TAXATION LAW DISCUSSIONS BY PROFESSOR ORTEGA

ESTATE TAX AND DONORS TAX

Sections 84 to 104 and Revenue Regulation 02-2003
Basic Elements
- The privilege of transmission of property is being taxed
- The transmission is by gratuitous means
ESTATE TAX
- The net estate is the basis for the imposition of the tax
Gross estate must then be determined first.
What is the Gross estate? What composes gross estate (GE)?
Section 85 of the NIRC defines it thusly:
SEC. 85. Gross Estate. - the value of the gross estate of the decedent shall be
determined by including the value at the time of his death of all property, real or
personal, tangible or intangible, wherever situated: Provided, however, that in the
case of a nonresident decedent who at the time of his death was not a citizen of the
Philippines, only that part of the entire gross estate which is situated in the
Philippines shall be included in his taxable estate.
What property may form part of the GE?
The law includes all or WHATEVER kind of properties.
However, we have to qualify the taxpayer who owns the properties.
Non-Resident Alien intangible properties are excluded due to the principle of
reciprocity, check if the facts says anything to that regard. Basis, Section 104(a) and
(b) NIRC.
SEC. 104. Definitions. - For purposes of this Title, the terms 'gross estate' and 'gifts'
include real and personal property, whether tangible or intangible, or mixed,
wherever situated: Provided, however, That where the decedent or donor was a
nonresident alien at the time of his death or donation, as the case may be, his real
and personal property so transferred but which are situated outside the Philippines
shall not be included as part of his gross estate' or 'gross gift': Provided, further,
That franchise which must be exercised in the Philippines; shares, obligations or
bonds issued by any corporation or sociedad anonima organized or constituted in
the Philippines in accordance with its laws; shares, obligations or bonds by any
foreign corporation eighty-five percent (85%) of the business of which is located in
the Philippines; shares, obligations or bonds issued by any foreign corporation if
such shares, obligations or bonds have acquired a business situs in the Philippines;
shares or rights in any partnership, business or industry established in the
Philippines, shall be considered as situated in the Philippines: Provided, still further,
that no tax shall be collected under this Title in respect of intangible personal
property:
(a) if the decedent at the time of his death or the donor at the time of the donation
was a citizen and resident of a foreign country which at the time of his death or
donation did not impose a transfer tax of any character, in respect of intangible

personal property of citizens of the Philippines not residing in that foreign country,
or
(b) if the laws of the foreign country of which the decedent or donor was a citizen
and resident at the time of his death or donation allows a similar exemption from
transfer or death taxes of every character or description in respect of intangible
personal property owned by citizens of the Philippines not residing in that foreign
country.
Section 104 is the basis of exclusion of certain properties in the GE due to the
principle of reciprocity. This is vital if the taxpayer is an NRA. Reciprocity principle
shall apply wherever the intangible personal property may be found. Look at the
facts if there is mention of reciprocity. If not, see if the foreign company is
conducting 85% of its operations in the Philippines in order for the intangibles to be
considered as located in the Philippines.

International Juridical Taxation 2 states impose the same tax of the same nature
on the same subject upon the same person.
International double taxation is minimized by tax deductions or tax credit. See Sec.
34 (B) (3)
The extent of interest existing at the time of death must be reported. See Sec. 85(A)
EXEMPT TRANSMISSIONS
SEC. 87 Exemption of Certain Acquisitions and Transmissions. - The following shall
not be taxed:
(A) The merger of usufruct in the owner of the naked title;
(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or
legatee to the fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another
beneficiary, in accordance with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and
charitable institutions, no part of the net income of which insures to the benefit of
any individual: Provided, however, That not more than thirty percent (30%) of the
said bequests, devises, legacies or transfers shall be used by such institutions for
administration purposes.
Focus on (B) and (C). They are transfers of properties due to the will of a
predecessor. These transfers are in contemplation of death.

Note that Section 11 of the Insurance Code has been recently amended. The insured
now has the power to change the beneficiary. If such power is not waived,
designation shall be irrevocable. The amounts pertaining to it do not form part of
the GE.

NET ESTATE
Net estate is the value of the gross estate less deductions thereto.
Not all deductions are applicable to all taxpayers.
Note: Resident Citizens have a personal standard deduction of PhP1,000,000.00.
REMEMBER THIS! This is important, especially in tax problems involving
calculations.
Special Deductions
1. Standard Deduction automatic deduction of PhP1,000,000.00
A deduction in the amount of One Million Pesos (P1,000,000) shall be allowed
as an additional deduction without need of substantiation. The full amount of
P1,000,000 shall be allowed as deduction for the benefit of the decedent. The
presentation of such deduction in the computation of the net taxable estate
of the decedent is properly illustrated in these Regulations. (Resident Aliens
and Resident Citizens only!)
2. Medical expenses All medical expenses (cost of medicines, hospital bills,
doctors fees, etc.) incurred (whether paid or unpaid) within one (1) year
before the death of the decedent shall be allowed as a deduction provided
that the same are duly substantiated with official receipts for services
rendered by the decedents attending physicians, invoices, statements of
account duly certified by the hospital, and such other documents in support
thereof and provided, further, that the total amount thereof, whether paid or
unpaid, does not exceed Five Hundred Thousand Pesos (P500,000).
3. Funeral Expenses Actual funeral expenses (whether paid or unpaid) up to
the time of interment, or an amount equal to five percent (5%) of the
gross estate, whichever is lower, but in no case to exceed P200,000.
4.
5. Judicial expenses and claims against the estate determine the expenditure
incurred and whether it resulted in favor of the estate. These deductible
items are expenses incurred during the settlement of the estate but not
beyond the last day prescribed by law, or the extension thereof, for the filing
of the estate tax return
Note: In income tax deductions, there is an optional standard deduction of 40% as
well as itemized deductions. Availment of one in any one taxable year is allowed.
This is not the case in estate tax.

We express our agreement with the date-of-death valuation rule. There is no law,
nor do we discern any legislative intent in our tax laws, which disregards the dateof-death valuation principle and particularly provides that post-death developments
must be considered in determining the net value of the estate. It bears emphasis
that tax burdens are not to be imposed, nor presumed to be imposed, beyond what
the statute expressly and clearly imports, tax statutes being construed strictissimi
juris against the government. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)
As held in Propstra v. U.S., where a lien claimed against the estate was certain and
enforceable on the date of the decedent's death, the fact that the claimant
subsequently settled for lesser amount did not preclude the estate from deducting
the entire amount of the claim for estate tax purposes. These pronouncements
essentially confirm the general principle that post-death developments are not
material in determining the amount of the deduction. (RAFAEL ARSENIO S. DIZON
vs. COURT OF TAX APPEALS, G.R. No. 140944, April 30, 2008)
Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a pecuniary
nature which could have been enforced against the deceased in his lifetime, or
liability contracted by the deceased before his death. Therefore, the claims existing
at the time of death are significant to, and should be made the basis of, the
determination of allowable deductions. (RAFAEL ARSENIO S. DIZON vs. COURT OF
TAX APPEALS, G.R. No. 140944, April 30, 2008)
Administration expenses, as an allowable deduction from the gross estate of the
decedent for purposes of arriving at the value of the net estate, have been
construed by the federal and state courts of the United States to include all
expenses "essential to the collection of the assets, payment of debts or the
distribution of the property to the persons entitled to it." In other words, the
expenses must be essential to the proper settlement of the estate and expenditures
incurred for the individual benefit of the heirs, devisees or legatees are not
deductible. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 123206, March 22, 2000)
Post Death Developments are not relevant in estate tax.
Compliance Provisions
When should a tax return be filed?
Notice of Death within 30 days from the death of the decedent.
Estate Tax Return filed within six months from the date of death (due to
assessment purposes.)
Note that there is a 3-year period of prescription to make assessments, and such is
dependent upon the 6-month period deadline. The start of the counting of the 3year period is the day following the last day of the 6-month period deadline.
Estate may be liable for income tax for properties earning income from rentals.

Donors Tax each gift must be reported within 30 days from the time of the giving
of the gift.
5-year extension period for the payment of estate tax is allowed in cases when
there is a petition for the settlement of decedents estate.
Tax Rates:
Estate Tax 5% to 20%
Donors Tax
Donation to a relative 5% to 15%
Donation to a stranger 30%
Spouses who donate are SEPARATELY TAXED!
Gratuitous Transfer by way of a Trust
Thus, in Lorenzo v. Posadas, the Court construed the phrase "judicial expenses of
the testamentary or intestate proceedings" as not including the compensation paid
to a trustee of the decedent's estate when it appeared that such trustee was
appointed for the purpose of managing the decedent's real estate for the benefit of
the testamentary heir. In another case, the Court disallowed the premiums paid on
the bond filed by the administrator as an expense of administration since the giving
of a bond is in the nature of a qualification for the office, and not necessary in the
settlement of the estate. Neither may attorney's fees incident to litigation incurred
by the heirs in asserting their respective rights be claimed as a deduction from the
gross estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R.
No. 123206, March 22, 2000)
The notarial fee paid for the extrajudicial settlement is clearly a deductible expense
since such settlement effected a distribution of Pedro Pajonar's estate to his lawful
heirs. Similarly, the attorney's fees paid to PNB for acting as the guardian of Pedro
Pajonar's property should also be considered as a deductible administration expense
as PNB provided a detailed accounting of decedent's property and gave advice as to
the proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the estate.
(COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 123206,
March 22, 2000)
Donations for one year shall be limited to PhP 200,000.00 per year
Each spouse may donate PhP 100,000.00 in one year.
Splitting of gifts into different calendar years is one way of lowering or eliminating
the payment of Donors Tax. It may result in complete tax avoidance.
Neither is the survivorship agreement a donation inter vivos, for obvious reasons,
because it was to take effect after the death of one party. Secondly, it is not a
donation between the spouses because it involved no conveyance of a spouse's

own properties to the other. (ROMARICO G. VITUG vs. THE HONORABLE COURT OF
APPEALS and ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)
In the case at bar, when the spouses Vitug opened savings account, they merely put
what rightfully belonged to them in a money-making venture. They did not dispose
of it in favor of the other, which would have arguably been sanctionable as a
prohibited donation. (ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS
and ROWENA FAUSTINO-CORONA, G.R. No. 82027, March 29, 1990)
The granting clause shows that Diego donated the properties out of love and
affection for the donee which is a mark of a donation inter vivos; second, the
reservation of lifetime usufruct indicates that the donor intended to transfer the
naked ownership over the properties; third, the donor reserved sufficient properties
for his maintenance in accordance with his standing in society, indicating that the
donor intended to part with the six parcels of land; lastly, the donee accepted the
donation. (SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF
APPEALS, G.R. No. 111904, October 5, 2000)
In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an
acceptance clause is a mark that the donation is inter vivos. Acceptance is a
requirement for donations inter vivos. Donations mortis causa, being in the form of
a will, are not required to be accepted by the donees during the donors' lifetime.
(SPS. AGRIPINO GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF APPEALS,
G.R. No. 111904, October 5, 2000)
Crucial in resolving whether the donation was inter vivos or mortis causa is the
determination of whether the donor intended to transfer the ownership over the
properties upon the execution of the deed. (SPS. AGRIPINO GESTOPA and ISABEL
SILARIO GESTOPA vs. COURT OF APPEALS, G.R. No. 111904, October 5, 2000)
A remuneratory donation is one where the donee gives something to reward past or
future services or because of future charges or burdens, when the value of said
services, burdens or charges is less than the value of the donation. (De Luna v.
Abrigo, G.R. No. L-57455, January 18, 1990)
VANISHING DEDUCTIONS
Property previously taxed or vanishing deductions
Requisites:

Present decedent must have died within five (5) years from date of death of
prior decedent or date of gift

The property with respect to which the deduction is claimed must have
formed part of the gross estate situated in the Philippines of the prior decedent or
taxable gift of the donor

The property must be identified as the same property received from prior
decedent or donor or the one received in exchange therefore

The estate taxes on the transmission of the prior estate or the donors tax on
the gift must have been finally determined and paid


No vanishing deduction on the property or the property given in exchange
therefore was allowed to the prior estate
Guide to Answering Vanishing Deduction Questions
1. Find out if present decedent has included a portion his/her estate a property
transmitted by succession or donation.
2. Check the facts if the property was previously taxed.
3. Determine the length of time between the first and second decedents death
if it was 5 years or less.
Bar 2009 Question No. XIII
In 1999, Xavier purchased from his friend, Yuri, a painting for P500,000.00. The fair
market value (FMV) of the painting at the time of the purchase was P1-million. Yuri
paid all the corresponding taxes on the transaction. In 2001, Xavier died. In his last
will and testament, Xavier bequeathed the painting, already worth P1.5-million, to
his only son, Zandro. The will also granted Zandro the power to appoint his wife,
Wilma, as successor to the painting in the event of Zandro's death. Zandro died in
2007, and Wilma succeeded to the property.
A. Should the painting be included in the gross estate of Xavier in 2001 and thus, be
subject to estate tax? Explain. (3%)
B. Should the painting be included in the gross estate of Zandro in 2007 and thus,
be subject to estate tax? Explain. (3%)
C. May a vanishing deduction be allowed in either or both of the estates? Explain.
(3%)
Bar 2008 Question No. VI
While driving his car to Baquio last month, Pedro Asuncion, together with his wife
Assunta, and only son Jaime, met an accident that caused the instantaneous death
of Jaime. The following day, Assunta also died in the hospital. The spouses and their
son had the following assets and liabilities at the time of death :
Assunta
Conjugal
Jaime
Exclusive
Cash
P10,000,000.00
Cars
P2,000,000.00
Land
5,000,000.00
Residential House
4,000,000.00
Mortgage Payable
2,500,000.00
Funeral Expenses
300,000.00

Exclusive
P1,200,00.00
500,000.00
2,000,000.00

A. Is the Estate of Jaime Asuncion liable for estate tax? Explain. ( 4% )

B. Is vanishing deduction applicable to the Estate of Assunta Asuncion? Explain ( 4%
)

VALUE ADDED TAX

A business tax, tax rate of 12%. The subject is the sale of goods and services in the
ordinary course of business.
Tax Base
Rate and Base of Tax. - There shall be levied, assessed and collected on every sale,
barter or exchange of goods or properties, value-added tax equivalent to twelve
percent (12%) of the gross selling price or gross value in money of the goods or
properties sold, bartered or exchanged, such tax to be paid by the seller or
transferor.
Section 109 (j) NIRC
(j) Services subject to percentage tax under Title V;
Those services already subjected to percentage taxes are VAT-exempt.
As its name implies, the Value-Added Tax system is a tax on the value added by the
taxpayer in the chain of transactions. For simplicity and efficiency in tax collection,
the VAT is imposed not just on the value added by the taxpayer, but on the entire
selling price of his goods, properties or services. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12,
2013)
However, the taxpayer is allowed a refund or credit on the VAT previously paid by
those who sold him the inputs for his goods, properties, or services. The net effect is
that the taxpayer pays the VAT only on the value that he adds to the goods,
properties, or services that he actually sells. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12,
2013)
VAT is a tax on transactions, imposed at every stage of the distribution process on
the sale, barter, exchange of goods or property, and on the performance of services,
even in the absence of profit attributable thereto. The term "in the course of trade
or business" requires the regular conduct or pursuit of a commercial or an economic
activity, regardless of whether or not the entity is profit-oriented. (COMMISSIONER
OF INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000)
The VAT is not a license tax; it is not a tax on the exercise of a privilege, much less a
constitutional right. It is imposed on the sale, barter, lease or exchange of goods or
properties or the sale or exchange of services and the lease of properties purely for
revenue purposes. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
Thus, there must be a sale, barter or exchange of goods or properties before any
VAT may be levied. Certainly, there was no such sale, barter or exchange in the
subsidy given by SIS to Sony; it was but a dole out by SIS and not in payment for
goods or properties sold, bartered or exchanged by Sony. (COMMISSIONER OF
INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R. No. 178697, November 17,
2010)

Goods or properties must be used directly or indirectly in the production or sale of

taxable goods and services. (Kepco Philipppines Corp. v. CIR, G.R. No. 179356,
December 14, 2009)
it is immaterial whether the primary purpose of a corporation indicates that it
receives payments for services rendered to its affiliates on a reimbursement-on-cost
basis only, without realizing profit, for purposes of determining liability for VAT on
services rendered. As long as the entity provides service for a fee, remuneration or
consideration, then the service rendered is subject to VAT. (COMMISSIONER OF
INTERNAL REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000)
Impact of tax
Under Section 105 of the Tax Code, VAT is imposed on any person who, in the
course of trade or business, sells or renders services for a fee. In other words, the
seller of services, who in this case is the tollway operator, is the person liable for
VAT. The latter merely shifts the burden of VAT to the tollway user as part of the toll
fees. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE,
G.R. No. 193007, July 19, 2011)
Incidence of tax
The seller who is liable for the VAT may shift or pass on the amount of VAT it paid on
goods, properties or services to the buyer. In such a case, what is transferred is not
the seller's liability but merely the burden of the VAT. (RENATO V. DIAZ and AURORA
MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
Thus, the seller remains directly and legally liable for payment of the VAT, but the
buyer bears its burden since the amount of VAT paid by the former is added to the
selling price. Once shifted, the VAT ceases to be a tax and simply becomes part of
the cost that the buyer must pay in order to purchase the good, property or service.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R.
No. 193007, July 19, 2011)
A seller who is directly and legally liable for the payment of an indirect tax, such as
the VAT on goods or services is not necessarily the person who ultimately bears the
burden of the same tax. It is the final purchaser of consumer of such goods or
services who, although not directly and legally liable for the payment thereof,
ultimately bears the burden of the tax. (Contex v. CIR, G.R. No. 151135, July 2,
2004)
In the case of the VAT, the law minimizes the regressive effects of indirect taxation
by providing for zero rating of certain transactions, while granting exemptions to
other transactions. On the other hand, the transactions which are subject to the VAT
are those which involve goods and services which are used or availed of mainly by
higher income groups. (ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
Destination principle
According to the Destination Principle, goods and services are taxed only in the
country where these are consumed. In connection with the said principle, the Cross

Border Doctrine mandates that no VAT shall be imposed to form part of the cost of
the goods destined for consumption outside the territorial border of the taxing
authority. Hence, actual export of goods and services from the Philippines to a
foreign country must be free of VAT, while those destined for use or consumption
within the Philippines shall be imposed with 10% VAT. (ATLAS CONSOLIDATED
MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007)
Applying the destination principle to the exportation of goods, automatic zero rating
is primarily intended to be enjoyed by the seller who is directly and legally liable for
the VAT, making such seller internationally competitive by allowing the refund or
credit of input taxes that are attributable to export sales. (COMMISSIONER OF
INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)
VAT on sale of goods or properties
Goods, as commonly understood in the business sense, refer to the product which
the VAT-registered person offers for sale to the public. With respect to real estate
dealers, it is the real properties themselves which constitute their goods. Such real
properties are the operating assets of the real estate dealer. (Fort Bonifacio
Development Corporation vs. CIR, G.R. Nos. 158885 and 170630, April 2, 2009)
Requisites of taxability of sale of goods or properties
Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction.
However, it does not follow that an isolated transaction cannot be an incidental
transaction for purposes of VAT liability. Indeed, a reading of Section 105 of the
1997 Tax Code would show that a transaction "in the course of trade or business"
includes "transactions incidental thereto." (MINDANAO II GEOTHERMAL
PARTNERSHIP vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March
11, 2013)
Prior to the sale, the Nissan Patrol was part of Mindanao IIs property, plant, and
equipment. Therefore, the sale of the Nissan Patrol is an incidental transaction
made in the course of Mindanao IIs business which should be liable for VAT.
(MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 193301, March 11, 2013)
Zero-rated sales of goods or properties, and effectively zero-rated sales of goods or
properties
Zero-rated transactions generally refer to the export sale of goods and supply of
services. The tax rate is set at zero and when applied to the tax base, such rate
obviously results in no tax chargeable against the purchaser. The seller of such
transactions charges no output tax, but can claim a refund of or a tax credit
certificate for the VAT previously charged by suppliers. (COMMISSIONER OF

INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,

February 11, 2005)
Effectively zero-rated transactions, however, refer to the sale of goods or supply of
services to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such
transactions to a zero rate. Again, as applied to the tax base, such rate does not
yield any tax chargeable against the purchaser. The seller who charges zero output
tax on such transactions can also claim a refund of or a tax credit certificate for the
VAT previously charged by suppliers. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
If respondent is located in an export processing zone within that ecozone, sales to
the export processing zone, even without being actually exported, shall in fact be
viewed as constructively exported under EO 226. Considered as export sales, such
purchase transactions by respondent would indeed be subject to a zero rate.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
PAGCOR's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424 has been
thoroughly and extensively discussed in Commissioner of Internal Revenue v.
Acesite (Philippines) Hotel Corporation. Acesite sought the refund of the amount it
paid as VAT on the ground that its transaction with PAGCOR was subject to zero rate
as it was rendered to a tax-exempt entity. The Court ruled that PAGCOR and Acesite
were both exempt from paying VAT. (PHILIPPINE AMUSEMENT AND GAMING
CORPORATION (PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE, G.R. No. 172087,
March 15, 2011)
No prior application for the effective zero rating of its transactions is necessary. The
BIR regulations additionally requiring an approved prior application for effective zero
rating cannot prevail over the clear VAT nature of respondent's transactions. Other
than the general registration of a taxpayer the VAT status of which is aptly
determined, no provision under our VAT law requires an additional application to be
made for such taxpayer's transactions to be considered effectively zero-rated.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
The Omnibus Investments Code of 1987 recognizes as export sales the sales of
export products to another producer or to an export trader, provided that the export
products are actually exported. For purposes of VAT zero-rating, such producer or
export trader must be registered with the BOI and is required to actually export
more than 70% of its annual production. (ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. Nos.
141104 & 148763, June 8, 2007)
In terms of the VAT computation, zero rating and exemption are the same, but the
extent of relief that results from either one of them is not. In both instances of zero
rating, there is total relief for the purchaser from the burden of the tax but in an
exemption there is only partial relief, because the purchaser is not allowed any tax

refund of or credit for input taxes paid. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
VAT exempt transactions An exempt transaction involves goods or services which,
by their nature, are specifically listed in and expressly exempted from the VAT under
the Tax Code, without regard to the tax status VAT-exempt or not of the party
to the transaction. Indeed, such transaction is not subject to the VAT, but the seller
is not allowed any tax refund of or credit for any input taxes paid. (COMMISSIONER
OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)
An exempt party, on the other hand, is a person or entity granted VAT exemption
under the Tax Code, a special law or an international agreement to which the
Philippines is a signatory, and by virtue of which its taxable transactions become
exempt from the VAT. Such party is also not subject to the VAT, but may be allowed
a tax refund of or credit for input taxes paid, depending on its registration as a VAT
or non-VAT taxpayer. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
VAT exempt transactions, in general
By extending the exemption to entities or individuals dealing with PAGCOR, the
legislature clearly granted exemption also from indirect taxes. It must be noted that
the indirect tax of VAT, as in the instant case, can be shifted or passed to the buyer,
transferee, or lessee of the goods, properties, or services subject to VAT. Thus, by
extending the tax exemption to entities or individuals dealing with PAGCOR in
casino operations, it is exempting PAGCOR from being liable to indirect taxes.
(PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF
INTERNAL REVENUE, G.R. No. 172087, March 15, 2011)
Input tax and output tax
Under the present method that relies on invoices, an entity can credit against or
subtract from the VAT charged on its sales or outputs the VAT paid on its purchases,
inputs and imports. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
If at the end of a taxable quarter the output taxes charged by a seller are equal to
the input taxes passed on by the suppliers, no payment is required. It is when the
output taxes exceed the input taxes that the excess has to be paid. (COMMISSIONER
OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866,
February 11, 2005)

Transitional input
Prior payment of taxes is not necessary before a taxpayer could avail of the 8%
transitional input tax credit: first, it was never mentioned in Section 105 of the old
NIRC [now Sec. 111] that prior payment of taxes is a requirement; second, since the
law (Section 105 of the NIRC) does not provide for prior payment of taxes, to require
it now would be tantamount to judicial legislation which, to state the obvious, is not
allowed; third, a transitional input tax credit is not a tax refund per se but a tax

credit; fourth, if the intent of the law were to limit the input tax to cases where
actual VAT was paid, it could have simply said that the tax base shall be the actual
value-added tax paid; and fifth, this Court had already declared that prior payment
of taxes is not required in order to avail of a tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
Section 112 of the Tax Code does not prohibit cash refund or tax credit of
transitional input tax in the case of zero-rated or effectively zero-rated VAT
registered taxpayers, who do not have any output VAT. The phrase "except
transitional input tax" in Section 112 of the Tax Code was inserted to distinguish
creditable input tax from transitional input tax credit. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
It is apparent that the transitional input tax credit operates to benefit newly VATregistered persons, whether or not they previously paid taxes in the acquisition of
their beginning inventory of goods, materials and supplies. During that 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. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173425,
January 22, 2013)
Persons who can avail of input tax credit
In a VAT-exempt transaction, the seller is not allowed to charge VAT to his customer.
Since no output tax is shifted by the seller, there is no output tax against which the
related input taxes may be credited. Neither can he credit this input tax against the
VAT due on other sales. In this case, he is treated as the end user who will shoulder
the cost of the input VAT. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE
POWER CORPORATION, G.R. No. 187485, February 12, 2013)
Unlike the input taxes related to exempt sales, input taxes related to zero-rated
sales may be credited against output taxes on other sales and in case it is not fully
utilized, the excess may be carried over to the succeeding quarter or quarters and
there is no prescription period for the carry-over. The law gives the taxpayer
another option for the recovery of used input taxes: application for refund or tax
credit certificate. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
Refund or tax credit of excess input tax
If, however, the input taxes exceed the output taxes, the excess shall be carried
over to the succeeding quarter or quarters. Should the input taxes result from zerorated or effectively zero-rated transactions or from the acquisition of capital goods,
any excess over the output taxes shall instead be refunded to the taxpayer or
credited against other internal revenue taxes. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11,
2005) While a tax liability is essential to the availment or use of any tax credit, prior
tax payments are not. On the contrary, for the existence or grant solely of such

credit, neither a tax liability nor a prior tax payment is needed. (FORT BONIFACIO
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
As regards Section 110, while the law only provides for a tax credit, a taxpayer who
erroneously or excessively pays his output tax is still entitled to recover the
payments he made either as a tax credit or a tax refund. In this case, since
petitioner still has available transitional input tax credit, it filed a claim for refund to
recover the output VAT it erroneously or excessively paid for the 1st quarter of
1997. Thus, there is no reason for denying its claim for tax refund/credit. (FORT
BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 173425, January 22, 2013)
Even if the law does not expressly state that the Ironcons excess creditable VAT
withheld is refundable, it may be the subject-of a claim for refund as an erroneously
collected tax under Sec. 204 (C) and 229 of the NIRC. It should be clarified that this
ruling only refers to creditable VAT withheld pursuant to Sec. 114 of the NIRC prior
to its amendment. After its amendment by R.A. 9337, the amount withheld under
Sec. 114 of the NIRC is now treated as final VAT, no longer under the creditable
withholding tax system (CIR v. Ironcon Builders and Development Corp., G.R. No.
180042, February 8, 2010)
The input VAT is not "excessively" collected as understood under Section 229
because at the time the input VAT is collected the amount paid is correct and
proper. The person legally liable for the input VAT cannot claim that he overpaid the
input VAT by the mere existence of an "excess" input VAT. The term "excess" input
VAT simply means that the input VAT available as credit exceeds the output VAT, not
that the input VAT is excessively collected because it is more than what is legally
due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or
credit of the input VAT as "excessively" collected under Section 229.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION,
G.R. No. 187485, February 12, 2013)
If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be
able to seek a refund or credit for such "excess" input VAT whether or not he has
output VAT. The VAT System does not allow such refund or credit and such "excess"
input VAT is not an "excessively" collected tax under Section 229. (COMMISSIONER
OF INTERNAL REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485,
February 12, 2013)
a) Who may claim for refund/apply for issuance of tax credit certificate
b)
Having determined that respondent's purchase transactions are subject to a zero
VAT rate, the tax refund or credit is in order. To repeat, the VAT is a tax imposed on
consumption, not on business. Although respondent as an entity is exempt, the
transactions it enters into are not necessarily so. The VAT payments made in excess
of the zero rate that is imposable may certainly be refunded or credited.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)

Invoicing requirements in general

The requisite that the receipt be issued showing the name, business style, if any,
and address of the purchaser, customer or client is precise so that when the books
of accounts are subjected to a tax audit examination, all entries therein could be
shown as adequately supported and proven as legitimate business transactions. The
absence of official receipts issued in the taxpayer's name is tantamount to noncompliance with the substantiation requirements provided by law. (BONIFACIO
WATER CORPORATION (formerly BONIFACIO VIVENDI WATER CORPORATION) vs. THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142, July 22, 2013)
Taxpayers claiming for a refund or tax credit certificate must comply with the strict
and mandatory invoicing and accounting requirements provided under the 1997
NIRC, as amended, and its implementing rules and regulations. Thus, the change of
petitioner's name to "Bonifacio GDE Water Corporation," being unauthorized and
without approval of the SEC, and the issuance of official receipts under that name
which were presented to support petitioner's claim for tax refund, cannot be used to
allow the grant of tax refund or issuance of a tax credit certificate in petitioner's
favor. (BONIFACIO WATER CORPORATION (formerly BONIFACIO VIVENDI WATER
CORPORATION) vs. THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142,
July 22, 2013)
Failure to print the word zero-rated on the invoices or receipts is fatal to a claim
for credit of refund of input VAT on zero-rated sales (J.R.A. Philippines, Inc. v. CIR,
G.R. No. 177127, October 11, 2010)
If the claim for refund/ tax credit certificate is based on the existence of zero-rated
sales by the taxpayer but it fails to comply with the invoicing requirements in the
issuance of sales invoices (e.g. failure to indicate the TIN), its claim for tax
credit/refund of VAT on its purchases shall be denied considering that the invoice it
is issuing to its customers does not depict its being a VAT-registered taxpayer whose
sales are classified as zero-rated sales. Nonetheless, this treatment is without
prejudice to the right of the taxpayer to charge the input taxes to the appropriate
expense account or asset account subject to depreciation, whichever is applicable
(Panasonic Comm. Imaging Corp. of the Phil. v. CIR, G.R. No. 178090, February 8,
2010)