Wednesday, April 27, 2011

SC: Microsoft not entitled to P11M tax refund

By Tetch Torres INQUIRER.net
First Posted 10:53:00 04/27/2011

MANILA, Philippines—The Supreme Court has affirmed the decision of the Court of Tax Appeals (CTA) that Microsoft Philippines was not entitled to an P11-million tax refund for taxes paid in 2001.

In a nine-page decision dated April 5 but was made public Tuesday, the high court’s second division through Senior Associate Justice Antonio Carpio said Microsoft Philippines failed to prove that it is was entitled to a tax refund due to its non-compliance with the requirements set forth under the National Internal Revenue Regulations Code (NIRC).

Under the law, the high court explained that a VAT registered taxpayer such as Microsoft Philippines is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated sales.

A VAT invoice meets the requirements under the law and that of the Revenue Regulations.

Microsoft argued in its petition for review that the law failed to indicate that failure to indicate the word “zero-rated” in its invoices or receipts would result in the outright invalidation of the invoices or receipts and the disallowance of a claim for tax credit or refund.

“A tax credit or refund, like tax exemption, is strictly construed against the taxpayer. The taxpayer claiming the tax credit or refund has the burden of proving that he is entitled to the refund or credit,” the high court said.

In this case, burden of proof that Microsoft Philippines was entitled to a refund or credit could be shown by compliance with the requirements set forth under the law.

An input tax is defined under the NIRC as the “VAT due from or paid by a VAT registered person in the course of his trade or business of importation of goods or local purchase of goods or services including lease or use of property from a VAT registered person.”

This is deducted from the output tax which is the “VAT due on the sale or lease of taxable goods or properties or services by any VAT registered taxpayer” in order to arrive to a VAT payable amount.

But in zero-rated transactions, output tax is multiplied by zero percent thus when input tax is deducted from output tax would result in an excess input tax which may be refunded or credited to other internal revenue taxes upon compliance with all the requirements stated under the law.

In this case, Microsoft paid a VAT input tax worth P11, 449, 814.99 on its domestic purchases of taxable goods and services in 2001.

The company claimed it as a tax credit in 2002 but due to the inaction of the Bureau of Internal Revenue (BIR), the company took their case to the CTA which ruled against them.

The CTA said Microsoft’s official receipts failed to indicate the word “zero rated” on its face thus it cannot be considered as valid evidence to prove zero-rated sales for VAT purposes.”

After their motion for reconsideration was dismissed by the CTA en banc, they went to the Supreme Court.

“The appearance of the word ‘zero-rated’ on the face of invoices covering zero-rated sales prevents buyers from falsely claiming input VAT from their purchases when no VAT is actually paid. Absent such word, the government may be refunding taxes it did not collect,” the high court said.


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