Decemeber 22 2025 Tax Updates

COURT OF TAX APPEALS DECISIONS

A TAXPAYER’S VAT REGISTRATION IS SATISFIED ONCE THE HEAD OFFICE IS VAT-REGISTERED; BRANCHES NEED NOT BE SEPARATELY VAT-REGISTERED FOR PURPOSES OF A VAT REFUND. THE CTA En Banc held that only a VAT-registered person may claim a refund of input VAT attributable to zero-rated sales, and VAT registration is complied with once the taxpayer’s head office is duly registered as a VAT taxpayer. Applying this to the case, the Court ruled that the taxpayer’s branch did not need separate VAT registration because the Tax Code requires VAT registration only at the entity level, and administrative regulations cannot impose additional requirements not found in the law. Although the Court initially denied the claim for lack of branch registration, the En Banc reversed this finding, holding that head-office VAT registration was sufficient. (Foundever Philippines Corporation (formerly: Sitel Philippines Corporation) v. CIR, CTA EB No. 2799 (CTA Case No. 10136), April 2025)

TAXPAYERS CLAIMING ZERO-RATED VAT MUST STRICTLY SUBSTANTIATE THAT SERVICES WERE PERFORMED AT THE CORRECTLY REGISTERED SITE; LACK OF PERSONAL KNOWLEDGE OF THE WITNESS AND REGISTRATION AFTER THE PERIOD OF REFUND WARRANT THE DENIAL OF THE CLAIM. The law provides that only VAT-registered persons engaged in zero-rated or effectively zero-rated sales are entitled to claim input VAT refund, and the taxpayer must prove that, among others, services were rendered to nonresident foreign clients. Here, the taxpayer failed to demonstrate that the services were actually rendered at the Palawan Site during the relevant quarter, as the site was only registered after the period of claim, the witness (based in Mandaluyong City) lacked personal knowledge of operations, and no corroborating evidence such as operations records or agreements specifying the service site was provided. In view of the strict scrutiny applied in tax exemption claims, the Court found that the taxpayer did not satisfy all requisites for zero-rating, particularly the site-specific performance requirement, and thus disallowed the input VAT refund claim. (Foundever Philippines Corporation (formerly: Sitel Philippines Corporation) v. CIR, CTA EB No. 2799 (CTA Case No. 10136), April 2025)

TAX EXEMPTION IN THE SUBIC SPECIAL ECONOMIC ZONE APPLIES ONLY AFTER THE SBMA ISSUES A CERTIFICATE OF REGISTRATION OR CRTE, AND MERE EXECUTION OF A LEASE OR BOARD APPROVAL DOES NOT CONFER EXEMPTION; FAILURE TO COMPLY RESULTS IN LIABILITY FOR DOCUMENTARY STAMP TAX. Business enterprises within the Subic Special Economic Zone are exempt from national and local taxes, including documentary stamp tax, subject to registration with the SBMA and issuance of a Certificate of Registration or CRTE. In the case at hand, the taxpayer argued that its lease agreement and Board approval prior to the CRTE issuance should suffice for tax exemption. The Court held that only the issuance of the CRTE finalized registration and conferred entitlement to the tax exemption. Evidence showed that taxpayer executed the lease before the CRTE was issued, and that several procedural steps remained before registration could be deemed complete. Consequently, the lease agreement was subject to documentary stamp tax. The Court also ruled that the taxpayer was not liable for compromise penalty, as no agreement with the BIR had been made. (CIR v. The Teleempire Incorporated CTA EB No.2817, April 29, 2025; The Teleempire Incorporated v. CIR, CTA EB No. 2819, April 29, 2025 2025)

A FOREIGN AFFILIATE CONDUCTING CORE BUSINESS ACTIVITIES THROUGH A PHILIPPINE ENTITY IS CONSIDERED “DOING BUSINESS” LOCALLY. In zero-rated sales, one of the requirements is that the non-resident foreign corporation is not doing business in the Philippines. Here, the taxpayer acted as an agent of its foreign affiliate, performing significant and integral services in the Philippines under strict contractual controls, earning fees almost entirely from a foreign company, and operating under the affiliate’s instructions, pricing, among others. These facts established that the foreign company was effectively conducting business in the Philippines through the taxpayer, making it a resident foreign corporation engaged in trade or business locally, thereby disqualifying the VAT refund. (PPD Pharmaceutical Development Philippines Corp. v. Commissioner of Internal Revenue, CTA EB No. 2839 (CTA Case No. 10249), April 3, 2025)

IMPORTED COMMISSARY SUPPLIES 1) NECESSARY FOR OPERATIONS AND 2) CHEAPER OR UNAVAILABLE LOCALLY ARE EXEMPT FROM EXCISE TAX.  Under the law, a corporation may claim excise tax exemption on imported commissary supplies if it meets certain conditions, including payment of corporate income tax for the relevant period, use of the imported items in transport and related operations, and demonstration that the supplies are not reasonably available in the local market in terms of quantity, quality, or price. In this case, Philippine Airlines established compliance through detailed evidence: testimony of its in-flight materials purchasing manager, tables comparing the cost of importing versus local purchase, and published local and international price lists. The evidence showed that the cost of importing wines and liquor was lower than purchasing them locally. The Court emphasized that once the taxpayer establishes a prima facie right to the refund, the BIR must disprove it, which it failed to do. Accordingly, the Court affirmed the refund of excise taxes on imported wine and liquor products. (Commissioner of Internal Revenue v. Philippine Airlines, Inc., CTA EB No. 2866 (CTA Case No. 8340), April 24, 2025)

A TAXPAYER CLAIMING REFUND OF EXCISE TAX ON COPPER CONCENTRATES MUST STRICTLY COMPLY WITH STATUTORY RECOVERY PERIODS AND SECURE GOVERNMENT APPROVAL OF PRE-OPERATING EXPENSES; FAILURE TO DO SO BARS RECOVERY. Under the law, excise taxes due from FTAA contractors are collectible only after the contractor has fully recovered its pre-operating, exploration, and development expenses, reckoned from the date of commercial production. The Court found that the taxpayer failed to prove the proper reckoning point for its recovery period, as the date declared in the feasibility study and other documentation was not adequately established, and the contractor’s claimed pre-operating expenses were not approved by the DENR Secretary as required. Without proof of valid, unrecovered pre-operating expenses, the taxpayer could not establish that it was still within the recovery period, a prerequisite for excise tax refund claims. Accordingly, the Court affirmed the denial of the refund, emphasizing that tax exemptions and refunds are strictly construed against the taxpayer. (OceanaGold Philippines, Inc. v. Commissioner of Internal Revenue, CTA EB No. 2876 (CTA Case Nos. 9627, 9697, 9760, 9830 & 9856), May 9, 2025)

TAXPAYERS CLAIMING ZERO-RATED SALES MUST STRICTLY PROVE ACTUAL FOREIGN CURRENCY RECEIPTS OR VALID OFFSETTING ARRANGEMENTS, SUPPORTED BY CLEAR AND UNDERSTANDABLE EVIDENCE. Zero-rated sales of services require proof of foreign currency payment or a valid offsetting arrangement. The Court found that the taxpayer failed to establish that the funds advanced by its head office could be offset against receivables from its affiliates, as the Short-Term Credit Facility Agreement only covered loans between the head office and each affiliate, not between affiliates themselves. Moreover, the taxpayer’s Schedule of Offsetting of Receivables, the only evidence of such offsetting, was largely in a foreign language and was not adequately explained or translated, rendering it inadmissible as proof. Consequently, petitioner failed to prove the existence of a valid offsetting arrangement and, therefore, could not substantiate its claim of engaging in zero-rated sales of services. (Avaloq Philippines Operating Headquarters v. Commissioner of Internal Revenue, CTA EB No. 2897 (CTA Case No. 10397), June 2025)

INPUT VAT ON PURCHASES NOT COVERED BY A ZERO-RATED INCENTIVE IS REFUNDABLE IF VALID, PAID, AND PROPERLY SUBSTANTIATED. Under the law, a VAT-registered taxpayer may claim a refund of input taxes that are due or paid, even if the purchases are not directly exempt or zero-rated, provided they are incurred in the course of business and properly documented. In this case, while the taxpayer’s renewable energy operations are entitled to zero-rated VAT for certain plant-related purchases, not all local purchases were necessary for its plant development and therefore incurred regular VAT. The Court found that the taxpayer sufficiently proved that its input VAT arose from these non-zero-rated local purchases through supporting schedules and documents, establishing that it was the proper party to claim the refund. The Court accordingly allowed the refund of the input VAT that was valid, due, and unutilized. (Commissioner of Internal Revenue v. Monte Solar Energy, Inc., CTA EB No. 2919 (CTA Case No. 10434), April 15, 2025)

AN ASSESSMENT IS VOID WHEN THE BIR FAILED TO PROVE THAT PERSONAL SERVICE IS NOT PRACTICABLE; AND CANNOT PROVE ACTUAL RECEIPT OF THE PAN AND FAN/FLD, WHEN DENIED RECEIPT THEREOF THE BY THE TAXPAYER. Jurisprudence consistently holds that when a taxpayer categorically denies receipt of tax assessment notices, the burden shifts to the BIR to prove, by competent and credible evidence, that the PAN and FAN/FLD were actually received; mere registry receipts, or bare allegations of mailing do not suffice, as due process demands actual notice to enable the taxpayer to respond. Applying this doctrine, the CTA found that the BIR failed to justify resort to service by registered mail, failed to prove that personal service was impracticable, and failed to present reliable proof of mailing and receipt. Consequently, the failure to validly serve the PAN and FAN/FLD violated due process, rendering the assessment void and without legal effect. (Aegis Integrated Lightning and Grounding Protection Inc. v. Commissioner of Internal Revenue, CTA Case No. 10716, August 14, 2025)

RECEIPT OF FINAL DECISION IS PRESUMED IF TAXPAYER’S TESTIMONY IS NOT CREDIBLE; INITIATORY PLEADINGS SHOULD BE FILED BY PERSONAL SERVICE OR MAIL, AND IF ORDINARY MAIL, DATE OF COURT RECEIPT IS THE DATE OF FILING. The CTA exercises appellate jurisdiction only over decisions or inaction of the CIR when an appeal is filed strictly within the reglementary 30-day period, and compliance with the prescribed mode of filing is jurisdictional. Once the CIR establishes the fact of proper mailing of its decision, a disputable presumption of receipt arises, which prevails unless rebutted by competent and credible evidence. In this case, the CIR sufficiently proved that the Final Decision was dispatched by registered mail in May 2021, giving rise to the presumption that it was received by the taxpayer in due course. The taxpayer’s claim that it received the decision only in January 2022 through personal service was unsupported by any objective proof, such as acknowledgment stamps or receipts, and was contradicted by its own witness testimony. Moreover, even assuming arguendo that receipt occurred on January 20, 2022, the Petition for Review was still filed beyond the allowable period and, in any event, was improperly filed via private courier, an impermissible mode for initiatory pleadings, rendering the filing effective only upon actual receipt by the CTA. Consequently, the petition was filed out of time, the CIR decision had already become final and executory, and the CTA correctly dismissed the case for lack of jurisdiction. (SCG Marketing Philippines, Inc. v. Commissioner of Internal Revenue, CTA Case No. 10779, October 9, 2025)

AN ASSESSMENT ISSUED 7 DAYS AFTER THE RECEIPT OF FAN/FLD IS VOID. Under the rules, taxpayer has 15 days to respond to PAN. In this case, the petitioner received the PAN on 08 January 2013 and timely filed its reply via registered mail on 09 January 2013. Despite this, the BIR issued the FLD/FAN on 15 January 2013, only seven (7) days after receipt of the PAN and well before the expiration of the 15-day period, which ended on 23 January 2013. Worse, the BIR’s authorized representative actually received the petitioner’s PAN reply only on 16 January 2013, meaning the FLD/FAN had already been issued even before the reply was received and considered. These undisputed dates clearly show that the assessment was prematurely issued, depriving the petitioner of its right to fully respond and have its defenses evaluated, thereby violating administrative due process and rendering the tax assessments null and void. (MyServ International Inc., as represented by Ms. Cecilia O. Toledo v. Cesar R. Dulay, Commissioner of Internal Revenue, et al., CTA Case No. 10796, July 17, 2025)

AN ASSESSMENT IS VOID WHEN A TAXPAYER RECEIVES A FLD/FAN AFTER THE DUE DATE.  The law mandates that a taxpayer must be informed in writing of the factual and legal bases of any proposed assessment, and that an FLD/FAN must contain a definite amount of tax due with a demand for payment within a specific, prospective period; failure to comply renders the assessment void. In this case, the FAN was issued on January 3, 2019 with a stated due date of January 31, 2019, and the FLD was dated February 11, 2019, but petitioner received both notices only on February 12, 2019, after the due date had already lapsed. The FLD and FAN also failed to state a fixed and determinate tax amount, leaving the liability uncertain and contingent on an already-lapsed due date. These defects deprived the taxpayer of a fair opportunity to pay or protest, thereby violating due process and nullifying the assessment. (I-Cyberworld Biz, Inc., represented by Jacqueline Guinto v. Bureau of Internal Revenue, represented by Commissioner Caesar R. Dulay, CTA Case No. 10827, July 11, 2025)

ASSESSMENT IS VOID IF THE REVENUE OFFICERS, WHO ARE NOT NAMED IN THE LOA, SIGNED THE WAIVER, INDICATED IN THE NOTICE OF INFORMAL CONFERENCE AND RECOMMENDED THE ISSUANCE OF PAN. Only the Commissioner of Internal Revenue (CIR) or his duly authorized representatives may examine taxpayers and issue assessments, and only Regional Directors or other officials specifically authorized by the CIR may issue Letters of Authority (LOAs) to revenue officers. BIR regulations further require that LOAs identify the authorized officers and mandate the issuance of a new LOA whenever cases are reassigned. In this case, the LOA authorized ROs Argoso and GS Favis to audit the taxpayer, yet the audit was actually conducted by RO Joey Fragante and GS Josefina B. Yu, who were not named in the LOA. The reassignment of ROs was not properly authorized by a valid LOA, as the memorandum signed by RDO Espiritu exceeded his authority. The absence of a valid LOA and the participation of unauthorized officers (signing the waiver and recommending the issuance of the PAN) violated both statutory and due process requirements, rendering the audit and resulting assessment fatally defective, null, and void. (Philam Properties Corporation v. Commissioner of Internal Revenue, CTA Case No. 10921, October 1, 2025)

REVENUE ISSUANCES

Revenue Memorandum Circular No. 109-2025

BIR DEADLINES FROM DECEMBER 22 TO DECEMBER 28, 2025. A gentle reminder on the following deadlines, as may be applicable: