Month: August 2025

COURT OF TAX APPEALS DECISIONS

THE CTA EN BANC RULED THAT THE 30-DAY PERIOD TO APPEAL A DENIED VAT REFUND RUNS FROM THE TAXPAYER’S OWN RECEIPT OF THE DENIAL LETTER, MAKING THE LATE FILING JURISDICTIONALLY FATAL DESPITE THE TAXPAYER’S CLAIM THAT ONLY ITS COUNSEL SHOULD HAVE BEEN SERVED. The Court of Tax Appeals En Banc stressed that under the Tax Code and applicable revenue regulations, the reckoning point for the 30-day period to appeal the denial of a refund claim is the taxpayer’s actual receipt of the denial, not the date its counsel is informed. The law explicitly requires that the denial be addressed and sent to the taxpayer-claimant, and such receipt constitutes valid service in administrative proceedings, unlike in judicial proceedings governed by the Rules of Court, where service on counsel is required. The Court explained that in tax cases, administrative service to the taxpayer is sufficient, and it is the taxpayer’s duty to communicate promptly with counsel. In this case, the petitioner admittedly received the denial letter directly but failed to relay it to its counsel in time, resulting in the appeal being filed beyond the statutory 30-day window. The En Banc characterized this lapse as plain negligence, not excusable neglect, and reiterated that the appeal period is mandatory and jurisdictional. It thus affirmed the Court in Division’s dismissal of the petition for lack of jurisdiction. (Manulife Data Services, Inc. v. CIR, CTA EB No. 2850, CTA Case No. 10138, February 26, 2025)

IN INPUT VAT REFUND FROM ZERO-RATED SALES, PROOF THAT SERVICES TO NONRESIDENTS WERE PERFORMED IN THE PHILIPPINES MUST BE SUBMITTED. The Tax Code grants a 0% VAT rate to certain services rendered to nonresident clients, provided four elements are met: (1) the services are other than processing, manufacturing, or repacking of goods; (2) they are performed in the Philippines by a VAT-registered person; (3) the recipient is a foreign corporation doing business outside the Philippines or a nonresident not engaged in business in the Philippines; and (4) payment is in acceptable foreign currency and accounted for under BSP rules. The Court found that petitioner’s call and administration services to Therapeutic Case Management Services Limited met the first element, but failed to establish the second element, performance in the Philippines, since the Service Agreement was silent on service location, no witness testified to such fact, and the Independent CPA’s conclusion lacked personal knowledge and was not binding under CTA rules. Applying the rule that tax refunds and exemptions are strictly construed against taxpayers, the Court ruled that petitioner did not discharge its burden of proof, leading to the denial of its claim for ₱1,782,368.41 in unutilized input VAT for the 3^rd and 4^th quarters of 2018. (Organisational Support Services, Inc. vs. Commissioner of Internal Revenue, CTA Case No. 10525, February 14, 2025)

VAT OFFICIAL RECEIPTS MUST STATE THE ACTUAL NATURE OF SERVICES AND COMPLY WITH ALL INVOICING REQUIREMENTS. VAT official receipts must indicate, among others, the actual “nature of the service” and comply with all invoicing requirements, as these are mandatory for substantiating VAT refund claims. In this case, the petitioner’s receipts covering sales to PEZA-registered clients merely stated “downpayment” or “others,” which do not specify the actual services rendered, and were unsigned by the authorized signatory despite the petitioner’s own printed notation that such signature is required for validity. The Court held that strict compliance with invoicing and substantiation rules is essential to ensure accuracy and veracity in VAT claims; thus, the absence of the required details and signatures justified the denial of zero-rating for these sales. (Tetra Pak Philippines, Inc. v.  CIR, CTA Case No. 10546, Amended Decision, March 25, 2025)

TAXPAYER MUST PROVE THAT THAT THE BUYER IS AN EXPORT-ORIENTED ENTERPRISE - OVER 70% EXPORT SALES IN THE PRECEDING TAXABLE YEAR AND VALID FOR THE CLAIM PERIOD. Sales of raw or packaging materials to an export-oriented enterprise, defined as one whose export sales exceed 70% of total annual production in the preceding taxable year, qualify for 0% VAT, provided the enterprise’s status is established for the relevant period of sale. Petitioner sought VAT zero-rating based on DTI-EMB Certificates of Accreditation under RA No. 7844 and letters showing export percentages. However, the DTI-EMB list covered only July 2018, outside the 4th quarter 2018 claim period, and did not show its 2017 export sales ratio; another client’s list covered only January–February 2018 and reflected a 92% export rate based on 2016 data, not the required 2017 figures. The Court ruled that mere accreditation is insufficient without proof of export-oriented status for the specific claim period, thus sustaining the denial of VAT zero-rating for these sales. (Tetra Pak Philippines, Inc. v.  CIR, CTA Case No. 10546, Amended Decision, March 25, 2025)

INPUT VAT ON IMPORTATIONS IS REFUNDABLE ONLY IF TIED TO ZERO-RATED SALES WITHIN THE CLAIM PERIOD NOT WHEN PAID. VAT-registered taxpayer may claim refund of input VAT on importations only when such VAT is directly attributable to zero-rated sales made within the period of claim. Here, the petitioner sought reconsideration of disallowed input VAT on importations totaling ₱1,571,474.51, asserting that the refund period should be reckoned from the date of payment of VAT to the Bureau of Customs. The Court rejected this argument, clarifying that entitlement depends on when the related zero-rated sales were made, not when the VAT was paid. It found that certain importations either did not match the items sold under zero-rated invoices or, though related, pertained to sales outside the fourth quarter of CY 2018, rendering them ineligible. However, a small amount of ₱125.25 for matched sales was reconsidered as valid. Ultimately, the Court partially granted the petition, ordering a refund of ₱9,174,250.45 as excess and unutilized input VAT attributable to valid zero-rated sales for the quarter. (Tetra Pak Philippines, Inc. v.  CIR, CTA Case No. 10546, Amended Decision, March 25, 2025)

REASONS FOR DISALLOWANCE OF INPUT VAT DUE TO INVOICING REQUIREMENTS: Supporting documents which the Court noted as being partly blurred, blackened, and/or not properly scanned; input VAT on purchases of goods supported by documents other than VAT invoice; input VAT on purchases of service supported by documents other than VAT OR; input VAT on purchases of services reported as purchases of services supported by VAT ORs, but the nature of services were not indicated/statement not attached/nature of payment cannot be ascertained; input VAT on purchases of services supported by VAT ORs but input VAT amounts per OR are lower than the amounts per claim (Overclaimed input VAT); input VAT on purchases of services supported by VAT ORs but the input VAT amounts were not separately indicated; supporting documents not found in the scanned file but included in the  claim (Manulife Data Services, Inc. v. CIR, CTA Case No. 10666, January 2025); incomplete or incorrect name, address, or TIN of the petitioner; absence or inaccuracy of VAT amounts; missing unit cost, quantity, or VATable amount; use of the Liaison/Branch Office address with the Head Office TIN (or incomplete branch TIN); no indication of the nature of the payment for services; illegible or missing TIN; certain documents reflected prior period purchases, unsupported transactions, or payments not valid for input VAT claims. (Mindanao Container Corporation v. CIR, CTA Case No. 10513, February 19, 2025)

ZERO-RATING REQUIRES PROOF THAT SERVICES RENDERED TO A NONRESIDENT WERE PAID IN ACCEPTABLE FOREIGN CURRENCY AND ACCOUNTED FOR UNDER BSP RULES, WITH A CLEAR NEXUS BETWEEN PAYMENT AND THE ZERO-RATED SALE. A VAT refund for unutilized input tax on zero-rated sales requires, among others, proof that the sales are zero-rated and that payments received are in acceptable foreign currency, duly accounted for under BSP rules, and directly attributable to such sales. While PPD Pharma established its VAT registration, the nonresident status of its client PPD Global, and timely filing of claims, it failed to prove that the $7.5 million received was exclusively payment for zero-rated services rendered in Q3 and Q4 of 2018. Evidence, including Official Receipts, Proofs of Remittances, and bank certifications, merely showed foreign currency inflows without linking them to the alleged service fees, especially since the amounts could also represent advances or loans. The absence of billing statements or other documentation to establish this nexus led the court to deny the refund claim for insufficiency of evidence. (PPD Pharmaceutical Development Philippines. Corp. v. Commissioner of Internal Revenue, CTA Case No. 10466, February 6, 2025)

DEPARTMENT OF ENERGY (DOE) REGISTRATION IS MANDATORY TO AVAIL VAT INCENTIVES, BUT  HYDROPOWER SALES TO NPC STILL QUALIFIED FOR ZERO-RATING WARRANTING A VAT REFUND.  Under the Renewable Energy Act and its implementing rules, registration with the Department of Energy is required before a renewable energy developer can enjoy fiscal incentives such as the 0% VAT rate. This rule means that simply being engaged in renewable energy generation does not automatically grant such benefits. In this case, the Court found that CBK Power Company Limited, though operating a hydropower plant, was not entitled to VAT incentives under the RE Law due to its admitted non-registration with the DOE. However, the Court still recognized CBK’s sales of electricity to the National Power Corporation as zero-rated, given that hydropower is a renewable source. (Commissioner of Internal Revenue v. CBK Power Company Limited, CTA EB No. 2801 CTA Case No. 10137, January 17, 2025)

THE CTA EN BANC DISMISSED THE CIR’S PETITION FOR RELIEF FROM JUDGMENT FOR BEING FILED WAY PAST THE 60-DAY AND 6-MONTH PERIODS AND FOR FAILING TO SHOW THAT COUNSEL’S LAPSES AMOUNTED TO EXCUSABLE NEGLIGENCE, REITERATING THAT CLIENTS ARE BOUND BY THEIR LAWYERS’ ACTS. The Court of Tax Appeals En Banc emphasized that a petition for relief from judgment is an equitable, exceptional remedy subject to the strict “double-period” rule—both (1) within 60 days from actual knowledge of the judgment and (2) within six months from its entry. These periods must be met simultaneously; noncompliance is fatal as they are jurisdictional. In this case, judgment was entered on August 19, 2022, but the CIR filed its petition only on March 31, 2023, well beyond the 6-month cut-off of February 19, 2023. The CIR also failed to prove the exact date when it received or learned of the judgment, preventing verification of the 60-day requirement. On substance, the CIR argued excusable negligence due to Atty. Tejada’s inaction, but the Court ruled this unavailing since the case had multiple counsels who could have intervened. Under settled doctrine, clients are bound by counsel’s acts or omissions, absent compelling exceptions—which were not shown here. Consequently, the En Banc affirmed the Special Second Division’s denial, stressing that procedural deadlines for this remedy admit no leniency. (Commissioner of Internal Revenue v. Unnamed Respondent, CTA EB No. 2833, January 16, 2025)

BIR RULINGS

INCOME TAX EXEMPTION GRANTED FOR REVENUES USED EXCLUSIVELY FOR EDUCATIONAL PURPOSES BY A QUALIFIED NON-STOCK, NON-PROFIT INSTITUTION. Pursuant to Section 30(H) of the National Internal Revenue Code of 1997, as amended, a Certificate of Tax Exemption was issued to a non-stock, non-profit educational institution proven to operate exclusively for educational purposes. The exemption covers income derived from tuition and school fees, as well as revenues from cafeteria, dormitory, and bookstore operations located within school premises, provided they are owned and operated by the institution and used directly for educational activities. Interest income from bank deposits used exclusively for educational purposes is likewise exempt from final taxes, subject to documentary compliance. The institution remains liable for taxes on unrelated income or profit-driven activities and is subject to VAT, percentage tax, and withholding tax where applicable. The exemption is contingent on continued compliance with BIR rules, including annual reporting, record-keeping, and submission of certified financial and operational documents. (BIR Ruling No. SH30-027-2025, January 14, 2025); SH30-036-2025, February 26, 2025).

CAPITAL GAINS TAX EXEMPTION GRANTED FOR A COMMUNITY MORTGAGE PROGRAM LAND SALE TO A QUALIFIED HOMEOWNERS’ ASSOCIATION. The sale of a parcel of land located in Brgy. Riverside, Calinan, Davao City under the Community Mortgage Program (CMP) to a duly registered homeowners' association is exempt from capital gains tax. However, the transaction remains subject to documentary stamp tax under Section 196 of the Tax Code. The exemption does not authorize the transfer of land title unless a Certificate Authorizing Registration (CAR) is secured following the submission of documents required under RMO No. 15-2003. (BIR Ruling No. CMP-028-2025, January 14, 2025)TRANSFER OF LEGAL TITLE OF A CLUB SHARE BETWEEN TRUSTEES, WITHOUT CHANGE IN BENEFICIAL OWNERSHIP, IS NOT SUBJECT TO CGT, DONOR’S TAX, OR DST. Pursuant to Sections 24(C), 175, and 176 of the National Internal Revenue Code, as amended, and consistent with established jurisprudence, the Bureau of Internal Revenue ruled that the transfer of legal title over a proprietary club membership share from a former corporate trustee to a newly designated trustee, under a valid Declaration of Trust, is not subject to capital gains tax, donor’s tax, or documentary stamp tax, as there is no monetary consideration, no intent to donate, and no transfer of beneficial ownership - the beneficial title remaining with the corporate principal. The transaction is purely for administrative compliance with club membership rules requiring natural persons as registered holders. However, the notarial acknowledgment of the Declaration of Trust remains subject to DST under Section 188, and no Certificate Authorizing Registration or Tax Clearance is required to affect the transfer. (BIR Ruling No. OT-029-2025, January 17, 2025; BIR Ruling No. OT-046-2025, April 4, 2025)

INCOME FROM GAMING OPERATIONS BY A PAGCOR LICENSEE IS EXEMPT FROM CIT AND VAT SUBJECT ONLY TO 5% FRANCHISE TAX. A licensed operator authorized by PAGCOR to conduct electronic gaming activities is exempt from corporate income tax and value-added tax on income solely derived from its gaming operations. The exemption, as clarified in jurisprudence, inures to the benefit of PAGCOR’s licensees and contractees, who, like PAGCOR, are subject only to a 5% franchise tax on gross revenue from gaming operations, in lieu of all other national and local taxes. However, income from unrelated or non-gaming services shall remain subject to regular corporate income tax and VAT. (BIR Ruling No. OT-032-2025, (January 21, 2025)

SALE OF EDUCATIONAL E-MATERIALS NOT DEVOTED TO ADVERTISEMENTS IS VAT-EXEMPT. The sale of e-journals, e-books, and other electronic materials used for educational purposes, and not principally devoted to paid advertisements, is exempt from the 12% value-added tax. A corporation engaged in such transactions qualifies for this VAT exemption. However, if the entity engages in other non-exempt services such as bookbinding, engraving, or printing, those transactions remain subject to VAT, requiring separate VAT registration and invoicing. Additionally, while exempt on its sales of educational materials, the corporation is not exempt from VAT passed on by suppliers on its purchases, as VAT is an indirect tax borne by the buyer. (BIR Ruling No. VAT-033-2025, February 05, 2025)

TAX EXEMPTION IS GRANTED FOR A GOVERNMENT-CONTRACTED SOCIALIZED HOUSING PROJECT. A tax exemption was granted to a contractor engaged by a national housing agency for a socialized housing project consisting of five five-storey low-rise buildings with 300 units in Caloocan City, intended as relocation for informal settler families affected by a government infrastructure project. The exemption covers income tax and creditable withholding tax directly related to the project, and the sale of residential units is exempt from VAT provided the selling price per unit does not exceed ₱3,600,000. However, purchases of goods or services related to the project remain subject to VAT, and VAT-exempt receipts must be issued. This certification does not substitute for a Certificate Authorizing Registration (CAR), which must still be secured from the BIR following the proper process. (BIR Ruling No. NSH-034-2025, February 26, 2025)

RECONVEYANCE OF PROPERTY UNDER A COURT-DECLARED TRUST IS NOT SUBJECT TO CGT OR DST. No capital gains tax or documentary stamp tax applies to a court-ordered reconveyance of real property where no consideration is involved and no capital gain is presumed to have been realized. In this case, two parcels of land registered in the name of a former director were judicially confirmed to be held in trust for a corporation, which had continuously possessed, used, and paid real estate taxes on the properties. A final and executory decision declared the existence of a resulting trust and ordered reconveyance to the true owner. As the transfer was merely to restore legal title to its rightful holder and did not involve a sale or exchange, it is not subject to CGT or DST, except for the ₱30.00 DST on the notarial acknowledgment under Section 188. (BIR Ruling No. OT-035-2025, February 26, 2025).

MANDATED TRANSFER OF SHARES TO THE REPUBLIC THROUGH A GOVERNMENT COMMISSION PURSUANT TO ADMINISTRATIVE ORDERS IS EXEMPT FROM CAPITAL GAINS TAX, DONOR’S TAX, AND DOCUMENTARY STAMP TAX.  The transfer of shares from certain corporations to the Republic of the Philippines through a government commission is not considered a sale, donation, or taxable conveyance. The transaction was undertaken solely to comply with the directives of the administrative orders, without any donative intent or commercial exchange. As such, the Bureau of Internal Revenue ruled that the transfer is exempt from capital gains tax due to the absence of a sale or disposition, from donor’s tax for lack of liberality, and from documentary stamp tax as it is not a taxable conveyance under the law (BIR Ruling No. OT- 40-41-2025, March 13, 2025).

DONATION OF REAL PROPERTIES TO A LOCAL GOVERNMENT UNIT IS EXEMPT FROM DONOR’S TAX AND DOCUMENTARY STAMP TAX (DST), EXCEPT FOR THE DST ON NOTARIZATION. Donations made to political subdivisions of the national government are exempt from donor’s tax. In this case, the transfer of parcels of land from a private entity to a local government unit qualifies for such exemption, being a gratuitous transfer to a political subdivision. The transaction is likewise exempt from documentary stamp tax, except for the P30 DST. (BIR Ruling No. DT-042-2025 (March 24, 2025).

THE SALE OF LAND TO A LOCAL GOVERNMENT FOR A SOCIALIZED HOUSING PROJECT IS EXEMPT FROM CAPITAL GAINS TAX BUT SUBJECT TO DOCUMENTARY STAMP TAX. The transfer of a parcel of raw land from private owners to a local government unit for use in a qualified socialized housing project is exempt from capital gains tax. However, the transaction remains subject to documentary stamp tax, and title transfer shall require an eCAR from the BIR with an annotation stating “Intended for Socialized Housing Project.” (BIR Ruling No. OT-043-44-2025, March 24, 2025).

SALE OF CARBON EMISSION CREDITS BY A REGISTERED RENEWABLE ENERGY DEVELOPER ARE EXEMPT FROM ALL TAXES. Republic Act No. 9513, as implemented by Revenue Regulations No. 7-2022, grants full tax exemption on proceeds from the sale of carbon emission credits by duly registered Renewable Energy developers. The developer transferred carbon emission credits generated from a solar rooftop project to a foreign government in exchange for funding, under an agreement fulfilling all requisites of a valid contract of sale - consent, determinate subject matter, and price certain in money. As the transaction constitutes a sale in substance and aligns with the objectives of the bilateral low-carbon growth partnership, the proceeds are exempt from income tax, VAT, and all other taxes pursuant to RA No. 9513 and related regulations. (BIR Ruling No. OT-045-2025, April 3, 2025)

REVENUES FROM SALES AND SERVICES BY A NON-STOCK, NON-PROFIT ENTITY ARE SUBJECT TO VAT AS TAXABLE INCOME, NOT EXEMPT CAPITAL CONTRIBUTIONS. Any person, including non-stock, non-profit organizations, engaged in the regular sale of goods or performance of services for a fee is liable for VAT regardless of profit intent, unless specifically exempt under Section 109. A non-profit religious institution sought VAT exemption for proceeds from sales of religious materials, facility rentals, training services, and licensing, asserting these were capital infusions. The BIR ruled that the receipts are payments for goods and services, not funds held in trust, and therefore constitute taxable income. Since the transactions fall within the statutory definition of sale of service and are not listed among VAT-exempt transactions, they are subject to VAT despite the entity’s non-profit status. (BIR Ruling No. OT-047-2025, April 4, 2025)

A REGISTERED DOMESTIC MARKET ENTERPRISE AVAILING OF THE 5% GROSS INCOME TAX BEFORE CREATE REMAINS EXEMPT FROM REGULAR INCOME TAX AND 5% CREDITABLE WITHHOLDING TAX ON RENTAL PAYMENTS FOR UP TO TEN YEARS. Income payments to entities registered in special economic zones and enjoying income tax exemption are not subject to creditable withholding tax. A domestic market enterprises already availing of the 5% tax on gross income prior to the CREATE Law’s effectivity may continue such incentive for a maximum of ten years. Applying this, a registered enterprise engaged in industrial development and leasing activities remains entitled to the 5% preferential tax rate in lieu of all national and local taxes during the transition period, and its lessees are not required to withhold the 5% creditable withholding tax on rental payments. BIR Ruling No. OT-048-2025 (April 4, 2025)

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. If you have clarification or concern or no longer wish to receive updates, please feel free to reach out to us.

BIR DEADLINES

BIR DEADLINES FROM AUGUST 18 TO AUGUST 24, 2025. A gentle reminder on the following deadlines, as may be applicable:

COURT OF TAX APPEALS DECISIONS

AMORTIZED INPUT VAT MUST BE SUPPORTED BY INVOICE OR OFFICIAL RECEIPTS AND CERTIFIED TRUE COPY OF THE AMORTIZATION SCHEDULE.  Section 110(A)(2) of the NIRC of 1997, as amended, requires that input VAT on capital goods exceeding ₱1 million be amortized over 60 months or the estimated useful life of the asset, whichever is shorter. Only the portion that has ripened during the claim period may be applied for refund, and Section 110(A)(1) mandates that such claims be supported by valid VAT invoices or official receipts issued during the claim period. In this case, petitioner sought a refund of the ripened portion of its deferred input VAT on capital goods from prior years but failed to present the necessary VAT invoices or official receipts to substantiate the claim. Additionally, as required under Section 11(4)(b) of RMC No. 47-2019, a claimant referring to previously approved deferred input VAT must submit the amortization schedule marked as a "Certified True Copy from the Original" by the head of the processing office. However, the taxpayer submitted only photocopies marked "Authenticated from: Photocopy," which did not satisfy the prescribed documentary standards. As a result, the Court found that both the lack of proper invoices and failure to submit duly certified documents justified the BIR’s disallowance of the input VAT claim. (Unilever Global Services B.V. Philippines Regional Operating Headquarters ROHQ v. CIR, CTA Case No. 10385, January 20, 2025)

IN VAT REFUND CASES, THE BIR CANNOT VALIDLY IMPOSE OUTPUT VAT, WITHHOLDING VAT AND COMRPOMISE PENALTY; EVEN ASSUMING FINAL WITHHOLDING VAT IS CORRECTLY IMPOSED, IT IS CREDTABLE TO THE TAXPAYER HENCE HAS NO EFFECT IN THE REFUND. Section 228 of the NIRC of 1997, as amended, and Revenue Regulations No. 12-99 require that any deficiency assessment such as output VAT, withholding VAT, or compromise penalties must go through proper assessment procedures, including the issuance of a notice of assessment and the opportunity for the taxpayer to protest.  Here, the BIR deducted from the taxpayer’s VAT refund claim several amounts on the ground that these represented unpaid output VAT on alleged VAT-able transactions, 12% final withholding VAT on interest payments to a foreign entity, and compromise penalties. The Court held that these deductions effectively constituted tax assessments, which are invalid when done within a refund proceeding without issuing a proper assessment and observing due process. Notably, the BIR’s deductions deprived the petitioner of the opportunity to refute the impositions administratively, which is contrary to the procedure mandated by law. Furthermore, the Court clarified that even if the 12% final withholding VAT on interest expense were correct, such VAT is creditable to the petitioner as a VAT-registered withholding agent, and would have no effect on the refund claim. Accordingly, the Court found that these deductions were improperly made and ordered their exclusion from the computation of the refundable amount. (Unilever Global Services B.V. Philippines Regional Operating Headquarters ROHQ v. CIR, CTA Case No. 10385, January 20, 2025)

TAXPAYER HAS OPTION TO OFFSET INPUT VAT FROM OUTPUT VAT OR PRORATE THE INPUT VAT BETWEEN VATABLE AND ZERO-RATED SALES. Under Section 112 of the NIRC of 1997, as amended, a VAT-registered taxpayer with zero-rated sales may apply for a refund or tax credit certificate (TCC) of its unutilized input VAT. In Chevron Holdings, Inc. v. CIR, the Supreme Court clarified that the taxpayer has two options: (1) charge the input VAT attributable to zero-rated sales against output VAT from taxable sales and claim only the excess for refund, or (2) claim the entire amount of input VAT attributable to zero-rated sales directly for refund. These remedies are cumulative but mutually exclusive for a given amount of input VAT. Here, the Court found that the taxpayer clearly opted for the first method, which is applying input VAT against output VAT. However, since petitioner’s input VAT directly allocated to VAT-able sales was insufficient to fully offset its output VAT liability, the input VAT originally allocated to zero-rated sales was partially used to settle the remaining output VAT due. The balance of the unutilized input VAT, attributable to zero-rated sales, was then computed and considered for refund. Thus, the Court applied proportional allocation based on sales volume and allowed the remaining unutilized portion of input VAT as refundable. (Unilever Global Services B.V. Philippines ROHQ v. CIR)

WITHOUT PROOF OF INWARD REMITTANCE OR VALID OFFSETTING, ZERO-RATED VAT REFUND UNDER SECTION 108(B)(2) OF THE NIRC CANNOT BE GRANTED. Under Section 108(B)(2) of the NIRC, services rendered in the Philippines to a non-resident foreign client may qualify for VAT zero-rating if paid in acceptable foreign currency and accounted for in accordance with BSP rules. Here, although petitioner proved that services were rendered locally, it failed to establish actual foreign currency remittance or a valid offsetting arrangement. The submitted credit facility agreement did not authorize inter-affiliate offsetting, nor was there sufficient documentation to show that payments were for services rendered. Hence, the claim for VAT refund was denied. (Avaloq Philippines Operating Headquarters v. Commissioner of Internal Revenue, CTA Case No. 10248, February 3, 2025)

FILING BEYOND THE 30-DAY PERIOD AFTER THE 90-DAY INACTION PERIOD UNDER SECTION 112(C) OF THE NIRC DEPRIVES THE CTA OF JURISDICTION. Section 112(C) of the NIRC requires that a judicial claim for VAT refund be filed within 30 days from either the receipt of the CIR's decision or the lapse of the 90-day period to act on the administrative claim, whichever comes first. Here, the BIR failed to act within the 90-day period. Although petitioner later received a VAT Refund/Credit Notice and sought clarification, the Court ruled that the 30-day period must be reckoned from the lapse of the 90 days, not from any later correspondence. Since the petition was filed beyond this period, the CTA dismissed the case for lack of jurisdiction. (Schaeffler Philippines Inc. v. Commissioner of Internal Revenue, CTA Case No. 10268, January 24, 2025)

INVOICE AND OFFICIAL RECEIPTS REQUIREMENTS: MUST INDICATE “ZERO-RATED”, DATED WITHIN THE COVERED QUARTER, ATP MUST HAVE VAILIDITY PERIOD, MUST BE REGISTERED, MUST STATE THE NATURE OF THE SERVICE. Section 108(B) of the NIRC of 1997, as amended, provides that certain sales of services may qualify for VAT zero-rating if specific conditions are met, including payment in acceptable foreign currency and proper documentation. Meanwhile, Section 113(B), in relation to Section 237 and Revenue Regulations No. 16-2005, mandates that VAT official receipts must be BIR-registered and must clearly indicate essential details such as the nature of the services, TIN, and the phrase "zero-rated sale" for the sale to be considered validly zero-rated. Here, the receipts were either dated outside the covered quarter or ATP validity period, did not indicate “zero-rated” status, or were entirely unregistered. Even the amount supported by BIR-registered VAT ORs was denied because the receipts merely referenced “various invoices” without identifying the specific nature of services rendered, in violation of Section 113(B)(3), the taxpayer did not submit in evidence the said invoices, which could have been cross-referenced with the ORs and provided the necessary data that will confirm the nature and details of the supposed zero-rated sales. Consequently, the Court cannot ascertain on its own whether the payments received are indeed for the claimed services rendered by petitioner.  Given that tax refunds are in the nature of tax exemptions, they must be strictly construed against the taxpayer. The Court emphasized that it is the claimant’s burden to prove compliance with all legal and documentary requirements. For failure to comply with these mandatory invoicing and substantiation requirements, petitioner’s claim for refund of unutilized input VAT was denied. Nippon Express Philippines Corporation v. Commissioner of Internal Revenue, CTA Case No. 10416, February 27, 2025)

FAILURE TO PROVE THAT SERVICES WERE PERFORMED IN THE PHILIPPINES DEFEATS A CLAIM FOR VAT ZERO-RATING. Under Section 108(B)(2) of the NIRC of 1997, as amended, services rendered by a VAT-registered person may be subject to zero percent VAT if (1) the services are not processing, manufacturing, or repacking; (2) the services are performed in the Philippines; (3) the recipient is a nonresident or a foreign entity doing business outside the Philippines; and (4) payment is in an acceptable foreign currency accounted for per BSP rules. Here, the taxpayer claimed a refund of unutilized input VAT attributed to alleged zero-rated sales made to a foreign entity (TCMS) under a Service Agreement. While the nature of services met the first requirement, petitioner failed to prove the second, that the services were actually performed in the Philippines. The Service Agreement was silent on the place of performance, and no witness testified to establish this fact. The independent CPA’s report merely inferred performance in the Philippines based on the petitioner’s registration documents, which the Court found insufficient, citing that findings of an ICPA are not conclusive. Because the taxpayer failed to prove that a key element of Section 108(B)(2) was satisfied, the Court held that it need not evaluate the other requisites and denied the claim (Organisational Support Services, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10525, February 14, 2025)

BIR ISSUANCES

REVENUE MEMORANDUM CIRCULAR NO. 071-2025

REVENUE MEMORANDUM CIRCULAR (RMC) NO. 76-2025

BIR RULINGS

THE CIR MAY RE-ALLOCATE INCOME AND IMPOSE DST ON APIC AS CONSIDERATION, FINDING CONTROL AND NON-ARM’S-LENGTH PRICING IN A BELOW-BOOK-VALUE SHARE SALE AMONG RELATED PARTIES. Pursuant to Section 50 of the National Internal Revenue Code of 1997, as amended, and interpreted under RR No. 02-2013 and RR No. 20-2020, the Commissioner of Internal Revenue (CIR) may allocate income and deductions between controlled entities to reflect true taxable income and prevent tax evasion, even absent fraud or an actual share transfer. In this case, shares sold below book value were assessed based on the prescribed valuation rules for unlisted shares, using the latest audited financial statements. Additional Paid-In Capital (APIC), despite not resulting in new share issuance, was deemed part of the actual consideration under the original subscription agreement and thus subject to documentary stamp tax. The CIR also found that allocating APIC solely to certain share classes with special privileges, without proper value alignment, violated arm’s length principles, allowing the application of Section 50. Control was inferred based on the preferential rights of certain share classes, justifying the CIR's exercise of authority to ensure income was properly reflected and taxed. BIR Ruling No. OT-006-2025 (January 6, 2025).

VESSELS CAPABLE OF WATER TRANSPORT AND USED FOR NON-PROFITABLE DISPLAY ARE CONSIDERED “INTENDED FOR PLEASURE” AND SUBJECT TO 20% EXCISE TAX. Pursuant to Section 150(c) of the National Internal Revenue Code of 1997, as amended, and interpreted alongside PD No. 474, PD No. 1158, and RA No. 9295, the importation of engineless pontoon boats intended solely for decorative display is subject to 20% excise tax as non-essential goods. While the boats lack engines and are not used for transportation, they meet the legal definition of a “vessel” as they are artificial contrivances capable of floating and transport using external motive power. The fact that the boats are used for non-profitable display purposes, as certified by the maritime authority, classifies them as being intended “for pleasure.” Hence, they fall squarely under the scope of luxury vessels taxable under the cited provision. BIR Ruling No. OT-007-2025 (January 6, 2025).

SERVICE FEES FOR WORK PERFORMED ABROAD BY A NON-RESIDENT FOREIGN CORPORATION ARE EXEMPT FROM PHILIPPINE TAX, BUT PAYMENTS FOR THE TRANSFER OF SOFTWARE IP ARE SUBJECT TO 25% FINAL TAX AND IMPORT VAT. Pursuant to Sections 23(F), 42(A)(3), and 108(A) of the Tax Code of 1997, as amended, payments made by a domestic financing company to a non-resident foreign corporation (NRFC) for software development services performed entirely abroad are not considered Philippine-sourced income and are therefore exempt from income tax, VAT, and withholding tax. However, under Section 28(B) and relevant BIR issuances, the transfer of exclusive intellectual property rights—including source code—of the developed software is treated as a transfer of copyright ownership and thus subject to a 25% final withholding tax on business income. Additionally, the electronic transfer of the software constitutes importation and is subject to 12% VAT, which must be withheld and remitted by the Philippine company prior to fund remittance. BIR Ruling No. OT-008-2025 (January 6, 2025).

SERVICES PERFORMED ABROAD MAY STILL BE TAXABLE IN THE PHILIPPINES IF THE INCOME-GENERATING ACTIVITY IS EFFECTIVELY RENDERED WITHIN PHILIPPINE TERRITORY. Pursuant to Sections 23(F), 42(A)(3), and 108(A) of the Tax Code, income and VAT are imposed only when the service is performed in the Philippines. Applying this, the tax authority found that the income-generating activity—measured by user actions triggered through online advertisements—occurred within the Philippines, as the value of the services rendered by the non-resident foreign entity depended on results achieved within Philippine territory. Despite the contractual performance being executed abroad, the economic benefit originated locally, thus making the income Philippine-sourced and subject to income tax, VAT, and withholding tax. The Supreme Court ruling in Aces Philippines guided the analysis by emphasizing that completion of services and inflow of economic benefit determine tax situs, not mere physical location of the service provider. BIR Ruling No. OT-009-2025 (January 6, 2025).

SERVICE FEES PAID TO A FOREIGN ADVERTISING PROVIDER ARE TAXABLE IN THE PHILIPPINES WHERE ECONOMIC BENEFITS ARISE LOCALLY. Under Sections 23(F), 42(A)(3), and 108(A) of the Tax Code, a non-resident foreign corporation is taxable on income from Philippine sources, including services deemed performed in the Philippines. In this case, a domestic financing firm engaged a UAE-based advertising service provider under a lead generation agreement where fees were computed based on statistical data linked to Philippine user actions such as sign-ups or purchases. Applying the Supreme Court’s ruling in Aces Philippines, the BIR concluded that the provider’s services—while initiated abroad—were effectively completed in the Philippines, as the inflow of economic benefit occurred locally upon user engagement. As such, the payments were held subject to income tax, VAT, and withholding tax, with the domestic entity failing to sufficiently establish that the income was sourced exclusively from outside the Philippines. (BIR Ruling No. OT-010-2025 (January 6, 2025).

ROYALTIES PAID TO A NON-RESIDENT FOR ACCESS TO COMMERCIAL INFORMATION USED IN THE PHILIPPINES ARE TAXABLE IN THE PHILIPPINES. Under Sections 28(B)(1) and 42(A)(4) of the Tax Code, royalties paid to a non-resident foreign corporation are considered income from Philippine sources if the right or information is used in the Philippines, making it subject to final withholding tax. In this case, a domestic financing company engaged a Hungarian service provider to grant access to a cloud-based machine learning platform used for customer profiling and fraud detection. Although the provider operated entirely from abroad, the platform enabled Philippine-based activities by allowing access to profiling data based on user information collected locally. The BIR ruled that such access constituted the supply of commercial information used in the Philippines, classifiable as royalty income and therefore subject to 25% final withholding tax. BIR Ruling No. OT-011-2025 (January 6, 2025).

PAYMENTS TO A FOREIGN SERVICE PROVIDER ARE NOT SUBJECT TO PHILIPPINE TAX WHERE SERVICES ARE RENDERED ENTIRELY ABROAD. Under Sections 23(F), 42(A)(3), and 108(A) of the Tax Code, a non-resident foreign corporation is taxable in the Philippines only on income derived from sources within the country, with the source of service income determined by the place of performance. In this case, a domestic financing firm engaged a Russian-based entity to perform risk engine development and IT technical support services, all of which were carried out in the provider’s head office abroad. Since no part of the service was performed in the Philippines, the income earned was not considered Philippine-sourced. As a result, the payments made were not subject to income tax, VAT, or withholding tax under Philippine law. BIR Ruling No. OT-012-2025 (January 6, 2025).

A HOMEOWNERS’ ASSOCIATION IS NOT ENTITLED TO INCOME TAX EXEMPTION WITHOUT PROOF THAT IT PERFORMS BASIC COMMUNITY SERVICES IN PLACE OF THE LOCAL GOVERNMENT UNIT, AND THAT ITS FUNDS ARE USED SOLELY FOR THOSE SERVICES. Under Section 30 of the Tax Code, tax exemption is granted only to specific types of non-stock, non-profit organizations, which do not include residential homeowners' associations. While RA No. 9904 and RMC No. 9-2013 provide for conditional tax exemption on association dues and rental income, the benefit applies only if the association is duly recognized under RA No. 9904, performs basic community services in place of the local government unit, and proves that its funds are used solely for those services. In this case, the homeowners’ association failed to submit proof of compliance with these conditions, such as LGU certification and financial statements demonstrating proper use of funds, thereby disqualifying it from income tax exemption and subjecting its income to applicable withholding tax. BIR Ruling No. OT-013-2025 January 6, 2025.

SERVICE FEES PAID TO A NON-RESIDENT FOREIGN ADVERTISING PROVIDER ARE SUBJECT TO PHILIPPINE INCOME TAX AND WITHHOLDING TAX WHERE SERVICES ARE EFFECTIVELY RENDERED WITHIN THE PHILIPPINES. Under Section 42(A)(3) of the Tax Code, services are considered sourced within the Philippines and thus taxable if actually performed in the country. In this case, a domestic financing corporation engaged a Singapore-based non-resident foreign corporation to perform online advertising services under a lead generation agreement. Payment was based on statistical data generated from customer actions originating from the Philippines, evidencing that the income-generating activity occurred locally. Applying the Supreme Court ruling in Aces Philippines, the situs of income is determined by the completion of services that deliver economic benefits—in this case, the availment of services through online advertisements targeting Philippine users. Consequently, the payments made are subject to Philippine income tax, withholding tax, and 12% VAT, as the services were effectively rendered within Philippine territory. BIR Ruling No. OT-014-2025 (January 7, 2025)

BIR DEADLINES

BIR DEADLINES FROM AUGUST 4 TO AUGUST 10, 2025. A gentle reminder on the following deadlines, as may be applicable: