COURT OF TAX APPEALS DECISIONS MAY 2023

TAX ASSESSMENTS

 

PRIVATE EDUCATIONAL INSTITUTION’S INCOME IS SUBJECT TO LOCAL BUSINESS TAX. Educational institutions are exempt subject to the condition that income is actually, and exclusively used for the educational purpose. Such applies to non-stock non-profit educational institutions. Non-profit means that no part of the income inures directly or indirectly to any individual or member. Where the taxpayer is a stock and profit educational institution, its income is subject to local business tax (Malayan Education System v. City of Manila, CTA Case No. 260, Civil Case No. CV-14-131442, May 10, 2023)

 

LOCAL GOVERNMENT UNIT’S ASSESSMENT MUST STATE THE LEGAL BASIS; OTHERWISE, THE ASSESSMENT IS VOID. Taxpayers shall be informed in writing of the law and facts on which the assessment is made; otherwise, the assessment is void. This applies also to local business tax assessment. Where the City of Manila provided a computation sheet but it failed to indicate the particular provision of the Manila Revenue Code, such failure violates due process, impugning the validity of the assessment. (Malayan Education System v. City of Manila, CTA Case No. 260, Civil Case No. CV-14-131442, May 10, 2023)

 

FAN/FLD ISSUED WITHIN 15 DAYS AFTER THE ISSUANCE OF THE PAN RENDERS ASSESSMENT VOID. The taxpayer is granted fifteen (15) days from receipt of the Preliminary Assessment Notice (PAN) to submit its response. If the taxpayer fails to do so within the prescribed period, it will be considered in default and only then the BIR shall issue the FAN/FLD. Where the BIR issued the FAN/FLD five (5) days after the taxpayer received the PAN, without awaiting the reply within the 15-day period, the taxpayer’s right to due process was violated and thus, the assessment is void. (D.M. Wenceslao Associates, Inc. v. CIR, CTA Case No. 9746, May 9, 2023)

 

ASSESSMENT IS VOID FOR FAN/FLD’S FAILURE TO RULE ON THE PROTEST TO THE PAN. Administrative tribunal or body must consider the evidence presented in a manner that the parties may know the issues involved and the reasons for the decisions. Where the BIR’s FAN/FLD was issued merely reiterative the findings in the PAN, save for modifications in the amount of interest, and FAN/FLD failed to echo the reasons for the rejection of the taxpayer’s defenses exhaustively posed in the protest on the PAN, the assessment must be struck down for violation of its right to due process on assessment. (The Residences at Greenbelt Condominium Corporation v. CIR, CTA Case No. 9942, May 26, 2023)

 

TAXPAYER’S RIGHT TO DUE PROCESS IS VIOLATED IF BIR IGNORED TAXPAYER’S EXPLANATION IN THE PAN. The Supreme Court ruled that the BIR must consider the evidence presented by the taxpayer. Administrative due process requires judicious consideration of the matters raised, independent evaluation and due notification of the parties of the reasons for the judgment. Where the BIR’s findings in the FAN and PAN are identical, varying only in the computation of interest and penalties, and BIR did into mention of taxpayer’s arguments, much less give an intelligent discourse in resolving each matter raised, ignoring the taxpayer’s reply to the PAN, the taxpayer’s due process is violated. (Kabalikat Para sa Maunlad na Buhay, Inc. v. CIR, CTA EB No. 1238, CTA Case No. 8336; CIR v. Kabalikat Para sa Maunlad na Buhay, Inc., CTA EB No. 1239, CTA Case No. 8336)

 

REQUISITES OF JUDICIAL COMPROMISE. One, the authority of the parties’ themselves, or their representatives to enter into compromise agreement; two, the compromise must be based on doubtful validity of the government’s claim against the taxpayer (doubtful validity); or financial incapacity of the latter (financial incapacity); three, the subject matter being compromised is not prohibited by law, or by its implementing rules and regulations; four, payment of the compromise amount, i.e., at least 40% of the basic tax/ es for doubtful validity; or at least 10% of the basic taxes for financial incapacity; five, approval of the NEB if: a) the amount offered is less than the prescribed rates; or b) if the total basic tax/es exceeds P1M; and six, presentation of the pertinent Certificate of Availment. (Great Earth Marketing & Development Corporation v. CIR, CTA Case No. 10314, May 23, 2023)

 

SUBSEQUENT ASSIGNMENT BY PURCHASER-TRANSFEROR TO TRANSFEREE IS NO LONGER SUBJECT TO WITHHOLDING TAX IF TRANSFEROR PAID THE TAX ON THE ORIGINAL CONTRACT WITH THE SELLER.  By virtue of the deed of assignment, the assignee is deemed subrogated to the rights and obligations of the assignor and is bound by exactly the same conditions as those which bound the assignor. Where the original buyer assigned to another all his rights, interest and obligations under the Contract to Sell, including the payment of EWT to the BIR, the transferee has no further obligation to withhold and remit the EWT from the contract price because the said obligation was already complied with by the original buyer. (Great Earth Marketing & Development Corporation v. CIR, CTA Case No. 10314, May 23, 2023)

 

WARRANT OF GARNISHMENT (WOG) SHOULD BE APPEALED TO THE CTA, AND NOT THE BIR LETTER DENYING REQUEST TO LIFT THE WOG. The 30-day period to appeal before the CTA shall be counted from the receipt of the warrant of distraint and/or levy, or WOG. The WOG constitutes the implied denial of the BIR on taxpayer’s protest. The BIR letter denying the request to lift the garnishment cannot be appealed. Taxpayer should have appealed the WOG. (Country Bank, Rural Bank of Bongabong, Inc. v. CIR, CTA Case No. 108644, May 5, 2023)

 

ASSESSMENT IS VOID IF FAN/FLD AND FDDA HAVE SAME DETAILS OF FINDINGS AND BIR FAILED TO ADDRESS TAXPAYER’S ARGUMENTS. Due process requires that the tribunal must be rendered on the evidence presented and in a manner that parties know the various issues involved and the reason for the decision.  A taxpayer must be informed in writing of the law and the facts on which the assessment is made. Where the FAN did not address any of the arguments raised by the taxpayer, the FAN and PAN contain the same details and the FDDA failed to address the arguments raised by the taxpayer in the reply and protest, the BIR failed to observe due process requirements and thus, the assessment is void. (Ajanta Pharma Philippines, Inc. v. CIR, CTA Case No. 10057, May 4, 2023)

LOANS AND ADVANCES EXTENDED BY A DOMESTIC CORPORATION TO NON-RESIDENT FOREIGN CORPORATION (NRFC) AFFILIATES ARE SUBJECT TO DOCUMENTARY STAMP TAX. All loan agreements, whether made or signed in the Philippines or abroad, when the obligation or right arises from Philippine sources or the property or object of the contract is located in the Philippines, shall be subject to the payment of DST. In cases where no formal agreements or promissory notes have been executed to cover credit facilities, the documentary stamp tax shall be based on the amount of drawings or availment of the facilities. Moreover, all parties to the transaction (i.e., loan transaction) are primarily liable for the DST, not only the person making, signing, issuing, accepting, or transferring the document or facility evidencing the transaction. Any of the parties thereto shall be liable for the full amount of the tax due. However, when one party is exempted from paying tax, the other party who is not exempt would be liable. Therefore, loans and advances extended by a domestic corporation to non-resident foreign corporation (NRFC) affiliates are subject to documentary stamp tax. (Bloomberry Resorts Corporation v. CIR, CTA Case No. 10193, May 29, 2023; with Dissenting Opinion)

LOANS AND ADVANCES TO NRFC-AFFILIATES ARE SUBJECT TO DST EVEN IF THEY ARE NOT DEBT INSTRUMENTS. DST is, by nature, an excise tax since it is levied on the exercise by persons of privileges conferred by law. It is an excise tax because it is imposed on the transaction rather than the document. Hence, a DST may be imposed even in the absence of a debt instrument so long as the transaction is distinctly established. Given the admissions and disclosures in the AFS, the loans and advances with related parties need not be embodied in a document or debt instrument to be subjected to DST (Bloomberry Resorts Corporation v. CIR, CTA Case No. 10193, May 29, 2023; with Dissenting Opinion)

 

TAXPAYER IS NOT ESTOPPED FROM QUESTIONING THE AUTHORITY OF THE REVENUE OFFICERS EVEN IF IT INITIALLY PARTICIPATED IN THE AUDIT OF SUCH REVENUE OFFICERS. A Letter of Authority (LOA) is an important instrument of due process. It should specifically name the revenue officers who will pursue the tax audit. Even if the taxpayer did not raise the issue at the administrative level, it is not estopped from questioning the authority of the revenue officers. The taxpayer can still assail the lack of authority in the latter proceeding (Sunlife Grepa Financial, Inc. v. CIR, CTA Case No. 10080, May 9, 2023)

 

A MEMORANDUM CANNOT TAKE PLACE THE LOA; ASSUMING LOA IS VALID, CHIEF IS NOT DULY AUTHORIZED TO SIGN THE MEMORANDUM. A Memorandum cannot be sued as a substitute for an LOA as it simply notifies the taxpayer of the transfer of an audit/investigation to another set of revenue officers. Thus, assessments issued without the LOA is void. Moreover, even if it may be argued that Memorandum is the same as LOA, it can only be issued by the Commissioner or his duly authorized representatives: regional director, deputy commissioner, and other officials that may be authorized by the commissioner. A chief is not among those listed. Thus, the Memorandum cannot qualify as valid LOA. (Sunlife Grepa Financial, Inc. v. CIR, CTA Case No. 10080, May 9, 2023)

 

SETTLEMENT BELOW THE PRESCRIBED RATES OF OFFER OF COMPROMISE IS VALID SUBJECT TO REQUEST IN WRITING STATING THE REASONS, LEGAL AND/OR FACTUAL, WHY TAXPAYER WOULD BE ENTITLED TO A LOWER RATE AND SUBJECT TO APPROVAL BY THE NATIONAL EVALUATION BOARD. While compromise settlements are highly encouraged, the CTA is not a mere rubber stamp that mechanically approves agreements, without validating whether the same are contrary to law, public order, public policy, morals and good customs. Where settlement offered in the Compromise Agreement is less than the prescribed minimum rates (20%) of the basic tax), the compromise is valid as taxpayer established the reason for accepting a lower rate (premature issuance of FAN/FLD; despite total cancellation of the assessment, the taxpayer offered to end the costly litigation), and the subject compromise was approved by the NEB. (CIR v. Karina, Inc., CTA EB No. 2432, CTA Case No. 9204, May 12, 2023)

 

ISSUANCE OF LETTER NOTICE, WITHOUT THE LOA, RENDERS THE ASSESSMENT VOID. The Supreme Court, in Medicard case, ruled that Letter Notice (LN) shall serve as a discrepancy notice to the taxpayer similar to a Notice for Informal Conference [now Notice of Discrepancy]. It presupposes that the revenue officers at the start of the audit process has proper authority to audit. In this case, LN does not amount to an authority to conduct an investigation and does not amount as a valid replacement of the LOA. Where the BIR neither presented LOA prior to the issuance of the LN, the assessment is void.(CIR v. Chevron Services Philippines, Inc. CTA EB No. 2452, CTA Case No. 9571, May 10, 2023)

 

ENVIRONMENTAL TAX IS A FEE, NOT A TAX, IF THE PURPOSE IS TO REGULATE. If the revenue generation is the primary purpose of the fee and regulation is merely incidental, the imposition is a tax; but if the regulation is the primary purpose, the fact that that incidentally revenue is also obtained does not make the fee a tax. Where the “environmental tax” under the Watershed Code of Davao City is not a local tax as its purpose is not to raise revenue, but to implement the operational expenses of the Watershed Management Council and all its instrumentalities and for watershed protection, conservation and management programs and projects. (DOLE Philippines Inc. – Stanfilco Division v. The Sangguniang Panlunsod the City of Davao et. al., CTA EB No. 2461, CTA AC No. 215, May 12, 2023)

THE PERMIT FEE TO SLAUGHTER IS IN THE NATURE OF A LICENSE FEE AND NOT A TAX. A fee is for the service of a public officers while tax is for contribution of wealth. Where the purpose of the slaughter fee is to regulate or control the slaughter of the animals intended for sale to the public in order to promote the public health and safety, the permit fee is not considered a tax. This means that the CTA has no jurisdiction as the case does not primarily involve a tax issue. (San Miguel Foods, Inc. v. Office of the City Treasurer, City of Davao, CTA EB No. 2535, CTA AC No. 210, May 18, 2023)

INTEREST INCOME FROM MONEY MARKET PLACEMENT IS SUBJECT TO FINAL WITHHOLDING TAX AND NOT TO REGULAR CORPORATE INCOME TAX. The liability to withhold the final tax rests upon the banks as payors of the interest income. Where the interest income came from cash deposits and short-term cash investments with the bank, the interest thereat is considered a passive income subject to FWT, and the BIR committed mistake in subjecting the same to regular corporate income tax. (CIR v. First Philippine Utilities Corporation, CTA EB No. 2500, CTA Case No. 9431, May 24, 2023)

 

ASSESSMENT OF NOLCO IS ERRONEOUS IF THE TAXPAYER DID NOT BENEFIT THEREON ON THE SUBSEQUENT YEARS. Where the BIR adjusted the taxable income by removing the NOLCO as it was allegedly forwarded to the succeeding periods and the taxpayer showed that the NOLCO was not applied in the subsequent period, the assessment should be cancelled (CIR v. First Philippine Utilities Corporation, CTA EB No. 2500, CTA Case No. 9431, May 24, 2023)

 

ASSESSMENT OF MCIT IS ERRONEOUS IF THERE IS NO SUBSTANTIAL ADJUSTMENT ON THE ITEMS OF THE GROSS INCOME. Where the taxpayer incurred net loss from its operations, the MCIT still applies. Notably, the tax benefit from the MCIT will redound to the succeeding years. It is incorrect for a petitioner to disallow the MCIT when the taxpayer did not even benefit from it during the taxable year. (CIR v. First Philippine Utilities Corporation, CTA EB No. 2500, CTA Case No. 9431, May 24, 2023)

 

CTA HAS JURISDICTION TO RULE ON PRESCRIPTION DESPITE TAXPAYER’S FAILURE TO PROTEST; BIR HAS 5 YEARS TO COLLECT FROM ISSUANCE OF FAN/FLD. The Supreme Court ruled in Hambrecht and QLDI cases that even if the taxpayer failed to contest the FAN, the CTA may assume jurisdiction on the issues of prescription. Moreover, the BIR has 5 years to collect from the issuance of FAN/FLD, despite the 10-year period to assess. (CIR v. Anapi Multiple-Purpose Cooperative, CTA EB No. 2543, CTA Case No. 9787, May 11, 2023)

 

MOTION FOR RECONSIDERATION ON ACQUITTAL IS ALLOWED ONLY WHEN THERE IS GRAVE ABUSE OF DISCRETION AND MISTRIAL. The Supreme Court ruled that a motion for reconsideration after an acquittal is possible based on exceptional and narrow grounds – grave abuse of discretion or mistrial. Where a full-blown trial was conducted and both prosecution and accused were given opportunity to present evidence and the court, in its 81-page decision, comprehensively reviewed, analyzed and appreciated the evidence, motion for reconsideration was denied. (People of the Philippines v. Rappler Holdings Corporation, CTA Crim Case Nos. O-679 to O-682, May 18m 2023)

 

NO CIVIL LIABILITY SHOULD BE IMPOSED WHEN ACCUSED DID NOT COMMIT ACTS OR OMISSIONS CONSTITUTING THE OFFENSE. Extinction of the penal action does not carry with it the extinction of the civil liability in the following instances: 1) The acquittal is based on reasonable doubt as only preponderance of evidence is required; 2) The court declares that the liability of the accused is only civil; and, 3) The civil liability of the accused does not arise from or is not based upon the crime of which the accused is acquitted. However, the civil action based on delict may be deemed extinguished if there is a finding on the final judgment in the criminal action that the act or omission from which the civil liability may arise did not exist or where the accused did not commit the acts or omissions. Where the accused is not a dealer in securities and did not earn any trading income from foreign entities, and having found not liable for deficiency taxes, no civil liability should be imposed. (People of the Philippines v. Rappler Holdings Corporation, CTA Crim Case Nos. O-679 to O-682, May 18m 2023)

 

BUSINESS ACTIVITY ON WHICH EXEMPTION IS BASED MUST BE STATED IN THE PERMIT. To be entitled to exemption from local business tax, the business permit must state the business activities on which the taxpayer grounds its right to a preferential tax rate. Where the taxpayer under its business permit is identified as wholesaler in general and not manufacturer, warehouser and/or wholesaler of cement entitled to preferential rate, the appeal must fail. (Holcim Philippines, Inc. v The City of Manila et. al, CTA AC No. 251, May 11, 2023)

 

INCREASE IN LOCAL BUSINESS TAX RATE IS BASED ON PREVAILING/ADJUSTED RATE. Under the Local Government Code, LGUs may adjust tax rates to not more than ten percent (10%) of the rates fixed under the LGC and no more frequently than once every five (5) years. It requires that: (1) There is a tax ordinance that already imposes a tax in accordance with the provisions of the LGC; and 2. There is a second tax ordinance that made adjustment on the tax rate fixed by the first tax ordinance. Moreover, the basis for the adjustment or increase would be the prevailing or adjusted tax rate, and not the original rate. (San Roque Power Corporation v. Municipality of Manuel, Pangasinan et. al. CTA AC No. 256, Civil Case No. U-11272, May 10, 2023)

SIMULTANEOUS ACTION TO QUESTION VALIDITY OF THE ORDINANCE AND APPEAL REFUND CONSTITUTES FORUM SHOPPING. The following are the elements of litis pendencia and forum shopping: 1. The identity of parties, or at least such as representing the same interests in both actions; 2. The identity of rights asserted and relief prayed for, the relief being founded on the same facts (reliefs are founded on the same facts and arguments; same evidence will sustain the second action even if the reliefs are different); and  3. The identity of the two cases such that judgment in one, regardless of which party is successful, would amount to res judicata in the other (where both cases have same facts and evidence necessary to resolve both causes of action). Where the taxpayer assailed the validity of the ordinance with the DOJ and thereafter with the court; and it also paid, applied for refund and appeal to the court, there is litis pendencia and taxpayer is guilty of forum shopping.(San Roque Power Corporation v. Municipality of Manuel, Pangasinan et. al. CTA AC No. 256, Civil Case No. U-11272, May 10, 2023)

LGU BILLING STATEMENT IS NOT AN ASSESSMENT; GENERAL PROFESSIONAL PARTNERSHIP IS EXEMPT FROM LBT. The Supreme Court in Cosmos Bottling and ICTSI case ruled if a) taxpayer receives and assessment, the remedy is under Section 195 – written protest within 60 days from assessment and 30 days to appeal to court after receipt of decision or lapse of 60 days whichever is earlier; or 2) if taxpayer receives no assessment but claims that it erroneously paid the tax, the remedy is under Section 196 claim for refund. Billing statement is not assessment as the latter requires prior investigation/examination and letter of authority. Further, a general professional partnership is not subject to local business tax. (Casas+ Architects, The City of Makati, CTA AC No. 259, May 28, 2023)

 

REFUND OF EXCESS INPUT VAT ON ZERO-RATED SALES

 

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 (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 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. (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • The 90 + 30-day periods to appeal are both mandatory and jurisdictional. After the lapse of the 90-day period, petitioner had 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 respondent’s inaction within the said period is deemed a denial of the claim. (Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023)
  • The rule is that for administrative claims filed during the effectivity of the TRAIN Law, the taxpayer is still required to submit all supporting documents together with the administrative claim. Otherwise stated, the reckoning of the 90-day period still coincides with the date of filing of the administrative claim. (Mitsuba Philippines Technical Center Corporation v. CIR, CTA EB No. 2631, CTA Case No. 10025, May 26, 2023)

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

• The taxpayer is a VAT-registered person; (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)

In relation to the taxpayer’s output VAT:

• The taxpayer is engaged in zero-rated or effectively zero-rated sales; (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Lepanto Consolidated Mining Company v. CIR, CTA Case No. 10078, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 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. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • For the sale of goods to an export- oriented enterprise whose export sales exceed 70% of total annual production to be qualified as a zero-rated sale, the following essential elements must be met: the sale was made by a VAT-registered person; the buyer must be considered as an export-oriented enterprise (export sales must exceed 70% of the total annual production of the preceding taxable year; supported by BOI Letter Endorsement; must establish the whole year); and, the goods sold must be used as raw materials or packaging materials for the goods exported by the export-oriented enterprise (requisites: the sales invoice as proof of the sale of goods; and, the goods sold must be used as raw materials or packaging materials for the goods ultimately exported by the export-oriented enterprise; sales invoice is issued providing description of the goods sold as various packaging materials are acceptable document). (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • Invoicing requirements for zero-rated sales:
    • Reasons for the disallowance: nature and description of goods not indicated; buyer’s TIN not indicated (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • Re. sales of goods to BOI-registered entities – Certifications to the effect that the taxpayer’s customers are BOI-registered manufacturers/producers are 100% exported are required. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • Sales made to a BOI-registered buyer are export sales subject to the zero percent rate if the following conditions are met: (a) The buyer is a BOI-registered manufacturer/producer (Certificate of Registration with the BOI); (b) The buyer’s products are 100% exported; and, (c) The BOI certified that the buyer exported 100% of its products. For this purpose, the BOI Certification is vital for the seller-taxpayer to avail of the benefits. For the sales made to the buyer during the period of claim for refund by the supplier to qualify as zero-rated sales, the BOI must still certify that the buyer exported its entire product [for the period subject of the claim for refund by the supplier]. Without the certification on actual export, the sales are not considered zero-rated (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • Sale to National Power Corporation of electricity generated through hydropower is subject to zero percent (0%) V A T under Section 108(8)(7) of the NIRC of 1997, as amended by RA No. 9337. (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023)
  • Re. sales of services, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), to wit:
    • The services fall under any of the categories under Section 108(B)(2), or simply, the services rendered should be other than ”processing, manufacturing or repacking of goods” (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • Sales of goods are disallowed in case of mixed sales. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • The service must be performed in the Philippines by a VAT-registered person.  (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • The document must indicate that the services were performed in the Philippines. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    •  The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules. (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
    • The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in and business who is outside the Philippines when the services were performed (Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
  • On Sale of Goods:
    • Documents to establish zero-rated sales of goods: 1. The sales invoice as proof of the sale of goods; 2. Export declaration and the bill of lading or airway bill as proof of actual shipment of goods from the Philippines to a foreign country; and 3. The bank credit advice, certificate of bank remittance, or any other document proving payment for the goods in acceptable foreign currency or its equivalent in goods and services. (CIR v. Oceanagold (Philippines), Inc., CTA EB No. 2552, CTA Case Nos. 9207, 9277 & 9416, Oceanagold (Philippines, Inc. v. CIR, CTA EB o. 2571, CTA Case Nos. 9207, 9277
    • Zero-rated sales whose sales invoice is dated outside the period of claim should be disallowed. Export sales is defined as the sale and actual shipment of goods from the Philippines to a foreign country. Thus, sales invoice dated later outside the period, even though there is bill of lading issued within the period, warrants the denial of zero-rated sales. However, if provisional invoice is issued within the covered period, the zero-rated sales will be allowed. (With Dissenting Opinion) (CIR v. Oceanagold (Philippines), Inc., CTA EB No. 2552, CTA Case Nos. 9207, 9277 & 9416, Oceanagold (Philippines, Inc. v. CIR, CTA EB o. 2571, CTA Case Nos. 9207, 9277

 

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; (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)
• The input taxes are due or paid; (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023)
• The Supreme Court in Chevron case ruled that when the taxpayer-claimant is engaged in mixed transactions, the refundable input VAT attributable to zero- rated sales is determined by getting the percentage of valid zero- rated sales over toral reported sales (taxable, zero-rated, and exempt) multiplied by the properly substantiated input taxes not directly attributable to any of the transactions. (Tetra Pak Philippines, Inc. v CIR, CTA Case No. 10113, May 23, 2023)
• Input tax must comply with invoicing requirements.
  • Reasons for disallowance: overclaimed input tax due to foreign exchange rate used; OR or invoice not in the name of that taxpayer; input tax not separately indicated; no TIN and/or address; not supported by VAT OR; document not valid for claim of input VAT; not original copy; supported by billing statement; wrong TIN (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023
• The input taxes have not been applied against output taxes during and in the succeeding quarters. (CBK Power Company Limited v. CIR, CTA Case No. 10137, May 10, 2023; Tetra Pak Philippines, Inc. v. CIR, CTA Case No. 10237, May 19, 2023)

 

REFUND OF UNUTILIZED CREDITABLE WITHHOLDING TAX

•  In filing a claim for refund or credit of creditable withholding tax, compliance with the following must be met:
  • The claim for refund must be filed within the two-year prescriptive period. (CIR v. Bethlehem Holdings, Inc., CTA EB No. 2584, CTA Case No. 10050, May 18, 2023)
  • The fact of withholding must be 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. (CIR v. Bethlehem Holdings, Inc., CTA EB No. 2584, CTA Case No. 10050, May 18, 2023)
  • The income upon which the taxes were withheld must be included in the return of the recipient. (CIR v. Bethlehem Holdings, Inc., CTA EB No. 2584, CTA Case No. 10050, May 18, 2023)

 

REFUND OF ERRONEOUSLY OR ILLEGALLY ASSESSED OR COLLECTED TAX

• 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. 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. (Philippine Airlines, Inc. v CIR, CTA Case No. 10311, May 30, 2023)
  • PAL remains exempt from taxes, duties, royalties, registrations, licenses, and other fees and charges, provided it pays corporate income tax as granted in its franchise agreement. Accordingly, PAL is left with no other option but to pay its basic corporate income tax, the payment of which shall be in lieu of all other taxes, except VAT, and subject to certain conditions provided in its charter (to be exempt from excise tax on importation of tobacco and alcohol products, the said supplies are imported for the use of the franchisee in its transport/non-transport operations and other incidental activities and, they are not locally available in reasonable quantity, quality or price) (Philippine Airlines, Inc. v CIR, CTA Case No. 10311, May 30, 2023; PMFTC, Inv. v. CIR, CTA EB No. 2613, CTA Case No. 10110, May 18, 2023)

Other Matters:

TAXPAYER MUST PROVE THAT THE ERRONEOUS TAX WAS PAID; INPUT VAT MUST BE ESTABLISHED TO SUPPORT CLAIM OF ERRONEOUS OUTPUT VAT. To claim a refund of erroneously paid or illegally collected taxes, it must be proven that the taxpayer has paid the tax and that such payment was erroneous. Where the condominium dues are not subject to VAT, the input VAT must still be presented. In this case, the taxpayer failed to prove payment of the output VAT collected on association dues for the 3rct and 4th quarters of CY 2017 since it was not able to establish the input VAT from which it credited its output VAT. The Court must examine petitioner’s documentary evidence to ascertain that the output taxes on condominium dues have been paid. (Pacific Plaza Condominium Corporation v. CIR, CTA Case No. 10199, June 1, 2023)