BUSINESS TAXES

I. Value-Added Taxes
1. Sections 105 – 115;
SEC. 105. Persons Liable. — Any person who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this
Code.
The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to
the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.
The phrase ‘in the course of trade or business’ means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit 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
rendered in the course of trade or business.
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, a value-added tax equivalent to twelve
percent (12%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or transferor.
(1) The term ‘goods or properties’ shall mean all tangible and intangible objects
which are capable of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the
ordinary course of trade or business;
(b) The right or the privilege to use patent, copyright, design or model, plan,
secret formula or process, goodwill, trademark, trade brand or other like
property or right;

(c) The right or the privilege to use in the Philippines of any

industrial, commercial or scientific equipment;
(d) The right or the privilege to use motion picture films, films,
tapes and discs; and
(e) Radio, television, satellite transmission and cable television time.
The term ‘gross selling price’ means the total amount of money or its equivalent
which the purchaser pays or is obligated to pay to the seller in consideration of the
sale, barter or exchange of the goods or properties, excluding the value-added tax.
 The excise tax, if any, on such goods or properties shall form part of the gross
selling price.
(2) The following sales by VAT-registered persons shall be subject to zero percent
(0%) rate:
(a) Export Sales. — The term ‘export sales’ means:
(1) The sale and actual shipment of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed
upon which may influence or determine the transfer of ownership of the
goods so exported and paid for in acceptable foreign currency or its
equivalent in goods or services, and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
[[(2) Sale and delivery of goods to:
(i) Registered enterprises within a separate customs territory as
provided under special laws; and
(ii) Registered enterprises within tourism enterprise zones as declared
by the Tourism Infrastructure and Enterprise Zone Authority
(TIEZA) subject to the provisions under Republic Act No. 9593 or
The Tourism Act of 2009. - VETOED by the President]
(3) 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);
(4) Sale of raw materials or packaging materials to export- oriented
enterprise whose export sales exceed seventy percent (70%) of total
annual production;
(5) Those considered export sales under Executive Order No. 226, otherwise
known as the Omnibus Investments Code of 1987, and other special laws;
and
(6) The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations: Provided,
That the goods, supplies, equipment and fuel shall be used for
international shipping or air transport operations.
Provided, That subparagraphs (3), (4), and (5) hereof shall be subject to the
twelve percent (12%) value-added tax and no longer be considered export
sales subject to zero percent (0%) VAT rate upon satisfaction of the following
conditions:
(1) The successful establishment and implementation of an enhanced VAT
refund system that grants refunds of creditable input tax within ninety
(90) days from the filing of the VAT refund application with the Bureau:
 Provided, That, to determine the effectivity of item no. 1, all applications
filed from January 1, 2018 shall be processed and must be decided within
ninety (90) days from the filing of the VAT refund application; and
(2) All pending VAT refund claims as of December 31, 2017 shall be fully
paid in cash by December 31, 2019.
Provided, That the Department of Finance shall establish a VAT refund
center in the Bureau of Internal Revenue (BIR) and in the Bureau of Customs
(BOC) that will handle the processing and granting of cash refunds of
creditable input tax.
An amount equivalent to five percent (5%) of the total VAT collection of the
BIR and the BOC from the immediately preceding year shall be
automatically appropriated annually and shall be treated as a special account
in the General Fund or as trust receipts for the purpose of funding claims for
VAT refund: Provided, That any unused fund, at the end of the year shall
revert to the General Fund.

Provided, further, That the BIR and the BOC shall be required to submit to
the Congressional Oversight Committee on the Comprehensive Tax Reform
Program (COCCTRP) a quarterly report of all pending claims for refund and
any unused fund.
(b) Sales to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively
subjects such sales to zero rate.
(B) Transactions Deemed Sale. — The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-
registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (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.
(C) Changes in or Cessation of Status of a VAT registered Person. — The tax imposed in
Subsection (A) of this Section shall also apply to goods disposed of or existing as of a
certain date if under circumstances to be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the Commissioner,
the status of a person as a VAT-registered person changes or is terminated.
(D) Sales Returns, Allowances and Sales Discounts. — The value of goods or properties
sold and subsequently returned or for which allowances were granted by a VAT-
registered person may be deducted from the gross sales or receipts for the quarter in
 which a refund is made or a credit memorandum or refund is issued. Sales discount
granted and indicated in the invoice at the time of sale and the grant of which does not
depend upon the happening of a future event may be excluded from the gross sales
within the same quarter it was given.
(E) Authority of the Commissioner to Determine the Appropriate Tax Base. — The
Commissioner shall, by rules and regulations prescribed by the Secretary of Finance,
determine the appropriate tax base in cases where a transaction is deemed a sale, barter
or exchange of goods or properties under Subsection (B) hereof, or where the gross
selling price is unreasonably lower than the actual market value.
SEC. 107. Value-added Tax on Importation of Goods. —
(A) In General. — There shall be levied, assessed and collected on every importation of
goods a value-added tax equivalent to twelve percent (12%) based on the total value
used by the Bureau of Customs in determining tariff and customs duties, plus customs
duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior
to the release of such goods from customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or volume of the goods, the value-
added tax shall be based on the landed cost plus excise taxes, if any.
(B) Transfer of Goods by Tax-exempt Persons. — In the case of tax-free importation of
goods into the Philippines by persons, entities or agencies exempt from tax where such
goods are subsequently sold, transferred or exchanged in the Philippines to non-
exempt persons or entities, the purchasers, transferees or recipients shall be considered
the importers thereof, who shall be liable for any internal revenue tax on such
importation. The tax due on such importation shall constitute a lien on the goods
superior to all charges or liens on the goods, irrespective of the possessor thereof.
SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
—
(A) Rate and Base of Tax. — There shall be levied, assessed and collected, a value-added
tax equivalent to twelve percent (12%) of gross receipts derived from the sale or
exchange of services, including the use or lease of properties.
The phrase ‘sale or exchange of services’ means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration,
including those performed or rendered by construction and service contractors; stock,
real estate, commercial, customs and immigration brokers; lessors of property,
whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or
repacking goods for others; proprietors, operators or keepers of hotels, motels,
resthouses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers;
dealers in securities; lending investors; 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;
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; sales of
electricity by generation companies, transmission by any entity, and distribution
companies, including electric cooperatives; 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 and non-life insurance
companies (except their crop insurances) including surety, fidelity, indemnity and
bonding companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. The phrase
‘sale or exchange of services’ shall likewise include:
(1) The lease or the use of or the right or privilege to use any copyright, patent,
design or model, plan, secret formula or process, goodwill, trademark, trade brand
or other like property or right;
(2) The lease or the use of, or the right to use of any industrial, commercial or
scientific equipment;
(3) The supply of scientific, technical, industrial or commercial knowledge or
information;
(4) The supply of any assistance that is ancillary and subsidiary to and is furnished as
a means of enabling the application or enjoyment of any such property, or right as
is mentioned in subparagraph (2) or any such knowledge or information as is
mentioned in subparagraph (3);
(5) The supply of services by a nonresident person or his employee in connection
with the use of property or rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased from such nonresident person;
(6) The 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;
(7) The lease of motion picture films, films, tapes and discs; and
(8) The lease or the use of or the right to use radio, television, satellite transmission
and cable television time.
Lease of properties shall be subject to the tax herein imposed irrespective of the place
where the contract of lease or licensing agreement was executed if the property is
leased or used in the Philippines.
The term ‘gross receipts’ means the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including
the amount charged for materials supplied with the services and deposits and advanced
payments actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.
(B) Transactions Subject to Zero Percent (0%) Rate. — The following services performed
in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services
are paid for in acceptable foreign currency and accounted for in accordance with
 the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph rendered to a
person engaged in business conducted outside the Philippines or to a nonresident
person not engaged in business who is outside the Philippines when the services
are performed, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);
(3) Services rendered to persons or entities whose exemption under special laws or
international agreements to which the Philippines is a signatory effectively
subjects the supply of such services to zero percent (0%) rate;
(4) Services rendered to persons engaged in international shipping or international air
transport operations, including leases of property for use thereof: Provided, That
these services shall be exclusive for international shipping or air transport
operations;
(5) Services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales exceed
seventy percent (70%) of total annual
production;
(6) Transport of passengers and cargo by domestic air or sea vessels from the
Philippines to a foreign country; and
(7) Sale of power or fuel generated through renewable sources of energy such as, but
not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and
other emerging energy sources using technologies such as fuel cells and hydrogen
fuels.
[(8) [(8) Services rendered to:
(i) Registered enterprises within a separate customs territory as provided under
special law; and
(ii) Registered enterprises within tourism enterprise zones as declared by the
TIEZA subject to the provisions under Republic Act No. 9593 or The
Tourism Act of 2009. - VETOED by the President]
Provided, That subparagraphs (B)(1) and (B)(5) hereof shall be subject to the
twelve percent (12%) value-added tax and no longer be subject to zero percent
(0%) VAT rate upon satisfaction of the following conditions:
(1) The successful establishment and implementation of an enhanced VAT refund
system that grants refunds of creditable input tax within ninety (90) days from
the filing of the VAT refund application with the Bureau: Provided, That, to
determine the effectivity of item no. 1, all applications filed from January 1,
2018 shall be processed and must be decided within ninety (90) days from the
filing of the VAT refund application; and
(2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in
cash by December 31, 2019.
 Provided, That the Department of Finance shall establish a VAT refund center in
the Bureau of Internal Revenue (BIR) and in the Bureau of Customs (BOC) that
will handle the processing and granting of cash refunds of creditable input tax.
An amount equivalent to five percent (5%) of the total value- added tax collection
of the BIR and the BOC from the immediately preceding year shall be
automatically appropriated annually and shall be treated as a special account in
the General Fund or as trust receipts for the purpose of funding claims for VAT
Refund: Provided, That any unused fund, at the end of the year shall revert to the
General Fund.
Provided, further, That the BIR and the BOC shall be required to submit to the
COCCTRP a quarterly report of all pending claims for refund and any unused
fund.
SEC. 109. Exempt Transactions. —
(1) Subject to the provisions of the Subsection (2) here of, the following transactions shall
be exempt from the value-added tax:
(A) Sale or importation of agricultural and marine food products in their original state,
livestock and poultry of a kind generally used as, or yielding or producing foods for
human consumption; and breeding stock and genetic materials therefor.
Products classified under this paragraph shall be considered in their original state
even if they have undergone the simple processes of preparation or preservation for
the market, such as freezing, drying, salting, broiling, roasting, smoking or
stripping. Polished and/or husked rice, corn grits, raw cane sugar and molasses,
ordinary salt, and copra shall be considered in their original state;
(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other animals generally
considered as pets);
(C) Importation of personal and household effects belonging to the residents of the
Philippines returning from abroad and nonresident citizens coming to resettle in the
Philippines: Provided, That such goods are exempt from customs duties under the
Tariff and Customs Code of the Philippines;
(D) Importation of professional instruments and implements, tools of trade, occupation
or employment, wearing apparel, domestic animals, and personal and household
effects belonging to persons coming to settle in the Philippines or Filipinos or their
families and descendants who are now residents or citizens of other countries, such
parties hereinafter referred to as overseas Filipinos, in quantities and of the class
suitable to the profession, rank or position of the persons importing said items, for
their own use and not for barter or sale, accompanying such persons, or arriving
within a reasonable time: Provided, That the Bureau of Customs may, upon the
production of satisfactory evidence that such persons are actually coming to settle
in the Philippines and that the goods are brought from their former place of abode,
 exempt such goods from payment of duties and taxes:67 Provided, further, That
vehicles, vessels, aircrafts, machineries and other similar goods for use in
manufacture,68 shall not fall within this classification and shall therefore be subject
to duties, taxes and other charges;
(E) Services subject to percentage tax under Title V;
(F) Services by agricultural contract growers and milling for others of palay into rice,
corn into grits and sugar cane into raw sugar;
(G) Medical, dental, hospital and veterinary services except those rendered by
professionals;
(H) Educational services rendered by private educational institutions, duly accredited by
the Department of Education (DepEd), the Commission on Higher Education
(CHED), the Technical Education and Skills Development Authority (TESDA) and
those rendered by government educational institutions;
(I) Services rendered by individuals pursuant to an employer-employee relationship;
(J) Services rendered by regional or area headquarters established in the Philippines by
multinational corporations which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific
Region and do not earn or derive income from the Philippines;
(K) Transactions which are exempt under international agreements to which the
Philippines is a signatory or under special laws, except those under Presidential
Decree No. 529;
(L) Sales by agricultural cooperatives duly registered with the Cooperative
Development Authority to their members as well as sale of their produce, whether
in its original state or processed form, to non- members; their importation of direct
farm inputs, machineries and equipment, including spare parts thereof, to be used
directly and exclusively in the production and/or processing of their produce;
(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly
registered with the Cooperative Development Authority.
(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered
with the Cooperative Development Authority: Provided, That the share capital
contribution of each member does not exceed Fifteen thousand pesos (P15,000) and
regardless of the aggregate capital and net surplus ratably distributed among the
members:
(O) Export sales by persons who are not VAT-registered;
(P) Sale of real properties not primarily held for sale to customers or held for lease in
the ordinary course of trade or business, or real property utilized for low-cost and
socialized housing as defined by Republic Act No. 7279, otherwise known as the
Urban Development and Housing Act of 1992, and other related laws, residential lot
valued at One million five hundred thousand pesos (P1,500,000) and below, house
and lot, and other residential dwellings valued at Two million five hundred
thousand pesos (P2,500,000) and below: Provided, That beginning January 1, 2021,
 the VAT exemption shall only apply to sale of real properties not primarily held for
sale to customers or held for lease in the ordinary course of trade or business, sale
of real property utilized for socialized housing as defined by Republic Act No.
7279, sale of house and lot, and other residential dwellings with selling price of not
more than Two million pesos (P2,000,000):Provided, further, That every three (3)
years thereafter, the amount herein stated shall be adjusted to its present value using
the Consumer Price Index, as published by the Philippine Statistics Authority
(PSA);
(Q) Lease of a residential unit with a monthly rental not exceeding Fifteen thousand
pesos (P15,000);
(R) 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;
(S) Transport of passengers by international carriers;
(T) Sale, importation or lease of passenger or cargo vessels and aircraft, including
engine, equipment and spare parts thereof for domestic or international transport
operations;
(U) Importation of fuel, goods and supplies by persons engaged in international
shipping or air transport operations: Provided, That the fuel, goods and supplies
shall be used for international shipping or air transport operations;
(V) Services of bank, non-bank financial intermediaries performing quasi- banking
functions, and other non-bank financial intermediaries; and
(W) Sale or lease of goods and services to senior citizens and persons with disability, as
provided under Republic Act Nos. 9994 (Expanded Senior Citizens Act of 2010)
and 10754 (An Act Expanding the Benefits and Privileges of Persons with
Disability), respectively;
(X) Transfer of property pursuant to Section 40(C)(2) of the NIRC, as amended;
(Y) Association dues, membership fees, and other assessments and charges collected by
homeowners associations and condominium corporations;
(Z) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol, and
hypertension beginning January 1, 2019; and
(BB) Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Three million pesos (P3,000,000).

SEC. 110. Tax Credits. —

(A) Creditable Input Tax. —
(1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance
with Section 113 hereof on the following transactions shall be creditable against
 the output tax:
(a) Purchase or importation of goods:
(i) For sale; or
(ii) For conversion into or intended to form part of a finished
product for sale including packaging materials; or
(iii) For use as supplies in the course of business; or
(iv) For use as materials supplied in the sale of service; or
(v)For use in trade or business for which deduction for depreciation or
amortization is allowed under this Code.
(b) Purchase of services on which a value-added tax has actually been paid
(2) The input tax on domestic purchase or importation of goods or properties by a
VAT-registered person shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or
properties; and
(b)To the importer upon payment of the value-added tax prior to the release of
the goods from the custody of the Bureau of Customs.
Provided, That the input tax on goods purchased or imported in a calendar month
for use in trade or business for which deduction for depreciation is allowed under
this Code, shall be spread evenly over the month of acquisition and the fifty-nine
(59) succeeding months if the aggregate acquisition cost for such goods,
excluding the VAT component thereof, exceeds One million pesos (P1,000,000):
Provided, however, That if the estimated useful life of the capital good is less than
five (5) years, as used for depreciation purposes, then the input VAT shall be
spread over such a shorter period: Provided, further, That the amortization of the
input VAT shall only be allowed until December 31, 2021 after which taxpayers
with unutilized input VAT on capital goods purchased or imported shall be
allowed to apply the same as scheduled until fully utilized: Provided, finally, That
in the case of purchase of services, lease or use of properties, the input tax shall
be creditable to the purchaser, lessee or licensee upon payment of the
compensation, rental, royalty or fee.
(3) A VAT-registered person who is also engaged in transactions not subject to the
value-added tax shall be allowed tax credit as follows:
(a) Total input tax which can be directly attributed to transactions subject to
value-added tax; and
(b) A ratable portion of any input tax which cannot be directly attributed to either
activity.
The term ‘input tax’ means the value-added tax due from or paid by a VAT-
registered person in the course of his trade or business on importation of goods or
local purchase of goods or services, including lease or use of property, from a
VAT-registered person. It shall also include the transitional input tax determined
in accordance with Section 111 of this Code.
 The term ‘output tax’ means the value-added tax due on the sale or lease of
taxable goods or properties or services by any person registered or required to
register under Section 236 of this Code.
(B) Excess Output or Input Tax. — If at the end of any taxable quarter the output tax
exceeds the input tax, the excess shall be paid by the VAT- registered person. If the
input tax exceeds the output tax, the excess shall be carried over to the succeeding
quarter or quarters: Provided, however, That any input tax attributable to zero-rated
sales by a VAT-registered person may at his option be refunded or credited against
other internal revenue taxes, subject to the provisions of Section 112.
(C) Determination of Creditable Input Tax. — The sum of the excess input tax carried over
from the preceding month or quarter and the input tax creditable to a VAT-registered
person during the taxable month or quarter shall be reduced by the amount of claim for
refund or tax credit for value- added tax and other adjustments, such as purchase
returns or allowances and input tax attributable to exempt sale.
The claim for tax credit referred to in the foregoing paragraph shall include not only
those filed with the Bureau of Internal Revenue but also those filed with other
government agencies, such as the Board of Investments and the Bureau of Customs.
SEC. 111. Transitional/Presumptive Input Tax Credits. —
(A) Transitional Input Tax Credits. — A person who becomes liable to value- added tax or
any person who elects to be a VAT-registered person shall, subject to the filing of an
inventory according to rules and regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner, be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent to two percent (2%) of the value
of such inventory or the actual value-added tax paid on such goods, materials and
supplies, whichever is higher, which shall be creditable against the output tax.
(B) Presumptive Input Tax Credits. — Persons or firms engaged in the processing of
sardines, mackerel and milk, and in manufacturing refined sugar, cooking oil and
packed noodle-based instant meals, shall be allowed a presumptive input tax,
creditable against the output tax, equivalent to four percent (4%) of the gross value in
money of their purchases of primary agricultural products which are used as inputs to
their production.
As used in this Subsection, the term ‘processing’ shall mean pasteurization, canning
and activities which through physical or chemical process alter the exterior texture or
form or inner substance of a product in such manner as to prepare it for special use to
which it could not have been put in its original form or condition.
SEC. 112. Refunds or Tax Credits of Input Tax. —
(A) Zero-Rated or Effectively Zero-Rated Sales. — Any VAT-registered person, whose
sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however, That in the case of zero- rated sales under
 Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(1) and (2), the acceptable
foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, 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 and entirely
attributed to any one of the transactions, it shall be allocated proportionately on the
basis of the volume of sales: Provided, finally, That for a person making sales that are
zero-rated under Section 108(B)(6), the input taxes shall be allocated ratably between
his zero-rated and non-zero- rated sales.

(B) Cancellation of VAT Registration. — A person whose registration has been cancelled
due to retirement from or cessation of business, or due to changes in or cessation of
status under Section 106(C) of this Code may, within two (2) years from the date of
cancellation, apply for the issuance of a tax credit certificate for any unused input tax
which may be used in payment of his other internal revenue taxes.
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. — In
proper cases, the Commissioner shall grant a refund for creditable input taxes within
ninety (90) days from the date of submission of the official receipts or invoices and
other documents in support of the application filed in accordance with Subsection (A)
and (B) hereof: Provided, That should the Commissioner find that the grant of refund
is not proper, the Commissioner must state in writing the legal and factual basis for the
denial.
In case of full or partial denial of the claim for tax refund, the taxpayer affected may,
within thirty (30) days from the receipt of the decision denying the claim, appeal the
decision with the Court of Tax Appeals: Provided, however, That failure on the part of
any official, agent, or employee of the BIR to act on the application within the ninety
(90)-day period shall be punishable under Section 269 of this Code.84
(D) Manner of Giving Refund. — Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on Audit, the provisions of the
Administrative Code of 1987 to the contrary notwithstanding: Provided, That refunds
under this paragraph shall be subject to post audit by the Commission on Audit.
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.

(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 or
receipt;
(b)If the sale is exempt from value-added tax, the term ‘VAT-exempt sale’ shall
be written or printed prominently on the invoice or receipt;
(c) 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;
(d) If the sale involves goods, properties or services some of which are subject to
and some of which are VAT zero-rated or VAT- exempt, the invoice or receipt
shall clearly indicate the break- down of the sale price between its taxable,
exempt and zero- rated components, and the calculation of the value-added
tax on each portion of the sale shall be shown on the invoice or receipt:
Provided, That the seller may issue separate invoices or receipts for the
taxable, exempt, and zero-rated components of the sale.
(3) The date of transaction, quantity, unit cost and description of the goods or
properties or nature of the service; and
(4) In the case of sales in the amount of One thousand pesos (P1,000) or more where
the sale or transfer is made to a VAT-registered person, the name, business style,
if any, address and Taxpayer Identification Number (TIN) of the purchaser,
customer or client.
(C) Accounting Requirements. — Notwithstanding the provisions of Section 233, all
persons subject to the value-added tax under Sections 106 and 108 shall, in addition to
the regular accounting records required, maintain a subsidiary sales journal and
subsidiary purchase journal on which the daily sales and purchases are recorded. The
subsidiary journals shall contain such information as may be required by the Secretary
of Finance.
(D) Consequence of Issuing Erroneous VAT Invoice or VAT Official
Receipt. —
(1) If a person who is not a VAT-registered person issues an invoice or receipt
showing his Taxpayer Identification Number (TIN), followed by the word ‘VAT’:
(a) The issuer shall, in addition to any liability to other percentage taxes, be liable
to:
(i) The tax imposed in Section 106 or 108 without the benefit
of any input tax credit; and
(ii)A fifty percent (50%) surcharge under Section 248(B) of
this Code;
(b) The VAT shall, if the other requisite information required under Subsection
(B) hereof is shown on the invoice or receipt, be recognized as an input tax
credit to the purchaser under Section 110 of this Code.
 (2) If a VAT-registered person issues a VAT invoice or VAT official receipt for a
VAT-exempt transaction, but fails to display prominently on the invoice or receipt
the term ‘VAT-exempt sale’, the issuer shall be liable to account for the tax
imposed in Section 106 or 108 as if Section 109 did not apply.
(E) Transitional Period. — Notwithstanding Subsection (B) hereof, taxpayers may
continue to issue VAT invoices and VAT official receipts for the period July 1, 2005
to December 31, 2005, in accordance with Bureau of Internal Revenue administrative
practices that existed as of December 31, 2004.
SEC. 114. Return and Payment of Value-added Tax. —
(A) In General. — Every person liable to pay the value-added tax imposed under this
Title shall file a quarterly return of the amount of his gross sales or receipts within
twenty-five (25) days following the close of each taxable quarter prescribed for each
taxpayer: Provided, however, That VAT-registered persons shall pay the value-added
tax on a monthly basis:
Provided, finally, That beginning January 1, 2023, the filing and payment required
under this Subsection shall be done within twenty-five (25) days following the close of
each taxable quarter.
Any person, whose registration has been cancelled in accordance with Section 236,
shall file a return and pay the tax due thereon within twenty- five (25) days from the
date of cancellation of registration: Provided, That only one consolidated return shall
be filed by the taxpayer for his principal place of business or head office and all
branches.
(B) Where to File the Return and Pay the Tax. — Except as the Commissioner
otherwise permits, the return shall be filed with and the tax paid to an authorized agent
bank, Revenue Collection Officer or duly authorized city or municipal Treasurer in the
Philippines located within the revenue district where the taxpayer is registered or
required to register.
(C) Withholding of Value-added Tax. — The Government or any of its political
subdivisions, instrumentalities or agencies, including government-owned or
-controlled corporations (GOCCs) shall, before making payment on account of each
purchase of goods and services which are subject to the value-added tax imposed in
Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at the
rate of five percent (5%) of the gross payment thereof: Provided, That beginning
January 1, 2021, the VAT withholding system under this Subsection shall shift from
final to a creditable system:86 Provided, further, That the payment for lease or use of
properties or property rights to nonresident owners shall be subject to twelve percent
(12%)87 withholding tax at the time of payment: Provided, finally, That payments for
purchases of goods and services arising from projects funded by Official Development
Assistance (ODA) as defined under Republic Act No. 8182, otherwise known as the
‘Official Development Assistance Act of 1996’, as amended, shall not be subject to the
final withholding tax system as imposed in this Subsection.88 For purposes of this
Section, the payor or person in control of the payment shall be considered as the
 withholding agent.
The value-added tax withheld under this Section shall be remitted within ten (10) days
following the end of the month the withholding was made.
SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. — The
Commissioner or his authorized representative is hereby empowered to suspend the business
operations and temporarily close the business establishment of any person for any of the
following violations:
(a) In the Case of a VAT-registered Person. —
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of his
correct taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236. —
The temporary closure of the establishment shall be for the duration of not less than
five (5) days and shall be lifted only upon compliance with whatever requirements
prescribed by the Commissioner in the closure order.

2. Concepts:
a. Define
i. VAT (Section 105)
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.

ii. “Goods or Properties”

The term "goods" or "properties" shall mean all tangible and intangible
objects which are capable of pecuniary estimation and shall include:

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

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

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

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

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

b. What are the Nature and Characteristics of VAT?
1. VAT is a broad-based tax on consumption of goods, properties, or
service in the Philippines
Viewed broadly, there is VAT on every stage of the taxable sale of
goods, properties, or services either 0% or 12% (effective February 1,
2006) tax rates. It is imposed on each sale, barter, exchange or lease of
goods or services in the course of trade or business as they pass along
the production and distribution chain and levied on every importation of
goods, whether or not in the course of trade or business.

2. VAT is an indirect tax that may be shifted or passed on by the seller to

the buyer, transferee or lessee of the goods, properties or services.
The seller is the one statutorily liable for the payment of the tax but the
amount of the tax may be shifted or passed on to the buyer, transferee
or lessee of the goods, properties, or services at the time of the
effectivity of RA 9337. In the case of importation, the importer is the
one liable for the VAT.

3. VAT is collected through the tax credit method

The law that originally imposed the VAT in the country, as well as the
subsequent amendments of that law, has been drawn from the tax credit
method. Such method adopted the mechanics and self-enforcement
features of the VAT as first implemented and practiced in Europe and
subsequently adopted in New Zealand and Canada. Under the present
method that relies on invoices, an entity can credit against or subtract
from the VAT charged on its sales or outputs the VAT paid on its
purchases, inputs and imports.

If at the end of a taxable quarter, the output taxes charged by a VAT

registered seller are equal to the input taxes passed on by the suppliers,
no payment is required. It is when the output taxes exceed the input
taxes that the excess has to be paid. If, however, the input taxes exceed
the output taxes, the excess shall be carried over to the succeeding
quarter or quarters. Should the input taxes result from zero-rated of
effectively zero-rated transactions, any excess over the output taxes
shall instead be refunded from the taxpayer.

4. VAT is no a cascading tax

Under the VAT system as stated above, if at the end of a taxable
quarter, the seller charges output taxes equal to the input taxes that his
suppliers passed on to him, no payment is required of him. It is when
his output taxes exceed his input taxes that he has to pay the excess to
the BIR. If the input taxes exceed the output taxes, however, the excess
payment shall be carried over to the succeeding quarter or quarters.
Should the input taxes result from zero-rated or effectively zero-rated
 transactions or when the taxpayer would be cancelling his VAT-
registration, any excess input taxes over the output taxes may instead be
refunded to the taxpayer. In other words, the tax does not cascade
because what had been subjected to VAT before is not thereafter further
subjected to VAT. Hence, there is no tax pyramiding.

5. VAT is not a tax on tax

Parenthetically, VAT on toll way operations cannot be deem a tax on
tax due to the nature of VAT as an indirect tax. In indirect taxation, a
distinction is made between the liability for the tax and burden of tax.
The seller who is liable for the VAT may shift or pass on the amount of
VAT it paid on goods, properties or services to the buyer. In such a
case, what is transferred is not the seller’s liability but merely the
burden of the VAT.

VAT on tollway operations is not really a tax on the toll way user, but
on the toll way operator. Under Section 105 of the Code, VAT is
imposed on any person who, in the course of trade or business, sells or
renders services for a fee. In other words, the seller of services, who in
this case is the toll way operator, is the person liable for VAT. The
latter merely shifts the burden of VAT to the toll way operator, is the
person liable for VAT. The latter merely shifts the burden of VAT to
the toll way user as part of the toll fees.

For this reason, VAT on toll way operations cannot be a tax on tax even
if toll fees were deemed as a “user’s tax.” VAT is assessed against the
toll way operator’s gross receipts and not necessarily on the toll fees.
Although the toll way operator may shift the VAT burden to the toll
way user, it will not make the latter directly liable for the VAT. The
shifter of the VAT burden simply becomes part of the toll fees that one
has to pay in order to use the toll ways.

6. VAT is a transparent form of sales tax because the law requires that the
tax be shown as a separate item in the VAT sales invoice in the case of
sale of goods or VAT official receipt in the case of sale of service.

7. VAT adheres to the “Cross Border Doctrine/Destination Principle.

The Philippine VAT system adheres to the Cross Border Doctrine,
according to which, no VAT shall be imposed to form part of the cost
of goods destined for consumption outside of the territorial border of
the taxing authority. Hence, actual export of goods and services from
the Philippines to a foreign country must be free of VAT; while, those
destined for use or consumption within the Philippines shall be imposed
12% VAT.
 Such tax treatment of goods brought into the export processing zones
are only consistent with the Destination Principle and Cross Border
Doctrine to which the Philippine VAT system adheres. According to the
Destination Principle, goods and services are taxed only in the country
where these are consumed. In connection with the said principle, the
Cross Border Doctrine mandates that no VAT shall be imposed to form
part of the cost of goods destined for consumption outside the territorial
border of the taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country must be free of VAT,
while those destined for use or consumption within the Philippines shall
be imposed with 12% VAT.

It is now a settled rule that based on the Cross Border doctrine, PEZA-
registered enterprises are VAT-exempt and no VAT can be passed on
them. The Court explained in the Toshiba case that PEZA-registered
enterprise, which would necessarily be located within ECOZONES are
VAT-exempt entities, not because of Section 24 of RA 7916, as
amended, which imposes the 5% preferential tax rate on gross income
of PEZA-registered enterprises, in lieu of all taxes, but, rather, because
of Section 8 of the same statute which establishes the fiction that
ECOZONES are foreign territory.

3.
i. Why is VAT considered an Indirect Tax
The value-added tax is an indirect tax because the amount of tax may
be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services.

ii. What is Tax credit method or invoice method?

Under the tax credit method or invoice method that relies on invoices,
an entity can credit against or subtract from the VAT charged on its
sales or outputs the VAT paid on its purchases, inputs and imports.

iii. How is VAT not a cascading tax?

Under the VAT system as stated above, if at the end of a taxable
quarter, the seller charges output taxes equal to the input taxes that his
suppliers passed on to him, no payment is required of him. It is when
his output taxes exceed his input taxes that he has to pay the excess to
the BIR. If the input taxes exceed the output taxes, however, the excess
payment shall be carried over to the succeeding quarter or quarters.
Should the input taxes result from zero-rated or effectively zero-rated
transactions or when the taxpayer would be cancelling his VAT-
registration, any excess input taxes over the output taxes may instead be
refunded to the taxpayer. In other words, the tax does not cascade
because what had been subjected to VAT before is not thereafter further
subjected to VAT. Hence, there is no tax pyramiding.
iv. How is VAT transparent?
VAT is a transparent form of sales tax because the law requires that
the tax be shown as a separate item in the VAT sales invoice in the
case of sale of goods or VAT official receipt in the case of sale of
service.

v. What is Cross Border Doctrine or Destination Principle, as

discussed in
1. Toshiba Information Equipment (Phils.), Inc. v. CIR,
157594, 9 March 2010;
Based on the Cross Border Doctrine, PEZA-registered enterprises
are VAT-exempt and no VAT can be passed on to them. PEZA-
registered enterprise, which would necessarily be located within
ECOZONES, are VAT-exempt entities, not because of Section 24
of Rep. Act No. 7916, as amended, which imposes the five percent
(5%) preferential tax rate on gross income of PEZA-registered
enterprises, in lieu of all taxes; but, rather, because of Section 8 of
the same statute which establishes the fiction that ECOZONES are
foreign territory.

The Philippine VAT system adheres to the Cross Border Doctrine,

according to which, no VAT shall be imposed to form part of the
cost of goods destined for consumption outside of the territorial
border of the taxing authority. Hence, actual export of goods and
services from the Philippines to a foreign country must be free of
VAT; while, those destined for use or consumption within the
Philippines shall be imposed with ten percent (10%) VAT (now
12%).

2. CIR vs. American Express International, Inc., GR No.

152609, 29 June 2005;
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.

3. CIR vs. Seagate Technology (Philippines), GR No. 153866,

11 February 2005;
Under the cross-border principle of the VAT system being
enforced by the Bureau of Internal Revenue, 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. If exports of goods and services from the Philippines
to a foreign country are free of the VAT, then the same rule
 holds for such exports from the national territory -- except
specifically declared areas -- to an ecozone.

b. Who are Liable for VAT? (Section 105);

SEC. 105. Persons Liable. - Any person who, in the course of trade or
business, sells barters, exchanges, leases goods or properties, renders services,
and any person who imports goods shall be subject to the value-added tax
(VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee or lessee of the goods, properties or
services. This rule shall likewise apply to existing contracts of sale or lease of
goods, properties or services at the time of the effectivity of Republic Act No.
7716.

c. Registration:
i. When is there Mandatory VAT registration? (what is the
threshold)
There is mandatory VAT registration when:
a. the gross sales or receipts for the past 12 months, other than those
that are exempt, have exceeded ₱3,000,000.00 effective 1 January
2018; or
b. there are reasonable grounds to believe that the gross sales or
receipts for the next 12 months, other than those exempt, exceed the
above stated amount.

ii. When is there Optional VAT registration?

Optional VAT registration:
a. Any VAT-exempt person who elect to be VAT-registered;
b. Any VAT-registered person but enters into transactions
which are VAT-exempt may opt that the VAT apply to his
transactions which would have been exempt;
c. Franchisees of radio or TV or both whose annual gross
receipts of the preceding year do not exceed ₱10M derived from
the business covered by the law granting the franchise may opt for
VAT registration. Once registered, however, it shall be irrevocable.

iii. Who are Persons required to register as non-VAT or who are

VAT-exempt persons?
The following are persons required to register as non-VAT or VAT-
exempt persons:
a. VAT-exempt persons under Sec. 109;
b. Radio and TV broadcasting whose annual gross receipts do not
exceed ₱10M and do not opt to be VAT registered;
c. PEZA and other ecozone registered enterprises enjoying the
preferential tax rate of 5% in lieu of all taxes;
 d. SBMA and other freeport zone-registered enterprises enjoying the
preferential tax rate of 5% in lieu of all taxes.

iv. Is a person who opted 8% on gross sales or receipt liable for VAT?
No, a person who opted 8% on gross sales or receipt is not liable for
VAT. The 8% on gross sales or gross receipts in excess of P250,000 is
in lieu of the graduated income tax rates and the other percentage tax.

v. What is the tax treatment if a person who opted 8% on gross sales

or receipt reached the threshold for VAT after the option was
made?
If a person who opted 8% on gross sales or receipt reached the
threshold for VAT after the option was made, the taxpayer is likewise
liable for VAT, in addition to income tax and will be required to
register from non-VAT to VAT taxpayer. Percentage tax pursuant to
Section 116 of the Tax Code, as amended, shall be imposed from the
beginning of the year until taxpayer is liable to VAT. The VAT shall
be imposed prospectively.

The percentage tax due on the non-VAT portion of the sales/receipts

shall be collected without penalty, if timely paid on the due date
immediately following the month/quarter when taxpayer ceases to be a
non-VAT.

d. Imposition of VAT:
i. What is the meaning of transaction “in the course of trade or
business”?
The term “in the course of trade or business” means the regular
conduct or pursuit of a commercial or economic activity, including
transactions incidental thereto, by any person regardless of whether or
not the person engaged therein is a non-stock, non-profit 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.

ii. What is the treatment for a nonresident person who perform

services in the Philippines?
A nonresident person who performs services in the Philippines are
deemed to be making sales in the course of trade or business even if
the performance of services is not regular.

iii. Are incidental transactions subject to VAT?

Yes, transactions that are incidental to the pursuit of a commercial or
economic activity are considered entered into in the course or trade or
business. “Incidental” means something necessary, appertaining to or
depending upon another, which is termed the principal. Hence, an
 isolated transaction is not necessarily disqualified from being made
incidentally in the course of trade or business.

iv. Discuss the cases:

1. CIR v. Sony Phils., Inc., 635 SCRA 234;
Facts: Sony International Singapore (SIS) has granted to Sony
Philippines (Sony) a subsidy equivalent to the Sony’s
advertising expenses because of adverse economic conditions.
The Commissioner of Internal Revenue assessed Sony for
deficiency VAT stemming from the disallowance of the input
VAT credits that should have been realized from the
advertising expense of Sony. The CIR contends that since
Sony’s advertising expense was reimbursed by SIS, the former
never incurred any advertising expense. At most, the CIR
continues, the said advertising expense should be for the
account of SIS, and not Sony

Issue: Whether or not Sony is liable for the deficiency VAT.

Ruling: No, Sony is not liable for the deficiency VAT.

Sony’s deficiency VAT assessment stemmed from the CIR’s
disallowance of the input VAT credits that should have been
realized from its advertising expense.

Under the 1997 Tax Code, an advertising expense duly covered

by a VAT invoice is a legitimate business expense. There is
also no denying that Sony incurred advertising expense. Where
the money came from is another matter all together but will
definitely not change the fact that it incurred the advertising
expense. Thus, the input VAT credits from such expense must
be allowed.

2. Mindanao Geothermal II Partnership vs. CIR, GR No.

193301, 11 March 2013;
Facts: Both Mindanao I and II are partnerships registered with the
Securities and Exchange Commission, value added taxpayers
registered with the Bureau of Internal Revenue (BIR), and Block
Power Production Facilities accredited by the Department of
Energy. Republic Act No. 9136, or the Electric Power Industry
Reform Act of 2000 (EPIRA), effectively amended Republic Act
No. 8424, or the Tax Reform Act of 1997 (1997 Tax Code), when
it decreed that sales of power by generation companies shall be
subjected to a zero rate of VAT. Pursuant to EPIRA, Mindanao I
and II filed with the CIR claims for refund or tax credit of
accumulated unutilized and/or excess input taxes due to VAT zero-
 rated sales in 2003. Mindanao I and II’s filed their administrative
claims for the first, second, third, and fourth quarters of 2003 on 4
April 2005 and 13 April 2005, respectively.

Issue: Whether or not the administrative claims of Mindanao I and

Mindanao II for refund or tax credit of accumulated unutilized
and/or excess input taxes due to VAT zero-rated sales in 2003 have
prescribed.

Ruling: Only the claims for the first quarter have already
prescribed.
Section 112(A) of the 1997 Tax Code is provides that "Any VAT-
registered person, whose sales are zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid
attributable to such sales.”

The last day for filing an application for tax refund or credit with
the CIR for the first quarter of 2003 was on 31 March 2005.
Mindanao II filed its administrative claim before the CIR on 13
April 2005, while Mindanao I filed its administrative claim before
the CIR on 4 April 2005. Therefore, both claims for the first
quarter have prescribed, while claims for second, third, and fourth
quarters were filed within the two-year prescriptive period.

3. CIR vs. CA and COMASERCO, GR No. 125355, 30 March

2000;
Facts: Commonwealth Management and Services Corporation
(COMASERCO), is an affiliate of Philippine American Life
Insurance Co. (Philamlife), organized by the latter to perform
collection, consultative and other technical services, including
functioning as an internal auditor, of Philamlife and its other
affiliates. The Commissioner on Internal Revenue COMASERCO
for deficiency VAT. COMASERCO filed a protest asserting that
the services it rendered to Philamlife and its affiliates were on a
"no-profit, reimbursement-of-cost-only" basis. It averred that it
was not engaged in the business of providing services to Philamlife
and its affiliates. COMASERCO averred that because it was not
engaged in business, it was not liable to pay VAT.

Issue: Whether or not COMASERCO is liable for value added tax

for services to clients during taxable year 1988.

Ruling: Yes, COMASERCO is liable for value added tax for

services to clients during taxable year 1988.
Section 105 of the National Internal Revenue Code of 1997
provides that “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”.

The term "in the course of trade or business" requires the regular
conduct or pursuit of a commercial or an economic activity
regardless of whether or not the entity is profit-oriented. Hence, it
is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its
affiliates on a reimbursement-on-cost basis only, without realizing
profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee,
remuneration or consideration, then the service rendered is subject
to VAT.

4. MEDICARD Phils., Inc. vs, CIR, GR No. 222743, 5 April

2017;
Facts: MEDICARD is a Health Maintenance Organization (HMO)
that provides prepaid health and medical insurance coverage to its
clients. Individuals enrolled in its health care programs pay an
annual membership fee and are entitled to various preventive,
diagnostic and curative medical services provided by duly licensed
physicians, specialists and other professional technical staff
participating in the group practice health delivery system at a
hospital or clinic owned, operated or accredited by it. MEDICARD
was assessed for deficiency VAT for taxable year 2006.

According to the CIR, the taxable base of HMOs for VAT

purposes is its gross receipts without any deduction and that
because MEDICARD does not actually provide medical and/or
hospital services, but merely arranges for the same, its services are
not VAT exempt.
MEDICARD argued, among others, that the professional fees
should be excluded from the gross receipts because it represents
the amount of medical services actually and directly rendered by
MEDICARD and/or its subsidiary company. Based on industry
practice, MEDICARD informs its would-be member beforehand
that 80% of the amount would be earmarked for medical utilization
and only the remaining 20% comprises its service fee.
Issue: Whether the amounts that MEDICARD earmarked and
eventually paid to the medical service providers should still form
part of its gross receipts for vat purposes.

Ruling: No, the amounts earmarked and eventually paid by

MEDICARD to the medical service providers do not form part of
gross receipts for VAT purposes.

MEDICARD established that upon receipt of payment of

membership fee it actually issued two official receipts, one
pertaining to the VAT able portion, representing compensation for
its services, and the other represents the non-vatable portion
pertaining to the amount earmarked for medical utilization. By
earmarking or allocating 80% of the amount, MEDICARD
unequivocally recognizes that its possession of the funds is not in
the concept of owner but as a mere administrator of the same.
Thus, for purposes of determining the VAT liability of
MEDICARD, the amounts earmarked and actually spent for
medical utilization of its members should not be included in the
computation of its gross receipts.

5. TFS, Inc. vs. CIR, GR No. 166829, 19 April 2010;

Facts: TFS Incorporated is engaged in the pawnshop business. It
was assessed by the CIR for deficiency value added tax (VAT) for
the taxable year 1998. TFS protested the assessment. Petitioner
argued that the deficiency VAT assessment issued by the BIR has
no legal basis because pawnshops are not subject to VAT as they
are not included in the enumeration of services under Section
108(A) of the NIRC. The CTA ruled that pawnshops are subject to
VAT under Section 108(A) of the NIRC as they are engaged in the
sale of services for a fee, remuneration or consideration.

Issue: Whether or not TFS Incorporated is subject to VAT for the

taxable year 1998.

Ruling: No, TFS Incorporated is not subject to VAT for 1998.

R.A. No. 8424 or the Tax Reform Act of 1997 likewise imposed a
10% VAT under Section 108 but the levy, collection and
assessment thereof were deferred until December 31, 1999. The
levy, collection and assessment of the 10% VAT was further
deferred by R.A. No. 8761 until December 31, 2000, and by R.A.
No. 9010, until December 31, 2002.

TFS, a non-bank financial intermediary, is subject to 10% VAT;

however, with the levy, assessment and collection of VAT from
non-bank financial intermediaries being specifically deferred by
law, then TFS is not liable for VAT 1998.

6. CIR vs. SM Prime Holdings, Inc., GR No. 183505, 26

February 2010;
Fact: Respondents SM Prime Holdings, Inc. and First Asia Realty
Development Corporation are domestic corporations engaged in
the business of operating cinema houses, among others. They are
assessed for VAT deficiency on their cinema ticket sales. SM
Prime and First Asia protested the assessment but was denied by
the Commissioner of Internal Revenue. On appeal, the CTA ruled
that the respondents are not liable for the assessed deficiency VAT
as the activity of showing cinematographic films is not a service
covered by VAT under the National Internal Revenue Code of
1997, as amended, but an activity subject to amusement tax under
RA 7160, otherwise known as the Local Government Code.

Issue: Whether or not gross receipts derived from admission

tickets by cinema/theater operators or proprietors are subject to
VAT.

Ruling: No, gross receipts derived from admission tickets by

cinema/theater operators or proprietors are not subject to VAT.

Prior to the Local Tax Code, all forms of amusement tax were
imposed by the national government. When the Local Tax Code
was enacted, amusement tax on admission tickets from theaters,
cinematographs, concert halls, circuses and other places of
amusements were transferred to the local government. Under the
NIRC of 1977, the national government-imposed amusement tax
only on proprietors, lessees or operators of cabarets, day and night
clubs, Jai-Alai and race tracks. The VAT law was enacted to
replace the tax on original and subsequent sales tax and percentage
tax on certain services. When the VAT law was implemented, it
exempted persons subject to amusement tax under the NIRC from
the coverage of VAT.

7. Diaz vs. The Secretary of Finance, GR No. 193007, 19 July

2011;
Facts: Petitioners Renato V. Diaz and Aurora Ma. F. Timbol 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.
Petitioners claimed, among others, 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 and that a toll fee is a
"user’s tax," not a sale of services.

Issue: Whether or not the imposition of VAT on tollway operators

amounts to a tax on tax and not a tax on services.

Ruling: No, VAT on tollway operations is not a tax on tax on

tollway operations
It is not really a tax on the tollway user, but on the tollway
operator. Under Section 105 of the Code, VAT is imposed on any
person who, in the course of trade or business, sells or renders
services for a fee. In other words, the seller of services, who in this
case is the tollway operator, is the person liable for VAT. Although
the tollway operator may shift the VAT burden to the tollway user,
it will not make the user directly liable for the VAT. The shifted
VAT burden simply becomes part of the toll fees that one has to
pay in order to use the tollways.

8. PSALM v. Commissioner of Internal Revenue, G.R. No.

226556, 3 July 2019;
Facts: PSALM, a government-owned and controlled corporation
created under Republic Act No. (RA) 9136 or the Electric Power
Industry Reform Act of 2001 (EPIRA), is mandated to manage the
orderly sale, disposition, and privatization of the National Power
Corporation (NPC) generation assets, real estate and other
disposable assets, and Independent Power Producer contracts with
the objective of liquidating all NPC financial obligations and
stranded contract costs in an optimal manner.

PSALM was assessed by the BIR for VAT deficiency. PSALM

protested the assessment, alleging that the privatization of NPC
assets is an original mandate of PSALM and not subject to VAT.

Issue: Whether or not the sale of power plants by PSALM is

subject to VAT.

Ruling: No, the sale of the power plants in this case is not subject
to VAT since the sale was made pursuant to PSALM's mandate to
privatize NPC's assets, and was not undertaken in the course of
trade or business. In selling the power plants, PSALM was merely
exercising a governmental function for which it was created under
the EPIRA law.
 9. PSALM v. Commissioner of Internal Revenue, G.R. No.
198146, 8 August 2017;
Facts: Power Sector Assets and Liabilities Management
Corporation (PSALM) is a government-owned and controlled
corporation created under Republic Act No. 9136, also known as
the Electric Power Industry Reform Act of 2001 (EPIRA). Section
50 of RA 9136 states that the principal purpose of PSALM is to
manage the orderly sale, disposition, and privatization of the
National Power Corporation (NPC) generation assets, real estate
and other disposable assets, and Independent

Power Producer (IPP) contracts with the objective of liquidating all

NPC financial obligations and stranded contract costs in an optimal
manner.

PSALM conducted public biddings for the privatization of the

Pantabangan-Masiway Hydroelectric Power Plant and Magat
Hydroelectric Power Plant. First Gen Hydropower Corporation and
SN Aboitiz Power Corporation were the winning bidders for the
PantabanganMasiway Plant and Magat Plant, respectively.

On 28 August 2007, the NPC received a letter the Bureau of

Internal Revenue demanding immediate payment of deficiency
value-added tax (VAT) for the sale of the Pantabangan-Masiway
Plant and Magat Plant.

Issue: Whether or not the sale of the Pantabangan-Masiway and

Magat Power Plants to private entities under the mandate of the
EPIRA is subject to VAT.

Ruling: No, the sale of the power plants is not subject to VAT
since the sale was made pursuant to PSALM' s mandate to
privatize NPC assets, and was not undertaken in the course of trade
or business. In selling the power plants, PSALM was merely
exercising a governmental function for which it was created under
the EPIRA law.

4. 12% VAT on Sale of Goods or Properties (Section 106)

a. What are the requisites for the imposition of VAT?
Requisites for the imposition of VAT:
a. The seller must be VAT-registered, or he is VAT-registrable;
b. The goods or properties sold may either be tangible or intangible which
are capable of pecuniary estimation;
c. The sale must be undertaken in the course of trade or business;
d. The sale must have been done in the Philippines;
 e. The sale must be for use or consumption in the Philippines;
f. The sale must not be a zero-rated sale; and
g. The sale must not be VAT-exempt.

b. Gross selling price;

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.

i. What are allowable deductions from Gross Selling Price?

Allowable deductions from GSP:
a. Discounts determined and granted at the time of sale and
expressly indicated in the invoice;
b. Sales returns and allowances for which a proper credit or
refund was made during the month or quarter to the buyer for sales
previously recorded as taxable sales.

c. What are transactions deemed sale

The following are transactions-deemed Sale:
a. Transfer, use, or consumption not in the course of business of
goods or properties originally intended for sale or for use in the course of
business;
b. Distribution or transfer to:
i. Shareholders or investors share in the profits of VAT-registered
person;
ii. Creditors in payment of debt or obligation;
c. Consignment of goods if actual sale is not made within 60 days
following the date such goods were consigned;
d. Retirement from or cessation of business with respect to all goods on
hands whether or not the business is continued by the new owner or
successor; these circumstances give rise to transactions deemed sale:
i. Change of ownership of the business;
ii. Dissolution of a partnership and creation of a new partnership
which takes over the business.

5. VAT on the Sale of Services and Use or Lease of Properties

a. What are the requisites for the imposition of VAT?
Requisites for sale to be subjected to VAT:
a. Seller must be VAT-registered or VAT-registrable and his gross annual
receipts exceeds ₱3,000,000.00;
b. The sale must be performed in the course of trade or business;
c. The sale must be for a valuable consideration actually or constructively
received;
 d. The sale must have been done and for use or consumption in the
Philippines;
e. The sale must not be considered as zero-rated sale;
f. The sale must not be VAT-exempt;
g. In the case of lease of properties, the property being leased should be
located in the Philippines irrespective of the place where the contract of lease
or licensing agreement was executed.

b. What constitute Gross receipts on the Sale of Services and Use or Lease
of Properties?
Gross receipts on the sale of services and use or lease of properties is the total
amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for
materials supplied with the services and deposits and advanced payments
actually or constructively received during the taxable quarter for the services
performed or to be performed for another person, excluding value-added tax.

6. VAT on Importation of Goods (Section 107)

a. When does importation begin and when is it deemed terminated?
Importation begins when the carrying vessels or aircraft enters the jurisdiction
of the Philippines with the intention to unlade therein. Importation is deemed
terminated upon payment of duties, taxes and other charges due upon the
articles or secured to be paid, at a port of entry and legal permit for
withdrawal shall have been granted, or in case said articles are free of duties,
taxes and other charges, until they will have legally left the jurisdiction.

b. What is the general rule on the imposition of VAT on importation of

goods?
VAT is imposed on goods brought in the Philippines, whether for use in
business or not. The taxes shall be based on the total value used by the BOC
in determining tariff and customs duties plus customs duties, excise tax, if
any, and other charges such as postage, commission, and other charges prior
to the release of the goods from the customs custody.

In case the valuation used by the BOC in computing customs duties is based
on volume or quantity of the imported goods the landed cost shall be the basis
for computing VAT. Landed cost consists of the invoice amount, customs
duties, freight, insurance and other charges. If the goods imported or subject
to excise tax, the excise tax shall form part of the tax base.

The same rule applies to technical importation of goods sold by a person

located and a special economic zone to a customer located in a customs
territory.

No VAT shall be collected on importation of goods which are specifically

exempted under section 109(1) of the Tax Code.
c. What is the treatment for sale, transfer or exchange of imported goods by
tax exempt persons?
In case of goods imported into the Philippines by VAT-exempt persons,
entities or agencies which are subsequently sold transferred or exchanged in
the Philippines to non-exempt persons or entities, the latter shall be considered
the importers thereof and shall be liable for VAT due on such importation.
The tax due on such importation shall constitute a lien on the goods, superior
to all charges/liens, irrespective of the possessor of the said goods.

d. What are the VAT exempt importations? (sec 109)

The following are VAT exempt importations:
1. Importation of agricultural and marine food products in their original state,
livestock and poultry of or king generally used as, or yielding or producing
foods for human consumption; and breeding stock and genetic materials
therefor;
2. Importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn,
livestock and poultry feeds, including ingredients, whether locally produced
or imported, used in the manufacture of finished feeds (except specialty feeds
for race horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets);

3. Importation of personal and household effects belonging to the residents

of the Philippines returning from abroad and nonresident citizens coming to
resettle in the Philippines: Provided, That such goods are exempt from
customs duties under the Tariff and Customs Code of the Philippines;

4. Importation of professional instruments and implements, wearing apparel,

domestic animals, and personal household effects (except any vehicle, vessel,
aircraft, machinery other goods for use in the manufacture and merchandise of
any kind in commercial quantity) belonging to persons coming to settle in the
Philippines, for their own use and not for sale, barter or exchange,
accompanying such persons, or arriving within ninety (90) days before or after
their arrival, upon the production of evidence satisfactory to the
Commissioner, that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide;

5. The importation by agricultural cooperatives duly registered with the

Cooperative Development Authority of direct farm inputs, machineries and
equipment, including spare parts thereof, to be used directly and exclusively
in the production and/or processing of their produce;

6. Importation 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;
 7. Importation of passenger or cargo vessels and aircraft, including engine,
equipment and spare parts thereof for domestic or international transport
operations;

8. Importation of fuel, goods and supplies by persons engaged in

international shipping or air transport operations;

7. Zero-Rated Sales
a. Distinguish Automatically Zero-Rated Transactions from Effectively
Zero-Rate Transactions?
Automatically Zero-Rated Effectively Zero-Rate Transactions
Transactions
Refer to the actual export sale of Refer to the local sale of goods or
goods and supply of services; supply of services by a VAT-
registered person to persons who were
granted indirect tax exemption under
special laws or international
agreement to which the Philippines is
a signatory;
When applied to the tax base, the rate When applied to the tax base, the rate
results in no tax chargeable against the results in no tax chargeable against the
purchaser; purchaser;
The seller charges no output tax but The seller charges no output tax but
can claim a refund of or a TCC for the can claim a refund of or a TCC for the
VAT previously charged by the VAT previously charged by the
suppliers. suppliers.

b. What are Zero-Rated Export Sales of Goods or Properties?

The following are zero-rated export sales of goods or properties:
i. 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);
ii. 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);
iii. Sale of raw materials or packaging materials to export-oriented enterprise
whose export sales exceed seventy percent (70%) of total annual
production;
 iv. Those considered export sales under Executive Order No. 226, otherwise
known as the Omnibus Investment Code of 1987, and other special laws;
and
v. The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport
operations: Provided, That the goods, supplies, equipment and fuel shall
be used for international shipping or air transport operations.

c. How Is the sale of gold to the BSP treated?

The sale of gold to BSP is treated as a VAT-exempt transaction. Under the
TRAIn Law, the sale of gold to BSP is no longer subject to 0% VAT.

d. What export sales are considered Zero-Rated Export Sale of Goods or

Properties?
Without actual exportation the following shall be considered constructively
exported under Executive Order No. 226, otherwise known as the Omnibus
Investment Code of 1987:
(1) sales to bonded manufacturing warehouses of export-oriented manufacturers;
(2) sales to export processing zones;
(3) sales to registered export traders operating bonded trading warehouses
supplying raw materials used in the manufacture of export products under
guidelines to be set by the Board in consultation with the Bureau of Internal
Revenue and the Bureau of Customs;
(4) sales to foreign military bases, diplomatic missions and other agencies and/or
instrumentalities granted tax immunities, of locally manufactured, assembled or
repacked products whether paid for in foreign currency or not: Provided, further,
That export sales of registered export trader may include commission income: and
Provided, finally, That exportation of goods on consignment shall not be deemed
export sales until the export products consigned are in fact sold by the consignee

Sales of locally manufactured or assembled goods for household and personal use
to Filipinos abroad and other non-residents of the Philippines as well as returning
Overseas Filipinos under the Internal Export Program of the government and paid
for in convertible foreign currency inwardly remitted through the Philippine
banking systems shall also be considered export sales.

e. What are the Zero-Rated Sale of Services?

The following are zero–rated sale of services:
i. Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported,
where the services are paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
ii. Services other than those mentioned in the preceding paragraph,
rendered to a person engaged in business conducted outside the
Philippines or to a nonresident person not engaged in business who is
 outside the Philippines when the services are performed, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
iii. Services rendered to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory
effectively subjects the supply of such services to zero percent (0%) rate;
iv. Services rendered to persons engaged in international shipping or
international air transport operations, including leases of property for use
thereof: Provided, That these services shall be exclusive for international
shipping or air transport operations;
v. Services performed by subcontractors and/or contractors in processing,
converting, or manufacturing goods for an enterprise whose export sales
exceed seventy percent (70%) of total annual production;
vi. Transport of passengers and cargo by domestic air or sea vessels from
the Philippines to a foreign country;
vii. Sale of power or fuel generated through renewable sources of energy
such as, but not limited to, biomass, solar, wind, hydropower,
geothermal, ocean energy, and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels.

f. Discuss:
i. Coral Bay Nickel Corporation vs. CIR, GR No. 190506, 13 June
2016;
Facts: The petitioner, a domestic corporation engaged in the manufacture
of nickel and/or cobalt mixed sulfide, is a VAT entity registered with the
Bureau of Internal Revenue. It is also registered with the Philippine
Economic Zone Authority (PEZA) as an Ecozone Export Enterprise at the
Rio Tuba Export Processing Zone under PEZA Certificate of Registration
dated December 27, 2002. On June 14, 2004, it filed with Revenue its
Application for Tax Credits/Refund for unutilized input tax from its
domestic purchases of capital goods, other than capital goods and services,
for its third and fourth quarters of 2002 together with supporting
documents.

Issue: Whether or not Coral Bay Nickel Corporation, an entity located

within an ECOZONE, is entitled to the refund of its unutilized input taxes
incurred before it became a PEZA registered entity.

Ruling: No, Coral Bay Nickel Corporation is not entitled to the refund of
its unutilized input taxes.

As a rule, any sale by a VAT-registered supplier from the Customs

Territory to a PEZA-registered enterprise shall be considered an export
sale and subject to zero percent (0%) VAT. This rule does not apply to the
petitioner because it was only on December 27, 2002 that its Certificate of
Registration was issued. Until then, it could not have refused the payment
of VAT on its purchases because it could not present any valid proof of
zero-rating to its VAT-registered suppliers.

ii. CIR vs. Cebu Toyo Corp., GR No. 149073, 16 February 2005;
Facts: Cebu Toyo Corporation is a domestic corporation engaged in the
manufacture of lenses and various optical components. Its principal office
is located at the Mactan Export Processing Zone in Lapu-Lapu City, Cebu.
It is a subsidiary of Toyo Lens Corporation, a non-resident corporation
organized under the laws of Japan. Respondent is a zone export enterprise
registered with the Philippine Economic Zone Authority and is also
registered with the Bureau of Internal Revenue as a VAT taxpayer.

The respondent filed an application for tax credit/refund of VAT paid for
the period April 1, 1996 to December 31, 1997 amounting to
P4,439,827.21 representing excess VAT input payments. The respondent
posits that as a VAT-registered exporter of goods, it is subject to VAT at
the rate of 0% on its export sales that do not result in any output tax.
Hence, the unutilized VAT input taxes on its purchases of goods and
services related to such zero-rated activities are available as tax credits or
refunds.

Issue: Whether or not the respondent is entitled to refund in the amount

representing unutilized input VAT on goods and services for the period
April 1, 1996 to December 31, 1997.

Ruling: Yes, the respondent is entitled to refund in the amount

representing unutilized input VAT on goods and services.

Under Section 23 of Rep. Act No. 7916, PEZA-registered enterprises have

two options with respect to its tax burden. It could avail of an income tax
holiday pursuant to provisions of E.O. No. 226, thus exempt it from
income taxes for a number of years but not from other internal revenue
taxes such as VAT; or it could avail of the tax exemptions on all taxes,
including VAT under P.D. No. 66 and pay only the preferential tax rate of
5% under Rep. Act No. 7916.

The records show that the respondent is subject to VAT as it availed of the
income tax holiday under E.O. No. 226. Thus, respondent is subject to
VAT at 0% rate and is entitled to a refund or credit of the unutilized input
taxes.

iii. CIR vs. Seagate Technology (Philippines), GR No. 153866, 11

February 2005;
Facts: Seagate Technology is a resident foreign corporation duly
registered with the Securities and Exchange Commission to do business
 in the Philippines. It is registered with the Philippine Export Zone
Authority (PEZA) to engage in the manufacture of recording
components primarily used in computers for export. It is also a VAT
-registered entity. Seagate filed a claim for refund of input taxes. The
CTA and CA granted the refund the claim for refund or issuance of a tax
credit certificate (TCC) in favor of respondent in a sum representing the
unutilized but substantiated input VAT paid on capital goods purchased
for the period covering April 1, 1998 to June 30, 1999.

Issue: Whether or not Seagate Technology is entitled to the refund or

issuance of Tax Credit Certificate in the amount representing alleged
unutilized input VAT paid on capital goods purchased.

Ruling: Yes, Seagate Technology is entitled to such refund or credit.

Sales made by a VAT-registered person in the customs territory to a

PEZA-registered entity are considered exports to a foreign country. Thus,
purchase transactions by respondent would be subject to a zero rate.
Having determined that respondent’s purchase transactions are subject to a
zero VAT rate, the tax refund or credit is in order.

The respondent also complied with all the requisites for claiming a VAT
refund or credit. First, respondent is a VAT-registered entity. Second, the
input taxes paid on the capital goods of respondent are duly supported by
VAT invoices and have not been offset against any output taxes.

Being VAT-registered and having satisfactorily complied with all the

requisites for claiming a tax refund of or credit for the input VAT paid on
capital goods purchased, respondent is entitled to such VAT refund or
credit.

iv. Sitel v. Commissioner, G.R. No. 201326, 8 February 2017;

Facts: Sitel, a corporation organized and existing under the laws of the
Philippines, is engaged in the business of providing call center services
from the Philippines to domestic and offshore businesses. It is registered
with the Bureau of Internal Revenue (BIR) as a VAT taxpayer, as well as
with the Board of Investments on pioneer status as a new information
technology service firm 'in the field of call center.’

On March 28, 2006, Sitel filed separate formal claims for refund or
issuance of tax credit with the One-Stop Shop Inter-Agency Tax Credit
and Duty Drawback Center of the Department of Finance for its unutilized
input VAT arising from domestic purchases of goods and services
attributed to zero-rated transactions and purchases/importations of capital
goods for the 1st, 2nd, 3rd and 4th quarters of 2004. On March 30, 2006,
Sitel filed a judicial claim for refund or tax credit via a petition for review
 before the CTA Division. The CTA Division granted the claim. However,
it was denied by the CTA En Banc on the ground of prematurity.

Issue: Whether or not Sitel's Judicial Claim for VAT Refund was timely
filed.

Ruling: Yes, Sitel's Judicial Claim/or VAT Refund was deemed timely
filed pursuant to the Court's pronouncement in San Roque.

Section 112(D) of the NIRC provides for a specific period within which a
taxpayer should appeal the decision or inaction of the CIR. The second
paragraph of Section 112(D) of the NIRC envisions two scenarios: (1)
when a decision is issued by the CIR before the lapse of the 120-day
period; and (2) when no decision is made after the 120-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the
CTA.

However, in San Roque, the Court clarified that the 120-day period does
not apply to claims for refund that were prematurely filed during the
period from the issuance of BIR Ruling No. DA-489-03, on December 10,
2003, until October 6, 2010, when Aichi was promulgated.

The Court explained that BIR Ruling No. DA-489-03, which expressly
allowed the filing of judicial claims with the CTA even before the lapse of
the 120-day period, provided for a valid claim of equitable estoppel
because the CIR had misled taxpayers into prematurely filing their judicial
claims before the CTA.

v. Commissioner v. Euro-Philippines Airline Services, Inc., G.R. No.

222436, 23 July 2018;
Facts: Euro-Philippines Airline Services, Inc. is an exclusive passenger
sales agent of British Airways, PLC, an off-line international airline in the
Philippines to service the latter's passengers in the Philippines.

Euro-Phil received a Formal Assessment Notice from the Commissioner

of Internal Revenue (CIR) on 20 consisting of assessment of Value Added
Tax (VAT), among others, for the taxable year ending March 31, 2007.

Upon reaching the CTA En Banc, the CIR argued insisting that the
presentation of VAT official receipts with the words "zero-rated"
imprinted thereon is indispensable to cancel the VAT assessment against
Euro-Phil.

Issue: Whether or not transaction sale made by respondent is entitled to

the benefit of zero-rated VAT despite its failure to comply with invoicing
requirements as mandated by law.
 Ruling: Yes. Section 108 of the NIRC of 1997 imposes zero percent (0%)
value-added tax on services performed in the Philippines by VAT-
registered persons to persons engaged in international air transport
operations.
Euro-Phil is VAT registered and the services it rendered was to a person
engaged in international air-transport operations. Thus, by application,
Section 108 of the NIRC of 1997 subjects the services of Euro-Phil to
British Airways PLC, to the rate of zero percent VAT.

Neither Section 113 of the NIRC of 1997, on the said provisions on the
"Consequences of Issuing Erroneous VAT Invoice of VAT Official
Receipt and Section 4. 113-4 of Revenue Regulations 16-
2005Consolidated Value-Added Tax Regulations of 2005 state that the
non-imprintment of the word "zero rated" deems the transaction subject to
12 %VAT. Thus, in this case, failure to comply with invoicing
requirements as mandated by law does not deem the transaction subject to
12% VAT.

8. VAT – Exempt Transactions (Section 109);

a. Distinguish VAT-Exempt Transactions from VAT-Exempt Entity
VAT-Exempt Transactions VAT-Exempt Party/Entity
Involves goods or services which, by A person or entity granted VAT
their nature, are specifically listed in exemption and by virtue of which its
and expressly exempted from VAT; taxable transactions become exempt
from VAT;
The transaction is not subject to VAT, The party is also not subject to VAT,
but the seller is not allowed any tax but may be allowed a tax refund or
refund of or credit for any input taxes credit for input taxes paid, depending
paid. on its registration.

b. Distinguish VAT-exemption from Zero-rating

In VAT exemption the taxpayer/seller shall not bill any output tax on his sales to
his customers and corollarily, is not allowed any credit or refund of the input
taxes he paid on his purchases. This non-crediting of input taxes is exempt
transactions is the underlying reason why the NIRC adopted the rule on
apportionment of tax credits under Section 104(A) whenever a VAT-registered
taxpayer engages in other VAT taxable and non-VAT taxable sales.

Zero rating generally refers to the export sale of good and supply of services. The
output 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 or tax credit certificate for the VAT
previously charged by suppliers. No VAT shall be shifted or passed-on by VAT-
registered sellers or suppliers from the Customs Territory on their sale, barter or
 exchange of goods, properties or services to the subject registered Freeport Zone
enterprises.

c. What are VAT-exempt transactions

VAT-exempt transactions refer to the sale of goods or properties and/or
services and the use or lease of properties that is not subject to VAT and the
seller is not allowed any tax credit of VAT on purchases.

9. Tax Credits (Section 110);

a. Define Input Tax

Input Tax – the VAT due on or paid by a VAT-registered person on
importation of goods or local purchases of goods, properties, or services,
including lease or use of properties, in the course of his trade or business. It
shall also include the transitional input tax determined in accordance with
Section 111 of the Tax Code, presumptive input tax and deferred input tax
from previous period.

b. Distinguish Input Tax from Output Tax

OUTPUT TAX INPUT TAX
It means the value-added tax due on the It means the value-added tax due on or
sale or lease of taxable goods or paid by a VAT-registered person on
properties or services by (1) any person importation of goods or local purchase
registered or (2) required to register of goods, properties or services,
under Sec. 236 of the NIRC (Sec. including lease or use of properties, in
110[A][3], NIRC). the course of his trade or business. It
shall also include the transitional input
Output tax is what the taxpayer-seller tax and the presumptive input tax
passes on to the purchases. Note that determined in accordance with Section
what is output tax for the seller is input 111 of the NIRC (Sec. 110[A][3],
tax to the purchaser NIRC).
Output tax may come from: It includes input taxes which can be
i. Actual sale 1. directly attributed to transactions
ii. Transaction deemed sales subject to the VAT, plus
2. a ratable portion of any input tax
which cannot be directly attributed to
either the taxable or exempt activity
(R.R. 16-2005).

c. Creditable input taxes;

i. What are the Sources of Creditable Input Taxes?
The following are sources of creditable input taxes:
1. Purchase or importation of goods:
a. For sale;
 b. For conversion into or intended to form part of a finished
product for sale, including packaging materials;
c. For use as supplies in the course of business;
d. For use as raw materials supplied in the sale of services;
e. For use in trade or business for which deduction for
depreciation or amortization is allowed under the Tax
Code.
2. Purchase of real properties for which a VAT has actually been
paid;
3. Purchase of services in which a VAT has actually been paid;
4. Transactions deemed sale;
5. Transitional input tax;
6. Presumptive input tax;
7. Transitional input tax credits allowed under the transitory and
other provisions of RR 16-2005, as amended.

ii. Who can avail of input tax credit?

The following can avail of input tax credit:
1. Importer upon payment of VAT prior to the release of goods from
customs custody, provided that claim for input taxes on capital
goods shall be subject to certain conditions as provided for by law;
2. Purchase of the domestic goods or properties upon consummation
of the sale, also subject to the conditions as provided for above; or
3. Purchase of services or the lessee or licensee upon payment of the
compensation, rental, royalty, or fee

iii. LBH Corporation sold capital goods on installment on October 1,

2005. It is agreed that the selling price, including the VAT, shall be
payable in five equal monthly installments. The data pertinent to
the sold assets are as follows:

Selling Price – P5,000,000.00 (exclusive of VAT)

Pass-on VAT – P500,000.00
Original Cost of Asset – P3,000,000.00
Accumulated Depreciation at the time of Sale – P1,000,000.00
Unutilized Input Tax (sold Asset) – P100,000.00

1. Determine of Input Tax creditable during a taxable month or

quarter.
The input tax of Php 500,000 on the capital goods worth Php
5,000,000 shall be spread evenly over a period of 60 months
starting the month of its purchase.

*The capital goods were sold in 2005 when the applicable VAT
rate was 10%.
*If the estimated useful life of a capital good is five (5) years or more,
the input tax shall be spread evenly over a period of sixty (60) months
 and the claim for input tax credit will commence in the calendar
month when the capital good is acquired. In this case, it is presumed
that the asset sold had a useful life of five years as there was no given
estimated useful life.

2. If the depreciable capital goods are sold/transferred within a

period of 5 years prior to the exhaustion of the amortizable
input tax therein, can the entire unamortized input tax on
capital goods sold be claimed as input tax credit during the
month or quarter when the sale or transferred?
If the depreciable capital goods is sold/transferred within a period
of five years prior to the exhaustion of the amortizable input tax
thereon, the entire unamortized input tax on the capital goods
sold/transferred can be claimed as input tax during the
month/quarter when the sale or transfer was made.

d. Apportionment of Input on Mixed Transactions: When can a VAT

registered person who is also engaged in transactions not subject to VAT
shall be allowed to recognize input tax credit on transactions subject to
VAT
A VAT-registered person who is also engaged in transactions not subject to
VAT shall be allowed to recognize input tax credit on transactions subject to
VAT as follows:

i. All the input taxes that can be directly attributed to transactions subject
to VAT may be recognized for input tax credit; provided that input
taxes that can be directly attributable to VAT taxable sales of goods
and services to the Government or any of its political subdivisions,
instrumentalities, or agencies, including GOCCs shall not be credited
against output taxes arising from sales to non-government entities;
ii. Claims for VAT refund/TCC with the BIR, BOI, and One-Stop-Shop
and Duty Drawback Center of the DOF should be deducted from the
allowable input tax that are attributable to zero-rated sales;
iii. If any input tax cannot be directly attributed to either a VATable or
VAT exempt transaction, the input tax shall be pro-rated to the VAT
taxable and VAT-exempt transactions and only the ratable portion
pertaining to transactions subject to VAT may be recognized for input
tax credit.

e. Other Types of Input Tax (Section 111):

i. What is Transitional Input Tax Credits;
Transitional input tax credit is that which may be claimed by persons
who become liable to VAT for the first time and such represent input
tax on inventories goods, materials and supplies existing on the date of
commencement of a person’s status as a taxable person.

1. When can this be available for:

 a. A person who becomes liable to VAT?
This becomes available to the taxpayer on the quarter
following the year when his or her gross sales or
receipts other than those that are exempt, have
exceeded ₱3,000,000.00.

b. Any person who elects to be VAT-registered?

This is available to any person who elects to be VAT-
registered upon the issuance of the certificate to the
applicant by the BIR office concerned.

ii. What is Presumptive Input Tax Credits;

The presumptive input tax credit is equivalent to 4% of the gross value
in money of the purchases of primary agricultural products used as
inputs to their productions.

a. Who may avail of presumptive input tax credits?

The following may avail of presumptive input tax
credits:
i. Persons engaged in the processing of sardines,
mackerel, milk; and
ii. Manufacturers of refined sugar, cooking oil, and
packed noodle-based instant meals.
iii. Discuss:
1. Fort Bonifacio Development vs. CIR, GR No. 158885, 2
April 2009;
Facts: The CIR filed a Motion for Reconsideration of the decisions of the
and the Court of Appeals which restrained the CIR from collecting from
Fort Bonifacio Development Corporation (FBDC) the amount
representing the transitional input tax credit due it for the fourth quarter of
1996; and directed to refund to petitioner the amount paid as output VAT
for the third quarter of 1997 in light of the persisting transitional input tax
credit available to petitioner for the said quarter, or to issue a tax credit
corresponding to such amount.

The CIR disallowed FBDC presumptive input tax credit arising from the
land inventory on the basis of Revenue Regulation 7-95 (RR 7-95) and
Revenue Memorandum Circular 3-96 (RMC 3-96) which limit the
meaning and coverage of the term "goods" in Section 105 of the Old
NIRC.

Issue: Whether or not the CIR is correct in disallowing FBDC’s

presumptive input tax credit arising from the land inventory.

Ruling: No, the act of the CIR in disallowing FBDC presumptive input
tax credit arising from the land inventory is without legal basis.
Executive Order No. 273 which amended several provisions of the
National Internal Revenue Code of 1986, accommodated the potential
burdens of the shift to the VAT system by allowing newly VAT-registered
persons to avail of a transitional input tax credit as provided for in Section
105 of the Old NIRC. Section 105 as amended by EO 273 provides that
“A person who becomes liable to value-added tax or any person who
elects to be a VAT-registered person shall, subject to the filing of an
inventory as prescribed by regulations, be allowed input tax on his
beginning inventory of goods, materials and supplies equivalent to 8% of
the value of such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which shall be
creditable against the output tax.

R 7-95 is inconsistent with Section 105 insofar as the definition of the

term "goods" is concerned. To be valid, an administrative rule or
regulation must conform, not contradict, the provisions of the enabling
law. An implementing rule or regulation cannot modify, expand, or
subtract from the law it is intended to implement. Thus, RR 7-95, insofar
as it restricts the definition of "goods" as basis of transitional input tax
credit under Section 105 is a nullity.

2. Fort Bonifacio Development Corporation vs. CIR, GR No.

173425, 4 September 2012;
Facts: Fort Bonifacio Development Corporation (FBDC) is
domestic corporation engaged in the development and sale of real
property.

Realizing that its transitional input tax credit was not applied in
computing its output VAT for the first quarter of 1997, petitioner
on November 17, 1998 filed with the BIR a claim for refund of the
amount erroneously paid as output VAT for the said period.

Respondents, on the other hand, maintain that petitioner is not

entitled to a transitional input tax credit because no taxes were paid
in the acquisition of the Global City property. Respondents assert
that prior payment of taxes is inherent in the nature of a transitional
input tax.

Issue: Whether or not prior payment of taxes is not required for a

taxpayer to avail of the 8% transitional input tax credit.

Ruling: No, prior payment of taxes is not required for a taxpayer

to avail of the 8% transitional input tax credit.

Section 105 of the old NIRC reads “A person who becomes liable
to value-added tax or any person who elects to be a VAT-
 registered person shall, subject to the filing of an inventory as
prescribed by regulations, be allowed input tax on his beginning
inventory of goods, materials and supplies equivalent to 8% of the
value of such inventory or the actual value-added tax paid on such
goods, materials and supplies, whichever is higher, which shall be
creditable against the output tax.”

There is nothing in the provision to indicate that prior payment of

taxes is necessary for the availment of the 8% transitional input tax
credit. Obviously, all that is required is for the taxpayer to file a
beginning inventory with the BIR.

10. Discuss Refunds or Tax Credit of Input Tax as stated in:

a. Contex Corporation v. CIR, G.R. No. 151135, 2 July 2004;
A non-VAT taxpayer is exempt from VAT. As an exempt VAT taxpayer, it is
not allowed any tax credit on VAT (input tax) previously paid. Even if we are
to assume that exemption from the burden of VAT on the non-VAT
taxpayer’s purchases did exist, it is still not entitled to any tax credit or refund
on the input tax previously paid as it is an exempt VAT taxpayer.

Rather, it is the suppliers who are the proper parties to claim the tax credit and
accordingly refund the non-VAT taxpayer of the VAT erroneously passed on
to the latter.

b. Philippine Geothermal v. CIR, 154028, 29 July 2005;

For indirect taxes like VAT, the proper party to question or seek a refund of
the tax is the statutory taxpayer, the person on whom the tax is imposed by
law and who paid the same even when he shifts the burden thereof to another.

c. San Roque Power Corporation v. Commissioner of Internal Revenue,

G.R. No. 180345, 25 November 2009;
To claim refund or tax credit under Section 112(A) of the NIRC, petitioner
must comply with the following criteria: (1) the taxpayer is VAT registered;
(2) the taxpayer is engaged in zero-rated or effectively zero-rated sales; (3) the
input taxes are due or paid; (4) the input taxes are not transitional input taxes;
(5) the input taxes have not been applied against output taxes during and in the
succeeding quarters; (6) the input taxes claimed are attributable to zero-rated
or effectively zero-rated sales; (7) for zero-rated sales under Section 106(A)
(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency
exchange proceeds have been duly accounted for in accordance with BSP
rules and regulations; (8) 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; and (9) the claim is
 filed within two years after the close of the taxable quarter when such sales
were made.

d. CIR v. Aichi Forging Co. of Asia, Inc., G.R. No. 184823, 6 October 2010;
A taxpayer is entitled to a refund either by authority of a statute expressly
granting such right, privilege, or incentive in his favor, or under the principle
of solutio indebiti requiring the return of taxes erroneously or illegally
collected. In both cases, a taxpayer must prove not only his entitlement to a
refund but also his compliance with the procedural due process as non-
observance of the prescriptive periods within which to file the administrative
and the judicial claims would result in the denial of his claim.

e. Commissioner of Internal Revenue v. San Roque Power Corporation,

G.R. No. 187485, 12 February 2013;
In a claim for refund or credit of "excess" input VAT under Section 110(B)
and Section 112(A), the input VAT is not "excessively" collected as
understood under Section 229. At the time of payment of the input VAT the
amount paid is the correct and proper amount. Under the VAT System, there
is no claim or issue that the input VAT is "excessively" collected, that is, that
the input VAT paid is more than what is legally due. The person legally liable
for the input VAT cannot claim that he overpaid the input VAT by the mere
existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that
the input VAT is excessively collected because it is more than what is legally
due. Thus, the taxpayer who legally paid the input VAT cannot claim for
refund or credit of the input VAT as "excessively" collected under Section
229.

f. San Roque Power Corporation v. Commissioner of Internal Revenue,

G.R. No. 203249, 23 July 2018;
The Commissioner shall grant a refund or issue the tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of
submission of complete documents in support of the application.

In case of full or partial denial of the claim tor tax refund or tax credit, or the
failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days
from the receipt of the decision denying the claim or after the expiration of the
one hundred twenty-day period, appeal the decision or the unacted claim with
the Court of Tax Appeals.

11. What are the Invoicing and Accounting Requirements for VAT-Registered
Persons?
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.

Only VAT-registered persons are required to print their TIN followed by the word
"VAT" in their invoice or official receipts. Said documents shall be considered as a
"VAT Invoice" or VAT

Information required to be indicated on the VAT invoice or VAT official receipts

1. A statement that the seller is a VAT-registered person, and the 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 VAT: Provided that:
a. The amount of the tax shall be shown as a separate item in the invoice or
receipt;
b. If the sale is exempt from value-added tax, the term "VAT-exempt sale" shall be
written or printed prominently on the invoice or receipt;
c. If the sale is subject to 0% VAT, the term "zero-rated sale" shall be written or
printed prominently on the invoice or receipt;
d. If the sale involves goods, properties or services some of which are subject to
and some of which are VAT zero-rated or VAT-exempt, the invoice or receipt
shall clearly indicate the breakdown of the sale price between its taxable, exempt
and zero-rated components, and the calculation of the value-added tax on each
portion of the sale shall be shown on the invoice or receipt: "Provided, That the
seller may issue separate invoices or receipts for the taxable, exempt, and zero-
rated components of the sale.
3. The date of transaction, quantity, unit cost and description of the goods or properties or
nature of the service; and
4. In the case of sales in the amount of P1,000 or more where the sale or transfer is made
to a VAT-registered person, the name, business style, if any, address and taxpayer
identification number (TIN) of the purchaser, customer or client (Sec. 113[B], NIRC).

12. Discuss when and how VAT should be filed and Paid.
Every person liable to pay the value-added tax shall file a quarterly return of the
amount of his gross sales or receipts within twenty-five (25) days following the close
of each taxable quarter prescribed for each taxpayer. The term “taxable quarter” shall
mean that quarter that is synchronized with the income tax quarter of the taxpayer
(i.e., the calendar quarter or fiscal quarter): Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis: Provided, finally That
beginning January 1, 2023, the filing and payment required under the Tax Code shall
be done within twenty-five (25) days following the close of each taxable quarter.

13. Discuss the Power of the Commissioner to Suspend the Business Operations of a
Taxpayer in relation to the violations of taxpayer as to VAT.
Under Section 115 of the NIRC, the Commissioner or his authorized representative is
empowered to suspend the business operations and temporarily close the business
establishment of any person for any of the following violations:
 (a) In the case of a VAT-registered Person. -
(1) Failure to issue receipts or invoices;
(2) Failure to file a value-added tax return as required under Section 114; or
(3) Understatement of taxable sales or receipts by thirty percent (30%) or more of
his correct taxable sales or receipts for the taxable quarter.
(b) Failure of any Person to Register as Required under Section 236.

The temporary closure of the establishment shall be for the duration of not less than
five (5) days and shall be lifted only upon compliance with whatever requirements
prescribed by the Commissioner in the closure order.

14. Discuss:
a. CIR v. Seagate Technology Phils., G.R. No. 153866, 11 February 2005;
Facts: Seagate Technology is a resident foreign corporation duly registered with
the Securities and Exchange Commission to do business in the Philippines. It is
registered with the Philippine Export Zone Authority (PEZA) to engage in the
manufacture of recording components primarily used in computers for export. It is
also a VAT -registered entity. Seagate filed a claim for refund of input taxes. The
CTA and CA granted the refund the claim for refund or issuance of a tax credit
certificate (TCC) in favor of respondent in a sum representing the unutilized but
substantiated input VAT paid on capital goods purchased for the period covering
April 1, 1998 to June 30, 1999.

Issue: Whether or not Seagate Technology is entitled to the refund or issuance of

Tax Credit Certificate in the amount representing alleged unutilized input VAT
paid on capital goods purchased.

Ruling: Yes, Seagate Technology is entitled to such refund or credit.

Sales made by a VAT-registered person in the customs territory to a PEZA-

registered entity are considered exports to a foreign country. Thus, purchase
transactions by respondent would be subject to a zero rate. Having determined
that respondent’s purchase transactions are subject to a zero VAT rate, the tax
refund or credit is in order.

The respondent also complied with all the requisites for claiming a VAT refund or
credit. First, respondent is a VAT-registered entity. Second, the input taxes paid
on the capital goods of respondent are duly supported by VAT invoices and have
not been offset against any output taxes.

Being VAT-registered and having satisfactorily complied with all the requisites
for claiming a tax refund of or credit for the input VAT paid on capital goods
purchased, respondent is entitled to such VAT refund or credit.

b. CIR v. Mirant Pagbilao Corp., G.R. 172129, 12 September 2008;

Facts: MPC, domestic firm engaged in the generation of power which it sells to
the National Power Corporation (NPC). For the construction of the electrical and
mechanical equipment portion of its Pagbilao, Quezon plant, which appears to
have been undertaken from 1993 to 1996, MPC secured the services of Mitsubishi
Corporation (Mitsubishi) of Japan.

Under the NPC's revised charter, NPC is exempt from all taxes. The exemption
covers both direct and indirect taxes.

In the light of the NPC's tax exempt status, MPC, on the belief that its sale of
power generation services to NPC is, pursuant to Sec. 108(B)(3) of the Tax
Code, zero-rated for VAT purposes, filed an Application for Effective Zero
Rating. Not getting any response from the BIR district office, MPC refiled its
application in the form of a "request for ruling" with the VAT Review Committee
at the BIR national office

Consistent with its belief to be zero-rated, MPC opted not to pay the VAT
component of the progress billings from Mitsubishi for the period covering April
1993 to September 1996 for the E & M Equipment Erection Portion of MPC's
contract with Mitsubishi. This prompted Mitsubishi to advance the VAT
component as this serves as its output VAT which is essential for the
determination of its VAT payment. Apparently, it was only on April 14, 1998 that
MPC paid Mitsubishi the VAT component for the progress billings from April
1993 to September 1996, and for which Mitsubishi issued Official Receipt (OR)
No. 0189 in the aggregate amount of PhP 135,993,570.

MPC filed on December 20, 1999 an administrative claim for refund of unutilized
input VAT.

Issue: Whether or not MPC is entitled to a refund for the amount it allegedly paid
as creditable input VAT for services and goods purchased from Mitsubishi during
the 1993 to 1996.

Ruling: No. The claim for refund or tax credit for the creditable input VAT
payment made by MPC embodied in OR No. 0189 was filed beyond the period
provided by law for such claim. Sec. 112(A) of the NIRC pertinently which reads
“Any VAT-registered person, whose sales are zero-rated or effectively zero-rated
may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax.

c. Atlas Consolidated v. CIR, G.R. Nos. 141104 & 148763, June 8, 2007;
Facts: Petitioner corporation is engaged in the business of mining, production,
and sale of various mineral products. It is a VAT-registered taxpayer.
 Petitioner corporation filed applications for the refund/credit of its input VAT on
its purchases of capital goods and on its zero-rated sales as summarized below.

Period Covered Date of Date of Date of

Filing (Return w/ Filing (Application w/ Filing (Case w/
BIR) BIR) CTA)

2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992

3rd Quarter, 1990 18 October 1990 21 November 1990 9 October 1992

4th Quarter, 1990 20 January 1991 19 February 1991 14 January 1993

1st Quarter, 1992 20 April 1992 -- 20 April 1994

Issue: Whether or not the judicial claim was filed beyond the prescriptive period
since the judicial claim was filed within two (2) years from the filing of the vat
return.

Ruling: No. The Court held that the two-year prescriptive period for the filing of
claims for refund/credit of input VAT must be counted from the date of filing of
the quarterly VAT return. Therefore, Mirant’s judicial claims of input VAT on its
purchases of capital goods and on its zero-rated sales were filed within the two-
year prescriptive period.

d. CIR vs. Sony Philippines, Inc., GR No. 178697 dated November 17, 2010;
Facts: Sony International Singapore (SIS) has granted to Sony Philippines (Sony)
a subsidy equivalent to the Sony’s advertising expenses because of adverse
economic conditions. The Commissioner of Internal Revenue assessed Sony for
deficiency VAT stemming from the disallowance of the input VAT credits that
should have been realized from the advertising expense of Sony. The CIR
contends that since Sony’s advertising expense was reimbursed by SIS, the former
never incurred any advertising expense. At most, the CIR continues, the said
advertising expense should be for the account of SIS, and not Sony

Issue: Whether or not Sony is liable for the deficiency VAT.

Ruling: No, Sony is not liable for the deficiency VAT.

Sony’s deficiency VAT assessment stemmed from the CIR’s disallowance of the
input VAT credits that should have been realized from its advertising expense.

Under the 1997 Tax Code, an advertising expense duly covered by a VAT invoice
is a legitimate business expense. There is also no denying that Sony incurred
advertising expense. Where the money came from is another matter all together
but will definitely not change the fact that it incurred the advertising expense.
Thus, the input VAT credits from such expense must be allowed.

e. Commissioner of Internal Revenue v. Negros Consolidated, G.R. No.

212735, 5 December 2018;
Facts: COFA is a multi-purpose agricultural cooperative organized under
Republic Act (RA) No. 6938. As its usual course, COFA's farmer-members
deliver the sugarcane produce to be milled and processed in COFA's name
with the sugar mill/refinery. Before the refined sugar is released by the sugar
mill, however, an Authorization Allowing the Release of Refined Sugar
(AARRS) from the Bureau of Internal Revenue (BIR) is required from COFA.
For several instances, upon COFA's application, the BIR issued the AARRS
without requiring COFA to pay advance VAT pursuant to COFA's tax
exemption under Section 616 of RA 6938 and Section 109(r) (now under
Section 109[L]) of RA No. 8424, as amended by RA No. 9337. COFA was
then issued Certificates of Tax Exemption dated May 24, 1999 and April 23,
2003 by the BIR.

However, beginning February 3, 2009, the BIR, required as a condition for the
issuance of the AARRS the payment of "advance VAT" on the premise that
COFA, as an agricultural cooperative, does not fall under the term "producer."

The CIR claimed that COFA failed to present evidence to prove that the
refined sugar withdrawn from the sugar mills were actually produced by
COFA through its registered members as required under RA 8424, as
amended. The CIR argues that COFA's failure to present the quedan of the
raw sugar issued by sugar mills in COFA's name is fatal to its claim for refund
as it cannot be determined whether its registered members are the actual
producers of the refined sugar before it was transferred in COFA's name and
before COFA sells it to its members and non-members.

Issue: Whether or not COFA, at the time of the subject transactions, i.e., from
May 12, 2009 to July 22, 2009, is VAT-exempt and therefore entitled to a tax
refund for the advance VAT it paid.

Ruling: Yes. COFA is a VAT-exempt agricultural cooperative. Exemption

from the payment of VAT on sales made by the agricultural cooperatives to
members or to non-members necessarily includes exemption from the
payment of "advance VAT" upon the withdrawal of the refined sugar from the
sugar mill.

VAT is a transaction tax - it is imposed on sales, barters, exchanges of goods

or property, and on the performance of services. The withdrawal from the
sugar refinery by the cooperative is not the incident which gives rise to the
imposition of VAT, but the subsequent sale of the sugar.