COURT OF TAX APPEALS DECISIONS

April 2023

Certain requisites must be complied with by the taxpayer-applicant to successfully obtain a credit/refund of input VAT related to zero-rated sales. Said requisites are 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; (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 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. Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
  • The 90 + 30-day periods to appeal are both mandatory and jurisdictional. After the lapse of the 90-day period, claimant has 30 days to elevate its claim to the CTA. The claimant need not wait for the decision of the BIR after the 90-day waiting period. It should file a judicial claim for refund with the CTA. A waiting period of only 90 days and the BIR’s inaction within the said period is deemed a denial of the claim. Even if the TRAIN law deleted the phrase “or the failure on the part of the Commissioner to act on the application within the period prescribed above,” the deemed-denial provision still applies. (Regus Service Centre Philippines B.V.-ROHQ, CTA Case No. 9907, April 19, 2023; CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; see also San Carlos Solar Energy, Inc. v. CIR, CTA EB No. 2562, CTA Case No. 9576, April 27, 2023; with Dissenting Opinion)

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

• The taxpayer is a VAT-registered person; (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)

In relation to the taxpayer’s output VAT:

• The taxpayer is engaged in zero-rated or effectively zero-rated sales; (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
•  For zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b), and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)

• • Re. sales of goods abroad, in order for an export sale to qualify as zero-rated, the following essential elements must be present:
    • The sale was made by a VAT registered person (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023);
    • There was sale and actual shipment of goods from the Philippines to a foreign country, (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023) as evidenced by the following:
      • sales invoice as proof of sales of goods; the invoice must comply with the invoicing requirements (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
      • Export declaration and bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
    • Sale was paid for in acceptable foreign currency in accordance with BSP rules (Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
      • Bank credit advice, certificate of bank remittance or any document proving payment of the goods in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP.
        • BSP rules on foreign currency exchange is not required for constructive export sales under EO 226 (i.e., BOI-registered enterprise), but is required for direct export sales. (Carmen Copper Corporation v. CIR, CTA EB No. 2428, CTA Case No. 9543, April 5, 2023)
  •  Renewable Energy (RE) Developers are entitled to VAT zero-rating treatment on its purchases of local goods, properties and services needed for the development, construction and installation of its plant facilities (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA EB No. 2476, CTA Case No. 9670, April 4, 2023)
    • For a sale transaction to an RE Developer to qualify for VAT zero-rating, the taxpayer must be able to present the following documents of the RE Developer:
      • Department of Energy Certificate of Registration (DOE COR);
      • Registration with the Board of investments (BOI COR);
        • DOE Certificate of Endorsement (DOE COE) is not required to claim the incentive in VAT zero-rating (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA EB No. 2476, CTA Case No. 9670, April 4, 2023)
        • DOE COE applies only when the incentive sought to be claimed is the duty-free importation of RE machinery, equipment, materials and parts thereof, as well as the tax- and duty-free exemption in the event that the same was subsequently sold, transferred or disposed. (Halliburton Worldwide Limited – Philippine Branch v. CIR, CTA EB No. 2476, CTA Case No. 9670, April 4, 2023)

As regards the taxpayer’s input VAT being refunded:

• The input taxes are not transitional input taxes. Transitional input tax credit operates to benefit newly VAT- registered persons, whether or not they previously paid taxes in the acquisitions of their beginning inventory of goods, materials and supplies. During the period of transition from non-VAT to VAT status, the transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
• The input taxes are due or paid (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)
• The input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume. In this case, the exempt sales must be considered in the allocation as well. (CIR v. Carmen Copper Corporation, CTA Case EB No. 2528, CTA Case No. 9592; April 20, 2023; Oceanagold (Philippines), Inc. v. CIR, CTA Case No. 10109, April 25, 2023)

• Other matters:
  • NIRC is categorical in requiring that the nature of the service rendered be indicated in the VAT OR. (Maersk Global Services Centres (Philippines) Ltd. v. CIR, CTA EB No. 2541, CTA Case No. 9537)
  • It is not mandatory for a buyer to sign a sales invoice. Neither the NIRC nor BIR issuances require the buyer or its representative to sign a sales invoice.  Further, purpose of signature to acknowledge receipt of goods delivered by the seller. Maersk Global Services Centres (Philippines) Ltd. v. CIR, CTA EB No. 2541, CTA Case No. 9537)
  • In case of refund of input tax in case of cancellation of registration due to cessation of business, the taxpayer has 2 years from the cancellation of registration (via affidavit of no operation and board resolution), when the application for cancellation of registration was filed, to apply for issuance of tax credit certificate of any unused input tax which may be used to pay other internal revenue taxes; an in cases where the taxpayer has no internal revenue taxes, he shall be entitled to a refund.  (Mitsui & Co. Ltd (Manila Branch, v. CIR, CTA EB No. 2495, CTA Case No. 9536, April 18, 2023; with Dissenting Opinion)    

• • • Administrative refund: Where BIR Form 1905 (Application for Registration update) was filed on February 20, 2015, validly filed it BIR Form 1914 (Application for Tax Credits/Refund) on September 23, 2016; judicial refund: Taxpayer has until February 20, 2017 to file its petition for review. (Mitsui & Co. Ltd (Manila Branch, v. CIR, CTA EB No. 2495, CTA Case No. 9536, April 18, 2023)     
    • Delinquency Verification and Certificate of No outstanding Liability are the supporting documents to establish that taxpayer has no internal revenue tax liabilities against which the tax credit certificate may be utilized. (Mitsui & Co. Ltd (Manila Branch, v. CIR, CTA EB No. 2495, CTA Case No. 9536, April 18, 2023)
    • Applying the Chevron case decided by the Supreme Court, excess input tax carryover is not required to be substantiated in refund of unused or unutilized input VAT attributable to zero-rated sales (Mitsui & Co. Ltd (Manila Branch, v. CIR, CTA EB No. 2495, CTA Case No. 9536, April 18, 2023; with Dissenting Opinion)          

REFUND OF ERRONEOUSLY OR ILLEGALLY COLLECTED TAXES 

• There must be an erroneous or illegal collection of tax, or a penalty collected without authority, or sum excessively or wrongfully collected;
  • Section 148 (e) of the NIRC, imposed the excise tax on naphtha, regular gasoline and other similar products of distillation.  Alkylate is not a product of distillation but a product of alkylation. Alkylate is used as a blending component in motor or aviation gasoline in order to meet certain required characteristics such as octane number and volatility requirements. The raw materials to produce alkylate are light olefins and isobutane. While isobutane can be a product of crude oil distillation, alkylate should not be subject to excise tax because the law does not subject to excise tax the ingredients or raw materials but only the 3 finished products – naphtha, regular gasoline and other similar products.(CIR v. Petron Corporation, CTA EB No. 2527, CTA Case Nos. 9327 and 9460, April 20, 2023; Pilipinas Shell Petroleum Corporation v. CIR, CTA Case No. 8535, April 27, 2003)
• The claim for refund has been duly filed with the Commissioner, within two (2) years after the payment of tax or penalty;
• The suit or proceeding is instituted with this the CTAwithin two (2) years from the date of payment of the tax or penalty.

MOTION FOR RECONSIDERATION ON THE AMENDED DECISION MAY BE DEEMED A SECOND MOTION AND THUS IS A PROHIBITED PLEADING. THE REMEDY IS TO FILE A PETITION FOR REVIEW WITH THE COURT EN BANC. However, the CTA En Banc assumed jurisdiction based on previous rulings to better serve the interest of justice (Maersk Global Services Centres (Philippines) Ltd. v. CIR, CTA EB No. 2541, CTA Case No. 9537)

IN INPUT VAT REFUND OR CREDIT, TAXPAYER IS FREE TO DEDUCT INPUT VAT LOWER THAN THE ACTUAL INPUT VAT PER INVOICE. It is a well-settled rule that for income tax purposes, a taxpayer is free to deduct from its gross income a lesser amount, or not to claim any deduction at all citing Supreme Court’s Phoenix case. What is prohibited by the income tax law is to claim a deduction beyond the amount authorized therein rule, although pertaining to income tax, can be logically applied to input VAT refund or credit. By analogy, therefore, a taxpayer should likewise be free to deduct from output VAT an input VAT which is lower than the actual amount of input VAT stated in the VAT invoice or VAT OR. (Maersk Global Services Centres (Philippines) Ltd. v. CIR, CTA EB No. 2541, CTA Case No. 9537)

TAX ASSESSMENTS

SETTLEMENT BELOW THE PRESCRIBED RATES OF OFFER OF COMPROMISE IS VALID. While settlement offered in the Compromise Agreement is less than the prescribed minimum rates (12% of the basic tax), if it is approved by the National Evaluation Board, the issuance of the Certificate of Availment is sufficient. (Clinical Occupational Medicine & Treatment Centre, Inc. v. CIR, CTA Case No. 10670, April 14, 2023)

AMNESTY WITHOUT FINAL AND EXECUTORY ASSESSMENT IS INVALID. Tax Amnesty on Delinquencies may be availed of income delinquencies and assessments, which have been final and executory and withholding agents who withheld taxes but failed to remit the same to the BIR. In case of withholding taxes, the deficiency must arise from non-withholding (which must be covered by an assessment notice that has become final and executory) or failure to remit tax. Amnesty availed of by the taxpayer without assessment is not valid. (St. Gerrard Construction Gen Contractor and Development Corporation v. CIR, CTA Case No. 10427, April 5, 2023; Reitoh Cold Storage Inc. et. al. v. CIR, CTA Case No. 10420, April 19, 2023)

FAN MUST BE PROTESTED EVEN IF IT WAS RECEIVED AFTER A COLLECTION LETTER. The taxpayer must file an administrative protest within 30 days from the date of the FAN.  Citing the Supreme Court case of CIR v. V.Y Domingo Jewellers, Inc. (G.R. No. 221780, March 25, 2019), the CTA held that if a taxpayer, after receiving the BIR’s collection letter referring to a final assessment, subsequently receives such assessment, must file an administrative protest on the said FAN before the BIR, lest appeal to the CTA be considered premature, irrespective whether the receipt of the FAN was through valid service or taxpayer’s own request.(CIR v. Four Seas Trading Corporation, CTA EB No. 2507, CTA Case No. 9915, April 5, 2023) Dissenting Opinion: Appeal to the CTA is valid because there is no proper service of PAN and FAN; there is a violation of due process.

MERALCO IS A COMMON CARRIER EXEMPT FROM LOCAL BUSINESS TAX.

Common carriers are exempt from the taxing power of the local government units.  Common carrier is defined as one that holds itself out to the public as engaged in the business of transporting persons or property from place to place, offering its services to the public generally. As an electric distribution utility, MERALCO, is a common carrier under EPIRA Law which states that the distribution of electricity shall be a regulated common carrier business. Lastly, MERALCO’s consequent exemption from local business tax as a common carrier is not dependent on its actual payment of common carrier’s tax. (The City of Pasig v. Manila Electric Company, CTA AC No. 248, April 19, 2023)