Advance VAT on sale of refined sugar

by cooperatives
Under Section 3 of RR 13-08, an advance VAT on the
sale of refined sugar shall be paid by the owner/seller
before the refined sugar is withdrawn from any sugar
refinery/mill. The withdrawal is not subject to advance
VAT in case the refined sugar is owned and withdrawn
from the sugar refinery/mill by an agricultural
cooperative of good standing duly accredited and
registered with the Cooperative Development
Authority (CDA), which cooperative is the agricultural
producer of the sugar cane that was refined into refined
sugar.
Section 4 (a) of RR 13-08 provides that in order for a
cooperative to be considered an agricultural producer,
it should be the tiller of the land it owns or leases, it
should be the one incurring cost of agricultural
production of the sugar, and it should be the one
producing the sugar cane to be refined.
In the case at hand, before issuing the Authorization
Allowing Release of Refined Sugar (AARS), the BIR
required a farmers cooperative to pay the advance
VAT on the grounds that the cooperative was unable to
meet the requirements to qualify as an agricultural
producer exempt from payment of advance VAT.

Input taxes incurred prior to registration as VAT

taxpayer with the BIR cannot be the subject of a
refund.
Taxpayer was registered with the BIR on August 10,
2005. Taxpayer filed a claim for refund for input taxes
related to zero-rated sales and incurred for the period
April to June 2005. The BIR argued that taxpayer is not
entitled to refund since it was not yet a VAT-registered
enterprise when the input taxes sought to be refunded
were incurred. In resolving the issue, the Court
enumerated the criteria for entitlement to refund, one
of which is that the taxpayer is VAT registered.
Accordingly, the Court ruled that since the amounts
being refunded covered input taxes prior to the
taxpayer becoming VAT registered, it failed to meet the
criteria that the taxpayer is VAT registered. The claim
was denied. (JP Morgan Chase Bank, N.A. Philippine
Customer Care Center vs. Commissioner of Internal
Revenue, CTACase Nos. 7650, 7681 and 7782, March
13, 2012)

The CTA held that under Article 61 of Republic Act

No. (RA) 6938 and Section 109(r) of the Tax Code, as
amended by Section 109(L) of RA 9337, sales by
CDA-registered agricultural cooperatives
to their members as well as sale of their produce,
whether in its original state or processed form, to nonmembers are exempt from VAT.
Based on the provisions of RA 6938 and the Tax Code
and evidence presented by the cooperative, the CTA
held that the sale of sugar produce made by the
cooperative to its members and non-members is
exempt from payment of VAT. According to the CTA,
the BIR has gone into unauthorized modification or
amendment of the law, which only Congress can do, in
declaring that a cooperative must be the agricultural
producer of its sugar produce in order to be exempt
from VAT. The CTA thus declared Sections 3 and 4 of
RR 13-2008, insofar as it imposes such requirement, as
ultra vires and invalid.
(Negros Consolidated Farmers Association MultiPurpose Cooperative v. Commissioner of Internal
Revenue, CTA Case No. 7994, February 17, 2012)
Due process in tax assessments
Under Section 228 of the Tax Code and Section 3.1.4
of RR 12-99, a taxpayer must be informed of the facts
and the laws upon which an assessment is made.
Failure to do so shall void the assessment.
In the appeal of its tax assessment, the taxpayer argued
that the final assessment notice (FAN) and assessment
notice (BIR Form No. 1708) issued by the BIR are
void since they merely showed mathematical
computation of the alleged deficiency income tax and
VAT discovered from the BIRs Reconciliation of
Listing for Enforcement (RELIEF) and Third Party
MatchingBOC Data Program. The notices did not
state the factual and legal bases of the assessment in
violation of Section 228 of the Tax Code. The taxpayer
TAXATION LAW REVIEW - LS | Page 1 of 10

further argued that the details of discrepancy

attached to the FAN failed to explain how the underdeclaration was determined except that there is a
discrepancy. It merely provides a statement that the
assessment was made in accordance with Sections 31,
32, 106 and 108 of the Tax Code, and RMO 32-2007.
In its ruling, the Court of Tax Appeals (CTA) held that
the FAN, assessment notice, and details of
discrepancies attached to the FAN sufficiently
complied with Section 228 of the Tax Code since they
contained the factual basis for the assessment; that is,
the assessment was based on discrepancy from
RELIEF and Third-Party Matching. The details of
discrepancy likewise provided the legal basis for
assessing the taxpayer by citing Sections 31, 32, 106
and 108 of the Tax Code, as amended and RMO 322007.
According to the CTA, the requirement of the law to
inform the taxpayer of the basis of the assessment does
not necessarily mean that a full narration of the facts
and laws on which the assessment is based is needed.
As long as the parties are notified and given the
opportunity to explain their side, the requirements of
due process are satisfactorily complied with. In the
instant case, the taxpayer was able to intelligently
make its protest by stating that its sale transactions are
exempt from VAT.
This circumstance proves that the taxpayer was
sufficiently informed of the facts and the law as to why
the assessment has been issued against it.
(Hermano Miguel Febres Cordero Medical Education
Foundation v. Commissioner of Internal Revenue, CTA
Case No. 8194, January 9, 2012)
VAT refund due to closure of business
Under Section 112(B) of the Tax Code, a VATregistered taxpayer whose registration has been
cancelled due to retirement from or cessation of
business, or due to changes in or cessation of status
under Section 106(C) of the Tax Code, may apply for
refund or issuance of TCC of its unused input tax
within two years from the date of cancellation of its
VAT registration.
The cancellation of VAT registration due to retirement
or cessation of business requires the filing of notice of
closure of business through the submission of an
Application for Registration Update (BIR Form 1905).
Under Section 236 of the Tax Code, the taxpayers
cancellation of VAT registration becomes effective on
the first day of the month following the month when
the BIR Form 1905 was filed with the appropriate
RDO where the taxpayer is registered. Thus, the twoyear prescriptive period commences from the first day
of the month following the month the taxpayer filed its
BIR Form 1905 or application for cancellation of its
VAT registration.
The taxpayer-refund claimant offered in evidence its
letter request for tax clearance to prove that upon its
closure, it formally requested for a tax clearance from
the BIR. On the requirement to submit financial
statement and tax clearance, the taxpayer argued that
nowhere in the law or implementing rules and

regulations does it say that a taxpayer is required to

show it has no pending tax liabilities through the
presentation of a tax clearance or audited financial
statements.
The CTA held that under Section 52(C) of the Tax
Code, a dissolving or reorganizing corporation shall,
prior to the SECs issuance of the Certificate of
Dissolution or Reorganization, secure a certificate of
tax clearance from the BIR, which shall be submitted
to the SEC. Moreover, Section 235 of the Tax Code
provides
that
corporations
and
partnerships
contemplating
dissolution
must
notify
the
Commissioner and shall not be dissolved until cleared
of any tax liability. Based on Sections 52(C) and 235 of
the Tax Code, the submission of tax clearance is
required to prove that the taxpayer is clear of all its
liabilities.
For failure to prove that it has been cleared of all its tax
liabilities through the presentation of its Certificate of
Tax Clearance, the taxpayer-refunds claim was denied
by the CTA.
(Dumex Philippines, Inc. v. Commissioner of Internal
Revenue, CTA Case No. 7790, April 3, 2012)
VAT on offshore business services
A VAT-registered domestic company engaged in
providing managerial, administrative, and consultancy
services to a non-resident foreign corporation may
qualify for VAT zero rating pursuant to Section 108(B)
(2) of the Tax Code, as implemented by Section 4.1085(b)(2) of Revenue Regulations No. (RR) 16-05, as
amended.
Under Section 108(B)(2) of the Tax Code, as amended
by Section 4.108-5(b)(2) of RR 16-2005, as amended,
services performed in the Philippines by a VATregistered enterprise to persons engaged in business
conducted outside the Philippines or to a non-resident
person not engaged in business who is outside the
Philippines when the services are performed are
subject to 0% VAT.
But this only applies if the consideration is paid for in
foreign currency and accounted for in accordance with
the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP). Considering that the administrative
and accounting services to be rendered by the company
to the non-resident foreign corporation shall be paid in
foreign currency and directly inwardly remitted to the
companys bank account in the Philippines, such
services qualify for VAT zero rating under Section
108(B)(2) of the Tax Code, as amended.
(BIR Ruling No. 413-2012, June 15, 2012)
Non-submission of supporting documents in the
administrative level not fatal to judicial claim for
refund
A claim for refund that is elevated to the court may not
be denied on the sole ground that the taxpayer-refund
claimant failed to submit before the BIR the complete
documents in support of its administrative claim for
refund.
Once the claim for refund has been elevated to the
court, the admissibility, materiality, relevancy,
TAXATION LAW REVIEW - LS | Page 2 of 10

probative value and weight of evidence presented in

the court become subject to the rules of the court. The
question of whether or not the evidence submitted by a
party is sufficient to warrant the granting of a claim for
refund lies within the sound discretion and judgment of
the court. As such, the CTA is not barred from
receiving, evaluating and appreciating evidence
formally offered before it.
Being a court of record, the CTA held that cases filed
before it are litigated de novo i.e., from the beginning
and party litigants should prove every minute aspect
of their case. Otherwise stated, judicial claims are
decided based on what has been presented and formally
offered by party litigants during the trial of the case
before the court and not on the mere allegation of nonsubmission of complete documents before the BIR.
(CIR v. Philippine Airlines, CTA EB Case No. 775, July
24, 2012)
Prescriptive period for administrative and judicial
claims for VAT refunds
Under Section 112 (A) of the NIRC, an application for
refund of unutilized input VAT attributable to zerorated sales may be made within two years after the
close of the taxable quarter when the sales were made.
The CTA noted that this proviso applies only to claims
for refund/credit before the BIR, and not for purposes
of filing a judicial claim before the CTA.
Instead, the CTA maintained that Section 112(C) of the
NIRC provides the period within which to file judicial
claims for refunds or tax credits of input tax. Under
Section 112(C) of the NIRC, a claim for refund before
the CTA must be filed within a period of 30 days either
from receipt of the decision of the respondent or, in
case of the latters inaction, upon
the expiration of the 120-day period reckoned from the
date of submission of complete documents in support
of its application to decide on the administrative claim
for refund. The 120-30 day period as provided by the
NIRC is mandatory in nature and non-compliance with
it will necessarily result in the denial of the claim.
Reckoning of two-year period for VAT refund due
to cancellation of business
In the case of claims for refund of unutilized VAT on
account of cessation of business, the two-year period
shall commence from the date of cancellation of
registration of the taxpayer, and not from the close of
the taxable quarter when the sales were made.
Under Section 112(B) of the Tax Code, a taxpayer
whose registration has been cancelled due to, among
others, cessation of business, may, within two years
from the date of cancellation of its registration, apply
for the issuance of TCC for any unused input tax,
which may be used to pay for other internal revenue
taxes. Where the taxpayer has no internal revenue tax
liabilities, it shall be entitled to refund in accordance
with Section 204 of the Tax Code.
As provided under Section 236(F)(1) and (2) of the Tax
Code, as amended, the registration of a taxpayer who
ceases to be liable to a tax type shall be cancelled upon
filing with the RDO where he is registered, an

Application for Registration Information Update (BIR

Form 1905), while the cancellation of the taxpayers
registration will be effective from the first day of the
following month.
In the instant case, the taxpayer-refund claimant filed
its Application for Registration Information Update
(BIR Form 1905) on July 1, 2008 with the BIR.
Accordingly, the cancellation of the taxpayers
registration as a VAT-registered taxpayer took effect on
the first day of the following month, which fell on
August 1, 2008. However, considering that the
taxpayer filed its administrative claim for refund as
early as July 7, 2008, its claim for refund was deemed
premature considering that the two-year prescriptive
period had yet to commence on August 1, 2008, the
date of effectivity of the cancellation of its registration.
(Associated Swedish Steels Phils., Inc., v.
Commissioner of Internal Revenue, CTA EB 854, re
CTA Case No. 7850, August 23, 2012)
Proof of doing business outside the Philippines
For the supply of services to a foreign corporation to
qualify for zero-percent VAT under Section 108(B) of
the Tax Code, the VAT-registered taxpayer that
performed the service/s must prove that: (a) the service
is other than processing, manufacturing or repacking of
goods; (b) payment for such services is in acceptable
foreign currency accounted for in accordance with the
Bangko Sentral ng Pilipinas (BSP) rules and
regulations; and (c) recipient of such services is doing
business outside the Philippines.
In order to establish that the foreign corporation is
doing business outside the Philippines, the taxpayerrefund claimant presented the official receipts issued to
its foreign clients, intercompany payment request,
billing statements, memo invoices-receivable, memoinvoices- payable, and bank statements. According to
the Court of Tax Appeals (CTA), the evidence
presented by the taxpayer merely substantiated the
existence of sales, receipts of foreign currency
payments, and inward remittance proceeds of the sales
duly accounted for in accordance with the BSP rules.
The documents failed to prove the fact that the foreign
clients to whom the taxpayers rendered its services
were clients doing business outside the Philippines.
For failure to establish that its clients are doing
business outside the Philippines, the taxpayer cannot
claim its sale of service as VAT zero-rated; hence, its
claim for refund of its excess input VAT was denied.
(Accenture, Inc. v. Commissioner of Internal Revenue,
GR 190102, July 11, 2012)
Invoicing requirement for zero-rated sale of service
A taxpayer whose claim for refund or issuance of tax
credit is based on the existence of zero-rated sales must
comply with the invoicing requirements on the
documents supporting the sale of goods and services.
Under Section 113 of the Tax Code, a VAT-registered
taxpayer is required to issue a VAT invoice for every
sale, barter or exchange of goods or properties, while a
VAT official receipt must be issued for every lease of
TAXATION LAW REVIEW - LS | Page 3 of 10

goods or properties and for every sale, barter or

exchange of services.
To prove compliance with substantiation and invoicing
requirements, the taxpayer- refund claimant presented
the inter- company invoices it issued to its foreign
affiliate clients. However, considering that the taxpayer
is engaged in the sale of services, its transactions
should be properly supported by VAT official receipts
as required under Section 113 of the Tax Code.
The CTA held that the invoicing requirement is
mandatory in nature and, consequently, for failure to
present the proper documents to prove the existence of
its zero-rated sales, its claim for refund of its unutilized
or excess of input taxes on its alleged zero-rated sales
was denied.
(Galileo Asia, LLC-Philippines v. Commissioner of
Internal Revenue, CTA Case No. 8134, August 22,
2012)
On the tax treatment of senior citizens discount
and VAT exemption by establishments
Establishments using point-of-sale/cash register
machine (POS/CRM) are not required to apply for new
accreditation if the system will be changed to comply
with the Bureau of Internal Revenue (BIR)
requirements on the grant of 20% discount and VAT
exemption of senior citizens.
In the machine tape to be generated by the POS or
CRM, the exempt sale to senior citizens should be
segregated from the taxable sale. If the POS or CRM is
incapable of segregation, they should be reprogrammed to comply with the requirement. In the
meantime, a manual invoice/receipt shall be issued.
The seller of qualified goods or services may opt to
issue a separate invoice/receipt on its sale to senior
citizens. The separate invoice/receipt will reflect the
amount of
discount and the total amount payable. The word VAT
Exempt Sale must be written or printed prominently
on the face of the invoice/receipt.
If the merchandise/service sold under a single
transaction comprises of a sale to a senior citizen and a
sale to a non-senior citizen, the seller may issue one
invoice/receipt for the entire transaction providing for a
proper breakdown of the exempt sale and the taxable
sale. The invoice must properly reflect the discount on
the exempt sale. The VAT due on the taxable sale must
be separately billed in the invoice/receipt. The income
statement of the seller must reflect the discount not as a
reduction of sales to arrive at net sales, but as a
deduction from its gross income. Thus, the 20% senior
citizen discount shall be treated as a necessary and
ordinary expense duly deductible from the gross
income, provided that the seller does not opt for
optional standard deduction during the taxable
quarter/year.
As a VAT-exempt transaction, the input tax attributable
to the exempt sale to senior citizens shall not be
allowed as an input tax credit but must be treated as a
cost or an expense account by the seller. Moreover, the
business establishment giving sales discounts to
qualified senior citizens is required to keep a separate

and accurate record of sales, which shall include the

name of the senior citizen-purchaser, Office of Senior
Citizens (OSCA) ID, gross sales/receipts, sales
discounts granted, dates of transactions and invoice/OR
number for every sale transaction to senior citizens.
(Revenue Memorandum Circular No. 38-2012, August
3, 2012)
Tax consequences of issuance of erroneous VAT
invoice or official receipts
Pursuant to Republic Act No. 7916 (PEZA Law), an
enterprise registered with the Philippine Economic
Zone Authority (PEZA) under 5% preferential tax rate
is entitled to exemption from
national and local taxes including VAT. Being exempt
from VAT, a PEZA-registered enterprise may not
register as a VAT taxpayer.
However, once a PEZA-registered enterprise opts to be
registered as a VAT taxpayer, it should follow the VAT
invoicing requirements, particularly the information
required to be contained in the VAT official receipt or
VAT invoice for its transactions. Thus, in case of VATexempt sale transactions, Section 113(B)(2)(b) in
relation to Section 113(D)(2) of the Tax Code requires
that the term VAT-exempt sale be written or printed
prominently on the VAT invoice or official receipt.
Otherwise, the issuer shall be liable to pay the VAT.
In the lease of its factory to another PEZA-registered
enterprise, the PEZA-registered ecozone facilities
enterprise as lessor issued VAT official receipts without
the words VAT-exempt sale written or printed on it.
The CTA held that although the lease by a PEZA
ecozone facilities enterprise of its factory to another
PEZA-registered enterprise is considered an Intra
Ecozone Enterprise Sale of Service, which is exempt
from VAT under Section 5(4a) of Revenue
Memorandum Circular No. 74-99, the VAT official
receipt issued by the PEZA-registered ecozone
facilities enterprise as VAT-registered taxpayer should
have contained the words VAT-exempt sale in order
to be considered a VAT-exempt transaction.
Hence, due to the PEZA-registered enterprises failure
to indicate the words VAT-exempt sale in its VAT
official receipts, the transaction shall become taxable
and as such, the enterprise shall be liable to pay for
deficiency VAT including penalties.
(First Sumiden Realty, Inc. v. Commissioner of Internal
Revenue, CTA Case No. 8151, September 27, 2012)
Conditions for availment of transitional input tax
Under Section 105 [now 111(A)] of the Tax Code, a
person who becomes liable to VAT or who elects to be
a VAT registered person is entitled to transitional input
tax credits, which shall be creditable against the output
tax. The transitional input tax is equivalent to 8% of the
value of the taxpayers beginning inventory of goods,
materials and supplies or the actual VAT paid on such
goods, materials and supplies, whichever is higher. The
taxpayer shall file an inventory of such goods as
prescribed by regulations.
According to the Supreme Court (SC), prior payment
of taxes is not required to avail of the 8% transitional
TAXATION LAW REVIEW - LS | Page 4 of 10

input tax. The SC said that there is nothing in the

provisions of Section 105 of the Tax Code which
indicate that prior payment of taxes is necessary for the
availment of the 8% transitional input tax. All that is
required under Section 105 of the Tax Code is for the
taxpayer to file a beginning inventory with the BIR.
The SC pointed out that the requirement for prior
payment is not only tantamount to judicial legislation
but would also render nugatory the provision in Section
105 of the Tax Code that the transitional input tax
credit shall be 8% of the value of the beginning
inventory or the actual VAT paid on such goods,
materials and supplies, whichever is higher, because
the actual VAT (now 12%) paid on the goods,
materials, and supplies would always be higher than
8% (now 2%) of the beginning inventory. According to
the SC, limiting the value of the beginning inventory
only to goods, materials, and supplies where taxes were
paid is not the intention of the law. Otherwise, the SC
held that the law would have specifically stated that the
beginning inventory excludes goods, materials and
supplies where no taxes were paid.
Further, the SC maintained that prior payment of taxes
is not required to avail of the transitional input tax
because it is not a tax refund per se but a tax credit.
The SC distinguished between a tax credit and tax
refund, and held that unlike a tax refund, prior payment
of taxes is not a prerequisite to avail of a tax credit.
As regard Section 4.105-1 of Revenue Regulations No.
(RR) 7-95, which limited the 8% transitional input tax
credit to the value of the improvements on the land, the
SC further held that RR 7-95 contravenes the provision
of Section 105 of the Tax Code, in relation to Section
100 of the Tax Code, which defines the term good or
properties to include, among others, real properties
held primarily for sale to customers or held for lease in
the ordinary course of trade or business. Accordingly,
the SC held that transitional input tax should not be
limited to the value of improvements on the real
properties but should include the value of real
properties. Hence, the SC ruled that Section 4.105-1 of
RR 7-95, in so far as it limits the transitional input tax
to the value of improvements of the real properties, is a
nullity.
(Fort Bonifacio Development Corporation v.
Commissioner of Internal Revenue, et. al., GR 173425,
September 4, 2012)
Condominium corporations subject to VAT and
income tax
The gross receipts of condominium corporations
including association dues, membership fees and other
assessments and charges are subject to VAT and
income tax. Income payments made to condominium
corporations are subject to applicable withholding
taxes under existing regulations.
The association dues, membership fees, and other
charges collected by condominium corporations
constitute income payments for beneficial services that
the condominium corporations provide to their
members and tenants, which should be subject to
income tax and VAT.

(Revenue Memorandum
October 31, 2012)

Circular

No.

65-2012,

Sale of sugar by a cooperative to non-members

Under Section 3 of RR 13-08, an advance VAT on the
sale of refined sugar shall be paid by the owner/seller
before the refined sugar is withdrawn from any sugar
refinery/mill. The withdrawal is not subject to advance
VAT in case the refined sugar is owned and withdrawn
from the sugar refinery/mill by an agricultural
cooperative of good standing duly accredited and
registered with the Cooperative Development
Authority
(CDA), which cooperative is the agricultural producer
of the sugar cane that was converted into refined sugar.
Under Section 4 (a) of RR 13-08, in order for a
cooperative to be considered an agricultural producer,
it should be of good standing duly accredited and
registered with the CDA and it should be (a) the tiller
of the land it owns or leases; (b) the one incurring cost
of agricultural production of the sugar; and (c) the one
producing the sugar cane to be refined.
In the case at hand, the BIR, before issuing the
Authorization Allowing Release of Refined Sugar
(AARS), required the agricultural cooperative to pay
the advance VAT on the grounds that the cooperative
was unable to meet the requirements to qualify as an
agricultural producer exempt from payment of advance
VAT.
The CTA held that the subject agricultural cooperative
is considered the actual producer of the sugarcane that
was converted into refined sugar since it is duly
registered with the CDA, is in good standing, and it
provided the various production inputs (fertilizers),
capital, technology transfer and farm management.
Hence, the agricultural cooperative should be VATexempt on its sale of refined sugar to non-members.
(Negros Del Norte Planters Association Multi-Purpose
Cooperative v. Commissioner of Internal Revenue and
BIR Regional Director, Region 12, Bacolod City, CTA
Case No. 8287, January 30, 2013)
Two-year prescriptive period for VAT refund
applies to administrative claim, not judicial claim
for refund
Under Section 112 (A) of the Tax Code, an application
for refund of unutilized input VAT attributable to zerorated sales may be made within two years after the
close of the taxable quarter when the sales were made.
In case of application for VAT refund filed in
accordance with Section 112(A) of the Tax Code,
Section 112(C) of the Tax Code provides that the
Commissioner of Internal Revenue must decide within
the 120-day period from the date of submission of
complete documents.
In case of full or partial denial of the claim for tax
refund or credit or failure on the part of the
Commissioner of Internal Revenue to act on the
application for refund within the prescribed period,
Section 112(C) of the Tax Code further provides that
TAXATION LAW REVIEW - LS | Page 5 of 10

the taxpayer may, within 30 days from the receipt of

the decision denying the claim or after the expiration of
the 120-day period, appeal the decision or the inaction
with the CTA.
The SC held that the 30-day period for filing judicial
claim for refund under Section 112(C) need not fall
within the two-year prescriptive period, as long as the
administrative claim is filed within the two-year
prescriptive period. The SC cited the following reasons
for holding that the 30-day period is not bound by the
two-year prescriptive period.
1. Under Section 112(A) of the Tax Code, a
taxpayer with unutilized input VAT incurred from zerorated sales may apply with the Commissioner for
refund or credit within two years after the close of
the taxable quarter when the sales were made.
According to the SC, this means that the taxpayer may
apply for refund or credit at any time within two years.
Thus, an
application for refund or credit may be filed by the
taxpayer with the Commissioner on the last day of the
two-year prescriptive period and it will strictly comply
with the law.
2. Section 112(C) of the Tax Code, which
provides that the Commissioner shall decide within
one hundred twenty (120) days from the date of
submission of complete documents in support of the
application filed in accordance with Subsection A,
means that the application in Section 112(A) is the
administrative claim that the Commissioner of Internal
Revenue must decide within the 120-day period. In
short, the two-year period does not refer to the filing of
the judicial claim with the CTA but to the filing of the
administrative claim with the Commissioner of Internal
Revenue.
3. If the 30-day period, or any part of it, is
required to fall within the two-year prescriptive period
(equivalent to 730 days), then the taxpayer must file his
administrative claim for refund or credit within the first
610 days of the two-year prescriptive period.
Otherwise, the SC held that the filing of the
administrative claim beyond the first 610 days will
result in the appeal to the CTA being filed beyond the
two-year prescriptive period. According to the SC, the
theory that the 30-day period must fall within the twoyear prescriptive period adds a condition that is not
found in the law. It results in truncating 120 days from
the 730 days that the law grants the taxpayer for filing
his administrative claim with the Commissioner of
Internal Revenue.
(Commissioner of Internal Revenue v. San Roque
Power Corporation, Taganito Mining Corporation and
Philex Mining Corporation, G.R. Nos. 187485,
196113, and 197156, February 12, 2013)
SLP as basis for tax assessment
Tax assessments are presumed correct and made in
good faith. The assessments should not, however, be
based on presumptions no matter how reasonable or
logical the presumption might be. In order to withstand
the test of judicial scrutiny, the assessment must be
based on actual facts.
In the instant case, a company engaged in transmission
of information was assessed for undeclared sales. The
BIRs assessment arose from the matching of computer

records using the summary list of purchases submitted

by the taxpayers customers. The Court of Tax Appeals
(CTA) held that the BIRs assessment against the
taxpayer cannot be sustained since the assessment
lacks factual basis. The BIR based its assessment
merely on an unverified quarterly list. The CTA
maintained that the summary list of purchases should
have been verified with other externally sourced data in
order to check the integrity of the information
gathered.
According to the CTA, even the BIR, in its Revenue
Memorandum Order No. (RMO) 04-03, recognizes the
need to verify the amounts reflected in the quarterly
summary list of purchases with other externally
sourced data in ascertaining the taxpayers
underdeclaration of revenues or overstatement of costs
and expenses. Hence, for failure to corroborate its
assessment with other externally sourced data, the CTA
ordered the cancellation of the deficiency income tax
and VAT against the taxpayer.
(Commissioner of Internal Revenue v. Fax N Parcel,
Incorporated, CTA EB 883 re: CTA Case No. 7415,
February 14, 2013)
Incidental transaction for VAT Purposes
Under Section 105 of the National Internal Revenue
Code (NIRC) of 1997, VAT is imposed on a sale or
transaction entered into by a person in the course of
any trade or business. A transaction is characterized as
having been entered into by a person in the course of
trade or business if it is: (a) regularly conducted, and
(2) undertaken in pursuit of a commercial or economic
activity. Transactions that are made incidental to the
pursuit of a commercial activity are considered as
entered into in the course of trade or business, and are
subject to the 12% VAT.
In the course of its business, a power generating
company bought a motor vehicle, which formed part of
its assets used in its business operations. When the
motor vehicle was already fully depreciated, the
company sold it.
The Supreme Court (SC) held that while the sale of the
motor vehicle is an isolated transaction, it may be
deemed an incidental transaction, which is subject to
12% VAT. As explained by the SC, it does not follow
that an isolated transaction cannot be an incidental
transaction for VAT purposes. The SC cited Section
105 of the Tax Code, which provides that a transaction
in the course of trade or business includes
transactions inciden- tal thereto. Hence, the sale of a
motor vehicle is considered an incidental transaction
made in the course of trade or business, which should
be subject to the 12% VAT.
(Mindanao
II
Geothermal
Partnership
v.
Commissioner of Internal Revenue, GR Nos. 193301
and 194637, March 11, 2013)
Expensing of input VAT disallowed
Accumulated and unapplied input value-added tax
(VAT) attributable to zero-rated sales of a VAT
taxpayer may not be treated as outright expense or
deduction for income tax purposes even after the
TAXATION LAW REVIEW - LS | Page 6 of 10

expiration of the two-year period to claim for refund or

credit.
The BIR held that unutilized creditable input taxes
related to zero-rated sales can only be recovered
through the application of refund or tax credit.
According to the BIR, there is no provision in the Tax
Code that allows for other modes of recovering
unapplied input taxes, particularly the expensing of
excess unutilized input VAT arising from purchase of
goods and services in case the two-year prescriptive
period has already lapsed without any claim for refund
or credit having been filed by the VAT-registered
taxpayer.
The BIR added that based on the principle of
strictissimi juris, the outright expensing of unutilized
input VAT attributable to zero-rated sales must be
construed strictly against the taxpayer since a
deduction for income tax pur- poses partakes of the
nature of tax exemption. Accordingly, due to lack of
legal basis, the request to treat outright as deductible
expense for income tax purposes any accumulated and
unutilized input VAT arising from zero-rated
transactions after the lapse of the two- year period to
claim for refund or credit was denied by the BIR.
(BIR Ruling No. 123-2013, March 25, 2013)
Proper accomplishment and filing of estate tax
returns
To eliminate occurrence of suspended tax returns
brought about by improper filing of estate tax returns,
the BIR has issued the following reminders on the
responsibilities of the heirs, executor or administrator
and revenue district offices/document processing
divisions in the proper accomplishment and filing of
estate tax returns.
Responsibilities of heirs/executor/administrator
1. In all cases of transfers subject to tax, or where,
though exempt from tax, the gross value of the estate
exceeds P20,000, the executor, administrator or any of
the legal heirs, shall send a written notice of death to
the Commissioner within two months after the
decedents death or within a like period after an
executor or administrator qualifies as such. The estate
tax return shall be filed under any of the following
situations:
a. In all cases of transfers subject to estate tax
b. Where, though exempt from estate tax, the gross
value of the estate exceeds P200,000
c. Where, regardless of the gross value, the estate
consists of registered or registrable property such as
real property, motor vehicle, shares of stocks or other
similar property for which a clearance from the BIR is
required as a prerequisite for the transfer of ownership
thereof in the name of the transferee.
2. The heirs/authorized representative/administrator/
executor shall file the estate tax return and pay the
corresponding estate tax with the Authorized Agent
Bank (AAB), Revenue Collection Officer (RCO) or
duly authorized Treasurer of the city or municipality in
the Revenue District Office (RDO) having jurisdiction

over the place of domicile of the decedent at the time

of his death, pursuant to Section 90(D) of the Tax
Code, as amended.
3. In case of a non-resident decedent, with executor or
administrator in the Philippines, the estate tax return
shall be filed with the AAB of the RDO where such
executor/administrator is registered or is domiciled, if
not yet registered with the BIR. For non-resident
decedent with no executor or administrator in the
Philippines, the estate tax return shall be filed with the
AAB under the jurisdiction of RDO No. 39 South
Quezon City.
4. In accomplishing the estate tax return, the executor,
administrator or any of the legal heirs shall exercise
due diligence in accomplishing the same properly,
filling out completely items with values, and entering
0 in the box to indicate none or nil, if there is no
applicable value.
5.
The
heir/authorized
representative/
administrator/executor shall submit all the applicable
documentary requirements as prescribed under
Revenue Memorandum Order (RMO) No. 15-2003 and
proof of
payment to the RDO having jurisdiction over the place
of residence of the decedent or the RDO where the
executor or administrator is registered, or RDO No. 39
South, Quezon City, whichever is applicable.
Responsibilities of the RDO and Document
Processing Division
1. The RDO shall be responsible for processing the
estate tax returns.
For tax returns exempt from estate tax that have to be
filed directly with the RDO and estate tax returns with
payment that shall be received by the RCO, the same
shall not be received by the RDO/RCO if they are not
properly accomplished.
2. In case of tax returns with payment that are required
to be filed directly with the AABs, it shall be the
responsibility of the RDO or Document Processing
Division (DPD), for Regional Offices with DPD, to
scrutinize the entries in the returns and determine any
missing/incomplete information. Within five days from
discovery, the DPD head shall transmit a list of estate
tax returns with missing/incomplete information.
3. On the other hand, within five days from receipt of
the list, the RDO shall view and print the returns and
shall notify in writing the heir/authorized
representative/administrator/executor of the estate of
such fact and require the amendment of the return
within five days from receipt of the written notice. The
RDO shall impose the compromise penalty for
violation of Section 255 of the Tax Code, as amended,
prescribed under RMO No. 19-2007. Further, in case of
late filing, the applicable penalties under the Tax Code,
as amended, shall be imposed.
(Revenue Memorandum Circular No. 34-2013, April
26, 2013)
Refund of undeclared input taxes
The undeclared input taxes of a VAT- registered
taxpayer may not be the subject of a claim for refund.
TAXATION LAW REVIEW - LS | Page 7 of 10

In order to refund input taxes, they must be

substantiated and reported in the value added tax (VAT)
returns of a taxpayer.

75-2012, the sale of digital and online educational

products, being outside the purview of the term books
or any similar publication, are subject to 12% VAT.

In the instant case, the taxpayer-refund claimant is a

VAT-registered taxpayer engaged in the manufacture
and sale of beverages. It claimed a refund of the VAT it
paid on its purchases, which it recorded in its books of
account but failed to declare in its quarterly VAT
returns due to inadvertence. The taxpayer was unable
to amend its VAT return to include its undeclared input
taxes since the BIR issued it a letter of authority.

Being an indirect tax, the VAT can be shifted or passed

on to the purchaser/buyer, trans- feree or lessee of the
goods, properties or services.

In its claim for refund, the taxpayer anchored its refund

claim on the provi- sions of Section 204(C) of the Tax
Code, which allows taxpayers to claim credit or refund
of erroneously or illegally assessed or collected taxes.
The Court of Tax Appeals (CTA) held that while the
input taxes were recorded in the taxpayers books of
accounts, the taxpayers claim for refund should be
denied on the ground that its alleged input VAT was not
reported in its VAT return. The CTA cited Section
4.110-8 of RR 16-05, which provides that in order for
input taxes to be available as tax credits, they must be
substantiated and reported in the VAT returns of a
taxpayer. However, considering that the amount being
claimed by the taxpayer for refund represents its
undeclared input taxes, it is not considered an
erroneously paid VAT.
Moreover, the CTA held that under Section 112 of the
Tax Code, there are two instances when excess input
taxes may be claimed for refund, to wit: (a) when they
are attributable to zero-rated or effectively zero-rated
sales; and (b) upon cancellation of VAT registration due
to retirement from or cessation of business. Applying
Section 112 of the Tax Code, the CTA held that the
taxpayers claim for refund or credit of its unde- clared
input taxes does not fall under any of the instances
provided by law. Hence, the CTA denied the taxpayers
claim for refund or issuance of tax credit certificate
(TCC) of its undeclared input taxes.
(Coca-Cola Bottlers Philippines, Inc. v. Commissioner
of Internal Revenue, CTA Case No. 8136, May 15,
2013)
VAT on sale of printed and digital educational
products
Under Section 109(1)(R) of the Tax Code, the sale,
importation, printing or publication of books and
newspapers, review or bulletin, which appears at
regular intervals with fixed prices for subscription and
sale, and which is not devoted principally to the
publication of paid advertisements, is exempt from
VAT.
In RMC 75-2012, the BIR clarified that, for purposes
of Section 109(1)(R) of the Tax Code, the terms
book, newspaper, magazine, review or bulletin
refer to printed materials in hard copies. Thus, it does
not include those in digital or electronic format or
computerized versions, including but not limited to ebooks, e-journals, electronic copies, online library
sources, CDs and software.
While the sale of educational products in printed form
is exempt from VAT, the BIR held that based on RMC

(BIR Ruling No. 170-2013, May 6, 2013)

Refund of input VAT prior to VAT registration
xA VAT-registered taxpayer that incurred input VAT on
its VAT- zero rated sales prior to its VAT registration is
not entitled to claim refund for such unutilized input
VAT.
Under Section 112(A) of the Tax Code, in order to be
entitled to refund/tax credit of unutilized input VAT, the
following requisites must be satisfied: (1) the taxpayer
must be VAT-registered; (2) the taxpayer must be
engaged in sales that are zero-rated or effectively zerorated; (3) the claim must be filed within the two years
after the close of the taxable quarter when such sales
were made; and (4) the input taxes were not applied
against any output VAT liability during and in the
succeeding quarters.
In the instant case, the input VAT that was the subject
of refund refers to the VAT paid by the taxpayer on its
purchase of land, while its alleged zero-rated sale of
service occurred when it entered into a lease agreement
with its affiliate PEZA-registered IT enterprise. The
taxpayer incurred the VAT and the alleged zero-rated
transaction took place when the taxpayer was not yet
VAT-registered.
Considering that the unutilized input VAT on the
purchase of land was incurred by the taxpayer at a time
when it was not yet registered as a VAT taxpayer, there
is no input VAT that can be a subject of refund.
Moreover, the Court of Tax Appeals (CTA) held that
since the land lease agreement was executed before the
taxpayers VAT registration, its sale of service is not
yet considered a VAT zero-rated sale. Hence, for failure
to establish that it incurred input taxes and rendered
zero-rated sale of service, the taxpayers claim for
refund was denied by the CTA.
(Crescent Park 14-678 Property Holdings, Inc. v.
Commissioner of Internal Revenue, CTA Case No.
8326, June 13, 2013)
Reckoning of 120-day period for VAT refund
purposes
Under Section 112(A) and (C) of the Tax Code, a VATregistered taxpayer whose sales are zero-rated or
effectively zero-rated may, within two years after the
close of the taxable quarter when the sales were made,
apply for the issuance of a TCC or refund of its
unutilized input VAT. The CIR shall grant a refund or
issue the TCC for creditable input taxes within 120
days from the date of submission of complete
documents to grant or deny a taxpayers application for
refund or tax credit of excess input tax.
In the instant case, when the taxpayer filed its
administrative claim for refund on March 11, 2011, it
TAXATION LAW REVIEW - LS | Page 8 of 10

submitted documents in support of its claim for refund.

However, on July 1, 2011, it submitted additional
documents, which the taxpayer claims were similar to
those previously submitted except for two documents,
i.e., monthly VAT returns and Department of Finance
(DOF) certification.
Counting 120 days from the submission of additional
documents on July 1, 2011, the CIR had until October
29, 2011 within which to grant or deny the refund or
credit. But before the 120-day period lapsed, the
taxpayer sought judicial intervention by filing an
appeal on August 8, 2011.
The taxpayer argued that the documents it submitted on
March 11, 2011 already constituted complete
documents, hence, the 120-day period should
commence on said date. It further claimed that except
for the monthly VAT returns and the DOF Certification,
the additional documents it submitted are the same
documents as those submitted on March 11, 2011.
The CTA held that while it is the taxpayer who
determines the appropriate documents to be presented
to obtain a favorable resolution on a claim for refund, it
submitted additional documents on July 1, 2011. This
means that the taxpayer finds the documents it
submitted on March 11, 2011 not enough or incomplete
to support its claim for refund. The CTA ruled that the
120-day period for the CIR to grant or deny the claim
for refund should be reckoned not on March 11, 2011
but on July 1, 2011 when the additional documents
were submitted. Hence, considering that the taxpayer
filed its petition with the CTA on August 8, 2011 or
before the 120-day period lapsed, the petition was
deemed prematurely filed.
(WNS Philippines, Inc. v. Commissioner of Internal
Revenue, CTA EB Case No. 899 re CTA Case No.
8317, September 10, 2013)
VAT refund due to cancellation of business
Under Section 112(B) of the Tax Code, a taxpayer
whose registration has been cancelled due to, among
others, cessation of business, may, within two years
from the date of cancellation of its registration, apply
for the issuance of a tax credit certificate (TCC) for any
unused input tax, which may be used to pay for other
internal revenue taxes. Where the taxpayer has no
internal revenue tax liabilities, it shall be entitled to
refund in accordance with Section 204 of the Tax
Code.
Pursuant to Section 236(F)(1) and (2) of the Tax Code,
as amended, the general rule is that the registration of
any person who ceases to be liable to a tax type shall
be cancelled upon filing an application for registration
information update (BIR Form 1905). However, the
cancellation of VAT registration will be effective from
the first day of the following month.
In the instant case, the taxpayer refund claimant filed
its Application for Registration Information Update
(BIR Form 1905) with a claim for refund of excess
input on April 15, 2010. Hence, its VAT registration
was considered cancelled effective May 1, 2010.
Counting the two years from the date of cancellation of
its registration, it may apply for the issuance of a TCC

of its unused input VAT until May 1, 2012. However,

considering that the taxpayer filed its administrative
claim for refund on April 15, 2010, its claim for refund
was deemed prematurely made considering that the
two year prescriptive period had yet to commence on
May 1, 2010, the date of effectivity of the cancellation
of its registration.
(Mindanao I Geothermal Partnership v. Commissioner
of Internal Revenue, CTA EB 956 re CTA Case No.
8247, September 16, 2013)
Definition of raw sugar for VAT purposes
The Bureau of Internal Revenue (BIR) has redefined
the term raw sugar, limiting the scope of value added
tax (VAT) exemption of raw sugar as an agricultural
food product in its original state to muscovado sugar.
In the revised definition of raw sugar for VAT
purposes, the BIR defined the term raw sugar as
sugar produced by simple process of conversion of
sugar cane without need for any mechanical or similar
device. As defined by the BIR, the term raw sugar
shall refer only to muscovado sugar. In itself,
centrifugal process of producing sugar is deemed by
the BIR as a complex process. Hence, any type of
sugar produced using the centrifugal process shall not
be exempt from VAT.
(Revenue Regulations No. 13-2013, September 20,
201)
Invoicing requirements for VAT zero-rated export
sales
A taxpayer whose claim for refund of its excess
unutilized input VAT is based on the existence of zerorated sales must comply with the invoicing
requirements on the documents supporting the sale of
goods and services.
Under Section 113 of the Tax Code, a VAT-registered
taxpayer is required to issue a VAT invoice for every
sale, barter or exchange of goods or properties, while a
VAT official receipt must be issued for every lease of
goods or properties and for every sale, barter or
exchange of services. The VAT invoice or official
receipt must contain the required information, such as
the imprinted word zero-rated and the taxpayers
TIN-VAT number. In addition, the invoice or receipt
must be duly registered with the BIR as prescribed
under Sections 237 and 238 of the Tax Code.
To prove VAT zero-rating of its export sales, the
taxpayer-refund claimant presented the provisional
invoices it issued for its export sales of gold. The
provisional receipts are not duly registered with the
BIR and do not contain the required information in
violation of Section 113 and 238 of the Tax Code.
Hence, for failure to substantiate its export sales, the
CTA held that its sales cannot qualify for VAT zerorating, and the taxpayer cannot be entitled to refund of
its input VAT.
(Philex Mining Corporation v. Commissioner of
Internal Revenue, CTA Case No. 8517, October 9,
2013)
Application of the Doctrine of Operative Fact
TAXATION LAW REVIEW - LS | Page 9 of 10

The SC noted that under Section 246 of the Tax Code,

taxpayers may rely upon a rule or ruling issued by the
Commissioner from the time the rule or ruling is issued
up to its reversal by the Commissioner or the SC. The
reversal is not given retroactive effect. According to the
SC, this, in essence, is the doctrine of operative fact.
However, there must be a rule or a ruling issued by the
Commissioner that is relied upon by the taxpayer in
good faith. In this case, the rule or ruling that is the
subject of the operative fact doctrine is BIR Ruling No.
DA-489-03 (December 10, 2003).

VAT exemption of diplomatic missions on

association dues imposed by condominium
corporations
Under Article 23 of the Vienna Convention on
Diplomatic Relations, a diplomatic mission cannot be
subject to dues and taxes in respect of its owned/leased
premises in the receiving state. Accordingly, a
diplomatic mission is exempt from payment of
Philippine tax imposed on association dues,
membership fees, and other assessments/charges
collected by condominium corporations.

The SC reiterated and confirmed with finality its

decision that: (a) the 120+30 day period is mandatory;
and (b) all taxpayers can rely on BIR Ruling No. DA489-03 from the time of its issuance on December 10,
2003 up to its reversal by the Court in Aichi on
October 6, 2010, as an exception to the mandatory and
jurisdictional 120+30 day period.

As to the members of the diplomatic mission, Article

34 of the Vienna Convention provides that the tax
exemption privileges of the diplomatic agents do not
include exemption from indirect taxes, such as ad
valorem and value-added tax (VAT) on their local
purchases of goods and services. This means that
purchases of goods and/or services made by diplomatic
agents shall generally be subject to VAT prescribed
under Sections 106 and 108 of the Tax Code, as
amended.

(CIR v. San Roque Power Corporation, GR 187485;

Taganito Mining Corporation v. CIR, GR196113; and
Philex Mining Corporation v. CIR, October 8, 2013)
VAT on sale of feed ingredients
Under Section 109 (B) of the Tax Code, sale or
importation of fertilizers; seeds, seedlings and
fingerlings; fish, prawn, livestock and poultry feeds,
including ingredients, whether locally produced or
imported, used in the manufacture of finished feeds are
exempt from VAT.
However, since the manufacture, importation, sale or
distribution of feeds or feedstuff require prior
registration and permit from the Bureau of Animal
Industry (BAI) under Republic Act No. (RA) 1556, as
amended by Presidential Decree No. 7, the certification
in
the
nature
and
composition
of
the
commodities/items as stated in the registration and
import permit issued by BAI will govern the
classification of the said items for purposes of VAT
under Section 109(1)(B) of the Tax Code, as amended.
Considering that the BAI has issued a certification that
the scrap products are no longer fit for human
consumption and are indeed ingredients in the
manufacture of feeds, its sale shall be exempt from the
12% VAT imposed on the sale of goods under Section
106(A) of the Tax Code, as amended.

However, applying the principle of reciprocity,

embassy personnel may be entitled to VAT exemption
on their local purchases of goods and/or services if it
appears from the list submitted by the Department of
Foreign Affairs (DFA) that the government of such
embassy personnel allows similar exemption to the
Philippine embassy personnel on their purchase of
goods and services in its country.
With respect to purchases made by the United States
embassy personnel, the BIR held that as per 23 July
2013 letter of the Office of the Protocol of the DFA on
the updates from the various Philippine Foreign
Service
Posts, the United States of America does not impose
VAT on goods and services sold to the Philippine
Embassy as well as to the latter are diplomatic and
non-diplomatic personnel. Hence, based on Article 34
of the Vienna Convention, the diplomatic agents of the
US Embassy in Manila are exempt from VAT on
association dues, membership fees and other
assessments/charges they pay to condominium
corporations.
(BIR Ruling No. ITAD 297-2013, October 25, 2013)

(BIR Ruling No. 371-2013, October 10, 2013)

TAXATION LAW REVIEW - LS | Page 10 of 10