SECTION 4.105-2. Nature and Characteristics of VAT.

VAT is a tax on
consumption levied on the sale, barter, exchange or lease of goods or properties
and services in the Philippines and on importation of goods into the Philippines. The
seller is the one statutorily liable for the payment of the tax but the amount of the
tax may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. This rule shall likewise apply to existing contracts of sale or
lease of goods, properties or services at the time of the effectivity of RA No. 9337.
However, in the case of importation, the importer is the one liable for the VAT.
(Revenue Regulations No. 16-05)

RR No.7-95

SECTION 4.104-5. Substantiation of Claims for Input Tax Credit. (a) Input taxes
shall be allowed only if the domestic purchase of goods, properties or services is
made in the course of trade or business. The input tax should be supported by an
invoice or receipt showing the information as required under Section 108 (a) and
238 of the Code. Input tax on purchases of real property should be supported by a
copy of the public instrument i.e. deed of absolute sale, deed of conditional sale,
contract/agreement to sell, etc., together with the VAT receipt issued by the seller.

A cash-register machine tape issued to a VAT registered buyer by a VAT-registered

seller from a machine duly registered with the BIR in lieu of the regular sales
invoice, shall constitute valid proof of substantiation of tax credit only if the name
and TIN of the purchaser is indicated in the receipt and authenticated by a duly
authorized representative of the seller.

(b) Input tax on importations shall be supported with the import entry or other
equivalent document showing actual payment of VAT on the imported goods.

(c) Presumptive input tax shall be supported by an inventory of goods as shown

in a detailed list to be submitted to the BIR.

(d) Input tax on "deemed sale" transactions shall be substantiated with the
required invoices.

(e) Input tax from payments made to non-residents shall be supported by a copy
of the VAT declaration/return filed by the resident licensee/lessee in behalf of the
non-resident licensor/lessor evidencing remittance of the VAT due.
J.R.A. Philippines Inc. v Commissioner of Internal Revenue GR No.171307 Aug.28,
2013

Case law dictates that in a claim for tax refund or tax credit, the applicant must
prove not only entitlement to the claim but also compliance with all the
documentary and evidentiary requirements therefor. Section 110 (A) (1) of the NIRC
provides that creditable input taxes must be evidenced by a VAT invoice or official
receipt, which must, in turn, comply with Sections 237 and 238 of the same law, as
well as Section 4.108.1 of RR 7-95. The foregoing provisions require, inter alia, that
an invoice must reflect, as required by law: (a) the BIR Permit to Print; (b) the TIN-V
of the purchaser; and (c) the word "zero-rated" imprinted thereon. In this relation,
failure to comply with the said invoicing requirements provides sufficient ground to
deny a claim for tax refund or tax credit.

In this case, records show that all of the export sales invoices presented by
petitioner not only lack the word "zero-rated" but also failed to reflect its BIR Permit
to Print as well as its TIN-V. Thus, it cannot be gainsaid that it failed to comply with
the above-stated invoicing requirements, thereby rendering improper its claim for
tax refund. Clearly, compliance with all the VAT invoicing requirements is required to
be able to file a claim for input taxes attributable to zero-rated sales. As held in
Microsoft Philippines, Inc. v. CIR:

The invoicing requirements for a VAT-registered taxpayer as provided in the NIRC and
revenue regulations are clear. A VAT-registered taxpayer is required to comply with all the
VAT invoicing requirements to be able to file for a claim for input taxes on domestic
purchases for goods or services attributable to zero-related sales. A "VAT invoice" is an
invoice that meets the requirements of Section 4.108-1 of RR 7-95. Contrary to Microsoft's
claim, RR 7-95 expressly states that "[A]ll purchases covered by invoice other than a VAT
invoice shall not give rise to any input tax. Microsoft's invoice, lacking the word "zero-rated"
is not a "VAT invoice," and thus cannot give rise to any input tax.
Consequently, the following invoicing requirements enumerated in Section 4.108-1
of Revenue Regulations No. 7-95 must be observed by all VAT-registered taxpayers:

Sec. 4.108-1. Invoicing Requirements. All VAT-registered persons shall, for

every sale or lease of goods or properties or services, issue duly registered receipts
or sales or commercial invoices which must show:

1. the name, TIN and address of seller;

2. date of transaction;

3. quantity, unit cost and description of merchandise or nature of service;

4. the name, TIN, business style, if any, and address of the VAT-registered
purchaser, customer or client;

5. the word "zero-rated" imprinted on the invoice covering zero-rated sales; and

6. the invoice value or consideration.

CTA Case No: 6309, Jan.24, 2006, Intel Technology Phil., Inc. vs CIR

Failure to Comply with the Invoicing

Requirements: Effect thereof

In this regard, Revenue Memorandum Circular No. 42-2003 has clarified the
issue relative to the failure of a taxpayer claiming for tax refund/credit to comply
with the invoicing requirements. The pertinent portion of the said Circular provides:

"A-13. Failure by the supplier to comply with the invoicing requirements on the
documents supporting the sale of goods and services will result to the disallowance
of the claim for input tax by the purchaser-claimant.

If the claim for refund/TCC is based on the existence of zero-rated sales by the
taxpayer but it fails to comply with the invoicing requirements in the issuance of
sales invoices (e.g., failure to indicate the TIN), its claim for tax credit/refund of VAT
on its purchases shall be denied considering that the invoice it is issuing to its
customers does not depict its being a VAT-registered taxpayer whose sales are
classified as zero-rated sales. Nonetheless, this treatment is without prejudice to the
right of the taxpayer to charge the input taxes to the appropriate expense account
or asset account subject to depreciation, whichever is applicable. Moreover, the
case shall be referred by the processing office to the concerned BIR office for
verification of other tax liabilities of the taxpayer."

Under said Circular, failure to comply with the invoicing requirements on the
documents supporting the sale of goods and services will result in the disallowance
of the claim for input tax of the taxpayer claimant. Thus, if the claim for
refund/issuance of tax credit certificate is based on the existence of zero-rated sales
by the taxpayer, but fails to comply with the invoicing requirements in the issuance
of sales invoices, such as the failure of a claimant-taxpayer to imprint the word
"zero-rated" on the sale invoices or receipts, the claim for tax credit/refund of VAT
on its sales shall be denied.

Rationale of Strict Compliance

Moreover, Section 110 of the NIRC of 1997, as amended, provides that: "Any input
tax evidenced by a VAT invoice or official receipt issued in accordance with Section
113 hereof on the following transactions shall be creditable against the output tax: .
. . ." If the invoice or official receipt is not imprinted with "zero-rated", there is a
danger that the purchaser of the goods or services may be able to claim input tax
on the sale to it by the taxpayer of the goods or services, as the case may be,
notwithstanding the fact that no VAT was actually paid on such goods or services
since the taxpayer is zero-rated. This is the rationale for the mandatory requirement
in Revenue Regulations No. 7-95 that the words "zero-rated" be imprinted in the
invoice or receipt, as the case may be. The zero-rated taxpayer should be entitled
to a tax credit/refund on input taxes paid on its purchase of goods or services
subject to the mandatory compliance with the invoicing requirements under the
said regulation. Otherwise, there may result the absurd situation where the
government would be crediting/refunding non-existent input tax to purchasers of
goods or services of such zero-rated taxpayer.

(CTA case No. 6318 Sept. 15, 2008 Tropitek International, Inc. vs CIR)
Failure to Comply with the Invoicing

Requirements: Effects thereof

On the other hand, Revenue Memorandum Circular No. 42-2003 expressly provides
that the failure of a taxpayer claiming for tax refund/credit to comply with the
invoicing requirements will result to the disallowance of the claim for input tax. The
pertinent portion of said Memorandum Circular provides:

"A-13. Failure by the supplier to comply with the invoicing requirements on the
documents supporting the sale of goods and services will result to the disallowance
of the claim for input tax by the purchaser-claimant. caIETS

If the claim for refund/TCC is based on the existence of zero-rated sales by the
taxpayer but it fails to comply with the invoicing requirements in the issuance of
sales invoices (e.g., failure to indicate the TIN), its claim for tax credit/refund of VAT
on its purchases shall be denied considering that the invoice it is issuing to its
customers does not depict its being a VAT-registered taxpayer whose sales are
classified as zero-rated sales. Nonetheless, this treatment is without prejudice to the
right of the taxpayer to charge the input taxes to the appropriate expense account
or asset account subject to depreciation, whichever is applicable. Moreover, the
case shall be referred by the processing office to the concerned BIR office for
verification of other tax liabilities of the taxpayer."
Presriptive Period

unutilized input VAT payments not otherwise used for any internal revenue tax due
the taxpayer must be claimed within two years reckoned from the close of the
taxable quarter when the relevant sales were made pertaining to the input VAT
regardless of whether said tax was paid or not.(CTA Case No. 8847, June 3,
2016, Maersk Global Services Centres (phils), Ltd. v. CIR) reiterating
Commissioner of Internal Revenue vs. Mirant Pagbilao Corporation
(Formerly Southern Energy Quezon, Inc.), G.R. No. 172129, September 12,
2008.