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February 11, 2025 | 12:00am
Section 110(A) of the Tax Code, as amended, identifies the transactions creditable against output tax. Among the transactions are the purchase or importation of goods for sale, for conversion into or intended to form part of a finished product for sale, including packaging materials for use as supplies in the course of business ,or use as materials supplied in the sale of service, or for use in trade or business.
Furthermore, the purchase of services on which a value-added tax (VAT) has accrued shall also be creditable against output tax. These instances were especially highlighted in a recently decided 2008 -case, wherein the Supreme Court (SC) have also clarified that creditable input tax should be attributable to the zero-rated or effectively zero-rated sales.
The Commissioner of Internal Revenue petitioner in the case contends that there should be direct attributability between input tax and zero-rated sales in terms of claims for refund or issuance of a tax credit certificate. They further asserted the notion that the input tax should come from the purchase of goods or services that forms part of the finished product and should be directly used in the production chain. The respondent in the case countered on the grounds that they have fully complied with all the invoicing requirements and requisites to validly claim for the tax refund or the unutilized input VAT that was attributable to the zero-rated sale.
In the case at hand, it is also important to note that “attributable” means to explain something by identifying its cause. In line with this, the input VAT that is attributable to the zero-rated sale meant that such input VAT is considered to be caused by that particular sale. Section 112 of the Tax Code, as amended, makes no mention of the need for input tax to be directly attributable to zero-rated sales in order for it to be refundable or creditable.
Hence, the SC clarified that the petitioner’s contention is not consistent with what the law provides. The CIR petitioner has also relied on the 2007 and 2011 SC cases, which were decided under Revenue Regulations (RR) 5-87, as amended by RR 3-88. These regulations limited the amount of refund or tax credit only to the amount of VAT paid directly and entirely attributable to the zero-rated transaction during the period covered by the application for credit or refund. However, these provisions were deemed revoked when the implementing rules and regulations of the VAT Reform Act were issued and the requirements of direct attributability under Section 16 of RR 5-87, as amended by RR 3-88, are no longer binding, effective July 1, 2005.
Section 110(A) of the Tax Code, as amended, is very clear in providing the transactions that give rise to creditable input taxes. This led to the irrefutable fact that an input tax, to be creditable, does not have to be directly attributable to the zero-rated sale. On the other hand, creditable input VAT does not only arise from purchases of goods that form part of the finished product of the taxpayer or are directly used in the production chain, as these are simply some of the instances in which input VAT can be credited against output tax. Considering the foregoing, the Supreme Court held no merit in the petitioner’s claim.
In pursuit of a booming economic landscape that promotes and supports the Filipino trade, many companies exercise the privilege of claiming creditable input tax to lessen their tax burden. Thus, it is important for taxpayers to adequately substantiate their claims for input tax credits and comply within the prescribed time limits set by the Bureau of Internal Revenue (BIR), which oversees the claiming process. Beyond ensuring tax compliance, it is also crucial for taxpayers to stay informed about tax legislations, as these can impact the efficient operation of their trade.
Christine Faye Collado is a Tax Analyst from the Tax Compliance Team under the Tax Group of R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review. For more information, you may reach out to Tax Analyst Christine Faye C. Collado or Partner Leandro Ben Robediso through [email protected], social media or visit www.home.kpmg/ph.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or R.G. Manabat & Co.
