CIR vs.

Magsayasay Lines
Gr no. 146984
Doctrine:
What Section 100 and Section 4(E)(i) of R.R. No. 5-87
elaborate on is not the meaning of "in the course of trade or
business," but instead the identification of the transactions which
may be deemed as sale.
If the transaction transpired outside the course of trade or
business, it would be irrelevant for the purpose of determining
VAT liability whether the transaction may be deemed sale, since it
anyway is not subject to VAT.
Facts:
Pursuant to a government program of privatization, NDC
decided to sell to private enterprise all of its shares in its whollyowned subsidiary the National Marine Corporation (NMC).
The NMC shares and the vessels were offered for public
bidding. Among the stipulated terms and conditions for the public
auction was that the winning bidder was to pay "a value added
tax of 10% on the value of the vessels." 3 On 3 June 1988, private
respondent Magsaysay Lines, Inc. (Magsaysay Lines) offered to
buy the shares and the vessels for P168,000,000.00.

Private respondents through counsel received VAT Ruling,

holding that the sale of the vessels was subject to the 10% VAT.
Ruling cited that NDC is VAT-registered enterprise, and thus its
"transactions incident to its normal VAT registered activity of
leasing out personal property including sale of its own assets that
are

movable,

tangible

objects

which

are

appropriable

or

transferable are subject to the 10% [VAT]." 7

Private respondents moved for the reconsideration of VAT
Ruling but it was denied.
CTA rejected the CIR's arguments and granted the petition.
The CTA ruled that the sale of a vessel was an "isolated
transaction," not done in the ordinary course of NDC's business,
and was thus not subject to VAT. The CIR appealed the CTA
Decision to the Court of Appeals, 10 which on 11 March 1997,
rendered a Decision reversing the CTA.
Issue:
W/n the sale was made in the ordinary course of its business
making it liable to 10% VAT?
Held:
"doing business" conveys the idea of business being done,
not from time to time, but all the time.
"Course of business" is what is usually done in the
management of trade or business.

What

is

clear

therefore,

based

on

the

aforecited

jurisprudence, is that "course of business" or "doing business"

connotes regularity of activity. In the instant case, the sale was an
isolated transaction. The sale which was involuntary and made
pursuant to the declared policy of Government for privatization
could no longer be repeated or carried on with regularity. It should
be emphasized that the normal VAT-registered activity of NDC is
leasing personal property
The fact that the sale was not in the course of the trade or
business of NDC is sufficient in itself to declare the sale as outside
the coverage of VAT.

CIR vs. Seagate Technology

Gr. No. 153866
Doctrine:
Business companies registered in and operating from the
Special

Economic

Zone

--

like

herein

respondent

--

are entities exempt from all internal revenue taxes and the
implementing rules relevant thereto, including the value-added
taxes

or

VAT.

Although

export

sales

are

not

exempt transactions, they are nonetheless zero-rated.

Terms to remember:
Zero-Rated and Effectively

deemed

Zero-Rated Transactions
Zero-rated transactions generally refer to the export sale of
goods and supply of services. The tax rate is set at zero. The
seller of such transactions charges no output tax, but can claim a
refund of or a tax credit certificate for the VAT previously charged
by suppliers.
Effectively zero-rated transactions, however, refer to the sale
of goods or supply of services to persons or entities whose
exemption under special laws or international agreements to
which the Philippines is a signatory effectively subjects such
transactions to a zero rate.
Zero Rating and Exemption:
In both instances of zero rating, there is total relief for the
purchaser from the burden of the tax. But in an exemption there
is only partial relief because the purchaser is not allowed any tax
refund of or credit for input taxes paid.
Exempt Transaction and Exempt Party
Exempt transaction are specifically listed in and expressly
exempted from the VAT under the Tax Code, without regard to the
tax status -- VAT-exempt or not -- of the party to the transactionseller is not allowed any tax refund of or credit for any input taxes
paid.

Exempt party, on the other hand, is a person or entity

granted VAT exemption under the Tax Code, a special law or an
international agreement to which the Philippines is a signatory,
and by virtue of which its taxable transactions become exempt
from the VAT.- allowed a tax refund of or credit for input taxes
paid, depending on its registration as a VAT or non-VAT taxpayer.

Facts:
[Respondent] is registered with the Philippine Export Zone
Authority (PEZA) and has been issued PEZA Certificate No. 97-044
pursuant to Presidential Decree No. 66, as amended, to engage in
the manufacture of recording components primarily used in
computers for export. Respondent is VAT [(Value Added Tax)]registered entity.
An administrative claim for refund of VAT input taxes in the
amount of P28,369,226.38 with supporting documents, was filed
on 4 October 1999 with Revenue District Office No. 83, Talisay
Cebu. No final action has been received by [respondent] from
[petitioner] on [respondents] claim for VAT refund.
Tax Court rendered a decision granting the claim for refund.
The CA affirmed the Decision of the CTA granting the claim for

refund or issuance of a tax credit certificate (TCC) in favor of

respondent.
The appellate court reasoned that respondent had availed
itself only of the fiscal incentives under Executive Order No. (EO)
226 (otherwise known as the Omnibus Investment Code of 1987),
not of those under both Presidential Decree No. (PD) 66,

as

amended, 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 percent
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.

Issue:
W/N respondent is entitled to a tax refund or credit
representing alleged unutilized input VAT paid on capital goods
purchased for the period April 1, 1998 to June 30, 1999?
Held:
Having determined that respondents purchase transactions
are subject to a zero VAT rate, the tax refund or credit is in order.
Respondent complied with all the requisites for claiming a
VAT refund or credit. First, respondent is a VAT-registered

entity. Second, the input taxes paid on the capital goods of

respondent are duly supported by VAT invoices and have not been
offset against any output taxes. There was a very clear intent on
the part of our legislators, not only to exempt investors in
ecozones from national and local taxes, but also to grant them tax
credits.
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

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.
Microsoft Philippines vs. CIR
Gr no. 180173

Doctrine:
Sec.

4.108-1.

Invoicing

Requirements.

All

VAT-

registered persons shall, for every sale or lease of goods or

properties or services, issue duly registered receipts or sales or

commercial invoices which must show among others:
5. the word "zero-rated" imprinted on the invoice
covering zero-rated sales;
Only VAT-registered persons are required to print their TIN
followed by the word "VAT" in their invoices or receipts and this
shall be considered as a "VAT invoice." All purchases covered by
invoices other than a "VAT invoice" shall not give rise to any input
tax.
SEC. 113. Invoicing and Accounting Requirements for VATRegistered Persons.
(A) Invoicing Requirements. A VAT-registered person shall, for
every sale, issue an invoice or receipt. In addition to the
information required under Section 237, the following information
shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed
by his taxpayer's identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to
pay to the seller with the indication that such amount includes the
value-added tax. x x x

Facts:

Petitioner Microsoft Philippines, Inc. (Microsoft) is a valueadded tax (VAT) taxpayer duly registered with the Bureau of
Internal Revenue (BIR). Microsoft renders marketing services to
Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc.
(MLI), both affiliated non-resident foreign corporations. The
services are paid for in acceptable foreign currency and qualify as
zero-rated sales for VAT purposes under Section 108(B)(2) of the
National Internal Revenue Code (NIRC) of 1997.
For the year 2001, Microsoft yielded total sales in the
amount of P261,901,858.99. On 27 December 2002, Microsoft
filed an administrative claim for tax credit of VAT input taxes in
the amount ofP11,449,814.99 with the BIR.
In a Decision dated 31 August 2006, the CTA Second Division
denied the claim for tax credit of VAT input taxes. The CTA stated
that Microsoft's official receipts do not bear the imprinted word
"zero-rated" on its face, thus, the official receipts cannot be
considered as valid evidence to prove zero-rated sales for VAT
purposes.
Issue:
The main issue is whether Microsoft is entitled to a claim for
a tax credit or refund of VAT input taxes on domestic purchases of
goods or services attributable to zero-rated sales for the year
2001 even if the word "zero-rated" is not imprinted on Microsoft's
official receipts.

Held:
A tax credit or refund, like tax exemption, is strictly
construed against the taxpayer. 9 The taxpayer claiming the tax
credit or refund has the burden of proving that he is entitled to
the refund or credit.
The invoicing requirements for a VAT-registered taxpayer as
provided in the NIRC and revenue regulations are clear. A VATregistered taxpayer is required to comply with all the VAT
invoicing requirements to be able to file a claim for input taxes on
domestic purchases for goods or services attributable to zerorated sales.
In Panasonic v. Commissioner of Internal Revenue, 12 we held
that the appearance of the word "zero-rated" on the face of
invoices covering zero-rated sales prevents buyers from falsely
claiming input VAT from their purchases when no VAT is actually
paid. Absent such word, the government may be refunding taxes
it did not collect.

CIR vs. Sony Philippines

Gr no.178697
Doctrine:
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.
*SIS-Sony Singapore
Facts:
On

November

24,

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. On December 6, 1999, a preliminary assessment for 1997
deficiency taxes and penalties was issued by the CIR which Sony
protested.
Sony

sought

re-evaluation

of

the

aforementioned

assessment by filing a protest on February 2, 2000.

After trial, the CTA-First Division disallowed the deficiency
VAT assessment because the subsidized advertising expense paid
by Sony which was duly covered by a VAT invoice resulted in an
input VAT credit.
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.
CTA-First Division denied the motion for reconsideration.
Issue:
W/n petitioner is liable for deficiency value added tax?

Held:
NO. advertising expense paid by Sony which was duly
covered by a VAT invoice resulted in an input VAT credit.
The fact that due to adverse economic conditions, SonySingapore has granted Sony Philippines a subsidy equivalent to
the latters advertising expenses will not affect the validity of the
input taxes from such expenses. Thus, at the most, this is an
additional income subject to income tax. We submit further that it
is not subject to VAT on the subsidy income as this was not
derived from the sale of goods or services.
Thus, 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.
Court had the occasion to rule that services rendered for a
fee even on reimbursement-on-cost basis only and without
realizing profit are also subject to VAT. This is not true in the
present case. Sony did not render any service to SIS at all. The
services rendered by the advertising companies, paid for by Sony
using SIS dole-out, were for Sony and not SIS. SIS just gave
assistance to Sony in the amount equivalent to the latters
advertising expense but never received any goods, properties or
service from Sony.