MICROSOFT PHILS., INC. vs. CIR (Tax 2)

G.R. No. 180173               April 6, 2011

MICROSOFT PHILIPPINES, INC., Petitioner,

vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS:

On 27 December 2002, Microsoft filed an administrative claim for tax credit of VAT input taxes in the amount of ₱11,449,814.99 with the BIR. The administrative claim for tax credit was filed within two years from the close of the taxable quarters when the zero-rated sales were made.

On 23 April 2003, due to the BIR's inaction, Microsoft filed a petition for review with the CTA. Microsoft claimed to be entitled to a refund of unutilized input VAT attributable to its zero-rated sales and prayed that judgment be rendered directing the claim for tax credit or refund of VAT input taxes for taxable year 2001.

On 16 June 2003, respondent Commissioner of Internal Revenue (CIR) filed his answer and prayed for the dismissal of the petition for review.

In a Decision dated 31 August 2006, the CTA Second Division denied the claim for tax credit of VAT input taxes. The CTA explained that Microsoft failed to comply with the invoicing requirements of Sections 113 and 237 of the NIRC as well as Section 4.108-1 of Revenue Regulations No. 7-957 (RR 7-95). The CTA stated that Microsoft's official receipts do not bear the imprinted word "zero-rated" on its face, thus, the official receipts cannot be considered as valid evidence to prove zero-rated sales for VAT purposes.

Microsoft filed a motion for reconsideration which was denied by the CTA Second Division in a Resolution dated 8 January 2007.

Microsoft then filed a petition for review with the CTA En Banc. In a Decision dated 24 October 2007, the CTA En Banc denied the petition for review and affirmed in toto the Decision dated 31 August 2006 and Resolution dated 8 January 2007 of the CTA Second Division. The CTA En Banc found no new matters that have not been considered and passed upon by the CTA Second Division and stated that the petition had only been a mere rehash of the arguments earlier raised.

Hence, this petition.

ISSUE:

The main issue is whether Microsoft is entitled to a claim for a tax credit or refund of VAT input taxes on domestic purchases of goods or services attributable to zero-rated sales for the year 2001 even if the word "zero-rated" is not imprinted on Microsoft's official receipts.

RULING:

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.

x x x

Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoices or receipts and this shall be considered as a "VAT invoice." All purchases covered by invoices other than a "VAT invoice" shall not give rise to any input tax. (Emphasis supplied)

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 a claim for input taxes on domestic purchases for goods or services attributable to zero-rated 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 invoices 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.

We have ruled in several cases11 that the printing of the word "zero-rated" is required to be placed on VAT invoices or receipts covering zero-rated sales in order to be entitled to claim for tax credit or refund. In Panasonic v. Commissioner of Internal Revenue,12 we held that 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.