uses the destination principle
undertaking, venture, project or scheme.” as a basis for the jurisdictional reach of
In the case of CIR v. CA, COMASERCO the tax. Goods and services are taxed
was a non-stock non-profit organization only in the country where they are
engaged in the sale of services of such consumed. Thus, exports are zero-rated,
nature. However, COMASERCO argued while imports are taxed.” The decision
TAX 2 SYLLABUS 10
DEAN LILY K. GRUBA
S/Y 2011-2012
proceeded to define “consumption” as
“the use of a thing in a way that thereby *** In CIR v. Burmeister and Wain
exhausts it.” Applied to services, it means Scandinavian Contractor Mindanao, Inc.,
“the performance or successful Burmeister was engaged in the actual
completion of a contractual duty, usually operation and management of two power
resulting in the performer’s release from barges in Mindanao. It claimed that its
any past or future liability.” transactions were subject to zero-rating
Exceptions to the destination principle are under Section 108(B)(2) of the 1997 Tax
found in Section 108(B) of the 1997 Tax Code. The Supreme Court denied
Code. They are deemed exceptions Burmeister’s claim on the ground that
because although the services are Section 108(B)(2) of the 1997 Tax Code
performed in the Philippines, upon additionally required that the payer-
compliance with certain requirements, the recipient of the services must be doing
sales of such services are zero-rated. business outside the Philippines. It ruled
[CIR v. American Express International, in this manner:
Inc. (Philippine Branch), GR No. 152609, “The Tax Code not only requires that the
29 June 2005.] services be other than ‘processing,
manufacturing or repacking of goods’ and
108(B)(1) Processing, Manufacturing, or that payment for such services be in
Repacking Goods for Other Persons Doing acceptable foreign currency accounted for
Business outside the Philippines in accordance with BSP rules. Another
essential condition for qualification to
108(B)(2) Services Other than Those zero-rating under Section 102(b)(2) is that
Mentioned in the Preceding Paragraph the recipient of such services is doing
business outside the Philippines. While
Q: Cite examples of services other than this requirement is not expressly stated in
“processing, manufacturing, or repacking of the second paragraph of Section 102(b),
goods.” this is clearly provided in the first
paragraph of Section 102(b) where the
* In CIR v. American Express listed services must be ‘for other
International, Inc., Amex Phils. facilitated persons doing business outside the
in the Philippines the collection and Philippines.’ The phrase “for other
payment of receivables belonging to its persons doing business outside the
Hong Kong-based foreign client, Amex Philippines” not only refers to the services
HK, and getting paid for it in acceptable enumerated in the first paragraph of
foreign currency and accounted for in Section 102(b), but also pertains to the
accordance with the rules and regulations general term “services” appearing in the
of the BSP. The Supreme Court ruled that second paragraph of Section 102(b). In
the facilitation services Amex Phils. short, services other than processing,
rendered in the Philippines fell under manufacturing, or repacking of goods
Section 108(B)(2) of the 1997 Tax Code. must likewise be performed for persons
[CIR v. American Express International, doing business outside the Philippines.”
Inc., GR No. 152609, 29 June 2005.] [NOTE: In relation to CIR v. American
Express International, Inc. and CIR v.
** In CIR v. Placer Dome Technical Placer Dome Technical Services
Services (Phils.) Inc., Placer Dome (Philippines), Inc. discussed above, said
Canada engaged the services of Placer cases stated that consumption of the
Dome Phils. to perform the clean-up and services abroad is not a requirement
rehabilitation of the Makalupnit and Boac for zero-rating. However, on the basis of
Rivers in Marinduque. Placer Dome Phils. CIR v. Burmeister & Wain Contractor
argued that its sale of services to Placer Mindanao, Inc., the payer-recipient of
Dome Canada was a zero-rated the services must be doing business
transaction under Section 108(B)(2) of the outside of the Philippines.]
1997 Tax Code. Citing CIR v. American [CIR v. Burmeister & Wain Scandinavian
Express International, Inc., the Supreme Contractor Mindanao, Inc., GR No.
Court upheld Placer Dome Phils.’ 153205, 22 Jan. 2007.]
argument.
[CIR v. Placer Dome Technical Services 108(B)(3) Zero-Rated Sales pursuant to
(Philippines), Inc., GR No. 164365, 8 Special Laws or International Agreements
June 2007.]
TAX 2 SYLLABUS 11
DEAN LILY K. GRUBA
S/Y 2011-2012
Q: Distinguish between zero-rated transactions leased a portion of its premises to
[e.g., Sec. 108(B)(1)-(2)] and effectively zero- PAGCOR for casino operations. It also
rated transactions [e.g., Sec. 108(B)(3)]. catered food and beverages to
PAGCOR’s casino patrons. The issue
* The case of CIR v. Seagate Technology was whether Acesite could refund the VAT
(Philippines) addressed this issue. It it paid on its rental income and sale of
stated that: food and beverages to PAGCOR. The
“Although both are taxable and similar in Supreme Court, pursuant to PAGCOR’s
effect, zero-rated transactions differ from charter (PD No. 1869 and all
effectively zero-rated transactions as to amendments thereto), found that
their source. Acesite’s sale of services to PAGCOR
Zero-rated transactions generally refer was zero-rated under Section 108(B)(3)
to the export sale of goods and supply of of the 1997 Tax Code.
services. The tax rate is set at zero. When [CIR v. Acesite (Philippines) Hotel
applied to the tax base, such rate Corporation, GR No. 147295, 16 Feb.
obviously results in no tax chargeable 2007.]
against the purchaser. The seller of such
transactions charges no output tax, but ** In the case of San Roque Power
can claim a refund of or a tax credit Corporation v. CIR, San Roque Power
certificate for the VAT previously charged Corporation was engaged in the sale of
by suppliers. electricity to NPC. The Supreme Court
Effectively zero-rated transactions, ruled that SRPC’s sale of service to NPC
however, refer to the sale of goods or was zero-rated, pursuant to NPC’s charter
supply of services to persons or entities and under Section 108(B)(3) of the 1997
whose exemption under special laws or Tax Code. It explained the rationale for
international agreements to which the the effective zero-rating of NPC in this
Philippines is a signatory effectively manner:
subjects such transactions to a zero rate. “It bears emphasis that effective zero-
Again, as applied to the tax base, such rating is not intended as a benefit to the
rate does not yield any tax chargeable person legally liable to pay the tax, such
against the purchaser. The seller who as petitioner, but to relieve certain exempt
charges zero output tax on such entities, such as the NPC, from the
transactions can also claim a refund of or burden of indirect tax so as to encourage
a tax credit certificate for the VAT the development of particular industries.
previously charged by suppliers.” Before, as well as after, the adoption of
The decision went on to say (under the the VAT, certain special laws were
subheading Zero Rating and Exemption): enacted for the benefit of various entities
“Applying the destination principle to the and international agreements were
exportation of goods, automatic zero entered into by the Philippines with
rating is primarily intended to be enjoyed foreign governments and institutions
by the seller who is directly and legally exempting sale of goods or supply of
liable for the VAT, making such seller services from indirect taxes at the level of
internationally competitive by allowing the their suppliers. Effective zero-rating was
refund or credit of input taxes that are intended to relieve the exempt entity from
attributable to export sales. Effective being burdened with the indirect tax which
zero rating, on the contrary, is intended is or which will be shifted to it had there
to benefit the purchaser who, not being been no exemption. In this case,
directly and legally liable for the payment petitioner is being exempted from paying
of the VAT, will ultimately bear the burden VAT on its purchases to relieve NPC of
of the tax shifted by the suppliers.” the burden of additional costs that
(Emphasis supplied.) petitioner may shift to NPC by adding to
[CIR v. Seagate Technology (Philippines), the cost of the electricity sold to the
GR No. 153866, 11 Feb. 2005.] latter.”
[San Roque Power Corporation v. CIR,
Q: Give examples of effectively zero-rated GR No. 180345, 25 Nov. 2009.]
sales of services pursuant to special laws.
108(B)(4) Sale of Services to Persons
* In CIR v. Acesite (Philippines) Hotel Engaged in International Shipping or Air
Corporation, Acesite was the operator of Transport Operations
Holiday Inn Manila Pavilion Hotel. It
TAX 2 SYLLABUS 12
DEAN LILY K. GRUBA
S/Y 2011-2012
108(B)(5) Sale of Services for Export- [Misamis Oriental Association of Coco
Oriented Enterprise Traders, Inc. v. DOF, GR No. 108524, 10
Nov. 1994.]
108(B)(6) Transport of Passengers and
Cargo by Air or Seal Vessels from the 109(G) Medical, Dental, Hospital, and
Philippines to a Foreign Country Veterinary Services, except Those
Rendered by Professionals
108(B)(7) Sale of Power Generated through
Renewable Sources of Energy * Section 109(G) of the Tax Code
provides that transactions involving
Sec. 109, Exempt Transactions medical, dental, hospital, and veterinary
services are VAT-exempt transactions. In
Q: Distinguish between an exempt transaction the case of CIR v. Philippine Health Care
and an exempt party. Providers, Inc., it was found that
Philippine Health Care Providers, Inc. did
* CIR v. Seagate Technology (Philippines) not render medical, dental, hospital, and
made a distinction between exempt veterinary services, but merely arranged
transaction exempt party in this wise: for the same. Hence, its services were not
“An exempt transaction, on the one VAT-exempt.
hand, involves goods or services which, [CIR v. Philippine Health Care Providers,
by their nature, are specifically listed in Inc., GR No. 168129, 24 Apr. 2007.]
and expressly exempted from the VAT
under the Tax Code, without regard to the 109(I) Services Rendered by Individuals
tax status -- VAT-exempt or not -- of the pursuant to an Employer-Employee
party to the transaction. Indeed, such Relationship
transaction is not subject to the VAT, but
the seller is not allowed any tax refund of * Sonza v. ABS-CBN Broadcasting
or credit for any input taxes paid. Corporation differentiated between
An exempt party, on the other hand, is a services rendered pursuant to an
person or entity granted VAT exemption employer-employee relationship (which is
under the Tax Code, a special law or an an exempt transaction) and services
international agreement to which the rendered by an independent contractor
Philippines is a signatory, and by virtue of pursuant to a contractual relationship
which its taxable transactions become (which is subject to VAT). The Supreme
exempt from the VAT. Such party is also Court ruled that Sonza was an
not subject to the VAT, but may be independent contractor. As such, he was
allowed a tax refund of or credit for input subject to VAT on the services that he
taxes paid, depending on its registration rendered.
as a VAT or non-VAT taxpayer.” [Sonza v. ABS-CBN Broadcasting
(Emphasis supplied.) Corporation, GR No.138051, 10 June
[CIR v. Seagate Technology (Philippines), 2004.]
GR No. 153866, 11 Feb. 2005.]
109(K) Transactions Which are Exempt
Q: Give examples of exempt transactions. under International Agreements to Which
the Philippines is a Signatory or under
109(A) Sale or Importation of Agricultural Special Laws, except Those under PD No.
and Marine Food Products in Their Original 529
State
* In Philippine Amusement & Gaming
* Misamis Oriental Association of Coco Corporation v. CIR, the Supreme Court
Traders, Inc. v. DOF interpreted the held that PAGCOR was exempt from
provisions of the 1977 Tax Code. payment of VAT. It cited, among others,
However, it is instructive as to the issue of the VAT exemption of PAGCOR’s
who determines or classifies a certain transactions by virtue of its charter (PD
product, i.e., whether it is food or non- No. 1869 and all amendments thereto) in
food. According to the decision, as relation to Section 109(K) of the 1997 Tax
between the Bureau of Food and Drug Code.
and the Bureau of Internal Revenue, the [Philippine Amusement & Gaming
classification made by the latter would Corporation v. CIR, GR No. 172087, 15
prevail. Mar. 2011.]
TAX 2 SYLLABUS 13
DEAN LILY K. GRUBA
S/Y 2011-2012
attributable to the purchase of capital
109(U) Services of Banks, Non-Bank goods or to zero-rated sales, by filing a
Financial Intermediaries Performing Quasi- claim for a refund or tax credit with the
Banking Functions, and Other Non-Bank BIR.
Financial Intermediaries Simply stated, a taxpayer subject to 10%
output VAT on its sales of goods and
* Section 109(U) of the 1997 Tax Code services may recover its input VAT costs
provides that transactions involving by passing on said costs as output VAT to
services rendered by banks, non-bank its buyers of goods and services but it
financial intermediaries performing quasi- cannot claim the same as a refund or tax
banking functions, and other non-bank credit, while a taxpayer subject to 0% on
financial intermediaries shall be VAT- its sales of goods and services may only
exempt. The case of First Planters recover its input VAT costs by filing a
Pawnshop, Inc. v. CIR pertained to a refund or tax credit with the BIR.”
taxable period prior to the adoption of the [CIR v. Benguet Corporation, GR No.
present wording of Section 109(U) of the 145559, 14 July 2006.]
1997 Tax Code. However, the decision is
relevant in that it discussed the tax 110(B) Excess Output or Input Tax
treatment of a pawnshop business. The
Supreme Court held that pawnshops are 110(C) Determination of Creditable Input
non-bank financial intermediaries. Tax
[First Planters Pawnshop, Inc. v. CIR, GR
No. 174134, 30 July 2008.] Sec. 111, Transitional/Presumptive Input
Tax Credits
Sec. 110, Tax Credits
111(A) Transitional Input Tax Credits
110(A) Creditable Input Tax
111(B) Presumptive Input Tax Credits
Q: Distinguish between “input tax” and “output
tax.” Sec. 112, Refunds or Tax Credits of Input
Tax
* The case of CIR v. Benguet Corporation
defined “input tax” and “output tax.” 112(A) Zero-Rated or Effectively Zero-Rated
“Input VAT or input tax represents the Sales
actual payments, costs and expenses
incurred by a VAT-registered taxpayer in Q: Distinguish between zero-rated transactions
connection with his purchase of goods [e.g., Sec. 108(B)(1)-(2)] and effectively zero-
and services. Thus, "input tax" means rated transactions [e.g., Sec. 108(B)(3)].
the value-added tax paid by a VAT-
registered person/entity in the course * The case of CIR v. Seagate Technology
of his/its trade or business on the (Philippines) addressed this issue. It
importation of goods or local stated that:
purchases of goods or services from a “Although both are taxable and similar in
VAT-registered person. effect, zero-rated transactions differ from
On the other hand, when that person or effectively zero-rated transactions as to
entity sells his/its products or services, their source.
the VAT-registered taxpayer generally Zero-rated transactions generally refer
becomes liable for 10% of the selling to the export sale of goods and supply of
price as output VAT or output tax. Hence, services. The tax rate is set at zero. When
"output tax" is the value-added tax on applied to the tax base, such rate
the sale of taxable goods or services obviously results in no tax chargeable
by any person registered or required against the purchaser. The seller of such
to register under Section 107 of the transactions charges no output tax, but
(old) Tax Code. can claim a refund of or a tax credit
The VAT system of taxation allows a VAT- certificate for the VAT previously charged
registered taxpayer to recover its input by suppliers.
VAT either by (1) passing on the 10% Effectively zero-rated transactions,
output VAT on the gross selling price or however, refer to the sale of goods or
gross receipts, as the case may be, to its supply of services to persons or entities
buyers, or (2) if the input tax is whose exemption under special laws or
TAX 2 SYLLABUS 14
DEAN LILY K. GRUBA
S/Y 2011-2012
international agreements to which the (9) where there are both zero-rated or
Philippines is a signatory effectively effectively zero-rated sales and taxable or
subjects such transactions to a zero rate. exempt sales, and the input taxes cannot
Again, as applied to the tax base, such be directly and entirely attributable to any
rate does not yield any tax chargeable of these sales, the input taxes shall be
against the purchaser. The seller who proportionately allocated on the basis of
charges zero output tax on such sales volume.
transactions can also claim a refund of or [Intel Technology Philippines, Inc. v. CIR,
a tax credit certificate for the VAT GR No. 166732, 27 Apr. 2007; San
previously charged by suppliers.” Roque Power Corporation v. CIR, GR No.
The decision went on to say (under the 180345, 25 Nov. 2009.]
subheading Zero Rating and Exemption):
“Applying the destination principle to the Q: In claims for VAT refund/credit, what is the
exportation of goods, automatic zero reckoning point for the two-year prescriptive
rating is primarily intended to be enjoyed period?
by the seller who is directly and legally
liable for the VAT, making such seller * In 2007, the Supreme Court
internationally competitive by allowing the promulgated its decision in Atlas
refund or credit of input taxes that are Consolidated Mining and Development
attributable to export sales. Effective Corporation v. CIR which essentially held
zero rating, on the contrary, is intended that in claims for VAT refund/credit, the
to benefit the purchaser who, not being prescriptive period for filing administrative
directly and legally liable for the payment and judicial claims shall be two years
of the VAT, will ultimately bear the burden reckoned from the date of filing of the
of the tax shifted by the suppliers.” VAT quarterly return.
(Emphasis supplied.) A year later, in the highly publicized case
[CIR v. Seagate Technology (Philippines), of CIR v. Mirant Pagbilao Corporation, the
GR No. 153866, 11 Feb. 2005.] Supreme Court changed its mind and
ruled that the two-year prescriptive period
Q: What are the requirements for a claim for in claims for VAT refund/credit must be
VAT refund/credit? counted not from the date of filing of the
VAT quarterly return, but from the close
* The cases of Intel Technology of the taxable quarter when the
Philippines, Inc. v. CIR and San Roque relevant sales were made.
Power Corporation v CIR enumerated the [Atlas Consolidated Mining and
requirements, thus: Development Corporation v. CIR, GR
(1) the taxpayer is engaged in sales Nos. 141104 & 148763, 8 June 2007; CIR
which are zero-rated or effectively zero- v. Mirant Pagbilao Corporation, GR No.
rated; 172129, 12 Sept. 2008.]
(2) the taxpayer is VAT-registered;
(3) the claim must be filed within two 112(B) Cancellation of VAT Registration
years after the close of the taxable
quarter when such sales were made; 112(C) Period within which Refund or Tax
(4) the input taxes are due or paid; Credit of Input Taxes Shall Be Made
(5) the input taxes are not transitional
input taxes; Q: When are administrative and judicial claims
(6) the input taxes have not been applied for VAT refund/credit filed?
against output taxes during and in the
succeeding quarters; * In 2007, the Supreme Court
(7) the input taxes claimed are promulgated its decision in Atlas
attributable to zero-rated or effectively Consolidated Mining and Development
zero-rated sales; Corporation v. CIR which essentially held
(8) in certain types of zero-rated sales, that claims for VAT refund/credit must be
the acceptable foreign currency exchange filed within the two-year prescriptive
proceeds thereof had been duly period.
accounted for in accordance with BSP In 2010, the Supreme Court came out
rules and regulations [Sections 106(A)(2) with the controversial case of CIR v. Aichi
(a)(1) and (2); Section 106(B); Sections Forging Company of Asia, Inc. which
108(B)(1) and (2)]; and mandated compliance of administrative
and judicial claims with both the two-year
TAX 2 SYLLABUS 15
DEAN LILY K. GRUBA
S/Y 2011-2012
prescriptive period [Section 112(A)] and needed to substantiate a claim for tax
the 120-30 day period rule [Section refund proper.”
112(C)]. Otherwise, claims would be [AT&T Communications Services
adjudged as either filed out of time or Philippines, Inc. v. CIR, GR No. 182364, 3
prematurely filed. Aug. 2010.]
[Atlas Consolidated Mining and
Development Corporation v. CIR, GR *** On other hand, the case of Kepco
Nos. 141104 & 148763, 8 June 2007; CIR Philippines Corporation v. CIR made a
v. Aichi Forging Company of Asia, Inc., distinction between a VAT invoice and a
GR No. 184823, 6 Oct. 2010.] VAT receipt, such that only a VAT invoice
might be presented to substantiate a sale
112(D) Manner of Giving Refund of goods or properties, while only a VAT
receipt could substantiate a sale of
Sec. 113, Invoicing and Accounting services. Pertinent portion of the decision
Requirements for VAT-Registered Persons read:
“In other words, the VAT invoice is the
113(A) Invoicing Requirements seller’s best proof of the sale of the goods
or services to the buyer while the VAT
Q: Is there a difference between an invoice and receipt is the buyer’s best evidence of the
an official receipt? payment of goods or services received
from the seller. Even though VAT invoices
* CIR v. Manila Mining Corporation and receipts are normally issued by the
defined these terms, to wit: supplier/seller alone, the said invoices
“A ’sales or commercial invoice’ is a and receipts, taken collectively, are
written account of goods sold or services necessary to substantiate the actual
rendered indicating the prices charged amount or quantity of goods sold and
therefor or a list by whatever name it is their selling price (proof of transaction),
known which is used in the ordinary and the best means to prove the input
course of business evidencing sale and VAT payments (proof of payment). Hence,
transfer or agreement to sell or transfer VAT invoice and VAT receipt should not
goods and services. be confused as referring to one and the
A ‘receipt’ on the other hand is a written same thing. Certainly, neither does the
acknowledgment of the fact of payment in law intend the two to be used
money or other settlement between seller alternatively.”
and buyer of goods, debtor or creditor, or [Kepco Philippines Corporation v. CIR,
person rendering services and client or GR No. 181858, 24 Nov. 2010.]
customer.”
[CIR v. Manila Mining Corporation, GR 113(B) Information Contained in the VAT
No. 153204, 31 Aug. 2005.] Invoice or VAT Official Receipt

** In AT&T Communications Services * Section 113(B)(2)(c) of the 1997 Tax


Philippines, Inc. v. CIR, AT&T was Code provides that certain information
engaged in the business of providing must be indicated on the VAT invoice or
information, promotional, supportive, and VAT official receipt, and that “if the sale is
liaison services to foreign corporations. It subject to zero percent (0%) value-added
filed a claim for tax refund/credit for tax, the term ‘zero-rated sale’ shall be
alleged unutilized input VAT on said sales written or printed prominently on the
of services and presented sales invoices invoice or receipt.”
to substantiate the same. In giving The Bureau of Internal Revenue, the
credence to the sales invoices (not Divisions of the Court of Tax Appeals, the
necessarily official receipts), the Supreme Court of Tax Appeals En Banc, and the
Court said that: Supreme Court has conflicting opinions
“Sales invoices are recognized on whether the term “zero-rated sale”
commercial documents to facilitate trade must be written, stamped, or imprinted.
or credit transactions. They are proofs However, as enunciated in recent cases,
that a business transaction has been the term “zero-rated sale” must be
concluded, hence, should not be imprinted, and not merely written or
considered bereft of probative value. Only stamped. Otherwise, such claims for VAT
the preponderance of evidence threshold refund/credit substantiated by non-
as applied in ordinary civil cases is
TAX 2 SYLLABUS 16
DEAN LILY K. GRUBA
S/Y 2011-2012
conforming VAT invoices or VAT official
receipts shall be disallowed.
[Panasonic Communications Imaging
Corporation of the Philippines, GR No.
1708090, 8 Feb. 2010; JRA Philippines,
Inc. v. CIR, GR No. 177127, 11 Oct. 2010;
Hitachi Global Storage Technologies
Philippines Corporation v. CIR, GR No.
174212, 20 Oct. 2010; Microsoft
Philippines, Inc., v. CIR, GR No. 180173,
6 Apr. 2011.]

113(C) Accounting Requirements

113(D) Consequences of Issuing Erroneous


VAT Invoice or VAT Official Receipt

113(E) Transitional Period

Sec. 114, Return and Payment of Value-


Added Tax

114(A) In General

114(B) Where to File the Return and Pay the


Tax

114(C) Withholding of Value-Added Tax

Sec. 115, Power of the Commissioner to


Suspend the Business Operations of a
Taxpayer

TAX 2 SYLLABUS 17
DEAN LILY K. GRUBA
S/Y 2011-2012