services may pass on to his customers.

GUIDE NOTES ON VALUE-ADDED TAX

VALUE-ADDED TAX

Under the VAT method of taxation, which is invoice-based, an entity can subtract
from the VAT charged on its sales or outputs the VAT it paid on its purchases,
inputs and imports.

Q. WHAT IS THE NATURE AND CONCEPT OF VALUE-ADDED TAXES?

* VAT is a percentage tax. There is a percentage fixed by law which will be applied
to the gross selling price in order to arrive to the VAT to be paid.
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.] is a case
on a claim for tax refund/credit of alleged unutilized input VAT paid on capital goods
for the period 1 April 1998 to 30 June 1999. It explained the concept of a valueadded tax, thus:
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 12%
levied on every importation of goods, whether or not in the course of trade or
business, or imposed on each sale, barter, exchange or lease of goods or
properties or on each rendition of services in the course of trade or business as
they pass along the production and distribution chain, the tax being limited only
to the value added to such goods, properties or services by the seller,
transferor or lessor.
It is an indirect tax that may be shifted or passed on to the buyer, transferee or
lessee of the goods, properties or services. As such, it should be understood not in
the context of the person or entity that is primarily, directly and legally liable for its
payment, but in terms of its nature as a tax on consumption.
Situations that may arise: (General Principles)
1.
2.
3.
4.

If at the end of a taxable quarter the output taxes charged by a seller are
equal to the input taxes passed on by the suppliers, no payment is
required.
If at the end of a taxable quarter, the output taxes exceed the input taxes,
the excess has to be paid by the seller.
If the input taxes exceed the output taxes, the excess shall be carried over to
the succeeding quarter or quarters
If the input taxes result from zero-rated or effectively zero-rated
transactions or from acquisition of capital goods any excess over the
output taxes shall be refunded to the taxpayer or credited against other internal
revenue taxes.

* Citing CIR v. Seagate Technology (Philippines), the case of Panasonic

Communications Imaging Corporation of the Philippines v. CIR explained valueadded tax in this wise:
The VAT is a tax on consumption, an indirect tax that the provider of goods or
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For example, when a seller charges VAT on its sale, it issues an invoice to the
buyer, indicating the amount of VAT he charged.
For his part, if the buyer is also a seller subjected to the payment of VAT on his
sales, he can use the invoice issued to him by his supplier to get a reduction
of his own VAT liability.
The difference in tax shown on invoices passed and invoices received is the
tax paid to the government.
In case the tax on invoices received exceeds that on invoices passed, a
tax refund may be claimed.

Q: DEFINE AND DIFFERENTIATE INPUT TAX AND OUTPUT TAX .

The case of CIR v. Benguet Corporation defined input tax and output tax.
Input tax
Output tax
Input VAT or input tax represents the When that person or entity sells his/its
actual payments, costs and expenses products or services, the VAT-registered
incurred by a VAT-registered taxpayer in taxpayer generally becomes liable for
connection with his purchase of goods 12% of the selling price as output VAT
and services
or output tax.
Hence, "output tax" is the valueThus, "input tax" means the value- added tax on the sale of taxable
added tax paid by a VAT-registered goods or services by any person
person/entity in the course of his/its registered or required to register
trade or business on the importation under Section 107 of the (old) Tax
of goods or local purchases of goods Code.
or services from a VAT-registered
person
Q: HOW CAN A VAT-REGISTERED TAXPAYER RECOVER ITS INPUT VAT?
The VAT system of taxation allows a VAT-registered taxpayer to recover its input
VAT either by
(1) passing on the 12% output VAT on the gross selling price or gross receipts, as
the case may be, to its buyers, or
(2) if the input tax is attributable to the purchase of capital goods or to zero-rated
sales, by filing a claim for a refund or tax credit with the BIR.
Simply stated, a taxpayer subject to 12% output VAT on its sales of goods and
services may recover its input VAT costs by passing on said costs as output VAT to
1

its buyers of goods and services but it cannot claim the same as a refund or tax
credit, while a taxpayer subject to 0% on its sales of goods and services may only
recover its input VAT costs by filing a refund or tax credit with the BIR.
Q: Illustrate input tax, output tax and VAT payable
X Corp, manufacturer, sold goods to Y, a retailer, for 100,000 plus vat of 12,000 (so
Y bought it for 112,000) Then, Y resold the goods to Z, end-consumer for 150,000
plus VAT of 18,000 (so Z bought it for 168,000)
On the part of Y, the retailer,
-His INPUT TAX is 12,000 because this tax was passed on to him when he bought
goods from X Corp.
-His OUTPUT TAX is 18,000 because this is the tax he passed on to Z.
-In this case, Y will pay for/ultimately be liable for the vat of 6,000 on the sale
because the output tax is greater than the input tax. (see 2nd situation in first page)

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.
The phrase 'in the course of trade or business' means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a non-stock, nonp-rofit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.
The rule of regularity, to the contrary notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign persons shall be considered as being
course of trade or business.
Q: UNDER 1ST PARAGRAPH OF SEC 105, WHAT ARE THE VAT-ABLE TRANSACTIONS?
[SALE, IMPORTATION AND SERVICES]
1.
2.
3.

Q: Illustrative problem (Co-Untian)

X is a VAT registered person. He bought goods from Y for 12,500, exclusive of VAT.
X then sold these goods to consumer Z for 15,000, exclusive of the VAT
(a) How much is the VAT payable by X to the BIR?
Xs purchase has an input tax of 1,500 (12,500 x 12%) and his re-sale
transaction has an output tax of 1,800 (15,000 x 12%) The VAT payable by
X is the difference of the output tax and the input tax thus it is 300 (18001500)
(b) How much can X claim as a tax credit?
X may claim the 1,500 input tax on his purchase as a tax credit. This is
why it was deducted from 1,800.
(c) Can Z claim a tax credit?
No. He is the end-consumer. He ultimately bears the tax burden.

SEC. 105. Persons Liable.

Any person who, in the course of trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the
value-added tax (VAT) imposed in Sections 106 to 108 of this Code.
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4.

Sale, barter, exchange of goods or properties

Transactions deemed sale
Importation of goods [does not have to be exercised in the ordinary
course of business]
Sale of services and use or lease of properties

Q: UNDER PAR 2, VAT IS AN INDIRECT TAX. DISTINGUISH BETWEEN LIABILITY FOR THE
TAX AND BURDEN OF THE TAX.
* The case of Contex Corporation v. CIR made a distinction between the two
concepts. It provided [[Contex Corporation v. CIR, GR No. 151135, 2 July 2004.]
At this juncture, it must be stressed that the VAT is an indirect tax. As such, the
amount of tax paid on the goods, properties or services bought, transferred, or
leased may be shifted or passed on by the seller, transferor, or lessor to the buyer,
transferee or lessee.
Unlike a direct tax, such as the income tax, which primarily taxes an individuals
ability to pay based on his income or net wealth, an indirect tax, such as the VAT, is
a tax on consumption of goods, services, or certain transactions involving
the same. The VAT, thus, forms a substantial portion of consumer expenditures.

Further, in indirect taxation, there is a need to distinguish between the liability

for the tax and the burden of the tax.
As earlier pointed out, the amount of tax paid may be shifted or passed on by
the seller to the buyer.
o What is transferred in such instances is not the liability for the
tax, but the tax burden.
o In adding or including the VAT due to the selling price, the seller
2

remains the person primarily and legally liable for the payment of the
tax. What is shifted only to the intermediate buyer and ultimately to
the final purchaser is the burden of the tax.

Stated differently, a seller who is directly and legally

liable for payment of an indirect tax, such as the VAT on
goods or services is not necessarily the person who
ultimately bears the burden of the same tax.

It is the final purchaser or consumer of such goods or

services who, although not directly and legally liable for
the payment thereof, ultimately bears the burden of the
tax.

The conclusion that the sale was not in the course of trade or business, which the
CIR does not dispute before this Court should have definitively settled the matter.
Any sale, barter or exchange of goods or services not in the course of trade or
business is not subject to VAT.
The decision contained an explanation of VAT, to wit:

Q: WHAT IS MEANT BY IN THE COURSE OF TRADE OR BUSINESS?

* The case of CIR v. Magsaysay Lines, Inc GR No. 146984. involved the sale by
the National Development Company of five of its vessels to Magsaysay Lines, Inc.
The issue was whether such sale was within the coverage of VAT. The Supreme
Court found that the sale of the vessels was not in the ordinary course of trade or
business. As such, the transaction was outside the coverage of VAT.

That the sale of the vessels was not in the ordinary course of trade or business of
NDC was appreciated by both the CTA and the Court of Appeals, the latter doing so
even in its first decision which it eventually reconsidered. We cite with approval the
CTAs explanation on this point:
In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30,
1955 (97 Phil. 992), the term "carrying on business" does not mean the
performance of a single disconnected act, but means conducting, prosecuting and
continuing business by performing progressively all the acts normally incident
thereof; while "doing business" conveys the idea of business being done, not from
time to time, but all the time.
"Course of business" is what is usually done in the management of trade or
business.
What is clear therefore, based on the aforecited jurisprudence, is that "course of
business" or "doing business" connotes regularity of activity. In the instant case, the
sale was an isolated transaction. The sale which was involuntary and made
pursuant to the declared policy of Government for privatization could no
longer be repeated or carried on with regularity. It should be emphasized that
the normal VAT-registered activity of NDC is leasing personal property.
This finding is confirmed by the Revised Charte of the NDC which bears no
indication that the NDC was created for the primary purpose of selling real property.

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A brief reiteration of the basic principles governing VAT is in order. VAT is

ultimately a tax on consumption, even though it is assessed on many levels of
transactions on the basis of a fixed percentage.
It is the end user of consumer goods or services which ultimately shoulders the
tax, as the liability therefrom is passed on to the end users by the providers of
these goods or services who in turn may credit their own VAT liability (or input
VAT) from the VAT payments they receive from the final consumer (or output
VAT).
The final purchase by the end consumer represents the final link in a
production chain that itself involves several transactions and several acts of
consumption.
The VAT system assures fiscal adequacy through the collection of taxes on
every level of consumption, yet assuages the manufacturers or providers of
goods and services by enabling them to pass on their respective VAT liabilities
to the next link of the chain until finally the end consumer shoulders the entire
tax liability.
Yet VAT is not a singular-minded tax on every transactional level. Its
assessment bears direct relevance to the taxpayers role or link in the
production chain. Hence, as affirmed by Section 99 of the Tax Code and its
subsequent incarnations, the tax is levied only on the sale, barter or
exchange of goods or services by persons who engage in such activities,
in the course of trade or business.
o These transactions outside the course of trade or business may
invariably contribute to the production chain, but they do so only as a
matter of accident or incident.
o As the sales of goods or services do not occur within the course of
trade or business, the providers of such goods or services would
hardly, if at all, have the opportunity to appropriately credit any VAT
liability as against their own accumulated VAT collections since the
accumulation of output VAT arises in the first place only through the
ordinary course of trade or business)

** In the case of CIR v. CA, COMASERCO, being a non-stock non-profit

organization, contended that it was operating on a reimbursement-of-cost
basis, that its operations were not profit-oriented and not in the course of
trade of business, and that therefore, it was not liable to pay VAT. The Supreme
Court held that Section 105 of the 1997 Tax Code was clear and unambiguous in
stating that even non-stock non-profit organizations were liable to pay VAT on the
sale of goods or services.
3

***N.B. Booch Difference of CIR v. Magsaysay v. CIR v. CA, Comaserco:

SEC. 106. Value-Added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, value-added tax equivalent to twelve percent
(12%) of the gross selling price or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor.
(1) The term 'goods' or 'properties' shall mean all tangible and intangible objects which
are capable of pecuniary estimation and shall include:

(2) The following sales by VAT-registered persons shall be subject to zero percent (0%)
rate:
(a) Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported and paid for in acceptable
foreign currency or its equivalent in goods or services, and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(b) The right or the privilege to use patent, copyright, design or model, plan, secret formula
or process, goodwill, trademark, trade brand or other like property or right;

(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a
resident local export-oriented enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);

(c) The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;

(3) Sale of raw materials or packaging materials to export-oriented enterprise whose export
sales exceed seventy percent (70%) of total annual production;

(d) The right or the privilege to use motion picture films, tapes and discs; and

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(e) Radio, television, satellite transmission and cable television time.

(5) Those considered export sales under Executive Order NO. 226, otherwise known as the
Omnibus Investment Code of 1987, and other special laws.

(a) Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;

The term 'gross selling price' means the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the value-added tax. The excise tax, if any,
on such goods or properties shall form part of the gross selling price.
Q: WHAT IS A SALE OF GOODS OR PROPERTIES?

Q: DISTINGUISH BETWEEN VAT RATING AND ZERO-RATING.

* The case of CIR v. Benguet Corporation explained VAT rating vis-as-vis zerorating in principle, as well as by way of illustration, to wit:

* In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of

several advertising companies.
Due to Sony Philippines dire economic conditions, Sony International Singapore
handed Sony Philippines a dole-out to answer for the expenses payable to the
advertising companies. Sony Philippines was thereafter assessed deficiency VAT
for the transaction, i.e., dole-out, between Sony International Singapore and Sony
Philippines. The Supreme Court ruled that the dole-out or subsidy from the
Singaporean company to the Philippine company neither constituted a sale
of goods or properties, nor a sale of services. Hence, Sony Philippines was not
liable to pay VAT on the same.
[CIR v. Sony Philippines, Inc., GR No. 178697, 17 Nov. 2010.]

In transactions taxed at a 12% rate (VAT rating), when at the end of any
given taxable quarter the output VAT exceeds the input VAT, the excess shall
be paid to the government; when the input VAT exceeds the output VAT, the
excess would be carried over to VAT liabilities for the succeeding quarter or
quarters.
On the other hand, transactions which are taxed at zero-rate do not result in
any output tax. Input VAT attributable to zero-rated sales could be refunded or
credited against other internal revenue taxes at the option of the taxpayer.

To illustrate, in a zero-rated transaction, when a VAT-registered person

(taxpayer) purchases materials from his supplier at P80.00, P7.30 of which was
passed on to him by his supplier as the latters 10% output VAT, the taxpayer is
allowed to recover P7.30 from the BIR, in addition to other input VAT he had
incurred in relation to the zero-rated transaction, through tax credits or refunds.

106(A)(2) Zero-Rated Sales of Goods

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When the taxpayer sells his finished product in a zero-rated transaction, say, for
P110.00, he is not required to pay any output VAT thereon. In the case of a
transaction subject to 10% VAT, the taxpayer is allowed to recover both the input
VAT of P7.30 which he paid to his supplier and his output VAT of P2.70 (10% the
P30.00 value he has added to the P80.00 material) by passing on both costs to the
buyer. Thus, the buyer pays the total 10% VAT cost, in this case P10.00 on the
product.
[CIR v. Benguet Corporation, GR Nos. 134587 & 134588, 8 July 2005.]
Q: DISTINGUISH BETWEEN VAT EXEMPTION AND ZERO-RATING.
The case of Contex Corporation v. CIR enumerated two ways by which a
transaction could have preferential treatment under the VAT system, namely: (1)
VAT exemption; and (2) zero-rating.
Exemptions from VAT are granted by express provision of the Tax Code or special
laws. Under VAT, the transaction can have preferential treatment in the following
ways:
Vat Exempt Sales (Vat-Exempt)
Simply put, the VAT is removed at the
exempt stage (e.g. point of the sale,
barter, etc)

Zero Rated Sales (Zero Rating)

These are sales by VAT-registered
persons which are subject to 0% rate,
meaning the tax burden is not passed
on to the purchaser.
A zero-rated sale or transaction by a
VAT-registered person, which is a
taxable transaction for VAT purposes,
does not result in any output tax (still
a taxable transaction)

A VAT-Registered purchaser of VATexempt goods/properties/services which

are exempt from VAT is not entitled to
any input tax on such purchase.

The input VAT on the purchases of a

VAT-registered person with zero-rated
sales may be allowed as tax credits or
refunded

The seller of exempt goods properties or

services shall not bill any output tax.
Exemption only removes the VAT at the
exempt stage, and it will actually
increase, rather than reduce the total
taxes paid by the exempt firms
business or non-retail customers.

Under zero-rating, all VAT is removed

from the zero-rated goods, activity or
firm

There is only partial relief because

the purchase is not allowed any tax
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[In] zero rating, there is total relief for

the purchaser from the burden of the
tax

refund or credit for input taxes paid.

Q: Distinguish between zero-rated transactions and effectively zero-rated
transactions.
The case of CIR v. Seagate Technology (Philippines) addressed this issue. It stated
that the difference is primarily as to their source.
Zero-Rated
Zero-rated transactions generally refer
to the export sale of goods and supply
of services.
The tax rate is set at zero.
When applied to the tax base, such rate
obviously results in no tax chargeable
against the purchaser.
The seller of such transactions charges
no output tax, but can claim a refund of
or a tax credit certificate for the VAT
previously charged by suppliers

Applying the destination principle to the

exportation of goods, automatic zero
rating is primarily intended to be
enjoyed by the seller who is directly and
legally liable for the VAT, making such
seller internationally competitive by
allowing the refund or credit of input
taxes that are attributable to export
sales.

Effectively Zero-Rated
Effectively zero-rated transactions
refer to the sale of goods or supply of
services to persons or entities whose
exemption under special laws or
international agreements to which the
Philippines is a signatory effectively
subjects such transactions to a zero
rate.
Again, as applied to the tax base, such
rate does not yield any tax chargeable
against the purchaser.
The seller who charges zero output tax
on such transactions can also claim a
refund of or a tax credit certificate for the
VAT previously charged by suppliers.
Effective zero rating, on the contrary,
is intended to benefit the purchaser
who, not being directly and legally liable
for the payment of the VAT, will
ultimately bear the burden of the tax
shifted by the suppliers

106(A)(2)(a) Export Sales

Q: What is the cross-border doctrine?
* According to CIR v. Toshiba Information Equipment (Phils.), Inc., the Philippines
adheres to the cross-border doctrine which means that no VAT shall be imposed
to form part of the cost of goods destined for consumption outside of the
territorial border of the taxing authority.
5

Hence:

actual export of goods and services from the Philippines to a foreign country
must be free of VAT;
On the other hand, those destined for use or consumption within the
Philippines shall be imposed with ten percent (10%) [now 12%] VAT.
Additionally, sales made by an enterprise within a non-ECOZONE territory, i.e.,
Customs Territory, to an enterprise within an ECOZONE territory shall be free
of VAT.

The case of Intel Technology Philippines, Inc. v. CIR is a claim for tax refund/credit
of alleged unutilized input VAT on local purchases of goods and services which are
attributable to export sales for the second quarter of 1998.

[CIR v. Toshiba Information Equipment (Phils.), Inc., GR No. 150154, 9 Aug. 2005.]

[[106(A)(2)(a)(1) Actual Shipment of Goods from the Philippines

to a Foreign Country (ZRT): The sale and actual shipment of goods from the
Philippines to a foreign country, irrespective of any shipping arrangement that may be
agreed upon which may influence or determine the transfer of ownership of the goods so
exported and paid for in acceptable foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP)]]
Q: Give examples of export sales in the form of actual shipment of goods
from the Philippines to a foreign country.
* Toshiba Information Equipment (Phils.), Inc. v. CIR is a claim for tax refund/credit
of alleged unutilized input VAT on local purchases of goods and services which are
attributable to export sales for the first and second quarters of 1997. [NOTE: This is
different from the Toshiba Case previously cited.]
In the case at bar, the CIR, in the Joint Stipulation of Facts and Issues, admitted
that Toshiba was a registered VAT entity and that it was subject to 0% VAT on
its export sales. Later, in his Motion for Reconsideration of the adverse Court of
Tax Appeals decision, the CIR would argue that Toshiba was not entitled to its
claim for tax refund/credit because it was VAT-exempt and its export sales were
VAT-exempt transactions (CIR argued this way because if the export sales were
VAT exempt, then it would be entitled to claim any credit from input tax)
The Supreme Court ruled that Toshiba was a registered VAT entity and its export
sales were subject to 0% VAT.

To prove that it was engaged in the sale and actual shipment of goods from
the Philippines to a foreign country and therefore entitled to tax credit of input
VAT, Intel Technology presented documentary evidence such as summary of
export sales, sales invoices, official receipts, airway bills, and export
declarations.
And, to prove that payment was made in acceptable foreign currency or its
equivalent in goods or services, and accounted for in accordance with the rules
and regulations of the Bangko Sentral ng Pilipinas (BSP), a certification of
inward remittances was presented by Intel Technology
The Supreme Court found that Intel Technologys evidence sufficiently
established that it was engaged in export sales.

Note: Based on Sec 106, export sales, or sales outside the Philippines, are subject
to VAT at 0% rate if made by a VAT-registered person. When applied to the tax
base, the 0% rate obviously results in no tax chargeable against the purchaser.
The seller of such transactions charges no output tax, but can claim a refund or tax
credit certificate for the VAT previously charged by suppliers.
Additionally, Under Sections 106 (A)(2)(a)(1) in relation to 112(A) of the Tax Code, a
taxpayer engaged in zero-rated or effectively zero-rated transactions may apply for
a refund or issuance of a tax credit certificate for input taxes paid attributable to
such sales upon complying with the following requisites: (1) the taxpayer is
engaged in sales which are zero-rated (like export sales) or effectively zero-rated;
(2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after
the close of the taxable quarter when such sales were made; (4) the creditable
input tax due or paid must be attributable to such sales, except the transitional input
tax, to the extent that such input tax has not been applied against the output tax;
and (5) in case of zero-rated sales under Section 106(A)(2)(a)(1) and (2), Section
106(B), and Section 108(B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with BSP rules and
regulations. It is added that, "where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties
or services, and the amount of creditable input tax due or paid cannot be directly or
entirely attributed to any one of the transactions, it shall be allocated
proportionately on the basis of the volume of the sales

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

transaction for VAT purposes, shall not result in any output tax. However, the input
tax on his purchases of goods, properties or services related to such zero-rated
sale shall be available as tax credit or refund in accordance with these regulations

[Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007.]

[Toshiba Information Equipment (Phils.), Inc. v. CIR, GR No. 157594, 9 Mar. 2010.]

raw materials or packaging materials to a nonresident buyer for delivery to a resident local
export-oriented enterprise to be used in manufacturing, processing, packing or repacking in
the Philippines of the said buyer's goods and paid for in acceptable foreign currency and

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106(A)(2)(a)(2) Sale of Raw Materials to a Nonresident Buyer for

Delivery to a Resident Local Export-Oriented Enterprise: Sale of

accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);

[Panasonic Communications Imaging Corporation of the Philippines v. CIR, GR No.

178090, 8 Feb. 2010.]

106(A)(2)(a)(3) Sale of Raw Materials to Export-Oriented

Enterprise: Sale of raw materials or packaging materials to export-oriented enterprise

106(A)(2)(a)(6) Sale of Goods to Persons Engaged

International Shipping or Air Transport Operations

whose export sales exceed seventy percent (70%) of total annual production;
Q: Give an example of a sale of raw materials to an export-oriented
enterprise.
* Section 106(A)(2)(a)(3) of the 1997 Tax Code pertains to the sale of raw materials
or packaging materials to an export-oriented enterprise whose export sales
exceed 70% of total annual production. With respect to the extent of the relief,
the Supreme Court held that:
Thus, the 0% rate applies to the total sale of raw materials or packaging
materials to an export-oriented enterprise and not just the percentage of the
sale in proportion to the actual exports of the enterprise.
[Atlas Consolidated Mining and Development Corporation v. CIR, GR No. 146221,
25 Sept. 2007.]

106(A)(2)(a)(4) Sale of Gold to the BSP

Q: Give an example of a sale of gold to the BSP.
CIR v. Benguet Corporation is a claim for tax refund/credit of alleged unutilized
input VAT on Benguet Corporations sale of gold to the Bangko Sentral ng Pilipinas
for the period 1 August 1989 to 31 July 1991. [NOTE: At the time the subject
transaction was made, the treatment of sale of gold to the BSP as export sales was
merely based on BIR issuances. Today, such treatment is already contained in the
1997 Tax Code.]
[CIR v. Benguet Corporation, GR Nos. 134587 & 134588, 8 July 2005.]

106(A)(2)(a)(5) Export Sales under the Omnibus Investment

Code of 1987 and Other Special Laws
Q: Give an example of export sales under the Omnibus Investment Code of
1987 and other special laws.
In Panasonic Communications Imaging Corporation of the Philippines v. CIR,
Panasonic produced and exported paper copiers and their sub-assemblies, parts,
and components. It was registered with the Board of Investments as a preferred
pioneer enterprise under the Omnibus Investment Code of 1987; it was a registered
VAT enterprise; and its export sales were zero-rated.
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in

106(A)(2)(b) Foreign Currency Denominated Sale: The phrase 'foreign

currency denominated sale' means sale to a nonresident of goods, except those
mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for
delivery to a resident in the Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP).

106(A)(2)(c) Zero-Rated Sales pursuant to Special Laws or

International Agreements
106(B) Transactions Deemed Sale:
106(B)(1) Transfer Not in the Course of Trade or Business of
Goods/Services Originally Intended for Sale/Use in the Course of
Trade or Business
106(B)(2) Other Transactions:
These are:
(1) transfer to shareholders/investors as share in the profits of a VAT-registered
person/entity;
(2) transfer to creditors in payment of debt;
(3) consignment of goods, if actual sale is not made within 60 days following the date such
goods were consigned; and
(4) retirement from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation.
Q: Give an example of a transaction deemed sale under this provision.
* In San Roque Power Corporation v. CIR, San Roque Power Corporation was
engaged in the supply of electricity to the National Power Corporation. Such
sale of service qualified as a zero-rated transaction under Section 108(B)(3) of the
1997 Tax Code.
A portion of SRPCs claim for tax refund/credit for alleged unutilized input VAT was
attributable to a sale of electricity to NPC that was made during the testing
7

period sometime in 2002, for which SRPC was paid an amount of Php 42.5
million.
The issue was whether such sale qualified for zero-rating. The Supreme Court
held that although the sale was not a commercial sale or in the normal course of
business, it was a transaction deemed sale under Section 106(B)(1) of the 1997
Tax Code. It thus qualified for zero-rating.
[San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]
106(C) Changes in or Cessation of Status of a VAT-Registered Person
106(D) Sales Returns, Allowances, and Sales Discounts
106(E) Authority of the Commissioner to Determine the Appropriate Tax Base
Sec. 107, Value-Added Tax on Importation of Goods
Q: Does VAT apply on every importation of goods?
* In explaining value-added tax, CIR v. Seagate Technology (Philippines)
stated that VAT shall be imposed on every importation of goods, whether or
not in the course of trade or business. This is unlike VAT on sale of goods or
properties which must be in the course of trade or business. Otherwise, the
person/transaction shall not be liable to pay VAT. Pertinent portion of the
decision read:
Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent
to 10 percent [now 12 percent] levied on every importation of goods,
whether or not in the course of trade or business, or imposed on each sale,
barter, exchange or lease of goods or properties or on each rendition of
services in the course of trade or business as they pass along the
production and distribution chain, the tax being limited only to the value
added to such goods, properties or services by the seller, transferor or
lessor.
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]
Sec. 108, Value-Added Tax on Sale of Services and Use or Lease of
Properties
108(A) Rate and Base of Tax
Q: What is a sale of services?
* In CIR v. Sony Philippines, Inc., Sony Philippines engaged the services of
several advertising companies. Due to Sony Philippines dire economic
conditions, Sony International Singapore handed Sony Philippines a doleout to answer for the expenses payable to the advertising companies. Sony
Philippines was thereafter assessed deficiency VAT for the transaction, i.e.,
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dole-out, between Sony International Singapore and Sony Philippines. The

Supreme Court ruled that the dole-out or subsidy from the Singaporean
company to the Philippine company neither constituted a sale of goods or
properties, nor a sale of services. Hence, Sony Philippines was not liable to
pay VAT on the same.
[CIR v. Sony Philippines, Inc., GR No. 178697, 17 Nov. 2010.]
** Quezon City v. ABS-CBN Broadcasting Corporation dealt with VAT-able
sales of services of franchise grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code.
[NOTE: Section 119 of the Tax Code imposes a percentage tax, in the form
of a 3% franchise tax, on radio and television broadcasting companies
whose annual gross receipts do not exceed Php 10 million. Such franchise
holders, however, has the option of paying 3% franchise tax or 12% VAT. On
the other hand, radio and television broadcasting companies whose annual
gross receipts exceed Php 10 million are governed by Section 108 of the
1997 Tax Code. They are liable to pay VAT, and do not have the option to
choose between paying franchise tax or VAT.]
ABS-CBN, being a broadcasting company with yearly gross receipts
exceeding Php 10 million, was found liable to pay VAT.
[Quezon City v. ABS-CBN Broadcasting Corporation, GR No. 166408, 6 Oct.
2008.]
*** Section 108 of the 1997 Tax Code defines sale of services as the
performance of all kinds of services in the Philippines for others for a fee,
remuneration or consideration, including supply of technical advice,
assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking,
venture, project or scheme. In the case of CIR v. CA, COMASERCO was a
non-stock non-profit organization engaged in the sale of services of such
nature. However, COMASERCO argued that its sales of services were not
subject to VAT because although it charged a fee for such sales, the
organization was operating on a reimbursement-of-cost basis and hence,
did not derive profit from such sales. The Supreme Court held that any sale
of services for a fee, remuneration or consideration is subject to VAT,
regardless of any profit derived therefrom.
[CIR v. CA, GR No. 125355, 30 Mar. 2000.]
**** Sale of services includes lease of motion picture films, films, tapes
and discs. In CIR v. SM Prime Holdings, Inc., SM Prime and First Asia were
engaged in the business of operating cinema houses. At issue was whether
cinema operators/proprietors were liable to pay VAT, on top of the
amusement tax imposed by the 1991 LGC. The Supreme Court conceded
that the enumeration of services subject to VAT under Section 108 of the
1997 Tax Code was not exhaustive. However, lease of motion picture films,
films, tapes and discs did not equate to showing or exhibition of motion
pictures or films. SM Prime and First Asia were not liable to pay VAT.
8

[CIR v. SM Prime Holdings, Inc., GR No. 183505, 26 Feb. 2010.]

***** Sonza v. ABS-CBN Broadcasting Corporation differentiated between
services rendered pursuant to an employer-employee relationship and
services rendered by an independent contractor pursuant to a contractual
relationship. Subsumed under the latter, professionals such as talent and
television and radio broadcasters are liable to pay VAT.
[Sonza v. ABS-CBN Broadcasting Corporation, GR No.138051, 10 June
2004.]
108(B) Zero-Rated Sales of Services
Q: What is the destination principle? Are there exceptions to the rule?
* According to CIR v. American Express International, Inc.: As a general
rule, the VAT system uses the destination principle as a basis for the
jurisdictional reach of the tax. Goods and services are taxed only in the
country where they are consumed. Thus, exports are zero-rated, while
imports are taxed. The decision proceeded to define consumption as the
use of a thing in a way that thereby exhausts it. Applied to services, it
means the performance or successful completion of a contractual duty,
usually resulting in the performers release from any past or future liability.
Exceptions to the destination principle are found in Section 108(B) of the
1997 Tax Code. They are deemed exceptions because although the
services are performed in the Philippines, upon compliance with certain
requirements, the sales of such services are zero-rated.
[CIR v. American Express International, Inc. (Philippine Branch), GR No.
152609, 29 June 2005.]
108(B)(1) Processing, Manufacturing, or Repacking Goods for Other Persons
Doing Business outside the Philippines
108(B)(2) Services Other than Those Mentioned in the Preceding Paragraph
Q: Cite examples of services other than processing, manufacturing, or repacking of
goods.
* In CIR v. American Express International, Inc., Amex Phils. facilitated in the
Philippines the collection and payment of receivables belonging to its Hong
Kong-based foreign client, Amex HK, and getting paid for it in acceptable
foreign currency and accounted for in accordance with the rules and
regulations of the BSP. The Supreme Court ruled that the facilitation
services Amex Phils. rendered in the Philippines fell under Section 108(B)(2)
of the 1997 Tax Code.
[CIR v. American Express International, Inc., GR No. 152609, 29 June
2005.]
** In CIR v. Placer Dome Technical Services (Phils.) Inc., Placer Dome
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Canada engaged the services of Placer Dome Phils. to perform the clean-up
and rehabilitation of the Makalupnit and Boac Rivers in Marinduque. Placer
Dome Phils. argued that its sale of services to Placer Dome Canada was a
zero-rated transaction under Section 108(B)(2) of the 1997 Tax Code. Citing
CIR v. American Express International, Inc., the Supreme Court upheld
Placer Dome Phils. argument.
[CIR v. Placer Dome Technical Services (Philippines), Inc., GR No. 164365,
8 June 2007.]
*** In CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.,
Burmeister was engaged in the actual operation and management of two
power barges in Mindanao. It claimed that its transactions were subject to
zero-rating under Section 108(B)(2) of the 1997 Tax Code. The Supreme
Court denied Burmeisters claim on the ground that Section 108(B)(2) of the
1997 Tax Code additionally required that the payer-recipient of the services
must be doing business outside the Philippines. It ruled in this manner:
The Tax Code not only requires that the services be other than processing,
manufacturing or repacking of goods and that payment for such services be
in acceptable foreign currency accounted for in accordance with BSP
rules. Another essential condition for qualification to zero-rating under
Section 102(b)(2) is that the recipient of such services is doing business
outside the Philippines. While this requirement is not expressly stated in
the second paragraph of Section 102(b), this is clearly provided in the first
paragraph of Section 102(b) where the listed services must be for other
persons doing business outside the Philippines. The phrase for other
persons doing business outside the Philippines not only refers to the
services enumerated in the first paragraph of Section 102(b), but also
pertains to the general term services appearing in the second paragraph of
Section 102(b). In short, services other than processing, manufacturing, or
repacking of goods must likewise be performed for persons doing business
outside the Philippines.
[NOTE: In relation to CIR v. American Express International, Inc. and CIR v.
Placer Dome Technical Services (Philippines), Inc. discussed above, said
cases stated that consumption of the services abroad is not a
requirement for zero-rating. However, on the basis of CIR v. Burmeister &
Wain Contractor Mindanao, Inc., the payer-recipient of the services must
be doing business outside of the Philippines.]
[CIR v. Burmeister & Wain Scandinavian Contractor Mindanao, Inc., GR No.
153205, 22 Jan. 2007.]
108(B)(3) Zero-Rated Sales pursuant to Special Laws or International
Agreements
Q: Distinguish between zero-rated transactions [e.g., Sec. 108(B)(1)-(2)] and
effectively zero-rated transactions [e.g., Sec. 108(B)(3)].
* The case of CIR v. Seagate Technology (Philippines) addressed this issue.
It stated that:
9

Although both are taxable and similar in effect, zero-rated transactions differ
from effectively zero-rated transactions as to their source.
Zero-rated transactions generally refer to the export sale of goods and
supply of services. The tax rate is set at zero. When applied to the tax base,
such rate obviously results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax, but can claim a refund of
or a tax credit certificate for the VAT previously charged by suppliers.
Effectively zero-rated transactions, however, refer to the sale of goods or
supply of services to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory
effectively subjects such transactions to a zero rate. Again, as applied to the
tax base, such rate does not yield any tax chargeable against the
purchaser. The seller who charges zero output tax on such transactions can
also claim a refund of or a tax credit certificate for the VAT previously
charged by suppliers.
The decision went on to say (under the subheading Zero Rating and
Exemption):
Applying the destination principle to the exportation of goods, automatic
zero rating is primarily intended to be enjoyed by the seller who is directly
and legally liable for the VAT, making such seller internationally competitive
by allowing the refund or credit of input taxes that are attributable to export
sales. Effective zero rating, on the contrary, is intended to benefit the
purchaser who, not being directly and legally liable for the payment of the
VAT, will ultimately bear the burden of the tax shifted by the suppliers.
(Emphasis supplied.)
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]

certain exempt entities, such as the NPC, from the burden of indirect tax so
as to encourage the development of particular industries. Before, as well as
after, the adoption of the VAT, certain special laws were enacted for the
benefit of various entities and international agreements were entered into by
the Philippines with foreign governments and institutions exempting sale of
goods or supply of services from indirect taxes at the level of their suppliers.
Effective zero-rating was intended to relieve the exempt entity from being
burdened with the indirect tax which is or which will be shifted to it had there
been no exemption. In this case, petitioner is being exempted from paying
VAT on its purchases to relieve NPC of the burden of additional costs that
petitioner may shift to NPC by adding to the cost of the electricity sold to the
latter.
[San Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]
108(B)(4) Sale of Services to Persons Engaged in International Shipping or
Air Transport Operations
108(B)(5) Sale of Services for Export-Oriented Enterprise
108(B)(6) Transport of Passengers and Cargo by Air or Seal Vessels from the
Philippines to a Foreign Country
108(B)(7) Sale of Power Generated through Renewable Sources of Energy
Sec. 109, Exempt Transactions
Q: Distinguish between an exempt transaction and an exempt party.

Q: Give examples of effectively zero-rated sales of services pursuant to special

laws.
* In CIR v. Acesite (Philippines) Hotel Corporation, Acesite was the operator
of Holiday Inn Manila Pavilion Hotel. It leased a portion of its premises to
PAGCOR for casino operations. It also catered food and beverages to
PAGCORs casino patrons. The issue was whether Acesite could refund the
VAT it paid on its rental income and sale of food and beverages to
PAGCOR. The Supreme Court, pursuant to PAGCORs charter (PD No.
1869 and all amendments thereto), found that Acesites sale of services to
PAGCOR was zero-rated under Section 108(B)(3) of the 1997 Tax Code.
[CIR v. Acesite (Philippines) Hotel Corporation, GR No. 147295, 16 Feb.
2007.]
** In the case of San Roque Power Corporation v. CIR, San Roque Power
Corporation was engaged in the sale of electricity to NPC. The Supreme
Court ruled that SRPCs sale of service to NPC was zero-rated, pursuant to
NPCs charter and under Section 108(B)(3) of the 1997 Tax Code. It
explained the rationale for the effective zero-rating of NPC in this manner:
It bears emphasis that effective zero-rating is not intended as a benefit to
the person legally liable to pay the tax, such as petitioner, but to relieve
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* CIR v. Seagate Technology (Philippines) made a distinction between

exempt transaction exempt party in this wise:
An exempt transaction, on the one hand, involves goods or services
which, by their nature, are specifically listed in and expressly exempted from
the VAT under the Tax Code, without regard to the tax status -- VAT-exempt
or not -- of the party to the transaction. Indeed, such transaction is not
subject to the VAT, but the seller is not allowed any tax refund of or credit for
any input taxes paid.
An exempt party, on the other hand, is a person or entity granted VAT
exemption under the Tax Code, a special law or an international agreement
to which the Philippines is a signatory, and by virtue of which its taxable
transactions become exempt from the VAT. Such party is also not subject to
the VAT, but may be allowed a tax refund of or credit for input taxes paid,
depending on its registration as a VAT or non-VAT taxpayer. (Emphasis
supplied.)
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]
Q: Give examples of exempt transactions.

10

109(A) Sale or Importation of Agricultural and Marine Food Products in Their

Original State

109(U) Services of Banks, Non-Bank Financial Intermediaries Performing

Quasi-Banking Functions, and Other Non-Bank Financial Intermediaries

* Misamis Oriental Association of Coco Traders, Inc. v. DOF interpreted the

provisions of the 1977 Tax Code. However, it is instructive as to the issue of
who determines or classifies a certain product, i.e., whether it is food or nonfood. According to the decision, as between the Bureau of Food and Drug
and the Bureau of Internal Revenue, the classification made by the latter
would prevail.
[Misamis Oriental Association of Coco Traders, Inc. v. DOF, GR No. 108524,
10 Nov. 1994.]

* Section 109(U) of the 1997 Tax Code provides that transactions involving
services rendered by banks, non-bank financial intermediaries performing
quasi-banking functions, and other non-bank financial intermediaries shall
be VAT-exempt. The case of First Planters Pawnshop, Inc. v. CIR pertained
to a taxable period prior to the adoption of the present wording of Section
109(U) of the 1997 Tax Code. However, the decision is relevant in that it
discussed the tax treatment of a pawnshop business. The Supreme Court
held that pawnshops are non-bank financial intermediaries.
[First Planters Pawnshop, Inc. v. CIR, GR No. 174134, 30 July 2008.]

109(G) Medical, Dental, Hospital, and Veterinary Services, except Those

Rendered by Professionals
* Section 109(G) of the Tax Code provides that transactions involving
medical, dental, hospital, and veterinary services are VAT-exempt
transactions. In the case of CIR v. Philippine Health Care Providers, Inc., it
was found that Philippine Health Care Providers, Inc. did not render medical,
dental, hospital, and veterinary services, but merely arranged for the same.
Hence, its services were not VAT-exempt.
[CIR v. Philippine Health Care Providers, Inc., GR No. 168129, 24 Apr.
2007.]
109(I) Services Rendered by Individuals pursuant to an Employer-Employee
Relationship
* Sonza v. ABS-CBN Broadcasting Corporation differentiated between
services rendered pursuant to an employer-employee relationship (which is
an exempt transaction) and services rendered by an independent contractor
pursuant to a contractual relationship (which is subject to VAT). The
Supreme Court ruled that Sonza was an independent contractor. As such,
he was subject to VAT on the services that he rendered.
[Sonza v. ABS-CBN Broadcasting Corporation, GR No.138051, 10 June
2004.]
109(K) Transactions Which are Exempt under International Agreements to
Which the Philippines is a Signatory or under Special Laws, except Those
under PD No. 529
* In Philippine Amusement & Gaming Corporation v. CIR, the Supreme
Court held that PAGCOR was exempt from payment of VAT. It cited, among
others, the VAT exemption of PAGCORs transactions by virtue of its charter
(PD No. 1869 and all amendments thereto) in relation to Section 109(K) of
the 1997 Tax Code.
[Philippine Amusement & Gaming Corporation v. CIR, GR No. 172087, 15
Mar. 2011.]
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Sec. 110, Tax Credits

110(A) Creditable Input Tax
Q: Distinguish between input tax and output tax.
* The case of CIR v. Benguet Corporation defined input tax and output
tax.
Input VAT or input tax represents the actual payments, costs and expenses
incurred by a VAT-registered taxpayer in connection with his purchase of
goods and services. Thus, "input tax" means the value-added tax paid
by a VAT-registered person/entity in the course of his/its trade or
business on the importation of goods or local purchases of goods or
services from a VAT-registered person.
On the other hand, when that person or entity sells his/its products or
services, the VAT-registered taxpayer generally becomes liable for 10% of
the selling price as output VAT or output tax. Hence, "output tax" is the
value-added tax on the sale of taxable goods or services by any
person registered or required to register under Section 107 of the (old)
Tax Code.
The VAT system of taxation allows a VAT-registered taxpayer to recover its
input VAT either by (1) passing on the 10% output VAT on the gross selling
price or gross receipts, as the case may be, to its buyers, or (2) if the input
tax is attributable to the purchase of capital goods or to zero-rated sales, by
filing a claim for a refund or tax credit with the BIR.
Simply stated, a taxpayer subject to 10% output VAT on its sales of goods
and services may recover its input VAT costs by passing on said costs as
output VAT to its buyers of goods and services but it cannot claim the same
as a refund or tax credit, while a taxpayer subject to 0% on its sales of
goods and services may only recover its input VAT costs by filing a refund or
tax credit with the BIR.
[CIR v. Benguet Corporation, GR No. 145559, 14 July 2006.]
110(B) Excess Output or Input Tax
11

110(C) Determination of Creditable Input Tax

Sec. 111, Transitional/Presumptive Input Tax Credits
111(A) Transitional Input Tax Credits
111(B) Presumptive Input Tax Credits
Sec. 112, Refunds or Tax Credits of Input Tax
112(A) Zero-Rated or Effectively Zero-Rated Sales
Q: Distinguish between zero-rated transactions [e.g., Sec. 108(B)(1)-(2)] and
effectively zero-rated transactions [e.g., Sec. 108(B)(3)].
* The case of CIR v. Seagate Technology (Philippines) addressed this issue.
It stated that:
Although both are taxable and similar in effect, zero-rated transactions differ
from effectively zero-rated transactions as to their source.
Zero-rated transactions generally refer to the export sale of goods and
supply of services. The tax rate is set at zero. When applied to the tax base,
such rate obviously results in no tax chargeable against the purchaser. The
seller of such transactions charges no output tax, but can claim a refund of
or a tax credit certificate for the VAT previously charged by suppliers.
Effectively zero-rated transactions, however, refer to the sale of goods or
supply of services to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory
effectively subjects such transactions to a zero rate. Again, as applied to the
tax base, such rate does not yield any tax chargeable against the
purchaser. The seller who charges zero output tax on such transactions can
also claim a refund of or a tax credit certificate for the VAT previously
charged by suppliers.
The decision went on to say (under the subheading Zero Rating and
Exemption):
Applying the destination principle to the exportation of goods, automatic
zero rating is primarily intended to be enjoyed by the seller who is directly
and legally liable for the VAT, making such seller internationally competitive
by allowing the refund or credit of input taxes that are attributable to export
sales. Effective zero rating, on the contrary, is intended to benefit the
purchaser who, not being directly and legally liable for the payment of the
VAT, will ultimately bear the burden of the tax shifted by the suppliers.
(Emphasis supplied.)
[CIR v. Seagate Technology (Philippines), GR No. 153866, 11 Feb. 2005.]

(1) the taxpayer is engaged in sales which are zero-rated or effectively zerorated;
(2) the taxpayer is VAT-registered;
(3) the claim must be filed within two years after the close of the taxable
quarter when such sales were made;
(4) the input taxes are due or paid;
(5) the input taxes are not transitional input taxes;
(6) the input taxes have not been applied against output taxes during and in
the succeeding quarters;
(7) the input taxes claimed are attributable to zero-rated or effectively zerorated sales;
(8) in certain types of zero-rated sales, the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with
BSP rules and regulations [Sections 106(A)(2)(a)(1) and (2); Section 106(B);
Sections 108(B)(1) and (2)]; and
(9) where there are both zero-rated or effectively zero-rated sales and
taxable or exempt sales, and the input taxes cannot be directly and entirely
attributable to any of these sales, the input taxes shall be proportionately
allocated on the basis of sales volume.
[Intel Technology Philippines, Inc. v. CIR, GR No. 166732, 27 Apr. 2007; San
Roque Power Corporation v. CIR, GR No. 180345, 25 Nov. 2009.]
Q: In claims for VAT refund/credit, what is the reckoning point for the two-year
prescriptive period?
* In 2007, the Supreme Court promulgated its decision in Atlas Consolidated
Mining and Development Corporation v. CIR which essentially held that in
claims for VAT refund/credit, the prescriptive period for filing administrative
and judicial claims shall be two years reckoned from the date of filing of
the VAT quarterly return.
A year later, in the highly publicized case of CIR v. Mirant Pagbilao
Corporation, the Supreme Court changed its mind and ruled that the twoyear prescriptive period in claims for VAT refund/credit must be counted not
from the date of filing of the VAT quarterly return, but from the close of the
taxable quarter when the relevant sales were made.
[Atlas Consolidated Mining and Development Corporation v. CIR, GR Nos.
141104 & 148763, 8 June 2007; CIR v. Mirant Pagbilao Corporation, GR No.
172129, 12 Sept. 2008.]
112(B) Cancellation of VAT Registration
112(C) Period within which Refund or Tax Credit of Input Taxes Shall Be Made
Q: When are administrative and judicial claims for VAT refund/credit filed?

Q: What are the requirements for a claim for VAT refund/credit?

* The cases of Intel Technology Philippines, Inc. v. CIR and San Roque
Power Corporation v CIR enumerated the requirements, thus:
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* In 2007, the Supreme Court promulgated its decision in Atlas Consolidated

Mining and Development Corporation v. CIR which essentially held that
12

claims for VAT refund/credit must be filed within the two-year prescriptive
period.
In 2010, the Supreme Court came out with the controversial case of CIR v.
Aichi Forging Company of Asia, Inc. which mandated compliance of
administrative and judicial claims with both the two-year prescriptive period
[Section 112(A)] and the 120-30 day period rule [Section 112(C)]. Otherwise,
claims would be adjudged as either filed out of time or prematurely filed.
[Atlas Consolidated Mining and Development Corporation v. CIR, GR Nos.
141104 & 148763, 8 June 2007; CIR v. Aichi Forging Company of Asia, Inc.,
GR No. 184823, 6 Oct. 2010.]
112(D) Manner of Giving Refund
Sec. 113, Invoicing and Accounting Requirements for VAT-Registered
Persons

invoice might be presented to substantiate a sale of goods or properties,

while only a VAT receipt could substantiate a sale of services. Pertinent
portion of the decision read:
In other words, the VAT invoice is the sellers best proof of the sale of the
goods or services to the buyer while the VAT receipt is the buyers best
evidence of the payment of goods or services received from the seller. Even
though VAT invoices and receipts are normally issued by the supplier/seller
alone, the said invoices and receipts, taken collectively, are necessary to
substantiate the actual amount or quantity of goods sold and their selling
price (proof of transaction), and the best means to prove the input VAT
payments (proof of payment). Hence, VAT invoice and VAT receipt should
not be confused as referring to one and the same thing. Certainly, neither
does the law intend the two to be used alternatively.
[Kepco Philippines Corporation v. CIR, GR No. 181858, 24 Nov. 2010.]
113(B) Information Contained in the VAT Invoice or VAT Official Receipt

113(A) Invoicing Requirements

Q: Is there a difference between an invoice and an official receipt?
* CIR v. Manila Mining Corporation defined these terms, to wit:
A sales or commercial invoice is a written account of goods sold or
services rendered indicating the prices charged therefor or a list by whatever
name it is known which is used in the ordinary course of business
evidencing sale and transfer or agreement to sell or transfer goods and
services.
A receipt on the other hand is a written acknowledgment of the fact of
payment in money or other settlement between seller and buyer of goods,
debtor or creditor, or person rendering services and client or customer.
[CIR v. Manila Mining Corporation, GR No. 153204, 31 Aug. 2005.]
** In AT&T Communications Services Philippines, Inc. v. CIR, AT&T was
engaged in the business of providing information, promotional, supportive,
and liaison services to foreign corporations. It filed a claim for tax
refund/credit for alleged unutilized input VAT on said sales of services and
presented sales invoices to substantiate the same. In giving credence to the
sales invoices (not necessarily official receipts), the Supreme Court said
that:
Sales invoices are recognized commercial documents to facilitate trade or
credit transactions. They are proofs that a business transaction has been
concluded, hence, should not be considered bereft of probative value. Only
the preponderance of evidence threshold as applied in ordinary civil cases is
needed to substantiate a claim for tax refund proper.
[AT&T Communications Services Philippines, Inc. v. CIR, GR No. 182364, 3
Aug. 2010.]
*** On other hand, the case of Kepco Philippines Corporation v. CIR made a
distinction between a VAT invoice and a VAT receipt, such that only a VAT
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S/Y 2011-2012

* Section 113(B)(2)(c) of the 1997 Tax Code provides that certain information
must be indicated on the VAT invoice or VAT official receipt, and that if the
sale is subject to zero percent (0%) value-added tax, the term zero-rated
sale shall be written or printed prominently on the invoice or receipt.
The Bureau of Internal Revenue, the Divisions of the Court of Tax Appeals,
the Court of Tax Appeals En Banc, and the Supreme Court has conflicting
opinions on whether the term zero-rated sale must be written, stamped, or
imprinted.
However, as enunciated in recent cases, the term zero-rated sale must be
imprinted, and not merely written or stamped. Otherwise, such claims for
VAT refund/credit substantiated by non-conforming VAT invoices or VAT
official receipts shall be disallowed.
[Panasonic Communications Imaging Corporation of the Philippines, GR No.
1708090, 8 Feb. 2010; JRA Philippines, Inc. v. CIR, GR No. 177127, 11 Oct.
2010; Hitachi Global Storage Technologies Philippines Corporation v. CIR,
GR No. 174212, 20 Oct. 2010; Microsoft Philippines, Inc., v. CIR, GR No.
180173, 6 Apr. 2011.]
113(C) Accounting Requirements
113(D) Consequences of Issuing Erroneous VAT Invoice or VAT Official
Receipt
113(E) Transitional Period
Sec. 114, Return and Payment of Value-Added Tax
114(A) In General
114(B) Where to File the Return and Pay the Tax
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114(C) Withholding of Value-Added Tax

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

TAX 2 SYLLABUS
DEAN LILY K. GRUBA
S/Y 2011-2012

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