January 2013 Philippine Supreme Court Decisions on Tax Law

Here are select January 2013 rulings of the Philippine Supreme Court on tax law and procedure:

VAT; Transitional Input Tax Credits; prior payment not required. Prior payment of taxes is not required for a taxpayer to avail of the 8% transitional input tax credit.

First, Section 105 of the old National Internal Revenue Code provides that for a taxpayer to avail of the 8% transitional input tax credit, all that is required from the taxpayer is to file a beginning inventory with the Bureau of Internal Revenue. It was never mentioned in Section 105 that prior payment of taxes is a requirement. To require it now would be tantamount to judicial legislation.

Second, transitional input tax credit is not a tax refund per se but a tax credit. Logically, prior payment of taxes is not required before a taxpayer could avail of transitional input tax credit. Tax credit is not synonymous to tax refund.  Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing authority.  Tax credit, on the other hand, is an amount subtracted directly from one’s total tax liability.  It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage investment.

Third, in the case of Fort Bonifacio v. Commissioner of Internal Revenue (G.R. No. 158885 & 170680, April 2, 2009), the Court had already ruled that the law as framed contemplates a situation where transitional input tax credit is claimed even if there was no actual payment of VAT in the underlying transaction. In such cases, the tax base used shall be the value of the beginning inventory of good, materials and supplies. Moreover, in the case of Commissioner of Internal Revenue v. Central Luzon Corp. (G.R. No. 159647, April 15, 2005), the Court declared that while tax liability is essential to the availment or use of any tax credit, prior tax payments are not. On the other hand, for the existence or grant solely of such credit, neither a tax liability nor a prior tax payment is needed. Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue and Revenue District Officer, etc., G.R. No. 173425. January 22, 2013.

VAT; Transitional Input Tax Credits; cash refund or tax credit of transitional input tax. Contrary to the dissent, Section 112 of the Tax Code does not prohibit cash refund or tax credit of transitional input tax in the case of zero-rated or effectively zero-rated VAT registered taxpayers, who do not have any output VAT. The phrase “except transitional input tax” in Section 112 of the Tax Code was inserted to distinguish creditable input tax from transitional input tax credit. Transitional input tax credits are input taxes on a taxpayer’s beginning inventory of goods, materials, and supplies equivalent to 8% (then 2%) or the actual VAT paid on such goods, materials and supplies, whichever is higher. It may only be availed of once by first-time VAT taxpayers. Creditable input taxes, on the other hand, are input taxes of VAT taxpayers in the course of their trade or business, which should be applied within two years after the close of the taxable quarter when the sales were made. Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue and Revenue District Officer, etc., G.R. No. 173425. January 22, 2013.

 (Caren thanks Grace Ann C. Lazaro for assisting in the preparation of this post.)

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