Philippines – In A Claim For Refund Of Input VAT, Does The Input VAT Have To Be Directly Attributable To The Taxpayer’s Zero-Rated Or Effectively Zero-Rated Sales?

This case involves a claim for a refund of input VAT. The Commissioner of Internal Revenue (CIR) claims that the taxpayer failed to prove that its input VAT is directly attributable to its alleged zero-rated sales. The CIR contends that Section 112(A) of the Tax Code uses the phrase “directly attributable”, which means that input VAT must come from purchases of goods and services that actually form part of the finished product or service of the taxpayer.
 

The CTA En Banc ruled that “a plain reading of Section 112 (A) of the Tax Code, clearly shows that it merely states that the creditable input VAT should be ‘attributable’ to zero-rated or effectively zero-rated sales. There is nothing in the aforesaid Section which requires that the input VAT should be ‘directly’ attributable to zero-rated or effectively zero-rated sales.” The CTA En Banc further ruled that Section 112(A) of the Tax Code merely requires a claimant to establish that: (1) it is engaged in zero-rated sales of goods or services; and (2) it paid input VAT that is attributable to zero-rated sales. Thus, “input taxes that bear a direct or indirect connection with a taxpayer’s zero-rated sales satisfy the requirement of the law.”
 

The CTA En Banc also clarified that the rulings in Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue (G.R. Nos. 141104 & 148763, June 8, 2007) and Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue (G.R. No. 159471, January 26, 2011) may no longer be applied as these cases “were decided under earlier Revenue Regulations which have been revoked by [RR] No. 14-2005 which deleted the requirement that the input VAT being claimed for refund should be ‘directly and entirely attributable to zero-rated sales.”
 

SyCipLaw TIP: A taxpayer has to prove the following requisites to be entitled to a claim for refund of input VAT: (1) the taxpayer is VAT-registered; (2) the claim for refund was filed within the prescriptive periods both in the administrative and judicial levels; (3) there must be zerorated or effectively zero-rated sales; (4) input taxes were incurred or paid; (5) such input taxes are attributable to zero-rated or effectively zero-rated sales; and (6) the input taxes were not applied against any output VAT liability. In order to satisfy the 5th requirement, a taxpayer is only required to prove that it made a purchase of taxable goods or services for which it paid input VAT and, subsequently, engaged in the sale of goods or services subject to VAT, albeit at zero percent (0%) rate. A taxpayer is not required to prove that the input VAT should be “directly” attributable to its zero-rated or effectively zero-rated sales.
 

CTA decisions, while persuasive, do not become the law of the land, unliked decisions of the Supreme court.
 

cclaforteza@syciplaw.com