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AUGUST 2023 COURT OF TAX APPEALS DECISIONS

TAX ASSESSMENTS

 

FIVE-YEAR RECOVERY PERIOD TO EXEMPT FTAA CONTRACTOR FROM EXCISE TAX RUNS FROM PARTIAL DECLARATION OF MINING FEASIBILITY. Financial or Technical Assistance Agreement (FTAA) contractor is exempt from excise tax if it has not fully recovered its pre-operating expenses, exploration and development expenditures for the recovery period of 5 years counted from the date of commencement of commercial production (first circumstance) or date when the aggregate of the Net Cash Flows from the Mining Operations is equal to the aggregate of its pre-operating expenses (second circumstance), whichever comes first. Commercial production is reckoned from the date of commercial operation as declared by the contractor or as stated in the feasibility study, whichever comes first. Where the taxpayer advised the DENR in 2013 that the project was able to mill tonnes and achieved 15% capacity, but in 2005 it submitted a partial declaration of the mining feasibility stating that it found sufficient ore reserves, the reckoning period is 2005, and recovery period is until 2010. Thus, the assessment for taxable year 2013 is valid. Further, all recoverable pre-operating expenses must be approved by the Secretary of DENR with recommendation of the Director of the MGB, with verification by the government or representative. Without the approval and validation, the second circumstance was not upheld. (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 9736, August 10, 2023)

 

EXEMPTION OF ELECTRIC COOPERATIVE DOES NOT INCLUDE INCOME FROM ELECTRIC SERVICE OPERATIONS AND OTHER SOURCES. Electric cooperatives registered with the National Electrification Cooperative are subject to income tax with respect to income derived from: (1) electric service operations; and (2) other sources such as interest income from bank deposits and yield or any other monetary benefit from bank deposits and yield or any other similar arrangements. (Zambales Electric Cooperative I, Inc. v. Bureau of Internal Revenue, August 1, 2023)

 

REVISED FDDA CANNOT BE SUBJECT OF APPEAL TO THE CTA. The taxpayer has the following options to appeal the assessment: administrative appeal to the CIR or appeal to the CTA. Moreover, a Final Decision on Disputed Assessment (FDDA) issued by the Commissioner herself cannot be subject to reconsideration but should be appealed to the CTA. Thus, where the Commissioner issued the FDDA, but the taxpayer filed an appeal to the Commissioner; and later on the Commissioner issued a revised FDDA, the original, not the revised FDDA, should be appealed to the CTA. (JG Summit Holdings, Inc. v. CIR, CTA EB No. 2397, CTA Case No. 9147, August 4, 2023)

ADMINISTRATIVE CLAIMS FOR VAT REFUND OR TCC SHALL BE FILED IN THE RDO HAVING JURISDICTION OVER THE TAXPAYER’S PRINCIPAL PLACE OF BUSINESS PURSUANT TO SECTION 4.112-1(C) OF RR. NO. 16-2005. Where the taxpayer filed the administrative claim for refund in Makati but at the time of filing, its address has already changed to Pasay as evidenced by Certificate of Registration, the administrative claim for refund falls on a wrong venue. (Vestas Services Philippines, Inc. v. CIR, CTA Eb No. 2459, CTA Case No. 9604, August 23, 2023)

FAN, WITH THE SAME AMOUNT OF ASSESSMENT AS THE PAN, AND ISSUED AFTER 2 DAYS THE TAXPAYER FILED PROTEST TO THE PAN, IS VOID. The Supreme Court, in Avon case, ruled that inaction and omission to give due consideration to the arguments and evidence submitted by the taxpayer is a violation of due process. Specifically, the issuance of a Final Assessment Notice (FAN), without consideration and evaluation of the defenses contained in the protest to the Preliminary Assessment Notice (PAN), renders the assessment void. Thus, where the taxpayer received the PAN, and 2 days after it filed its protest, the BIR issued the FAN, with the same computation as the PAN, the assessment is void. However, a statement in the protest on an item of assessment “we are amenable to the computation” is considered an admission on the part of the taxpayer rendering the item of assessment valid. (Dizon Farms Produce, Inc. v. CIR, CTA Eb No. 2516, CTA Case No. 9711; CIR v. Dizon Farms Produce, Inc., CTA EB No. 2512, CTA Case No. 9711)

THE ABSENCE OF ELECTRONIC LETTER OF AUTHORITY DOES NOT INVALIDATE THE ASSESSMENT IF MANUAL LETTER OF AUTHORITY WAS RECEIVED BY THE TAXPAYER.  Under RMO No. 69-2010, BIR mandates the replacement of existing Letter of Authority (LOA) with eLOAs. However, this merely a matter of form of the LOA and shall not affect respondent’s right to due process. (CIR v. Altus Angeles, Inc., CTA EB No. 2524, CTA Case No. 9164, August 14, 2023)

FAN WITH BLANK DUE DATE IS VOID. The Supreme Court, in the case of Fitness by Design, held that disputed FAN is not a valid assessment if the specific due date was not specified. Where the FAN requires the taxpayer to pay “within the time shown in the enclosed assessment notice” but the FAN reveals that the due date for payment was left blank, the assessment is void. (CIR v. Altus Angeles, Inc., CTA EB No. 2524, CTA Case No. 9164, August 14, 2023)

 

THE BIR MUST PROVE RECEIPT OF THE FAN. LETTER NOTICE, IN THE ABSENCE OF LETTER OF AUTHORITY RENDERS THE ASSESSMENT VOID. PAN/FLD/FAN/FDDA may be served by personal service, substituted service or by mail. Where the taxpayer denied receipt of the FAN, the BIR has a duty to prove its receipt. Where the BIR only proved issuance or existence of the FAN, without proof of receipt, or the BIR only proved receipt but failed to prove relationship of the recipient to the taxpayer (i.e. without verification on the authority of the recipient to receive the FAN) the assessment is void. Moreover, a LOA is required despite the earlier issuance of Letter Notice. Where the BIR’s examination is based on LN without LOA, the assessment is void. (CIR v. LBP Service Corporation, CTA EB No. 2578, CTA Case No. 9977 August 30, 2023)

 

BIR’S TREATMENT ON DECREASE IN RECEIVABLE AS COLLECTION SUBJECT TO VAT IS CONSIDERED A NAKED ASSESSMENT; A GPP IS EXEMPT FROM INCOME TAX BUT SUBJECT TO WITHHOLDING ON PARTNER’S ALLOWANCES. The BIR’s assessment should have a foundation or should be based on facts. Otherwise, it is a naked assessment and considered void. The BIR’s findings that the decrease in the balance of accounts receivable is subject to VAT for collection, is erroneous, especially if it is shown that the decrease was due to write-off of long overdue and uncollected amounts. Moreover, while failure to comply with procedure in writing off of receivables translates to deficiency income tax, general professional partnership (GPP) is exempt from income tax. Lastly, allowances given periodically by the GPP to the partners are subject to 10% or 15% withholding tax as the case may be. (CIR v. Casas + Architects, Inc., CTA EB No. 2602, CTA Case No. 9705, August 15, 2023)

 

CTA HAS NO JURISDICTION OVER INACTION OF THE COMMISSIONER OF CUSTOMS. The CTA has jurisdiction over the decisions of the Commissioner of Customs (COC) in cases involving liability of customs duties, fees, and other money charges etc. Where the petition shows that the COC has yet to render a decision on the protest, the petition, premised on inaction of the COC, should be dismissed. Moreover, a petition for review filed before the CTA shall contain allegations showing its jurisdiction, a concise statement of the complete facts, a summary statement of the issues involved in the case, the reasons or arguments relied upon for the review of the challenged decision, and the specific material dates showing that the petition was filed on time. Failure to comply with any of the requirements regarding the contents of and the documents that should accompany the petition shall be sufficient ground for its dismissal.  (Goldmine Rice Marketing v. BOC, CTA EB No. 2617, CTA Case No. 10559, August 14, 2023)

 

A MISSION ORDER IS REQUIRED PRIOR TO THE CONDUCT OF SURVEILLANCE AND APPREHENSION OF BUSINESS ESTABLISHMENTS FOR NON-COMPLIANCE OF THE TAX CODE; RECOMMENDATION OF THE REGIONAL DIRECTOR IS CONSIDERED INTERLOCUTORY AND IS NOT APPEALABLE BUT SUBJECT TO FILING OF PETITION UNDER RULE 65. The Regional Director had no authority to recommend the closure of the taxpayer’s business operations. Moreover, where the BIR issued a 48-hour notice, and 5-day TVCD without a mission order, the BIR agents impermissibly traversed the bounds of their discretion amounting to lack of jurisdiction and in violation of due process. Lastly, an appeal of the BIR’s action requires issuance of closure order, without which, the proper remedy is special civil action for certiorari under Rule 65 of the Rules of Court. Thus, where the Regional Director merely recommends the closure, and a closure order is yet to be issued by the Commissioner, the appeal is erroneous. Nevertheless, the CTA, citing the Supreme Court’s case in Golden Donuts, considers the appeal in the liberal spirit of the rules considering the timely filing of the petition under Rules 65.  (CIR v. iScale Solutions, Inc., CTA EB No. 2624, CTA Case No. 9845, August 23, 2023)

 

BIR’S FILING OF INFORMATION IN COURT MORE THAN 5 YEARS FROM THE SERVICE OF FNBS PLUS DEADLINE TO PAY WARRANTS THE DISMISSAL OF THE CASE DUE TO PRESCRIPTION. The period of prescription for the offenses charged under the NIRC is five (5) years. Prescription begins to run (1) from the day of the commission of the violation of the law; and (2) if the day of the commission is unknown, from the discovery of the commission and the institution of judicial proceedings for its investigation and punishment. In both instances, the period is interrupted when judicial proceedings are instituted against the guilty persons. The Supreme Court if Lim Case, ruled that the commencement of the 5-year prescriptive period involving willful refusal to pay deficiency taxes is the service of final notice and demand to pay taxes coupled with willful refusal to pay. Here, the BIR issued the Final Notice Before Seizure (FNBS) on September 26, 2012 giving the taxpayer 10 days to settle. Thus, the commencement of the 5-year period is on October 6, 2012 and prescribes on October 6, 2017. Since information was filed only in 2022, the right to file a criminal case was prescribed. (People of the Philippines v. Tian Chiong Sy Co., CTA Crim Case No. O-1001 August 14, 2023; see also People of the Philippines v. Faivo Pascual Bartolome, August 9, 2023, CTA Crim Case No. O-985; People of the Philippines v. QNX Solutions, Inc., CTA Crim. Case No. O-990, August 9, 2022; People of the Philippines v. Ulanday Construction and Development Corporation, CTA Crim Case No. O-1061, August 29, 2023)

 

FILING OF CRIMINAL CASE IN COURT AFTER 5 YEARS FROM THE FILING OF CRIMINAL COMPLAINT IS BARRED BY PRESCRIPTION. Section 28 of the Tax Code and the Supreme Court in Lim case ordained that tax offenses are imprescriptible so long as the period from its discovery and institution of judicial proceedings for investigation and punishment, up to the filing of information in court do not exceed five (5) years. Conversely, if the period from the institution of judicial proceedings for its investigation up to the filing of the information in court exceeds five (5) years, then the government’s right to file criminal actions against errant persons would be barred by prescription. Thus, where the BIR referred the Joint Complaint Affidavit to the DOJ for preliminary investigation on July 3, 2014, the information must be filed after 5 years or until July 3, 2019. Filing of the information in 2020 warrants the dismissal of the case due to prescription. (People of the Philippines v. CTA, CTA EB Crim No. 093, CTA Crim Case Nos. O-850, O-851 and O-853, August 29, 2023)

PRELIMINARY INVESTIGATION FOR VIOLATION OF SUBPOENA CASES CAN BE DISPENSED WITH; ELEMENTS OF THE VIOLATION. Section 1, Rule 112 of the Rules of Court, as amended, declares that preliminary investigation is required when the penalty imposed by law on a criminal offense is at least four (4) years, two (2) months and one (1) day of imprisonment, without regard to the fine. Violation of Section 266 of the NIRC’s maximum penalty imposed by law is two (2) years; hence, preliminary investigation may be dispensed with. Moreover, the accused should raise the defect prior to entering a plea. Section 266 of the NIRC, as amended, penalizes by fine and imprisonment, any person, who, despite being summoned, neglects to produce books of account, records, memoranda, or other papers required therein. The elements of this offense are: first, offender is duly summoned; second, offender is summoned to appear and produce books of accounts, records, memoranda or other reports, or to furnish information as required by the NIRC, as amended; and third, offender neglects to appear or to produce the documents mentioned. Where the BIR issued several notices and the taxpayer merely submitted a letter-request for extension, and transmittal letter was not offered in evidence, the accused is considered guilty. (Jimmy A. Ang and Olivia N. Ang v. People of the Philippines, CTA EB No. 095, August 2, 2023)

THE CTA HAS JURISDICTION OVER TAXES AND NOT LICENSE FEES. The CTA has jurisdiction over taxes and not licenses. To be considered a license fee, the imposition questioned must relate to an occupation or activity that so engages the public interest in health, morals, safety and development as to require regulation for the protection and promotion of such public interest. A permit to slaughter is a license fee and not tax as it was enacted to regulate or control the slaughter of animals intended for sale. Thus, the CTA has no jurisdiction (San Miguel Foods, Inc. v. Office of the City Treasurer, CTA Eb No. 2474, CTA AC No. 209, August 4, 2023)

AN RO MUST BE CLOTHED WITH AUTHORITY, THROUGH AN LOA, TO CONDUCT THE AUDIT OR INVESTIGATION OF THE TAXPAYER. The Revenue Officer (RO) tasked to examine the books of accounts of taxpayers must be authorized by an LOA. Otherwise, the assessment for deficiency taxes resulting therefrom is void. Absent a grant of authority through an LOA, the RO cannot conduct the audit of taxpayer’s books of accounts and other accounting records because such right is statutorily conferred only upon petitioner CIR. Considering the absence of a new and valid LOA authorizing RO Velayo to examine respondent’s books of accounts and other accounting records as a result of the reassignment/transfer of the case to him, the deficiency tax assessments issued against respondent are inescapably void. Petitioner CIR’s own rules, specifically RMO No. 43-90, mandates the issuance of a new LOA in cases of reassignment or transfer of examination to another RO. [Commissioner of Internal Revenue vs. Misamis Oriental II Rural Electric Service Cooperative, Inc. (MORESCO-II) (CTA EB No. 2519; 2 August 2023)]

 

 TAX REFUNDS

 

PERIOD TO FILE CLAIM FOR REFUND.

  • Within two (2) years from the date of payment of tax, the claimant must first file an administrative claim with respondent before filing its judicial claim with the courts of law. Both claims must be filed within a two (2)-year reglementary period. [Ace/Saatchi & Saatchi Advertising, Inc. vs. The Honorable Commissioner of Internal Revenue (CTA EB No. 2645; 15 August 2023); ED & F Man Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10053; 10 August 2023); Great Landho, Inc., TT&T Development, Inc. and Tama Properties, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10184; 4 August 2023); Petron Corporation vs. Commissioner of Internal Revenue (CTA Case Nos. 9738 & 9741; 1 August 2023)]
  • Timeliness of the filing of the claim is mandatory and jurisdictional, and thus the Court cannot take cognizance of a judicial claim for refund filed either prematurely or out of time. It is worthy to stress that as for the judicial claim, tax law even explicitly provides that it be filed within two (2) years from payment of the tax “regardless of any supervening cause that may arise after payment”. The prescriptive period under Section 229 of the 1997 NIRC, as amended, is fixed by law and the CTA has no power to toll or stop the running of the same. [Havilah Properties, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10269; 24 August 2023); Ace/Saatchi & Saatchi Advertising, Inc. vs. The Honorable Commissioner of Internal Revenue (CTA EB No. 2645; 15 August 2023)]
  •  Petitioner need not wait for the denial of respondent before it elevated the matter to the Court in Division. It has been settled in numerous cases, such as CIR v. Carrier Air Conditioning Philippines, Inc., and CBK Power Company Ltd. v. CIR that petitioner should have already filed a Petition for Review with the Court in Division if the two-year period is about to expire, notwithstanding the absence of a decision from respondent. [Ace/Saatchi & Saatchi Advertising, Inc. vs. The Honorable Commissioner of Internal Revenue (CTA EB No. 2645; 15 August 2023)]

 

REQUIREMENTS THAT MUST BE COMPLIED WITH IN ORDER TO PROVE A CLAIM FOR REFUND OF TAXES ERRONEOUSLY PAID OR ILLEGALLY COLLECTED. The following requirements must be complied with in order to prove a claim for refund of taxes erroneously paid or illegally collected under Sections 204 and 229 of the NIRC of 1997, as amended:

  1. The taxpayer should file a written claim for refund or tax credit with the BIR Commissioner within two (2) years from the date of payment of the tax or penalty, non-compliance with which the latter is precluded from exercising his authority thereon;
  2. If the administrative claim for refund is denied or not acted upon within said two (2)-year period, the judicial claim for refund must be filed with the CTA within 30 days from receipt of the denial AND within the said two (2)-year period from the date of payment of the tax or penalty regardless of any supervening cause, otherwise, the claim for refund shall have prescribed; and,
  3. The claim for refund must be a categorical demand for reimbursement.

Anent requirements (1) and (2): The petition for refund must be filed with the CTA within 30 days from receipt of the denial AND within said two (2)-year period from the date of payment of the tax or penalty regardless of any supervening cause; otherwise, the claim for refund shall have prescribed. Applying the foregoing to the instant case, counting 30 days from petitioner GLI’s receipt of RO Victorino’s First Denial Letter on 29 January 2019, it had until 28 February 2019 within which to file its judicial claim before the CTA. Clearly, since the instant petition was filed only on 10 October 2019, petitioner GLI’s claims for refund of erroneously paid DST have already prescribed. [Great Landho, Inc., TT&T Development, Inc. and Tama Properties, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10184; 4 August 2023)]

 

Anent requirement number (3): The claim for refund must be a categorical demand for reimbursement which means that a claimant must first file a written claim for refund, categorically demanding recovery of erroneously or illegally paid taxes with the CIR. The claimant must show indubitably the specific provision of law from which his or her right arises. It cannot be allowed to exist upon a mere vague implication or inference nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting

the refund.

 

Application of requirement number (3) to the refund of CGT and DST on the unconsummated sale of real property due to the parties’ mutual decision to rescind the deed of absolute sale:

 

CGT: Settled is the rule that three (3) elements must concur in order to impose a tax on income: (1) there must be gain or profit; (2) that the gain or profit is realized or received, actually or constructively; and, (3) it is not exempted by law or treaty from income tax. Thus, as regards the first and second requisites, since no income was realized or received, whether actual or constructive, from the revoked sale transaction involving petitioner TDI’s real properties, no CGT should have been paid thereon. Consequently, petitioner TDI has sufficiently established its entitlement to the refund of erroneously paid CGT on the said mutually rescinded sale.

DST: DST on the sale and conveyance of real property as prescribed in Section 196 above, accrues upon the transfer of ownership over the property sold through the execution of a contract of sale or deed of absolute sale. As a rule, the execution of a deed of absolute sale constitutes constructive delivery of ownership in the absence of stipulation to the contrary.

 

A careful examination of the notarized Deeds of Absolute Sale executed by petitioners shows that there is no such stipulation reserving the title or ownership over the subject real properties to petitioners TDI and TPI nor does it give them the right to unilaterally rescind the said contracts for any reason such as, in this case, a change in management plans. Thus, upon the due execution of the Deeds of Absolute Sale, ownership over the real properties sold have already been transferred to petitioner GLI by way of constructive delivery. DST must be paid upon the issuance of the instrument evidencing the transfer or conveyance of real property, irrespective of whether the contract that gave rise to it is rescissible, void, voidable, or unenforceable. This is so precisely because DST under Section 196 of the NIRC of 1997, as amended, is an excise tax imposed on the privilege to transfer or convey a real property through the execution of a Contract of Sale or a Deed of Absolute Sale and not upon the transfer or conveyance itself. Given that petitioners entered into valid contracts of sale of real properties, the subsequent mutual cancellation or revocation thereof becomes immaterial with respect to the DST liability due thereon. This is because petitioners TDI and TPI had already exercised the privilege to transfer or convey their respective real properties to petitioner GLI upon the due execution of the Deeds of Absolute Sale. That being said, the subject DST payments cannot be considered erroneous and thus, petitioner GLI failed to prove its entitlement to a refund thereof. [Great Landho, Inc., TT&T Development, Inc. and Tama Properties, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10184; 4 August 2023)]

 

A TAXPAYER CANNOT AVOID THE PRESCRIPTION OF ITS CLAIM FOR TAX REFUND BY INDIRECTLY QUESTIONING THE DENIAL OF THE CLAIM BY QUESTIONING THE GROUND INVOKED BY THE BIR TO DENY THE CLAIM. Petitioner wanted to convince the CTA En Banc that it is not contesting the denial of the refund but is contesting the existence of the delinquent account. Accordingly, petitioner prayed that the CTA declare the delinquent account as settled and, consequently, compel respondent to continue processing its claim for refund. Simply put, petitioner is contesting respondent’s ground for denying its refund claim. Sections 204(C) and 229 of the NIRC of 1997 are clearly applicable to this case for the following reasons:

 

  1. The instant case emanates from the erroneous payment of surcharges and interest.
  2. The petitioner filed a Request for Cash Refund of Surcharge Penalties/ Interest Paid in Error with Application for Tax Credits/Refund (BIR Form No. 1914), precisely invoking Section 204(C) of the NIRC of 1997, as amended.
  3. Respondent’s denial of the request for cash refund prompted petitioner to file its Petition for Review before the CTA in Division.
  4. Petitioner prays that “the CIR be directed to continue the processing of the payment of ACE’s application for cash refund.” Basically, petitioner prays for the reversal of the denial of its claim for refund.

 

It is clear that petitioner’s cause of action is respondent’s denial of its refund claim under Section 204(C) of the NIRC of 1997, as amended, and the declaration of the non-existence of the delinquent account is only incidental. The fact that the denial is based on the alleged existence of delinquent accounts and that such allegedly has already been settled is merely a ground or an argument at best, but such does not operate to remove the instant case from the ambit of Sections 204(C) and 229 of the NIRC of 1997, as amended. (Ace/Saatchi & Saatchi Advertising, Inc. vs. The Honorable Commissioner of Internal Revenue (CTA EB No. 2645; 15 August 2023)

 

THERE IS NO ERRONEOUS OR ILLEGAL COLLECTION OF TAX EVEN THOUGH THERE IS A PENDING JUDICIAL DISPUTE ON THE BOI’S DECISION TO DENY THE TAXPAYER’S APPLICATION FOR INCOME TAX HOLIDAY. The ruling of the Court of Appeals reversing the BOI’s decision anent petitioner’s entitlement to Income Tax Holiday is still pending with the Supreme Court and therefore, has not yet attained finality. Hence, there was no erroneous or illegal collection of tax at the time of the partial income tax payment due to the denial by the BOI of petitioner’s ITH incentive for TY 2012. [Havilah Properties, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10269; 24 August 2023)]

 

EXCISE TAX ON IMPORTED AND LOCALLY MANUFACTURED PETROLEUM PRODUCTS IS ERRONEOUSLY PAID IF THE SAID PRODUCTS ARE SOLD TO INTERNATIONAL CARRIERS AND TAX-EXEMPT ENTITIES. The exemption from excise tax under Section 135 of the NIRC arises if a petroleum product is sold to: a) an international carrier; or b) an exempt entity pursuant to law, treaty, convention, or other international agreement, provided that the country of a foreign international carrier or exempt entity or agency similarly exempts Philippine international carriers, entities, or agencies from similar taxes for petroleum products sold to the latter. The Supreme Court has interpreted this provision to extend in favor of manufacturers and importers of petroleum products if the same has been sold to international carriers and tax-exempt entities. For petitioner to successfully comply with the first requisite for claiming refund of erroneously paid excise tax under Section 135 of the NIRC, it must prove that it actually paid excise tax on petroleum products which it locally manufactured or imported and subsequently sold to international carriers or tax-exempt entities. In this case, Petron presented the various Air Services Agreements which the Philippines has with the countries of registry of all the international carriers which it transacted with for the sale of Jet A-1 fuel. A perusal of said Agreements reveals that the countries of registry similarly provide an exemption from excise tax on the petroleum products sold to international carriers of Philippine registry. Thus, any sale of petroleum products to these international carriers are exempt from excise tax. With respect to the sale of Jet A-1 fuel and unleaded gasoline fuel to alleged tax-exempt entities, petitioner presented evidence showing that the entities which purchased such petroleum products are indeed exempt from excise tax on petroleum products. [Petron Corporation vs. Commissioner of Internal Revenue (CTA Case Nos. 9738 & 9741; 1 August 2023)]

 

A FINANCIAL OR TECHNICAL ASSISTANCE AGREEMENT (FTAA) CONTRACTOR IS EXEMPT FROM THE PAYMENT OF, AMONG OTHERS, DOCUMENTARY STAMPS TAX DURING THE RECOVERY PERIOD. RA No. 7942 allows qualified persons or entities with technical and financial capabilities to undertake large-scale exploration, development and utilization of mineral resources to enter into an FTAA with the government through the DENR. It is in this regard that herein petitioner and the DENR entered into an FTAA on 19 September 2009. Under Section 4 of DENR Administrative Order No. 2007-12, the collection of the Government Share in FTAAs pertaining to items (a) to (g) thereof shall only commence after the FTAA contractor has fully recovered its pre-operating expenses, exploration, and development costs. Thus, the contractor is only liable to pay DST, listed as item (f), after the recovery period (i.e. after the FTAA contractor has fully recovered its pre-operating expenses, exploration, and development costs). While the law and corresponding implementing rules do not explicitly state the phrase “tax exemption”, the granting of the same is clearly intended therein. [FCF Minerals Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2622; 15 August 2023)]

 

RECOVERY PERIOD; HOW DETERMINED. The recovery period is reckoned from the date of the commencement of commercial production, which is the date of written declaration by the FTAA contractor to start commercial operations, after the conduct of the test run and its approval by the regional office concerned. Here, petitioner declared its Commencement of Commercial Operations on 9 September 2016, and the same was approved on 17 July 2017. Thus, the official date of commencement of commercial production is on such later date. Section 81 of RA No. 7942, Section 4(b) of DAO 2007-12 and Clause 9.2 of the FTAA categorically mandate that it is only after the recovery period when DST must be paid by FCF. The Date of Commencement of Commercial Production becomes relevant only for the purpose of determining when the recovery period shall end. The same date, however, does not determine the start of petitioner’s entitlement to the tax exemptions. FCF was already entitled to DST exemption from the date of approval of the DMPF on 18 October 2011, and the same would be lifted at the end of the recovery period. The recovery period shall only last for a maximum period of five (5) years or until the aggregate of the net cash flows from the mining operations is equal to the aggregate of its pre-operating expenses, whichever comes first. FCF’s recovery period, in particular, would run from 17 July 2017 up to 17 July 2022, at the maximum. [FCF Minerals Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2622; 15 August 2023)]

 

THE SECRETARY OF THE DENR HAS THE PRIMARY AUTHORITY TO INTERPRET THE PROVISIONS OF RA NO. 7942 AND TO PROMULGATE RULES AND REGULATIONS PURSUANT THERETO. Section 8 of RA No. 7942 clearly states that the DENR Secretary is the one who has the authority to promulgate rules and regulations to implement the intent and provisions of RA No. 7942. Such authority necessarily includes Section 81 of the said law concerning petitioner’s tax exemption. Since the DENR Secretary has the authority to interpret RA No. 7942, then the rules and regulations issued pursuant thereto cannot be ignored and disregarded. Respondent should have primarily applied DAO No. 2007- 12, specifically the meaning of “Government Share” therein, in relation to the unequivocal exemption granted to petitioner in its claim for refund. [FCF Minerals Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2622; 15 August 2023)]

 

THE TAX EXEMPTION CERTIFICATES ISSUED BY THE MINES AND GEOSCIENCES BUREAU ARE THE FINAL WRITTEN ATTESTATIONS ON FCF’S EXEMPTION FROM DST. MGB is a line bureau under the DENR primarily responsible for the implementation of RA NO. 7942. Section 9 thereof authorizes the Director of MGB to administer the implementation of the law, as well as to monitor the compliance of the FTAA contractors to the terms and conditions of the agreement. In line with its power to implement the law, MGB issued Certifications on FCF’s Tax Exemption. Based on the foregoing, MGB takes the unqualified position that FCF is entitled to DST exemption from the DMPF up to the end of the recovery period. This should serve as the final written attestation or declaration that petitioner is entitled to the tax exemption. Thus, respondent’s disregard for the foregoing certifications and his reliance on RMC No. 17-2013, which serves as the BIR’s own interpretation of RA No. 7942, is deemed improper. [FCF Minerals Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2622; 15 August 2023)]

 

EVEN THOUGH THE FTAA CONTRACTOR IS EXEMPT FROM THE PAYMENT OF DOCUMENTARY STAMPS TAX DURING THE RECOVERY PERIOD, SUCH EXEMPTION MAY BE WAIVED. As a general rule, the DST on loan transactions shall be paid by any of the parties thereto. However, when one party enjoys exemption from tax, the other party who is not exempt shall be the one liable to pay the DST. In this case, since petitioner enjoys DST exemption, the liability thereof would fall upon the other non-exempt parties to the loan document, in the absence of a clear stipulation to the contrary in such agreement. The parties to the loan document explicitly agreed that the “Borrower” shall pay the DST on the transaction. The term “Borrower” refers solely to the petitioner, as stated in the declaration of the parties.  Evidently, petitioner waived the exception it enjoyed by virtue of this provision. The DST paid by petitioner thus cannot be deemed made erroneously. [FCF Minerals Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2622; 15 August 2023)]

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

 

For a taxpayer to successfully obtain a credit/refund of input VAT related to zero-rated sales, the taxpayer must comply with certain requisites classified into certain categories, to wit:

As to the timeliness of the filing of the administrative and judicial claims:

  • The claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made. [NIIT Technologies Philippines, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10196; 31 August 2023); Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023); Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023); Sankyu-ATS Consortium-B vs. Commissioner of Internal Revenue (CTA Case No. 10471; 1 August 2023)]
  • That in case of full or partial denial of the refund claim rendered within a period of 90 days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be filed with the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision. [NIIT Technologies Philippines, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10196; 31 August 2023); Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023); Sankyu-ATS Consortium-B vs. Commissioner of Internal Revenue (CTA Case No. 10471; 1 August 2023)]
  • It has long been settled that the thirty (30)-day period prescribed by Section 11 of RA No. 1125, as amended, within which a party adversely affected by a decision of respondent should file his appeal with the CTA, is a jurisdictional requirement, and the failure of a taxpayer to lodge his or her appeal within the prescribed period bars his or her appeal and renders the questioned decision final and executory. [Manulife Data Services, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10138; 10 August 2023)]
  • Administrative bodies (e.g. BIR) are not bound by the technical niceties of law and procedure and the rules obtaining in courts of law. Administrative tribunals exercising quasi-judicial powers are unfettered by the rigidity of certain procedural requirements, subject to observance of fundamental and essential requirements of due process in justiciable cases presented before them. In administrative proceedings, technical rules of procedure and evidence are not strictly applied, and administrative due process cannot be fully equated with due process in its judicial sense. The term “service” under Section 2, Rule 13 of the Rules of Court refers explicitly to pleadings or other court submissions. As a corollary, it bears stressing that the proceeding involved in the present case is administrative in nature, involving the BIR, an administrative body. Service of the letter denying the taxpayer’s application for refund/tax credit of its excess and unutilized input VAT for 2017 to the taxpayer itself, and not to taxpayer’s counsel who filed the same, is VALID. Taxpayer failed to show any provision of law or rule that when a taxpayer has appointed a tax agent or counsel, service of BIR notices or any other communication must be made only to the latter, and the periods to act or respond to BIR decisions or communications, should be reckoned only from the latter’s receipt of such decision or communication. [Manulife Data Services, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10138; 10 August 2023)]

With reference to the taxpayer’s registration with the BIR:

  • The taxpayer is a VAT-registered person. [NIIT Technologies Philippines, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10196; 31 August 2023); Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023); Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)]

In relation to the taxpayer’s output VAT:

  • The taxpayer is engaged in zero-rated or effectively zero-rated sales; [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023); Sankyu-ATS Consortium-B vs. Commissioner of Internal Revenue (CTA Case No. 10471; 1 August 2023);]
    • While sale of services made by a VAT-registered enterprise from the customs territory to a PEZA registered enterprise within the Special Economic Zones or ECOZONES is subject to VAT at zero percent (0%), it is imperative upon petitioner to prove, on the strength of its own evidence, that its sales are zero-rated or effectively zero-rated. However, the records of the case reveal that the PEZA Certificate of Registration of PSC, petitioner’s only client, was denied admission for failure to submit the duly marked document. Even though petitioner’s witness testified that its only client during the pertinent taxable period is PEZA-registered and this was not questioned nor rebutted by respondent.   Petitioner’s bare assertion, without any documentary evidence, is not sufficient to prove that PSC is indeed a PEZA-registered export enterprise. [(Sankyu-ATS Consortium-B vs. Commissioner of Internal Revenue (CTA Case No. 10471; 1 August 2023)]
    • For zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)]
    • Invoicing requirements for zero-rated sales:
      • In the issuance of invoices and receipts evidencing the subject sales and collections of remittances, Stefanini Philippines must also comply with the mandatory invoicing requirements laid out in Section 113(A) and (B) of the Tax Code, as further implemented by Section 4.113-1 (A) and (B) of Revenue Regulations (RR) No. 16-05. Each inward remittance is duly supported by VAT official receipts, all of which bear the information in accordance with the applicable invoicing requirements. To be sure, the amount collected was written and declared as “zero rated sales” in the breakdown portion (left side) on the face of each official receipt. All collections are reflected clearly as zero-rated sales on the official receipts, in compliance with the applicable invoicing requirements and pursuant to applicable jurisprudence directing that the term “zero-rated sale” be written or printed prominently on the face thereof. [Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023)]

 

    • On Sale of Goods:
      • In order for an export sale to qualify as zero-rated, the following essential elements must be present:
        1. The sale was made by a VAT registered person;
        2. There was sale and actual shipment of goods from the Philippines to a foreign country; and
        3. The sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)]
      • In relation to #2 of the immediately preceding paragraph, to prove that there was sale and actual shipment of goods from the Philippines to a foreign country, the taxpayer must present, among others, the following documents:
        1. The sales invoice as proof of sale of goods; and
        2. The bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)]
      • With regard to the requirement that the sale was paid for in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP, petitioner submitted a bank certification issued by BDO Unibank, Inc. – Trust and Investments Group, Pioneer, Pasig Branch. The bank certification shows that the payment was made in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Note, however, it is also equally important that the foreign currency inward remittance be traced back to the export sales to which it relates. However, the CTA En Banc found that the export sales amounting to US$20,263,358.54 or P899,422,691.13, cannot be properly traced to the inward remittances per bank certification. Out of the export sales which were found to be compliant with the invoicing requirements under the NIRC and RR No. 16-05, in the total amount of P2,267,164,196.34, only the amount of P1,367,741,505.21 can be properly traced to its corresponding foreign currency inward remittance. Consequently, out of petitioner’s declared total zero-rated sales of P2,635,483,005.50 for the subject period, only the amount of P1,367,741,505.21 ultimately qualifies as zero-rated sales, in accordance with Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended.

 

    • On the Sale of Services
      • In order for sale of services to qualify as zero-rated sales under Section 108 (8)(2) of the NIRC of 1997, as amended, the following requisites must be established:
        1. The services fall under any of the categories under Section 108(8)(2), or the services rendered should be other than “processing, manufacturing or repackaging goods”;
        2. The recipient of the services is a foreign corporation, and the aforesaid corporation is doing business outside the Philippines, or is a non-resident person not engaged in business who is outside the Philippines when the services were performed;
        3. The services were performed in the Philippines by a VAT-registered person; and
        4. The payment for such services should be in acceptable

foreign currency accounted for in accordance with BSP rules. [MTI Advanced Test Development Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2620; 14 August 2023)]

 

      • The preliminary consideration for VAT zero-rating of a sale or supply of service is that it must have been performed in the Philippines.

 

A corporation incorporated in the Philippines and registered here are “prima facie proofs that, necessarily, it conducts its business in the Philippines, where it resides and is registered”. [Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023)]

 

According to petitioner, its employees, which are residents of the Philippines, are the ones providing or performing the above services in the Philippines. As a VAT-registered entity engaged in IT Export Service Activities, petitioner insists that all its services are considered zero-rated for VAT purposes. The CTA En Banc, however, disagreed and stated that petitioner was not able to substantiate its claim that its sales and technical support, and accounting and consultancy services to MTech, and its sales of master research and development services to MTIL, were rendered in the Philippines. Contrary to petitioner’s claim, there is nothing in the Independent Certified Public Accountant’s (ICPA) Report which confirms that petitioner’s sales and technical support, and accounting and consultancy services to MTech, and the sales of master research and development services to MTIL, were rendered in the Philippines. MTI Advanced Test Development Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2620; 14 August 2023)

 

      • Sales or supplies of services performed in the Philippines may fall into two categories for purposes of zero-rating: export services under sub-paragraph (B)(1) (e.g., processing, manufacturing or repacking of goods intended for consumption outside the Philippines) and other services under sub-paragraph (B)(2) (e.g., sale or supply of services other than those referred to in sub-paragraph (B)(1)). [Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023)] Notably, the said Service Agreements reveal that Petitioner must provide Financial Service & Solutions Services and Employee Services to the above-stated clients. Thus, since the said services are not in the same category as “processing, manufacturing or repacking of goods,” only the same complies with the second essential element. [Procter & Gamble International Operations SA-ROHQ vs. Commissioner of Internal Revenue (CTA EB No. 2638; 14 August 2023)]

 

      • Since Stefanini is engaged in the enterprise of providing business process outsource solutions and allied contact or call center services (evidenced by its AOI, BIR certificates of registration and agreements with clients), it is covered by Section 108 sub-paragraph (B)(2) of the NIRC. As such, Stefanini must comply with the following conditions:
        1. The seller is VAT-registered – To comply with this requirement, Stefanini submitted its BIR Certificate of Registration.
        2. The services are rendered “to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed”. To be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported at the very least, by both Certificate of Non-Registration of Corporation/Partnership and proof of incorporation/ registration in a foreign country, e.g., Articles /Certificate of Incorporation/Registration and/ or Tax Residence Certificate. [Knutsen Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2581; 23 August 2023)] To comply with this requirement, Stefanini submitted its clients’: (a) SEC certificates of non-registration; and (b) proof of foreign incorporation/registration. [Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023)] If either document is not submitted, the client to whom the services are sold shall not be considered as a NRFC doing business outside the Philippines. Hence, the sale of such services shall not be to subject to 0% VAT. [Procter & Gamble International Operations SA-ROHQ vs. Commissioner of Internal Revenue (CTA EB No. 2638; 14 August 2023)]

 

Services must be rendered in the Philippines. The CTA En Banc concurs with the findings of the CTA Third Division that petitioner was not able to substantiate its claim that its sales and technical support, and accounting and consultancy services to MTech, and its sales of master research and development services to MTIL, were rendered in the Philippines. Contrary to petitioner’s claim, there is nothing in the Independent Certified Public Accountant’s Report which confirms that petitioner’s sales and technical support, and accounting and consultancy services to MTech, and the sales of master research and development services to MTIL, were rendered in the Philippines.

 

Effect of failure to indicate in the service agreement where the service will be rendered. While it is true that the mere fact that the Service Agreements failed to indicate the place where the services are to be performed does not automatically mean that the same were not performed within the Philippines, the reverse is likewise true, i.e., it does not likewise automatically mean that the same were performed within the Philippines. As correctly observed by the Court in Division, the provisions in the Service Agreements that petitioner shall render services from all or any of its with any third party and with any affiliated P&G company, cast doubt that the services were performed in the Philippines. Neither will the court rely on the nature of an ROHQ. The place of performance of the services is a factual matter which requires proof, and such cannot rely on mere conjectures, surmises, and speculations. [Procter & Gamble International Operations SA-ROHQ vs. Commissioner of Internal Revenue (CTA EB No. 2638; 14 August 2023)]

 

        1. The services are “paid for in acceptable foreign currency and accounted for in accordance with BSP rules and regulations. To comply with this requirement, Stefanini submitted certificates of inward remittance issued by Bank of America, N.A. and Metropolitan Bank & Trust Company.  [Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023); Knutsen Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2581; 23 August 2023)]
      • Taxpayer must provide competent proof that it received foreign currency proceeds for the sale of its services to its foreign clients. Section Il.7 of RMC 47-2019 requires particular forms of documents as proof of inward remittance/s of acceptable foreign currency, which were received in exchange for services rendered to a non-resident foreign client or customer engaged in business outside the Philippines, namely:
        1. Copies of bank credit memorandum duly certified by the issuing bank;
        2. Duly signed bank certification/s clearly showing the amount remitted, date of remittance, and the name of the remitter;
        3. Copies of bank statement/s clearly indicating the amount remitted, date of remittance, and the name of the remitter, duly certified by the issuing bank;
        4. Certified copy/ies of passbook, together with the proof that the same belongs to the taxpayer-claimant and any of the documents identified under (1) or (2) above; or
        5. Duly certified copies of cash remittances thru non-bank financial intermediaries performing quasi-banking functions and other non-bank financial intermediaries (such as but not limited to remittance centers) duly authorized by the Bangko Sentral ng Pilipinas (BSP), where the name/s of the remitter and recipient are duly indicated.”

The enumerated documents above are the only pieces of evidence allowed as proof of inward remittance/s; other forms of documents are not acceptable as proof of such. [NIIT Technologies Philippines, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10196; 31 August 2023)]

      • In the case at bar, petitioner failed to present any of the listed documents in evidence as proof of inward remittance/s. As proof of inward remittances from its clients, petitioner merely presented alleged Bank Statements from Citibank. However, these Bank Statements were not duly certified by the issuing bank as required under Section II. 7.c of RMC 47-2019. As such, these Bank Statements do not qualify as competent proof of the remittance and receipt of the fees in applicable foreign currency paid for the services sold by petitioner to its non-resident foreign clients for the covered period. Thus, the petitioner is not entitled to refund. [NIIT Technologies Philippines, Inc. vs. Commissioner on Internal Revenue (CTA Case No. 10196; 31 August 2023)]
      • An essential element to prove zero-rating status under Section 108 of the 1997 NIRC, as amended, is that the payment for such services should be in acceptable foreign currency accounted for in accordance with rules of the BSP. A close scrutiny of the documents together with the schedules submitted by petitioner reveals that these fail to pinpoint exactly and accurately the amount pertaining to the VAT zero rated sale of services that formed part of the remittances of foreign currency (via US dollars) sent via the banking system. [Knutsen Philippines, Inc. vs. Commissioner of Internal Revenue (CTA EB No. 2581; 23 August 2023)]

 

As regards the taxpayer’s input VAT being refunded:

  • The input taxes are not transitional input taxes. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)]

 

  • The input taxes are due or paid and mandatory compliance with invoicing requirements. Whether input VAT was due or paid is conditioned upon the presentation of documents that (a) substantiate the amount of input tax credits, as prescribed under Section 4.110-8 of RR No. 16-2005, and (b) comply with the invoicing requirements under Sections 113(A) and (B), 237 and 238 of the Tax Code, and implemented by Section 4.113I(A) and (B) of RR No. 16-2005. Stefanini Philippines submitted VAT invoices and official receipts to support its input taxes from domestic purchases of goods and services for the third and fourth quarters of CY 2017. However, a careful examination of these documents revealed that input taxes amounting to Php4,079,860.46 should be disallowed for not being properly supported, to wit:
  1. Address, business style and/or TIN of Stefanini Philippines not indicated in invoice;
  2. Invoice dated outside period of claim;
  3. Undated invoice;
  4. OR dated outside period of claim;
  5. VAT not separately indicated in the supporting OR;
  6. Input VAT on purchases of services not supported by OR;
  7. No supporting documents;
  8. With discrepancy in amount of input tax claim and OR amount;
  9. Invoice has no BIR authority to print; and
  10.  With discrepancy in amount of input tax claim and invoice amount.

 

In claims for VAT refund/credit, applicants must satisfy the substantiation and invoicing requirements under the NIRC and other implementing rules and regulations. Thus, petitioner’s compliance with all the VAT invoicing requirements is required to be able to file a claim for input taxes attributable to zero-rated sales. The invoicing and substantiation requirements should be followed because it is the only way to determine the veracity of the taxpayer’s claims. Moreover, it must be pointed out that compliance with all the VAT invoicing requirements provided by tax laws and regulations is mandatory. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023); Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023)]

 

  • Input taxes are attributable to zero-rated sales or effectively zero-rated sales: In order for petitioner’s export sales to qualify for VAT zero-rating under Section 106(A)(2)(a)(1) of the NIRC of 1997, as amended, it is required to issue VAT SIs for each sale of goods, and the information contained therein must be in compliance with sections 113 (A) and (B), 237, and 238, such as the imprinted word “zero-rated” and the taxpayer’s TIN-VAT number. Upon examination of petitioner’s documents, the CTA En Banc found that the export sale of goods amounting to US$8,221,401.00 or P368,318,809.16 must be disallowed for not being supported with SIs and bills of lading. Consequently, out is the total declared zero-rated sales of P2,635,483,005.50 for the 1st quarter of calendar year 2015, only the amount of P2,267,164,196.34 has complied with the invoicing requirements under the NIRC and RR No. 16-05. As such, petitioner have complied with the second essential element, but only in the amount of P2,267,164,196.34. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)] Further, when the claimant was engaged in both VAT-able or zero-rated sales and input taxes due or paid cannot be attributed directly and entirely to either type of activity, it shall be allocated proportionately based on sales volume. [Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023); Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)]

 

  • The input tax must not have been applied against output taxes during and in the succeeding quarters. [Stefanini Philippines, Inc. vs. Commissioner of Internal Revenue (CTA Case No. 10226; 23 August 2023); Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)] In the present case, testimonial evidence alone is insufficient to determine whether petitioner’s input taxes were not applied against its output taxes in the succeeding quarters. It must be coupled with documentary evidence to support the testimony of petitioner’s witness. While petitioner’s witness did testify that petitioner never applied the input taxes for the period April 1, 2015 to June 30, 2015 and October 1, 2015 to December 31, 2015 against any output tax liability, as allegedly shown by VAT Returns in the four (4) quarters ending FY March 31, 2016, records show that petitioner only submitted in evidence the VAT Returns for the 1st and 3rd quarters of FY 2016. Petitioner failed to submit the VAT Returns for the 2nd and 4th quarters of FY 2016 in order to corroborate the testimony of petitioner’s witness. Considering that petitioner failed to present the VAT Returns for the 2nd and 4th quarters of FY 2016 during trial and have them identified, the Court En Banc cannot accord sufficient probative value to the testimony of petitioner’s witness that petitioner’s input taxes have not been applied against output taxes in the succeeding quarters of FY 2015. MTI Advanced Test Development Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2620; 14 August 2023)

 

REQUIREMENTS TO REFUND EXCESS/UNUTILIZED CWT. The refund of excess/unutilized CWT is dependent on the taxpayer-claimant’s compliance with the following three (3) basic requirements:

 

  1. The claim for refund was filed within the two (2)-year prescriptive period as provided under Section 204 (C) in relation to Section 229 of the Tax Code.

 

Taxpayer-claimant must first file an administrative claim with the CIR within two (2) years from the date of payment of tax. The subsequent judicial claim must likewise be filed within the two (2)-year reglementary period. The timeliness of the filing of the claim is mandatory and jurisdictional. Thus, the court cannot take cognizance of a judicial claim for refund filed either prematurely or out of time. Moreover, it is well-settled that the reglementary period commences to run on the date of filing of the Final Adjustment Return or AITR. Since petitioner originally filed its FY20 18 AITR53 on 13 July 2018. Thus, counting two (2) years therefrom, petitioner had until 13 July 2020 to file both its administrative and judicial claims. Since petitioner filed its administrative claim and judicial claim (via the instant petition for review) on 8 July 2020 and 10 July 2020, respectively, both claims for refund were timely filed.

 

  1. The fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee, showing the amount paid and the amount of tax withheld therefrom.

 

Section 2.58.3 (B) of RR No. 2-98 provides that the fact of withholding is established by a copy of the withholding tax statement duly issued by the withholding agent to the payee, showing the amount paid and the amount of tax withheld therefrom. To prove its compliance with the second requirement, petitioner submitted Certificate of Creditable Tax Withheld at Source (BIR Forms No. 2307) issued by its various payors and a schedule of CWT for FY2018. However, the CIR asserted that the withholding tax statements submitted by petitioner should not suffice, and that the fact of actual remittance to the BIR must be proven. The CTA, disagreeing with the CIR, stated the proof of actual remittance of taxes withheld is not indispensable in claims for refund or the issuance of tax credit certificates covering excess and unutilized CWT. Indeed, it is the withholding agent, not the taxpayer-claimant, who has the responsibility to prove actual remittance of withheld taxes to the BIR.

 

  1. The income upon which the taxes were withheld were included in the return of the recipient, i.e., declared as part of the gross income.

 

To comply with this requirement, petitioner must prove that the income payments from which the substantiated CWTs were withheld were declared part of its gross income. With this, it becomes necessary to trace the revenues recorded in the general ledger book to ascertain that the related income was duly reported as revenues for FY2018. Unfortunately, the CTA was unable to verify from petitioner’s documentary evidence the veracity of petitioner’s claim on having duly reported the sales corresponding to the subject withholding taxes. Hence, the CTA denied petitioner’s claim for refund. [Sony Philippines Incorporated vs. Commissioner of Internal Revenue (CTA Case No. 10302; 30 August 2023)]

 

A TAXPAYER HAS NO RECOURSE AGAINST THE GOVERNMENT TO RECOVER INPUT VAT PAID ON DOMESTIC PURCHASES OF GOODS AND SERVICES FOR WHICH NO VAT SHOULD HAVE BEEN PAID. Records show that petitioner was issued a Certification by the BOI attesting to the fact that petitioner is a BOT-registered entity with 100% exports for the year 2015. Under Section 3.4 of RMO 9-00, the said BOI Certification shall serve as authority for the local suppliers of petitioner to avail of the benefits of zero-rating on their sales to petitioner in the year 2015. On the basis of the said Certification, no output tax should, therefore, be shifted by the local suppliers to the petitioner. Hence, the CTA En Banc disallowed the refund of input taxes on domestic purchases of goods and services attributable to zero-rated sales because petitioner’s recourse is not against the government but against the seller who shifted to it the output VAT. [Carmen Copper Corporation vs. Commissioner of Internal Revenue (CTA EB No. 2629; 2 August 2023)]

 

IF THE BIR RECEIVES A TAXPAYER’S ADMINISTRATIVE CLAIM AS WELL AS THE SUPPORTING DOCUMENTS, THE BIR NECESSARILY FOUND THE TAXPAYER’S SUBMISSION COMPLETE. Anent respondent’s claim that the CTA has no jurisdiction over the petition due to petitioner’s alleged failure to submit the complete documentary requirements to support its application for refund, which is tantamount to non-filing [of its administrative claim], the same is bereft of merit. The failure to submit documentary requirements is one thing; the failure to file an administrative claim is another. In this case, there is no denying that an administrative claim was indeed filed, and that a decision had in fact been issued by the BIR. In this case, records reveal that the petitioner’s administrative claim as well as the supporting documents were received by the BIR on September 30, 2020. The BIR necessarily found the petitioner’s submission complete; otherwise, it would not have received the administrative claim and the supporting documents. [(Sankyu-ATS Consortium-B vs. Commissioner of Internal Revenue (CTA Case No. 10471; 1 August 2023)]

 

THE CTA HAS JURISDICTION TO PASS UPON THE CONSTITUTIONALITY OR VALIDITY OF A TAX LAW, REGULATION, OR ADMINISTRATIVE ISSUANCE. It has already been settled in a plethora of cases that the CTA has exclusive jurisdiction to rule on the constitutionality or validity of a tax law, regulation, or administrative issuance, such as RMC No. 90-2012 and RR No. 17-2012. In Banco De Oro et al. vs. Republic of the Philippines, et al. (G.R. No. 198756; 16 August 2016), the Supreme Court En Banc clarified that the CTA has undoubted jurisdiction to pass upon the constitutionality or validity of a tax law, regulation, or administrative issuance when raised by the taxpayer as a direct challenge or as a defense in disputing or contesting an assessment or claiming a refund. Considering that this case questions the validity of administrative issuances, i.e., pertinent provisions of RMC No. 90-2012 and RR No. 17-2012, as a direct challenge and in connection with its refund claim, the CTA En Banc found that there is no collateral but a direct attack on the presumably valid issuances, and the Court in Division has correctly assumed jurisdiction to entertain the same. [Commissioner of Internal Revenue vs. San Miguel Brewery Inc. (CTA EB No. 2625; 2 August 2023)]

 

FOR AS LONG AS THE ADMINISTRATIVE CLAIM AND THE JUDICIAL CLAIM WERE FILED WITHIN THE TWO-YEAR PRESCRIPTIVE PERIOD, THEN THERE WAS EXHAUSTION OF ADMINISTRATIVE REMEDIES. The Supreme Court has recognized exceptions to the exhaustion doctrine, such as when the question involved is purely legal, there is an urgency of judicial intervention; and there is futility of an appeal to the SOF as the latter appeared to have adopted the challenged BIR rulings. The CTA in Division aptly found in the assailed decision that the circumstances in this case indicate an urgency of judicial intervention. Apart from the urgency, the CTA En Banc also found that the question involved is purely legal. Thus, the CTA En Banc ruled that there is no violation of the exhaustion doctrine even if the respondent did not elevate the matter to the SOF before coming to the CTA. It is undisputed that respondent’s administrative and judicial claims filed on December 12, 2018 and December 27, 2018, respectively, fell within the two-year prescriptive period. Had respondent awaited petitioner’s action on its administrative claim before taking court action knowing fully well that the prescriptive period was about to end, chances are, it would have lost its right to seek judicial recourse within the prescribed two-year period, and worse, it would forever be barred from recovering the excise taxes on the beer products it erroneously paid to the BIR for CY 2017. In fine, respondent did not violate the doctrine of exhaustion of administrative remedies when it filed its judicial claim without awaiting petitioner’s action on its administrative claim, notwithstanding that the claims were filed only 15 days apart. [Commissioner of Internal Revenue vs. San Miguel Brewery Inc. (CTA EB No. 2625; 2 August 2023)]

 

“ANNEX A-1” OF RMC NO. 90-2012 IS INVALID. Section 4 of the NIRC of 1997, as amended, grants the CIR the power to issue rulings or opinions interpreting the provisions of the NIRC or other tax laws. However, the CIR cannot, in exercising such power, issue administrative rulings or circulars inconsistent with the law sought to be applied. In Philippine Bank of Communications vs. Commissioner of Internal Revenue (G.R. No. 112024; 28 January 1999), the Supreme Court considered RMCs as administrative rulings (in the sense of more specific and less general interpretations of tax laws) issued from time to time by petitioner. While it is widely accepted that the interpretation placed upon a statute by executive officers, whose duty to enforce it, is entitled to great respect by the courts, such interpretation is not conclusive and will be ignored if judicially found to be erroneous. As regards that portion of Section 5 of RR No. 17-2012, which reads: “[s]tarting January 1, 2014, the applicable tax rate shall be increase[d] by four percent (4%) annually,” the CTA En Banc sustained the Court in Division’s finding that it is invalid. Since the court a quo’s ruling on the matter was undisputed by the parties, as it was not raised as an issue in this case, the CTA En Banc no longer belabored to discuss the same. [Commissioner of Internal Revenue vs. San Miguel Brewery Inc. (CTA EB No. 2625; 2 August 2023)]

 

TAXPAYER IS ENTITLED TO A REFUND CORRESPONDING TO ITS ERRONEOUSLY, EXCESSIVELY, AND/OR ILLEGALLY COLLECTED EXCISE TAXES. Petitioner has duly established that the removals of its “San Mig Light” and “Other Beer Products” for the year 2017 in the total of 215,124,092.48 liters are subject to excise tax rate of P23.50 only, instead of the P24.07 imposed by Respondent, and thus, it is entitled to a refund corresponding to its erroneously, excessively, and/or illegally collected excise taxes due on the removals of “San Mig Light” and “Other Beer Products”. [Commissioner of Internal Revenue vs. San Miguel Brewery Inc. (CTA EB No. 2625; 2 August 2023)]

 

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