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COURT OF TAX APPEALS DECISIONS

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

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

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

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

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

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

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

BIR ISSUANCES

REVENUE MEMORANDUM CIRCULAR NO. 071-2025

REVENUE MEMORANDUM CIRCULAR (RMC) NO. 76-2025

BIR RULINGS

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

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

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

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

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

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

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

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

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

BIR DEADLINES

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