1. CIR vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.

- Value Added Tax, Zero Rated

Category: Value Added Tax

COMMISSIONER OF INTERNAL REVENUE vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC. - Value Added Tax, Zero Rated
FACTS:
A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The foreign entity then subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a mixture of currencies while the consortium, in turn, paid Burmeister foreign currency inwardly remitted into the Philippines. BIR did not want to grant refund since the services are not destined for consumption abroad (or the destination principle).

ISSUE:
Are the receipts of Burmeister entitled to VAT zero-rated status?

HELD:
PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior to the filing of CIRs Answer in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by Burmeister, was deemed doing business within the Philippines since its 15-year O&M with NPC can not be interpreted as an isolated transaction. In addition, the services referring to processing, manufacturing, repacking and services other than those in (1) of Sec. 102 both require (i) payment in foreign currency; (ii) inward

remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is doing business outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency.

The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zerorating of its sales to foreign consortium. However, the ruling is only valid until the time that CIR filed its Answer in the CTA which is deemed revocation of the previously-issued ruling. The Court said the revocation can not retroact since none of the instances in Section 246 (bad faith, omission of facts, etc.) are present.

A+ A A-

MICROSOFT PHILIPPINES VS. CIR- VAT Zero Rating

Category: Value Added Tax

MICROSOFT PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL REVENUE- VAT Zero Rating
FACTS:
Microsoft renders marketing services to two affiliated nonresident foreign corporations with their services being paid for in foreign currency. Microsoft filed a claim for refund for unutilized input VAT but the CTA denied the same on the basis that the official receipts issued did not bear the imprinted word zero-rated on its face and are thus not valid evidence of Microsofts sales.

ISSUE:
Is Microsoft entitled to a refund?

HELD:

NO. The regulations in effect when the sales were made by Microsoft clearly indicate in the portion outlining the Invoicing Requirements that the word zero-rated must be imprinted in the invoice. Without such, the invoice are not considered as VAT invoices and thus could not give rise to any input tax. The Court added that the reason for enforcing this rule even if only based on regulation is that it prevents buyers from falsely claiming input VAT from their purchases when no VAT is actually paid.

3. CIR vs. SEKISUI JUSHI PHILIPPINES, INC. - Input VAT

Category: Value Added Tax

COMMISSIONER OF INTERNAL REVENUE vs. SEKISUI JUSHI PHILIPPINES, INC. - Input VAT
FACTS:
Sekisui Jushi is a PEZA entity engaged in manufacture and export of strapping bands and other packaging materials seeking for refund of unutilized input taxes.

ISSUE:
Being a PEZA exporter, can Petitioner claim its unutilized input VAT?

HELD:
YES. PEZA entities can avail of two alternative or subsequent incentives of ITH and 5% GIE. It is only in the latter where the VAT is not imposed on the PEZA entity on its sales. Being under ITH, it will be subject to VAT on sales and should VAT-register. However, (1) sales to the PEZA entity, regardless of incentive availed, is zero-rated on the part of the seller since PEZA is considered foreign soil and thus sales to them are considered as export sales and (2) if the PEZA entity is an exporter, its input VAT are subject to refund not by virtue of its PEZA status

(and thus regardless of whether its at 5% GIE or ITH) but due to the nature of its transactions (i.e., export sales).

4. FORT BONIFACIO DEVELOPMENT vs. CIRTransitional Input VAT

Category: Value Added Tax

FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE- Transitional Input Value Added Tax
FACTS:
Petitioner was a real estate developer that bought from the national government a parcel of land that used to be the Fort Bonifacio military reservation. At the time of the said sale there was as yet no VAT imposed so Petitioner did not pay any VAT on its purchase. Subsequently, Petitioner sold two parcels of land to Metro Pacific Corp. In reporting the said sale for VAT purposes (because the VAT had already been imposed in the interim), Petitioner claimed transitional input VAT corresponding to its inventory of land. The BIR disallowed the claim of presumptive input VAT and thereby assessed Petitioner for deficiency VAT.

ISSUE:
Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its nature as a real estate dealer and if so (i) is the transitional input VAT applied only to the improvements on the real property or is it applied on the value of the entire real property and (ii) should there have been a previous tax payment for the transitional input VAT to be creditable?

HELD:
YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the improvements but on the value of the entire real property and regardless of whether there was in fact actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make those in the real estate business subject to a different treatment from those engaged in the sale of other goods or properties or in any other commercial trade or business. On the scope of the basis for determining the available transitional input VAT, the CIR has no power to limit the meaning and coverage of the term "goods" in Section 105 of the Tax Code without statutory authority or basis. The transitional input tax credit operates to benefit newly VAT-registered persons, whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies.

5. TAMBUNTING PAWNSHOP vs. CIR- Value Added Tax, Documentary Stamp Tax

Category: Value Added Tax

TAMBUNTING PAWNSHOP, INC. vs. COMMISSIONER OF INTERNAL REVENUE- Value Added Tax, Documentary Stamp Tax
FACTS:
Petitioner was assessed for deficiency Value Added Tax and Documentary Stamp Tax on the premise that, for the Value Added Tax, it was engaged in the sale of services.

ISSUES:
(1) Is Petitioner liable for the Value Added Tax? (2) Can the imposition of surcharge and interest be waived on the imposition of deficiency Documentary Stamp Tax?

HELD:
(1) NO. Since Petitioner is considered a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002 but since the collection of Value Added Tax from non-bank financial intermediaries was specifically deferred by law, Petitioner is not liable for Value Added Tax during these tax years. With the full implementation of the Value Added Tax system on nonbank financial intermediaries starting January 1, 2003, Petitioner is liable for 10% Value Added Tax for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238, petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be.

(2) YES. Petitioner's argument against liability for surcharges and interest that it was in good faith in not paying documentary stamp taxes, it having relied on the rulings of respondent CIR and the CTA that pawn tickets are not subject to documentary stamp taxes was found to be meritorious. Good faith and honest belief that one is not subject to tax on the basis of previous interpretations of government agencies tasked to implement the tax law are sufficient justification to delete the imposition of surcharges and interest.

CIR vs. SM PRIME HOLDINGS- Value Added Tax on Cinemas

6.

Category: Value Added Tax

COMMISSIONER OF INTERNAL REVENUE vs. SM PRIME HOLDINGS, INC. - Value Added Tax on Cinemas

ISSUE:
Are the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets subject to VAT?

HELD:
NO. While (1) the enumeration under Section 108 on the VAT-taxable services is not exhaustive and (2) the said list includes the lease of motion picture films, films, tapes and discs, the said activity however is not the same as showing or exhibition of motion pictures or films. Thus, since the showing or exhibition of motion pictures or films is not in the enumeration, the CIR must show that it falls under the phrase similar services.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts of cinema/theater operators or proprietors derived from admission tickets. The removal of the prohibition (on the national government to tax certain activities) under the Local Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater operators or proprietors. Neither did it expand the coverage of VAT.

CIR VS. SONY - Value Added Tax, Final Withholding Tax,

7.

Category: Value Added Tax

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 nonVAT 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 VS. SECRETARY OF FINANCE- Value Added Tax (VAT)

8.

Category: Value Added Tax

DIAZ VS. SECRETARY OF FINANCEValue Added Tax (VAT)

May toll fees collected by tollway operators be subject to VAT?

YES.
(1) VAT is imposed on all kinds of services and tollway operators who are engaged in constructing, maintaining, and operating expressways are no different from lessors of property, transportation contractors, etc.

(2) Not only do they fall under the broad term under (1) but also come under those described as all other franchise grantees which is not confined only to legislative franchise grantees since the law does not distinguish. They are also not a franchise grantee under Section 119 which would have made them subject to percentage tax and not VAT.

(3) Neither are the services part of the enumeration under Section 109 on VAT-exempt transactions. (4) The toll fee is not a users tax and thus it is permissible to impose a VAT on the said fee. The MIAA case does not apply and the Court emphasized that toll fees are not taxes since they are not assessed by the BIR and do not go the general coffers of the government. Toll fees are collected by private operators as reimbursement for their costs and expenses with a view to a profit while taxes are imposed by the government as an attribute of its sovereignty. Even if the toll fees were treated as users tax, the VAT can not be deemed as a tax on tax since the VAT is imposed on the tollway operator and the fact that it might pass-on the same to the tollway user, it will not make the latter directly liable for VAT since the shifted VAT simply becomes part of the cost to use the tollways.

(5) The assertion that the VAT imposed is not administratively feasible given the manner by which the BIR intends to implement the VAT (i.e., rounding off the toll rates and putting any excess collection in an escrow account) is not enough to invalidate the law. Non-observance of the canon of administrative feasibility will not render a tax imposition invalid except to the extent that specific constitutional or statutory limitations are impaired.