50 Bar Ops Pilipinas 2015 Philippine Association of Law Schools Donationsmortiscausa,beingintheformofawill,arenotrequiredtobeacceptedbythe doneesduring thedonors'lifetime.(SPS.AGRIPINOGESTOPAandISABELSILARIOGESTOPA vs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000) Crucial in resolving whether the donation was inter vivos or mortis causa is the determination of whether the donor intended to transfer the ownership over the properties upon the execution of the deed. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPAvs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000) Aremuneratorydonationisonewherethedoneegivessomethingtorewardpastorfuture services or because of future charges or burdens, when the value of said services, burdens or charges is less than the value of the donation. (De Luna v. Abrigo, G.R. No. L-57455, January 18, 1990) 6. Transfers which may be constituted as donationa) Sale/exchange/transfer of property for insufficient considerationb) Condonation/remission of debt7. Transfer for less than adequate and full consideration8. Classification of donor9. Determination of gross gift10. Composition of gross gift11. Valuation of gifts made in property12. Tax credit for donors taxes paid in a foreign country13. Exemptions of gifts from donors tax14. Person liable15. Tax basis D. Value-Added Tax (VAT)1. Concept As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the taxpayer, but on the entire selling price of his goods, properties or services. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013) However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who soldhimtheinputsforhisgoods,properties,orservices.Theneteffectisthatthetaxpayer paystheVATonlyonthevaluethatheaddstothegoods,properties,orservicesthathe actuallysells.(COMMISSIONEROFINTERNALREVENUEvs.SANROQUEPOWER CORPORATION, G.R. No. 187485, February 12, 2013) VATisataxontransactions,imposedateverystageofthedistributionprocessonthesale, barter,exchangeofgoodsorproperty,andontheperformanceofservices,eveninthe absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000) 51 Bar Ops Pilipinas 2015 Philippine Association of Law Schools TheVATisnotalicensetax;itisnotataxontheexerciseofaprivilege,muchlessa constitutional right. It is imposed on the sale, barter, lease or exchange of goods or properties orthesaleorexchangeofservicesandtheleaseofpropertiespurelyforrevenuepurposes. (ARTUROM.TOLENTINOv.THESECRETARYOFFINANCEandTHECOMMISSIONEROF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995) 2. Characteristics/Elements of a VAT-Taxable transaction VATisnotasingular-mindedtaxoneverytransactionallevel;itsassessmentbearsdirect relevance to the taxpayer's role or link in the production chain. Hence, as affirmed by Section 99[nowSec.105]oftheTaxCodeanditssubsequentincarnations, thetaxisleviedonlyon the sale, barter or exchange of goods or services by persons who engage in such activities, in thecourseoftradeorbusiness.(COMMISSIONEROFINTERNALREVENUEvs.MAGSAYSAY LINES, INC., G.R. No. 146984. July 28, 2006) The Court rules that given the undisputed finding that the transaction in question was not made inthecourseoftradeorbusinessoftheseller,NDCthatis,thesaleisnotsubjecttoVAT pursuant to Section 99 [now Sec. 105] of the Tax Code, no matter how the said sale may hew tothosetransactionsdeemedsaleasdefinedunderSection100[nowSec.106]. (COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R. No. 146984. July 28, 2006) Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied.Certainly,therewasnosuchsale,barterorexchangeinthesubsidygivenbySISto Sony; it was but a dole out by SIS and not in payment for goods or properties sold, bartered or exchangedbySony.(COMMISSIONEROFINTERNALREVENUEvs.SONYPHILIPPINES, INC., G.R. No. 178697, November 17, 2010) Goodsorpropertiesmustbeuseddirectlyorindirectlyintheproductionorsaleoftaxable goods and services. (Kepco Philipppines Corp. v. CIR, G.R. No. 179356, December 14, 2009) itisimmaterialwhethertheprimarypurposeofacorporationindicatesthatitreceives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entityprovidesserviceforafee,remunerationorconsideration,thentheservicerenderedis subjecttoVAT.(COMMISSIONEROFINTERNALREVENUEvs.COURTOFAPPEALS,G.R. No. 125355, March 30, 2000) 3. Impact of tax Under Section 105 of the Tax Code, VAT is imposed on any person who, in the course of trade or business, sells or renders services for a fee. In other words, the seller of services, who in this case is the tollway operator, is the person liable for VAT. The latter merelyshifts the burden of VAT to the tollway user as part of the toll fees. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011) 4. Incidence of tax52 Bar Ops Pilipinas 2015 Philippine Association of Law Schools The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on goods, properties or services to the buyer. In such a case, what is transferred is not the seller's liability butmerelytheburdenoftheVAT. (RENATOV.DIAZandAURORAMA.F.TIMBOLvs.THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011) Thus, the seller remains directly and legally liable for payment of the VAT, but the buyer bears itsburdensincetheamountofVATpaidbytheformerisaddedtothesellingprice.Once shifted,theVATceasestobeatax andsimplybecomespartofthecostthatthebuyermust pay in order to purchase the good, property or service. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011) A seller who is directly and legally liable for the payment of an indirect tax, such as the VAT on goodsorservicesisnotnecessarilythepersonwhoultimatelybearstheburdenofthesame tax. It is the final purchaser of consumer of such goods or services who, although not directly andlegallyliableforthepaymentthereof,ultimatelybearstheburdenofthetax.(Contexv. CIR, G.R. No. 151135, July 2, 2004) In the case of the VAT, the law minimizes the regressive effects of indirect taxation by providing for zero rating of certain transactions, whilegranting exemptions to other transactions. On the other hand, the transactions which are subject to the VAT are those which involve goods and services which are used or availed of mainly by higher income groups. (ARTURO M. TOLENTINO v.THESECRETARYOF FINANCEandTHECOMMISSIONEROFINTERNALREVENUE,G.R.No. 115455, October 30, 1995) 5. Tax credit method6. Destination principle According to the Destination Principle, goods and services are taxed only in the country where these are consumed. In connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT, while those destined for use or consumptionwithinthePhilippinesshallbeimposedwith10%VAT. (ATLASCONSOLIDATED MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007) Applying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such sellerinternationallycompetitivebyallowingtherefundorcreditofinputtaxesthatare attributabletoexportsales. (COMMISSIONEROFINTERNALREVENUEvs.SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005) Underthe cross-borderprinciple oftheVATsystembeingenforcedbytheBureauofInternal Revenue(BIR), noVATshallbeimposedtoformpartofthecostofgoodsdestinedfor consumptionoutsideoftheterritorialborderofthetaxingauthority.Ifexportsofgoodsand services from the Philippines to a foreign country are free of the VAT, then the same rule holds forsuchexportsfromthenationalterritoryexceptspecificallydeclaredareastoan 53 Bar Ops Pilipinas 2015 Philippine Association of Law Schools ecozone. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005) WhileanecozoneisgeographicallywithinthePhilippines,itisdeemedaseparatecustoms territoryandisregulatedinlawsasforeignsoul.Salesbysuppliesoutsidethebordersof ecozonetothisseparatecustomsterritoryaredeemedexportsandtreatedasexportsales. (CIR v. Seksui Jushi Phils, Inc. G.R. No. 149671, July 21, 2006) Foraslongasthegoodsremainwithinthezone,whetherwecallitaneconomiczoneora freeport zone, for as long as we say in this law that all goods entering this particular territory will be duty-free and tax-free, for as long as they remain there, consumed there or re-exported or destroyed in that place, then they are not subject to duties and taxes in accordance with the lawsofthePhilippines.(CoconutOilRefinersAssociationv.ExecutiveSecretary,G.R.No. 132527, July 29, 2005) 7. Persons liable8. VAT on sale of goods or properties Goods,ascommonlyunderstoodinthebusinesssense,refertotheproductwhichtheVAT-registered person offers for sale to the public. With respect to real estate dealers, it is the real propertiesthemselveswhichconstitutetheirgoods.Suchrealpropertiesaretheoperating assetsoftherealestatedealer.(FortBonifacioDevelopmentCorporationvs.CIR,G.R.Nos. 158885 and 170630, April 2, 2009) a) Requisites of taxability of sale of goods or properties Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction. However, it does not followthatanisolatedtransactioncannotbeanincidentaltransactionforpurposesofVAT liability. Indeed, a reading of Section 105 of the 1997 Tax Code would show that a transaction "inthecourseoftradeorbusiness"includes"transactionsincidentalthereto."(MINDANAOII GEOTHERMALPARTNERSHIPvs.COMMISSIONEROFINTERNALREVENUE,G.R.No.193301, March 11, 2013) Priortothesale,theNissanPatrolwas partof MindanaoIIsproperty, plant,andequipment. Therefore,thesaleoftheNissanPatrolisanincidentaltransactionmadeinthecourseof MindanaoIIsbusinesswhichshouldbeliableforVAT.(MINDANAOIIGEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March 11, 2013) 9. Zero-rated sales of goods or properties, and effectively zero-rated sales of goods or properties Zero-rated transactions generally refer to the export sale of goods and supply of services. The tax rate is set at zero and when applied to the tax base, such rate obviously results in no tax chargeableagainstthepurchaser.Thesellerofsuchtransactionschargesnooutputtax,but canclaimarefundoforataxcreditcertificatefortheVATpreviouslychargedbysuppliers. (COMMISSIONEROFINTERNALREVENUEvs.SEAGATETECHNOLOGY(PHILIPPINES),G.R. No. 153866, February 11, 2005) 54 Bar Ops Pilipinas 2015 Philippine Association of Law Schools Effectively zero-rated transactions, however, refer to the sale of goods or supply of services to personsorentitieswhoseexemptionunderspeciallawsorinternationalagreementstowhich thePhilippinesisasignatoryeffectivelysubjectssuchtransactionstoazerorate.Again,as applied to the tax base, such rate does not yield any tax chargeable against the purchaser. The sellerwhochargeszerooutputtaxonsuchtransactionscanalsoclaimarefundoforatax creditcertificatefortheVATpreviouslychargedbysuppliers.(COMMISSIONEROFINTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005) Ifrespondentislocatedinanexportprocessing zone withinthatecozone, salestotheexport 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 respondent would indeed be subject to a zero rate. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005) PAGCOR's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been thoroughly andextensivelydiscussedin CommissionerofInternalRevenuev.Acesite(Philippines)Hotel Corporation.AcesitesoughttherefundoftheamountitpaidasVATonthegroundthatits transactionwithPAGCORwassubjecttozerorateasitwasrenderedtoatax-exemptentity. TheCourtruledthatPAGCORandAcesitewerebothexemptfrompayingVAT.(PHILIPPINE AMUSEMENTANDGAMINGCORPORATION(PAGCOR)vs.THEBUREAUOFINTERNAL REVENUE, G.R. No. 172087, March 15, 2011) Nopriorapplicationfortheeffectivezeroratingofitstransactionsisnecessary.TheBIR regulationsadditionallyrequiringanapproved priorapplicationforeffectivezerorating cannot prevailovertheclearVATnatureofrespondent'stransactions.Otherthanthegeneral registration of a taxpayer the VAT status of which is aptly determined, no provision under our VATlawrequiresanadditionalapplicationtobemadeforsuchtaxpayer'stransactionstobe consideredeffectivelyzero-rated.(COMMISSIONEROFINTERNALREVENUEvs.SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005) The Omnibus Investments Code of 1987 recognizes as export sales the sales of export products toanotherproducerortoanexporttrader,providedthattheexportproductsareactually exported.Forpurposes ofVATzero-rating,suchproducerorexport tradermustberegistered with the BOI and is required to actually export more than 70% of its annual production. (ATLAS CONSOLIDATEDMININGANDDEVELOPMENTCORPORATIONvs.COMMISSIONEROF INTERNAL REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007) IntermsoftheVAT computation,zeroratingandexemptionarethesame,butthe extentof relief that results from either one of them is not. In both instances of zero rating, there is total relief forthepurchaserfromtheburdenofthetaxbutinanexemptionthereisonly partial relief,becausethepurchaserisnotallowedanytaxrefundoforcreditforinputtaxes paid. (COMMISSIONEROFINTERNALREVENUEvs.SEAGATETECHNOLOGY(PHILIPPINES), G.R. No. 153866, February 11, 2005) 10. Transactions deemed salea)Transfer,useorconsumptionnotinthecourseofbusinessofgoods/properties originally intended for sale or use in the course of businessb) Distribution or transfer to shareholders, investors or creditors 55 Bar Ops Pilipinas 2015 Philippine Association of Law Schools c)Consignmentofgoodsifactualsalenotmadewithin60daysfromdateof consignmentd) Retirement from or cessation of business with respect to inventories on hand11. Change or cessation of status as VAT-registered persona) Subject to VAT(i) Change of business activity from VAT taxable status to VAT-exempt status(ii) Approval of request for cancellation of a registration due to reversion to exempt status(iii)Approvalofrequestforcancellationofregistrationduetodesiretorevertto exempt status after lapse of 3 consecutive yearsb) Not subject to VAT(i) Change of control of a corporation(ii) Change in the trade or corporate name(iii) Merger or consolidation of corporations12. VAT on importation of goodsa) Transfer of goods by tax exempt persons13. VAT on sale of service and use or lease of properties Servicehasbeendefinedastheartofdoingsomethingusefulforapersonorcompanyfora feeorusefullabororworkrenderedortoberenderedanotherforafee.(CIRv.American Express International, Inc., G.R. No. 152609, June 29, 2005)

Byqualifying"services"withthewords"allkinds,"Congresshasgiventheterm"services"an all-encompassingmeaning.Thelistingofspecificservicesareintendedtoillustratehow pervasiveandbroadistheVAT'sreachratherthanestablishconcretelimitstoitsapplication; thus,everyactivitythatcanbeimaginedasaformof"service"renderedforafeeshouldbe deemedincludedunlesssomeprovisionoflawespeciallyexcludesit. (RENATOV.DIAZand AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011) Tollwayoperatorsnotonlycomeunderthebroadterm"allkindsofservices,"theyalsocome underthespecificclassdescribedinSection108as"allotherfranchisegrantees"whoare subject to VAT, "except those under Section 119 of this Code." Tollway operators are franchise granteesandtheydonotbelongtoexceptions(thelow-incomeradioand/ortelevision broadcasting companies with gross annual incomes of less than P10 million and gas and water utilities) that Section 119 spares from the payment of VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011) Inspecificallyincludingbywayofexampleelectricutilities,telephone,telegraph,and broadcastingcompaniesinitslistofVAT-coveredbusinesses,Section108opensother companiesrenderingpublicserviceforafeetotheimpositionofVAT.Businessesofapublic naturesuchaspublicutilitiesandthecollectionoftollsorchargesforitsuseorserviceisa franchise. (RENATOV.DIAZandAURORAMA.F.TIMBOLvs.THESECRETARYOFFINANCE, G.R. No. 193007, July 19, 2011) Inthecaseof CIRv.CourtofAppeals(CA), theCourthadtheoccasiontorulethatservices renderedforafeeevenonreimbursement-on-costbasisonlyandwithoutrealizingprofitare also subject to VAT. In that case, COMASERCO rendered service to its affiliates and, in turn, the affiliatespaidtheformerreimbursement-on-costwhichmeansthatitwaspaidthecostor 56 Bar Ops Pilipinas 2015 Philippine Association of Law Schools expense that it incurred although without profit. (COMMISSIONER OF INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R. No. 178697, November 17, 2010) Amongthoseincludedintheenumerationistheleaseofmotionpicturefilms,films,tapesand discs.This,however,isnotthesameastheshowingorexhibitionofmotionpicturesorfilms.The legislative intent is not to impose VAT on persons already covered by the amusement tax and this holds true even in the case of cinema/theater operators taxed under the LGC of 1991 precisely because the VAT law was intended to replace the percentage tax on certain services. (CIR v. SM Prime Holdings, Inc. and First Asia Realty Development Corp., G.R. No. 183505, February 26, 2010) a) Requisites for taxability14. Zero-rated sale of services15. VAT exempt transactionsAn 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. Indeed, such transaction is not subject to theVAT,butthesellerisnotallowedanytaxrefundoforcreditforanyinputtaxespaid. (COMMISSIONEROFINTERNALREVENUEvs.SEAGATETECHNOLOGY(PHILIPPINES),G.R. No. 153866, February 11, 2005) An exemptparty,ontheotherhand,isapersonorentitygrantedVATexemptionunderthe Tax Code, a special lawor 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 notsubjecttotheVAT,butmaybeallowedataxrefundoforcreditforinputtaxespaid, dependingonitsregistrationasaVATornon-VATtaxpayer.(COMMISSIONEROFINTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005) a) VAT exempt transactions, in general ByextendingtheexemptiontoentitiesorindividualsdealingwithPAGCOR,thelegislature clearlygrantedexemptionalsofromindirecttaxes.Itmustbenotedthattheindirecttaxof 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 orindividualsdealingwithPAGCORincasinooperations,itisexemptingPAGCORfrombeing liable to indirect taxes. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE, G.R. No. 172087, March 15, 2011) The rationale for the exemption from indirect taxes provided for in P.D. 1869 and the extension of such exemption to entities or individuals dealing with PAGCOR in casino operations are best elucidated from the 1987 case of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc.,wheretheabsolutetaxexemptionoftheWorldHealthOrganization(WHO)uponan internationalagreementwasupheld.Weheldinsaidcasethattheexemptionofcontractee WHO should be implemented to mean that the entity or person exempt is the contractor itself whoconstructedthebuildingownedbycontracteeWHO,andsuchdoesnotviolatetherule that tax exemptions are personal because the manifest intention of the agreement is to exempt the contractor so that no contractor's tax may be shifted to the contractee WHO. (PHILIPPINE 57 Bar Ops Pilipinas 2015 Philippine Association of Law Schools AMUSEMENTANDGAMINGCORPORATION(PAGCOR)vs.THEBUREAUOFINTERNAL REVENUE, G.R. No. 172087, March 15, 2011) Pawnshops- considered as non-bank financial intermediary is exempted from VAT but liable to percentage tax. (Tambunting Pawnshop, Inc. v. CIR, G.R. No. 179085, January 21, 2010) b) Exempt transaction, enumerated16. Input tax and output tax, defined Under the present method that relies on invoices, an entity can credit against or subtract from theVATchargedonitssalesoroutputstheVATpaidonitspurchases,inputsandimports. (COMMISSIONEROFINTERNALREVENUEvs.SEAGATETECHNOLOGY(PHILIPPINES),G.R. No. 153866, February 11, 2005) Ifattheendofataxablequartertheoutputtaxes chargedbyaseller areequaltotheinput taxes passed on by the suppliers, no payment is required. It is when the output taxes exceed theinputtaxesthattheexcesshastobepaid. (COMMISSIONEROFINTERNALREVENUEvs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005) 17. Sources of input taxa) Purchase or importation of goodsb) Purchase of real properties for which a VAT has actually been paidc) Purchase of services in which VAT has actually been paidd) Transactions deemed salee) Presumptive inputf) Transitional input Priorpaymentoftaxesisnotnecessarybeforeataxpayercouldavailofthe8%transitional inputtaxcredit:first,itwasnevermentionedinSection105oftheoldNIRC[nowSec.111] that prior payment of taxes is a requirement; second, since the law (Section 105 of the NIRC) does not provide for prior payment of taxes, to require it now would be tantamount to judicial legislation which, to state the obvious, is not allowed; third, a transitional input tax credit is not a tax refund per se but a tax credit; fourth, if the intent of the law were to limit the input tax to cases where actual VAT was paid, it could have simply said that the tax base shall be the actual value-added tax paid; and fifth, this Court had already declared that prior payment of taxes is not required in order to avail of a tax credit. (FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, January 22, 2013) Section 112 of the Tax Code does not prohibit cash refund or tax credit of transitional input tax inthecaseofzero-ratedoreffectivelyzero-ratedVATregisteredtaxpayers,whodonothave any output VAT. The phrase "except transitional input tax" in Section 112 of the Tax Code was inserted to distinguish creditable input tax from transitional input tax credit. (FORT BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, January 22, 2013) ItisapparentthatthetransitionalinputtaxcreditoperatestobenefitnewlyVAT-registered persons,whetherornottheypreviouslypaidtaxesintheacquisitionoftheirbeginning inventory of goods, materials and supplies. During that period of transition from non-VAT to VAT 58 Bar Ops Pilipinas 2015 Philippine Association of Law Schools status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. (FORTBONIFACIODEVELOPMENTCORPORATIONvs. COMMISSIONEROFINTERNAL REVENUE, G.R. No. 173425, January 22, 2013) 18. Persons who can avail of input tax credit In a VAT-exempt transaction, the seller is not allowed to charge VAT to his customer. Since no output tax is shifted by the seller, there is no output tax against which the related input taxes may be credited. Neither can he credit this input tax against the VAT due on other sales. In this case,heistreatedastheenduserwhowillshoulderthecostoftheinputVAT. (COMMISSIONEROFINTERNALREVENUEvs.SANROQUEPOWERCORPORATION,G.R.No. 187485, February 12, 2013) Unlike the input taxes related to exempt sales, input taxes related to zero-rated sales may be credited against output taxes on other sales and in case it is not fully utilized, theexcess may be carried over to the succeeding quarter or quarters and there is no prescription period for the carry-over.Thelawgivesthetaxpayeranotheroptionfortherecoveryofusedinputtaxes: applicationforrefundortaxcreditcertificate.(COMMISSIONEROFINTERNALREVENUEvs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013) 19. Determination of output/input tax; VAT payable; excess input tax creditsa) Determination of output taxb) Determination of input tax creditablec) Allocation of input tax on mixed transactionsd)DeterminationoftheoutputtaxandVATpayableandcomputationofVAT payable or excess tax credits20. Substantiation of input tax credits21. Refund or tax credit of excess input tax If,however,theinputtaxesexceedtheoutputtaxes,theexcessshallbecarriedovertothe succeedingquarterorquarters. Shouldtheinputtaxesresultfromzero-ratedoreffectively zero-ratedtransactionsorfromtheacquisitionofcapitalgoods,anyexcessovertheoutput taxesshallinsteadberefunded tothetaxpayerorcredited againstotherinternalrevenue taxes. (COMMISSIONEROFINTERNALREVENUEvs.SEAGATETECHNOLOGY(PHILIPPINES), G.R. No. 153866, February 11, 2005) While a tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability nor a priortaxpaymentisneeded.(FORTBONIFACIODEVELOPMENTCORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425, January 22, 2013) As regards Section 110, while the law only provides for a tax credit, a taxpayer who erroneously or excessively pays his output tax is still entitled to recover the payments he made either as a tax credit or a tax refund. In this case, since petitioner still has available transitional input tax credit, it filed a claim for refund to recover the output VAT it erroneously or excessively paid for the1stquarterof1997.Thus,thereisnoreasonfordenyingitsclaimfortaxrefund/credit. (FORTBONIFACIODEVELOPMENTCORPORATIONvs. COMMISSIONEROFINTERNAL REVENUE, G.R. No. 173425, January 22, 2013) 59 Bar Ops Pilipinas 2015 Philippine Association of Law Schools EvenifthelawdoesnotexpresslystatethattheIronconsexcesscreditableVATwithheldis refundable,itmaybethesubject-ofaclaimforrefundasanerroneouslycollectedtaxunder Sec. 204 (C) and 229 of the NIRC. It should be clarified that this ruling only refers to creditable VAT withheld pursuant to Sec. 114 of the NIRC prior to its amendment. After its amendment by R.A.9337,theamountwithheldunderSec.114oftheNIRCisnowtreatedasfinalVAT,no longer under the creditable withholding tax system (CIR v. Ironcon Builders and Development Corp., G.R. No. 180042, February 8, 2010) The input VAT is not "excessively" collected as understood under Section 229 because at the timetheinputVATiscollectedtheamountpaidiscorrectandproper.Theperson legallyliablefortheinputVATcannotclaimthatheoverpaidtheinputVATbythemere existence of an "excess" input VAT. The term "excess" input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229. (COMMISSIONEROFINTERNALREVENUEvs.SANROQUEPOWERCORPORATION,G.R.No. 187485, February 12, 2013) If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek arefundorcreditforsuch"excess"inputVATwhetherornothehasoutputVAT.TheVAT System does not allow such refund or credit and such "excess" input VAT is not an "excessively" collectedtaxunderSection229.(COMMISSIONEROFINTERNALREVENUEvs.SANROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013) a) Who may claim for refund/apply for issuance of tax credit certificate Having determined that respondent's purchase transactions are subject to a zero VAT rate, the taxrefundorcreditisinorder.Torepeat,theVATisataximposedonconsumption,noton business.Althoughrespondentasanentityisexempt,thetransactionsitentersintoarenot necessarilyso.TheVATpaymentsmadeinexcessofthezeroratethatisimposablemay certainlyberefundedorcredited.(COMMISSIONEROFINTERNALREVENUEvs.SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005) b) Period to file claim/apply for issuance of tax credit certificate The Court, in San Roque, ruled that equitable estoppel had set in when respondent issued BIR RulingNo.DA-489-03whichwasageneralinterpretativerule,whicheffectivelymisledall taxpayers into filing premature judicial claims with the CTA.Thus, taxpayers could rely on the ruling from its issuance on 10 December 2003 up to its reversal on 6 October 2010, when CIR v. AichiForgingCompanyofAsia,lnc. waspromulgated.(PROCTER&GAMBLEASIAPTELTD. vs.COMMISSIONER OF INTERNAL REVENUE, G.R. No. 202071, February 19, 2014) In a nutshell, the rules on the determination of the prescriptive period for filing a tax refund or credit of unutilized input VAT, as provided in Section 112 of the Tax Code, are as follows: (1) An administrative claim must be filed with the CIR within two years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. 60 Bar Ops Pilipinas 2015 Philippine Association of Law Schools (2)TheCIRhas120daysfromthedateofsubmissionofcompletedocumentsin support of the administrative claim within which to decide whether to grant a refund or issueataxcreditcertificate.The120-dayperiodmayextendbeyondthetwo-year period from the filing of the administrative claim if the claim is filed in the later part of thetwo-yearperiod.Ifthe120-dayperiodexpireswithoutanydecisionfromtheCIR, then the administrative claim may be considered to be denied by inaction. (3)AjudicialclaimmustbefiledwiththeCTAwithin30daysfromthereceiptofthe CIRsdecisiondenyingtheadministrativeclaimorfromtheexpirationofthe120-day period without any action from the CIR. (4)Alltaxpayers,however,canrelyonBIRRulingNo.DA-489-03fromthetimeofits issuanceon10December2003uptoitsreversalbythisCourtinAichion6October 2010,asanexceptiontothemandatoryandjurisdictional120+30dayperiods. (COMMISSIONEROFINTERNALREVENUEvs.TOLEDOPOWER,INC.,G.R.No.183880, January 20, 2014) The lessons of this case may be summed up as follows: A. Two-Year Prescriptive Period 1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi) 2.Theproperreckoningdateforthetwo-yearprescriptiveperiodisthecloseofthe taxable quarter when the relevant sales were made. (San Roque) 3.TheonlyotherruleistheAtlasruling,whichappliedonlyfrom8June2007to12 September 2008. Atlas states that the two-year prescriptive period for filing a claim for tax refund or credit of unutilized input VAT payments should be counted from the date of filing of the VAT return and payment of the tax. (San Roque) B. 120+30 Day Period 1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file thejudicialclaimwithinthirtydaysfromtheexpirationofthe120-dayperiodifthe Commissioner does not act within the 120-day period. 2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR. 3. As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque) 4. As an exception to the general rule, premature filing is allowed only if filed between 61 Bar Ops Pilipinas 2015 Philippine Association of Law Schools 10December2003and5October2010,whenBIRRulingNo.DA-489-03wasstillin force. (San Roque) 5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque) (COMMISSIONER OF INTERNAL REVENUE vs. MINDANAO II GEOTHERMAL PARTNERSHIP, G.R. No. 191498, January 15, 2014) Itisindisputablethatcompliancewiththe120-daywaitingperiodismandatoryand jurisdictional. Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates the doctrine of exhaustion of administrative remedies and renders the petition prematureandthuswithoutacauseofaction,withtheeffectthattheCTAdoesnotacquire jurisdictionoverthetaxpayerspetition.(MINDANAOIIGEOTHERMALPARTNERSHIPvs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March 11, 2013) Statedotherwise,thetwo-yearprescriptiveperioddoesnotrefertothefilingofthejudicial claim with the CTA but to the filing of the administrative claim with the Commissioner. As held inAichi,the"phrasewithintwoyearsxxxapplyfortheissuanceofataxcreditorrefund referstoapplicationsforrefund/creditwiththeCIRandnottoappealsmadetotheCTA." (MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March 11, 2013) SanRoque'sfailuretocomplywiththe120-day mandatory periodrendersitspetitionfor reviewwiththeCTAvoidasArticle5oftheCivilCodeprovides,"Actsexecutedagainst provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes theirvalidity."SanRoque'svoidpetitionforreviewcannotbelegitimizedbytheCTAorthis CourtbecauseArticle5oftheCivilCodestatesthatsuchvoidpetitioncannotbelegitimized "exceptwhenthelawitselfauthorizes[its]validity,"andthereisnolawauthorizingthe petition'svalidity.(COMMISSIONEROFINTERNALREVENUEvs.SANROQUEPOWER CORPORATION, G.R. No. 187485, February 12, 2013) Sec.112(A)clearlyprovidesinnouncertaintermsthatunutilizedinputVATpaymentsnot otherwiseusedforanyinternalrevenuetaxduethetaxpayermustbeclaimedwithintwo years reckonedfromthecloseofthetaxablequarterwhentherelevantsaleswere madepertainingtotheinputVATregardlessofwhethersaidtaxwaspaidornot. Thereckoningframewouldalwaysbetheendofthequarterwhenthepertinentsalesor transactionwasmade,regardlesswhentheinputVATwaspaid. (COMMISSIONEROF INTERNALREVENUEvs.MIRANTPAGBILAOCORPORATION,G.R.No. 172129.September12, 2008) This prescriptive period has no relation to the date of payment of the "excess" input VAT since the "excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112 (A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or credit of the input VAT is notthepersonwholegallypaidtheinputVAT.(COMMISSIONEROFINTERNALREVENUEvs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013) 62 Bar Ops Pilipinas 2015 Philippine Association of Law Schools The mere filing by a taxpayer of a judicial claim with the CTA before the expiration of the 120-dayperiodcannotoperatetodivesttheCommissionerofhisjurisdictiontodecidean administrative claim within the 120-day mandatory period, unless the Commissioner has clearly givencauseforequitableestoppel toapplyasexpresslyrecognizedinSection246oftheTax Code. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12, 2013) Because the 120+30 day period is jurisdictional, the issue of whether petitioner complied with thesaidtimeframemaybebroachedatanystage,evenonappeal.(NIPPONEXPRESS (PHILIPPINES) CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 196907, March 13, 2013) c) Manner of giving refundd) Destination principle or cross-border doctrine22. Invoicing requirements For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VATregisteredentityandthatitfileditsclaimswithintheprescriptiveperiod. It must substantiate the input VAT paid by purchase invoices or official receipts: 1)A "sales orcommercialinvoice"isawrittenaccountofgoodssoldorservicesrenderedindicatingthe priceschargedtherefororalistbywhatevernameitisknownwhichisusedintheordinary courseofbusinessevidencingsaleandtransferoragreementtosellortransfergoodsand services;and2)A"receipt"ontheotherhandisawrittenacknowledgmentofthefactof payment in money or other settlement between seller and buyer of goods, debtor or creditor, or personrenderingservicesandclientorcustomer.(ATLASCONSOLIDATEDMININGAND DEVELOPMENTCORPORATIONvs.COMMISSIONEROFINTERNALREVENUE,G.R. Nos. 141104 & 148763, June 8, 2007) a) Invoicing requirements in general The requisite that the receipt be issued showing the name, business style, if any, and address of the purchaser, customer or client is precise so that when the books of accounts are subjected toataxauditexamination,allentriesthereincouldbeshownasadequatelysupportedand provenaslegitimatebusinesstransactions.Theabsenceofofficialreceiptsissuedinthe taxpayer'snameistantamounttonon-compliancewiththesubstantiationrequirements providedbylaw. (BONIFACIOWATERCORPORATION(formerlyBONIFACIOVIVENDIWATER CORPORATION)vs.THECOMMISSIONEROFINTERNALREVENUE,G.R.No. 175142,July22, 2013) Taxpayersclaimingforarefundortaxcreditcertificatemustcomplywiththestrictand mandatory invoicing and accounting requirements provided under the 1997 NIRC, as amended, and its implementing rules and regulations. Thus, the change of petitioner's name to "Bonifacio GDE Water Corporation," being unauthorized and without approval of the SEC, and the issuance of official receipts under that name which were presented to support petitioner's claim for tax refund, cannot be used to allow the grant of tax refund or issuance of a tax credit certificate in petitioner'sfavor.(BONIFACIOWATERCORPORATION(formerlyBONIFACIOVIVENDIWATER CORPORATION)vs.THECOMMISSIONEROFINTERNALREVENUE,G.R.No. 175142,July22, 2013) 63 Bar Ops Pilipinas 2015 Philippine Association of Law Schools Failure to print the word zero-rated on the invoices or receipts is fatal to a claim for credit of refundofinputVATonzero-ratedsales(J.R.A.Philippines,Inc.v.CIR,G.R.No.177127, October 11, 2010) If the claim for refund/ tax credit certificate is based on the existence of zero-rated sales by the taxpayer but it fails to comply with the invoicing requirements in the issuance of sales invoices (e.g. failure to indicate the TIN), its claim for tax credit/refund of VAT on its purchases shall be denied considering that the invoice it is issuing to its customers does not depict its being a VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment iswithoutprejudicetotherightofthetaxpayertochargetheinputtaxestotheappropriate expenseaccountorassetaccountsubjecttodepreciation,whicheverisapplicable(Panasonic Comm. Imaging Corp. of the Phil. v. CIR, G.R. No. 178090, February 8, 2010) b) Invoicing and recording deemed sale transactionsc) Consequences of issuing erroneous VAT invoice or VAT official receipt23. Filing of return and payment24. Withholding of final VAT on sales to government TAX REMEDIES UNDER THE NIRC a)AssessmentAn assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and protests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly,anaffidavit,whichwasexecutedbyrevenueofficersstatingthetax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals. (CIR vs Pascor Realty and Development Corp., GR no. 128315, June 29, 1999) (i) Concept of assessment(a) Requisites for valid assessment(b) Constructive methods of income determinationTheruleisthatintheabsenceoftheaccountingrecordsofataxpayer, histaxliabilitymaybedeterminedbyestimation.Thepetitionerisnot requiredtocomputesuchtaxliabilitieswithmathematicalexactness. Approximationinthecalculationofthetaxesdueisjustified.Tohold otherwise would be tantamount to holding that skillful concealment is an invinciblebarriertoproof. However,theruledoesnotapplywherethe estimationisarrivedatarbitrarilyandcapriciously.Infine,then,the petitioner acted arbitrarily and capriciously in relying on and giving weight tothemachinecopiesoftheConsumptionEntriesinfixingthetax deficiencyassessmentsagainsttherespondent.(CIRvsHantexTrading Co., GR no. 136975, March 31, 2005) The "best evidence" envisaged in Section 16 of the 1977 NIRC [now Sec. 6,1997NIRC],asamended,includesthecorporateandaccounting