Case Digest: CIR v. Seagate Technology (Philippines), G.R. No. 153866, February 11, 2005

 Taxation | Purposes of Taxation

Facts: 
  • Seagate Technology is registered with the Philippine Export Zone Authority (PEZA) under Presidential Decree No. 66, as amended, to engage in the manufacture of recording components primarily used in computers for export. 
  • Also a VAT-registered entity, it filed VAT returns for the period 1 April 1998 to 30 June 1999. 
  • On 4 October 1999, it filed an administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 representing the value of the taxes of the capital goods and services it had purchased. 
Commissioner of Internal Revenue (CIR): Failed to act upon the claim.
    Court of Tax Appeals (CTA): Granted the claim for refund.
      Court of Appeals: Affirmed the grant of refund in the reduced amount.

      Issue: Whether  respondent is entitled to the refund or issuance of Tax Credit Certificate in the amount of P12,122,922.66 representing alleged unutilized input VAT paid on capital goods purchased for the period April 1, 1998 to June 30, 1999.


      Held:

      Business companies registered in and operating from the Special Economic Zone in Naga, Cebu -- like herein respondent -- are entities exempt from all internal revenue taxes and the implementing rules relevant thereto, including the value-added taxes or VAT. 

      Although export sales are not deemed exempt transactions, they are nonetheless zero-rated. Hence, in the present case, the distinction between exempt entities and exempt transactions has little significance, because the net result is that the taxpayer is not liable for the VAT. 

      Respondent, a VAT-registered enterprise, has complied with all requisites for claiming a tax refund of or credit for the input VAT it paid on capital goods it purchased. Thus, the Court of Tax Appeals and the Court of Appeals did not err in ruling that it is entitled to such refund or credit.

      Summary

      To summarize, special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and regulations pertaining thereto. It has opted for the income tax holiday regime, instead of the 5 percent preferential tax regime. 
      As a matter of law and procedure, its registration status entitling it to such tax holiday can no longer be questioned. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated.

      No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with all the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such VAT refund or credit.

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