Prof.

Domondon 2010 Taxation Review 2

41.
A foreign Consortium composed of BWSC-Denmark, Mitsui Engineering and
Shipbuilding Ltd., and Mitsui and Co., Ltd., which entered into a contract with NAPOCOR for the
operation and maintenance of two power barges appointed BWSC-Denmark as its coordination
manager. BWSCMI was established as the subcontractor to perform the actual work in the
Philippines. The Consortium paid BWSCMI in acceptable foreign exchange and accounted for in
accordance with the rules and regulations of the BSP.
Through a February 14, 1995 ruling the BIR declared that BWSCMI may choose to register as a
VAT persons subject to VAT at zero rate. For 1996, it filed the proper VAT returns showing zero
rating. On December 29, 1997, believing that it is covered by Rev. Regs. 5-96, dated February 20,
1996, BWSCMI paid 10% output VAT for the period April-December 1996, through the Voluntary
Assessment Program (VAP).
On January 7, 1999, BWSCMI was able to obtain a Ruling from the BIR reconfirming that it is
subject to VAT at zero-rating. On this basis, BWSCMI applied for a refund of the output VAT it paid.
a.
Is BWSCMI subject to the 10% VAT or is it zero rated ?
SUGGESTED ANSWER: Yes. BWSCMI is not zero rated and is subject to the 10% VAT. It is rendering
service for the Consortium which is not doing business in the Philippines. Zero-rating finds application only where
the recipient of the services are other persons doing business outside of the Philippines. BWSCMI provides services
to the Consortium which by virtue of its contract with NAPOCOR is doing business within the
Philippines. (Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.
R. No. 153205, January 22, 2007)
b.
Could it obtain a refund of the VAT it paid through the VAP ? Explain.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund of the 10% output VAT it paid the based on the
non-retroactivity of the prejudicial revocation of the BIR Rulings which held that its services are subject to 0%
VAT and which BWSCMI invoked in applying for refund of the output VAT. (Commissioner of Internal Revenue v.
Burmeister and Wain Scandinavian Contractor Mindanao, Inc., supra)
NOTES AND COMMENTS:
a.
Do not confuse the BWSCMI case with the American Express case. American Express
International, Inc. (Philippine Branch)] is a VAT-registered person that facilitates the collection and payment of
receivables belonging to its non-resident foreign client [American Express International, Inc. (Hongkong
Branch)], for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in
accordance with BSP rules and regulations. (Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., G. R. No. 153205, January 22, 2007)
42.
What are VAT-Exempt transactions ? SUGGESTED ANSWER: The sale of goods or properties
and/or services and the use or lease of properties that is
b.
not subject to VAT (output tax) and
c. the seller is not allowed any tax credit on VAT (input tax) purchases.
The person making the exempt sale of goods, properties or services shall not bill any output tax to his
customers because the said transaction is not subject to VAT. [Rev. Regs. No. 16-2005, Sec. 4.109-1 (A),
arrangement and numbering supplied]
43.
VAT-exempt
transactions
distinguished
from
VAT-exempt
entities.
a.
An exempt transaction, on the
one hand, involves goods or services which, by their nature, are specifically listed in and expressly exempted from
the VAT under the Tax Code, without regard to the tax status VAT-exempt or not of the party to the
transaction.
An exempt party, on the other hand, is a person or entity granted VAT
exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory,
and by virtue of which its taxable transactions become exempt from VAT. [Commissioner of Internal Revenue v.
Toshiba Information Equipment (Phils.), Inc., G. R. No. 150154, August 9, 2005]
b.
An exempt transaction shall not be the subject of any billing for output VAT but it shall not also be
allowed any input tax credits WHILE an exempt party being zero-rated is allowed to claim input tax credits.
44.
Transactions are exempt from VAT. (Subject to the election by a VAT-registered person not to
be subject to the value-added tax), the following shall be exempt from VAT:

(1)
(2)

(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry
of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic
materials therefor.
Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits. Poultry shall include fowls,
ducks, geese and turkey, Livestock or poultry does not include fighting cocks, race horses, zoo animals and other
animals generally considered as pets.
Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobster,
shrimps, prawns, oysters, mussels and clams.
Meat, fruit, fish, vegetables and other agricultural and marine food Products classified under this paragraph
shall be considered in their original state even if they have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping, including
those using advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing,
tetra-pack, and other similar packaging methods. Polished and/or husked rice, corn grits, raw cane sugar and
molasses, ordinary salt, and copra shall be considered in their original state.
Sugar whose content of sucrose by weight, in the dry state, has a polarimeter reading of 99.5o and above
are presumed to be refined sugar.
Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined
sugar:
product of a refining process,
products of a sugar refinery, or
(3)
product of a production line of a sugar mill accredited by the BIR to be producing sugar with
polarimeter reading of 99.5o and above, and for which the quedanissued therefor, and verified by the Sugar
Regulatory Administration, identifies the same to be of a polarimeter reading of 99.5o and above.
Bagasse is not included in the exemption provided for under this section.
(B)
Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and
poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished
feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals
generally considered as pets);
Specialty feeds refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo
animals and other animals generally considered as pets.
(C)
Importation of personal and household effects belonging to the residents of the Philippines
returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are
exempt from customs duties under the Tariff and Customs Code of the Philippines;
(D)
Importation of professional instruments and implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture
and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for
their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days
before or after their arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue,
that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide;
(E) Services subject to percentage tax under Title V of the Tax Code, as enumerated below:
(1)
Sale or lease of goods or properties or the performance of services of non-VAT-registered persons,
other than the transactions mentioned in paragraphs (A) to (U) of Sec. 109 (1) of the Tax Code, the annual sales
and/or receipts of which does not exceed the amount of One Million Five Hundred thousand Pesos
(P1,500,000.00), Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount
herein stated shall be adjusted to its present value using the Consumer Price Index, as published by the National
Statistics Office (NSO). (Sec. 116, Tax Code)
(2)
Services rendered by domestic common carriers by land for the transport of passengers and
keepers of garages. (Sec. 117)
(3)
Services rendered by international air/shipping carriers. (Sec. 118)
(4)
Service rendered by franchise grantees of radio and/or television broadcasting whose annual gross
receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00) and by franchises of gas and
water utilities. (Sec. 119)
(5)
Service rendered for overseas dispatch message or conversation originating from the
Philippines. (Sc. 120)
(6)
Services rendered by any person, company or corporation (except purely cooperative companies or
associations ) doing life insurance business of any sort in the Philippines. (Sec. 123)
(7)
Services rendered by fire, marine or miscellaneous insurance agents of foreign insurance
companies. (Sec. 124)

(8)
Services of proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing
exhibitions professional basketball games, jai-Alai and race tracks. (Sec. 125). and
(9)
Receipts on sale, barter or exchange of shares of stock listed and traded through the local stock
exchange or through initial public offering. (Sec. 127)
(F)
Services by agricultural contract growers and milling for others of palay into rice, corn into grits
and sugar cane into raw sugar;
Agricultural contract growers refers to those persons producing for others poultry, livestock or other
agricultural and marine food products in their original state.
(G)
Medical, dental, hospital and veterinary services except those rendered by professionals;
Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of
drugs and medicine is subject to VAT.
(H)
Educational services rendered by private educational institutions, duly accredited by
theDepartment of Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And
Skills Development Authority (TESDA) and those rendered by government educational institutions;
Educational services shall refer to academic, technical or vocational education provided by private
educational institutions duly accredited by the DepED, the CHED and TESDA and those rendered by government
educational institutions and it does not include seminars, in-service training, review classes and other similar
services rendered by persons who are not accredited by the DepED, the CHED and/or the TESDA.
(I)
Services rendered by individuals pursuant to an employer-employee relationship;
(J)
Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region and do not earn or derive income from the Philippines;
(K)
Transactions which are exempt under international agreements to which the Philippines is a
signatory or under special laws, except those under Presidential Decree No. 529 Petroleum Exploration
Concessionaires under the Petroleum Act of 1949; and;
(L)
Sales by agricultural cooperatives duly registered with the Cooperative Development
Authority (CDA) to their members as well as sale of their produce, whether in its original state or processed form,
to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof,
to be used directly and exclusively in the production and/or processing of their produce;
(M)
Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and
in good standing with the Cooperative Development Authority;
(N)
Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with
the Cooperative Development Authority: Provided, That the share capital contribution of each member does not
exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably
distributed among the members;
Importation by non-agricultural, non-electric and non-credit cooperatives of machineries and equipment,
including spare parts thereof, to be used by them are subject to VAT.
(O)
Export sales by persons who are not VAT-registered;
(P)
Sale of real properties not primarily held for sale to customers or held for lease in the ordinary
course of trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act
No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, such as
RA No. 7835 and RA No. 8765, residential lot valued at One million five hundred thousand pesos (P 1,500,000) and
below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P
2,500,000) and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the
amounts herein stated shall be adjusted totheir present values using the Consumer Price Index, as published
by the National Statistics Office (NSO);
(Q)
Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P
10,000) Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein
stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics
Office (NSO);
(R)
Sale, importation, printing or publication of books and any newspaper, magazine, review or
bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted
principally to the publication of paid advertisements;
(S)
Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment
and spare parts thereof for domestic or international transport operations; Provided, that the exemption from VAT
on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of one hundred
fifty (150) tons and above, including engine and spare parts of said vessels; Provided, further, that the vessels be
imported shall comply with the age limit requirement, at the time of acquisition counted from the date of the

vessels original commissioning, as follows: (i) for passenger and/or cargo vessels, the age limit is fifteen years
(15) years old, (ii) for tankers, the age limit is ten (10) years old, and (iii) For high-speed passenger cars, the
age limit is five (5) years old, Provided, finally, that exemption shall be subject to the provisions of section 4 of
Republic Act No. 9295, otherwise known as The Domestic Shipping Development Act of 2004.
(T)
Importation of fuel, goods and supplies by persons engaged in international shipping or air
transport operations; Provided, that the said fuel, goods and supplies shall be used exclusively or shall pertain to
the transport of goods and/or passenger from a port in the Philippines directly to a foreign port without stopping at
any other port in the Philippines; provided, further, that if any portion of such fuel, goods or supplies is used for
purposes other than that mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to
10% VAT (now 12%);
(U) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other
non-bank financial intermediaries; and
(V)
Sale or lease of goods or properties or the performance of services other than the
transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of One million five hundred thousand pesos (P1,500,000): Provided, That not later than January 31, 2009
and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the
Consumer Price Index as published by the National Statistics Office (NSO).
For purposes of the threshold of P1,500,000.00, the husband and wife shall be cnsidered separate
taxpayers. However, the aggregation rule for each taxpayer shall apply. For instance, if a profesional, aside from
the practice ofhis profession, also derives revenue from other lines of business which are otherwise subject to VAT,
the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VATexempt sales shall to be icluded in determining the threshold. [NIRC of 1997, Sec. 109 (1), as amended by R. A.
No. 9337; words in italics from Rev. Regs. No. 16-2005, Sec. 4.109-1 (B), words in parentheses supplied]
45.
Tax to be paid by persons exempt from VAT.
a.
Any person, whose sales or receipts are exempt under Sec. 109 (1) (V) of the Tax Code,
(V) Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One
million five hundred thousand pesos (P1,500,000): Provided,That not later than January 31, 2009 and every three
(3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price
Index as published by theNational Statistics Office (NSO), from the payment of VAT and
b.
who is not a VAT-registered person
c.
shall pay a tax equivalent to three percent (3%) of his gross monthly sales or receipts;
Provided, that cooperatives shall be exempt from the three (3%) gross receipts tax herein imposed. (Rev.
Regs. No. 16-2005, Sec. 4.116-1, arrangement, numbering and words in italics supplied)

Below is the summary of the changes:

Section in

Type of income

Current

Threshold for Difference Affected price ranges

the Tax

threshold for

VAT exemption

Code

VAT exemption effective

January 1,
2012

109 (P)

Sale of residential lot 1,500,000.00

1,919,500.00

419,500.00 1,500,000.011,919,500.00

109 (P)

Sale of residential

2,500,000.00

3,199,200.00

699,200.00 2,500,000.01-

house and lot

109 (Q)

3,199,200.00

Lease of residential 10,000.00

12,800.00

2,800.00

10,000.01-12,800.00

1,919,500.00

419,500.00 1,500,000.01-

units
109 (V)

Gross annual
receipts/sales on the

1,500,000.00

1,919,500.00

sale or lease of
goods or properties
or performance of
services other than
those mentioned in
Sec. 109

COMMISSIONER OF INTERNAL REVENUE

vs. BURMEISTER AND WAIN
SCANDINAVIAN CONTRACTOR MINDANAO,
INC. - Value Added Tax, Zero Rated
FACTS:
A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The foreign entity then subcontracted the
actual O&M to Burmeister. NPC paid the foreign consortium a mixture of currencies while the consortium, in turn, paid Burmeister foreign
currency inwardly remitted into the Philippines. BIR did not want to grant refund since the services are not destined for consumption abroad
(or the destination principle).

ISSUE:
Are the receipts of Burmeister entitled to VAT zero-rated status?

HELD:
PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior to the filing of CIRs Answer in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by Burmeister, was deemed doing business within
the Philippines since its 15-year O&M with NPC can not be interpreted as an isolated transaction.
In addition, the services referring to processing, manufacturing, repacking and services other than those in (1) of Sec. 102 both require (i)
payment in foreign currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is doing business
outside the Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency.

The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating of its sales to foreign consortium.
However, the ruling is only valid until the time that CIR filed its Answer in the CTA which is deemed revocation of the previously-issued ruling.
The Court said the revocation can not retroact since none of the instances in Section 246 (bad faith, omission of facts, etc.) are present.

MICROSOFT PHILIPPINES, INC. VS.

COMMISSIONER OF INTERNAL REVENUEVAT Zero Rating
FACTS:
Microsoft renders marketing services to two affiliated nonresident foreign corporations with their services being paid for in foreign currency.
Microsoft filed a claim for refund for unutilized input VAT but the CTA denied the same on the basis that the official receipts issued did not
bear the imprinted word zero-rated on its face and are thus not valid evidence of Microsofts sales.

ISSUE:
Is Microsoft entitled to a refund?

HELD:
NO. The regulations in effect when the sales were made by Microsoft clearly indicate in the portion outlining the Invoicing Requirements that
the word zero-rated must be imprinted in the invoice. Without such, the invoice are not considered as VAT invoices and thus could not give
rise to any input tax. The Court added that the reason for enforcing this rule even if only based on regulation is that it prevents buyers from
falsely claiming input VAT from their purchases when no VAT is actually paid.

COMMISSIONER OF INTERNAL REVENUE

vs. SEKISUI JUSHI PHILIPPINES, INC. - Input
VAT
FACTS:

Sekisui Jushi is a PEZA entity engaged in manufacture and export of strapping bands and other packaging materials seeking for refund of
unutilized input taxes.

ISSUE:
Being a PEZA exporter, can Petitioner claim its unutilized input VAT?

HELD:
YES. PEZA entities can avail of two alternative or subsequent incentives of ITH and 5% GIE. It is only in the latter where the VAT is not
imposed on the PEZA entity on its sales. Being under ITH, it will be subject to VAT on sales and should VAT-register. However, (1) sales to
the PEZA entity, regardless of incentive availed, is zero-rated on the part of the seller since PEZA is considered foreign soil and thus sales
to them are considered as export sales and (2) if the PEZA entity is an exporter, its input VAT are subject to refund not by virtue of its PEZA
status (and thus regardless of whether its at 5% GIE or ITH) but due to the nature of its transactions (i.e., export sales).

FORT BONIFACIO DEVELOPMENT

CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE- Transitional Input
Value Added Tax

FACTS:
Petitioner was a real estate developer that bought from the national government a parcel of land that used to be the Fort Bonifacio military
reservation. At the time of the said sale there was as yet no VAT imposed so Petitioner did not pay any VAT on its purchase. Subsequently,
Petitioner sold two parcels of land to Metro Pacific Corp. In reporting the said sale for VAT purposes (because the VAT had already been
imposed in the interim), Petitioner claimed transitional input VAT corresponding to its inventory of land. The BIR disallowed the claim of
presumptive input VAT and thereby assessed Petitioner for deficiency VAT.

ISSUE:
Is Petitioner entitled to claim the transitional input VAT on its sale of real properties given its nature as a real estate dealer and if so (i) is the
transitional input VAT applied only to the improvements on the real property or is it applied on the value of the entire real property and (ii)
should there have been a previous tax payment for the transitional input VAT to be creditable?

HELD:
YES. Petitioner is entitled to claim transitional input VAT based on the value of not only the improvements but on the value of the entire real
property and regardless of whether there was in fact actual payment on the purchase of the real property or not.

The amendments to the VAT law do not show any intention to make those in the real estate business subject to a different treatment from
those engaged in the sale of other goods or properties or in any other commercial trade or business. On the scope of the basis for
determining the available transitional input VAT, the CIR has no power to limit the meaning and coverage of the term "goods" in Section 105
of the Tax Code without statutory authority or basis. The transitional input tax credit operates to benefit newly VAT-registered persons,
whether or not they previously paid taxes in the acquisition of their beginning inventory of goods, materials and supplies.

TAMBUNTING PAWNSHOP, INC. vs.

COMMISSIONER OF INTERNAL REVENUEValue Added Tax, Documentary Stamp Tax
FACTS:
Petitioner was assessed for deficiency Value Added Tax and Documentary Stamp Tax on the premise that, for the Value Added Tax, it was
engaged in the sale of services.

ISSUES:
(1) Is Petitioner liable for the Value Added Tax?
(2) Can the imposition of surcharge and interest be waived on the imposition of deficiency Documentary Stamp Tax?

HELD:
(1) NO. Since Petitioner is considered a non-bank financial intermediary, it is subject to 10% VAT for the tax years 1996 to 2002 but since the
collection of Value Added Tax from non-bank financial intermediaries was specifically deferred by law, Petitioner is not liable for Value Added
Tax during these tax years. With the full implementation of the Value Added Tax system on non-bank financial intermediaries starting January
1, 2003, Petitioner is liable for 10% Value Added Tax for said tax year. And beginning 2004 up to the present, by virtue of R.A. No. 9238,
petitioner is no longer liable for VAT but it is subject to percentage tax on gross receipts from 0% to 5%, as the case may be.

(2) YES. Petitioner's argument against liability for surcharges and interest that it was in good faith in not paying documentary stamp taxes,
it having relied on the rulings of respondent CIR and the CTA that pawn tickets are not subject to documentary stamp taxes was found to

be meritorious. Good faith and honest belief that one is not subject to tax on the basis of previous interpretations of government agencies
tasked to implement the tax law are sufficient justification to delete the imposition of surcharges and interest.

COMMISSIONER OF INTERNAL REVENUE

vs. SM PRIME HOLDINGS, INC. - Value
Added Tax on Cinemas
ISSUE:
Are the gross receipts derived by operators or proprietors of cinema/theater houses from admission tickets subject to VAT?

HELD:
NO. While (1) the enumeration under Section 108 on the VAT-taxable services is not exhaustive and (2) the said list includes the lease of
motion picture films, films, tapes and discs, the said activity however is not the same as showing or exhibition of motion pictures or films.
Thus, since the showing or exhibition of motion pictures or films is not in the enumeration, the CIR must show that it falls under the phrase
similar services.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of VAT on the gross receipts of cinema/theater
operators or proprietors derived from admission tickets. The removal of the prohibition (on the national government to tax certain activities)
under the Local Tax Code did not grant nor restore to the national government the power to impose amusement tax on cinema/theater
operators or proprietors. Neither did it expand the coverage of VAT.

COMMISSIONER OF INTERNAL REVENUE

VS. SONY PHILIPPINES, INC.- Value Added
Tax, Final Withholding Tax, Letter of Authority
FACTS:
Sony Philippines was ordered examined for the period 1997 and unverified prior years as indicated in the Letter of Authority. The audit
yielded assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of Final Withholding Tax on royalties for
the period January to March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony

International Singapore (SIS).

ISSUES:
(1) Is Petitioner liable for deficiency Value Added Tax?
(2) Was the investigation of its 1998 Final Withholding Tax return valid?

HELD:
(1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices when it paid for certain advertising costs. This is
sufficient to accord it the benefit of input VAT credits and where the money came from to satisfy said advertising billings is another matter but
does not alter the VAT effect. In the same way, Sony Philippines can not be deemed to have received the reimbursable as a fee for a VATtaxable activity. The reimbursable was couched as an aid for Sony Philippines by SIS in view of the companys dire or adverse economic
conditions. More importantly, the absence of a sale, barter or exchange of goods or properties supports the non-VAT nature of the
reimbursement. This was distinguished from the COMASERCO case where even if there was similarly a reimbursement-on-cost arrangement
between affiliates, there was in fact an underlying service. Here, the advertising services were rendered in favor of Sony Philippines not SIS.

(2) NO. A Letter of Authority should cover a taxable period not exceeding one year and to indicate that it covers unverified prior years should
be enough to invalidate it. In addition, even if the Final Withholding Tax was covered by Sony Philippines fiscal year ending March 1998, the
same fell outside of the period 1997 and was thus not validly covered by the Letter of Authority.

DIAZ VS. SECRETARY OF FINANCE- Value

Added Tax (VAT)
May toll fees collected by tollway operators be subject to VAT?

YES.
(1) VAT is imposed on all kinds of services and tollway operators who are engaged in constructing, maintaining, and operating expressways
are no different from lessors of property, transportation contractors, etc.

(2) Not only do they fall under the broad term under (1) but also come under those described as all other franchise grantees which is not
confined only to legislative franchise grantees since the law does not distinguish. They are also not a franchise grantee under Section 119
which would have made them subject to percentage tax and not VAT.

(3) Neither are the services part of the enumeration under Section 109 on VAT-exempt transactions.

(4) The toll fee is not a users tax and thus it is permissible to impose a VAT on the said fee. The MIAA case does not apply and the Court
emphasized that toll fees are not taxes since they are not assessed by the BIR and do not go the general coffers of the government. Toll fees
are collected by private operators as reimbursement for their costs and expenses with a view to a profit while taxes are imposed by the
government as an attribute of its sovereignty. Even if the toll fees were treated as users tax, the VAT can not be deemed as a tax on tax
since the VAT is imposed on the tollway operator and the fact that it might pass-on the same to the tollway user, it will not make the latter
directly liable for VAT since the shifted VAT simply becomes part of the cost to use the tollways.

(5) The assertion that the VAT imposed is not administratively feasible given the manner by which the BIR intends to implement the VAT (i.e.,
rounding off the toll rates and putting any excess collection in an escrow account) is not enough to invalidate the law. Non-observance of the
canon of administrative feasibility will not render a tax imposition invalid except to the extent that specific constitutional or statutory limitations
are impaired.