VAT TAX CASES

COMMISSIONER OF INTERNAL REVENUE v. CEBU TOYO CORPORATION. G.R. No. 149073. February 16, 2005FACTS:

Respondent 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 (MEPZ) in Lapu-Lapu City, Cebu and is a subsidiary of Toyo Lens Corporation, a non-resident corporation organized under the laws of Japan. It is a zone export enterprise registered with the Philippine Economic Zone Authority (PEZA), pursuant PD 66 and is also registered with the BIR as a VAT taxpayer.

The sales of respondent are considered export sales subject to VAT at 0% rate under Section 106 of the NIRC, as amended.

Respondent then 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. Respondents claim that they can avail of the tax credits as they are VAT-registered exporter of goods at the rate of 0%.

The CIR oppose such stating that they are not entitled to the tax credit as the claims for refund are strictly construed against respondents as it is of the nature of tax exemption.

The CTA granted the motion partially to the respondents as they only lowered the tax credits to P2,158,714.46 representing unutilized input tax payments. The CIR filed a petition with the CA which was denied.

ISSUE: Whether Cebu Toyo Corporation can avail of the tax credits.

RULING:

YES. Respondents availed of an income tax holiday as provided in the Omnibus Investments Code ( EO 226). It is one of the fiscal incentives granted to PEZA-registered enterprises and one of the options to its tax burden. Both the CA and CTA found that respondent availed of the income tax holiday for four (4) years as it was shown in their Annual Corporate Income Tax Returns. In it also is where respondent specified that it was availing of the tax relief under EO 226. Hence, respondent is not exempt from VAT and it correctly registered itself as a VAT taxpayer. In fine, it is engaged in taxable rather than exempt transactions.

Taxable transactions are those transactions which are subject to value-added tax either at the rate of ten percent (10%) or zero percent (0%). In taxable transactions, the seller shall be entitled to tax credit for the value-added tax paid on purchases and leases of goods, properties or services.

An exemption means that the sale of goods, properties or services and the use or lease of properties is not subject to VAT (output tax) and the seller is not allowed any tax credit on VAT (input tax) previously paid. The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. Thus, a VAT-registered purchaser of goods, properties or services that are VAT-exempt, is not entitled to any input tax on such purchases despite the issuance of a VAT invoice or receipt.

The court also held that respondent is subjected to VAT at 0% rate as it is engaged in the export business.

CIR vs. SEAGATE TECHNOLOGY

Facts: Seagate Technology (Seagate) is registered with the Philippine export Zone Authority (PEZA) and has been issued a PEZA certificate It is also a VAT registered entity An administrative claim for refund of VAT input taxes in the amount of PHP 28,369.88 was filed on October 4, 1999 No final action as been received by Seagate from the CIR on its claim for VAT refund Seagate thus elevated the case to the CTA by way of petition for review in order to toll the running of the two year prescriptive period ISSUE: W/N Segeate is entitled to the refund or issuance of Tax Credit Certificate YESRATIO: Seagate is a PEZA registered enterprise As a PEZA registered enterprise within a special economic zone, Seagate is entitled in the fiscal incentives and benefits, provided for in either PD66 or EO 226. It shall moreover enjoy all privileges, benefits, advantages, or exemptions under both RA 7227 and RA 7844 Seagate enjoys preferential tax treatment. It is not subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on capital goods is an internal revenue from which Seagate as an entity is exempt. Although the transactions involving such tax is are not exempt, Seagate as a VAT registered person however is entitled to their credits VAT is a uniform tax ranging at present from 0-10% levied on every importation of goods, whether or not in the course of trade or business, or imposed on each sale, barter, exchange or lease of goods or properties, or on each rendition of services in the course of trade or business as they pass along the production and distribution chain, the tax being limited only to the value added to such goods, properties or services by the seller, transferor or lessor It is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties, or services The law that originally impose the VAT in the country, as well as subsequently amendments of that law, has been drawn from the tax credit method. Under the present method that relied on invoices, and 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 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 tha 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 or effectively zero rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes

Zero Rated and Effectively Zero Rated Transactions Although both are taxable and similar in effect, zero rated transactions differ from effectively zero rated transactions as to their source Zero rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a tax credit certificate for the VAT previously charged by suppliers. Effectively zero rated transactions, however, refer to the sale of goods or supply of services to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such transaction to a zero rate. Again, as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The seller who chares zero output tax on such transactions can also claim a refund of or a tax credit certificate fir the VAT previously charged by suppliers.

Zero Rating and Exemption In terms of the VAT computation, zer rating and exemption are the same, but the extend of relief that results from either one of them is not Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoys by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. Effective zero rating on the contrary is intended to benefit the purchaser who not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers. In both instances of zero rating, there is a TOTAL relief for the purchaser from the burden of the tax. But in an exemption there is only partial relief because the purchaser is not allowed any tax refund of or credit for input taxes paid.

Exempt Transaction and Exempt Party the object of exemption from the VAT may either be the transaction itself or any of the parties to the transaction An exempt transaction on the one hand., involved goods or services which, by their nature are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status VAT exempt or not of the party to the transaction. Such transaction is not subject to the VAT, but the seller is not allowed any tax refund of or credit for any input taxes paid. An exempt party, on the other hand is a person or entity granted VAT exemption under the TAX Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which, its taxable transactions become exempt from the VAT. Such party is also not subject to the VAT but may be allowed a tax refund of or credit for input taxes paid, depending on its registration as a VAT r non-VAT taxpayer. Special laws may certainly exempt transactions from the VAT. However, the Tax Code provides that those falling under PD 66 are not. PD 66 is the precursor of RA 7916 the special law under which Seagate was registered. The purchase transactions it entered into are therefore not VAT exempt. These are subject to the Vat. Seagate is required to register. Its sales transactions however will either be zero rated or taxed at the standard rate of 10 percent. Depending again on the application of the destination principle If Seagate enters into such sales transactions with a purchaser --- usually in a foreign country for use or consumption outside the Philippines, these shall be subject to a 0 percent. If entered into which a purchase for use or consumption in the Philippine, then these shall be subject to 10 percent, unless the purchaser is exempt from the indirect burden of the VAT, in which case it shall also be zero rated. Since the purchases of Seagate are not exempt from the VAT, the rate to be applied is zero. Its exemption under both PD 66 and RA 7916 effectively subjects such transactions to a zero rate because the ecozone within which it is registered is managed and operated by the PEZA as a separate customs territory. This means that such zone has created the legal fiction of a foreign territory. Under the cross border principle of the VAT system being enforced by the BIR, 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. Sales made by a VAT registered person in the customs territory to a PEZA registered entity are considered exports to a foreign country, conversely, sales by a PEZA registered entity to a VAT registered person in the customs territory are deemed imports from a foreign country. This legal fiction is necessary to give meaningful effect to the policies of the special law creating the zone. If Seagate is located in an export processing zone within that ecozone, sales to the export processing zone , even without being actually exported, shall in fact be viewed as constructively exported under EO 226. Considered as export sales, such purchase transactions by Seagate would indeed be subject to a zero rate

The Exemptions Broad and Express Applying the special laws we have earlier discussed, Seagate as an entity is exempt from internal revenue laws and regulations. This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirectly made to bear, as added cost to such sales, the equivalent VAT n its purchases. First, RA 7916 states that no taxes, local, and national, shall be imposed on the business establishments operating within the ecozone Since this law does not exclude the VAT from the prohibition, it is deemed included Second, when RA 8748 was enacted to amend RA 7916, the same prohibition applied, except for real property taxes that presently are imposed on land owned by developers Third, foreign and domestic merchandise, raw materials, equipment and the like shall not be subject to internal revenue laws and regulations under PD 66 the original charter provisions on the latter law modify such exemption Fourth, even the rules implementing the PEZA law clearly reiterate that merchandise except those prohibited by law shall not be subject to internal revenue laws and regulations if brought to the ecozones restricted area for manufacturing by registered export enterprises of which Seagate is one. These rules also apply to all enterprises registered with the PEZA prior to the effectivity of such ruled

Tax Refund as Tax Exemption To be sure, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear the burden of proving the factual basis of them claims and of showing by words to plain to be mistaken, that the legislature intended to exempt them. In the present case, all the cited legal provisions with respect to the grant of the tax exemptions are too vivid to pass unnoticed. Seagate which as an entity is exempt, is different from its transactions which are not exempt. The end result, however, is that it is not subject to the VAT. The non taxability of transactions that are otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as an entity, not upon the transactions themselves. Nonetheless, its exemption as an entity and the non exemption of its transactions lead to the same result.

VAT registration, not application for effective zone rating indispensable to Vat refund Registration is an indispensable requirement under our Vat law By the VATs very nature as a tax on consumption, the capital goods and services Seagate has purchased are subject to VAT, although at zero rate. Registration does not determine taxability under the VAT law. The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over the clear VAT nature of Seagates transactions. The scope of such regulations is not within the statutory authority granted by the legislature. Other than the general registration of a taxpayer, the VAT status of which is aptly determined, no provision under our VAT law requires an additional application to be made for such taxpayers transactions to be considered effectively zero rated. An effectively zero rated transaction does not and cannot become exempt simply because an application therefore was not made or if made, was denied. To allow the additional requirement is to give unfettered discretion to those officials or agents who without fluid consideration, are bent on denying a valid application

Tax Refund or credit in order Having determined that Seagates purchase transactions are subject to a zero VAT rate, the tax refund or credit is in order. As correctly held by the lower courts, Seagate had chosen the fiscal incentives in EO 226 over those in RA 7916 and PD 66. It opted for the income tax holiday regime instead of the 5 percent preferential tax regime, These two regimes are incompatible and cannot be availed of simultaneously by the same entity. While EO 226 merely exempts it from income taxes, the PEZA law exempts it from all taxes. Therefore Seagate can be considered exempt not from the VAT but only from the payment of income tax for certain number of years depending on its registration.

CIR vs. Seagate Technology

FACTS: Seagate is a resident foreign corporation duly registered with the SEC to do business in the Philippines, with principal office address at the new Cebu Township One, Special Economic Zone, Naga, Cebu It registered with PEZA and has been issued PEZA Certificate to engage in the manufacture of recording components primarily used in computers for export Seagate Technology is a VAT -registered entity as evidenced by VAT Registration Certification No. 97-083-000600-V issued on 2 April 1997. It was able to file VAT returns for the period 1 April 1998 to 30 June 1999. Thereafter, an administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999 with Revenue District Office No. 83, Talisay Cebu but this was not acted upon by the CIR.ISSUES: WoN respondent is exempt from taxRULING: YES. Respondent as an entity is exempt from internal revenue laws and regulations. This exemption covers both direct and indirect taxes, stemming from the very nature of the VAT as a tax on consumption, for which the direct liability is imposed on one person but the indirect burden is passed on to another. Respondent, as an exempt entity, can neither be directly charged for the VAT on its sales nor indirectly made to bear, as added cost to such sales, the equivalent VAT on its purchases. Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end result, however, is that it is not subject to the VAT. The non-taxability of transactions that are otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it as an entity, not upon the transactions themselves. Nonetheless, its exemption as an entity and the non-exemption of its transactions lead to the same result for the following considerations: The BIR regulations additionally requiring an approved prior application for effective zero rating cannot prevail over the clear VAT nature of respondent's transactions. The scope of such regulations is not within the statutory authority x x x granted by the legislature. A mere administrative issuance, like a BIR regulation, cannot amend the law; the former cannot purport to do any more than interpret the latter. The courts will not countenance one that overrides the statute it seeks to apply and implement. Special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by law is considered as a separate customs territory. As such, SEAGATE is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated. No prior application for the effective zero rating of its transactions is necessary. 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.

An exempt transaction, involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status VAT-exempt or not of the party to the transaction

An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from VAT

CIR vs. TOSHIBA INFORMATION EQUIPMENT (PHILS.), INC.,. G.R. No. 150154. August 9, 2005

FACTS: Toshiba was organized and established as a domestic corporation, duly-registered with the SEC Its primary purpose is to engage in the business of manufacturing and exporting of electrical and mechanical machinery, equipment, systems, accessories, parts, components, materials and goods of all kinds, including, without limitation, to those relating to office automation and information technology, and all types of computer hardware and software, such as HDD, CD-ROM and personal computer printed circuit boards. 9/27/95: Toshiba registered with PEZA as an ECOZONE Export Enterprise, it registered with BIR as a VAT taxpayer and a withholding agent. Toshiba filed its VAT returns for the 1st & 2nd quarters of 1996 It alleged that the input VAT was from its purchases of capital goods and services which remained unutilized since it had not yet engaged in any business activity or transaction for which it may be liable for any output VAT. 3/27/98: Toshiba filed with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF applications for tax credit/refund of its unutilized input VAT To toll the running of the two-year prescriptive period for judicially claiming a tax credit/refund, Toshiba, filed with the CTA a Petition for Review. CIR raised several Special and Affirmative Defenses:5. Assuming without admitting that petitioner filed a claim for refund/tax credit, the same is subject to investigation by the Bureau of Internal Revenue.6. Taxes are presumed to have been collected in accordance with law. Hence, petitioner must prove that the taxes sought to be refunded were erroneously or illegally collected.7. Petitioner must prove the allegations supporting its entitlement to a refund.8. Petitioner must show that it has complied with the provisions of Sections 204(c) and 229 of the 1997 Tax Code on the filing of a written claim for refund within two (2) years from the date of payment of the tax.9. Claims for refund of taxes are construed strictly against claimants, the same being in the nature of an exemption from taxation.12 CTA ordered CIR to refund, or in the alternative, to issue a tax credit certificate to respondent Toshiba CA also dismissed petitioner CIRs Petition for Review and affirmed the CTA Decision

ISSUE: WON Toshiba is entitled to the tax credit/refund of its input VAT on its purchases of capital goods and services

RULING: SC RULED THAT TOSHIBA IS ENTITLES TO THE TAX CREDIT/REFUND OF ITS INPUT VAT An ECOZONE enterprise is a VAT-exempt entity. Sales of goods, properties, and services by persons from the Customs Territory to ECOZONE enterprises shall be subject to VAT at zero percent (0%). Toshiba bases its claim for tax credit/refund on Section 106(b) Refunds or tax credits of creditable input tax, of the Tax Code of 1977:

(b) Capital goods. A VAT-registered person may apply for the issuance of a tax credit certificate or refund of input taxes paid on capital goods imported or locally purchased, to the extent that such input taxes have not been applied against output taxes. The application may be made only within two (2) years after the close of the taxable quarter when the importation or purchase was made. Refund of input taxes on capital goods shall be allowed only to the extent that such capital goods are used in VAT taxable business. If it is also used in exempt operations, the input tax refundable shall only be the ratable portion corresponding to the taxable operations. Since Toshiba is a PEZA-registered enterprise, it is subject to the five percent (5%) preferential tax rate imposed RA 7916 or The Special Economic Zone Act of 1995 According to the special law, "[e]xcept for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof, 5% of the gross income earned by all business enterprises within the ECOZONE shall be paid" The five percent (5%) preferential tax rate imposed on the gross income of a PEZA-registered enterprise shall be in lieu of all national taxes, including VAT. CIR FAILED TO DIFFERENTIATE BETWEEN VAT-EXEMPT TRANSACTIONS FROM VAT-EXEMPT ENTITIES. In the case of Commissioner of Internal Revenue v. Seagate Technology (Philippines),19 this Court already made such distinction An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status VAT-exempt or not of the party to the transaction

An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from VAT

The tax code provision relied upon by petitioner CIR, relates to VAT-exempt transactions. These are transactions exempted from VAT by special laws or international agreements to which the Philippines is a signatory. Since such transactions are not subject to VAT, the sellers cannot pass on any output VAT to the purchasers of goods, properties, or services, and they may not claim tax credit/refund of the input VAT they had paid thereon. Such provision cannot apply to transactions of respondent Toshiba because although the said section recognizes that transactions covered by special laws may be exempt from VAT, the very same section provides that those falling under PD. 66 are not. PD. 66, creating the EPZA is the precursor of Rep. Act No. 7916, which the EPZA evolved into the PEZA. Thus, the exception of PD 66 extends likewise to RA 7916 SC agrees that PEZA-registered enterprises, which would necessarily be located within ECOZONES, are VAT-exempt entities, not because of Rep. Act No. 7916 provision, 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. Toshiba is located within an ECOZONE. An ECOZONE or a Special Economic Zone has been described as selected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers. The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory.22 what would be the VAT implication of sales made by a supplier from the Customs Territory to an ECOZONE enterprise? 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. Applying said doctrine to the sale of goods, properties, and services to and from the ECOZONES, the BIR issued RMC No. 74-99. Section 3 thereof reads:

SECTION 3. Tax Treatment Of Sales Made By a VAT Registered Supplier from The Customs Territory, To a PEZA Registered Enterprise. (1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended:a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916, in relation to ART. 77(2) of the Omnibus Investments Code.b) Sale of service. This shall be treated subject to zero percent (0%) VAT under the "cross border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.(2) If Buyer is a PEZA registered enterprise which is not embraced by the 5% special tax regime, hence, subject to taxes under the NIRC, e.g., Service Establishments which are subject to taxes under the NIRC rather than the 5% special tax regime:a) Sale of goods (i.e., merchandise). This shall be treated as indirect export hence, considered subject to zero percent (0%) VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC and Sec. 23 of R.A. No. 7916 in relation to ART. 77(2) of the Omnibus Investments Code.b) Sale of Service. This shall be treated subject to zero percent (0%) VAT under the "cross border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated Nov. 5, 1998.(3) In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latters PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the Omnibus Investments Code, while all sales of services to the said enterprises, made by VAT registered suppliers from the Customs Territory, shall be treated effectively subject to the 0% VAT, pursuant to Section 108(B)(3), NIRC, in relation to the provisions of R.A. No. 7916 and the "Cross Border Doctrine" of the VAT system. NO OUTPUT VAT MAY BE PASSED ON TO AN ECOZONE ENTERPRISE SINCE IT IS A VAT-EXEMPT ENTITY. The VAT treatment of sales to it, however, varies depending on whether the supplier from the Customs Territory is VAT-registered or not. SALES OF GOODS, PROPERTIES AND SERVICES BY A VAT-REGISTERED SUPPLIER FROM THE CUSTOMS TERRITORY TO AN ECOZONE ENTERPRISE SHALL BE TREATED AS EXPORT SALES. If such sales are made by a VAT-registered supplier, they shall be subject to VAT at zero percent (0%). In zero-rated transactions, the VAT-registered supplier shall not pass on any output VAT to the ECOZONE enterprise, and at the same time, shall be entitled to claim tax credit/refund of its input VAT attributable to such sales. Zero-rating of export sales primarily intends to benefit the exporter (i.e., the supplier from the Customs Territory), who is directly and legally liable for the VAT, making it internationally competitive by allowing it to credit/refund the input VAT attributable to its export sales. Meanwhile, sales to an ECOZONE enterprise made by a non-VAT or unregistered supplier would only be exempt from VAT and the supplier shall not be able to claim credit/refund of its input VAT. Toshiba, as a PEZA-registered enterprise, is a VAT-exempt entity that could not have engaged in a VAT-taxable business, SC still believes, given the particular circumstances of the present case, that it is entitled to a credit/refund of its input VAT. Prior to RMC No. 74-99, however, PEZA-registered enterprises availing of the income tax holiday under Executive Order No. 226, as amended, were deemed subject to VAT.

"SEC. 4.100-2. Zero-rated sales. A zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations." the VAT-registered person who can avail as tax credit or refund of the input tax on his purchases of goods, services or properties is the seller whose sale is zero-rated. Under RMC No. 42-2003, the DOF would still accept applications for tax credit/refund filed by PEZA-registered enterprises, availing of the income tax holiday, for input VAT on their purchases made prior to RMC No. 74-99. Acceptance of applications essentially implies processing and possible approval thereof depending on whether the given conditions are met. Respondent Toshibas claim for tax credit/refund arose from the very same circumstances recognized by Q-5(1) and A-5(1) of RMC No. 42-2003. It therefore seems irrational and unreasonable for petitioner CIR to oppose respondent Toshibas application for tax credit/refund of its input VAT, when such claim had already been determined and approved by the CTA after due hearing, and even affirmed by the Court of Appeals; while it could accept, process, and even approve applications filed by other similarly-situated PEZA-registered enterprises at the administrative level.

CIR v PLACER DOME TECHNICAL SERVICES (PHILS.)

FACTS: In 1996, San Antonio Mines owned by Marcopper Mining, caused potential environmental damage to the rivers. To contain the damage and prevent the spread of tailing leak, Placer Dome, owner of 39.9% of Marcopper, undertook to perform the cleam-up and rehab of Makalupnit and Boac Rivers, through subsidiary. To accomplish this, PDI engaged Placer Dome Tech Services Limited (PDTSL), a non resident foreign corp with office in Canada. In turn, PDTSL, engaged PDTSL PH, a domestic rop and registered VAT entity, to implement the project in the PH.PDTSL and PDTSL Phils entered into an Implementation Agreement. Due to the urgency and potentially significant damage to the environment, respondent agreed to implement the project even prior to the agreements signing. The agreement further stipulated that PDTSL was to pay respondent an amount of money in US funds equal to all costs incurred for Implementation Services performed under the Agreement as well as a fee agreed to 1% of such costsIn 1998, respondent amendment its VAT returns. Respondent declared a total input VAT payment of P43M and P42M as its total excess input VAT for the same period. Then, in Sept 1998, respondent filed an administrative claim for the refund of its reported total input VAT payments in relation to the project it contracted with PDTSL, P43M. In support of this claim for refund, respondent argued that the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero rated sales, since it was paid in foreign currency inwardly remitted to the PH.When CIR did not act on this claim, respondent filed a petition for review with the CTA praying for the refund of its total reported excess input vat of P42M. CIR merely invoked the presumption that taxes are collected in accordance with law, and that claims for refund of taxes are construed strictly against claimants, as the same was in the nature of an exemption from taxation.CTA supported respondent, that its sale of services to PDTSL constituted a zero rated transaction. CTA pointed out that out that of the US$27M paid by PDTSL to respondent, only US$14M was inwardly remitted and accounted for in accordance with the BSP. The CTA also noted that not all the reported total input VAT payments of respondent were properly supported by VAT invoices and/or official receipts, and that not all of the allowable input VAT of the respondent could be directly attributed to its zerorated sales. In the end, the CTA found that only the resulting input VAT of P17M could be refunded the respondent.The CTA reiterated its pronouncement in said case, thus: x x x it is very clear that VAT Ruling No. 04098 not only expands the language of Section (108)(B)(2) but also of Revenue Regulation No. 5 96 which interprets the said stat ute. The same cannot be countenanced. It is a settled rule of legal hermeneutics that the implementing rules and regulations cannot amend the act of Congress x x x for administrative rules and regulations are intended to carry out, not supplant or modify, the law. CA affirmed CTA.

ISSUE: WON Sale here is subject to zero rate?

RULING: YES.Our evaluation of the petition must begin with the statutory scope of the services performed in the Philippines by VATregistered persons, referred to in the law applicable at the time of the subject incidents, the National Internal Revenue Code of 1986, as amended(1986 NIRC). It is Section 102(b)(2) which finds special relevance to this case. As explicitly provided in the law, a zerorated VAT transaction includes services by VATregistered persons other than processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported, the consideration for which is paid in foreign currency and accounted for in accordance with the rules and regulations of the BSP. Still, this provision was interpreted by the Bureau of Internal Revenue through Revenue Regulation No. 596, Although there is nothing in Section 4.1022(b)(2) that is expressly fatal to respondents claim, VAT Ruling No. 040 98 interpreted the provision in such fashion. Petitioners arguments:Petitioner argues that following Section 4.1022(b)(2) of Revenue Regulation No. 596, there are only two categories of services that are subject to zero percent VAT, namely: services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported; and services by a resident to a nonresident foreign client, such as project studies, information services, engineering and architectural designs and other similar services Petitioner explains that the services rendered by respondent were not for goods which were subsequently exported. Likewise, it is argued that the services rendered by respondent were not similar to project studies, information services, engineering and architectural designs which were destined to be consumed abroad by non resident foreign clients. VAT Ruling No. 04098 expresses that the zerorating may apply only when the services are destined for consumption abroad. This view aligns with the theoretical principle that the VAT is ultimately levied on consumption. If the service were destined for consumption in the Philippines, the service provider would have the faculty to pass on its VAT liability to the enduser, thus avoiding having to shoulder the tax itself. Unfortunately for petitioner, his arguments are no longer fresh. The Court spurned them in Commissioner of Internal Revenue v. American Express.American Express involved transactions invoked as zerorated by a VATregistered person that facilitates the collection and payment of receivables belonging to its non resident foreign client, for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in conformity with BSP rules and regulations.24 The CIR in that case relied extensively on the same VAT Ruling No. 04098 now cited before us. However, the Court would conclude in American Express that the opinion therein that the service must be destined for consumption outside of the Philippines was clearly ultra vires and invalid. American Express explained the nature of VAT imposed on services in this manner: The VAT is a tax on consumption expressed as a percentage of the value added to goods or services purchased by the producer or taxpayer. As an indirect tax on services, its main object is the transaction itself or, more concretely, the performance of all kinds of services conducted in the course of trade or business in the Philippines. These services must be regularly conducted in this country; undertaken in pursuit of a commercial or an economic activity; for a valuable consideration; and not exempt under the Tax Code, other special laws, or any international agreement.

It was from the awareness that Section 102(b) is free from ambiguity in providing so broad an extension of the zero rated benefit on VATregistered persons performing services that the Court in American Express proceeded to consider the same Section 4.1022(b)(2) of Revenue Regulation No. 596 now cited by petitioner. The Court in American Express explained that Revenue Regulation No. 596 had amended Revenue Regulation No. 795, Section 4.1022 of which had retained the broad language of Section 102(b) in defining transactions subject to zerorate, adding only, by way of specific example, the phrase those [services] rendered by hotels and other service establishments.30 However, the amendatory Revenue Regulation No. 596 opted for a more specific approach, providing, by way of example, an enumeration of those services contemplated as zerorated In the present case, it is because of such enumeration that petitioner now argues that respondents services likewise do not fall under the second category mentioned in Section 4.1022(b) (2) [as amended by Revenue Regulation No. 596], because they are not similar to project studies, information services, engineering and architectural designs which are destined to be consumed abroad by nonresident foreign clients. Petitioner presently invokes the destination principle, citing that [r]espondents services, while rendered to a nonresident foreign corporation, are not destined to be consumed abroad. Hence, the onus of taxation of the revenue arising therefrom, for VAT purposes, is also within the Philippines. Yet the Court in American Express debunked this argument when it rebutted the theoretical underpinnings of VAT Ruling No. 04098, particularly its reliance on the destination principle in taxation: As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zerorated, while imports are taxed. Confusion in zero rating arises because petitioner equates the performance of a particular type of service with the consumption of its output abroad. In the present case, the facilitation of the collection of receivables is different from the utilization or consumption of the outcome of such service. While the facilitation is done in the Philippines, the consumption is not. Respondent renders assistance to its foreign clientsthe ROCs outside the countryby receiving the bills of service establishments located here in the country and forwarding them to the ROCs abroad. The consumption contemplated by law, contrary to petitioners administrative interpretation, does not imply that the service be done abroad in order to be zerorated. Consumption is the use of a thing in a way that thereby exhausts it. Applied to services, the term means the performance or successful completion of a contractual duty, usually resulting in the performers release from any past or future liability x x x The services rendered by respondent are performed or successfully completed upon its sending to its foreign client the drafts and bills it has gathered from service establish ments here. Its services, having been performed in the Philippines, are therefore also consumed in the Philippines. Unlike goods, services cannot be physically used in or bound for a specific place when their destination is determined. Instead, there can only be a predetermined end of a course when determining the service location or position x x x for legal purposes. Respondents facilitation service has no physical existence, yet takes place upon rendition, and therefore upon consumption, in the Philippines. Under the destination principle, as petitioner asserts, such service is subject to VAT at the rate of 10 percent. However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for services that are performed in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP]. Thus, for the supply of service to be zerorated as an exception, the law merely requires that first, the service be performed in the Philippines; second, the service fall under any of the categories in Section 102(b) of the Tax Code; and, third, it be paid in acceptable foreign currency accounted for in accordance with BSP rules and regulations.Again, contrary to petitioners stand, for the cost of respondents service to be zerorated, it need not be tacked in as part of the cost of goods exported. The law neither imposes such requirement nor associates services with exported goods. It simply states that the services performed by VATregistered persons in the Philippines services other than the processing, manufacturing or repacking of goods for persons doing business outside this countryif paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zerorated. The service rendered by respondent is clearly different from the product that arises from the rendition of such service. The activity that creates the income must not be confused with the main business in the course of which that income is realized Finally, the Court in American Express found support from the legislative record that revealed that consumption abroad is not a pertinent factor to imbue the zerorating on services by VATregistered persons performed in the Philippines. DISPOSITIVE: Petition denied. (PETITION for review on certiorari of a decision of the Court of Appeals.)

CIR V AMERICAN EXPRESS INTERNATIONAL, INC. (Phil.Branch)

Facts:Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with servicing a unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK receivables from card members situated in the Philippines and payment to service establishments in the Philippines.It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis Section 110B of the 1997 Tax Code, which held that xxx Any input tax attributable to the purchase of capital goods or 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.In addition, respondent relied on VAT Ruling No. 080-89, which read, In Reply, please be informed that, as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted inwardly to the Philippine and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, your service income is automatically zero rated xxxPetitioner claimed, among others, that the claim for refund should be construed strictly against the claimant as they partake of the nature of tax exemption.CTA rendered a decision in favor of respondent, holding that its services are subject to zero-rate. CA affirmed this decision and further held that respondents services were services other than the processing, manufacturing or repackaging of goods for persons doing business outside the Philippines and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP.

Issue:W/N AMEX Phils is entitled to refund

Held:Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or lease of properties. Section 102B particularly provides for the services or transactions subject to 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 BSP;(2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered by hotels and other service establishments, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSPUnder subparagraph 2, services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repackaging of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the R&R of BSP, are zero-rated. Respondent renders service falling under the category of zero rating.As ageneral rule,the VAT system uses thedestination principleas a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed.In the present case, the facilitation of the collection of receivables is different from the utilization of consumption of the outcome of such service. While the facilitation is done in the Philippines, the consumption is not. The services rendered by respondent are performed upon its sending to its foreign client the drafts and bulls it has gathered from service establishments here, and are therefore, services also consumed in the Philippines. Under the destination principle, such service is subject to 10% VAT.However, the law clearly provides for anexceptionto the destination principle; that is 0% VAT rate for services that are performed in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the R&R of BSP. The respondent meets the following requirements for exemption, and thus should be zero-rated:(1) Service be performed in the Philippines(2) The service fall under any of the categories in Section 102B of the Tax Code(3) It be paid in acceptable foreign currency accounted for in accordance with BSP R&R.

CIR v BURMEISTER and WAIN SCANDINAVIAN CONTRACTOR MINDANAO.

DOCTRINE: the place of payment is immaterial, much less is the place where the output of the service is ultimately used. An essential condition for entitlement to 0% VAT under Section 102(b) (1) and (2) is that the recipient of the services is a person doing business outside the Philippines.The Court recognizes the rule that the VAT system generally follows the destination principle (exports are zerorated whereas imports are taxed). However, as the Court stated in American Express, there is an exception to this rule.25 This exception refers to the 0% VAT on services enumerated in Section 102 and performed in the Philippines. For services covered by Section 102(b)(1) and (2), the recipient of the services must be a person doing business outside the Philippines. Thus, to be exempt from the destination principle under Section 102(b)(1) and (2), the services must be (a) performed in the Philippines; (b) for a person doing business outside the Philippines; and (c) paid in acceptable foreign currency accounted for in accordance with BSP rules.

FACTS: It is represented that a foreign consortium composed of Burmeister and Wain (BWSC) and Mitsui entered into a contract with NAPOCOR for the operation and maintenance of NAPOCORs two power barges. The Consortium appointed BWSC-Denmark as its coordination manager.BWSC-Denmark established respondent which subcontracted the actual operation and maintenance of NAPOCORs two power barges and other acts which has to be done in the Philippines.NAPOCOR paid fees to Consortium in Mark, Yen and Peso. On the other hand, the Consortium pays respondent in foreign currency inwardly remitted to the PH through the banking system.To ascertain the tax implications of the transactions, respondent sought a ruling from BIR declaring that if respondent chooses to register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and accounted, the services shall be subject to VAT at zero-rate.Respondent chose to register as a VAT taxpayer. Thus, a Certification of Registration was issued to it by the Revenue District Office.For the year 1996, respondent filed its quarterly VAT returns reflecting a total zero rated sales of P147M with VAT input taxes of P3M.Respondent availed of the Voluntary Assessment Program (VAP) of the BIR. It allegedly misinterpreted Revenue Regulation No. 5-96 to be applicable to its case. Revenue Regulation No. 5-96 provides,Section 4.1022(b)(2)Services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported, as well as services by a resident to a nonresident foreign client such as project studies, information services, engineering and architectural designs and other similar services, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. In conformity with the RR, respondent subjected its sale of services to the Consortium to 10% VAT, P103M, for the months April to December, because RR became effective only on April. The 43M, representing Jan to March sales was subjected to zero rate. Consequently respondent filed its 1996 amended VAT return consolidating the VAT output and input taxes. It paid P6M as its output tax for 1996.In 1999, respondent was able to secure VAT Ruling which reconfirmed BIR Ruling insofar as it held that the services being rendered by BWSCMI is subject to VAT at zero percentOn this strength, respondent filed a claim for the issuance of a tax credit. Respondent believed that it erroneously paid the output VAT for 1996 due to its availment of the Voluntary Assessment Program (VAP). It filed a petition for review with CTA to toll the running of the prescriptive period.CTA ordered CIR to issue a tax credit certificate for P6MCA is subject to VA: the Court of Appeals rejected petitioners view that since respondents services are not destined for consumption abroad, they are not of the same nature as project studies, information services, engineering and architectural designs, and other similar services mentioned in Section 4.1022(b)(2) of Revenue Regulations No. 596 subject to 0% VAT. Thus, according to petitioner, respondents services cannot legally qualify for 0% VAT but are subject to the regular 10% VATThe Court of Appeals stated that only the first classification is required by the provision to be consumed abroad in order to be taxed at zero rate. In x x x the absence of such express or implied stipulation in the statute, the second classification need not be consumed abroad.The Court of Appeals further held that assuming petitioners interpretation of Section 4.1022(b)(2) of Revenue Regulations No. 596 is correct, such administrative provision is void being an amendment to the Tax Code. Petitioner went beyond merely providing the implementing details by adding another requirement to zerorating. The Court of Appeals explained that under Section 108(b)(2) of the Tax Code,12 for services which were performed in the Philippines to enjoy zerorating, these must comply only with two requisites, to wit: (1) payment in acceptable foreign currency and (2) accounted for in accordance with the rules of the BSP. Section 108(b)(2) of the Tax Code does not provide that services must be destined for consumption abroad in order to be VAT zero rated

ISSUE: Whether respondent is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for the year 1996?

RULING: Petition to review CA decision is denied.The Court declares that the denial of the instant petition is not on the ground that respondents services are subject to 0% VAT. Rather, it is based on the nonretroactivity of the prejudicial revocation of BIR Ruling No. 0239517 and VAT Ruling No. 00399,18 which held that respondents services are subject to 0% VAT and which respondent invoked in applying for refund of the output VAT. Section 102(b) of the Tax Code, the applicable provision in 1996 when respondent rendered the services and paid the VAT in question In insisting that its services should be zerorated, respondent claims that it complied with the requirements of the Tax Code for zero rating under the second paragraph of Section 102(b). Respondent asserts that (1) the payment of its service fees was in acceptable foreign currency, (2) there was inward remittance of the foreign currency into the Philippines, and (3) accounting of such remittance was in accordance with BSP rules. Moreover, respondent contends that its services which constitute the actual operation and management of two (2) power barges in Mindanao are not even remotely similar to project studies, information services and engineering and architectural designs under Section 4.1022(b)(2) of Revenue Regulations No. 596. As such, respondents services need not be destined to be consumed abroad in order to be VAT zerorated. Respondent is mistaken. The Tax Code not only requires that the services be other than processing, manufacturing or repacking of goods and that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules. Another essential condition for qualification to zero rating under Section 102(b)(2) is that the recipient of such services is doing business outside the Philippines. The phrase for other persons doing business outside the Philippines not only refers to the services enumerated in the first paragraph of Section 102(b), but also pertains to the general term services appearing in the second paragraph of Section 102(b). In short, services other than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside the Philippines. This can only be the logical interpretation of Section 102(b)(2). If the provider and recipient of the other services are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under Section 102(a) can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret Section 102(b)(2) to apply to a payerrecipient of services doing business in the Philippines is to make the payment of the regular VAT under Section 102(a) dependent on the generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payerrecipient. Such interpretation removes Section 102(a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a voluntary contribution. Further, when the provider and recipient of services are both doing business in the Philippines, their transaction falls squarely under Section 102(a) governing domestic sale or exchange of services. Indeed, this is a purely local sale or exchange of services subject to the regular VAT, unless of course the transaction falls under the other provisions of Section 102(b). Thus, when Section 102(b)(2) speaks of [s]ervices other than those mentioned in the preceding subparagraph, the legislative intent is that only the services are different between subparagraphs 1 and 2. Expressly included among the transactions subject to 0% VAT are [s]ervices other than those mentioned in the [first] paragraph [of Section 108(b)] 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 BSP. In this case, the payerrecipient of respondents services is the Consortium which is a jointventure doing business in the Philippines. While the Consortiums principal members are nonresident foreign corporations, the Consortium itself is doing business in the Philippines. Respondent, as subcontractor of the Consortium, operates and maintains NAPOCORs power barges in the Philippines. NAPOCOR pays the Consortium, through its nonresident partners, partly in foreign currency outwardly remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT. the place of payment is immaterial, much less is the place where the output of the service is ultimately used. An essential condition for entitlement to 0% VAT under Section 102(b) (1) and (2) is that the recipient of the services is a person doing business outside the Philippines. In this case, the recipient of the services is the Consortium, which is doing business not outside, but within the Philippines because it has a 15year contract to operate and maintain NAPOCORs two 100megawatt power barges in Mindanao. In contrast to American Express case, this case involves a recipient of servicesthe Consortiumwhich is doing business in the Philippines. Hence, American Express services were subject to 0% VAT, while respondents services should be subject to 10% VAT. DISPOSITIVE: Subject to 10% VAT

CIR VS ACESITE

FACTS:Petitioner's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly and extensively discussed in Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation.[39] Acesite was the owner and operator of the Holiday Inn Manila Pavilion Hotel. It leased a portion of the hotel's premises to PAGCOR. It incurred VAT amounting to P30,152,892.02 from its rental income and sale of food and beverages to PAGCOR from January 1996 to April 1997. Acesite tried to shift the said taxes to PAGCOR by incorporating it in the amount assessed to PAGCOR. However, PAGCOR refused to pay the taxes because of its tax-exempt status. PAGCOR paid only the amount due to Acesite minus VAT in the sum of P30,152,892.02. Acesite paid VAT in the amount of P30,152,892.02 to the Commissioner of Internal Revenue, fearing the legal consequences of its non-payment. In May 1998, Acesite sought the refund of the amount it paid as VAT on the ground that its transaction with PAGCOR was subject to zero rate as it was rendered to a tax-exempt entity. The Court ruled that PAGCOR and Acesite were both exempt from paying VAT, thus:

x x x x

Petitioner contends that the tax exemption refers only to PAGCOR's direct tax liability and not to indirect taxes, like the VAT.

We disagree.

A close scrutiny of the above provisos clearly gives PAGCOR a blanket exemption to taxes with no distinction on whether the taxes are direct or indirect. We are one with the CA ruling that PAGCOR is also exempt from indirect taxes, like VAT, as follows:

Under the above provision [Section 13 (2) (b) of P.D. 1869], the term "Corporation" or operator refers to PAGCOR. Although the law does not specifically mention PAGCOR's exemption from indirect taxes, PAGCOR is undoubtedly exempt from such taxes because the law exempts from taxes persons or entities contracting with PAGCOR in casino operations. Although, differently worded, the provision clearly exempts PAGCOR from indirect taxes. In fact, it goes one step further by granting tax exempt status to persons dealing with PAGCOR in casino operations. The unmistakable conclusion is that PAGCOR is not liable for the P30, 152,892.02 VAT and neither is Acesite as the latter is effectively subject to zero percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis supplied.)

Indeed, by extending the exemption to entities or individuals dealing with PAGCOR, the legislature clearly granted exemption also from indirect taxes. It must be noted that the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer, transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by extending the tax exemption to entities or individuals dealing with PAGCOR in casino operations, it is exempting PAGCOR from being liable to indirect taxes.

It is settled rule that in case of discrepancy between the basic law and a rule or regulation issued to implement said law, the basic law prevails, because the said rule or regulation cannot go beyond the terms and provisions of the basic law. RR No. 16-2005, therefore, cannot go beyond the provisions of R.A. No. 9337. Since PAGCOR is exempt from VAT under R.A. No. 9337, the BIR exceeded its authority in subjecting PAGCOR to 10% VAT under RR No. 16-2005; hence, the said regulatory provision is hereby nullified.

WHEREFORE, the petition is PARTLY GRANTED. Section 1 of Republic Act No. 9337, amending Section 27 (c) of the National Internal Revenue Code of 1997, by excluding petitioner Philippine Amusement and Gaming Corporation from the enumeration of government-owned and controlled corporations exempted from corporate income tax is valid and constitutional, while BIR Revenue Regulations No. 16-2005 insofar as it subjects PAGCOR to 10% VAT is null and void for being contrary to the National Internal Revenue Code of 1997, as amended by Republic Act No. 9337.

PANASONIC COMMUNICATIONS IMAGING CORP OF THE PH v CIR

FACTS: Panasonic produces and exports plain paper copiers and their sub assemblies parts. It is a VAT registered enterprise. Panasonic generated US $24M for export sales. Believing that these export sales were zero rated for VAT, it paid P9M attributable to its zero rated sales. Claiming that the input VAT it paid remained unutilized or unapplied, Panasonic filed with BIR 2 separate applications for refund or tax credit of what it paid. When the BIR did not act on it, Panasonic filed a petition for review with CTA.CTA denied it saying that while Panasonics export sales were subject to 0% VAT it did not qualify for zero rating because the word zero rated was not printed on Panasonics export invoices. This omission violates the invoicing requirements of Section 4.1081 of Revenue Regulations (RR) 795

ISSUE: Whether or not the CTA en banc correctly denied petitioner Panasonics claim for refund of the VAT it paid as a zerorated taxpayer on the ground that its sales invoices did not state on their faces that its sales were zerorated.

RULING: The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoicebased, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports.6 For example, when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of his own VAT liability. The difference in tax shown on invoices passed and invoices received is the tax paid to the government. In case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed. Zerorated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at zero. When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output tax, he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which allows him to recover the input taxes he paid relating to the export sales, making him internationally competitive For the effective zero rating of such transactions, however, the taxpayer has to be VATregistered and must comply with invoicing requirements. Interpreting these requirements, respondent CIR ruled that under Revenue Memorandum Circular (RMC) 422003, the taxpayers failure to comply with invoicing requirements will result in the disallowance of his claim for refund. Petitioners arguments:In requiring the printing on its sales invoices of the word zerorated, the Secretary of Finance unduly expanded, amended, and modified by a mere regulation (Section 4.1081 of RR 795) the letter and spirit of Sections 113 and 237 of the 1997 NIRC, prior to their amendment by R.A. 9337. Petitioner Panasonic points out that Sections 113 and 237 did not require the inclusion of the word zerorated for zerorated sales covered by its receipts or invoices. The BIR incorporated this requirement only after the enactment of R.A. 9337 on November 1, 2005, a law that did not yet exist at the time it issued its invoices.

RULING: This Court held that, since the BIR authority to print is not one of the items required to be indicated on the invoices or receipts, the BIR erred in denying the claim for refund. Here, however, the ground for denial of petitioner Panasonics claim for tax refundthe absence of the word zerorated on its invoicesis one which is specifically and precisely included in the above enumeration. Consequently, the BIR correctly denied Panasonics claim for tax refund. Tax Exemptions; Statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority; Tax refunds in relation to the Value Added Tax (VAT) are in the nature of such exemptions.This Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority. Besides, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the VAT are in the nature of such exemptions. The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. DISPOSITIVE: BIR correctly denied Panasonics claim for tax refund.

SILICON PHILIPPINES INTEL PHILIPPINES MANUFACTURING VS. CIR

Facts: Silicon Philippines, Inc. is a corporation duly organized and existing under the laws of the Philippines. It is registered with the BIR das a VAT-taxpayer and with the BOI as a preferred pioneer enterprise.Then, on May, 1999, Silicon filed with the CIR an application for credit/refund of unutilized input VAT for the period of Oct. 1, 1998 to Dec. 31, 1998.Due to the inaction of the CIR, Silicon, on Dec. 27, 2000, filed a Petition for Review with the CTA Division. Silicon alleged that the 4th quarter of 1998, it generated and recorded zero-rated export sales paid to Silicon in acceptable foreign currency and that for the said period, Silicon paid input VAT in the total amount which have not been applied to any output VAT.The CIR, on the other hand, raised the defenses that: 1. Silicon did not show that it complied with the provisions of Sec. 229 of the Tax Code; 2. That claims for refund are construed strictly against the claimant similar to the nature of exemption from taxes; and that Silicon failed to prove that is entitled for refund. The CTA Division granted Silicons claim for refund of unutilized input VAT on capital goods. However, it denied Silicons claim for credit/refund of input VAT attributable to its zero-rated export sales. It is because Silicon failed to present an Authority to Print (ATP) from the BIR neither did it print on its export sales invoices the ATP and the word zero-rated.Silicon moved for reconsideration claiming that it is not required to secure an ATP since it has a Permit to Adopt Computerized Accounting Documents such as Sales Invoice and Official Receipts from the BIR. And that the printing of the word zero-rated on its export sales invoices is not necessary because all its finished products are exported to its mother company, Intel Corp., a non-resident corporation and a non-VAT registered entity.ISSUE: W/N Silicon entitled to claim from refund of Input VAT attributable to its zero-rated sales.Ruling: no.There are two types of input VAT credits:1. A credit/refund of input VAT attributable to zero-rated sales under Sec. 112(A) of the NIRC; and2. A credit/refund of input VAT on capital goods pursuant to Sec. 112(B) of the same Code.To claim for credit/refund of input VAT attributable to zero-rated sales, Sec. 112(A) laid down 4 requisites:1. The taxpayer must be a VAT-registered;2. The taxpayer must be engaged in sales which are zero-rated or effectively zero-rated;3. The claim must be filed within 2 years after the close of the taxable quarter when such sales were made; and4. The creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax.

A. Printing the ATP on the invoices or receipts is not required.

In a case, the SC ruled that ATP need not be reflected or indicated in the invoices or receipts because there is no law or regulation requiring it. Thus, failure to print the ATP on the invoices or receipts should not result in the outright denial of a claim or the invalidation of the invoices or receipts for purposes of claiming a refund.B. ATP must be secured from the BIR

Sec. 238 of the NIRC expressly requires persons engaged in business to secure an ATP from the BIR prior to printing invoices or receipts. Failure to do so, makes the person liable under Sec. 264 of the Tax Code. W/N a claimant for unutilized input VAT on zero-rated sales is required to present proof that it has secured an ATP from the BIR prior to the printing of its invoices or receipts.YES. Since ATP is not indicated in the invoices or receipts, the only way to verify whether the invoices or receipts are duly registered is by requiring the claimant to present its ATP from the BIR. Without which, the invoices would have no probative value for the purpose of refund.Failure to print the word zero-rated on the sales invoices is fatal to a claim for refund of input VAT.In compliance with Sec. 4.108-1 of RR 7-95, requiring the printing of the word zero-rated on the invoice covering zero-rate sales is essential as this regulation proceeds from the rulemaking authority of the Secretary of Finance under Sec. 244 of the NIRC.In this case, Silicon failed to present its ATP and to print the word zero-rated on its export sales invoices.Thus, the claim for credit/refund of input VAT attributable to its zero-rated sales must be denied.

ATLAS CONSOLIDATED VS. CIR

Facts: Atlas Consolidated is a zero-rated VAT person for being an exporter of copper concentrates. On January 1994, Atlas filed its VAT return for the fourth quarter of 1993, showing a total input tax and an excess VAT credit. Then, on January 1996, Atlas filed for a tax refund or tax credit certificate with CIR.However, the CTA denied Atlas claim for refund due to Atlas failure to comply with the documentary requirements prescribed under Sec. 16 of RR No. 5-87, as amended by RR No. 3-88.CTA denied Atlas MR stating that Atlas has failed to substantiate its claim that it has not applied its alleged excess in put taxes to any of its subsequent quarters output tax liability.The CA affirmed CTAs ruling.

ISSUE: What are the documents required to claim for VAT input refund?W/N Atlas is entitled to claim to a tax refund.

Ruling:When claiming tax refund/credit, the VAT-registered taxpayer must be able to establish that it does not have refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities information which are supposed to be reflected in the taxpayers VAT returns.Thus, an application for tax refund/credit must be accompanied by copies of the taxpayers VAT return/s for the taxable quarter/s concerned.The formal offer of evidence of Atlas failed to include photocopy of its export documents, as required. Without the export documents, the purchase invoice/receipts submitted by Atlas as proof of its input taxes cannot be verified as being directly attributable to the goods so exported. Atlas claim for credit or refund of input taxes cannot be granted due to its failure to show convincingly that the same has not been applied to any of its output tax liability as provided under Sec. 106(a) of the Tax Code.

KEPCO VS CIR

FACTS: National Internal Revenue Code; value-added tax; claim for credit or refund of input value-added tax; documentary requirements.When claiming tax refund or credit, the value-added taxpayer must be able to establish that it does have refundable or creditable input value-added tax (VAT), and the same has not been applied against its output VAT liabilities- information which are supposed to be reflected in the taxpayers VAT returns. Thus, an application for tax refund or credit must be accompanied by copies of the taxpayers VAT return or returns for taxable quarter or quarters concerned.Atlas Consolidated Mining and Development Corporation vs Commissioner of Internal Revenue, G.R. No. 159471, January 26, 2011.In the recent case of Mirant Pagbilao Corporation vs. CIR (G.R. No. 172129, September 12, 2008), the Supreme Court had ruled that the claim for refund of unutilized input VAT payments must be filedwithin two (2) years from the close of the taxable quarter when the relevant sales were made. Saidruling, however, should not be made to apply to the present case but should be applied prospectively pursuant to and consistent with the numerous rulings of the Supreme Court, given that petitioner Kepco's claim involves unutilized input taxes for the 3rd quarter of 2000. Hence, the prescriptive period applicable in the instant case would still be the period enunciated in the case of Atlas Consolidated Mining and Development Corporation vs. CIR (G.R. Nos. 141104 & 148763, June 8, 2007), where it was held that the counting of the two-year prescriptive period is reckoned from the filing of the quarterly VAT returns. Kepco Ilijan Corporation v. Commissioner of Internal Revenue, C.T.A. E.B. Case No. 528 (C.T.A. Case No. 6550), October 14, 201

CIR VS. SONY PHILIPPINES, INC.

Facts: On Dec. 6, 1999 CIR issued a preliminary assessment for 1997 deficiency taxes and penalties to Sony, which it protested.A petition for review was filed by Sony before the CTA, within 30 days after the lapse of the 180 days from the submission of the supporting documents to the CIR.CTA-1st Division disallowed the deficiency VAT assessment the subsidized advertising expense paid by Sony was duly covered by a VAT invoice resulted in an input VAT credit. However, for the EWT, the deficiency assessment was upheld.CIR sought reconsideration on the ground that Sony should be liable for the deficiency VAT. It contends that Sonys advertising expense cannot be considered as an input VAT credit because the same was eventually reimbursed by Sony International Singapore (SIS). As a result, Sony is not entitled to a tax credit and that the said advertising expense should be for the account of SIS.ISSUE: W/N the source of the payment of tax is relevant to determine Ruling: NO.Sonys deficiency VAT assessment derived from the CIRs allowance of the input VAT credits that should have been realized from advertising expense of the latter.Under Sec. 110 of the 1997 Tax Code, an advertising expense duly covered by a VAT invoice is a legitimate business expense. It cannot be denied that Sony incurred advertising expense. CIRs own witness Aluquin even testified that advertising companies issued invoices in the name of Sony and the latter paid for the same. Hence, Sony incurred and paid for advertising expense services. Where the money came from is another matter all together.Before any VAT is levied, there must be sale, barter or exchange of goods or property. In this case, there was no sale, barter, exchange in the subsidy given by SIS to Sony. It was but a dole out and not in payment for the goods or properties sold, bartered or exchanged by Sony.

COMMISSIONER OF INTERNAL REVENUE VS. SONY PHILIPPINES, INC.- Value Added Tax, Final Withholding Tax, Letter of Authority

FACTS:Sony Philippines was ordered examined for the period 1997 and unverified prior years as indicated in the Letter of Authority. The audit yielded assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of Final Withholding Tax on royalties for the period January to March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony International Singapore (SIS).

ISSUES:(1) Is Petitioner liable for deficiency Value Added Tax?(2) Was the investigation of its 1998 Final Withholding Tax return valid?

HELD:(1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it paid for certain advertising costs. This is sufficient to accord it the benefit of input VAT credits and where the money came from to satisfy said advertising billings is another matter but does not alter the VAT effect. In the same way, Sony Philippines can not be deemed to have received the reimbursable as a fee for a VAT-taxable activity. The reimbursable was couched as an aid for Sony Philippines by SIS in view of the companys dire or adverse economic conditions. More importantly, the absence of a sale, barter or exchange of goods or properties supports the non-VAT nature of the reimbursement. This was distinguished from the COMASERCO case where even if there was similarly a reimbursement-on-cost arrangement between affiliates, there was in fact an underlying service. Here, the advertising services were rendered in favor of Sony Philippines not SIS.

(2) NO. A Letter of Authority should cover a taxable period not exceeding one year and to indicate that it covers unverified prior years should be enough to invalidate it. In addition, even if the Final Withholding Tax was covered by Sony Philippines fiscal year ending March 1998, the same fell outside of the period 1997 and was thus not validly covered by the Letter of Authority.

DIAZ AND TIMBOL VS. CIRFacts: Petitioners Diaz and Timbol filed a petition for declaratory relief assailing the validity of the imposition of VAT by BIR on the collections of the tollway operators.They claim that VAT would result in increased toll fees. That the Congress in enacting the Tax Code, did intend to not include toll fees within the meaning of sale of services that are subject to VAT; that toll fee is a users tax, not a sale of services; that to impose VAT on toll fees would amount to a tax on public service.The OSG, on the other hand, stated that the Tax Code imposes VAT on all kinds of services of franchise grantees, including tollway operations, except where the law provides otherwise.

ISSUE: ARE TOLLWAY OPERATORS COVERED BY VAT?Ruling: YES, BECAUSE THEY RENDER SERVICES FOR A FEE. THEY ARE JUST LIKE LESSORS, WAREHOUSE OPERATORS , AND OTHER GROUPS EXPRESSLY MENTIONED IN THE LAW.

Issue: Now, do tollway operators render services for a fee? Presidential Decree (P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the services that tollway operators render. Essentially, tollway operators construct, maintain, and operate expressways, also called tollways, at the operators expense. Tollways serve as alternatives to regular public highways that meander through populated areas and branch out to local roads. Traffic in the regular public highways is for this reason slow-moving. In consideration for constructing tollways at their expense, the operators are allowed to collect government-approved fees from motorists using the tollways until such operators could fully recover their expenses and earn reasonable returns from their investments. When a tollway operator takes a toll fee from a motorist, the fee is in effect for the latters use of the tollway facilities over which the operator enjoys private proprietary rights[8][12]that its contract and the law recognize. In this sense, the tollway operator is no different from the following service providers under Section 108 who allow others to use their properties or facilities for a fee:1. Lessors of property, whether personal or real;2. Warehousing service operators;3. Lessors or distributors of cinematographic films;4. Proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts;5. Lending investors (for use of money);6. Transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; and7. Common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in thePhilippinesto another place in thePhilippines.It does not help petitioners cause that Section 108 subjects to VAT all kinds of services rendered for a fee regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. This means that services to be subject to VAT need not fall under the traditional concept of services, the personal or professional kinds that require the use of human knowledge and skills.XXXXXXXXXXXXXXXXXISSUE: GOVERNMENT ARGUES THAT TOLL OPERATORS ARE FRANCHISEES AND THEREFORE EXPRESSLY COVERED BY VAT LAW. PETITIONERS ARGUE THAT THEY ARE NOT FRANCHISEES BECAUSE THEY DO NOT HAVE LEGISLATIVE FRANCHISE. WHAT IS CORRECT?Toll operators are francishees because franchise covers government grants of a special right to do an act or series of acts of public concern. The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. Also, the VAT law does not define franchisees as only those who have legislative franchise. And not only do tollway operators come under the broad term all kinds of services, they also come under the specific class described in Section 108 as all other franchise grantees who are subject to VAT, except those under Section 119 of this Code.Tollway operators are franchise grantees and they do not belong to exceptions (the low-income radio and/or television broadcasting companies with gross annual incomes of less thanP10 million and gas and water utilities) that Section 119[9][13]spares from the payment of VAT. The word franchise broadly covers government grants of a special right to do an act or series of acts of public concern. Petitioners, of course contend that tollway operators cannot be considered franchise grantees under Section 108 since they do not hold legislative franchises. But nothing in Section 108 indicates that the franchise grantees it speaks of are those who hold legislative franchises. Petitioners give no reason, and the Court cannot surmise any, for making a distinction between franchises granted by Congress and franchises granted by some other government agency. The latter, properly constituted, may grant franchises. Indeed, franchises conferred or granted by local authorities, as agents of the state, constitute as much a legislative franchise as though the grant had been made by Congress itself. The term franchise has been broadly construed as referring, not only to authorizations that Congress directly issues in the form of a special law, but also to those granted by administrative agencies to which the power to grant franchises has been delegated by Congress.Tollway operators are, owing to the nature and object of their business, franchise grantees. The construction, operation, and maintenance of toll facilities on public improvements are activities of public consequence that necessarily require a special grant of authority from the state. Indeed, Congress granted special franchise for the operation of tollways to the Philippine National Construction Company, the former tollway concessionaire for the North and South Luzon Expressways. Apart from Congress, tollway franchises may also be granted by the TRB, pursuant to the exercise of its delegated powers under P.D. 1112.[13][17] The franchise in this case is evidenced by a Toll Operation Certificate.[14][18]XXXXXXXXXXXXXXXXXXISSUE: PETITIONERS CONTEND THAT TOLL FEES ARE OF PUBLIC NATURE AND THEREFORE NOT SALE OF SERVICES. IS THEIR CONTENTION CORRECT?No. The law in the same manner includes electric utilities, telephone, telegraph, and broadcasting companies in its list of vat-covered businesses. Their services are also of public nature.Petitioners contend that the public nature of the services rendered by tollway operators excludes such services from the term sale of services under Section 108 of the Code. But, again, nothing in Section 108 supports this contention. The reverse is true. In specifically including by way of example electric utilities, telephone, telegraph, and broadcasting companies in its list of VAT-covered businesses, Section 108 opens other companies rendering public service for a fee to the imposition of VAT. Businesses of a public nature such as public utilities and the collection of tolls or charges for its use or service is a franchise. XXXXXXXXXXXXXXXXXISSUE: PETITIONERS ARGUE THAT THE STATEMENTS MADE BY SOME LAWMAKERS DURING THE THE DELIBERATIONS ON THE VAT LAW SHOW INTENT TO EXEMPTTOLLWAY OPERATORS. CAN THE STATEMENTS OF THESE LAWMAKERS BE CONSIDERED BINDING ON THE INTERPRETATION OF VAT COVERAGE?No. Statements made by individual members of congress in the consideration of a bill do not necessarily reflect the sense of that body and are, consequently, not controlling in the interpretation of law. The congressional will is ultimately determined by the language of the law that the lawmakers v