SUGGESTED ANSWERS to 2017 BAR Questions in Taxation By: Professor: Atty. Eufrocina 8. Casasola L SN2, Inc. is a VAT-registered enterprise engaged in the general construction business. HP. International contracts the services of SMZ, Inc. to construet HP International located in the Laguna Techno Park, a special economic zone. HP International ie registered with the Philippine Economic Zone Authority (PEZA) as an ecozone export enterprise, and, as Such, enjoys income tax holiday pursuant to the Special Economic Zone act of 1995 SM2, Inc. files an application with the Bureau of Internal Revenue (BIR) FOR THE VAT. ZERO- RATING OF ITS SALE OF SERVICES TO HP Intemational. However, the BIR denies sMz, 'nc.’s application on the ground that HP International already enjoye income tax holiday. 's the BIR correct in denying SMZ, Inc.'s application? Explain your answer No. The issue as to whether or not the sale of goods, properties or services by a supplier from the Customs Territory to a PEZA registered enterprise is exempt from VAT was only clearly established on October 15, 1999 upon the issuance of BMC 74-99. The old rule clearly did not take into consideration the Cross Border Postrine essential to the VAT system or the fiction of the ECOZONE as a foren 2 fertitory. It relied totally on the choice of fiscal incentives of the PEZA-registered enterprise. 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. Henco, 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 12% VAT. ‘The old VAT rule for PEZA-registered entorprises was based on their choice of fiscal incentives: (1) If the PEZA-registored enterprise chose the 5% proferential tax on its gross Income, in flex of all taxes, as provided by RA 7946, as amended, then it would be VAT-exempt; (2) If the PEZA-registered enterprise availed of the income tax holiday under EO 226, as amended, it shall be subject to VAT at 10% (now 12%). Such distinction was abolished by RMC 74.99, which categorically declared that all sales of goods, properties, and services made by a VAT-ragistered supplicr from the Gustoms Territory to an ECOZONE enterprise shall be subject to VAT at 0% rate, regardless of the latter's type or class of PEZA registration; and, thus, affirming the nature of a PEZA-reqistered or an ECOZONE enterprise as a VAT. exempt entity. (See. 108(6), NIRC; CIR v. Toshiba Information Equipment (Phils.) ‘See pp. 759-760, Casasola’s NIRC ANNOTATED.Inc., G-R. 157594, March 9, 2010. Coral Bay Nicket Cor 13, 2016, J. Bersamin )? v. CIR, GR 190506, June M Wreck Corporation is a domestic corporation engaged in the business of importing, refining O14 ind petroleum products. During the period from September 1, 2014 to becomier 31, On June 25, 2015, Wreck Corporation filed an administrative claim for refund or issuance of 13% credit cerlficate amounting to the excise taxes it had paid on the importation of 228 million liters of Jet A-1 aviation fuel. If you were the Commissioner of Internal Revenue, will you grant Wreck Corporation's ‘administrative claim for refund or issuance of tax credit certificate. Explain your answer. Yes. Excise tax on petroleum products is essentially a tax on property, the direct liability for which pertains fo the statutory taxpayer (ie. manufacturer, producer or importer). However, since Wreck Corporation sold the imported petroleum Products to international carriers which are exempt from the payment of excise taxes under Sec. 135(c) of the NIRG, any excise tax paid by the statutory faxpayer on petroleum products sold to any of the TAX EXEMPT ENTITIES oy AGENCIES named in Sec. 135, NIRC is deemed illeaal or erroneous, and should be Credited or refunded to the payor pursuant to Secs. 204 and 229, NIRC. This because the exemption granted under Sec. 135, NIRC must be construed in favor of the PROPERTY itself, that is, the petroleum products. The exemption cannot be atanted to the buyers - that is, the entities that are by law exempt from cf and indirect taxes ~ because they are not under any legal duty to pay the exciee tax, Gee. 135, NIRC; Chevron Phils., Inc. v. CIR, GR 210836, September 1, 2015 (768 SCRA 414), J. Bersamin).? Vanderful, Inc.'s income tax return for taxable year 2018 showed an overpayment due to Seer he ealtable withholding taxes in the amount of P750,000. The company opted to carry. over the excess income tax credits as tax credit against its quarterly income tax liabilities for the next succeeding years. For taxable year 2016, the company's income tax return showed arenerbayment due to excess creditable withholding taxes in the amount of P1,100,000, which included the carry-over from year 2015 in the amount of P750,000 because Ite operations resulted in @ net loss hence, there was no application for any tax liability. This time, the company opted and marked the box “To be refunded” in respect of the total amount of 1,100,000. ? See &4.106A)(2)(c )-4, pp. 788-789, Casasola's NIRC ANNOTATED * See &6.135-13, page 1019-1020, Casasola’s NIRC ANNOTATEDVanderful, Inc. now files in the BIR a claim for refund of unutiixed overpayment of P1,100,000. 's the claim meritorious? It depends. Insofar ac the excess creditable withholding taxes for the taxable year 2015 i the Amount of P750,000 is concerned, Vanderful, Inc. cannot claim it ace reteg RUS (Gan ‘only cary it over for the succeeding taxable years because ot ane [evocability rule provided for under Sec, 76 of the RIRC. It shanty moane tree “once exercised, the option to carry-over is irrevocable.” The controlling factor for the operation of the irrevocability rule is that the fexpayer chose an option; and once it had already done so, it coutd ne longer make another one. Consequently, after the taxpayer opted to carry-over ite excess tax Gredit te the following taxable period, the question of whethor or net i¢ actually gets to apply said tax credit is irretovant. Section 76 of the NIRC of 1997 is explicit in stating that once the option to carry over has been made, “no application for tax refund or issuance of a tax credit certificate shall be allowed therefor,” The phrase “for that taxable period” merely identifies the excess income tax; Subject of the option, by referring to the taxable period when it wae acquired by the taxpayer. In the present case, the excess creditable withholding tax which Vanderful opted to carry over was acquired by the said taxpayer during the taxable Yoar 2045. Thus, the option of Vanderful to carry over its 2015 excess income tan 1. That the claim for refund was filed within the two-year reglomentary Perlod pursuant to Section 229 of the NIRC; 2. When it is shown on the ITR that the income payment received was declared part of the taxpayer's gross income; and 3. When the fact of withholding is established by a copy of the withholding fax statement, duly issued by the payor to the payee, showing the amount paid and income tax withheld from that amount. (Sec. 76, NIRG; RP, reprosented by the CIR ¥. Team (Phils.) Energy Corp., G.R. No. 188016. Jan. 14, 2015, BERSAMIN, J)? WwW. } See &2.76-4, page 592, Casasola’s NIRC ANNOTATED. £ See &2.76-6, page 593, Casasola’s NIRC ANNOTATED { See &2.76-8, pp. 594-595, Casasola’s NIRC ANNOTATED 7 See 82.76-15, page 599, Casasola’s NIRC ANNOTATED.