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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Q: HOW CAN A VAT-REGISTERED TAXPAYER
RECOVER ITS INPUT VAT?
The VAT system of taxation allows a VAT-
registered taxpayer to recover its input VAT
either by
(1) passing on the 12% output VAT on the
gross selling price or gross receipts, as the
case may be, to its buyers, or
(2) if the input tax is attributable to the
purchase of capital goods or to zero-rated
sales, by filing a claim for a refund or tax credit
with the BIR.
Simply stated, a taxpayer subject to 12%
output VAT on its sales of goods and services
may recover its input VAT costs by passing on
said costs as output VAT to its buyers of goods
and services but it cannot claim the same as a
refund or tax credit, while a taxpayer subject to
0% on its sales of goods and services may only
recover its input VAT costs by filing a refund or
tax credit with the BIR.
Q: Illustrate input tax, output tax and VAT
payable
X Corp, manufacturer, sold goods to Y, a
retailer, for 100,000 plus vat of 12,000 (so Y
bought it for 112,000) Then, Y resold the goods
to Z, end-consumer for 150,000 plus VAT of
18,000 (so Z bought it for 168,000)
On the part of Y, the retailer,
-His INPUT TAX is 12,000 because this tax
was passed on to him when he bought goods
from X Corp.
-His OUTPUT TAX is 18,000 because this is
the tax he passed on to Z.
-In this case, Y will pay for/ultimately be liable
for the vat of 6,000 on the sale because the
output tax is greater than the input tax. (see 2nd
situation in first page)
Q: Illustrative problem (Co-Untian)
X is a VAT registered person. He bought goods
from Y for 12,500, exclusive of VAT. X then sold
these goods to consumer Z for 15,000,
exclusive of the VAT
(a) How much is the VAT payable by X
to the BIR?
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S/Y 2011-2012
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 is
the difference of the output tax and the
input tax thus it is 300 (1800-1500)
(b) How much can X claim as a tax
credit?
X may claim the 1,500 input tax on his
purchase as a tax credit. This is why it
was deducted from 1,800.
(c) Can Z claim a tax credit?
No. He is the end-consumer. He
ultimately bears the tax burden.
SEC. 105. Persons Liable. –
Any person who, in the course of trade or
business, sells barters, exchanges, leases
goods or properties, renders services, and any
person who imports goods shall be subject to
the value-added tax (VAT) imposed in Sections
106 to 108 of this Code.
The value-added tax is an indirect tax and the
amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise
apply to existing contracts of sale or lease of
goods, properties or services at the time of the
effectivity of Republic Act No. 7716.
The phrase 'in the course of trade or business'
means the regular conduct or pursuit of a
commercial or an economic activity, including
transactions incidental thereto, by any person
regardless of whether or not the person
engaged therein is a non-stock, nonp-rofit
private organization (irrespective of the
disposition of its net income and whether or not
it sells exclusively to members or their guests),
or government entity.
The rule of regularity, to the contrary
notwithstanding, services as defined in this
Code rendered in the Philippines by
nonresident foreign persons shall be
considered as being course of trade or
business.
Q: UNDER 1ST PARAGRAPH OF SEC 105, WHAT
ARE THE VAT-ABLE TRANSACTIONS? [SALE,
IMPORTATION AND SERVICES]
1. Sale, barter, exchange of goods or
properties
2
 2. Transactions deemed sale
3. Importation of goods [does not have to
be exercised in the ordinary course
of business]
4. Sale of services and use or lease of
properties
Q: UNDER PAR 2, VAT IS AN INDIRECT TAX.
DISTINGUISH BETWEEN LIABILITY FOR THE TAX
AND BURDEN OF THE TAX.
* The case of Contex Corporation v. CIR made
a distinction between the two concepts. It
provided [[Contex Corporation v. CIR, GR No.
151135, 2 July 2004.]
At this juncture, it must be stressed that the
VAT is an indirect tax. As such, the amount of
tax paid on the goods, properties or services
bought, transferred, or leased may be shifted
or passed on by the seller, transferor, or lessor
to the buyer, transferee or lessee.
Unlike a direct tax, such as the income tax,
which primarily taxes an individual’s ability to
pay based on his income or net wealth, an
indirect tax, such as the VAT, is a tax on
consumption of goods, services, or certain
transactions involving the same. The VAT,
thus, forms a substantial portion of consumer
expenditures.
 Further, in indirect taxation, there is a need
to distinguish between the liability for the
tax and the burden of the tax.
 As earlier pointed out, the amount of tax
paid may be shifted or passed on by the
seller to the buyer.
o What is transferred in such
instances is not the liability for the
tax, but the tax burden.
o In adding or including the VAT due to
the selling price, the seller remains
the person primarily and legally liable
for the payment of the tax. What is
shifted only to the intermediate buyer
and ultimately to the final purchaser
is the burden of the tax.
 Stated differently, a seller
who is directly and legally
liable for payment of an
indirect tax, such as the VAT
on goods or services is not
necessarily the person who
ultimately bears the burden
of the same tax.
 It is the final purchaser or
consumer of such goods or
services who, although not
directly and legally liable for
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DEAN LILY K. GRUBA
S/Y 2011-2012
the payment thereof,
ultimately bears the burden
of the tax.
Q: WHAT IS MEANT BY “IN THE COURSE OF
TRADE OR BUSINESS”?
* The case of CIR v. Magsaysay Lines, Inc GR
No. 146984. involved the sale by the National
Development Company of five of its vessels to
Magsaysay Lines, Inc. The issue was whether
such sale was within the coverage of VAT. The
Supreme Court found that the sale of the
vessels was not in the ordinary course of trade
or business. As such, the transaction was
outside the coverage of VAT.
That the sale of the vessels was not in the
ordinary course of trade or business of NDC
was appreciated by both the CTA and the Court
of Appeals, the latter doing so even in its first
decision which it eventually reconsidered. We
cite with approval the CTA’s explanation on this
point:
In Imperial v. Collector of Internal Revenue,
G.R. No. L-7924, September 30, 1955 (97 Phil.
992), the term "carrying on business" does not
mean the performance of a single
disconnected act, but means conducting,
prosecuting and continuing business by
performing progressively all the acts normally
incident thereof; while "doing business"
conveys the idea of business being done, not
from time to time, but all the time.
"Course of business" is what is usually done
in the management of trade or business.
What is clear therefore, based on the
aforecited jurisprudence, is that "course of
business" or "doing business" connotes
regularity of activity. In the instant case, the
sale was an isolated transaction. The sale
which was involuntary and made pursuant
to the declared policy of Government for
privatization could no longer be repeated or
carried on with regularity. It should be
emphasized that the normal VAT-registered
activity of NDC is leasing personal property.
This finding is confirmed by the Revised
Charte of the NDC which bears no indication
that the NDC was created for the primary
purpose of selling real property.
The conclusion that the sale was not in the
course of trade or business, which the CIR
does not dispute before this Court should have
3
definitively settled the matter. Any sale, barter
or exchange of goods or services not in the
course of trade or business is not subject to
VAT.
The decision contained an explanation of VAT,
to wit:
 A brief reiteration of the basic principles
governing VAT is in order. VAT is ultimately
a tax on consumption, even though it is
assessed on many levels of transactions on
the basis of a fixed percentage.
 It is the end user of consumer goods or
services which ultimately shoulders the tax,
as the liability therefrom is passed on to the
end users by the providers of these goods
or services who in turn may credit their own
VAT liability (or input VAT) from the VAT
payments they receive from the final
consumer (or output VAT).
 The final purchase by the end consumer
represents the final link in a production
chain that itself involves several
transactions and several acts of
consumption.
 The VAT system assures fiscal adequacy
through the collection of taxes on every
level of consumption, yet assuages the
manufacturers or providers of goods and
services by enabling them to pass on their
respective VAT liabilities to the next link of
the chain until finally the end consumer
shoulders the entire tax liability.
 Yet VAT is not a singular-minded tax on
every transactional level. Its assessment
bears direct relevance to the taxpayer’s
role or link in the production chain.
Hence, as affirmed by Section 99 of the Tax
Code and its subsequent incarnations, the
tax is levied only on the sale, barter or
exchange of goods or services by
persons who engage in such activities,
in the course of trade or business.
o These transactions outside the
course of trade or business may
invariably contribute to the
production chain, but they do so only
as a matter of accident or incident.
o As the sales of goods or services do
not occur within the course of trade
or business, the providers of such
goods or services would hardly, if at
all, have the opportunity to
appropriately credit any VAT liability
as against their own accumulated
VAT collections since the
accumulation of output VAT arises in
the first place only through the
ordinary course of trade or business)
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** In the case of CIR v. CA, COMASERCO,
being a non-stock non-profit organization,
contended that it was operating on a
reimbursement-of-cost basis, that its
operations were not profit-oriented and not
“in the course of trade of business,” and that
therefore, it was not liable to pay VAT. The
Supreme Court held that Section 105 of the
1997 Tax Code was clear and unambiguous in
stating that even non-stock non-profit
organizations were liable to pay VAT on the
sale of goods or services.
***N.B. Booch Difference of CIR v.
Magsaysay v. CIR v. CA, Comaserco:
SEC. 106. Value-Added Tax on Sale of
Goods or Properties. -
(A) Rate and Base of Tax. - There shall be
levied, assessed and collected on every sale,
barter or exchange of goods or properties,
value-added tax equivalent to twelve percent
(12%) of the gross selling price or gross value
in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by
the seller or transferor.
(1) The term 'goods' or 'properties' shall
mean all tangible and intangible objects
which are capable of pecuniary estimation
and shall include:
(a) Real properties held primarily for sale to
customers or held for lease in the ordinary
course of trade or business;
(b) The right or the privilege to use patent,
copyright, design or model, plan, secret
formula or process, goodwill, trademark, trade
brand or other like property or right;
(c) The right or the privilege to use in the
Philippines of any industrial, commercial or
scientific equipment;
(d) The right or the privilege to use motion
picture films, tapes and discs; and
(e) Radio, television, satellite transmission and
cable television time.
The term 'gross selling price' means the total
amount of money or its equivalent which the
purchaser pays or is obligated to pay to the
seller in consideration of the sale, barter or
exchange of the goods or properties, excluding
the value-added tax. The excise tax, if any, on
4
such goods or properties shall form part of the
gross selling price.
Q: WHAT IS A “SALE OF GOODS OR
PROPERTIES”?
* In CIR v. Sony Philippines, Inc., Sony
Philippines engaged the services of several
advertising companies.
Due to Sony Philippines’ dire economic
conditions, Sony International Singapore
handed Sony Philippines a dole-out to answer
for the expenses payable to the advertising
companies. Sony Philippines was thereafter
assessed deficiency VAT for the transaction,
i.e., dole-out, between Sony International
Singapore and Sony Philippines. The Supreme
Court ruled that the dole-out or subsidy from
the Singaporean company to the Philippine
company neither constituted a sale of
goods or properties, nor a sale of services.
Hence, Sony Philippines was not liable to pay
VAT on the same.
[CIR v. Sony Philippines, Inc., GR No. 178697,
17 Nov. 2010.]
106(A)(2) Zero-Rated Sales of Goods
(2) The following sales by VAT-registered
persons shall be subject to zero percent
(0%) rate:
(a) Export Sales. - The term 'export sales'
means:
(1) The sale and actual shipment of goods
from the Philippines to a foreign country,
irrespective of any shipping arrangement that
may be agreed upon which may influence or
determine the transfer of ownership of the
goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or
services, and accounted for in accordance with
the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
(2) Sale of raw materials or packaging
materials to a nonresident buyer for delivery to
a resident local export-oriented enterprise to be
used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's
goods and paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
(3) Sale of raw materials or packaging
materials to export-oriented enterprise whose
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S/Y 2011-2012
export sales exceed seventy percent (70%) of
total annual production;
(4) Sale of gold to the Bangko Sentral ng
Pilipinas (BSP); and
(5) Those considered export sales under
Executive Order NO. 226, otherwise known as
the Omnibus Investment Code of 1987, and
other special laws.
Q: DISTINGUISH BETWEEN VAT RATING AND
ZERO-RATING.
* The case of CIR v. Benguet Corporation
explained VAT rating vis-as-vis zero-rating in
principle, as well as by way of illustration, to
wit:
 In transactions taxed at a 12% rate (VAT
rating), when at the end of any given
taxable quarter the output VAT exceeds the
input VAT, the excess shall be paid to the
government; when the input VAT exceeds
the output VAT, the excess would be carried
over to VAT liabilities for the succeeding
quarter or quarters.
 On the other hand, transactions which are
taxed at zero-rate do not result in any
output tax. Input VAT attributable to zero-
rated sales could be refunded or credited
against other internal revenue taxes at the
option of the taxpayer.
To illustrate, in a zero-rated transaction,
when a VAT-registered person (“taxpayer”)
purchases materials from his supplier at
P80.00, P7.30 of which was passed on to him
by his supplier as the latter’s 10% output VAT,
the taxpayer is allowed to recover P7.30
from the BIR, in addition to other input VAT he
had incurred in relation to the zero-rated
transaction, through tax credits or refunds.
When the taxpayer sells his finished product in
a zero-rated transaction, say, for P110.00, he is
not required to pay any output VAT thereon. In
the case of a transaction subject to 10%
VAT, the taxpayer is allowed to recover both
the input VAT of P7.30 which he paid to his
supplier and his output VAT of P2.70 (10% the
P30.00 value he has added to the P80.00
material) by passing on both costs to the
buyer. Thus, the buyer pays the total 10%
VAT cost, in this case P10.00 on the product.
[CIR v. Benguet Corporation, GR Nos. 134587
& 134588, 8 July 2005.]
5
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
provision of the Tax Code or special laws.
Under VAT, the transaction can have
preferential treatment in the following ways:
Vat Exempt Sales (Vat- Zero Rated
Exempt) Sales (Zero
Rating)
Simply put, the VAT is These are sales
removed at the exempt by VAT-registered
stage (e.g. point of the persons which
sale, barter, etc) are subject to 0%
rate, meaning the
tax burden is not
passed on to the
purchaser.
A zero-rated sale
or transaction by
a VAT-registered
person, which is
a taxable
transaction for
VAT purposes,
does not result
in any output
tax (still a taxable
transaction)
A VAT-Registered The input VAT on
purchaser of VAT-exempt the purchases of
goods/properties/services a VAT-registered
which are exempt from person with zero-
VAT is not entitled to any rated sales may
input tax on such be allowed as
purchase. tax credits or
refunded
The seller of exempt goods
properties or services shall
not bill any output tax.
Exemption only removes Under zero-
the VAT at the exempt rating, all VAT is
stage, and it will actually removed from the
increase, rather than zero-rated goods,
reduce the total taxes activity or firm
paid by the exempt firm’s
business or non-retail [In] zero rating,
customers. there is total relief
for the purchaser
There is only partial relief from the burden
because the purchase is of the tax
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S/Y 2011-2012
The case of CIR v. Seagate Technology
(Philippines) addressed this issue. It stated that
the difference is primarily as to their source.
Zero-Rated Effectively Zero-Rated
Zero-rated Effectively zero-
transactions rated transactions
generally refer to the refer to the sale of
export sale of goods goods or supply of
and supply of services to persons or
services. entities whose
exemption under
The tax rate is set at special laws or
zero. international
agreements to which
When applied to the the Philippines is a
tax base, such rate signatory effectively
obviously results in no subjects such
tax chargeable against transactions to a zero
the purchaser. rate.
The seller of such Again, as applied to
transactions charges the tax base, such
no output tax, but can rate does not yield
claim a refund of or a any tax chargeable
tax credit certificate for against the
the VAT previously purchaser.
charged by suppliers
The seller who
charges zero output
tax on such
transactions can also
claim a refund of or a
tax credit certificate
for the VAT previously
charged by suppliers.”
Applying the Effective zero rating,
destination principle to on the contrary, is
the exportation of intended to benefit the
goods, automatic purchaser who, not
zero rating is being directly and
primarily intended to legally liable for the
be enjoyed by the payment of the VAT,
seller who is directly will ultimately bear the
and legally liable for burden of the tax
the VAT, making such shifted by the
seller internationally suppliers
competitive by
allowing the refund or
credit of input taxes
6
that are attributable to
export sales.
106(A)(2)(a) Export Sales
Q: What is the cross-border doctrine?
* According to CIR v. Toshiba Information
Equipment (Phils.), Inc., the Philippines
adheres to the cross-border doctrine which
means that “no VAT shall be imposed to
form part of the cost of goods destined for
consumption outside of the territorial
border of the taxing authority.
Hence:
 actual export of goods and services from
the Philippines to a foreign country must be
free of VAT;
 On the other hand, those destined for use
or consumption within the Philippines shall
be imposed with ten percent (10%) [now
12%] VAT.
 Additionally, sales made by an enterprise
within a non-ECOZONE territory, i.e.,
Customs Territory, to an enterprise within an
ECOZONE territory shall be free of VAT.
[CIR v. Toshiba Information Equipment (Phils.),
Inc., GR No. 150154, 9 Aug. 2005.]
[[106(A)(2)(a)(1) Actual Shipment of Goods
from the Philippines to a Foreign Country
(ZRT): The sale and actual shipment of goods
from the Philippines to a foreign country,
irrespective of any shipping arrangement that
may be agreed upon which may influence or
determine the transfer of ownership of the
goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or
services, and accounted for in accordance with
the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP)]]
Q: Give examples of export sales in the
form of actual shipment of goods from the
Philippines to a foreign country.
* Toshiba Information Equipment (Phils.), Inc.
v. CIR is a claim for tax refund/credit of alleged
unutilized input VAT on local purchases of
goods and services which are attributable to
export sales for the first and second quarters of
1997. [NOTE: This is different from the Toshiba
Case previously cited.]
In the case at bar, the CIR, in the Joint
Stipulation of Facts and Issues, admitted that
Toshiba was a registered VAT entity and
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S/Y 2011-2012
that it was subject to 0% VAT on its export
sales. Later, in his Motion for Reconsideration
of the adverse Court of Tax Appeals decision,
the CIR would argue that Toshiba was not
entitled to its claim for tax refund/credit
because it was VAT-exempt and its export
sales were VAT-exempt transactions (CIR
argued this way because if the export sales
were VAT exempt, then it would be entitled to
claim any credit from input tax)
The Supreme Court ruled that Toshiba was a
registered VAT entity and its export sales were
subject to 0% VAT.
Note: Remember, a zero-rated sale by a VAT-
registered person, which is a taxable
transaction for VAT purposes, shall not result in
any output tax. However, the input tax on his
purchases of goods, properties or services
related to such zero-rated sale shall be
available as tax credit or refund in accordance
with these regulations
[Toshiba Information Equipment (Phils.), Inc. v.
CIR, GR No. 157594, 9 Mar. 2010.]
The case of Intel Technology Philippines, Inc.
v. CIR is a claim for tax refund/credit of alleged
unutilized input VAT on local purchases of
goods and services which are attributable to
export sales for the second quarter of 1998.
 To prove that it was engaged in the “sale
and actual shipment of goods from the
Philippines to a foreign country and
therefore entitled to tax credit of input VAT,
Intel Technology presented documentary
evidence such as summary of export
sales, sales invoices, official receipts,
airway bills, and export declarations.
 And, to prove that payment was made “in
acceptable foreign currency or its
equivalent in goods or services, and
accounted for in accordance with the rules
and regulations of the Bangko Sentral ng
Pilipinas (BSP),” a certification of inward
remittances was presented by Intel
Technology
 The Supreme Court found that Intel
Technology’s evidence sufficiently
established that it was engaged in export
sales.
Note: Based on Sec 106, export sales, or
sales outside the Philippines, are subject to
VAT at 0% rate if made by a VAT-registered
person. When applied to the tax base, the 0%
rate obviously results in no tax chargeable
against the purchaser. The seller of such
7
transactions charges no output tax, but can
claim a refund or tax credit certificate for the
VAT previously charged by suppliers.
Additionally, Under Sections 106 (A)(2)(a)(1) in
relation to 112(A) of the Tax Code, a taxpayer
engaged in zero-rated or effectively zero-rated
transactions may apply for a refund or issuance
of a tax credit certificate for input taxes paid
attributable to such sales upon complying with
the following requisites: (1) the taxpayer is
engaged in sales which are zero-rated (like
export sales) or effectively zero-rated; (2) the
taxpayer is VAT-registered; (3) the claim must
be filed within two years after the close of the
taxable quarter when such sales were made;
(4) the creditable input tax due or paid must be
attributable to such sales, except the
transitional input tax, to the extent that such
input tax has not been applied against the
output tax; and (5) in case of zero-rated sales
under Section 106(A)(2)(a)(1) and (2), Section
106(B), and Section 108(B)(1) and (2), the
acceptable foreign currency exchange
proceeds thereof had been duly accounted for
in accordance with BSP rules and regulations.
It is added that, "where the taxpayer is
engaged in zero-rated or effectively zero-rated
sale and also in taxable or exempt sale of
goods or properties or services, and the
amount of creditable input tax due or paid
cannot be directly or entirely attributed to any
one of the transactions, it shall be allocated
proportionately on the basis of the volume of
the sales
[Intel Technology Philippines, Inc. v. CIR, GR
No. 166732, 27 Apr. 2007.]
106(A)(2)(a)(2) Sale of Raw Materials to a
Nonresident Buyer for Delivery to a
Resident Local Export-Oriented Enterprise:
Sale of raw materials or packaging materials to
a nonresident buyer for delivery to a resident
local export-oriented enterprise to be used in
manufacturing, processing, packing or
repacking in the Philippines of the said buyer's
goods and paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP);
106(A)(2)(a)(3) Sale of Raw Materials to
Export-Oriented Enterprise: Sale of raw
materials or packaging materials to export-
oriented enterprise whose export sales exceed
seventy percent (70%) of total annual
production;
TAX 2 SYLLABUS
DEAN LILY K. GRUBA
S/Y 2011-2012
Q: Give an example of a sale of raw
materials to an export-oriented enterprise.
* Section 106(A)(2)(a)(3) of the 1997 Tax Code
pertains to the sale of raw materials or
packaging materials to an export-oriented
enterprise whose export sales exceed 70%
of total annual production. With respect to
the extent of the relief, the Supreme Court held
that:
Thus, the 0% rate applies to the total sale of
raw materials or packaging materials to an
export-oriented enterprise and not just the
percentage of the sale in proportion to the
actual exports of the enterprise.”
[Atlas Consolidated Mining and Development
Corporation v. CIR, GR No. 146221, 25 Sept.
2007.]
106(A)(2)(a)(4) Sale of Gold to the BSP
Q: Give an example of a sale of gold to the
BSP.
CIR v. Benguet Corporation is a claim for tax
refund/credit of alleged unutilized input VAT on
Benguet Corporation’s sale of gold to the
Bangko Sentral ng Pilipinas for the period 1
August 1989 to 31 July 1991. [NOTE: At the
time the subject transaction was made, the
treatment of sale of gold to the BSP as export
sales was merely based on BIR issuances.
Today, such treatment is already contained in
the 1997 Tax Code.]
[CIR v. Benguet Corporation, GR Nos. 134587
& 134588, 8 July 2005.]
106(A)(2)(a)(5) Export Sales under the
Omnibus Investment Code of 1987 and
Other Special Laws
Q: Give an example of export sales under
the Omnibus Investment Code of 1987 and
other special laws.
In Panasonic Communications Imaging
Corporation of the Philippines v. CIR,
Panasonic produced and exported paper
copiers and their sub-assemblies, parts, and
components. It was registered with the Board
of Investments as a preferred pioneer
enterprise under the Omnibus Investment
Code of 1987; it was a registered VAT
enterprise; and its export sales were zero-
rated.
[Panasonic Communications Imaging
Corporation of the Philippines v. CIR, GR No.
178090, 8 Feb. 2010.]
8

106(A)(2)(a)(6) Sale of Goods to Persons
Engaged in International Shipping or Air
Transport Operations
106(A)(2)(b) Foreign Currency Denominated
Sale: The phrase 'foreign currency
denominated sale' means sale to a nonresident
of goods, except those mentioned in Sections
149 and 150, assembled or manufactured in
the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral
ng Pilipinas (BSP).
“transaction deemed sale” under Section
106(B)(1) of the 1997 Tax Code. It thus
qualified for zero-rating.
[San Roque Power Corporation v. CIR, GR No.
180345, 25 Nov. 2009.]
106(C) Changes in or Cessation of Status of
a VAT-Registered Person
106(D) Sales Returns, Allowances, and
Sales Discounts
106(E) Authority of the Commissioner to
Determine the Appropriate Tax Base

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