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7/28/2019 Part D - Focus Cases
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PART D
IVAT
(1) SOUTHERN PHILIPPINES POWER CORPORATION V. CIR Rod. (ORIGINAL IS
WITH ME.)
(2) ACCENTURE INC. V. CIR
July 11, 2012
J Sereno
Topic: VAT; Zero Rated
DOCTRINE:
The recipient of the service should be doing business outside the Philippines to
qualify for zero-rating
To come within the purview of Section 108(B)(2), it is not enough that the recipient
of the service be proven to be a foreign corporation; rather, it must be specifically
proven to be a nonresident foreign corporation.A taxpayer claiming a tax credit or refund has the burden of proof to establish the
factual basis of that claim. Tax refunds, like tax exemptions, are construed strictly
against the taxpayer.
QUICK FACTS:
Accenture is claiming that their clients are doing business outside the Philippines
and thus, the transactions are zero rated. CTA thinks otherwise (see doctrine)
SC Ruled in favor of CTA
FACTS:
Tax: Zero-Rated Tax
Accenture is a corporation which provides management consulting, business
strategies. It is registered with BIR as a VAT Taxpayer in accordance with Section
236 of NIRC.
Accenture filed its monthly VAT return for July to Aug 2002, then it filed a quarterly
VAT return which was amended June 21 2002. The following were reflected in the
VAT Return of 4th
Quarter:
Accenture filed its Monthly VAT Return for the month of September 2002 on 24
October 2002; and that for October 2002, on 12 November 2002. These returns
were amended on 9 January 2003. Accentures
Quarterly VAT Return for the first quarter of 2003, which included the period 1
September 2002 to 30 November 2002 (2nd period), was filed on 17 December
2002; and the Amended Quarterly VAT Return, on 18 June 2004. The latter contains
the following information:
The monthly and quarterly VAT returns of Accenture show that, notwithstanding its
application of the input VAT credits earned from its zero-rated transactions against
its output VAT liabilities, it still had excess or unutilized input VAT credits. These
VAT credits are in the amounts of9,355,809.80 for the 1st period and
27,682,459.38 for the 2nd period, or a total of37,038,269.18
Out of the 37,038,269.18, only 35,178,844.21 pertained to the allocated input
VAT on Accentures domestic purchases of taxable goods which cannot be directly
attributed to its zero-rated sale of services. This allocated input VAT was broken
down to 8,811,301.66 for the 1stperiod and 26,367,542.55 for the 2nd period.
The excess input VAT was not applied to any output VAT that Accenture was liable
for in the same quarter when the amount was earnedor to any of the succeeding
quarters. Instead, it was carried forward to petitioners 2nd Quarterly VAT Return
for 2003
On 1 July 2004, Accenture filed with the Department of Finance (DoF) an
administrative claim for the refund or the issuance of a Tax Credit Certificate (TCC).
The DoF did not act on the claim of Accenture. Hence, on 31 August 2004, the latter
filed a Petition for Review with the First Division of the Court of Tax Appeals
(Division), praying for the issuance of a TCC in its favor in the amount of
35,178,844.21.
CIRs Answer:
1. The sale by Accenture of goods and services to its clients are not zero-rated
transactions.
2. Claims for refund are construed strictly against the claimant, and Accenture hasfailed to prove that it is entitled to a refund, because its claim has not been fully
substantiated or documented.
Division denied the Petition of Accenture for failing to prove that the latters sale of
services to the alleged foreign clients qualified for zero percent VAT. Accenture had
failed to present evidence to prove that the foreign clients to which the former
rendered services did business outside the Philippines. Division cited Commissioner
of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc. (Burmeister) as basis.
In MR, Accenture argued:
1. The issue involved in Burmeister was the entitlement of the applicant to a refund,
given that the recipient of its service was doing business in the Philippines; it was
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not an issue of failure of the applicant to present evidence to prove the fact that
the recipient of its services was a foreign corporation doing business outside the
Philippines.
2. Burmeister emphasized that, to qualify for zero-rating, the recipient of the
services should be doing business outside the Philippines, and Accenture had
successfully established that.
3. Having been promulgated on 22 January 2007 or after Accenture filed its Petitionwith the Division, Burmeister cannot be made to apply to this case
MR Denied so Accenture appealed to CTA en banc
CTA: even though the provision used in Burmeister was Section 102(b)(2) of the
earlier 1977 Tax Code, the pronouncement therein requiring recipients of services
to be engaged in business outside the Philippines to qualify for zero-rating was
applicable to the case at bar, because Section 108(B)(2) of the 1997 Tax Code was a
mere reenactment of Section 102(b)(2) of the 1977 Tax Code.
Accenture failed to discharge the burden of proving the latters allegation that its
clients were foreign-based
ISSUES:
1. Should the recipient of the services be doing business outside the Philippinesfor the transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax
Code? YES
2. Has Accenture successfully proven that its clients are entities doing businessoutside the Philippines? NO
HELD:
1. The recipient of the service must be doing business outside the Philippines for
the transaction to qualify for zero-rating under Section 108(B) of the Tax Code.
Even though Accentures Petition was filed before Burmeister was promulgated, the
pronouncements made in that case may be applied to the present one without
violating the rule against retroactiveapplication. When this Court decides a case, it
does not pass a new law, but merely interprets a preexisting one.
That the recipient of the service should be doing business outside the Philippines to
qualify for zero-rating is the only logical interpretation of Section 102(b)(2) of the
1977 Tax Code, as we explained in Burmeister
2. The documents presented by Accenture merely substantiate the existence of the
sales, receipt of foreign currency payments, and inward remittance of the proceeds
of these sales duly accounted for in accordance with BSP rules. Petitioner presented
no evidence whatsoever that these clients were doing business outside the
Philippines
The evidence presented by Accenture may have established that its clients are
foreign. This fact does not automatically mean, however, that these clients were
doing business outside the Philippines. After all, the Tax Code itself has provisions
for a foreign corporation engaged in business within the Philippines and vice versa
To come within the purview of Section 108(B)(2), it is not enough that the recipientof the service be proven to be a foreign corporation; rather, it must be specifically
proven to be a nonresident foreign corporation.
A taxpayer claiming a tax credit or refund has the burden of proof to establish the
factual basis of that claim. Tax refunds, like tax exemptions, are construed strictly
against the taxpayer.
Accenture failed to discharge this burden
RULED in favor of CTA
Dispositive: WHEREFORE, the instant Petition is DENIED. The 22 September 2009
Decision and the 23 October 2009 Resolution of the Court of Tax Appeals En Bane in
C.T.A. EB No. 477, dismissing the Petition for the refund of the excess or unutilizedinput VAT credits of Accenture, Inc., are AFFIRMED.
(3) FORT BONIFACIO DEVELOPMENT CORP v CIR and RDO (Rev District 44)
DOCTRINE:
There is nothing in Sec 105 of the NIRC that indicate that prior payment of taxes is
necessary for the availment of the 8% transitional input tax credit.
QUICK FACTS:
FBDCs claim for tax refund was denied. They were not allowed to avail of the 8%
transitional input tax credit because this benefit comes with the condition that
business taxes should have been paid first. Since FBDC bought the property from
the national government tax-free, it was not allowed to claim tax credit.
FBDC filed petition for Certiorari under Rule 45 before the SC.
Supreme Court ruled in favor of FBDC.
FACTS:
On 08 February 1995, Fort Bonifacio Development Corp (FBDC) purchased from the
national government a portion of the Fort Bonifacio reservation now known as Fort
Bonifacio Global City.
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On 01 Jan 1996, RA 7716 restructured the VAT system. It extended the coverage of
VAT to real property held primarily for sale or held for lease in the ordinary course
of trade or business.
On 19 September 1996, FBDC submitted to the BIR an inventory of all its real
properties with aggregated book value amounting to Php71bio. Based on this value,
it claimed that it was entitled to a transitional input tax credit of Php5bio pursuant
to Sec 105 of the NIRC .
During the 1st quarter of 1997, FBDC generated from sales and lease of lots around
Php3bio, with VAT payable in the amount of Php368mio. FBDC paid output VAT of
Php359bio and credited its unutilized input tax credit on purchases of goods and
services of Php8mio. When it realized that its transitional input tax credit was not
applied in computing its output VAT, it filed with the BIR a claim for refund of the
amount Php359mio erroneously paid as output VAT.
CIRDid not act on the petition
CTA Due to the inaction of the CIR, FBDC elevated the case to the CTA. CTAdenied claim for refund.
It reasoned that the benefit of transitional input tax credit comes with the
condition that business taxes should have been paid first. In this case, since FBDC
purchased the Global City property under a tax-free sale transaction, it cannot avail
of the transitional input tax credit. The CTA likewise pointed out that under RR7-95,
implementing Sec 105 of the old NIRC, the 8% transitional input tax credit should be
based on the value of the improvements on land such as buildings, roads, drainage
system and other similar structures, constructed on or after 01 Jan 1998, and not
on the book value of the property.
CAAffirmed the decision of the CTA.
ISSUES:
1 - WON there should be a prior payment of taxes in order to avail of the 8%
transitional input tax credit?
2 - WON the RR 7-95, implementing Sec 105, is inconsistent with Sec 105
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HELD/RATIO:
1. No. There is nothing in Sec 105 of the NIRC that indicate that prior
payment of taxes is necessary for the availment of the 8% transitional input tax
credit.
2. Yes. The SC explained that RR 7-95 by limiting the 8% transitional input tax
credit to the value of improvements on the land contravenes Secc 105 in relation toSec 100, as amended by RA 7716, which defined goods or properties to include
Real Properties held primarily for sale to customers or held for lease in
the ordinary course of trade or business.
The SC quoting its resolution in a related case said:
As mandated by Art 7 of the Civil Code, an administrative rule or regulation cannot
contravene the law on which it is based The rules and regulations that
administrative agencies promulgate, which are the product of a delegated
legislative power to create new and additional legal provisions that have the effect
of law, should be within the scope of the statutory authority granted by the
legislature to the objects and purposes of the law, and should not be in
contradiction to, but in conformity with, the standards prescribed by law.
(4) EASTERN TELECOMMUNICATIONS PHILS. INC. V. CIRRaj. (ORIGINAL IS WITH
ME.)
(5) DIAZ AND TIMBOL VS. SECRETARY OF FINANCE
Topic: Focus Cases - VAT
Date: July 19, 2011
Ponente: Abad, J.
QUICK FACTS: Petitioners Renato Diaz and Aurora Ma. Timbol (petitioners) filed a
petition for declaratory relief assailing the validity of the impending imposition of
value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the collections of
tollway operators.
DOCTRINE: The law imposes VAT on all kinds of services rendered in the
Philippines for a fee, including those specified in the NIRC. The enumeration of
affected services is not exclusive. By qualifying services with the words all kinds,
Congress has given the term services an all-encompassing meaning. The listing of
specific services are intended to illustrate how pervasive and broad is the VATsreach rather than establish concrete limits to its application. Thus, every activity
that can be imagined as a form of service rendered for a fee should be deemed
included unless some provision of law especially excludes it.
FACTS: Diaz and Timbol allege that the BIR attempted during the administration of
President Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was
deferred, however, in view of the consistent opposition of Diaz and other sectors to
such move. But, upon President Benigno Aquino IIIs assumption of office in 2010,
the BIR revived the idea and would impose the challenged tax on toll fees beginningAugust 16, 2010 unless judicially enjoined.
Diaz and TImbol hold the view that Congress did not, when it enacted the NIRC,
intend to include toll fees within the meaning of sale of services that are subject
to VAT; that a toll fee is a users tax, not a sale of services; that to impose VAT on
toll fees would amount to a tax on public service; and that, since VAT was never
factored into the formula for computing toll fees, its imposition would violate the
non-impairment clause of the constitution.
The government, on the other hand, avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations, except where the law
provides otherwise; that the Court should seek the meaning and intent of the law
from the words used in the statute; and that the imposition of VAT on tollway
operations has been the subject as early as 2003 of several BIR rulings and circulars.
ISSUE: Whether or not the government is unlawfully expanding VAT coverage by
including tollway operators and tollway operations in the terms franchise
grantees and sale of services under Section 108 of the Code.
HELD: No, the government is not unlawfully expanding VAT coverage. The law
imposes VAT on all kinds of services rendered in the Philippines for a fee,
including those specified in the list. The enumeration of affected services is not
exclusive. By qualifying services with the words all kinds, Congress has given theterm services an all-encompassing meaning. The listing of specific services are
intended to illustrate how pervasive and broad is the VATs reach rather than
establish concrete limits to its application. Thus, every activity that can be imagined
as a form of service rendered for a fee should be deemed included unless some
provision of law especially excludes it.
Presidential Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal
basis for the services that tollway operators render. Essentially, tollway operators
construct, maintain, and operate expressways, also called tollways, at the
operators expense. Tollways serve as alternatives to regular public highways that
meander through populated areas and branch out to local roads. Traffic in the
regular public highways is for this reason slow-moving. In consideration for
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constructing tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways until such operators
could fully recover their expenses and earn reasonable returns from their
investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for the
latters use of the tollway facilities over which the operator enjoys private
proprietary rights that its contract and the law recognize. In this sense, the tollwayoperator is no different from the following service providers under Section 108 who
allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses,
inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place in the Philippines.
It does not help Diazs and Timbols cause that Section 108 subjects to VAT all
kinds of services rendered for a fee regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. This means
that services to be subject to VAT need not fall under the traditional concept of
services, the personal or professional kinds that require the use of human
knowledge and skills.
(6) CIR V. SM PRIME HOLDINGS
Topic: VAT
Date: 26 Feb 2010
Ponente: Del Castillo
DOCTRINE: Gross receipts derived from admission tickets by cinema/theater
operators or proprietors are not subject to VAT (they are, however, subject to 30%
amusement tax under 140 of the LGC).
QUICK FACTS: The CIR assessed SM Prime and First Asia for VAT deficiency for the
years 1999 and 2000; both taxpayers filed a protest, contending that exhibition of
cinematographic film is not an activity subject to VAT.
SC: Movie tickets not subject to VAT.
Tax Law: SEC. 108. Value-added Tax on Sale of Services and Use or Lease of
Properties.
FACTS:
SM Prime Holdings, Inc. (SM Prime) and First Asia Realty Development Corporation
(First Asia) are domestic corp., engaged in the business of operating cinema houses,among others.
The CIR sent several Preliminary Assessment Notices (PAN) to SM Prime and First
Asia for tax VAT deficiency on cinema ticket sales for the years 1999 and 2000. Each
filed their respective protest which resulted in several CTA cases, which were then
consolidated for the reason that they raise identical issues and that SM Prime is a
majority SH of First Asia.
CIRs contention:
The enumeration of services subject to VAT in 108 NIRC is not exhaustive because
it covers all sales of services unless exempted by law. Thus, the exhibition of movies
by cinema operators or proprietors to the paying public, being a sale of service, is
subject to VAT.
SM Primes contention:
1. A plain reading of 108 NIRC shows that the gross receipts of proprietors
or operators of cinemas/theaters derived from public admission are not among the
services subject to VAT.
2. RMC No. 28-2001 on which the deficiency assessments were based is an
unpublished administrative ruling.
CTA 1st Div. - ifo SM Prime. Ruling: The activity of showing cinematographic
films is not a service covered by VAT under NIRC, but an activity subject toamusement tax under RA 7160 (LGC of 1991).
CTA En Banc - affirmed. Ruling: 108 NIRC sets forth an exhaustive
enumeration of what services are intended to be subject to VAT - exhibition of
motion movies by cinema operators is not among the enumerated activities.
ISSUE:
W/N gross receipts derived from admission tickets by cinema/theater operators or
proprietors are subject to VAT.
HELD:
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NO. Gross receipts derived from admission tickets by cinema/theater operators or
proprietors are not subject to VAT; they are subject to 30% amusement tax under
140 of the LGC.
RATIO:
1. Enumeration in 108 NIRC not exhaustive
The enumeration of the "sale or exchange of services" subject to VAT is not
exhaustive. The words, "including," "similar services," and "shall likewise include,"indicate that the enumeration is by way of example only.
2. "lease of motion picture films, etc. is not the same as showing or
exhibition thereof
Among those included in the enumeration is the "lease of motion picture films,
films, tapes and discs." This, however, is not the same as the showing or exhibition
of motion pictures or films.
"Exhibition" in Blacks Law Dictionary is defined as "To show or display. To produce
anything in public so that it may be taken into possession," while the word "lease"
is defined as "a contract by which one owning such property grants to another the
right to possess, use and enjoy it on specified period of time in exchange for
periodic payment of a stipulated price, referred to as rent.
3. History of legislature would show that the legislature never intended
operators or proprietors of cinema/theater houses to be covered by VAT.
Based on a study if legislative history , the following facts can be established:
a. Historically, the activity of showing motion pictures, films or movies bycinema/theater operators or proprietors has always been considered as a
form of entertainment subject to amusement tax.
b. Prior to the Local Tax Code, all forms of amusement tax were imposed bythe national government.
c. When the Local Tax Code was enacted, amusement tax on admissiontickets from theaters, cinematographs, concert halls, circuses and other
places of amusements were transferred to the local government.
d. Under the NIRC of 1977, the national government imposed amusement taxonly on proprietors, lessees or operators of cabarets, day and night clubs,
Jai-Alai and race tracks.
e. The VAT law was enacted to replace the tax on original and subsequentsales tax and percentage tax on certain services.
f. When the VAT law was implemented, it exempted persons subject toamusement tax under the NIRC from the coverage of VAT.1auuphil
g. When the Local Tax Code was repealed by the LGC of 1991, the localgovernment continued to impose amusement tax on admission tickets
from theaters, cinematographs, concert halls, circuses and other places of
amusements.
h. Amendments to the VAT law have been consistent in exempting personssubject to amusement tax under the NIRC from the coverage of VAT.
i. Only lessors or distributors of cinematographic films are included in thecoverage of VAT.
These reveal the legislative intent not to impose VAT on persons already covered bythe amusement tax. This holds true even in the case of cinema/theater operators
taxed under the LGC of 1991 precisely because the VAT law was intended to replace
the percentage tax on certain services. The mere fact that they are taxed by the
local government unit and not by the national government is immaterial. The Local
Tax Code, in transferring the power to tax gross receipts derived by cinema/theater
operators or proprietor from admission tickets to the local government, did not
intend to treat cinema/theater houses as a separate class. No distinction must,
therefore, be made between the places of amusement taxed by the national
government and those taxed by the local government.
4. To hold that cinema operators are subject to VAT would an unreasonable
burden to the taxpayer.
To hold otherwise would impose an unreasonable burden on cinema/theater
houses operators or proprietors, who would be paying an additional 10% VAT on
top of the 30% amusement tax imposed by 140 of the LGC of 1991, or a total of
40% tax. Such imposition would result in injustice, as persons taxed under the NIRC
of 1997 would be in a better position than those taxed under the LGC of 1991. We
need not belabor that a literal application of a law must be rejected if it will operate
unjustly or lead to absurd results. Thus, we are convinced that the legislature never
intended to include cinema/theater operators or proprietors in the coverage of
VAT.
5. Revenue Memorandum Circular No. 28-2001 is invalidConsidering that there is no provision of law imposing VAT on the gross receipts of
cinema/theater operators or proprietors derived from admission tickets, RMC No.
28-2001 which imposes VAT on the gross receipts from admission to cinema houses
must be struck down.
(7) KEPCO PHILS v CIR
Topic: VAT; Substantiation requirements
Ponente: Mendoza, J.
Date: November 24, 2010
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DOCTRINE: "[T]o be considered a 'VAT invoice,' the TIN-VAT must be printed, and
not merely stamped. Consequently, purchases supported by invoices or official
receipts, wherein the TIN-VAT is not printed thereon, shall not give rise to any input
VAT. Likewise, input VAT on purchases supported by invoices or official receipts
which are NON-VAT are disallowed because these invoices or official receipts are
not considered as 'VAT Invoices.'"
QUICK FACTS: Kepco Philippines Corporation (Kepco), an Independent PowerProducer (IPP) selling electricity exclusively to tax-exempt National Power
Corporation (NPC), insists that the CTA Second Division erred in not considering
P8,691,873.81 in addition to P2,890,005.96 as refundable tax credit for Kepco's
zero-rated sales to NPC for taxable year 2002 because nothing in the law allows the
automatic invalidation of official receipts/invoices which were not imprinted with
"TIN-VAT;" and the reduction of their claim representing input VAT on purchase of
goods not supported by invoices and input VAT on purchase of services not
supported by official receipts because the law makes use of invoices and official
receipts interchangeably. The Supreme Court disagrees and denied their petition.
FACTS:
In the course of doing business with NPC, Kepco claimed expenses reportedly
sustained in connection with the production and sale of electricity with NPC. Based
on Kepco's calculation, it paid input VAT amounting to P11,710,868.86 attributing
the same to its zero-rated sales of electricity with NPC.
On April 20, 2004, Kepco filed before the CIR (and later the CTA) a claim for tax
refund covering unutilized input VAT payments attributable to its zero-rated sales
transactions for taxable year 2002.
During the hearing, Kepco presented court-commissioned Independent Certified
Public Accountant, Victor O. Machacon, who audited their bulky documentary
evidence consisting of official receipts, invoices and vouchers, to prove its claim forrefund of unutilized input VAT.
On February 26, 2007, the CTA Second Division ruled that out of the total declared
zero-rated sales of P3,285,308,055.85, Kepco was only able to properly substantiate
P1,451,788,865.52 as its zero-rated sales. After factoring, only 44.19% of the validly
supported input VAT payments being claimed could be considered. The CTA Second
Division likewise disallowed the P5,170,914.20 of Kepco's claimed input VAT due to
its failure to comply with the substantiation requirement.
CTA Second Division: partially granted Kepco's claim for refund to the amount of
Php2,890,005.96 representing unutilized input value-added tax for taxable year
2002. MR denied.
CTA En Banc: dismissed the petition and ruled that "in order for Kepco to be
entitled to its claim for refund/issuance of tax credit certificate representing
unutilized input VAT attributable to its zero-rated sales for taxable year 2002, it
must comply with the substantiation requirements and concluded that the Court
in Division was correct in disallowing a portion of Kepco's claim for refund on the
ground that input taxes on Kepco's purchase of goods and services were not
supported by invoices and receipts printed with "TIN-VAT."
ISSUE 1/HELD: WON the claiming party who fails to issue VAT official
receipts/invoices for its sales should only be imposed penalties as provided under
Section 264 of the 1997 NIRC? No, it would result in automatic denial of claim.
Section 264 (formerly Section 263) of the 1997 NIRC was not intended to excuse the
compliance of the substantive invoicing requirement needed to justify a claim for
refund on input VAT payments.
Internal Revenue Regulation 7-95 (Consolidated Value-Added Tax Regulations) is
clear. Section 4.108-1 thereof reads:
Only VAT registered persons are required to print their TIN followed by the word
"VAT" in their invoice or receipts and this shall be considered as a "VAT" Invoice. All
purchases covered by invoices other than 'VAT Invoice' shall not give rise to any
input tax.
ISSUE 2/HELD: WON the word "TIN-VAT" and zero-rated should be imprinted on
invoices and/or official receipts as part of the invoicing requirement? Yes, it should
be imprinted and not merely stamped.
In Panasonic Communications Imaging Corporation of the Philippines vs.
Commissioner of Internal Revenue the Supreme Court held that Section 4.108-1 of
RR 7-95 proceeds from the rule-making authority granted to the Secretary ofFinance under Section 245 of the 1977 NIRC (Presidential Decree 1158) for the
efficient enforcement of the tax code and of course its amendments. The
requirement is reasonable and is in accord with the efficient collection of VAT from
the covered sales of goods and services. As aptly explained by the CTA's First
Division, the appearance of the word "zero-rated" on the face of invoices covering
zero-rated sales prevents buyers from falsely claiming input VAT from their
purchases when no VAT was actually paid. If, absent such word, a successful claim
for input VAT is made, the government would be refunding money it did not collect.
Further, the printing of the word "zero-rated" on the invoice helps segregate sales
that are subject to 10% (now 12%) VAT from those sales that are zero-rated. Unable
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to submit the proper invoices, petitioner Panasonic has been unable to substantiate
its claim for refund.
Contrary to Kepco's allegation, the , Internal Revenue Regulation 7-95 (Consolidated
Value-Added Tax Regulations) specifically requires the VAT registered person to
imprint TIN-VAT on its invoices or receipts. Thus, the Court agrees with the CTA
when it wrote: "[T]o be considered a 'VAT invoice,' the TIN-VAT must be printed,
and not merely stamped. Consequently, purchases supported by invoices or officialreceipts, wherein the TIN-VAT is not printed thereon, shall not give rise to any input
VAT. Likewise, input VAT on purchases supported by invoices or official receipts
which are NON-VAT are disallowed because these invoices or official receipts are
not considered as 'VAT Invoices.'"
DISPOSITIVE: Kepcos petition denied.
(8) LVM CONSTRUCTION CORPORATION V. F.T. SANCHEZ/SOCOR/KIMWA ET. AL.
Raj.
(9) GALILEO ASIA, LLC- PHILIPPINE BRANCH V CIR
Topic: Value Added Tax
Ponente: PALANCA-ENRIQUEZ, J.
Date: August 22, 2012
DOCTRINE: Pursuant to the above provision, in order to be entitled to a refund or
issuance of a TCC of input VAT paid, petitioner must prove the following: 1) the
claimant must be a VAT -registered person; 2) there must be zero-rated or
effectively zero-rated sales; 3) input taxes were incurred or paid; 4) such input taxes
are attributable to said zero-rated or effectively zero-rated sales; 5) said input taxes
were not applied against any output VAT liability; and 6) the claim for refund was
filed within the prescriptive period. It is imperative, therefore, that petitionershould be able to prove its
compliance with the above requirements.
QUICK FACTS: Petitioner filed with the BIR, Revenue District Office (RDO) No. 49, an
administrative claim for refund or tax credit of the total amount of P5,616,836.51,
representing its excess and unutilized input VAT on its domestic purchases of goods
and services attributable to zero-rated sales of services for the period May 1, 2008
to July 31 , 2009.
TAX: Section 112 (A) of the NIRC of 1997, as amended by RA 9337.
FACTS:
Petitioner, being a foreign corporation, has a branch office in the Philippines which
provides travel reservations, products and services, using GRS to travel agencies
and foreign and domestic airlines in the Philippines. Pursuant to a Service
Agreement with its foreign affiliate, petitioner was appointed to promote and
market its affiliate's Computerized Registration
System services in the region. For the period May 1, 2008 to July 31, 2009,
petitioner rendered services in the Philippines to its foreign affiliate engaged in the
business outside of the Philippines. Petitioner's total sales for said period amountedto P 88,778,212.95, broken down, as follows:
Total Vatable Sales p 61 ,857.62
Total Zero-rated Sales 88,713,655.33
Total Exempt Sales 2,700.00
TOTAL SALES (May 2008 to July 2009) P88, 778,212.95
For the same period, petitioner likewise incurred a total ofP6,297,687.83
accumulated input VAT from domestic purchases of non-capital goods and
services, P6,293, 108.29 of which was attributable to its zero-rated sales of
services. On March 11, 2010, petitioner filed with the BIR, Revenue District
Office (RDO) No. 49, an administrative claim for refund or tax credit of the
total amount of P5,616,836.51, representing its excess and unutilized input
VAT on its domestic purchases of goods and services attributable to zero-rated sales
of services for the period May 1, 2008 to July 31 , 2009.
ISSUE: WON petitioner is entitled to a refund or issuance of a TCC in the amount of
P5,616,836.51, representing unutilized input VAT on domestic purchases of goods
and services attributable to its VAT zero-rated sales of services for the period May
1, 2008 to July 31, 2009.
HELD: No.
RATIO:In order to be entitled to a refund or issuance of a TCC of input VAT paid, petitioner
must prove the following: 1) the claimant must be a VAT -registered person; 2)
there must be zero-rated or effectively zero-rated sales; 3) input taxes were
incurred or paid; 4) such input taxes are attributable to said zero-rated or
effectively zero-rated sales; 5) said input taxes were not applied against any output
VAT liability; and 6) the claim for refund was filed within the prescriptive period. It
is imperative, therefore, that petitioner should be able to prove its compliance with
the above requirements.
As regards the first requisite, records show that petitioner is a registered VAT
entity, as evidenced by a Certificate of Registration.
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Section 113 of the NIRC of 1997, as amended by RA 9337, which provides:
"SEC. 113. Invoicing and Accounting Requirements for
VAT-Registered Persons. - (A) Invoicing Requirements. - A VAT registered person
shall issue: ( 1) A VAT invoice for every sale, barter or exchange of
goods or properties; and (2) A VAT official receipt for every lease of goods or
properties, and {or everv sale, barter or exchange of services.
xxx xxx." (Emphasis ours)
Clearly, the above provision requires the issuance of either an invoice or
receipt for every sale by a VAT registered person. In this case, considering that
petitioner is engaged in the sale of services, its transactions should be properly
supported by VAT official receipts. A perusal of the evidence on record shows that
petitioner presented merely inter-company invoices, not official receipts, to prove
its sale of services to its foreign affiliates. Without proper VAT official receipts
issued to its clients, petitioner cannot claim such sales as zero-rated VAT not subject
to output tax.
(10) CIR v. MINDANAO II GEOTHERMAL PARTNERSHIP
Topic: Value Added Tax
Ponente: CTA EB No. 863
Date: 23 October 2012
DOCTRINE: Failure to show the amount of input VAT in the invoice or receipt is fatal
to a claim for refund or issuance of tax credit certificate (TCC)
QUICK FACTS: Mindanao II Geothermal Partnership requested refund or issuance of
TCC for sake of generated power and delivery of electricity to NPC and in behalf of
PNOC-EDC, which is VAT zero-rated; but, failed to substantiate/ comply with the
requirements of input VAT, hence, disallowed by the court.
FACTS:
Mindanao II Geothermal Partnership (hereinafter "Mindanao II") is a partnership
duly registered with the Securities and Exchange Commission and existing under
the laws of the Philippines. Mindanao II executed a Build-Operate-Transfer ("BOT")
contract with the Philippine National Oil Corporation-Energy Development
Corporation ("PNOC-EDC") to finance, construct, design, test, operate, maintain and
repair a 48.25-megawatt geothermal power plant in Kidapawan, North Cotabato,
provided PNOC-EDC would supply and deliver steam to Mindanao II at no cost
Mindanao II claims that as an accredited power generation company utilizing
geothermal energy, its sale of generated power and delivery of electricity to NPC
for and in behalf of PNOC-EDC is VAT zero-rated, under Section 108 (B) of the NIRC
of 1997, as amended by RA 9337. The sale is its lone revenue generating activity. On
February 8, 2008, Mindanao II filed with the BIR Revenue District Office No. 108-
Kidapawan City an administrative claim for refund or issuance of tax credit
certificate in the amount of P7,842,632.34 for the four quarters of taxable year
2006. However, the CIR failed to act on said claim for refund or issuance of tax
credit certificate
In her Answer, the CIR alleged by way of special and affirmative defenses that
Mindanao II's claim for refund or issuance of TCC is subject to administrative
investigation/examination by the BIR; taxes collected are presumed to be in
accordance with laws and regulations; Mindanao II must comply with the following
requisites: (1) that it is a VAT registered taxpayer, (2) the invoicing and accounting
requirements, (3) submission of complete documents in support of its
administrative claim for refund, pursuant to Section 112 (C) of the NIRC of 1997, as
amended, (4) the input tax was paid by the claimant, attributable to its zero-rated
or effectively zero-rated sales and such input tax should not been applied against
any output tax; Mindanao II's claim for refund or issuance of TCC of unutilized input
tax was filed within the two-year period under Section 112 (A) of the NIRC of 1997,
as amended; in an action for tax refund/credit, the burden of proof rests upon the
taxpayer; and basic is the rule that tax refunds are in the nature of tax exemptions
and are construed strictissimi juris against the entity claiming the same.
Mindanao II contends that it presented as proof of its input tax payments both the
invoices issued by its customers showing the amount of the tax as a separate item
and the official receipts also issued by said customers as proof of petitioner's
payments of said invoices
Issue: WON Mindanao II should be granted refund or issuance of TCC representing
Mindanao IIs input taxes
Held: No
Decision:
Section 113 of the NIRC of 1997, as amended by RA 9337, provides:
"SEC. 113. Invoicing and Accounting Requirements for VAT-Registered
Persons.
(A) Invoicing Requirements. A VAT-registered person shall issue:
(1) A VAT invoice for every sale, barter or exchange of goods or properties;
and
(2) A VAT official receipt for every lease of goods or properties, and for every
sale, barter or exchange of services.
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(B) Information Contained in the VAT Invoice or VAT Official Receipt. The
following information shall be indicated in the VAT invoice or VAT official receipt:
(1) A statement that the seller is a VAT-registered person, followed by his
taxpayer's identification number (TIN);
(2) The total amount which the purchaser pays or is obligated to pay to the
seller with the indication that such amount includes the value-added tax: Provided,
That:
(a) The amount of the tax shall be shown as a separate item in the invoice orreceipt;
xxx xxx xxx" (Emphasis supplied).
Pursuant to the above provision, one of the invoicing and accounting requirements
for VAT-Registered Persons is that the amount of the tax should be shown as a
separate item in the invoice or receipt.
The court denied input VAT on purchase of goods supported by invoice, as the
amount of the tax is not shown as a separate item in the invoice, and P5,539,461.04
as input VAT on purchases of services supported by invoice and official receipt, as
the amount of the tax is not shown as a separate item in the receipt, or the total
amount of P6,016,192.37. The aforementioned Section 113 (A) expressly provides
that for the sale of goods or properties, VAT invoice shall be issued; while for the
sale of services, VAT official receipt shall be issued.
It is clear that input tax credits incurred from purchases of goods and properties
must be substantiated by invoices showing the information required in Sections 113
and 237 of the NIRC of 1997, as amended by RA 9337; while input tax credits
incurred from purchases of services must be substantiated by official receipts
showing the information required under Sections 113 and 237 of the same Code.
(11) CIR v. TEAM ENERGY
Topic: VAT Unutilized Input Substantiation Requirements
Ponente: Castaeda, Jr.
Date: 8 April 2011
DOCTRINE: Although it is true that the Court of Tax Appeals (CTA) is not strictly
governed by technical rules of evidence, the invoicing and substantiation
requirements must, nevertheless, be followed because it is the only way to
determine the veracity of ones claims.
QUICK FACTS: Team Energy Corporation (TEC) is claiming for a refund of unutilized
input VAT attributable to zero-rated sales.
FACTS:
Tax: Unutilized input VAT attributable to zero-rated sales.
On December 17, 2004, TEC filed an administrative claim for refund of unutilized
input VAT with the Revenue District Office No. 60 at Lucena City in the total amount
of P83,465,353.50. On April 22, 2005, receiving no favorable response from the
Commissioner of Internal Revenue (CIR), petitioner filed a Petition for Reviewbefore this Court, docketed as CTA Case No. 7229, claiming for the refund of the
amount of P15,085,320.31 corresponding to the firstst quarter VAT claim for the
calendar year 2003.
On July 22, 2005 petitioner filed CTA Case No. 7298 for its corresponding judicial
VAT refund claims for the second to fourth quarters of 2003 summing up to
P63,380,033.19. Both cases were then consolidated. On October 5, 2009, the Court
of Tax Appeals First Division rendered a Decision partially granting TECs Petition
and ordered the CIR to refund or issue a tax credit certificate to TEC in the amount
of P70,700,533.01. Its Motion for Reconsideration denied, the CIR filed the present
case before the CTA en banc.
TECs Contention: TEC failed to comply with the jurisdictional period within which to
file its judicial claim for refund of its unutilized input VAT as provided under Section
112 of the 1997 NIRC.
Respondents Contention: The thirty 30-day period prescribed under Section 112(c)
of the 1997 NIRC, as amended, is not mandatory but rather directory for the use of
the word "may" operates to confer discretion.
TC - N/A
CA - N/A
ISSUE:
WoN TEC complied with the jurisdictional period within which to file its judicial
claim for refund of its unutilized input VAT.
HELD: Yes, but only insofar as the claim for the first quarter of 2003 is concerned.
RATIO: Only the claim for refund for the first quarter of 2003 was filed on time.
However, aside from timeliness, TEC, to be entitled to a refund, must have also
complied with four other requisites, namely: (1) there must be zero-rated or
effectively zero-rated sales; (2) that input taxes were incurred or paid; (3) that such
input taxes are attributable to zero-rated or effectively zero-rated sales; and (4)
that the input taxes were not applied against any output VAT liability. As to the first
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requisite, the TEC's zero-rated sales for the first quarter amounting to
P3,170,914,604.24 were fully substantiated and that no output VAT liability for the
first quarter of 2003 was declared in its First Quarter VAT Return. As to the fourth
requisite, the subject claim was neither applied against any output tax nor carried
over to the succeeding quarter. As to the third and fourth requisites, TEC, in the
First Quarter VAT Return, declared an input VAT of P15,085,320.31. However, not
all the input VAT declared for the first quarter will be refunded since there were
disallowances due to non-observance of substantiation requirements underSections 110 and 113 of the 1997 NIRC, as implemented by Sections 4.104-1, 4.104-
5 and 4.108-1 of Revenue Regulations No. 7-95. Although it is true that the CTA is
not strictly governed by technical rules of evidence, the invoicing and substantiation
requirements must, nevertheless, be followed because it is the only way to
determine the veracity of ones claims. Thus, because of the disallowances, the total
refundable input VAT for the first quarter amounts to only P11,161,392.67.
ISSUANCES
BIR RULING NO. 348-11 | September 28, 2011
DOCTRINE:
Sale of marinated fish is not exempt from VAT
FACTS:
Century Canning Corp is a domestic corporation primarily organized to buy and sell
on wholesale basis, process, preserve, can, pack, manufacture, produce, import and
export and deal in all kinds of food products, cattle, hog, and other animals and
animal products, fruits, vegetables and other agricultural crops and produce land,
among others.
Currently, apart from its canned tuna operations, its also engaged in the growing,
production and sale of marinated, frozen, vacuum packed boneless milkfish
(bangus) and uses only simple ingredient to maintain the natural state of the fish.
Said products are being marketed as follows:
a. 1pc and 2pcs marinated deboned bangus milkfish washed, gutted,
deboned, soaked in marinade
b. Bangus Belly/Marinated milkfish washed, gutted, deboned, soaked in
marinade
c. Bangus Belly Unseasoned milkfish washed, gutted, deboned, drip-dried,
cut out belly section
d. Frozen Deboned Tocino Milkfish Sliced milkfish split open to remove
orgnas, deboned, cutting out the belly portion, meat trimmings prepared inmarinating tocino solution
e. Frozen Bangus Hot & Spicy milkfish washed, gutted, deboned, soaked in
chilli solution
f. Smoked Deboned Bangus milkfish washed, gutted, deboned, soaked in
brine solution
g. Frozen Bangus Relleno
ISSUE: WON said product is exempt from VAT pursuant to Sec. 109 of the NIRC, as
amended.
HELD: No.
Under said Section, sale or importation of agricultural and marine food products in
their original state shall be exempt from VAT.
Under Section 4.109-1(B)(1)(a) of RR 16-2005, these products shall be considered in
their original state even if they have undergone simple processes of preparation or
preservation for the market such as freezing, drying, salting, broiling, roasting,
smoking, or stripping.
However, laws granting exemption from tax are construed strictly against the
taxpayer. Exemption from payment of tax must be clearly stated in the language of
the law.
The bangus products which have been marinated and/or mixed with other
ingredients can no longer be considered in its original state.
BIR RULING NO. 137-12 | February 27, 2012
DOCTRINE: Even if a common carrier opts to be a VAT-registered person, it will still
be subject to the 3% percentage tax on its gross receipts from transport ofpassengers.
FACTS:
Hafti Transport, Inc. is a domestic common carrier engaged in transporting
passengers by land, incorporated to construct, equip, maintain and wok motor
buses or other vehicle appropriate for the carriage of passengers or goods and to
carry on the business of motor bus proprietors and carriers of passengers and
goods
ISSUE: WON it may opt to be VAT-registered under Section 109(2) of the NIRC, as
amended, and may issue receipts without being held subsequently liable for
percentage tax under Section 117 of the same Tax Code
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DECISION: No. Under Sec. 117 of the Tax Code, common carriers or transportation
contractors are explicitly subjected to the 3% percentage tax, and therefore exempt
from VAT under Section 109(1)(E) of the same Tax Code.
Haftis primary purpose includes carriage of passengers and goods, hence, subject
to percentage tax only on its gross receipts from transport of passengers under Sec.
117 of the Tax Code and subject to VAT on its gross receipts from transport ofgoods or cargoes.
The option granted in Section 109(2) of the Tax Code, as amended, which allows a
VAT-registered person to elect that it not be VAT exempt does not apply to services
subject to percentage tax under Title V of the NIRC since such services are explicitly
subjected to percentage tax.
Common carriers by land with respect to their gross receipts from the transport of
passengers including operators of taxicabs, utility cars for rent or hire driven by
lessees (rent-a-car companies), and tourist buses used for the transport of
passengers shall be subject to percentage tax under Section 117 of the Tax Code,
but shall not be liable for VAT.
Hence, if Hafti Transport availed of the option under Section 109(2) of the NTax
Code, it is still subject even to the 3% percentage tax as a transportation contractor
for the transport of passengers.
BIR RULING NO. 214-12 | March 28, 2012
DOCTRINE: Transfer to the surviving/newly-created corporation of goods or
properties originally intended for sale or use in the course of business existing as of
effective date of mergers or consolidations are exempt from output tax. Likewise,
unused input tax of dissolved corporation as of the effective date of merger orconsolidation will be absorbed by the surviving/newly-created corporation.
FACTS:
Two corporations decided to merge with GRC as surviving corporation:
Corporation Corporation is owned
60% by 40% by
Greenstone Resources Corp (GRC) Surigao Holdings and Investment Corp (SHIC)
Red5 Asia, Inc. (Red5)
Merrill Crowe Corp (MCC) Surigao Holdings and Investment Corp (SHIC)
Red5 Asia, Inc. (Red5)
Under the terms of the merger, GRC shall survive and shall continue unaffected and
unimpaired. Its AOI and BL shall continue in full force and effect. MCC shall transfer
to GRC all its assets and liabilities.
GRC shall issue its shares as a consequence of the merger. It shall issue 94,538
shares with par value of P9,453,800.00 in favor of MCC shareholders, to be paid out
of the net assets of MCC, with the excess of the net assets treated as additionalpaid-in capital in the book of GRC, as surviving corporation.
ISSUE: WON said transfer of all assets and liabilities of MCC to GRC pursuant to the
merger qualifies exemption from VAT under Sec. 4.106-8(b)(3) of RR 16-2005, as
amended.
DECISION:
The transfer of goods or properties of MCC to GRC, which are originally intended for
sale or for use in the course of business existing as of the effective date of merger
will not be subject to output tax pursuant to Section 4.106-8(b)(3) of RR 16-2005, as
amended by RR 4-2007 and RR 10-2011. Thus any unused input tax as of the
effective date of merger will be absorbed by GRC, as the surviving corporation
pursuant to said Section.
BIR RULING NO. 228-12 | March 29, 2012
DOCTRINE: Under RR 10-2011 dated July 1, 2011, the exchange of goods or
properties, including the real estate properties used in business or held for sale or
for lease by the transferor for shares of stock, whether resulting in corporate
control or not is subject to VAT.
FACTS:Corbro Development Corporation (Corbro) was incorporated with the SEC in 2009,
having an authorized capital stock of P40 million divided into 400,000 shares with
par value of P100.00 each. Of these 400,000 shares, Zoilo Cortes Jr. and Editha
Cortes (assignors) each subscribed to 49,600 paying P2,200,521.67 each.
The assignors are also the registered owners of lands and improvements (1
condominium unit, 5 tracts of land, and 5 buildings, SILA NA). In 2009, they
executed a Deed of Assignment in favor of Corbro, transferring the title and
ownership of the abovementioned properties to the corporation as payment for
their subscribed shares in the corporation, therby gaining control of Corbro by
owning 98.21% of the total voting stocks of the said corporation.
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ISSUE: WON such transfer is exempt from VAT
DECISION: No
It is to be noted that under RR 10-2011 dated July 1, 2011, the exchange of goods or
properties, including the real estate properties used in business or held for sale or
for lease by the transferor for shares of stock, whether resulting in corporate
control or not is subject to VAT.
The transfer of the following properties in this case is subject to VAT because these
are held by the assignors primarily for lease in the ordinary course of business: a
piece of land with the commercial building and warehouse existing thereon, the
restaurant building and apartment building.
BIR RULING NO. 224-12 | March 29, 2012
DOCTRINE: There are four (4) activities that are exempt from the coverage of VAT,
i.e., sale, importation, printing and publication of books, newspapers, magazines,
reviews and bulletins. Moreover, the features of the said items, like magazine,
should appear at regular intervals with fixed prices for subscription and sale and
which is not devoted principally to the publication of paid advertisements.
However, this exemption does not cover sale and publication of electronically
printed materials, such as electronic books.
FACTS:
St. Matthew's Publishing Corporation is a domestic corporation engagde in the
business of publishing, printing, distributing and selling of printed and electronic
materials, including, but not limited to, instructional materials, textbooks, journals,
magazines, periodicals, catalogues, pamphlets, reports, manuals; to engage in the
business of publishing e-books, internet-based books, and other instructionalmaterials in electronic media, and to obtain, purchase or otherwise acquire
copyrights, trademarks, patents, inventions, and formula.
ISSUE: WON its activities are exempt from VAT under Section 109(R) of the Tax
Code, as amended
DECISION: Section 109(R) of the Tax Code, as amended, provides that the sale,
importation, printing or publication of books and any newspaper, magazine, review
or bulletin, which appears at regular intervals with fixed prices for subscription and
sale and which is not devoted principally to the publication of paid advertisements
is exempt from the imposition of the VAT.
Section 4.109-1(B)(r) of RR 16-2005 provides that the sale, importation, printing or
publication of books and any newspaper, magazine, review, or bulletin which
appears at regular intervals with fixed prices for subscription and sale and which is
not devoted principally to the publication of paid advertisements shall be exempt
from VAT.
Hence, there are four (4) activities that are exempt from the coverage of VAT, i.e.,
sale, importation, printing and publication of books, newspapers, magazines,reviews and bulletins. Moreover, the features of the said items, like magazine,
should appear at regular intervals with fixed prices for subscription and sale and
which is not devoted principally to the publication of paid advertisements.
Therefore, its sale and publication of books printed in hard copy are exempt from
the payment of VAT and from the 3% percentage tax under Section 116, in relation
to Section 109(V) of the 1997 Tax Code. (BIR Ruling No. 007-11 dated January 19,
2011)
However, its sale and publication of electronically printed materials, such as
electronic books, doesnt fall within the exemption. Under BIR Ruling No. 340-2011
dated September 7, 2011, that the term "book" for purposes of the VAT law only
applies to printed matters in hard copy. It does not, however, apply to electronic
copy of any book or publication.
An electronic copy of any publication does not come within the purview of the
terms "books, newspapers, periodicals, magazine, review or bulletin" for the
purpose of VAT exemption. The said terms only apply to printed matters in hard
copy as expressly provided therein. The term "book" has been defined as "A literary
composition which is printed; a printed composition bound in volume." (Scoville V
Toland 21 Fed. Cas. 864 BLACK'S LAW DICTIONARY)
As a result, its sale and publication of its electronic copies of books and otherinstructional materials, being outside the purview of the term books or any similar
publication for purposes of Section 109(R) of the Tax Code, as amended, are
subject to the 12% VAT. Thus, it is required to register its business as a VAT business
entity and issue a separate VAT invoice/receipt therefor to record such
transactions.
BIR RULING NO. 291-12 | April 25, 2012
DOCTRINE: Sale of assets used by a PEZA-registered enterprise in the conduct of its
registered activities is subject to VAT. The in lieu of all taxes provision only applies
to its registered activities.
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FACTS:
STMicroelectronics, Inc. (STMI) and ST-Ericsson (ST-EPI) are domestic corporations
engaged in the business of development, manufacture, production, processing
and/or assembly for export and sale of electronic equipment, accessories, parts or
components, including semiconductors, integrated circuits, micro-processors,
printed circuit board assemblies, computer systems and sub systems and sub-
systems and accessories, parts and components. Both are PEZA-registered as anEcozone Export Enterprise engaged in:
a. manufacture of (1) integrated circuits and (2) micro leadframe package
known as HVQFN
b. assembly of Bluetooth system modules
c. manufacture of assembly of integrated circuits; and
d. importation of raw materials, machinery, equipment, tools, goods, wares,
articles or merchandise directly used in its registered operations
As part of a worldwide restructuring and transfer of business between the parent
companies of STMI and ST-EPI, the former sold to the latter all assets related to all
its PEZA-registered activities, including tangible fixed assets like buildings,
machinery, and installations and production and commercial inventories used in the
projects under the regime of 5% special tax incentive rate and income tax holiday.
ISSUE: WON such transfer is subject to VAT
DECISION: Yes
Laws and statutes granting tax exemption are strictly construed against the
taxpayer.
STMIs transfer of fixed assets is not includes in its registered activity given certain
preferential tax treatment, which only apply to its registered activities.
ITAD BIR RULING NO. 2-12 | January 10, 2012
DOCTRINE: The royalty payments shall be subject to VAT pursuant to Section
108(A)(1) of the Tax Code.
FACTS:
Kone Corporation (Kone) is a non-registered foreign (Finnish) corporation, not
registered either as a corporation or as a partnership with the SEC. KPI Elevators
(KPI), on the other hand, is a domestic corporation registered with the SEC.
Kone and KPI entered into a Franchise Fee Agreement (Agreement) whereby Kone
agreed to grant KPI a non-exclusive license (sub-license as the case may be) to use
its technology, know-how, show-how, trade marks and IT systems for the conduct
of KPIs business. KPI agreed to pay Kone a franchise fee, calculated under the Arms
Length Principle as a percentage of KPIs net sales, benchmarked by reference to
analogous third party arrangements.
ISSUE: WON the royalties paid by KPI to Kone are subject to the 25% preferentialtax rate pursuant to the Convention Between the Philippines and Finland for the
Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to
Taxes on Income (Philippines-Finland Tax Treaty)
DECISION:
Procedural
RMO 72-2010 provided that filing of all tax treaty relief applications (TTRA) with the
International Tax Affairs Division (ITAD) should always be made before the
transaction, meaning before the occurrence of the first taxable event. Failure to do
so within the period prescribed shall disqualify the TTRA.
Thus, those royalties paid by KPI to Kone prior to the filing of the TTRA shall not be
subject to the preferential rate and shall be subject to the 30% regular income tax
rate.
Re VAT
The royalty payments shall be subject to VAT pursuant to Section 108(A)(1) of the
Tax Code.
KPI, being the resident withholding agent and payor in control of payment, shall be
responsible for the withholding of the final VAT on such fees before making any
payment to Kone. Proof of payment (BIR Form No. 1600) shall serve asdocumentary substantiation for the claim of input tax to be applied against the
output tax that may be due from KPI if it is VAT-registered. If KPI is not VAT-
registered, the passed-on VAT withheld shall form part of the cost of service
purchased and may treat such VAT as an expense or as an asset, whichever is
applicable.
IIPERCENTAGE TAXES
See R.A. No. 10001
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IIIEXCISE TAX
(1) DIAGEO PHILIPPINES V COMMISSIONER OF INTERNAL REVENUE
Topic: Excise Tax
Ponente: Perlas-Bernabe, J.
Date: 12 November 2012
DOCTRINE: The phrase any excise tax paid thereon shall be credited or refunded
requires that the claimant be the same person who paid the excise tax. AS held in
Silkair v CIR, the proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid
the same even if he shifts the burden thereof to another.
QUICK FACTS: Petitioner Diageos supplier of raw alcohol paid the corresponding
excise tax on the raw alcohol. Within two years from such payment, Diageo filed
with BIR applications for tax refund/issuance of tax credit certificates with respect
to the excise taxes which its supplier paid but passed on to it as part of the
purchase price of the subject raw alcohol. SC held that Diageo is not the real party
in interest to file the claim.
FACTS:
Tax: Excise Tax
Petitioner Diageo purchased raw alcohol from its supplier for use in the
manufacture of its beverage and liquor products. The supplier imported the raw
alcohol and paid the related excise taxes thereon before the same were sold to
Petitioner Diageo.
Subsequently, Diageo exported its locally manufactured liquor products andreceived the corresponding foreign currency proceeds of such export sales.
Within two years from the time the supplier paid the subject excise taxes, Diageo
filed with BIR applications for tax refund/issuance of tax credit certificates
corresponding to the excise taxes which its supplier paid but passed on to it as part
of the purchase price of the subject raw alcohol.
CIR - Failed to act upon Diageos claims
CTA 2nd Div - Dismissed the petition on the ground that Diageo is not
the real party in interest to file the claim for refund.
CTA En Banc - Affirmed CTA 2nd Div
Petitioners Contention: Invoked Section 130(D) of the Tax Code
ISSUE: WoN Petitioner Diageo has the legal personality to file a claim for refund or
tax credit for the excise taxes paid by its supplier on the raw alcohol it purchased
and used in the manufacture of its exported goods
HELD: NO. The right to claim a refund or be credited with the excises taxes belongs
to the statutory taxpayer, which is the supplier.
DECISION: The phrase any excise tax paid thereon shall be credited or refunded
requires that the claimant be the same person who paid the excise tax. AS held in
Silkair v CIR, the proper party to question, or seek a refund of, an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who paid
the same even if he shifts the burden thereof to another.
When the excises taxes paid by the supplier were passed on to Diageo, what was
shifted is not the tax per se but additional cost of the goods sold. Thus, the supplier
remains the statutory taxpayer even if Diageo, the purchaser, actually shoulders theburden of tax.
Unlike the law on VAT which allows the subsequent purchaser under the tax credit
method to refund or credit input taxes passed on to it by a supplier, no provision for
excise taxes exists granting non-statutory taxpayer like Diageo to claim a refund or
credit.
(2) CHEVRON PHL V CIR
(CTA Case)
Topic: Excise Tax
Ponente: Fabon-Victironi, J.
Date: August 30, 2012
DOCTRINE: The excise tax imposed on importation of petroleum products under
Sec 131 is the direct liability of the importer who cannot invoke the exemption
granted to its buyer who, by law, is legally exempted from payment of direct and
indirect taxes.
QUICK FACTS: Chevron Phil filed a claim for tax refund or issuance of tax credit
certificate in amount of P11M representing excise taxes paid in importation of
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petroleum products which was subsequently sold to Clark Development
Corporation (CDC), an entity which enjoys exemption from payment of direct and
indirect tax.
FACTS:
Chevron sold and delivered to Clark Development Corporation (CDC) imported
petroleum products in 2008 and paid corresponding excise taxes.
Since CDC enjoys exemption from payment of direct and indirect taxes under Sec
135(c) of the NIRC, Chevron did not pass on or shifted to CDC the excise taxes it
paid on the imported petroleum products.
Thereafer, Chevron filed with CIR an application for issuance of tax credit certificate
or tax refund for paid excite taxes. Due to inaction of CIR, it filed this Petition for
Review.
Chevrons Contentions: Excise tax is an indirect tax, the burden of which can be
passed on to consumers. But since CDC is exempt by law, it was precluded from
shifting burden. It is then entitled to refund for excise taxes paid on CDC purchases.
CIRs Contentions: Excise tax on petroleum is direct liability of
manufacturer/importer.
ISSUE: WON Chevron is entitled to refund. (No)
HELD:
Excise taxes refer to taxes imposed on certain specified goods or articles
manufacture or prodiced in Philippine for domestic sales or consumption or for anyother disposition and to things imported into the Philippines. These taxes are
imposed in addition to VAT.
Chevron is not among those entities exempted from excise tax for petroleum
products in Sec 135 of NIRC. Also, this is a grant of exemption to purchasers not
sellers.
Sec 131 on the other hand identifies persons liable to pay excise tax. Sec 131(a)
covers Chevron.
SEC. 131. Payment of Excise Taxes on Importer Articles. -
(A) Persons Liable. - Excise taxes on imported articles shall be paid by the owner or
importer to the Customs Officers, conformably with the regulations of the
Department of Finance and before the release of such articles from the
customshouse, or by the person who is found in possession of articles which are
exempt from excise taxes other than those legally entitled to exemption .
As importer of petroleum product sold to CDC, Chevron is liable to pay the excise
taxes.
Also, citing Phil Acetylene v CIR, the tax exemption being enjoyed by buyer cannot
be basis of calim for tax exemption by the manufacturer/importer of any goods for
any tax due to it. The excise tax imposed on importation of petroleum products
under Sec 131 is the direct liability of the importer who cannot thus invoke the
excise tax exemption granted to its buyer who, by law, are legally exempted from
payment of direct and indirect taxes.
Finally, citing CIR v Pilipinas Shell Petroleum Corp, oil companies who sold their
petroleum products to international carriers are not entitled to a refund of excise
taxes previously paid on the petroleum products sold.
NOTE: SC in some cited cases agree that the only claim for tax refund of excise taxes
is the payment of excise taxes on exported goods as provided in Sec 130(d). Thus
when good are locally produced, proof of actual exportation necessary before any
refund can be granted.
IVDOCUMENTARY STAMP TAX
(1) PHILACOR CREDIT CORPORATION v. CIRFebruary 6, 2013
Brion, J.
QUICK FACTS:
Philacor, a business engaged in retail financing, is assessed deficiency DST on
issuance and assignment of promissory notes. They contested on both accounts,
saying it did not issue the said promissory notes, nor is the transaction of
assignment of such taxable under Philippine law.
DOCTRINE:
1) The persons primarily liable for the payment of the DST are the person (1)making; (2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable
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documents, instruments or papers. Should these parties be exempted from paying
tax, the other party who is not exempt would then be liable.
2) The transaction of assignment of promissory notes is not taxed under the law.
Where the law did not specify that such transfer and/or assignment is to be taxed,
there would be no basis to recognize an imposition.
FACTS:
Philacor is a domestic corporation engaged in the business of retail financing.
Through retail financing, a prospective buyer of a home appliance-- with neither
cash nor any credit card may purchase appliances on installment basis from an
appliance dealer. After Philacor conducts a credit investigation and approves the
buyers application, the buyer executes a unilateral promissory note in favor of the
appliance dealer. The same promissory note is subsequently assigned by the
appliance dealer to Philacor.
Revenue Officer examined Philacors books of accounts for the fiscal year Aug ust
1992 July 1993. Computations of deficiency taxes for this year according to BIR:
P20+M. Philacor protested and revised the assessments to P14+M.
In 1996, Philacor then received Pre-Assessment Notices (PANs) covering the alleged
deficiency income, percentage and DSTs. They also received demand letters in 1998
for P17+M assessment of deficiency taxes, including P3+M deficiency DST.
Philacor protested, alleging that the assessed deficiency income tax was
erroneously computed (reasons were stated, but I only put the arguments for DST).
As for the deficiency DST, Philacor claims that the accredited appliance dealers
were required by law to affix the documentary stamps on all promissory notes
purchased until the enactment of RA 7660 (Act Rationalizing Further the Structure
and Administration of DST, effective 1994).
Philacor filed a petition for review before CTA.
CTA: Philacor is liable for DST on issuance of promissory notes and their subsequent
transfer or assignment. Noting that Philacor failed to prove that the DST on its
promissory notes had been paid for these 2 transactions, the CTA held Philacor
liable for deficiency DST of P60Ok.
CTA en banc: reiterated that Philacor is liable for the DST due on 2 transactions: the
issuance of promissory notes, and their subsequent assignment ifo Philacor. With
respect to the issuance of the promissory notes, Philacor is liable as the transferee
which accepted the promissory notes from the appliance dealer in accordance
with Section 180 of Presidential Decree No. 1158, as amended (1986 Tax Code).
Further citing Section 4219 of Regulations No. 26, the CTA en banc held that a
person using a promissory note is one of the persons who can be held liable to
pay the DST. Since the subject promissory notes do not bear documentary stamps,
Philacor can be held liable for DST. As for the assignment of the promissory notes,
the CTA en banc held that each and every transaction involving promissory notes is
subject to the DST under Section 173 of the 1986 Tax Code; Philacor is liable as the
transferee and assignee of the promissory notes.
ISSUE #1: W/N Philacor is liable for DST on the issuance of the promissory notes.
HELD: NO.
1) Philacor did not make, sign, issue, accept or transfer the promissory notes.
Section 173 of the 1997 National Internal Revenue Code (1997 NIRC) names those
who are primarily liable for the DST and those who would be secondarily liable:
Section 173. Stamp taxes upon documents, instruments, and papers.
the corresponding documentary stamp taxes prescribed in the following
sections of this Title, by the person making, signing, issuing, accepting, ortransferring the same, and at the same time such act is done or transaction
had: Provided, that wherever one party to the taxable document enjoys
exemption from the tax herein imposed, the other party thereto who is not
exempt shall be the one directly liable for the tax. [emphases supplied;
underscores ours]
The persons primarily liable for the payment of the DST are the person (1) making;
(2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable documents,
instruments or papers. Should these parties be exempted from paying tax, the
other party who is not exempt would then be liable.
Philacor did not make, sign, issue, accept or transfer the promissory notes. The acts
of making, signing, issuing and transferring are unambiguous. The buyers of the
appliances made, signed and issued the documents subject to tax, while the
appliance dealer transferred these documents to Philacor which likewise
indisputably received or accepted them. Acceptance, however, is an act that is
not even applicable to promissory notes, but only to bills of exchange. Under
Section 132 of the Negotiable Instruments Law (which provides for how acceptance
should be made), the act of acceptance refers solely to bills of exchange. Its object
is to bind the drawee of a bill and make him an actual and bound party to the
instrument.
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2) Philacor is not a party to the issuance of the promissory notes, but merely to
their assignment.
Revenue Regulations No. 9-2000 interprets the law more widely so that all parties
to a transaction are primarily liable for the DST, and not only the person making,
signing, issuing, accepting or transferring the same becomes liable as the law
provides. It provides:
SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the
Tax.
(a) In General. - The documentary stamp taxes under Title VII of the Code is
a tax on certain transactions. Any of the parties thereto shall be liable
for the full amount of the tax due: Provided, however, that as between
themselves, the said parties may agree on who shall be liable or how they
may share on the cost of the tax.
(b) Exception. - Whenever one of the parties to the taxable transaction is
exempt from the tax imposed under Title VII of the Code, the other party
thereto who is not exempt shall be the one directly liable for the tax.
[emphasis ours]
But even under these terms, the liability of Philacor is not a foregone conclusion as
from the face of the promissory note itself, Philacor is not a party to the issuance of
the promissory notes, but merely to their assignment. On the face of the
documents, the parties to the issuance of the promissory notes would be the buyer
of the appliance, as the maker, and the appliance dealer, as the payee. And the
doctrine is that the liability for the DST and the amount due are determined from
the document itself examined through its form and face and cannot be
affected by proof of facts outside it.
ISSUE #2: Who is liable to pay DST?
HELD: In our view, it makes more sense to include persons who benefit from or
have an interest in the taxable document, instrument or transaction. There appears
no reason for distinguishing between the persons who make, sign, issue, transfer or
accept these documents and the persons who have an interest in these and/or have
caused them to be made, signed or issued. This also limits the opportunities for
avoiding tax. Moreover, there are cases when making all relevant parties taxable
could help our administrative officers collect tax more efficiently. In this case, the
BIR could simply collect from the financing companies, rather than go after each
and every appliance buyer or appliance seller. However, these are matters that are
within the prerogatives of Congress so that any interference from the Court, no
matter how well-meaning, would constitute judicial legislation . At best, we can
only air our views in the hope that Congress would take notice.
ISSUE #3: W/N Philacor is liable for DST on the assignment of promissory notes
HELD: NO.
This transaction is not taxed under the law. Where the law did not specify that such
transfer and/or assignment is to be taxed, there would be no basis to recognize an
imposition.
In BIR Ruling No. 139-97 issued on December 29, 1997, then CIR Liwayway Vinzons-
Chato pronounced that the assignment of a loan that is not for a renewal or a
continuance does not result in a liability for DST. Revenue Regulations No. 13-2004,
issued on December 23, 2004, states that *t+he DST on all debt instruments shall
be imposed only on every original issue and the tax shall be based on the issue price
thereof. Hence, the sale of a debt instrument in the secondary market will not be
subject to the DST. Included in the enumeration of debt instruments is a
promissory note.
The BIR Ruling and Revenue Regulation cited are still applicable to this case, even if
they were issued after the transactions in question had already taken place. They
apply because they are issuances interpreting the same rule imposing a DST on
promissory notes. At the time BIR Ruling No. 139-97 was issued, the law in effect
was the 1986 Tax Code; the 1997 NIRC took effect only on January 1, 1998.
Moreover, the BIR Ruling referred to a transaction entered into in 1992, when the
1986 Tax Code had been in effect. On the other hand, the BIR issued Revenue
Regulations No. 13-2004 when Section 180 of the 1986 Tax Code had already been
amended. Nevertheless, the rule would still apply to this case because the pertinent
part of Section 180 the part dealing with promissory notes remained the same;
it imposed the DST on the promissory notes issuances and renewals, but not ontheir assignment or transfer.
(2) CIR V FILINVEST DEVELOPMENT CORPORATION
Topic: Documentary Stamp Tax
Ponente: Perez
Date: July 19, 2011
DOCTRINE: DST shall apply to all loan agreements, whether made or signed in the
Philippines, or abroad when the obligation or right arises from Philippine sources or
the property or object of the contract is located or used in the Philippines.
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QUICK FACTS: CIR assessed Filinvest for deficiency documentary stamp taxes on
documents evidencing Filinvests cash advances to its affiliates.
FACTS:
Tax: Documentary Stamp Tax
Filinvest received from the BIR a Formal Notice of Demand to pay documentary
stamp taxes based on the advances Filinvest extended to its affiliates. Filinvest filed
a request for reconsideration/protest, on the ground that the documentary stamp
taxes assessed by the BIR were bereft of factual and legal basis. Commissioner of
Internal Revenue (CIR) failed to resolve their request for reconsideration/protest
within the prescribed period, so Filinvest filed a petition for review with the Court
of Tax Appeals (CTA) pursuant to Section 228 of the 1997 NIRC.
Filinvests Contention: Not being promissory notes or certificates of obligations, the
instructional letters as well as the cash and journal vouchers evidencing said cash
advances were not subject to documentary stamp taxes.
CIRs Contention: CIR argued that the BIR Ruling No. 116-98 was later modified inBIR Ruling No. 108-99 dated 15 July 1999, which opined that inter-office memos
evidencing lendings or borrowings extended by a corporation to its affiliates are
akin to promissory notes, hence, subject to documentary stamp taxes.
CTA IFO Filinvest. The documents evidencing the cash advances Filinvest extended
to its affiliates cannot be considered as loan agreements that are subject to
documentary stamp tax.
CA IFO Filinvest. The instructional letters as well as the cash and journal vouchers
evidencing the advances Filinvest extended to its affiliates are not subject to
documentary stamp taxes pursuant to BIR Ruling No. 116-98, dated 30 July 1998,since they do not partake the nature of loan agreements. Although BIR Ruling No.
116-98 had been subsequently modified by BIR Ruling No. 108-99, dated 15 July
1999, to the effect that documentary stamp taxes are imposable on inter-office
memos evidencing cash advances similar to those extended by FDC, said latter
ruling cannot be given retroactive application if to do so would be prejudicial to the
taxpayer.
ISSUE: WoN the letters of instruction or cash vouchers extended by FDC to its
affiliates are subject to DST?
HELD: Yes.
RATIO: Insofar as documentary stamp taxes on loan agreements and promissory
notes are concerned, Sec. 180 of the NIRC, when read in conjunction with Section
173 of the 1993 NIRC, provides that DST concededly applies to "(a)ll loan
agreements, whether made or signed in the Philippines, or abroad when the
obligation or right arises from Philippine sources or the property or object of the
contract is located or used in the Philippines."
Correlatively, Section 3 (b) and Section 6 of Revenue Regulations No. 9-94 provide
as follows:
Section 3. Definition of Terms. For purposes of these Regulations, the
following term shall mean:
(b) 'Loan agreement' refers to a contract in writing where one of the
parties delivers to another money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid. The term shall
include credit facilities, which may be evidenced by credit memo, advice or
drawings.
The terms 'Loan Agreement" under Section 180 and "Mortgage' underSection 195, both of the Tax Code, as amended, generally refer to distinct and
separate instruments. A loan agreement shall be taxed under Section 180, while a
deed of mortgage shall be taxed under Section 195."
"Section 6. Stamp on all Loan Agreements. All loan agreements whether
made or signed in the Philippines, or abroad when the obligation or right arises
from Philippine sources or the property or object of the contract is located in the
Philippines shall be subject to the documentary stamp tax of thirty centavos (P0.30)
on each two hundred pesos, or fractional part thereof, of the face value of any such
agreements, pursuant to Section 180 in relation to Section 173 of the Tax Code.
In cases where no formal agreements or promissory notes have been executed to
cover credit facilities, the documentary stamp tax shall be based on the amount of
drawings or availment of the facilities, which may be evidenced by credit/debit
memo, advice or drawings by any form of check or withdrawal slip, under Section
180 of the Tax Code.
Applying the aforesaid provisions to the case at bench, we find that the
instructional letters as well as the journal and cash vouchers evidencing the
advances Filinvest extended to its affiliates in 1996 and 1997 qualified as loan
agreements upon which docum