Lecture Notes in Taxation 2 (New)

8/13/2019 Lecture Notes in Taxation 2 (New)

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Prepared by : Atty. Bayani S. Atup, CPA

Prepared for: Gullas College of Law (UV

VALUE ADDED TAX (AS AMENDED)

Taxable transactions

1. Persons liable

Any person who, in he !o"rse o# ra$e or b"siness, sells, barers, e%!han&es, leases &oo$s or properies,ren$ers ser'i!es, an$ any person who ipors &oo$s shall be s"be! o he 'al"e a$$e$ a% (VAT) ipose$in Se!ions 1*+ o 1* o# his !o$e.

-. Na"re o# he a%

Val"e a$$e$ a% is an in$ire! a% an$ he ao"n o# a% ay be shi#e$ or passe$ on o he b"yer,rans#erree or lessee o# he &oo$s, properies or ser'i!es. This r"le shall liewise apply o e%isin&!onra!s o# sale or lease o# &oo$s, properies or ser'i!es a he ie o# he e##e!i'iy o# /ep"bli! A!001+.

. 2n he !o"rse o# ra$e or b"siness

This eans he re&"lar !on$"! or p"rs"i o# a !oer!ial or an e!onoi! a!i'iy, in!l"$in& ransa!ionsin!i$enal hereo, by any person re&ar$less o# wheher or no he person en&a&e$ herein is a non3so!,non3pro#i pri'ae or&ani4aion (irrespe!i'e o# he $isposiion o# is ne in!oe an$ wheher or no i sellse%!l"si'ely o ebers or heir &"ess), or &o'ernen eniy.

Ser'i!e as $e#ine$ in his 5o$e ren$ere$ in he Philippines by non3resi$en #orei&n persons shall be!onsi$ere$ as bein& ren$ere$ in he !o"rse o# ra$e or b"siness.

6. Sale o# 7oo$s or Properies

There shall be le'ie$, assesse$ an$ !olle!e$ on e'ery sale, barer or e%!han&e o# &oo$s or properies, a'al"e a$$e$ a% e8"i'alen o en per!en (1*9) o# he &ross sellin& pri!e or &ross 'al"e in oney o# &oo$sor properies sol$, barere$ or e%!han&e, such tax to be paid by the seller or transferor:Provided, that the

president, upon recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the

rate of value-added tax to twelve percent 12!", after any of the followin# conditions has $een satisfied%

a& 'alue (dded )ax collection as a percenta#e of *ross +omestic Product *+P" of the previous year

exceeds two and four-fifth percent 2 .!"/ orb. ational #overnment deficit as a percenta#e of *+P of the previous year exceeds one and one-half

percent 1 !"&(As aen$e$ by !"PUBL#C AC$ %&. ')).

;. 7oo$s or Properies


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)he ri#ht or privile#e to use motion picture films, films, tapes and discs/ and

adio, television, satellite, transmission and ca$le television time

The phrase Csale or e%!han&e o# ser'i!es eans he per#oran!e o# all in$s o# ser'i!es in he Philippines

#or ohers #or a #ee, re"neraion or !onsi$eraion, in!l"$in& hose per#ore$ or ren$ere$ by:

o 5onsr"!ion an$ ser'i!e !onra!ors?o So!, real esae, !oer!ial, !"sos an$ ii&raion broers?o Lessors o# propery, wheher personal or real?o areho"sin& ser'i!es?o Lessors or $isrib"ors o# !ineao&raphi! #ils?o Persons en&a&e$ in illin&, pro!essin&, an"#a!"rin& or repa!in& &oo$s #or ohers?o Proprieors, operaors or eepers o# hoels, oels, resho"ses, pension ho"ses, inns, resors?o Proprieors or operaors o# resa"rans, re#reshen parlors, !a#es an$ oher eain& pla!es,

in!l"$in& !l"bs an$ !aerers?o Dealers in se!"riies?o Len$in& in'esors?o Transporaion !onra!ors on heir ranspor o# &oo$s or !ar&oes, in!l"$in& persons who

ranspor &oo$s or !ar&oes #or hire an$ oher $oesi! !oon !arriers by lan$ relai'e oheir ranspor o# &oo$s or !ar&oes?

o 5oon !arriers by air an$ sea relai'e o heir ranspor o# passen&ers, &oo$s or !ar&oes#ro one pla!e in he Philippines o anoher pla!e in he Philippines?

o Sales o# ele!ri!iy by &eneraion !opanies, ransission, an$ $isrib"ion !opanies?o Ser'i!es o# #ran!hise &ranees o# ele!ri! "iliies, elephone an$ ele&raph, ra$io an$

ele'ision broa$!asin& an$ all oher #ran!hise &ranees e%!ep hose "n$er Se!ion 11= o# his5o$e an$

o Non3li#e ins"ran!e !opanies (e%!ep heir !rop ins"ran!e) in!l"$in& s"rey, #i$eliy,in$eniy an$ bon$in& !opanies?

o an$ siilar ser'i!es re&ar$less o# wheher or no he per#oran!e hereo# !alls #or hee%er!ise or "se o# he physi!al or enal #a!"lies.

The phrase Csale or e%!han&e o# ser'i!es shall liewise in!l"$e:

o The lease or he "se o# or he ri&h or pri'ile&e o "se any !opyri&h, paen, $esi&n or o$el,plan, se!re #or"la or pro!ess, &oo$will, ra$ear, ra$e bran$ or oher lie propery orri&h?

o The lease or he "se o#, or he ri&h o "se o# any in$"srial, !oer!ial or s!ieni#i!e8"ipen?

o The s"pply o# s!ieni#i!, e!hni!al, in$"srial or !oer!ial nowle$&e or in#oraion?o The s"pply o# any assisan!e ha is an!illary an$ s"bsi$iary o an$ is #"rnishe$ as a eans o#

enablin& he appli!aion or enoyen o# any s"!h propery, or ri&h as is enione$ ins"bpara&raph (-) or any s"!h nowle$&e or in#oraion as is enione$ in s"bpara&raph ()?

o The s"pply o# ser'i!es by a nonresi$en person or his eployee in !onne!ion wih he "se o#propery or ri&hs belon&in& o, or he insallaion or operaion o# any bran$, a!hinery oroher appara"s p"r!hase$ #ro s"!h nonresi$en person?

o The s"pply o# e!hni!al a$'i!e, assisan!e or ser'i!es ren$ere$ in !onne!ion wih e!hni!alana&een or a$inisraion o# any s!ieni#i!, in$"srial or !oer!ial "n$erain&,'en"re, proe! or s!hee?

o The lease o# oion pi!"re #ils, #ils, apes an$ $is!s? an$o The lease or he "se o# or he ri&h o "se ra$io, ele'ision, saellie ransission an$ !able

ele'ision ie.

Lease o# properies shall be s"be! o he a% herein ipose$ irrespe!i'e o# he pla!e wherehe !onra! o# lease or li!ensin& a&reeen was e%e!"e$ i# he propery is lease$ or "se$ inhe Philippines.

$*e ter+ G!&SS !"C"#P$S- F eans he oal ao"n o# oney or is e8"i'alenrepresenin& he !onra! pri!e, !opensaion or ser'i!e #ee, rental or royalty, in!l"$in& heao"n !har&e$ #or aerials s"pplie$ wih he ser'i!es an$ $eposis or a$'an!e payensa!"ally or !onsr"!i'ely re!ei'e$ $"rin& he a%able 8"arer #or he ser'i!es per#ore$ or obe per#ore$ #or anoher person, e%!l"$in& Val"e3a$$e$ a%.

+. 7ross Sellin& Pri!e (Ta% Gase)


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Means he oal ao"n o# oney or is e8"i'alen whi!h he p"r!haser pays or is obli&ae$ o pay o heseller in !onsi$eraion o# he sale, barer or e%!han&e o# he &oo$s or properies, e%!l"$in& he 'al"e a$$e$a%. The excise tax, if any, on such goods or properties shall form part of the gross selling price.

0. 2n'oi!in& /e8"ireens (2n'oi!in& o# sale)

A VAT3 /e&isere$ person shall, #or e'ery sale, iss"e an in'oi!e or re!eip. 2n a$$iion o he in#oraionre8"ire$ "n$er Se!ion -0, he #ollowin& in#oraion shall be in$i!ae$ in he in'oi!e or re!eip

A saeen ha he seller is a VAT3re&isere$ person, #ollowe$ by his a%payers i$eni#i!aion no.(T2N)?

The oal ao"n whi!h he p"r!haser pays or is obli&ae$ o pay o he seller wih he in$i!aion has"!h ao"n in!l"$es he 'al"e3a$$e$ a%.

. Ta% Hor"la

The a% shall be !op"e$ by "liplyin& he oal ao"n in$i!ae$ in he ##i!ial re!eip by one3ele'enh

(1


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/oreign 0urren0y deno+inated sales means sale to a nonresidento# &oo$s, e%!ep hose enione$ inSe!ions 16= (a"oobiles) an$ 1;* (non3essenial &oo$s), asseble$ or an"#a!"re$ in he Philippines#or $eli'ery o a resi$en in he Philippines, pai$ #or in a!!epable #orei&n !"rren!y an$ a!!o"ne$ #or ina!!or$an!e wih he r"les an$ re&"laions o# he GSP.

Sales to persons or entities w*ose ee+ption under spe0ial laws or international agree+ents o whi!hhe Philippines is a si&naory e##e!i'ely s"be!s s"!h sales o 4ero rae.

1ero per0ent (2 3 rate VA$ sale or e0*ange of ser4i0es

Pro!essin&, an"#a!"rin& or repa!in& &oo$s #or oher persons $oin& b"siness o"si$e he Philippineswhi!h &oo$s are s"bse8"enly e%pore$, where he ser'i!es are pai$ #or in a!!epable #orei&n !"rren!yan$ a!!o"ne$ #or in a!!or$an!e wih he r"les an$ re&"laions o# he GSP?

Ser'i!es oher han hose enione$ in he pre!e$in& para&raph ren$ere$ o a person en&a&e$ inb"siness !on$"!e$ o"si$e o# he Philippines or o a nonresi$en person no en&a&e$ in b"siness whois o"si$e o# he Philippines when he ser'i!es are per#ore$, he !onsi$eraion #or whi!h is pai$ #or in

a!!epable #orei&n !"rren!y an$ a!!o"ne$ #or in a!!or$an!e wih he r"les an$ re&"laion o# he GSP?

Ser'i!es ren$ere$ o persons or eniies who e%epion "n$er spe!ial laws or inernaional a&reeenso whi!h he Philippines is a si&naory e##e!i'ely s"be!s he s"pply o# s"!h ser'i!es o 4ero per!en(*9) rae?

Ser'i!es ren$ere$ o persons en&a&e$ in inernaional shippin& or inernaional air ranspor operaions,in!l"$in& leases o# propery #or "se hereo#?

Ser'i!e per#ore$ by s"b!onra!ors an$


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An$ hose who are p"bli! wors !onra!ors shall be allowe$ a pres"pi'e inp" a% e8"i'alen o one an$one3hal# per!en (131


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Lease o# properies shall be s"be! o he a% herein ipose$ irrespe!i'e o# he pla!e where he !onra! o#lease or li!ensin& a&reeen was e%e!"e$ i# he propery is lease$ or "se$ in he Philippines

-1. 7ross re!eips

2s he oal ao"n o# oney or is e8"i'alen represenin& he

5onra! pri!e

5opensaion Ser'i!e #ee /enal or royaly

2n!l"$in& he ao"n !har&e$ #or

aerials s"pplie$ wih he ser'i!es $eposis a$'an!e$ payens

a!"ally or !onsr"!i'ely re!ei'e$ $"rin& he a%able 8"arer #or he ser'i!es per#ore$ or o be per#ore$#or anoher person e%!l"$in& 'al"e a$$e$ a%

--. 2np" a%

Means he 'al"e a$$e$ a% $"e #ro or pai$ by a VAT3re&isere$ person in he !o"rse o# his ra$e orb"siness on iporaion o# &oo$s or lo!al p"r!hase o# &oo$s or ser'i!es, in!l"$in& lease or "se o# propery,#ro a VAT3re&isere$ person. 2 shall also in!l"$e he ransiional inp" a% $eerine$ in a!!or$an!e wihSe!ion 111 o# his 5o$e

-. "p" a%

Means he 'al"e3a$$e$ a% $"e on he sale or lease o# a%able &oo$s or properies or ser'i!es by any person

re&isere$ or re8"ire$ o re&iser "n$er Se!ion -+ o# his 5o$e

-6. Deerinaion o# 5re$iable 2np" a%

E%!ess "p" or 2np" Ta%. K 2# a he en$ o# any a%able 8"arer he o"p" a% e%!ee$s he inp" a%, hee%!ess shall be pai$ by he VAT3re&isere$ person. 2# he inp" a% e%!ee$s he o"p" a%, he e%!ess shallbe !arrie$ o'er o he s"!!ee$in& 8"arer or 8"arers: Pro'i$e$, That the input tax inclusive of input .Tcarried over from the previous quarter that may be credited in every quarter shall not exceed seventy

percent !"#$ of the output .T: Pro'i$e$, howe'er, Tha any inp" a% arib"able o 4ero3rae$ sales bya VAT3re&isere$ person ay a his opion be re#"n$e$ or !re$ie$ a&ains oher inernal re'en"e a%es,s"be! o he pro'isions o# Se!ion 11-.

Deerinaion o# 5re$iable 2np" Ta%. K The s" o# he e%!ess inp" a% !arrie$ o'er #ro he pre!e$in&

onh or 8"arer an$ he inp" a% !re$iable o a VAT3re&isere$ person $"rin& he a%able onh or8"arer shall be re$"!e$ by he ao"n o# !lai #or re#"n$ or a% !re$i #or 'al"e3a$$e$ a% an$ ohera$"sens, s"!h as p"r!hase re"rns or allowan!es an$ inp" a% arib"able o e%ep sale.

The !lai #or a% !re$i re#erre$ o in he #ore&oin& para&raph shall in!l"$e no only hose #ile$ wih heG"rea" o# 2nernal /e'en"e b" also hose #ile$ wih oher &o'ernen a&en!ies, s"!h as he Goar$ o#2n'esens an$ he G"rea" o# 5"sos.J

-;. Val"e A$$e$ Ta% on 2poraion o# 7oo$s.

Gase Ao"n shall be !op"e$ by "liplyin& 1*9 o he s" o# he #ollowin&:

Toal Val"e "se$ by he G"rea" o# 5"sos in $eerinin& ari## an$ !"sos $"ies

5"sos $"ies E%!ise a%es, i# any An$ oher !har&es, s"!h a% o be pai$ by he iporer prior o he release o# s"!h &oo$s #ro !"sos

!"so$y? Pro'i$e$, ha where he !"sos $"ies are $eerine$ on he basis o# he 8"aniy or 'ol"e o# he

&oo$s, he 'al"e a$$e$ a% shall be base$ on:o The lan$e$ !os pl"s e%!ise a%es, i# any


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Pro'i$e$, #"rher, ha he Presi$en, upon recommendation of the Secretary of Finance, shall, effectiveJanuary 1, 2006, raise the rate of value-added tax to twelve percent 12!", after any of the followin#

conditions has $een satisfied%

a& 'alue (dded )ax collection as a percenta#e of *ross +omestic Product *+P" of the previous yearexceeds two and four-fifth percent 2 .!"/ or

$& ational #overnment deficit as a percenta#e of *+P of the previous year exceeds one and one-halfpercent 1 !"&(As aen$e$ by !"PUBL#C AC$ %&. ')).

Trans#er o# 7oo$s by Ta%3e%ep Persons.

2n he !ase o# a%3#ree iporaion o# &oo$s ino he Philippines by persons, eniies or a&en!ies e%ep#ro a% where s"!h &oo$s are s"bse8"enly sol$, rans#erre$ or e%!han&e$ in he Philippines o non3e%ep persons or eniies, he p"r!hasers, rans#erees or re!ipiens shall be !onsi$ere$ he iporershereo#, who shall be liable #or any inernal re'en"e a% on s"!h iporaion. The a% $"e on s"!hiporaion shall !onsi"e a lien on he &oo$s s"perior o all !har&es or liens on he &oo$s, irrespe!i'e o#he possessor hereo#.

-+. E%ep ransa!ions "n$er VAT (Se!ion 1*=) F S"be! o he pro'isions o# s"bse!ion (-) hereo#, he#ollowin& ransa!ions shall be e%ep #ro he 'al"e3a$$e$ a%:

JA) Sale or iporaion o# agricultural and marine food productsin their originalstate, li'eso! an$ po"lry o# a in$#enerally used as, or yieldin# or producin#foods for human consumption+ and breeding stock and genetic materials

here#or.

JPro$"!s !lassi#ie$ "n$er his para&raph shall be !onsi$ere$ in heir ori&inalsae even if they have under#one the simple processes of preparation or

preservation for the mar3et, s"!h as #ree4in&, $ryin&, salin&, broilin&, roasin&,soin& or srippin&. Polishe$ an$


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is presen 'al"e "sin& he 5ons"er Pri!e 2n$e%, as p"blishe$ by he NaionalSaisi!s ##i!e (NS)?

J(-) A VAT3re&isere$ person ay ele! ha S"bse!ion (1) no apply o is sale o#&oo$s or properies or ser'i!es: Pro'i$e$, Tha an ele!ion a$e "n$er hisS"bse!ion shall be irre'o!able #or a perio$ o# hree () years #ro he 8"arerhe ele!ion was a$e.J

-0. JSE5. 11-. /e#"n$s or Ta% 5re$is o# 2np" Ta%. K J(A) Iero3/ae$ or E##e!i'elyIero3/ae$ Sales K Any VAT3re&isere$ person, whose sales are 4ero3rae$ or e##e!i'ely 4ero3rae$ ay, within two )$ years after the close of the taxable quarter when the sales were made ,apply for the issuance of a tax credit certificate or refund of credita$le input tax due or paidattri$uta$le to such sales, except transitional input tax, o he e%en ha s"!h inp" a% has nobeen applie$ a&ains o"p" a%: Pro'i$e, howe'er, Tha in he !ase o# 4ero3rae$ sales "n$erSe!ion 1*+(A)(-)(a)(1), (-) an$ (b) an$ Se!ion 1*(G)(1) an$ (-), he a!!epable #orei&n!"rren!y e%!han&e pro!ee$s hereo# ha$ been $"ly a!!o"ne$ #or in a!!or$an!e wih he r"les an$re&"laions o# he Gan&o Senral n& Pilipinas (GSP): Pro'i$e$, #"rher, Tha where he a%payeris en&a&e$ in 4ero3rae$ or e##e!i'ely 4ero3rae$ sale an$ also in a%able or e%ep sale o# &oo$sor properies or ser'i!es, and the amount of creditable input tax due or paid cannot be directlyand entirely attributed to any one of the transactions, it shall be allocated proportionately on thebasis of the volume of sales: Pro'i$e$, #inally, Tha #or a person ain& sales ha are 4ero3rae$"n$er Se!ion 1*(G)(+), he inp" a%es shall be allo!ae$ raably beween his 4ero3rae$ an$ non34ero3rae$ sales.

J(G) 5an!ellaion o# VAT /e&israion. K A person whose re&israion has been !an!elle$$"e o reireen #ro or !essaion o# b"siness, or $"e o !han&es in or !essaion o# sa"s "n$erSe!ion 1*+(5) o# his 5o$e may, within two )$ years from the date of cancellation, apply forthe issuance of a tax credit certificate for any unused input taxwhi!h ay be "se$ in payen o#his oher inernal re'en"e a%es.

J(5) Perio$ wihin whi!h /e#"n$ or Ta% 5re$i o# 2np" Ta%es shall be Ma$e. K 2n proper!ases, he 5oissioner shall &ran a re#"n$ or iss"e he a% !re$i !eri#i!ae #or !re$iable inp"

a%es within one hundred twenty 3)"$ days from the date of submission of complete documentsin support of the application#ile$ in a!!or$an!e wih S"bse!ion (A) hereo#.

J5n case of full or partial denial of the claim for tax refund or tax credit, or the failure on the partof the ommissioner to act on the application within the period prescri$ed a$ove , t*e tapayeraffe0ted +ay, wit*in t*irty (2 days fro+ t*e re0eipt of t*e de0ision denying t*e 0lai+ orafter t*e epiration of t*e one *undred twenty day7period, appeal t*e de0ision or t*e

una0ted 0lai+ wit* t*e Court of $a Appeals.

J(D) Manner o# 7i'in& /e#"n$. K 5efunds shall be made upon warrants drawn by the/ommissioner or by his duly authoried representative without the necessity of being

countersigned by the /hairman, /ommission on .udit, he pro'isions o# he A$inisrai'e5o$e o# 1=0 o he !onrary nowihsan$in&: Pro'i$e$, Tha re#"n$s "n$er his para&raph shall

be s"be! o pos a"$i by he 5oission on A"$i.J

Appli!able 5ases:

/&'T%6 /&5P&5.T7&', petitioner, vs( 8&'( /&997SS7&'%5

&2 7'T%5'.: 5%%';%, respondent(


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Hro Ban"ary 1, 1==0 o De!eber 1, 1==, peiioner p"r!hase$'ario"s s"pplies an$ aerials ne!essary in he !on$"! o# isan"#a!"rin& b"siness. The s"ppliers o# hese &oo$s shi#e$ "nopeiioner he 1*9 VAT on he p"r!hase$ ies, whi!h le$ hepeiioner o pay inp" a%es in he ao"ns o# P;=,611. an$P;*6,*;0.6= #or 1==0 an$ 1==, respe!i'ely.A!in& on he belie# ha i was e%ep #ro all naional an$ lo!ala%es, in!l"$in& VAT, p"rs"an o /ep. A! No. 0--0, peiioner #ile$wo appli!aions #or a% re#"n$ or a% !re$i o# he VAT i pai$. Mr.E$ilbero 5arlos, re'en"e $isri! o##i!er o# G2/ /D No. 1=, $enie$he #irs appli!aion leer, $ae$ De!eber -=, 1==.

Un#a4e$ by he $enial, peiioner on May 6, 1===, #ile$ anoherappli!aion #or a% re#"n$

hen no response was #orh!oin& #ro he G2/ /e&ional Dire!or,peiioner hen ele'ae$ he aer o he 5o"r o# Ta% Appeals, in apeiion #or re'iew $o!ee$ as 5TA 5ase No. ;=;. Peiioner sresse$ha Se!ion 11-(A) i# rea$ in relaion o Se!ion 1*+(A)(-)(a) o# heNaional 2nernal /e'en"e 5o$e, as aen$e$ an$ Se!ion 1-(b) an$ (!)o# /ep. A! No. 0--0 wo"l$ show ha i was no liable in any way #orany 'al"e3a$$e$ a%.

2n opposin& he !lai #or a% re#"n$ or a% !re$i, he G2/ ase$ he5TA o apply he r"le ha !lais #or re#"n$ are sri!ly !onsr"e$

a&ains he a%payer. Sin!e peiioner #aile$ o esablish boh is ri&h oa a% re#"n$ or a% !re$i an$ is !oplian!e wih he r"les on a%re#"n$ as pro'i$e$ #or in Se!ions -*6 an$ --= o# he Ta% 5o$e, is!lai sho"l$ be $enie$, a!!or$in& o he G2/.

A. @ET@E/ / NT T@E EXEMPT2N H/M ALL L5AL ANDNAT2NAL 2NTE/NAL /EVENUE TAXES P/V2DED 2N/EPUGL25 A5T N. 0--0 5VE/S T@E VALUE ADDED TAXPA2D GQ PET2T2NE/, A SUG25 GAQ H/EEP/T ENTE/P/2SEN 2TS PU/5@ASES H SUPPL2ES AND MATE/2ALS.

G. @ET@E/ / NT T@E 5U/T H TAX APPEALS5//E5TLQ @ELD T@AT PET2T2NE/ 2S ENT2TLED T A

TAX 5/ED2T / /EHUND H T@E VAT PA2D N 2TSPU/5@ASES H SUPPL2ES AND /A MATE/2ALS H/ T@EQEA/S 1==0 AND 1==.

A his "n!"re, i "s be sresse$ ha he .T is an indirect tax. Ass"!h, the amount of tax paid on the goods, properties or servicesbought, transferred, or leased may be shifted or passed on by the

seller, transferor, or lessor to the buyer, transferee or lessee( Unlie a$ire! a%, s"!h as he in!oe a%, whi!h priarily a%es an in$i'i$"alsabiliy o pay base$ on his in!oe or ne wealh, an indirect tax, suchas the .T, is a tax on consumption of goods, services, or certain

transactions involving the same( The .T, thus, forms a substantial

portion of consumer expenditures(

H"rher, in in$ire! a%aion, here is a nee$ o $isin&"ish beween theliability for the taxan$ the burden of the tax. As earlier poine$ o",he ao"n o# a% pai$ ay be shi#e$ or passe$ on by he seller o heb"yer. hat is transferred in such instances is not the liability for thetax, but the tax burden. #n adding or in0luding t*e VA$ due to t*eselling pri0e, t*e seller re+ains t*e person pri+arily and legally


11/58

liable for t*e pay+ent of t*e ta& 7hat is shifted only to the

intermediate $uyer and ultimately to the final purchaser is the $urden

of the tax&Sae$ $i##erenly, a seller who is $ire!ly an$ le&ally liable#or payen o# an in$ire! a%, s"!h as he VAT on &oo$s orservices isnot necessarily the person who ultimately $ears the $urden of the sametax. 7t is the final purchaser or consumer of such goods or serviceswho, although not directly and legally liable for the payment thereof,

ultimately bears the burden of the tax(

%xemptions from .T are granted by express provision of the Tax

/ode or special laws( ;nder .T, the transaction can havepreferential treatment in the following waysC

(a) VAT E%epion. K An e%epion eans ha he sale o#&oo$s or properies an$


12/58

Se!ion 6.1**3- o# G2/s /e'en"e /e&"laions 03=;, as aen$e$, or heJ5onsoli$ae$ Val"e3A$$e$ Ta% /e&"laionsJ pro'i$e:

Se!. 6.1**3-. Iero3rae$ Sales. K . ero-rated sale by a VAT3re&isere$ person, whi!h is a a%able ransa!ion #or VAT p"rposes,shall not result in any output tax. @owe'er, the input tax on hispurchases of goods, properties or services related to such ero-rated

sale shall be available as tax credit or refund in accordance with

these regulations.

The #ollowin& sales by VAT3re&isere$ persons shall be s"be! o *9:(a) E%por SalesJE%por SalesJ shall ean%%% %%% %%%(;) Those !onsi$ere$ e%por sales "n$er Ari!les - an$ 00 o#E%e!"i'e r$er No. --+, oherwise nown as he nib"s2n'esens 5o$e o# 1=0, an$ oher spe!ial laws, e.&. /ep"bli! A!No. 0--0, oherwise nown as he Gases 5on'ersion an$ De'elopenA! o# 1==-.

%%% %%% %%%(!) Sales o persons or eniies whose e%epion "n$er spe!iallaws, e.&. /.A. No. 0--0 $"ly re&isere$ an$ a!!re$ie$ enerprises wihS"bi! Gay Meropolian A"horiy (SGMA) an$ 5lar De'elopenA"horiy (5DA), /.A. No. 0=1+, Philippine E!onoi! Ione A"horiy(PEIA), or inernaional a&reeens, e.&. Asian De'elopen Gan(ADG), 2nernaional /i!e /esear!h 2nsi"e (2//2), e!. o whi!h hePhilippines is a si&naory e##e!i'ely s"be! s"!h sales o 4ero3rae.J

Since the transaction is deemed a ero-rated sale, petitionerEs

supplier may claim an 7nput .T credit with no corresponding

&utput .T liability( /ongruently, no &utput .T may be passed on

to the petitioner(

n he se!on$ iss"e, i ay no be aiss o re3ephasi4e ha hepeiioner is re&isere$ as a NN3VAT a%payer an$ h"s, is e%ep#ro VAT. As an e%ep VAT a%payer, i is no allowe$ any a%!re$i on VAT (inp" a%) pre'io"sly pai$. 2n #ine, e'en i# we are oass"e ha e%epion #ro he b"r$en o# VAT on peiionersp"r!hases $i$ e%is, peiioner is sill no enile$ o any a% !re$i orre#"n$ on he inp" a% pre'io"sly pai$ as peiioner is an e%ep VATa%payer.

5ather, it is the petitionerEs suppliers who are the proper parties to

claim the tax credit and accordingly refund the petitioner of the .Terroneously passed on to the latter(

A!!or$in&ly, we #in$ ha he 5o"r o# Appeals $i$ no !oi anyre'ersible error o# law in hol$in& ha peiioners VAT e%epion"n$er /ep. A! No. 0--0 is liie$ o he VAT on whi!h i is $ire!lyliable as a seller an$ hen!e, i !anno !lai any re#"n$ or e%epion #orany inp" VAT i pai$, i# any, on is p"r!hases o# raw aerials an$s"pplies.

5ASES N VAT:

/&997SS7&'%5 &2 7'T%5'.: 5%%';%, petitioner, vs( S%.=.T%T%/8'&:&=F P87:7PP7'%S$, respondent(


13/58

4ero3rae$. @en!e, in he presen !ase, he $isin!ion beween e%epeniies an$ e%ep ransa!ions has lile si&ni#i!an!e, be!a"se he neres"l is ha he a%payer is no liable #or he VAT. /espon$en, aVAT3re&isere$ enerprise, has !oplie$ wih all re8"isies #or!laiin& a a% re#"n$ o# or !re$i #or he inp" VAT i pai$ on !apial&oo$s i p"r!hase$. Th"s, he 5o"r o# Ta% Appeals an$ he 5o"r o#Appeals $i$ no err in r"lin& ha i is enile$ o s"!h re#"n$ or !re$i.

Ha!s:

1. /espon$en is a resi$en #orei&n !orporaion $"ly re&isere$wih he Se!"riies an$ E%!han&e 5oission o $o b"siness in hePhilippines, wih prin!ipal o##i!e a$$ress a he new 5eb" Townshipne, Spe!ial E!onoi! Ione, Garan&ay 5anao3an, Na&a, 5eb"?

-. Peiioner is s"e$ in his o##i!ial !apa!iy, ha'in& been $"lyappoine$ an$ epowere$ o per#or he $"ies o# his o##i!e, in!l"$in&,aon& ohers, he $"y o a! an$ appro'e !lais #or re#"n$ or a%!re$i?

. /espon$en is re&isere$ wih he Philippine E%por IoneA"horiy (PEIA) an$ has been iss"e$ PEIA 5eri#i!ae No. =03*66p"rs"an o Presi$enial De!ree No. ++, as aen$e$, o en&a&e in hean"#a!"re o# re!or$in& !oponens priarily "se$ in !op"ers #ore%por. S"!h re&israion was a$e on + B"ne 1==0?

6. /espon$en is VAT (Val"e A$$e$ Ta%)3re&isere$ eniyas e'i$en!e$ by VAT /e&israion 5eri#i!aion No. =03*3***+**3Viss"e$ on - April 1==0?

;. VAT re"rns #or he perio$ 1 April 1== o * B"ne 1=== ha'ebeen #ile$ by respon$en?

+. An a$inisrai'e !lai #or re#"n$ o# VAT inp" a%es in heao"n o# P-,+=,--+. wih s"pporin& $o!"ens (in!l"si'e o# heP1-,-+0,=1.*6 VAT inp" a%es s"be! o# his Peiion #or /e'iew),was #ile$ on 6 !ober 1=== wih /e'en"e Disri! ##i!e No. ,Talisay 5eb"?

0. No #inal a!ion has been re!ei'e$ by respon$en #ropeiioner on respon$ens !lai #or VAT re#"n$.

JThe a$inisrai'e !lai #or re#"n$ by he respon$en on !ober 6,1=== was no a!e$ "pon by he peiioner propin& he respon$eno ele'ae he !ase o he 5TA on B"ly -1, -*** by way o# Peiion #or/e'iew in or$er o oll he r"nnin& o# he wo3year pres!ripi'e perio$.

JHor his par, peiioner . . . raise$ he #ollowin& Spe!ial an$A##irai'e De#enses, o wi:

1. /espon$ens alle&e$ !lai #or a% re#"n$

6. 5lais #or a% re#"n$


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he re#"n$

Sole 2ss"e

Peiioner s"bis his sole iss"e #or o"r !onsi$eraion:

Jheher or no respon$en is enile$ o he re#"n$ or iss"an!e o# Ta%5re$i 5eri#i!ae in he ao"n o# P1-,1--,=--.++ represenin& alle&e$"n"ili4e$ inp" VAT pai$ on !apial &oo$s p"r!hase$ #or he perio$April 1, 1== o B"ne *, 1===.J

The 5o"rs /"lin&

The Peiion is "neriorio"s.

Sole 2ss"e:

Enileen o# a VAT3/e&isere$ PEIA Enerprise o a /e#"n$ o# or5re$i #or 2np" VAT.

No $o"b, as a PEIA3re&isere$ enerprise wihin a spe!ial e!onoi!4one, respon$en is enile$ o he #is!al in!eni'es an$ bene#is

pro'i$e$ #or in eiher PD ++ or E --+. 2 shall, oreo'er, enoy allpri'ile&es, bene#is, a$'ana&es or e%epions "n$er boh /ep"bli! A!Nos. (/A) 0--0 11 an$ 066.

Pre#erenial Ta% TreaenUn$er Spe!ial Laws

2# i a'ails isel# o# PD ++, nowihsan$in& he pro'isions o# oher lawso he !onrary, respon$en shall no be s"be! o inernal re'en"e lawsan$ re&"laions #or raw aerials, s"pplies, ari!les, e8"ipen,a!hineries, spare pars an$ wares, e%!ep hose prohibie$ by law,bro"&h ino he 4one o be sore$, broen "p, repa!e$, asseble$,insalle$, sore$, !leane$, &ra$e$ or oherwise pro!esse$, anip"lae$,

an"#a!"re$, i%e$ or "se$ $ire!ly or in$ire!ly in s"!h a!i'iies.E'en so, respon$en wo"l$ enoy a ne3operain& loss !arry o'er?a!!elerae$ $epre!iaion? #orei&n e%!han&e an$ #inan!ial assisan!e?an$ e%epion #ro e%por a%es, lo!al a%es an$ li!enses.

5oparai'ely, he sae e%epion #ro inernal re'en"e laws an$re&"laions applies i# E --+ is !hosen. Un$er his law, respon$enshall #"rher be enile$ o an in!oe a% holi$ay? a$$iional $e$"!ion#or labor e%pense? sipli#i!aion o# !"sos pro!e$"re? "nresri!e$ "se


15/58

o# !onsi&ne$ e8"ipen? a!!ess o a bon$e$ an"#a!"rin& wareho"sesyse? pri'ile&es #or #orei&n naionals eploye$? a% !re$is on$oesi! !apial e8"ipen, as well as #or a%es an$ $"ies on rawaerials? an$ e%epion #ro !onra!ors a%es, whar#a&e $"es, a%esan$ $"ies on ipore$ !apial e8"ipen an$ spare pars, e%por a%es,$"ies, iposs an$ #ees, 1+ lo!al a%es an$ li!enses, an$ real properya%es.A pri'ile&e a'ailable o respon$en "n$er he pro'ision in /A 0--0 ona% an$ $"y3#ree iporaion o# raw aerials, !apial an$ e8"ipenK is, ipso #a!o, also a!!or$e$ o he 4one "n$er /A 0=1+.H"rherore, he laer law K nowihsan$in& oher e%isin& laws,r"les an$ re&"laions o he !onrary K e%en$s o ha 4one hepro'ision sain& ha no lo!al or naional a%es shall be ipose$herein. No e%!han&e !onrol poli!y shall be applie$? an$ #ree ares#or #orei&n e%!han&e, &ol$, se!"riies an$ #""re shall be allowe$ an$ainaine$. Ganin& an$ #inan!e shall also be liberali4e$ "n$erini" Gan&o Senral re&"laion wih he esablishen o# #orei&n!"rren!y $eposiory "nis o# lo!al !oer!ial bans an$ o##shorebanin& "nis o# #orei&n bans.

2n he sae 'ein, respon$en bene#is "n$er /A 066 #ro ne&oiablea% !re$is #or lo!ally3pro$"!e$ aerials "se$ as inp"s. Asi$e #rohe oher in!eni'es possibly alrea$y &rane$ o i by he Goar$ o#2n'esens, i also enoys pre#erenial !re$i #a!iliies an$ e%epion#ro PD 1;.2rom the above-cited laws, it is immediately clear that petitioner

enDoys preferential tax treatment(2 is no s"be! o inernal re'en"elaws an$ re&"laions an$ is e'en enile$ o a% !re$is. The VAT on!apial &oo$s is an inernal re'en"e a% #ro whi!h peiioner as aneniy is e%ep. Alho"&h he ransa!ions in'ol'in& s"!h a% are noe%ep, peiioner as a VAT3re&isere$ person, howe'er, is enile$ o

heir !re$is.

Na"re o# he VAT an$he Ta% 5re$i Meho$

Viewe$ broa$ly, he VAT is a "ni#or a% ran&in&, a presen, #ro *per!en o 1* per!en le'ie$ on e'ery iporaion o# &oo$s, wheher orno in he !o"rse o# ra$e or b"siness, or ipose$ on ea!h sale, barer,e%!han&e or lease o# &oo$s or properies or on ea!h ren$iion o#ser'i!es in he !o"rse o# ra$e or b"siness as hey pass alon& hepro$"!ion an$ $isrib"ion !hain, he a% bein& liie$ only o he'al"e a$$e$ o s"!h &oo$s, properies or ser'i!es by he seller,rans#eror or lessor. 2 is an in$ire! a% ha ay be shi#e$ or passe$ on

o he b"yer, rans#eree or lessee o# he &oo$s, properies or ser'i!es.As s"!h, i sho"l$ be "n$ersoo$ no in he !one% o# he person oreniy ha is priarily, $ire!ly an$ le&ally liable #or is payen, b" iners o# is na"re as a a% on !ons"pion. 2n eiher !ase, ho"&h, hesae !on!l"sion is arri'e$ a.

The law ha ori&inally ipose$ he VAT in he !o"nry, as well as hes"bse8"en aen$ens o# ha law, has been $rawn #ro he a% !re$ieho$. S"!h eho$ a$ope$ he e!hani!s an$ sel#3en#or!een#ea"res o# he VAT as #irs ipleene$ an$ pra!i!e$ in E"rope an$s"bse8"enly a$ope$ in New Iealan$ an$ 5ana$a. Un$er he presen

eho$ ha relies on in'oi!es, an eniy !an !re$i a&ains or s"bra!#ro he VAT !har&e$ on is sales or o"p"s he VAT pai$ on isp"r!hases, inp"s an$ ipors.2# a he en$ o# a a%able 8"arer he o"p" a%es !har&e$ by a seller aree8"al o he inp" a%es passe$ on by he s"ppliers, no payen isre8"ire$. 2 is when he o"p" a%es e%!ee$ he inp" a%es ha hee%!ess has o be pai$. 2#, howe'er, he inp" a%es e%!ee$ he o"p"a%es, he e%!ess shall be !arrie$ o'er o he s"!!ee$in& 8"arer or


16/58

8"arers. Sho"l$ he inp" a%es res"l #ro 4ero3rae$ or e##e!i'ely4ero3rae$ ransa!ions or #ro he a!8"isiion o# !apial &oo$s, anye%!ess o'er he o"p" a%es shall insea$ be re#"n$e$ o he a%payer or!re$ie$ a&ains oher inernal re'en"e a%es.

Iero3/ae$ an$ E##e!i'elyIero3/ae$ Transa!ions

.lthough both are taxable and similar in effect, ero-rated

transactions differ from effectively ero-rated transactions as to their

source(

1ero7rated transa0tions#enerally refer to the export sale of #oodsand supply of services. The a% rae is se a 4ero. hen applie$ o hea% base, s"!h rae ob'io"sly res"ls in no a% !har&eable a&ains hep"r!haser. The seller of such transactions charges no output tax, butcan claim a refund of or a tax credit certificate for the .T

previously charged by suppliers.

"ffe0ti4ely ero7rated transa0tions, howe'er, refer to the sale of#oods or supply of services to persons or entities whose exemptionunder special laws or international a#reements to which the

Philippines is a si#natory effectively su$;ects such transactions to a9ero rate. A&ain, as applie$ o he a% base, s"!h rae $oes no yiel$ anya% !har&eable a&ains he p"r!haser. The seller who charges erooutput tax on such transactions can also claim a refund of or a tax

credit certificate for the .T previously charged by suppliers(

Iero /ain& an$E%epion

2n ers o# he VAT !op"aion, 4ero rain& an$ e%epion are he sae, b"he e%en o# relie# ha res"ls #ro eiher one o# he is no.

Applyin& he $esinaion prin!iple o he e%poraion o# &oo$s, auto+ati0

ero rating is primarily intended to be enDoyed by the seller who isdirectly and legally liable for the .T, making such seller internationallycompetitive by allowing the refund or credit of input taxes that are attributable

to export sales. "ffe0ti4e ero rating, on he !onrary, is intended tobenefit the purchaser who, not being directly and legally liable for thepayment of the .T, will ultimately bear the burden of the tax shifted by the

suppliers(

2n boh insan!es o# 4ero rain&, here is oal relie# #or he p"r!haser#ro he b"r$en o# he a%. G" in an e%epion here is only parial

relie#, be!a"se he p"r!haser is no allowe$ any a% re#"n$ o# or !re$i#or inp" a%es pai$.E%ep Transa!ionan$ E%ep Pary

The obe! o# e%epion #ro he VAT ay eiher be he ransa!ionisel# or any o# he paries o he ransa!ion.

An e%ep ransa!ion, on he one han$, in'ol'es &oo$s or ser'i!eswhi!h, by heir na"re, are spe!i#i!ally lise$ in an$ e%pressly e%epe$#ro he VAT "n$er he Ta% 5o$e, wiho" re&ar$ o he a% sa"s KVAT3e%ep or no K o# he pary o he ransa!ion. 2n$ee$, s"!h

ransa!ion is no s"be! o he VAT, b" he seller is no allowe$ anya% re#"n$ o# or !re$i #or any inp" a%es pai$.

An e%ep pary, on he oher han$, is a person or eniy &rane$ VATe%epion "n$er he Ta% 5o$e, a spe!ial law or an inernaionala&reeen o whi!h he Philippines is a si&naory, an$ by 'ir"e o#whi!h is a%able ransa!ions be!oe e%ep #ro he VAT. S"!hpary is also no s"be! o he VAT, b" ay be allowe$ a a% re#"n$ o#


17/58

or !re$i #or inp" a%es pai$, $epen$in& on is re&israion as a VAT ornon3VAT a%payer.

As enione$ earlier, he VAT is a a% on !ons"pion, he ao"n o#whi!h ay be shi#e$ or passe$ on by he seller o he p"r!haser o# he&oo$s, properies or ser'i!es. hile he liabiliy is ipose$ on oneperson, he b"r$en ay be passe$ on o anoher. There#ore, i# a spe!iallaw erely e%eps a pary as a seller #ro is $ire! liabiliy #orpayen o# he VAT, b" $oes no relie'e he sae pary as a p"r!haser#ro is in$ire! b"r$en o# he VAT shi#e$ o i by is VAT3re&isere$s"ppliers, he p"r!hase ransa!ion is no e%ep. Applyin& hisprin!iple o he !ase a bar, he p"r!hase ransa!ions enere$ ino byrespon$en are no VAT3e%ep.

Spe!ial laws ay !erainly e%ep ransa!ions #ro he VAT.@owe'er, he Ta% 5o$e pro'i$es ha hose #allin& "n$er PD ++ are no.PD ++ is he pre!"rsor o# /A 0=1+ K he spe!ial law "n$er whi!hrespon$en was re&isere$. The p"r!hase ransa!ions i enere$ inoare, here#ore, no VAT3e%ep. These are s"be! o he VAT?respon$en is re8"ire$ o re&iser.

2s sales ransa!ions, howe'er, will eiher be 4ero3rae$ or a%e$ a hesan$ar$ rae o# 1* per!en, $epen$in& a&ain on he appli!aion o# he$esinaion prin!iple.

2# respon$en eners ino s"!h sales ransa!ions wih a p"r!haser K"s"ally in a #orei&n !o"nry K #or "se or !ons"pion o"si$e hePhilippines, hese shall be s"be! o * per!en. 2# enere$ ino wih ap"r!haser #or "se or !ons"pion in he Philippines, hen hese shall bes"be! o 1* per!en, "nless he p"r!haser is e%ep #ro he in$ire!b"r$en o# he VAT, in whi!h !ase i shall also be 4ero3rae$.

Sin!e he p"r!hases o# respon$en are no e%ep #ro he VAT, he

rae o be applie$ is 4ero. 2s e%epion "n$er boh PD ++ an$ /A 0=1+e##e!i'ely s"be!s s"!h ransa!ions o a 4ero rae, be!a"se hee!o4one wihin whi!h i is re&isere$ is ana&e$ an$ operae$ by hePEIA as a separae !"sos erriory. This eans ha in s"!h 4one is!reae$ he le&al #i!ion o# #orei&n erriory. Un$er he !ross3bor$erprin!iple o# he VAT syse bein& en#or!e$ by he G"rea" o# 2nernal/e'en"e (G2/), no VAT shall be ipose$ o #or par o# he !os o#&oo$s $esine$ #or !ons"pion o"si$e o# he erriorial bor$er o# hea%in& a"horiy. 2# e%pors o# &oo$s an$ ser'i!es #ro he Philippineso a #orei&n !o"nry are #ree o# he VAT, hen he sae r"le hol$s #ors"!h e%pors #ro he naional erriory K e%!ep spe!i#i!ally $e!lare$areas K o an e!o4one.

Sales a$e by a VAT3re&isere$ person in he !"sos erriory o aPEIA3re&isere$ eniy are !onsi$ere$ e%pors o a #orei&n !o"nry?!on'ersely, sales by a PEIA3re&isere$ eniy o a VAT3re&isere$person in he !"sos erriory are $eee$ ipors #ro a #orei&n!o"nry. An e!o4one K in$"biably a &eo&raphi!al erriory o# hePhilippines K is, howe'er, re&ar$e$ in law as #orei&n soil. This le&al#i!ion is ne!essary o &i'e eanin"l e##e! o he poli!ies o# hespe!ial law !reain& he 4one. 2# respon$en is lo!ae$ in an e%porpro!essin& 4one wihin ha e!o4one, sales o he e%por pro!essin&4one, e'en wiho" bein& a!"ally e%pore$, shall in #a! be 'iewe$ as!onsr"!i'ely e%pore$ "n$er E --+. 5onsi$ere$ as e%por sales, s"!hp"r!hase ransa!ions by respon$en wo"l$ in$ee$ be s"be! o a 4erorae.

Ta% E%epionsGroa$ an$ E%press

Applyin& he spe!ial laws we ha'e earlier $is!"sse$, respon$en as aneniy is e%ep #ro inernal re'en"e laws an$ re&"laions.

This e%epion !o'ers boh $ire! an$ in$ire! a%es, sein& #rohe 'ery na"re o# he VAT as a a% on !ons"pion, #or whi!h he


18/58

$ire! liabiliy is ipose$ on one person b" he in$ire! b"r$en ispasse$ on o anoher.5espondent, as an exempt entity, can neither bedirectly charged for the .T on its sales nor indirectly made to bear,as added cost to such sales, the equivalent .T on its purchases(


19/58

Si%h, he e%epion #ro lo!al an$ naional a%es &rane$ "n$er /A0--0 are ipso #a!o a!!or$e$ o e!o4ones. 2n !ase o# $o"b, !on#li!swih respe! o s"!h a% e%epion pri'ile&e shall be resol'e$ in #a'oro# he e!o4one.

An$ se'enh, he a% !re$is "n$er /A 066 K &i'en #or ipore$ rawaerials priarily "se$ in he pro$"!ion o# e%por &oo$s, an$ #orlo!ally pro$"!e$ raw aerials, !apial e8"ipen an$ spare pars "se$by e%porers o# non3ra$iional pro$"!s K shall also be !onin"o"slyenoye$ by siilar e%porers wihin he e!o4one. 2n$ee$, he laere%porers are liewise enile$ o s"!h a% e%epions an$ !re$is.

Ta% /e#"n$ asTa% E%epion

To be s"re, sa"es ha &ran a% e%epions are !onsr"e$ sri!issii"ris a&ains he a%payer an$ liberally in #a'or o# he a%in& a"horiy.

Ta% re#"n$s are in he na"re o# s"!h e%epions. A!!or$in&ly, he!laians o# hose re#"n$s bear he b"r$en o# pro'in& he #a!"al basis

o# heir !lais? an$ o# showin&, by wor$s oo plain o be isaen, hahe le&isla"re inen$e$ o e%ep he. 2n he presen !ase, all he!ie$ le&al pro'isions are eein& wih li#e wih respe! o he &ran o#a% e%epions oo 'i'i$ o pass "nnoi!e$. 2n a$$iion, respon$eneasily ees he !hallen&e.

/espon$en, whi!h as an eniy is e%ep, is $i##eren #ro isransa!ions whi!h are no e%ep. The en$ res"l, howe'er, is ha i isno s"be! o he VAT. The non3a%abiliy o# ransa!ions ha areoherwise a%able is erely a ne!essary in!i$en o he a% e%epion!on#erre$ by law "pon i as an eniy, no "pon he ransa!ionshesel'es. Noneheless, is e%epion as an eniy an$ he non3e%epion o# is ransa!ions lea$ o he sae res"l #or he #ollowin&

!onsi$eraions:

Hirs, he !oneporaneo"s !onsr"!ion o# o"r a% laws by G2/a"horiies who are !alle$ "pon o e%e!"e or a$iniser s"!h laws willha'e o be a$ope$. Their prior a% iss"an!es ha'e hel$ in!onsisenposiions bro"&h abo" by heir probable #ail"re o !oprehen$ an$#"lly appre!iae he na"re o# he VAT as a a% on !ons"pion an$ heappli!aion o# he $esinaion prin!iple. /e'en"e Meoran$"5ir!"lar No. (/M5) 063==, howe'er, now !learly an$ !orre!lypro'i$es ha any VAT3re&isere$ s"ppliers sale o# &oo$s, propery orser'i!es #ro he !"sos erriory o any re&isere$ enerpriseoperain& in he e!o4one K re&ar$less o# he !lass or ype o# he laersPEIA re&israion K is le&ally enile$ o a 4ero rae.

Se!on$, he poli!ies o# he law sho"l$ pre'ail. /aio le&is es ania.The reason #or he law is is 'ery so"l.

2n PD ++, he "r&en !reaion o# he EPIA whi!h pre!e$e$ he PEIA,as well as he esablishen o# e%por pro!essin& 4ones, sees Joen!o"ra&e an$ prooe #orei&n !oer!e as a eans o# . . .sren&henin& o"r e%por ra$e an$ #orei&n e%!han&e posiion, o#hasenin& in$"sriali4aion, o# re$"!in& $oesi! "neployen, an$o# a!!elerain& he $e'elopen o# he !o"nry.J

/A 0=1+, as aen$e$ by /A 06, $e!lare$ ha by !reain& he PEIAan$ ine&rain& he spe!ial e!onoi! 4ones, Jhe &o'ernen shall

a!i'ely en!o"ra&e, prooe, in$"!e an$ a!!elerae a so"n$ an$balan!e$ in$"srial, e!onoi! an$ so!ial $e'elopen o# he!o"nry . . . hro"&h he esablishen, aon& ohers, o# spe!iale!onoi! 4ones . . . ha shall e##e!i'ely ara! le&iiae an$pro$"!i'e #orei&n in'esens.JUn$er E --+, he JSae shall en!o"ra&e . . . #orei&n in'esens inin$"sry . . . whi!h shall . . ee he ess o# inernaional!opeii'eness, a!!elerae $e'elopen o# less $e'elope$ re&ions o#


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he !o"nry, an$ res"l in in!rease$ 'ol"e an$ 'al"e o# e%pors #orhe e!onoy.J His!al in!eni'es ha are !os3e##i!ien an$ siple oa$iniser shall be $e'ise$ an$ e%en$e$ o si&ni#i!an proe!s Jo!opensae #or are iper#e!ions, o rewar$ per#oran!e!onrib"in& o e!onoi! $e'elopen,J an$ Jo si"lae heesablishen an$ assis iniial operaions o# he enerprise.J

isely a!!or$e$ o e!o4ones !reae$ "n$er /A 0=1+ was he&o'ernens poli!y K spelle$ o" earlier in /A 0--0 K o# !on'erin&ino alernai'e pro$"!i'e "ses he #orer iliary reser'aions an$heir e%ensions, as well as o# pro'i$in& he in!eni'es o enhan!e hebene#is ha wo"l$ be $eri'e$ #ro he in prooin& e!onoi! an$so!ial $e'elopen.

Hinally, "n$er /A 066, he Sae $e!lares he nee$ Jo e'ol'e e%por$e'elopen ino a naional e##orJ in or$er o win inernaionalares. Gy pro'i$in& any e%por an$ a% in!eni'es, he Sae is ableo $ri'e hoe he poin ha e%porin& is in$ee$ Jhe ey o naionals"r'i'al an$ he eans hro"&h whi!h he e!onoi! &oals o# in!rease$eployen an$ enhan!e$ in!oes !an os e%pe$iio"sly be

a!hie'e$.JThe Ta% 5o$e isel# sees o Jprooe s"sainable e!onoi!&rowh . . .? . . . in!rease e!onoi! a!i'iy? an$ . . . !reae a rob"sen'ironen #or b"siness o enable #irs o !opee beer in here&ional as well as he &lobal are.J A#er all, inernaional!opeii'eness re8"ires e!onoi! an$ a% in!eni'es o lower he !oso# &oo$s pro$"!e$ #or e%por. Sae a!ions ha a##e! &lobal!opeiion nee$ o be spe!i#i! an$ sele!i'e in he pri!in& o# pari!"lar&oo$s or ser'i!es.All hese sa"ory poli!ies are !on&r"en o he !onsi"ional an$aeso# pro'i$in& in!eni'es o nee$e$ in'esens, 1- as well as o#

prooin& he pre#erenial "se o# $oesi! aerials an$ lo!allypro$"!e$ &oo$s an$ a$opin& eas"res o help ae hese !opeii'e.1-= Ta% !re$is #or $oesi! inp"s sren&hen ba!war$ lina&es./i&hly so, Jhe r"le o# law an$ he e%isen!e o# !re$ible an$ e##i!ienp"bli! insi"ions are essenial prere8"isies #or s"sainable e!onoi!$e'elopen.J

VAT /e&israion, No Appli!aion#or E##e!i'e Iero /ain&,2n$ispensable o VAT /e#"n$

/e&israion is an in$ispensable re8"ireen "n$er o"r VAT law.Peiioner alle&es ha respon$en $i$ re&iser #or VAT p"rposes wih

he appropriae /e'en"e Disri! ##i!e. @owe'er, i is now oo lae inhe $ay #or peiioner o !hallen&e he VAT3re&isere$ sa"s o#respon$en, &i'en he laers prior represenaion be#ore he lower!o"rs an$ he o$e o# appeal aen by peiioner be#ore his 5o"r.

The PEIA law, whi!h !arrie$ o'er he pro'isions o# he EPIA law, is!lear in e%epin& #ro inernal re'en"e laws an$ re&"laions hee8"ipen K in!l"$in& !apial &oo$s K ha re&isere$ enerprises will"se, $ire!ly or in$ire!ly, in an"#a!"rin&. E --+ e'en reieraes hispri'ile&e aon& he in!eni'es i &i'es o s"!h enerprises. Peiionererely assers ha by 'ir"e o# he PEIA re&israion alone o#respon$en, he laer is no s"be! o he VAT. 5onse8"enly, he!apial &oo$s an$ ser'i!es respon$en has p"r!hase$ are no !onsi$ere$

"se$ in he VAT b"siness, an$ no VAT re#"n$ or !re$i is $"e. This is anon se8"i"r. Gy he VATs 'ery na"re as a a% on !ons"pion, he!apial &oo$s an$ ser'i!es respon$en has p"r!hase$ are s"be! o heVAT, alho"&h a 4ero rae. /e&israion $oes no $eerine a%abiliy"n$er he VAT law.

Moreo'er, he #a!s ha'e alrea$y been $eerine$ by he lower !o"rs.@a'in& #aile$ o presen e'i$en!e o s"ppor is !onenions a&ains hein!oe a% holi$ay pri'ile&e o# respon$en, peiioner is $eee$ o


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ha'e !on!e$e$. 2 is a !ar$inal r"le ha Jiss"es an$ ar&"ens noa$e8"aely an$ serio"sly bro"&h below !anno be raise$ #or he #irsie on appeal.J This is a Jaer o# pro!e$"reJ an$ a J8"esion o##airness.J Hail"re o asser Jwihin a reasonable ie warrans apres"pion ha he pary enile$ o asser i eiher has aban$one$ or$e!line$ o asser i.JThe G2/ re&"laions a$$iionally re8"irin& an appro'e$ priorappli!aion #or e##e!i'e 4ero rain& !anno pre'ail o'er he !lear VATna"re o# respon$ens ransa!ions. The s!ope o# s"!h re&"laions is noJwihin he sa"ory a"horiy . . . &rane$ by he le&isla"re.Hirs, a ere a$inisrai'e iss"an!e, lie a G2/ re&"laion, !annoaen$ he law? he #orer !anno p"rpor o $o any ore han inerprehe laer. The !o"rs will no !o"nenan!e one ha o'erri$es he sa"ei sees o apply an$ ipleen.

her han he &eneral re&israion o# a a%payer he VAT sa"s o#whi!h is aply $eerine$, no pro'ision "n$er o"r VAT law re8"ires ana$$iional appli!aion o be a$e #or s"!h a%payers ransa!ions o be

!onsi$ere$ e##e!i'ely 4ero3rae$. An e##e!i'ely 4ero3rae$ ransa!ion$oes no an$ !anno be!oe e%ep siply be!a"se an appli!aionhere#or was no a$e or, i# a$e, was $enie$. To allow he a$$iionalre8"ireen is o &i'e "n#eere$ $is!reion o hose o##i!ials or a&enswho, wiho" #l"i$ !onsi$eraion, are ben on $enyin& a 'ali$appli!aion. Moreo'er, he Sae !an ne'er be esoppe$ by heoissions, isaes or errors o# is o##i!ials or a&ens.Se!on$, &rania ar&"eni ha s"!h an appli!aion is re8"ire$ by law,here is sill he pres"pion o# re&"lariy in he per#oran!e o# o##i!ial$"y. /espon$ens re&israion !arries wih i he pres"pion ha, inhe absen!e o# !onra$i!ory e'i$en!e, an appli!aion #or e##e!i'e 4erorain& was also #ile$ an$ appro'al hereo# &i'en. Gesi$es, i is also

pres"e$ ha he law has been obeye$ by boh he a$inisrai'eo##i!ials an$ he appli!an.

Thir$, e'en ho"&h s"!h an appli!aion was no a$e, all he spe!iallaws we ha'e a!le$ e%ep respon$en no only #ro inernalre'en"e laws b" also #ro he re&"laions iss"e$ p"rs"an hereo.Lenien!y in he ipleenaion o# he VAT in e!o4ones is aniperai'e, pre!isely o sp"r e!onoi! &rowh in he !o"nry an$ aain&lobal !opeii'eness as en'isione$ in hose laws.

A VAT3re&isere$ sa"s, as well as !oplian!e wih he in'oi!in&re8"ireens, is s"##i!ien #or he e##e!i'e 4ero rain& o# heransa!ions o# a a%payer. The na"re o# is b"siness an$ ransa!ions

!an easily be per"se$ #ro, as alrea$y !learly in$i!ae$ in, is VATre&israion papers an$ phoo!opie$ $o!"ens aa!he$ hereo.@en!e, is ransa!ions !anno be e%epe$ by is ere #ail"re o apply#or heir e##e!i'e 4ero rain&. herwise, heir VAT e%epion wo"l$be $eerine$, no by heir na"re, b" by he a%payers ne&li&en!e Ka res"l no a all !oneplae$. A$inisrai'e !on'enien!e !annohwar le&islai'e an$ae.

Ta% /e#"n$ or5re$i in r$er

@a'in& $eerine$ ha respon$ens p"r!hase ransa!ions are s"be!o a 4ero VAT rae, he a% re#"n$ or !re$i is in or$er.

As !orre!ly hel$ by boh he 5A an$ he Ta% 5o"r, respon$en ha$!hosen he #is!al in!eni'es in E --+ o'er hose in /A 0=1+ an$ PD++. 2 ope$ #or he in!oe a% holi$ay re&ie insea$ o# he ; per!enpre#erenial a% re&ie.

The laer s!hee is no a per#"n!ory a#erah o# a siple re&israion"n$er he PEIA law, #or E --+ also has pro'isions o !onen$ wih.These wo re&ies are in #a! in!opaible an$ !anno be a'aile$ o#


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si"laneo"sly by he sae eniy. hile E --+ erely e%eps i#ro in!oe a%es, he PEIA law e%eps i #ro all a%es.

There#ore, respon$en !an be !onsi$ere$ e%ep, no #ro he VAT,b" only #ro he payen o# in!oe a% #or a !erain n"ber o# years,$epen$in& on is re&israion as a pioneer or a non3pioneer enerprise.Gesi$es, he reian!e o# he a#oresai$ ; per!en o# &ross in!oeearne$ in lie" o# lo!al an$ naional a%es iposable "pon b"sinessesablishens wihin he e!o4one !anno o"ri&hly $eerine a VATe%epion. Gein& s"be! o VAT, payens erroneo"sly !olle!e$hereon ay hen be re#"n$e$ or !re$ie$.

E'en i# i is ar&"e$ ha respon$en is s"be! o he ; per!enpre#erenial a% re&ie in /A 0=1+, Se!ion -6 hereo# $oes nopre!l"$e he VAT. ne !an, here#ore, !o"nerar&"e ha s"!h pro'isionerely e%eps respon$en #ro a%es ipose$ on b"siness. To repea,he VAT is a a% ipose$ on !ons"pion, no on b"siness. Alho"&hrespon$en as an eniy is e%ep, he ransa!ions i eners ino are none!essarily so. The VAT payens a$e in e%!ess o# he 4ero rae ha

is iposable ay !erainly be re#"n$e$ or !re$ie$.

5oplian!e wih All /e8"isies#or VAT /e#"n$ or 5re$i

As #"rher en"n!iae$ by he Ta% 5o"r, respon$en !oplie$ wih allhe re8"isies #or !laiin& a VAT re#"n$ or !re$i.

Hirs, respon$en is a VAT3re&isere$ eniy. This #a! alone$isin&"ishes he presen !ase #ro 5one%, in whi!h his 5o"r hel$ha he peiioner herein was re&isere$ as a non3VAT a%payer.@en!e, #or bein& erely VAT3e%ep, he peiioner in ha !ase !anno!lai any VAT re#"n$ or !re$i.

Se!on$, he inp" a%es pai$ on he !apial &oo$s o# respon$en are $"lys"ppore$ by VAT in'oi!es an$ ha'e no been o##se a&ains any o"p"a%es. Alho"&h enerprises re&isere$ wih he G2 a#er De!eber 1,1==6 wo"l$ no lon&er enoy he a% !re$i in!eni'es on $oesi!!apial e8"ipen K as pro'i$e$ #or "n$er Ari!le =($), Tile 222,Goo 2 o# E --+ K sarin& Ban"ary 1, 1==+, respon$en wo"l$ sillha'e he sae bene#i "n$er a &eneral an$ e%press e%epion !onaine$in boh Ari!le 00(1), Goo V2 o# E --+? an$ Se!ion 1-, para&raph -(!) o# /A 0--0, e%en$e$ o he e!o4ones by /A 0=1+.

There was a 'ery !lear inen on he par o# o"r le&islaors, no only oe%ep in'esors in e!o4ones #ro naional an$ lo!al a%es, b" also o

&ran he a% !re$is. This #a! was re'eale$ by he sponsorshipspee!hes in 5on&ress $"rin& he se!on$ rea$in& o# @o"se Gill No.16-=;, whi!h laer be!ae /A 0=1+, as shown below:

JM/. /E5T. . . . Soe o# he in!eni'es ha his bill pro'i$es aree%epion #ro naional an$ lo!al a%es? . . . a% !re$i #or lo!ally3so"r!e$ inp"s . . .J

%%% %%% %%%

JM/. DEL MA/. . . . To a$'an!e is !a"se in en!o"ra&in& in'esensan$ !reain& an en'ironen !on$"!i'e #or in'esors, he bill o##ersin!eni'es s"!h as he e%epion #ro lo!al an$ naional a%es, . . . a%

!re$is #or lo!ally so"r!e$ inp"s . . .J

An$ hir$, no 8"esion as o eiher he #ilin& o# s"!h !lais wihin hepres!ripi'e perio$ or he 'ali$iy o# he VAT re"rns has been raise$.E'en i# s"!h a 8"esion were raise$, he a% e%epion "n$er all hespe!ial laws !ie$ abo'e is broa$ eno"&h o !o'er e'en he en#or!eeno# inernal re'en"e laws, in!l"$in& pres!ripion.

S"ary


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To s"ari4e, spe!ial laws e%pressly &ran pre#erenial a% reaeno b"siness esablishens re&isere$ an$ operain& wihin an e!o4one,whi!h by law is !onsi$ere$ as a separae !"sos erriory. As s"!h,respon$en is e%ep #ro all inernal re'en"e a%es, in!l"$in& heVAT, an$ re&"laions perainin& hereo. 2 has ope$ #or he in!oe a%holi$ay re&ie, insea$ o# he ; per!en pre#erenial a% re&ie. As aaer o# law an$ pro!e$"re, is re&israion sa"s enilin& i o s"!ha% holi$ay !an no lon&er be 8"esione$. 2s sales ransa!ions inen$e$#or e%por ay no be e%ep, b" lie is p"r!hase ransa!ions, heyare 4ero3rae$. No prior appli!aion #or he e##e!i'e 4ero rain& o# isransa!ions is ne!essary. Being .T-registered and havingsatisfactorily complied with all the requisites for claiming a tax

refund of or credit for the input .T paid on capital goods

purchased, respondent is entitled to such .T refund or credit(

;G.!. %o. , ?22=.@

CALABA S$""L C"%$"!, #%C. (for+erly S S$""L

C&!P&!A$#&%, petitioner, 4s. CSS#&%"! &/

#%$"!%AL !"V"%U", respondent.

D E 5 2 S 2 N

PAN7AN2GAN, B p:

A a% re#"n$ ay be !laie$ e'en beyon$ he a%able year #ollowin&ha in whi!h he a% !re$i arises. @en!e, e%!ess in!oe a%es pai$ in1==; ha ha'e no been applie$ o or "se$ in 1==+ ay sill be hes"be! o# a a% re#"n$ in 1==0, pro'i$e$ ha he !lai #or s"!h re#"n$is #ile$ wih he inernal re'en"e !oissioner wihin wo years a#erpayen o# sai$ a%es. As a !a'ea, he 5o"r sresses ha here!o&niion o# he enileen o a a% re#"n$ $oes no ne!essarily ean

he a"oai! payen o# he s" !laie$ in he #inal a$"senre"rn o# he a%payer. The ao"n o# he !lai "s sill be pro'en inhe noral !o"rse.

The 5ase

Ge#ore "s is a Peiion #or /e'iew 1 "n$er /"le 6; o# he /"les o#5o"r, assailin& he Ban"ary 1*, -**- De!ision - o# he 5o"r o#Appeals (5A) in 5A37/ SP No. ;. The assaile$ De!ision$ispose$ as #ollows:

J2N V2E H ALL T@E H/E72N7, he insan peiion isD2SM2SSED an$ he assaile$ De!ision an$ /esol"ion are

AHH2/MED. 5oss a&ains Peiioner.J

The Ha!s

O"oin& he 5o"r o# Ta% Appeals (5TA), he 5A narrae$ heane!e$ens as #ollows:

JPeiioner is a $oesi! !orporaion en&a&e$ in he an"#a!"re o#seel blans #or "se by an"#a!"rers o# a"ooi'e, ele!ri!al,ele!roni!s in in$"srial an$ ho"sehol$ applian!es.

JPeiioner #ile$ an Aen$e$ 5orporae Ann"al 2n!oe Ta% /e"rn onB"ne 6, 1==+ $e!larin& a ne a%able in!oe o# P=,6+1,;=0.**, a%

!re$is o# P+,601,-6+.** an$ a% $"e in he ao"n o# P,11,;;=.**.

JPeiioner also repore$ 8"arerly payens #or he se!on$ an$ hir$8"arers o# 1==; in he ao"ns o# P-,-,060.-+ an$ P1,*-,1*.**,respe!i'ely.

J2 is he proposiion o# he peiioner ha #or he year 1==;, se'eralo# is !liens wihhel$ a%es #ro heir in!oe payens o peiioneran$ reie$ he sae o he G"rea" o# 2nernal /e'en"e (G2/) in he


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s" o# P,1;=,+0.**. Peiioner #"rher alle&e$ ha $"e o isin!oe


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(a) Pay he e%!ess a% sill $"e? or(b) Ge re#"n$e$ he e%!ess ao"n pai$, as he !ase ay be.

J2n !ase he !orporaion is enile$ o a re#"n$ o# he e%!ess esiae$8"arerly in!oe a%es pai$, he re#"n$able ao"n shown on is #inala$"sen re"rn ay be !re$ie$ a&ains he esiae$ 8"arerlyin!oe a% liabiliies #or he a%able 8"arers o# he s"!!ee$in& a%ableyear.J

Ta% /e#"n$Allowe$ by N2/5

A per"sal o# his pro'ision shows ha a a%able !orporaion is enile$o a a% re#"n$ when he s" o# he 8"arerly in!oe a%es i pai$$"rin& a a%able year e%!ee$s is oal in!oe a% $"e also #or ha year.5onse8"enly, he re#"n$able ao"n ha is shown on is #inala$"sen re"rn ay be !re$ie$, a is opion, a&ains is 8"arerlyin!oe a% liabiliies #or he ne% a%able year.

Peiioner is a !orporaion liable o pay in!oe a%es "n$er Se!ion -6

o# he N2/5. @en!e, i is a a%able !orporaion. 2n 1==;, i repore$ hai ha$ e%!ess in!oe a%es ha ha$ been pai$ #or an$ on is behal# byis wihhol$in& a&ens? an$ ha, applyin& he abo'e38"oe$ Se!ion +=,his e%!ess sho"l$ be !re$ie$ a&ains is in!oe a% liabiliies #or 1==+.@owe'er, i !laie$ in 1==0 ha i sho"l$ &e a re#"n$, be!a"se i wassill "nable o "se he e%!ess in!oe a%es pai$ in 1==; a&ains is a%liabiliies in 1==+. 2s his possibleR Sain& he ar&"en oherwise,ay e%!ess in!oe a%es pai$ in 1==; ha !o"l$ no be applie$ oa%es $"e in 1==+ be re#"n$e$ in 1==0R

The answer is in he a##irai'e. @ere are he reasons:

5lai o# Ta% /e#"n$ Geyon$ he

S"!!ee$in& Ta%able Qear

Hirs, a a% re#"n$ ay be !laie$ e'en beyon$ he a%able year#ollowin& ha in whi!h he a% !re$i arises.No pro'ision in o"r a% law liis he enileen o s"!h a re#"n$,oher han he re8"ireen ha he #ilin& o# he a$inisrai'e !lai #ori be a$e by he a%payer wihin a wo3year pres!ripi'e perio$.Se!ion -*6() o# he N2/5 saes ha no re#"n$ o# a%es Jshall beallowe$ "nless he a%payer #iles in wriin& wih he 5oissionerhe !lai #or . . . re#"n$ wihin wo years a#er he payen o# hea%.J

Applyin& he a#ore8"oe$ le&al pro'isions, i# he e%!ess in!oe a%es

pai$ in a &i'en a%able year ha'e no been enirely "se$ by a a%able!orporaion a&ains is 8"arerly in!oe a% liabiliies #or he ne%a%able year, he "n"se$ ao"n o# he e%!ess ay sill be re#"n$e$,pro'i$e$ ha he !lai #or s"!h a re#"n$ is a$e wihin wo years a#erpayen o# he a%. Peiioner #ile$ is !lai in 1==0 K well wihin hewo3year pres!ripi'e perio$. Th"s, is "n"se$ a% !re$is in 1==; aysill be re#"n$e$.

E'en he phrase Js"!!ee$in& a%able yearJ in he se!on$ para&raph o#he sai$ Se!ion += is a liiaion ha applies only o a a% !re$i, no aa% re#"n$. Peiioner herein $oes no !lai a a% !re$i, b" a a%re#"n$. There#ore, he sa"ory liiaion $oes no apply.

2n!oe Payens MerelyDe!lare$ Par o# 7ross 2n!oe

Se!on$, o be able o !lai a a% re#"n$, a a%payer only nee$s o$e!lare he in!oe payens i re!ei'e$ as par o# is &ross in!oe an$o esablish he #a! o# wihhol$in&.

Se!ion ; o# // 1-3=6 saes:


26/58

%%% %%% %%%

J(a) 5lais #or Ta% 5re$i or /e#"n$ o# in!oe a% $e$"!e$ an$wihhel$ on in!oe payens shall be &i'en $"e !o"rse only when i isshown on he re"rn ha he in!oe payen re!ei'e$ has been$e!lare$ as par o# he &ross in!oe an$ he #a! o# wihhol$in& isesablishe$ by a !opy o# he ihhol$in& Ta% Saeen $"ly iss"e$ byhe payor o he payee showin& he ao"n pai$ an$ he ao"n o# a%wihhel$ here#ro.

J(b) E%!ess 5re$is. K A a%payers e%!ess e%pan$e$ wihhol$in&a% !re$is #or he a%able 8"arer

Tha peiioner #ile$ is 1==+ #inal a$"sen re"rn in 1==0 is he !r"%o# he !onro'ersy. @owe'er, as will be $eonsrae$ shorly, he la!o# s"!h a re"rn will no $e#ea is enileen o a re#"n$.

Ta% /e#"n$ Pro'isions:O"esion o# Law

Thir$, i is a !ar$inal r"le ha Jonly le&al iss"es ay be raise$J 1* inpeiions #or re'iew "n$er /"le 6;.

The proper inerpreaion o# he pro'isions on a% re#"n$ is a 8"esiono# law ha J$oes no !all #or an e%ainaion o# he probai'e 'al"e o#he e'i$en!e presene$ by he paries3lii&ans.J @a'in& been "nable o"se he e%!ess in!oe a%es pai$ in 1==; a&ains is oher a% liabiliiesin 1==+, peiioner !learly $eser'es a re#"n$. 2 !anno by any sweepin&$enial be $epri'e$ o# wha ri&h#"lly belon&s o i.

The r"h or #alsiy o# he !onens o# or enries in he 1==+ #inala$"sen re"rn, whi!h has no been #orally o##ere$ in e'i$en!e an$e%aine$ by respon$en, in'ol'es, howe'er, a 8"esion o# #a!. This

5o"r is no a rier o# #a!s. Neiher is i a !olle!ion a&en!y #or he&o'ernen. Alho"&h we r"le ha peiioner is enile$ o a a% re#"n$,he ao"n o# ha re#"n$ is a aer #or he 5TA o $eerine"$i!io"sly base$ on he re!or$s ha in!l"$e is own !opy o#peiioners 1==+ #inal a$"sen re"rn.

Liberal 5onsr"!iono# /"les


27/58

Ho"rh, or$inary r"les o# pro!e$"re #rown "pon he s"bission o# #inala$"sen re"rns a#er rial has been !on$"!e$. @owe'er, boh he5TA law an$ "rispr"$en!e an$ae ha he pro!ee$in&s be#ore he a%!o"r Jshall no be &o'erne$ sri!ly by e!hni!al r"les o# e'i$en!e.J Asa r"le, is #in$in&s o# #a! (as well as ha o# he 5A) are #inal, bin$in&an$ !on!l"si'e on he paries an$ "pon his 5o"r? howe'er, as ane%!epion, s"!h #in$in&s ay be re'iewe$ or $is"rbe$ on appeal whenhey are no s"ppore$ by e'i$en!e."r /"les o# 5o"r apply Jby analo&y or in a s"ppleory !hara!er an$whene'er pra!i!able an$ !on'enienJ an$ Jshall be liberally !onsr"e$in or$er o prooe heir obe!i'e o# se!"rin& a "s, spee$y an$ine%pensi'e $isposiion o# e'ery a!ion an$ pro!ee$in&.J A#er all,Jhe parao"n !onsi$eraion reains he as!erainen o# r"h.J

2n he presen !ase, he 1==+ #inal a$"sen re"rn was aa!he$ asAnne% A o he /eply o 5oen #ile$ by peiioner wih he 5A. There"rn shows a ne&ai'e ao"n #or is a%able in!oe ha year.There#ore, i !o"l$ no ha'e applie$ or "se$ he e%!ess a% !re$is o#1==; a&ains is a% liabiliies in 1==+.

B"$i!ial Noi!eo# Aa!he$ /e"rn

Hi#h, he 5A an$ 5TA !o"l$ ha'e aen "$i!ial noi!e o# he 1==+#inal a$"sen re"rn whi!h ha$ been aa!he$ in 5TA 5ase No.;0==. JB"$i!ial noi!e aes he pla!e o# proo# an$ is o# e8"al #or!e.J

As a &eneral r"le, !o"rs are no a"hori4e$ o ae "$i!ial noi!e o# he!onens o# re!or$s in oher !ases rie$ or pen$in& in he sae !o"r,e'en when hose !ases were hear$ or are a!"ally pen$in& be#ore hesae "$&e. @owe'er, his r"le a$is o# e%!epions, as when re#eren!eo s"!h re!or$s is s"##i!ienly a$e wiho" obe!ion #ro he

opposin& paries:

J. . . 2n he absen!e o# obe!ion, an$ as a aer o# !on'enien!e o allparies, a !o"r ay properly rea all or any par o# he ori&inal re!or$o# a !ase #ile$ in is ar!hi'es as rea$ ino he re!or$ o# a !ase pen$in&be#ore i, when, wih he nowle$&e o# he opposin& pary, re#eren!e isa$e o i #or ha p"rpose, by nae an$ n"ber or in soe oheranner by whi!h i is s"##i!ienly $esi&nae$? or when he ori&inalre!or$ o# he #orer !ase or any par o# i, is a!"ally wih$rawn #rohe ar!hi'es by he !o"rs $ire!ion, a he re8"es or wih he !onseno# he paries, an$ a$ie$ as a par o# he re!or$ o# he !ase henpen$in&.J

Prior o ren$erin& is De!ision on Ban"ary 1-, -***, he 5TA wasalrea$y well3aware o# he e%isen!e o# anoher !ase pen$in& be#ore i,in'ol'in& he sae s"be! aer, paries an$ !a"ses o# a!ion.Ge!a"se o# he !lose !onne!ion o# ha !ase wih he aer in!onro'ersy, he 5TA !o"l$ ha'e easily aen "$i!ial noi!e o# he!onese$ $o!"en aa!he$ in ha oher !ase.

H"rherore, here was no obe!ion raise$ o he in!l"sion o# he sai$1==+ #inal a$"sen re"rn in peiioners /eply o 5oen be#orehe 5A. Despie !lear re#eren!e o ha re"rn, a re#eren!e a$e wihhe nowle$&e o# respon$en, he laer sill #aile$ o !onro'erpeiioners !lai. The appellae !o"r sho"l$ ha'e !as asi$e sri!e!hni!aliies an$ $e!i$e$ he !ase on he basis o# s"!h "n!onese$

re"rn. Verily, i ha$ he a"horiy o Jae "$i!ial noi!e o# is re!or$san$ o# he #a!s ha he re!or$ esablishes.J

Se!ion - o# /"le 1-= pro'i$es ha !o"rs Jay ae "$i!ial noi!e o#aers . . . o"&h o be nown o "$&es be!a"se o# heir "$i!ial#"n!ions.J 2# he lower !o"rs really belie'e$ ha peiioner was noenile$ o a a% re#"n$, hey !o"l$ ha'e easily re8"ire$ respon$en oas!erain is 'era!iy an$ a!!"ra!y an$ o pro'e ha peiioner $i$ nos"##er any ne loss in 1==+.


28/58

5onrary o he !onenion o# peiioner, GP23Haily Sa'in&s Gan '.5A (on whi!h i ress is enire ar&"ens) is no on all #o"rs wih he#a!s o# his !ase.

hile he peiioner in ha !ase also #ile$ a wrien !lai #or a a%re#"n$, an$ liewise #aile$ o presen is 1==* !orporae ann"al in!oea% re"rn, i noneheless o##ere$ in e'i$en!e is op3ranin& o##i!ialsesiony an$ !eri#i!aion perainin& o only wo a%able years (1==an$ 1==*). The sai$ re"rn was aa!he$ only o is Moion #or/e!onsi$eraion be#ore he 5TA.

Peiioner in his !ase o##ere$ $o!"enary an$ esionial e'i$en!eha e%en$e$ beyon$ wo a%able years, be!a"se he e%!ess !re$is inhe #irs (1==;) a%able year ha$ no been "se$ "p $"rin& he se!on$(1==+) a%able year, an$ be!a"se he !lai #or he re#"n$ o# hose!re$is ha$ been #ile$ $"rin& he hir$ (1==0) a%able year. 2s #inala$"sen re"rn was insea$ aa!he$ o is /eply o 5oen #ile$be#ore he 5A.

Moreo'er, in GP23Haily Sa'in&s Gan, peiioner was able o showJhe "n$isp"e$ #a!: ha peiioner ha$ s"##ere$ a ne loss in 1==* . . .J2n he insan !ase, here is no s"!h J"n$isp"e$ #a!J as ye. The erea$ission ino he re!or$s o# peiioners 1==+ #inal a$"sen re"rn isno a s"##i!ien proo# o# he r"h o# he !onens o# or enries in hare"rn.

2n a$$iion, he G2/ in GP23Haily Sa'in&s Gan $i$ no !onro'er he'era!iy o# he re"rn or #ile an opposiion o he Moion an$ he re"rn.Despie he #a! ha he re"rn was i&nore$ by boh he 5A an$ he5TA, he laer e'en $e!lare$ in anoher !ase (5TA 5ase No. 6=0)ha peiioner ha$ s"##ere$ a ne loss #or a%able year 1==*. henaa!he$ o he Peiion #or /e'iew #ile$ be#ore his 5o"r, ha

De!ision was no a all !laie$ by he G2/ o be #ra"$"len ornone%isen. The G"rea" erely !onen$e$ ha his 5o"r sho"l$ noae "$i!ial noi!e o# he sai$ De!ision.

2n his !ase, howe'er, he G2/ has no been &i'en he !han!e o!hallen&e he 'era!iy o# peiioners #inal a$"sen re"rn. Neiherhas he 5TA $e!i$e$ any oher !ase !ae&ori!ally $e!larin& a ne loss#or peiioner in a%able year 1==+. A#er his re"rn was aa!he$ opeiioners /eply o 5oen be#ore he 5A, he appellae !o"rsho"l$ ha'e re8"ire$ he #ilin& o# oher responsi'e plea$in&s #rorespon$en, as was ne!essary an$ proper #or i o r"le "pon he re"rn.

A$issibiliy Vers"s ei&h

2n$ee$, Ja$issibiliy . . . is one hin&, wei&h is anoher.J JTo a$ie'i$en!e an$ no o belie'e i are no in!opaible wih ea!h oher . . .JMere alle&aions by peiioner o# he #i&"res in is 1==+ #inala$"sen re"rn are no a s"##i!ien proo# o# he ao"n o# is re#"n$enileen. They $o no e'en !onsi"e e'i$en!e a$'erse orespon$en, a&ains who hey are bein& presene$.

hile i sees ha he Jnon3pro$"!ion o# a $o!"en whi!h !o"rsalos in'ariably e%pe! will be pro$"!e$ "na'oi$ably hrows as"spi!ion o'er he !a"se,J his is no really he !on!l"sion o be arri'e$a here. hen peiioner p"rpore$ly #ile$ is a$inisrai'e !lai #or aa% re#"n$ on April 1*, 1==0, he $ea$line #or #ilin& he 1==+ #inal

a$"sen re"rn was no ye o'er. @en!e, i !o"l$ no ha'e aa!he$his re"rn o is !lai.

Hor reasons "nnown e'en o his 5o"r, peiioner #aile$ o o##er s"!hre"rn as e'i$en!e $"rin& he rial phase o# his !ase. Hor is ne&li&en!e,peiioner J!anno be allowe$ o see re#"&e in a liberal appli!aion o#he r"lesJ by &i'in& i a blane appro'al o# he oal re#"n$ i !lais.Jhile in !erain insan!es, we allow a rela%aion in he appli!aion o#he r"les, we ne'er inen$ o #or&e a weapon #or errin& lii&ans o


29/58


30/58

PE/5ENTA7E TAX N DMEST25 5A//2E/S AND EEPE/S H 7A/A7ES.

a. !ars #or ren or hire $ri'en by he lesseeb. ransporaion !onra!ors, in!l"$in& persons who ranspor passen&ers #or hire!. oher $oesi! !arriers by lan$, air, waer, #or he ranspor o# passen&ers$. e%!ep owners o# ban!as an$ owners o# anial3$rawn wo wheele$ 'ehi!lese. eepers o# &ara&es#. shall pay a a% e8"i'alen o 9 o# heir 8"arerly &ross re!eips

@TEL NT A 5MMN 5A//2E/

A hoel is no en&a&e$ in b"siness as a !oon !arrier "s be!a"se i ranspors is hoel &"ess.

/EASN: 2 is en&a&e$ in he hoel b"siness an$ no in he b"siness or ransporin& passen&ers.n he o!!asion when i e%en$s ransporaion ser'i!es lie pro'i$in& lio"sine ser'i!e an$ helie, i $oes so only #or is hoel &"es an$ no o he p"bli! in &eneral.

PE/5ENTA7E TAX N 2NTE/NAT2NAL 5A//2E/S.

a. 2nernaional air !arriers $oin& b"siness n he Philippines shall pay a a% o# 9 o# heir8"arerly &ross re!eips.

b. 2nernaional shippin& !arriers $oin& b"siness in he Philippines shall pay a a% o# 9 o# heir8"arerly &ross re!eips.

TAX N H/AN5@2SES

a. any pro'ision o# &eneral or spe!ial law o he !onrary nowihsan$in&b. here shall be le'ie$, assesse$ an$ !olle!e$ in respe! o all #ran!hises!. on ra$io an$


31/58


32/58

L2HE 2NSU/AN5E P/EM2UMS NT SUGBE5T T TAX

a. prei"s re#"n$e$ wihin si%(+) onhs a#er payen on a!!o"n o# ree!ion o# riss or re"rne$ orsoe oher reason in he a%able re!eips

b. /eins"ran!e prei"s re!ei'e$ by a !opany ha has alrea$y pai$ he a%.!. Prei"s re!ei'e$ as a res"l o# $oin& b"siness o"si$e he Philippines on a!!o"n o# any li#e

ins"ran!e o# he ins"re$ who is nonresi$en, i# any a% on s"!h prei"s is ipose$ by he #orei&n!o"nry

$. Prei"s !olle!e$ or re!ei'e$ on a!!o"n n any reins"ran!e o# he ins"re$, in !ase o# personalins"ran!e, resi$es o"si$e he Philippines, i# any a% on s"!h prei" is ipose$ by he #orei&n!o"nry where he ori&inal ins"ran!e has been iss"e$ o# per#e!e$.

e. The porion o# he prei"s !olle!e$ or re!ei'e$ by he ins"ran!e !opanies on 'ariable !onra!s ine%!ess o# he ao"ns ne!essary o ins"re he li'es o# he 'ariable !onra! worers

VA/2AGLE 5T/A5T $e#ine$

Any poli!y or !onra! on eiher a &ro"p or on in$i'i$"al basis iss"e$ by an ins"ran!e !opanies pro'i$inor bene#is o# oher !onra!"al payens or 'al"es here"n$er o 'ary so as o re#le! in'esen res"ls o#any se&re&ae$ por#olio o# in'esens or o# a $esi&nae$ separae a!!o"n in whi!h ao"ns re!ei'e$ in!onne!ion wih s"!h !onra!s shall been pla!e$ an$ a!!o"ne$ #or separaely an$ apar #ro oher

in'esens or a!!o"ns.

TAX N A7ENTS H H/E27N 2NSU/AN5E 5MPAN2ES

a. e'ery #ire, arine or is!ellaneo"s ins"ran!e a&enb. a"hori4e$ "n$er he ins"ran!e !o$e o pro!"re poli!ies o# ins"ran!e as!. he ay ha'e pre'io"sly been a"hori4e$ o ransa! on riss lo!ae$ in he Philippines$. #or !opanies no a"hori4e$ o ransa! b"siness in he Philippinese. shall pay a a% e8"al o wi!e he a% ipose$ in Se!ion 1-

/27@T H ASSU/ED T SE5U/E 2NSU/A5E D2/E5TLQ H/M H/E27N 2NSU/E/

The a%aion o# a&ens o# #orei&n ins"ran!e !opanies shall no a##e! he ri&h o# an owner o# propery o

apply #or an$ obain #or hisel# poli!ies in #orei&n !opanies in !ase where sai$ owner $oes no ae "seo# he ser'i!es o# any a&en, !opany or !orporaion resi$in& in or $oin& b"siness in he Philippines. 2n all!ases where owners o# propery obain ins"ran!e $ire!ly wih #orei&n !opanies.

AMUSEMENT TAX $e#ine$

A per!ena&e a% !olle!e$ #ro he proprieor, lessee or operaor o# $"ly $esi&nae$ pla!es or a!i'iies #orpleas"rable $i'ersion or enerainen.

PLA5ES AND A5T2V2T2ES SUGBE5T T AMUSEM,ENT TAX

There shall be !olle!e$ #ro he proprieor, lessee o# operaor o# !o!pis, !abares, ni&h or $ay !l"bs,bo%in& e%hibiions, pro#essional baseball &aes, Bai3Alai an$ ra!era!s

5ND2T2NS H/ EXEMPT2N H GX2N7 EX@2G2T2NS

a. Go%in& e%hibiions wherein orl$ or rienal !hapionships in any $i'ision is a saeb. A leas one o# he !onen$ers #or orl$ or rienal 5hapionship is a !ii4en o# he Philippines!. Sai$ e%hibiions are prooe$ by !ii4ens o# he Philippines or by a !orporaion or asso!iaion a leas

(+*9) o# he !apial o# whi!h is owne$ by !ii4ens

TAX N 2NN2N7S

a. E'ery person who wins in horse ra!es shall pay a a% e8"i'alen o 1*9 o# his winnin&s or$i'i$en$s, he a% o base on a!"al ao"n pai$ o hi #or e'ery winnin& i!e a#er $e$"!in& he!os o# he i!e.

b. Pro'i$e$, ha in he !ase o# winnin&s #ro $o"ble, #ore!as


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TAX N SALE, GA/TE/ / EX5@AN7E H S@A/ES H ST5 L2STED AND T/ADED T@/U7@ T@EL5AL ST5 EX5@AN7E

a. here shall be le'ie$, assesse$ an$ !olle!e$b. on e'ery sale, barer, e%!han&e or oher $isposiion!. o# shares o# so! lise$ an$ ra$e$ ro"&h he lo!al so! e%!han&e$. oher han he sale by a $ealer in se!"riiese. a a% a he rae o# o# 19 o# he &ross sellin& pri!e or &ross 'al"e in oney o# he shares o# so!

sol$, barere$, e%!han&e$ or oherwise $ispose$ o#

@ PAQS T@E TAX

The seller or he rans#eror

S@A/ES H ST5 L2STED AND T/ADED T/U7@ T@E ST5 EX5@AN7E $e#ine$ in $el/osario, Br. '. 5oissioner o# 2nernal /e'en"e, 5TA 5ase No. 60=+, pro. De!. 1,1==6, he 5o"r o#Ta% Appeals hel$ ha he phrase "s be &i'en is lieral eanin&. The !on"n!ion an$ in he phraseshares o# so!s lise$ an$ ra$e$ hro"&h he so! e%!han&e, eans ha he shares lise$ "s also bera$e$ in he so! e%!han&e. hile i is r"e ha only shares lise$ !an be ra$e$ in he so!s e%!han&e, i$oes no howe'er ean ha lise$ shares !anno be sol$ o'er3he3!o"ner, in a pri'aely ne&oiae$ sale or

e%!han&e, or o"si$e he so! e%!han&e.

TAX N S@A/ES H ST5 SLD / EX5@AN7ED T@/U7@ 2N2T2AL PUGL25 HHE/2N7

a. here shall be le'ie$, assesse$ an$ !olle!e$b. on e'ery sale, barer, e%!han&e or $isposiion!. hro"&h iniial p"bli! o##erin& o# shares o# so!s$. in !losely hel$ !orporaionse. a a% a he raes below base$ on he &ross sellin& pri!e or &ross 'al"e in oney o# he shares o# so!

sol$, barere$, e%!han&e$ or oherwise $ispose$#. in a!!or$an!e wih he proporion shares o# so! sol$, barere$, e%!han&e$ or oherwise $ispose$&. o he oal o"san$in& shares o# so! a#er he lisin& in he lo!al so! e%!han&e

Up o -;9...69

'er -;9 b" no o'er 1


34/58

Any &ain $eri'e$ #ro he sale, barer, e%!han&e or oher $isposiion o# shares o# so! lise$ an$ reae$hro"&h he lo!al so! lise$ an$ ra$e$ hro"&h he lo!al so! e%!han&e or hro"&h iniial p"bli! o##erin&shall be e%ep #ro:

a. The a% ipose$ on !apial &ains #ro he sale o# shares o# so! no ra$e$ in he so! e%!han&e, an$#ro

b. The re&"lar in$i'i$"al or !orporae in!oe a%.

5ases:

"% BA%C

7./. Nos. L3+;00306. April *, 1=0.

5MM2SS2NE/ H 2NTE/NAL /EVENUE, peiioner, 's.G/2T2S@ VE/SEAS A2/AQS 5/P/AT2N an$ 5U/T HTAX APPEALS, respon$ens.

D E 5 2 S 2 N

MELEN523@E//E/A, B p:

Peiioner 5oissioner o# 2nernal /e'en"e (52/) sees a re'iew on5eriorari o# he oin De!ision o# he 5o"r o# Ta% Appeals (5TA) in5TA 5ases Nos. -0 an$ -;+1, $ae$ -+ Ban"ary 1=, whi!h seasi$e peiioners assessen o# $e#i!ien!y in!oe a%es a&ainsrespon$en Griish 'erseas Airways 5orporaion (GA5) #or he#is!al years 1=;= o 1=+0, 1=+3+= o 1=0*301, respe!i'ely, as well asis /esol"ion o# 1 No'eber, 1= $enyin& re!onsi$eraion.

GA5 is a 1**9 Griish 7o'ernen3owne$ !orporaion or&ani4e$

an$ e%isin& "n$er he laws o# he Unie$ in&$o. 2 is en&a&e$ in heinernaional airline b"siness an$ is a eber3si&naory o# he 2nerlineAir Transpor Asso!iaion (2ATA). As s"!h, i operaes airransporaion ser'i!e an$ sells ransporaion i!es o'er he ro"es o#he oher airline ebers. D"rin& he perio$s !o'ere$ by he $isp"e$assessens, it is admitted that B&./ had no landing rights fortraffic purposes in the Philippines, and was not granted a /ertificateof public convenience and necessity to operate in the Philippines bythe /ivil .eronautics Board /.B$, except for a nine-month period,

partly in 3H*3 and partly in 3H*), when it was granted a temporary

landing permit by the /.B. onse4uently, it did not carry passen#ersandor car#o to or from the Philippines, although during the periodcovered by the assessments, it maintained a general sales agent in the

Philippines I arner Barnes and /ompany, :td(, and later Jantas

.irways I which was responsible for selling B&./ tickets covering

passengers and cargoes(

7./. No. +;00 (5TA 5ase No. -0, he Hirs 5ase)

n 0 May 1=+, peiioner 5oissioner o# 2nernal /e'en"e (52/,#or bre'iy) assesse$ GA5 he a&&re&ae ao"n o# P-,6=,;.;+ #or$e#i!ien!y in!oe a%es !o'erin& he years 1=;= o 1=+. This wasproese$ by GA5. S"bse8"en in'esi&aion res"le$ in he iss"an!eo# a new assessen, $ae$ 1+ Ban"ary 1=0* #or he years 1=;= o 1=+0in he ao"n o# P;,*0.0=. GA5 pai$ his new assessen "n$erproes.

n 0 !ober 1=0*, GA5 #ile$ a !lai #or re#"n$ o# he ao"n o#P;,*0.0=, whi!h !lai was $enie$ by he 52/ on 1+ Hebr"ary 1=0-.G" be#ore sai$ $enial, GA5 ha$ alrea$y #ile$ a peiion #or re'iewwih he Ta% 5o"r on -0 Ban"ary 1=0-, assailin& he assessen an$prayin& #or he re#"n$ o# he ao"n pai$.

7./. No. +;006 (5TA 5ase No. -;+1, he Se!on$ 5ase)


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n 10 No'eber 1=01, GA5 was assesse$ $e#i!ien!y in!oe a%es,ineress, an$ penaly #or he #is!al years 1=+


36/58

2 is o"r !onsi$ere$ opinion ha GA5 is a resi$en #orei&n!orporaion. There is no spe!i#i! !rierion as o wha !onsi"es J$oin&Jor Jen&a&in& inJ or Jransa!in&J b"siness. Ea!h !ase "s be "$&e$ inhe li&h o# is pe!"liar en'ironenal !ir!"san!es. The er ipliesa !onin"iy o# !oer!ial $ealin&s an$ arran&eens, an$!oneplaes, o ha e%en, he per#oran!e o# a!s or wors or hee%er!ise o# soe o# he #"n!ions norally in!i$en o, an$ inpro&ressi'e prose!"ion o# !oer!ial &ain or #or he p"rpose an$obe! o# he b"siness or&ani4aion. J2n or$er ha a #orei&n !orporaionay be re&ar$e$ as $oin& b"siness wihin a Sae, here "s be!onin"iy o# !on$"! an$ inenion o esablish a !onin"o"s b"siness,s"!h as he appoinen o# a lo!al a&en, an$ no one o# a eporary!hara!er.

GA5, $"rin& he perio$s !o'ere$ by he s"be!3assessens,ainaine$ a &eneral sales a&en in he Philippines. Tha &eneral salesa&en, #ro 1=;= o 1=01, Jwas en&a&e$ in (1) sellin& an$ iss"in&i!es? (-) breain& $own he whole rip ino series o# rips K ea!h ripin he series !orrespon$in& o a $i##eren airline !opany? () re!ei'in&he #are #ro he whole rip? an$ (6) !onse8"enly allo!ain& o he

'ario"s airline !opanies on he basis o# heir pari!ipaion in heser'i!es ren$ere$ hro"&h he o$e o# inerline seleen aspres!ribe$ by Ari!le V2 o# he /esol"ion No. ;* o# he 2ATAA&reeen.J 6 Those a!i'iies were in e%er!ise o# he #"n!ions whi!hare norally in!i$en o, an$ are in pro&ressi'e p"rs"i o#, he p"rposean$ obe! o# is or&ani4aion as an inernaional air !arrier. 2n #a!, here&"lar sale o# i!es, is ain a!i'iy, is he 'ery li#ebloo$ o# heairline b"siness, he &eneraion o# sales bein& he parao"n obe!i'e.There sho"l$ be no $o"b hen ha GA5 was Jen&a&e$ inJ b"sinessin he Philippines hro"&h a lo!al a&en $"rin& he perio$ !o'ere$ byhe assessens. A!!or$in&ly, i is a resi$en #orei&n !orporaions"be! o a% "pon is oal ne in!oe re!ei'e$ in he pre!e$in&a%able year #ro all so"r!es wihin he Philippines.

JSe!. -6. /aes o# a% on !orporaions. K . . .

J(b) Ta% on #orei&n !orporaions. K . . .

J(-) /esi$en !orporaions. K A !orporaion or&ani4e$,a"hori4e$, or e%isin& "n$er he laws o# any #orei&n !o"nry, e%!ep a#orei&n li#e ins"ran!e !opany, en&a&e$ in ra$e or b"siness wihin hePhilippines, shall be a%able as pro'i$e$ in s"bse!ion (a) o# hisse!ion "pon he oal ne in!oe re!ei'e$ in he pre!e$in& a%able year#ro all so"r!es wihin he Philippines. (Ephasis o"rs)

Ne%, we a$$ress o"rsel'es o he iss"e o# wheher or no he re'en"e

#ro sales o# i!es by GA5 in he Philippines !onsi"es in!oe#ro Philippine so"r!es an$, a!!or$in&ly, a%able "n$er o"r in!oe a%laws.

The Ta% 5o$e $e#ines J&ross in!oeJ h"s:

J7ross in!oe in!l"$es &ains, pro#is, an$ in!oe $eri'e$ #rosalaries, wa&es or !opensaion #or personal ser'i!e o# whae'er in$an$ in whae'er #or pai$, or #ro pro#ession, 'o!aions, ra$es,b"siness, !oer!e, sales, or $ealin&s in propery, wheher real orpersonal, &rowin& o" o# he ownership or "se o# or ineres in s"!hpropery? also #ro ineress, rens, $i'i$en$s, se!"riies, or heransa!ions o# any b"siness !arrie$ on #or &ain or pro#i or &ains,

pro#is, an$ in!oe $eri'e$ #ro any so"r!e whae'erJ (Se!. -=?Ephasis s"pplie$)

The $e#iniion is broa$ an$ !oprehensi'e o in!l"$e pro!ee$s #rosales o# ranspor $o!"ens. JThe wor$s in!oe #ro any so"r!ewhae'er $is!lose a le&islai'e poli!y o in!l"$e all in!oe noe%pressly e%epe$ wihin he !lass o# a%able in!oe "n$er o"r laws.J2n!oe eans J!ash re!ei'e$ or is e8"i'alenJ? i is he ao"n o#oney !oin& o a person wihin a spe!i#i! ie . . .? i eans


37/58

soehin& $isin! #ro prin!ipal or !apial. Hor, while !apial is a#"n$, in!oe is a #low. As "se$ in o"r in!oe a% law, Jin!oeJ re#erso he #low o# wealh.

The re!or$s show ha he Philippine &ross in!oe o# GA5 #or he#is!al years 1=+3+= o 1=0*301 ao"ne$ o P1*,6-,+.**.

Di$ s"!h J#low o# wealhJ !oe #ro Jso"r!es wihin he PhilippinesJR

The so"r!e o# an in!oe is he propery, a!i'iy or ser'i!e hapro$"!e$ he in!oe. Hor he so"r!e o# in!oe o be !onsi$ere$ as!oin& #ro he Philippines, i is s"##i!ien ha he in!oe is $eri'e$#ro a!i'iy wihin he Philippines. 2n GA5s !ase, he sale o# i!esin he Philippines is he a!i'iy ha pro$"!es he in!oe. The i!ese%!han&e$ han$s here an$ payens #or #ares were also a$e here inPhilippine !"rren!y. The si"s o# he so"r!e o# payens is hePhilippines. The #low o# wealh pro!ee$e$ #ro, an$ o!!"rre$ wihin,Philippine erriory, enoyin& he proe!ion a!!or$e$ by he Philippine&o'ernen. 2n !onsi$eraion o# s"!h proe!ion, he #low o# wealhsho"l$ share he b"r$en o# s"pporin& he &o'ernen.

A ransporaion i!e is no a ere pie!e o# paper. hen iss"e$ by a!oon !arrier, i !onsi"es he !onra! beween he i!e3hol$eran$ he !arrier. 2 &i'es rise o he obli&aion o# he p"r!haser o# hei!e o pay he #are an$ he !orrespon$in& obli&aion o# he !arrier oranspor he passen&er "pon he ers an$ !on$iions se #orh hereon.The or$inary i!e iss"e$ o ebers o# he ra'ellin& p"bli! in&eneral ebra!es wihin is ers all he eleens o !onsi"e i a'ali$ !onra!, bin$in& "pon he paries enerin& ino he relaionship.

Tr"e, Se!ion 0(a) o# he Ta% 5o$e, whi!h en"eraes ies o# &rossin!oe #ro so"r!es wihin he Philippines, naely: (1) ineres, (-)$i'i$en$s, () ser'i!e, (6) renals an$ royalies, (;) sale o# real

propery, an$ (+) sale o# personal propery, $oes no enion in!oe#ro he sale o# i!es #or inernaional ransporaion. @owe'er, ha$oes no ren$er i less an in!oe #ro so"r!es wihin he Philippines.Se!ion 0, by is lan&"a&e, $oes no inen$ he en"eraion o bee%!l"si'e. 2 erely $ire!s ha he ypes o# in!oe lise$ herein bereae$ as in!oe #ro so"r!es wihin he Philippines. A !"rsoryrea$in& o# he se!ion will show ha i $oes no sae ha i is an all3in!l"si'e en"eraion, an$ ha no oher in$ o# in!oe ay be so!onsi$ere$.

GA5, howe'er, wo"l$ ipress "pon his 5o"r ha in!oe $eri'e$#ro ransporaion is in!oe #or ser'i!es, wih he res"l ha he pla!ewhere he ser'i!es are ren$ere$ $eerines he so"r!e? an$ sin!e

GA5s ser'i!e o# ransporaion is per#ore$ o"si$e he Philippines,he in!oe $eri'e$ is #ro so"r!es wiho" he Philippines an$,here#ore, no a%able "n$er o"r in!oe a% laws. The Ta% 5o"r"phol$s ha san$ in he oin De!ision "n$er re'iew.

)he a$sence of fli#ht operations to and from the Philippines is not

determinative of the source of income or the situs of income taxation&

(dmittedly, =>( was an off-line international airline at the time

pertinent to this case& $*e test of taability is t*e sour0eD and t*esour0e of an in0o+e is t*at a0ti4ity . . . w*i0* produ0ed t*e in0o+e.Un8"esionably, he passa&e $o!"enaions in hese !ases were sol$in he Philippines an$ he re'en"e here#ro was $eri'e$ #ro ab"siness a!i'iy re&"larly p"rs"e$ wihin he Philippines. An$ e'en i#

he GA5 i!es sol$ !o'ere$ he Jranspor o# passen&ers an$ !ar&oo an$ #ro #orei&n !iiesJ, it cannot alter the fact that income fromthe sale of tickets was derived from the Philippines( The word

KsourceK conveys one essential idea, that of origin, and the origin ofthe income herein is the Philippines.2 sho"l$ be poine$ o", howe'er, ha he assessens "phel$ hereinapply only o he #is!al years !o'ere$ by he 8"esione$ $e#i!ien!yin!oe a% assessens in hese !ases, or, #ro 1=;= o 1=+0, 1=+3+=


38/58

o 1=0*301. Hor, p"rs"an o Presi$enial De!ree No. +=, pro"l&ae$on -6 No'eber, 1=0-, inernaional !arriers are now a%e$ as #ollows:

J. . . Pro'i$e$, howe'er, Tha inernaional !arriers shall pay a a% o# -31


39/58

an$ 5on&ress ha$ no aen any sep o o'erri$e he presi$enial 'eo.e hel$ h"s:

JThe power o# he Sae o ipose he 9 !aerers a% is no $ebaable.The 5o"r o# Ta% Appeals erre$, howe'er, in hol$in& ha he a% wasabolishe$ as a res"l o# he presi$enial 'eo o# A"&"s 6, 1=+=. 2 #aile$o e%aine he law hen, an$ "p o now, e%isin& on he s"be! whi!hhas always ipose$ a 9 !aerers a% on operaors o# resa"rans.Sin!e he Manila @oel operaes resa"rans in is preises, i is liableo pay he a% pro'i$e$ in para&raph (1), Se!ion -*+ o# he Ta% 5o$e.J(5oissioner o# 2nernal /e'en"e '. Manila @oel 5orporaion an$he 5o"r o# Ta% Appeals, 7./. No . -;*, Sepeber -+, 1==).

The peiion now be#ore Us presens an i$eni!al 8"esion: wheher hepresi$enial 'eo re#erre$ o he enire se!ion or erely o heiposiion o# -*9 a% on &ross re!eips o# operaors or proprieors o#resa"rans, re#reshens parlors, bars an$ oher eain& pla!es whi!hare ainaine$ wihin he preises or !opo"n$ o# a hoel, oel orresho"ses. /e#eren!e o he Manila @oel !ase, here#ore, i&h ha'ebeen s"##i!ien o $ispose o# his peiion were i no #or he posiion o#

he 5TA ha a !hie# e%e!"i'e has no power o 'eo par o# an ie in abill? eiher he 'eoes an enire se!ion or appro'es i b" no a #ra!ionhereo#.

8erein private respondent, 9anila =olf L /ountry /lub, 7nc( is a

non-stock corporation( True, it maintains a golf course and operates

a clubhouse with a lounge, bar and dining room, but these facilities

are for the exclusive use of its members and accompanied guests, and

it charges on cost-plus-expense basis( .s such, it claims it shouldhave been exempt from payment of privilege taxes were it not for the

last paragraph of Section 3H3-. of 5(.( 'o( *33", otherwise known

as the K&mnibus Tax :aw(K Section 3H3-. readsC

JSe!. 1=13A. 5aerer. K A !aerers a% is hereby ipose$ as #ollows:

J(1) n proprieors or operaors o# resa"rans, re#reshen parlorsan$ oher eain& pla!es, in!l"$in& !l"bs, an$ !aerers, hree per !en o#heir &ross re!eips.

J(-) n proprieors or operaors o# resa"rans, bars, !a#es an$oher eain& pla!es, in!l"$in& !l"bs, where $isille$ spiris, #erene$li8"ors, or wines are ser'e$, hree per !en o# heir &ross re!eips #rosale o# #oo$ or re#reshens an$ se'en per !en o# heir &ross re!eips#ro sale o# $isille$ spiris, #erene$ li8"ors or wines. Two ses o#!oer!ial in'oi!es or re!eips serially n"bere$ in $"pli!ae shall beseparaely prepare$ an$ iss"e$, one #or sale o# re#reshens ser'e$, an$

anoher #or ea!h sale o# $isille$ spiris, #erene$ li8"ors or winesser'e$, he ori&inals o# he in'oi!es or re!eips o be iss"e$ o hep"r!haser or !"soer.

J() n proprieors or operaors o# resa"rans, re#reshen parlors,bars, !a#es an$ oher eain& pla!es whi!h are ainaine$ wihin hepreises or !opo"n$ o# a hoel, oel, resho"se, !o!pi, ra!e ra!,ai3alai, !abare, ni&h or $ay !l"b by eans o# a !onne!in& $oor orpassa&e weny per !en o# heir &ross re!eips.

Jhere he esablishens are operae$ or ainaine$ by !l"bs o# a

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