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GUIDE NOTES ON VALUE-ADDED TAX and imports.

VALUE-ADDED TAX  For example, when a seller charges VAT on its sale, it issues an invoice to the
buyer, indicating the amount of VAT he charged.
Q. WHAT IS THE NATURE AND CONCEPT OF VALUE-ADDED TAXES?  For his part, if the buyer is also a seller subjected to the payment of VAT on his
sales, he can use the invoice issued to him by his supplier to get a reduction of
* VAT is a percentage tax. There is a percentage fixed by law which will be applied to his own VAT liability.
the gross selling price in order to arrive to the VAT to be paid.  The difference in tax shown on invoices passed and invoices received is the tax
paid to the government.
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] is a case  In case the tax on invoices received exceeds that on invoices passed, a tax
on a claim for tax refund/credit of alleged unutilized input VAT paid on capital goods refund may be claimed.”
for the period 1 April 1998 to 30 June 1999. It explained the concept of a value-
added tax, thus: Q: DEFINE AND DIFFERENTIATE INPUT TAX AND OUTPUT TAX.

Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 12% The case of CIR v. Benguet Corporation defined “input tax” and “output tax.”
levied on every importation of goods, whether or not in the course of trade or Input tax Output tax
business, or imposed on each sale, barter, exchange or lease of goods or properties Input VAT or input tax represents the When that person or entity sells his/its
or on each rendition of services in the course of trade or business as they pass along actual payments, costs and expenses products or services, the VAT-registered
the production and distribution chain, the tax being limited only to the value added incurred by a VAT-registered taxpayer in taxpayer generally becomes liable for
to such goods, properties or services by the seller, transferor or lessor. connection with his purchase of goods 12% of the selling price as output VAT or
and services output tax.
It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee Hence, "output tax" is the value-added
of the goods, properties or services. As such, it should be understood not in the Thus, "input tax" means the value- tax on the sale of taxable goods or
context of the person or entity that is primarily, directly and legally liable for its added tax paid by a VAT-registered services by any person registered or
payment, but in terms of its nature as a tax on consumption. person/entity in the course of his/its required to register under Section 107
trade or business on the importation of the (old) Tax Code.
Situations that may arise: (General Principles) of goods or local purchases of goods
or services from a VAT-registered
1. If at the end of a taxable quarter the output taxes charged by a seller are person
equal to the input taxes passed on by the suppliers, no payment is
required. Q: HOW CAN A VAT-REGISTERED TAXPAYER RECOVER ITS INPUT VAT?
2. If at the end of a taxable quarter, the output taxes exceed the input taxes,
the excess has to be paid by the seller. The VAT system of taxation allows a VAT-registered taxpayer to recover its input VAT
3. If the input taxes exceed the output taxes, the excess shall be carried over to the either by
succeeding quarter or quarters
4. If the input taxes result from zero-rated or effectively zero-rated transactions (1) passing on the 12% output VAT on the gross selling price or gross receipts, as the
or from acquisition of capital goods any excess over the output taxes shall case may be, to its buyers, or
be refunded to the taxpayer or credited against other internal revenue taxes.
(2) if the input tax is attributable to the purchase of capital goods or to zero-rated
sales, by filing a claim for a refund or tax credit with the BIR.
* Citing CIR v. Seagate Technology (Philippines), the case of Panasonic
Communications Imaging Corporation of the Philippines v. CIR explained value-added Simply stated, a taxpayer subject to 12% output VAT on its sales of goods and
tax in this wise: services may recover its input VAT costs by passing on said costs as output VAT to its
buyers of goods and services but it cannot claim the same as a refund or tax credit,
“The VAT is a tax on consumption, an indirect tax that the provider of goods or while a taxpayer subject to 0% on its sales of goods and services may only recover its
services may pass on to his customers. input VAT costs by filing a refund or tax credit with the BIR.

Under the VAT method of taxation, which is invoice-based, an entity can subtract Q: Illustrate input tax, output tax and VAT payable
from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs
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DEAN LILY K. GRUBA
S/Y 2011-2012
X Corp, manufacturer, sold goods to Y, a retailer, for 100,000 plus vat of 12,000 (so Y organization (irrespective of the disposition of its net income and whether or not it sells
bought it for 112,000) Then, Y resold the goods to Z, end-consumer for 150,000 plus exclusively to members or their guests), or government entity.
VAT of 18,000 (so Z bought it for 168,000)
The rule of regularity, to the contrary notwithstanding, services as defined in this Code
On the part of Y, the retailer, rendered in the Philippines by nonresident foreign persons shall be considered as being course
of trade or business.
-His INPUT TAX is 12,000 because this tax was passed on to him when he bought
goods from X Corp. Q: UNDER 1ST PARAGRAPH OF SEC 105, WHAT ARE THE VAT-ABLE TRANSACTIONS?
[SALE, IMPORTATION AND SERVICES]
-His OUTPUT TAX is 18,000 because this is the tax he passed on to Z.
1. Sale, barter, exchange of goods or properties
-In this case, Y will pay for/ultimately be liable for the vat of 6,000 on the sale because 2. Transactions deemed sale
the output tax is greater than the input tax. (see 2nd situation in first page) 3. Importation of goods [does not have to be exercised in the ordinary
course of business]
Q: Illustrative problem (Co-Untian) 4. Sale of services and use or lease of properties
X is a VAT registered person. He bought goods from Y for 12,500, exclusive of VAT. X Q: UNDER PAR 2, VAT IS AN INDIRECT TAX. DISTINGUISH BETWEEN LIABILITY FOR THE TAX
then sold these goods to consumer Z for 15,000, exclusive of the VAT AND BURDEN OF THE TAX.

(a) How much is the VAT payable by X to the BIR? * The case of Contex Corporation v. CIR made a distinction between the two
concepts. It provided [[Contex Corporation v. CIR, GR No. 151135, 2 July 2004.]
X’s purchase has an input tax of 1,500 (12,500 x 12%) and his re-sale
transaction has an output tax of 1,800 (15,000 x 12%) The VAT payable by X At this juncture, it must be stressed that the VAT is an indirect tax. As such, the
is the difference of the output tax and the input tax thus it is 300 (1800-1500) amount of tax paid on the goods, properties or services bought, transferred, or leased
may be shifted or passed on by the seller, transferor, or lessor to the buyer,
(b) How much can X claim as a tax credit? transferee or lessee.
X may claim the 1,500 input tax on his purchase as a tax credit. This is why Unlike a direct tax, such as the income tax, which primarily taxes an individual’s ability
it was deducted from 1,800. to pay based on his income or net wealth, an indirect tax, such as the VAT, is a tax
on consumption of goods, services, or certain transactions involving the same.
(c) Can Z claim a tax credit? The VAT, thus, forms a substantial portion of consumer expenditures.
No. He is the end-consumer. He ultimately bears the tax burden.  Further, in indirect taxation, there is a need to distinguish between the liability for
the tax and the burden of the tax.
SEC. 105. Persons Liable. –  As earlier pointed out, the amount of tax paid may be shifted or passed on by the
seller to the buyer.
Any person who, in the course of trade or business, sells barters, exchanges, leases goods or o
What is transferred in such instances is not the liability for the tax,
properties, renders services, and any person who imports goods shall be subject to the value- but the tax burden.
added tax (VAT) imposed in Sections 106 to 108 of this Code. o
In adding or including the VAT due to the selling price, the seller remains
the person primarily and legally liable for the payment of the tax. What is
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the shifted only to the intermediate buyer and ultimately to the final
buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to purchaser is the burden of the tax.
existing contracts of sale or lease of goods, properties or services at the time of the effectivity  Stated differently, a seller who is directly and legally liable
of Republic Act No. 7716. for payment of an indirect tax, such as the VAT on goods
or services is not necessarily the person who ultimately
The phrase 'in the course of trade or business' means the regular conduct or pursuit of a bears the burden of the same tax.
commercial or an economic activity, including transactions incidental thereto, by any person  It is the final purchaser or consumer of such goods or
regardless of whether or not the person engaged therein is a non-stock, nonp-rofit private services who, although not directly and legally liable for

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DEAN LILY K. GRUBA
S/Y 2011-2012
the payment thereof, ultimately bears the burden of the these goods or services who in turn may credit their own VAT liability (or input
tax. VAT) from the VAT payments they receive from the final consumer (or output
VAT).
Q: WHAT IS MEANT BY “IN THE COURSE OF TRADE OR BUSINESS”?  The final purchase by the end consumer represents the final link in a production
chain that itself involves several transactions and several acts of consumption.
* The case of CIR v. Magsaysay Lines, Inc GR No. 146984. involved the sale by the  The VAT system assures fiscal adequacy through the collection of taxes on every
National Development Company of five of its vessels to Magsaysay Lines, Inc. The level of consumption, yet assuages the manufacturers or providers of goods and
issue was whether such sale was within the coverage of VAT. The Supreme Court services by enabling them to pass on their respective VAT liabilities to the next
found that the sale of the vessels was not in the ordinary course of trade or business. link of the chain until finally the end consumer shoulders the entire tax liability.
As such, the transaction was outside the coverage of VAT.  Yet VAT is not a singular-minded tax on every transactional level. Its
assessment bears direct relevance to the taxpayer’s role or link in the
production chain. Hence, as affirmed by Section 99 of the Tax Code and its
That the sale of the vessels was not in the ordinary course of trade or business of subsequent incarnations, the tax is levied only on the sale, barter or
NDC was appreciated by both the CTA and the Court of Appeals, the latter doing so exchange of goods or services by persons who engage in such activities,
even in its first decision which it eventually reconsidered. We cite with approval the in the course of trade or business.
CTA’s explanation on this point: o These transactions outside the course of trade or business may
invariably contribute to the production chain, but they do so only as a
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 matter of accident or incident.
(97 Phil. 992), the term "carrying on business" does not mean the performance of a o As the sales of goods or services do not occur within the course of trade
single disconnected act, but means conducting, prosecuting and continuing business or business, the providers of such goods or services would hardly, if at
by performing progressively all the acts normally incident thereof; while "doing all, have the opportunity to appropriately credit any VAT liability as
business" conveys the idea of business being done, not from time to time, but all the against their own accumulated VAT collections since the accumulation
time. of output VAT arises in the first place only through the ordinary course of
trade or business)
"Course of business" is what is usually done in the management of trade or
business. ** In the case of CIR v. CA, COMASERCO, being a non-stock non-profit organization,
contended that it was operating on a reimbursement-of-cost basis, that its
What is clear therefore, based on the aforecited jurisprudence, is that "course of operations were not profit-oriented and not “in the course of trade of business,”
business" or "doing business" connotes regularity of activity. In the instant case, the and that therefore, it was not liable to pay VAT. The Supreme Court held that Section
sale was an isolated transaction. The sale which was involuntary and made 105 of the 1997 Tax Code was clear and unambiguous in stating that even non-stock
pursuant to the declared policy of Government for privatization could no longer non-profit organizations were liable to pay VAT on the sale of goods or services.
be repeated or carried on with regularity. It should be emphasized that the normal
VAT-registered activity of NDC is leasing personal property. ***N.B. Booch Difference of CIR v. Magsaysay v. CIR v. CA, Comaserco:

This finding is confirmed by the Revised Charte of the NDC which bears no indication
that the NDC was created for the primary purpose of selling real property.
SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

The conclusion that the sale was not in the course of trade or business, which the CIR (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter
does not dispute before this Court should have definitively settled the matter. Any or exchange of goods or properties, value-added tax equivalent to twelve percent (12%) of the
sale, barter or exchange of goods or services not in the course of trade or gross selling price or gross value in money of the goods or properties sold, bartered or
business is not subject to VAT. exchanged, such tax to be paid by the seller or transferor.

The decision contained an explanation of VAT, to wit: (1) The term 'goods' or 'properties' shall mean all tangible and intangible objects which
are capable of pecuniary estimation and shall include:
 A brief reiteration of the basic principles governing VAT is in order. VAT is
ultimately a tax on consumption, even though it is assessed on many levels of (a) Real properties held primarily for sale to customers or held for lease in the ordinary course
transactions on the basis of a fixed percentage. of trade or business;
 It is the end user of consumer goods or services which ultimately shoulders the
tax, as the liability therefrom is passed on to the end users by the providers of
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DEAN LILY K. GRUBA
S/Y 2011-2012
(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula or currency and accounted for in accordance with the rules and regulations of the Bangko Sentral
process, goodwill, trademark, trade brand or other like property or right; ng Pilipinas (BSP);

(c) The right or the privilege to use in the Philippines of any industrial, commercial or (3) Sale of raw materials or packaging materials to export-oriented enterprise whose export
scientific equipment; sales exceed seventy percent (70%) of total annual production;

(d) The right or the privilege to use motion picture films, tapes and discs; and (4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(e) Radio, television, satellite transmission and cable television time. (5) Those considered export sales under Executive Order NO. 226, otherwise known as the
Omnibus Investment Code of 1987, and other special laws.
The term 'gross selling price' means the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or Q: DISTINGUISH BETWEEN VAT RATING AND ZERO-RATING.
exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on
such goods or properties shall form part of the gross selling price. * The case of CIR v. Benguet Corporation explained VAT rating vis-as-vis zero-rating
in principle, as well as by way of illustration, to wit:
Q: WHAT IS A “SALE OF GOODS OR PROPERTIES”?
 In transactions taxed at a 12% rate (VAT rating), when at the end of any given
* In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of several taxable quarter the output VAT exceeds the input VAT, the excess shall be paid to
advertising companies. the government; when the input VAT exceeds the output VAT, the excess would
be carried over to VAT liabilities for the succeeding quarter or quarters.
Due to Sony Philippines’ dire economic conditions, Sony International Singapore  On the other hand, transactions which are taxed at zero-rate do not result in
handed Sony Philippines a dole-out to answer for the expenses payable to the any output tax. Input VAT attributable to zero-rated sales could be refunded or
advertising companies. Sony Philippines was thereafter assessed deficiency VAT for credited against other internal revenue taxes at the option of the taxpayer.
the transaction, i.e., dole-out, between Sony International Singapore and Sony
Philippines. The Supreme Court ruled that the dole-out or subsidy from the To illustrate, in a zero-rated transaction, when a VAT-registered person (“taxpayer”)
Singaporean company to the Philippine company neither constituted a sale of purchases materials from his supplier at P80.00, P7.30 of which was passed on to
goods or properties, nor a sale of services. Hence, Sony Philippines was not liable him by his supplier as the latter’s 10% output VAT, the taxpayer is allowed to
to pay VAT on the same. recover P7.30 from the BIR, in addition to other input VAT he had incurred in relation
to the zero-rated transaction, through tax credits or refunds.
[CIR v. Sony Philippines, Inc., GR No. 178697, 17 Nov. 2010.]
When the taxpayer sells his finished product in a zero-rated transaction, say, for
106(A)(2) Zero-Rated Sales of Goods P110.00, he is not required to pay any output VAT thereon. In the case of a
transaction subject to 10% VAT, the taxpayer is allowed to recover both the input
VAT of P7.30 which he paid to his supplier and his output VAT of P2.70 (10% the
(2) The following sales by VAT-registered persons shall be subject to zero percent (0%)
P30.00 value he has added to the P80.00 material) by passing on both costs to the
rate:
buyer. Thus, the buyer pays the total 10% VAT cost, in this case P10.00 on the
product.
(a) Export Sales. - The term 'export sales' means:
[CIR v. Benguet Corporation, GR Nos. 134587 & 134588, 8 July 2005.]
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
Q: DISTINGUISH BETWEEN VAT EXEMPTION AND ZERO-RATING.
determine the transfer of ownership of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance with
The case of Contex Corporation v. CIR enumerated two ways by which a transaction
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
could have preferential treatment under the VAT system, namely: (1) VAT exemption;
and (2) zero-rating.
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing or
Exemptions from VAT are granted by express provision of the Tax Code or special
repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign
laws. Under VAT, the transaction can have preferential treatment in the following
ways:
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DEAN LILY K. GRUBA
S/Y 2011-2012
The seller of such transactions charges against the purchaser.
no output tax, but can claim a refund of
Vat Exempt Sales (Vat-Exempt) Zero Rated Sales (Zero Rating) or a tax credit certificate for the VAT The seller who charges zero output tax
Simply put, the VAT is removed at the These are sales by VAT-registered previously charged by suppliers on such transactions can also claim a
exempt stage (e.g. point of the sale, persons which are subject to 0% rate, refund of or a tax credit certificate for the
barter, etc) meaning the tax burden is not passed on VAT previously charged by suppliers.”
to the purchaser.
A zero-rated sale or transaction by a VAT- Applying the destination principle to the Effective zero rating, on the contrary, is
registered person, which is a taxable exportation of goods, automatic zero intended to benefit the purchaser who,
transaction for VAT purposes, does not rating is primarily intended to be enjoyed not being directly and legally liable for the
result in any output tax (still a taxable by the seller who is directly and legally payment of the VAT, will ultimately bear
transaction) liable for the VAT, making such seller the burden of the tax shifted by the
internationally competitive by allowing the suppliers
A VAT-Registered purchaser of VAT- The input VAT on the purchases of a refund or credit of input taxes that are
exempt goods/properties/services which VAT-registered person with zero-rated attributable to export sales.
are exempt from VAT is not entitled to sales may be allowed as tax credits or
any input tax on such purchase. refunded 106(A)(2)(a) Export Sales
The seller of exempt goods properties or Q: What is the cross-border doctrine?
services shall not bill any output tax.
Exemption only removes the VAT at the Under zero-rating, all VAT is removed * According to CIR v. Toshiba Information Equipment (Phils.), Inc., the Philippines
exempt stage, and it will actually from the zero-rated goods, activity or firm adheres to the cross-border doctrine which means that “no VAT shall be imposed to
increase, rather than reduce the total form part of the cost of goods destined for consumption outside of the
taxes paid by the exempt firm’s [In] zero rating, there is total relief for the territorial border of the taxing authority.
business or non-retail customers. purchaser from the burden of the tax
Hence:
There is only partial relief because the
purchase is not allowed any tax  actual export of goods and services from the Philippines to a foreign country
refund or credit for input taxes paid. must be free of VAT;
 On the other hand, those destined for use or consumption within the Philippines
shall be imposed with ten percent (10%) [now 12%] VAT.
Q: Distinguish between zero-rated transactions and effectively zero-rated  Additionally, sales made by an enterprise within a non-ECOZONE territory, i.e.,
transactions. Customs Territory, to an enterprise within an ECOZONE territory shall be free of
VAT.
The case of CIR v. Seagate Technology (Philippines) addressed this issue. It stated
that the difference is primarily as to their source. [CIR v. Toshiba Information Equipment (Phils.), Inc., GR No. 150154, 9 Aug. 2005.]
Zero-Rated Effectively Zero-Rated
Zero-rated transactions generally refer Effectively zero-rated transactions [[106(A)(2)(a)(1) Actual Shipment of Goods from the Philippines
to the export sale of goods and supply of refer to the sale of goods or supply of to a Foreign Country (ZRT): The sale and actual shipment of goods from the
services. services to persons or entities whose Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed
exemption under special laws or upon which may influence or determine the transfer of ownership of the goods so exported and
The tax rate is set at zero. international agreements to which the paid for in acceptable foreign currency or its equivalent in goods or services, and accounted
Philippines is a signatory effectively for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)]]
When applied to the tax base, such rate subjects such transactions to a zero rate.
obviously results in no tax chargeable Q: Give examples of export sales in the form of actual shipment of goods from
against the purchaser. Again, as applied to the tax base, such the Philippines to a foreign country.
rate does not yield any tax chargeable

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DEAN LILY K. GRUBA
S/Y 2011-2012
* Toshiba Information Equipment (Phils.), Inc. v. CIR is a claim for tax refund/credit of taxpayer is VAT-registered; (3) the claim must be filed within two years after the close
alleged unutilized input VAT on local purchases of goods and services which are of the taxable quarter when such sales were made; (4) the creditable input tax due or
attributable to export sales for the first and second quarters of 1997. [NOTE: This is paid must be attributable to such sales, except the transitional input tax, to the extent
different from the Toshiba Case previously cited.] that such input tax has not been applied against the output tax; and (5) in case of
zero-rated sales under Section 106(A)(2)(a)(1) and (2), Section 106(B), and Section
In the case at bar, the CIR, in the Joint Stipulation of Facts and Issues, admitted that 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had
Toshiba was a registered VAT entity and that it was subject to 0% VAT on its been duly accounted for in accordance with BSP rules and regulations. It is added
export sales. Later, in his Motion for Reconsideration of the adverse Court of Tax that, "where the taxpayer is engaged in zero-rated or effectively zero-rated sale and
Appeals decision, the CIR would argue that Toshiba was not entitled to its claim also in taxable or exempt sale of goods or properties or services, and the amount of
for tax refund/credit because it was VAT-exempt and its export sales were VAT- creditable input tax due or paid cannot be directly or entirely attributed to any one of
exempt transactions (CIR argued this way because if the export sales were VAT the transactions, it shall be allocated proportionately on the basis of the volume of the
exempt, then it would be entitled to claim any credit from input tax) sales

The Supreme Court ruled that Toshiba was a registered VAT entity and its export [Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007.]
sales were subject to 0% VAT.

Note: Remember, a zero-rated sale by a VAT-registered person, which is a taxable


106(A)(2)(a)(2) Sale of Raw Materials to a Nonresident Buyer for
transaction for VAT purposes, shall not result in any output tax. However, the input tax Delivery to a Resident Local Export-Oriented Enterprise: Sale of raw
on his purchases of goods, properties or services related to such zero-rated sale shall materials or packaging materials to a nonresident buyer for delivery to a resident local export-
be available as tax credit or refund in accordance with these regulations oriented enterprise to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and paid for in acceptable foreign currency and
[Toshiba Information Equipment (Phils.), Inc. v. CIR, GR No. 157594, 9 Mar. 2010.] accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
The case of Intel Technology Philippines, Inc. v. CIR is a claim for tax refund/credit of
alleged unutilized input VAT on local purchases of goods and services which are
attributable to export sales for the second quarter of 1998. 106(A)(2)(a)(3) Sale of Raw Materials to Export-Oriented
Enterprise: Sale of raw materials or packaging materials to export-oriented enterprise
 To prove that it was engaged in the “sale and actual shipment of goods from the whose export sales exceed seventy percent (70%) of total annual production;
Philippines to a foreign country and therefore entitled to tax credit of input VAT,
Intel Technology presented documentary evidence such as summary of export Q: Give an example of a sale of raw materials to an export-oriented enterprise.
sales, sales invoices, official receipts, airway bills, and export declarations.
 And, to prove that payment was made “in acceptable foreign currency or its * Section 106(A)(2)(a)(3) of the 1997 Tax Code pertains to the sale of raw materials or
equivalent in goods or services, and accounted for in accordance with the rules packaging materials to an export-oriented enterprise whose export sales exceed
and regulations of the Bangko Sentral ng Pilipinas (BSP),” a certification of 70% of total annual production. With respect to the extent of the relief, the Supreme
inward remittances was presented by Intel Technology Court held that:
 The Supreme Court found that Intel Technology’s evidence sufficiently
established that it was engaged in export sales. Thus, the 0% rate applies to the total sale of raw materials or packaging
materials to an export-oriented enterprise and not just the percentage of the sale
Note: Based on Sec 106, export sales, or sales outside the Philippines, are subject to in proportion to the actual exports of the enterprise.”
VAT at 0% rate if made by a VAT-registered person. When applied to the tax base, [Atlas Consolidated Mining and Development Corporation v. CIR, GR No. 146221, 25
the 0% rate obviously results in no tax chargeable against the purchaser. The seller Sept. 2007.]
of such transactions charges no output tax, but can claim a refund or tax credit
certificate for the VAT previously charged by suppliers. 106(A)(2)(a)(4) Sale of Gold to the BSP
Additionally, Under Sections 106 (A)(2)(a)(1) in relation to 112(A) of the Tax Code, a
taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for a Q: Give an example of a sale of gold to the BSP.
refund or issuance of a tax credit certificate for input taxes paid attributable to such
sales upon complying with the following requisites: (1) the taxpayer is engaged in CIR v. Benguet Corporation is a claim for tax refund/credit of alleged unutilized input
sales which are zero-rated (like export sales) or effectively zero-rated; (2) the VAT on Benguet Corporation’s sale of gold to the Bangko Sentral ng Pilipinas for the
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DEAN LILY K. GRUBA
S/Y 2011-2012
period 1 August 1989 to 31 July 1991. [NOTE: At the time the subject transaction was (2) transfer to creditors in payment of debt;
made, the treatment of sale of gold to the BSP as export sales was merely based on (3) consignment of goods, if actual sale is not made within 60 days following the date such
BIR issuances. Today, such treatment is already contained in the 1997 Tax Code.] goods were consigned; and
[CIR v. Benguet Corporation, GR Nos. 134587 & 134588, 8 July 2005.] (4) retirement from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation.
106(A)(2)(a)(5) Export Sales under the Omnibus Investment Code
of 1987 and Other Special Laws Q: Give an example of a transaction deemed sale under this provision.

* In San Roque Power Corporation v. CIR, San Roque Power Corporation was
Q: Give an example of export sales under the Omnibus Investment Code of engaged in the supply of electricity to the National Power Corporation. Such sale
1987 and other special laws. of service qualified as a zero-rated transaction under Section 108(B)(3) of the 1997
Tax Code.
In Panasonic Communications Imaging Corporation of the Philippines v. CIR,
Panasonic produced and exported paper copiers and their sub-assemblies, parts, and A portion of SRPC’s claim for tax refund/credit for alleged unutilized input VAT was
components. It was registered with the Board of Investments as a preferred pioneer attributable to a “sale” of electricity to NPC that was made during the testing
enterprise under the Omnibus Investment Code of 1987; it was a registered VAT period sometime in 2002, for which SRPC was paid an amount of Php 42.5 million.
enterprise; and its export sales were zero-rated.
The issue was whether such “sale” qualified for zero-rating. The Supreme Court held
[Panasonic Communications Imaging Corporation of the Philippines v. CIR, GR No. that although the “sale” was not a commercial sale or in the normal course of
178090, 8 Feb. 2010.] business, it was a “transaction deemed sale” under Section 106(B)(1) of the 1997 Tax
Code. It thus qualified for zero-rating.
106(A)(2)(a)(6) Sale of Goods to Persons Engaged in International [San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]
Shipping or Air Transport Operations
106(C) Changes in or Cessation of Status of a VAT-Registered Person
106(A)(2)(b) Foreign Currency Denominated Sale: The phrase 'foreign
currency denominated sale' means sale to a nonresident of goods, except those mentioned 106(D) Sales Returns, Allowances, and Sales Discounts
in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a
resident in the Philippines, paid for in acceptable foreign currency and accounted for in 106(E) Authority of the Commissioner to Determine the Appropriate Tax Base
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
Sec. 107, Value-Added Tax on Importation of Goods
106(A)(2)(c) Zero-Rated Sales pursuant to Special Laws or Q: Does VAT apply on every importation of goods?
International Agreements
* In explaining value-added tax, CIR v. Seagate Technology (Philippines)
stated that VAT shall be imposed on every importation of goods, whether or
106(B) Transactions Deemed Sale: not in the course of trade or business. This is unlike VAT on sale of goods or
properties which must be in the course of trade or business. Otherwise, the
person/transaction shall not be liable to pay VAT. Pertinent portion of the
106(B)(1) Transfer Not in the Course of Trade or Business of decision read:
Goods/Services Originally Intended for Sale/Use in the Course of “Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to
Trade or Business 10 percent [now 12 percent] levied on every importation of goods, whether or
not in the course of trade or business, or imposed on each sale, barter,
exchange or lease of goods or properties or on each rendition of services in
106(B)(2) Other Transactions: the course of trade or business as they pass along the production and
distribution chain, the tax being limited only to the value added to such goods,
These are: properties or services by the seller, transferor or lessor.”
(1) transfer to shareholders/investors as share in the profits of a VAT-registered person/entity; [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]

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[CIR v. CA, GR No. 125355, 30 Mar. 2000.]
Sec. 108, Value-Added Tax on Sale of Services and Use or Lease of Properties
**** “Sale of services” includes “lease of motion picture films, films, tapes and
108(A) Rate and Base of Tax discs.” In CIR v. SM Prime Holdings, Inc., SM Prime and First Asia were
engaged in the business of operating cinema houses. At issue was whether
Q: What is a “sale of services”? cinema operators/proprietors were liable to pay VAT, on top of the amusement
tax imposed by the 1991 LGC. The Supreme Court conceded that the
* In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of enumeration of services subject to VAT under Section 108 of the 1997 Tax
several advertising companies. Due to Sony Philippines’ dire economic Code was not exhaustive. However, “lease of motion picture films, films, tapes
conditions, Sony International Singapore handed Sony Philippines a dole-out and discs” did not equate to “showing or exhibition of motion pictures or films.”
to answer for the expenses payable to the advertising companies. Sony SM Prime and First Asia were not liable to pay VAT.
Philippines was thereafter assessed deficiency VAT for the transaction, i.e., [CIR v. SM Prime Holdings, Inc., GR No. 183505, 26 Feb. 2010.]
dole-out, between Sony International Singapore and Sony Philippines. The
Supreme Court ruled that the dole-out or subsidy from the Singaporean ***** Sonza v. ABS-CBN Broadcasting Corporation differentiated between
company to the Philippine company neither constituted a sale of goods or services rendered pursuant to an employer-employee relationship and
properties, nor a sale of services. Hence, Sony Philippines was not liable to services rendered by an independent contractor pursuant to a contractual
pay VAT on the same. relationship. Subsumed under the latter, professionals such as talent and
[CIR v. Sony Philippines, Inc., GR No. 178697, 17 Nov. 2010.] television and radio broadcasters are liable to pay VAT.
[Sonza v. ABS-CBN Broadcasting Corporation, GR No.138051, 10 June 2004.]
** Quezon City v. ABS-CBN Broadcasting Corporation dealt with VAT-able
sales of “services of franchise grantees of electric utilities, telephone and 108(B) Zero-Rated Sales of Services
telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code.” Q: What is the destination principle? Are there exceptions to the rule?
[NOTE: Section 119 of the Tax Code imposes a percentage tax, in the form of
a 3% franchise tax, on radio and television broadcasting companies whose * According to CIR v. American Express International, Inc.: “As a general rule,
annual gross receipts do not exceed Php 10 million. Such franchise holders, the VAT system uses the destination principle as a basis for the jurisdictional
however, has the option of paying 3% franchise tax or 12% VAT. On the other reach of the tax. Goods and services are taxed only in the country where they
hand, radio and television broadcasting companies whose annual gross are consumed. Thus, exports are zero-rated, while imports are taxed.” The
receipts exceed Php 10 million are governed by Section 108 of the 1997 Tax decision proceeded to define “consumption” as “the use of a thing in a way
Code. They are liable to pay VAT, and do not have the option to choose that thereby exhausts it.” Applied to services, it means “the performance or
between paying franchise tax or VAT.] successful completion of a contractual duty, usually resulting in the performer’s
ABS-CBN, being a broadcasting company with yearly gross receipts release from any past or future liability.”
exceeding Php 10 million, was found liable to pay VAT. Exceptions to the destination principle are found in Section 108(B) of the 1997
[Quezon City v. ABS-CBN Broadcasting Corporation, GR No. 166408, 6 Oct. Tax Code. They are deemed exceptions because although the services are
2008.] performed in the Philippines, upon compliance with certain requirements, the
sales of such services are zero-rated.
*** Section 108 of the 1997 Tax Code defines “sale of services” as “the [CIR v. American Express International, Inc. (Philippine Branch), GR No.
performance of all kinds of services in the Philippines for others for a fee, 152609, 29 June 2005.]
remuneration or consideration,” including “supply of technical advice,
assistance or services rendered in connection with technical management or 108(B)(1) Processing, Manufacturing, or Repacking Goods for Other Persons
administration of any scientific, industrial or commercial undertaking, venture, Doing Business outside the Philippines
project or scheme.” In the case of CIR v. CA, COMASERCO was a non-stock
non-profit organization engaged in the sale of services of such nature. 108(B)(2) Services Other than Those Mentioned in the Preceding Paragraph
However, COMASERCO argued that its sales of services were not subject to
VAT because although it charged a fee for such sales, the organization was Q: Cite examples of services other than “processing, manufacturing, or repacking of
operating on a reimbursement-of-cost basis and hence, did not derive profit goods.”
from such sales. The Supreme Court held that any sale of services for a fee,
remuneration or consideration is subject to VAT, regardless of any profit * In CIR v. American Express International, Inc., Amex Phils. facilitated in the
derived therefrom. Philippines the collection and payment of receivables belonging to its Hong
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Kong-based foreign client, Amex HK, and getting paid for it in acceptable
foreign currency and accounted for in accordance with the rules and Q: Distinguish between zero-rated transactions [e.g., Sec. 108(B)(1)-(2)] and
regulations of the BSP. The Supreme Court ruled that the facilitation services effectively zero-rated transactions [e.g., Sec. 108(B)(3)].
Amex Phils. rendered in the Philippines fell under Section 108(B)(2) of the
1997 Tax Code. * The case of CIR v. Seagate Technology (Philippines) addressed this issue. It
[CIR v. American Express International, Inc., GR No. 152609, 29 June 2005.] stated that:
“Although both are taxable and similar in effect, zero-rated transactions differ
** In CIR v. Placer Dome Technical Services (Phils.) Inc., Placer Dome from effectively zero-rated transactions as to their source.
Canada engaged the services of Placer Dome Phils. to perform the clean-up Zero-rated transactions generally refer to the export sale of goods and
and rehabilitation of the Makalupnit and Boac Rivers in Marinduque. Placer supply of services. The tax rate is set at zero. When applied to the tax base,
Dome Phils. argued that its sale of services to Placer Dome Canada was a such rate obviously results in no tax chargeable against the purchaser. The
zero-rated transaction under Section 108(B)(2) of the 1997 Tax Code. Citing seller of such transactions charges no output tax, but can claim a refund of or
CIR v. American Express International, Inc., the Supreme Court upheld Placer a tax credit certificate for the VAT previously charged by suppliers.
Dome Phils.’ argument. Effectively zero-rated transactions, however, refer to the sale of goods or
[CIR v. Placer Dome Technical Services (Philippines), Inc., GR No. 164365, 8 supply of services to persons or entities whose exemption under special laws
June 2007.] or international agreements to which the Philippines is a signatory effectively
subjects such transactions to a zero rate. Again, as applied to the tax base,
*** In CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., such rate does not yield any tax chargeable against the purchaser. The seller
Burmeister was engaged in the actual operation and management of two who charges zero output tax on such transactions can also claim a refund of or
power barges in Mindanao. It claimed that its transactions were subject to a tax credit certificate for the VAT previously charged by suppliers.”
zero-rating under Section 108(B)(2) of the 1997 Tax Code. The Supreme Court The decision went on to say (under the subheading Zero Rating and
denied Burmeister’s claim on the ground that Section 108(B)(2) of the 1997 Exemption):
Tax Code additionally required that the payer-recipient of the services must be “Applying the destination principle to the exportation of goods, automatic zero
doing business outside the Philippines. It ruled in this manner: rating is primarily intended to be enjoyed by the seller who is directly and
“The Tax Code not only requires that the services be other than ‘processing, legally liable for the VAT, making such seller internationally competitive by
manufacturing or repacking of goods’ and that payment for such services be in allowing the refund or credit of input taxes that are attributable to export sales.
acceptable foreign currency accounted for in accordance with BSP Effective zero rating, on the contrary, is intended to benefit the purchaser
rules. Another essential condition for qualification to zero-rating under Section who, not being directly and legally liable for the payment of the VAT, will
102(b)(2) is that the recipient of such services is doing business outside ultimately bear the burden of the tax shifted by the suppliers.” (Emphasis
the Philippines. While this requirement is not expressly stated in the second supplied.)
paragraph of Section 102(b), this is clearly provided in the first paragraph of [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]
Section 102(b) where the listed services must be ‘for other persons doing
business outside the Philippines.’ The phrase “for other persons doing Q: Give examples of effectively zero-rated sales of services pursuant to special laws.
business outside the Philippines” not only refers to the services enumerated in
the first paragraph of Section 102(b), but also pertains to the general term * In CIR v. Acesite (Philippines) Hotel Corporation, Acesite was the operator of
“services” appearing in the second paragraph of Section 102(b). In short, Holiday Inn Manila Pavilion Hotel. It leased a portion of its premises to
services other than processing, manufacturing, or repacking of goods must PAGCOR for casino operations. It also catered food and beverages to
likewise be performed for persons doing business outside the Philippines.” PAGCOR’s casino patrons. The issue was whether Acesite could refund the
[NOTE: In relation to CIR v. American Express International, Inc. and CIR v. VAT it paid on its rental income and sale of food and beverages to PAGCOR.
Placer Dome Technical Services (Philippines), Inc. discussed above, said The Supreme Court, pursuant to PAGCOR’s charter (PD No. 1869 and all
cases stated that consumption of the services abroad is not a requirement amendments thereto), found that Acesite’s sale of services to PAGCOR was
for zero-rating. However, on the basis of CIR v. Burmeister & Wain zero-rated under Section 108(B)(3) of the 1997 Tax Code.
Contractor Mindanao, Inc., the payer-recipient of the services must be [CIR v. Acesite (Philippines) Hotel Corporation, GR No. 147295, 16 Feb.
doing business outside of the Philippines.] 2007.]
[CIR v. Burmeister & Wain Scandinavian Contractor Mindanao, Inc., GR No.
153205, 22 Jan. 2007.] ** In the case of San Roque Power Corporation v. CIR, San Roque Power
Corporation was engaged in the sale of electricity to NPC. The Supreme Court
108(B)(3) Zero-Rated Sales pursuant to Special Laws or International ruled that SRPC’s sale of service to NPC was zero-rated, pursuant to NPC’s
Agreements
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charter and under Section 108(B)(3) of the 1997 Tax Code. It explained the 109(A) Sale or Importation of Agricultural and Marine Food Products in Their
rationale for the effective zero-rating of NPC in this manner: Original State
“It bears emphasis that effective zero-rating is not intended as a benefit to the
person legally liable to pay the tax, such as petitioner, but to relieve certain * Misamis Oriental Association of Coco Traders, Inc. v. DOF interpreted the
exempt entities, such as the NPC, from the burden of indirect tax so as to provisions of the 1977 Tax Code. However, it is instructive as to the issue of
encourage the development of particular industries. Before, as well as after, who determines or classifies a certain product, i.e., whether it is food or non-
the adoption of the VAT, certain special laws were enacted for the benefit of food. According to the decision, as between the Bureau of Food and Drug and
various entities and international agreements were entered into by the the Bureau of Internal Revenue, the classification made by the latter would
Philippines with foreign governments and institutions exempting sale of goods prevail.
or supply of services from indirect taxes at the level of their suppliers. Effective [Misamis Oriental Association of Coco Traders, Inc. v. DOF, GR No. 108524,
zero-rating was intended to relieve the exempt entity from being burdened with 10 Nov. 1994.]
the indirect tax which is or which will be shifted to it had there been no
exemption. In this case, petitioner is being exempted from paying VAT on its 109(G) Medical, Dental, Hospital, and Veterinary Services, except Those
purchases to relieve NPC of the burden of additional costs that petitioner may Rendered by Professionals
shift to NPC by adding to the cost of the electricity sold to the latter.”
[San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.] * Section 109(G) of the Tax Code provides that transactions involving medical,
dental, hospital, and veterinary services are VAT-exempt transactions. In the
108(B)(4) Sale of Services to Persons Engaged in International Shipping or Air case of CIR v. Philippine Health Care Providers, Inc., it was found that
Transport Operations Philippine Health Care Providers, Inc. did not render medical, dental, hospital,
and veterinary services, but merely arranged for the same. Hence, its services
108(B)(5) Sale of Services for Export-Oriented Enterprise were not VAT-exempt.
[CIR v. Philippine Health Care Providers, Inc., GR No. 168129, 24 Apr. 2007.]
108(B)(6) Transport of Passengers and Cargo by Air or Seal Vessels from the
Philippines to a Foreign Country 109(I) Services Rendered by Individuals pursuant to an Employer-Employee
Relationship
108(B)(7) Sale of Power Generated through Renewable Sources of Energy
* Sonza v. ABS-CBN Broadcasting Corporation differentiated between services
Sec. 109, Exempt Transactions rendered pursuant to an employer-employee relationship (which is an exempt
transaction) and services rendered by an independent contractor pursuant to a
Q: Distinguish between an exempt transaction and an exempt party. contractual relationship (which is subject to VAT). The Supreme Court ruled
that Sonza was an independent contractor. As such, he was subject to VAT on
* CIR v. Seagate Technology (Philippines) made a distinction between exempt the services that he rendered.
transaction exempt party in this wise: [Sonza v. ABS-CBN Broadcasting Corporation, GR No.138051, 10 June 2004.]
“An exempt transaction, on the one hand, involves goods or services which,
by their nature, are specifically listed in and expressly exempted from the VAT 109(K) Transactions Which are Exempt under International Agreements to
under the Tax Code, without regard to the tax status -- VAT-exempt or not -- of Which the Philippines is a Signatory or under Special Laws, except Those
the party to the transaction. Indeed, such transaction is not subject to the VAT, under PD No. 529
but the seller is not allowed any tax refund of or credit for any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT * In Philippine Amusement & Gaming Corporation v. CIR, the Supreme Court
exemption under the Tax Code, a special law or an international agreement to held that PAGCOR was exempt from payment of VAT. It cited, among others,
which the Philippines is a signatory, and by virtue of which its taxable the VAT exemption of PAGCOR’s transactions by virtue of its charter (PD No.
transactions become exempt from the VAT. Such party is also not subject to 1869 and all amendments thereto) in relation to Section 109(K) of the 1997
the VAT, but may be allowed a tax refund of or credit for input taxes paid, Tax Code.
depending on its registration as a VAT or non-VAT taxpayer.” (Emphasis [Philippine Amusement & Gaming Corporation v. CIR, GR No. 172087, 15 Mar.
supplied.) 2011.]
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]
109(U) Services of Banks, Non-Bank Financial Intermediaries Performing Quasi-
Q: Give examples of exempt transactions. Banking Functions, and Other Non-Bank Financial Intermediaries

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* Section 109(U) of the 1997 Tax Code provides that transactions involving 111(B) Presumptive Input Tax Credits
services rendered by banks, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial intermediaries shall be Sec. 112, Refunds or Tax Credits of Input Tax
VAT-exempt. The case of First Planters Pawnshop, Inc. v. CIR pertained to a
taxable period prior to the adoption of the present wording of Section 109(U) of 112(A) Zero-Rated or Effectively Zero-Rated Sales
the 1997 Tax Code. However, the decision is relevant in that it discussed the
tax treatment of a pawnshop business. The Supreme Court held that Q: Distinguish between zero-rated transactions [e.g., Sec. 108(B)(1)-(2)] and
pawnshops are non-bank financial intermediaries. effectively zero-rated transactions [e.g., Sec. 108(B)(3)].
[First Planters Pawnshop, Inc. v. CIR, GR No. 174134, 30 July 2008.]
* The case of CIR v. Seagate Technology (Philippines) addressed this issue. It
Sec. 110, Tax Credits stated that:
“Although both are taxable and similar in effect, zero-rated transactions differ
110(A) Creditable Input Tax from effectively zero-rated transactions as to their source.
Zero-rated transactions generally refer to the export sale of goods and
Q: Distinguish between “input tax” and “output tax.” supply of services. The tax rate is set at zero. When applied to the tax base,
such rate obviously results in no tax chargeable against the purchaser. The
* The case of CIR v. Benguet Corporation defined “input tax” and “output tax.” seller of such transactions charges no output tax, but can claim a refund of or
“Input VAT or input tax represents the actual payments, costs and expenses a tax credit certificate for the VAT previously charged by suppliers.
incurred by a VAT-registered taxpayer in connection with his purchase of Effectively zero-rated transactions, however, refer to the sale of goods or
goods and services. Thus, "input tax" means the value-added tax paid by a supply of services to persons or entities whose exemption under special laws
VAT-registered person/entity in the course of his/its trade or business on or international agreements to which the Philippines is a signatory effectively
the importation of goods or local purchases of goods or services from a subjects such transactions to a zero rate. Again, as applied to the tax base,
VAT-registered person. such rate does not yield any tax chargeable against the purchaser. The seller
On the other hand, when that person or entity sells his/its products or services, who charges zero output tax on such transactions can also claim a refund of or
the VAT-registered taxpayer generally becomes liable for 10% of the selling a tax credit certificate for the VAT previously charged by suppliers.”
price as output VAT or output tax. Hence, "output tax" is the value-added The decision went on to say (under the subheading Zero Rating and
tax on the sale of taxable goods or services by any person registered or Exemption):
required to register under Section 107 of the (old) Tax Code. “Applying the destination principle to the exportation of goods, automatic zero
The VAT system of taxation allows a VAT-registered taxpayer to recover its rating is primarily intended to be enjoyed by the seller who is directly and
input VAT either by (1) passing on the 10% output VAT on the gross selling legally liable for the VAT, making such seller internationally competitive by
price or gross receipts, as the case may be, to its buyers, or (2) if the input tax allowing the refund or credit of input taxes that are attributable to export sales.
is attributable to the purchase of capital goods or to zero-rated sales, by filing Effective zero rating, on the contrary, is intended to benefit the purchaser
a claim for a refund or tax credit with the BIR. who, not being directly and legally liable for the payment of the VAT, will
Simply stated, a taxpayer subject to 10% output VAT on its sales of goods and ultimately bear the burden of the tax shifted by the suppliers.” (Emphasis
services may recover its input VAT costs by passing on said costs as output supplied.)
VAT to its buyers of goods and services but it cannot claim the same as a [CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]
refund or tax credit, while a taxpayer subject to 0% on its sales of goods and
services may only recover its input VAT costs by filing a refund or tax credit Q: What are the requirements for a claim for VAT refund/credit?
with the BIR.”
[CIR v. Benguet Corporation, GR No. 145559, 14 July 2006.] * The cases of Intel Technology Philippines, Inc. v. CIR and San Roque Power
Corporation v CIR enumerated the requirements, thus:
110(B) Excess Output or Input Tax (1) the taxpayer is engaged in sales which are zero-rated or effectively zero-
rated;
110(C) Determination of Creditable Input Tax (2) the taxpayer is VAT-registered;
(3) the claim must be filed within two years after the close of the taxable
Sec. 111, Transitional/Presumptive Input Tax Credits quarter when such sales were made;
(4) the input taxes are due or paid;
111(A) Transitional Input Tax Credits (5) the input taxes are not transitional input taxes;

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(6) the input taxes have not been applied against output taxes during and in
the succeeding quarters; 112(D) Manner of Giving Refund
(7) the input taxes claimed are attributable to zero-rated or effectively zero-
rated sales; Sec. 113, Invoicing and Accounting Requirements for VAT-Registered Persons
(8) in certain types of zero-rated sales, the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with 113(A) Invoicing Requirements
BSP rules and regulations [Sections 106(A)(2)(a)(1) and (2); Section 106(B);
Sections 108(B)(1) and (2)]; and Q: Is there a difference between an invoice and an official receipt?
(9) where there are both zero-rated or effectively zero-rated sales and taxable
or exempt sales, and the input taxes cannot be directly and entirely attributable * CIR v. Manila Mining Corporation defined these terms, to wit:
to any of these sales, the input taxes shall be proportionately allocated on the “A ’sales or commercial invoice’ is a written account of goods sold or services
basis of sales volume. rendered indicating the prices charged therefor or a list by whatever name it is
[Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007; San known which is used in the ordinary course of business evidencing sale and
Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.] transfer or agreement to sell or transfer goods and services.
A ‘receipt’ on the other hand is a written acknowledgment of the fact of
Q: In claims for VAT refund/credit, what is the reckoning point for the two-year payment in money or other settlement between seller and buyer of goods,
prescriptive period? debtor or creditor, or person rendering services and client or customer.”
[CIR v. Manila Mining Corporation, GR No. 153204, 31 Aug. 2005.]
* In 2007, the Supreme Court promulgated its decision in Atlas Consolidated
Mining and Development Corporation v. CIR which essentially held that in ** In AT&T Communications Services Philippines, Inc. v. CIR, AT&T was
claims for VAT refund/credit, the prescriptive period for filing administrative and engaged in the business of providing information, promotional, supportive, and
judicial claims shall be two years reckoned from the date of filing of the VAT liaison services to foreign corporations. It filed a claim for tax refund/credit for
quarterly return. alleged unutilized input VAT on said sales of services and presented sales
A year later, in the highly publicized case of CIR v. Mirant Pagbilao invoices to substantiate the same. In giving credence to the sales invoices (not
Corporation, the Supreme Court changed its mind and ruled that the two-year necessarily official receipts), the Supreme Court said that:
prescriptive period in claims for VAT refund/credit must be counted not from “Sales invoices are recognized commercial documents to facilitate trade or
the date of filing of the VAT quarterly return, but from the close of the taxable credit transactions. They are proofs that a business transaction has been
quarter when the relevant sales were made. concluded, hence, should not be considered bereft of probative value. Only the
[Atlas Consolidated Mining and Development Corporation v. CIR, GR Nos. preponderance of evidence threshold as applied in ordinary civil cases is
141104 & 148763, 8 June 2007; CIR v. Mirant Pagbilao Corporation, GR No. needed to substantiate a claim for tax refund proper.”
172129, 12 Sept. 2008.] [AT&T Communications Services Philippines, Inc. v. CIR, GR No. 182364, 3
Aug. 2010.]
112(B) Cancellation of VAT Registration
*** On other hand, the case of Kepco Philippines Corporation v. CIR made a
112(C) Period within which Refund or Tax Credit of Input Taxes Shall Be Made distinction between a VAT invoice and a VAT receipt, such that only a VAT
invoice might be presented to substantiate a sale of goods or properties, while
Q: When are administrative and judicial claims for VAT refund/credit filed? only a VAT receipt could substantiate a sale of services. Pertinent portion of
the decision read:
* In 2007, the Supreme Court promulgated its decision in Atlas Consolidated “In other words, the VAT invoice is the seller’s best proof of the sale of the
Mining and Development Corporation v. CIR which essentially held that claims goods or services to the buyer while the VAT receipt is the buyer’s best
for VAT refund/credit must be filed within the two-year prescriptive period. evidence of the payment of goods or services received from the seller. Even
In 2010, the Supreme Court came out with the controversial case of CIR v. though VAT invoices and receipts are normally issued by the supplier/seller
Aichi Forging Company of Asia, Inc. which mandated compliance of alone, the said invoices and receipts, taken collectively, are necessary to
administrative and judicial claims with both the two-year prescriptive period substantiate the actual amount or quantity of goods sold and their selling price
[Section 112(A)] and the 120-30 day period rule [Section 112(C)]. Otherwise, (proof of transaction), and the best means to prove the input VAT payments
claims would be adjudged as either filed out of time or prematurely filed. (proof of payment). Hence, VAT invoice and VAT receipt should not be
[Atlas Consolidated Mining and Development Corporation v. CIR, GR Nos. confused as referring to one and the same thing. Certainly, neither does the
141104 & 148763, 8 June 2007; CIR v. Aichi Forging Company of Asia, Inc., law intend the two to be used alternatively.”
GR No. 184823, 6 Oct. 2010.] [Kepco Philippines Corporation v. CIR, GR No. 181858, 24 Nov. 2010.]
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113(B) Information Contained in the VAT Invoice or VAT Official Receipt

* Section 113(B)(2)(c) of the 1997 Tax Code provides that certain information
must be indicated on the VAT invoice or VAT official receipt, and that “if the
sale is subject to zero percent (0%) value-added tax, the term ‘zero-rated sale’
shall be written or printed prominently on the invoice or receipt.”
The Bureau of Internal Revenue, the Divisions of the Court of Tax Appeals, the
Court of Tax Appeals En Banc, and the Supreme Court has conflicting opinions
on whether the term “zero-rated sale” must be written, stamped, or imprinted.
However, as enunciated in recent cases, the term “zero-rated sale” must be
imprinted, and not merely written or stamped. Otherwise, such claims for VAT
refund/credit substantiated by non-conforming VAT invoices or VAT official
receipts shall be disallowed.
[Panasonic Communications Imaging Corporation of the Philippines, GR No.
1708090, 8 Feb. 2010; JRA Philippines, Inc. v. CIR, GR No. 177127, 11 Oct.
2010; Hitachi Global Storage Technologies Philippines Corporation v. CIR, GR
No. 174212, 20 Oct. 2010; Microsoft Philippines, Inc., v. CIR, GR No. 180173,
6 Apr. 2011.]

113(C) Accounting Requirements

113(D) Consequences of Issuing Erroneous VAT Invoice or VAT Official Receipt

113(E) Transitional Period

Sec. 114, Return and Payment of Value-Added Tax

114(A) In General

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

114(C) Withholding of Value-Added Tax

Sec. 115, Power of the Commissioner to Suspend the Business Operations of a


Taxpayer

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