part d - focus cases

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
http://sc.judiciary.gov.ph/jurisprudence/2011/july2011/193007.htmhttp://sc.judiciary.gov.ph/jurisprudence/2011/july2011/193007.htm


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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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11

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.


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.


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

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