BATUEGAS, Mara Hazel Y.

4LM2
Microsoft Philippines Inc. vs. CIR
G.R. No. 180173, April 6, 2011
Facts:
Petitioner Microsoft Philippines, Inc. (Microsoft) is VAT taxpayer registered with BIR. It
renders marketing services to Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing,
Inc. (MLI), both affiliated non-resident foreign corporations. The services are paid for in
acceptable foreign currency and qualify as zero-rated sales for VAT purposes under Section
108(B)(2) of the National Internal Revenue Code (NIRC) of 1997, as amended.
In 2001, Microsoft had a total sales of P261, 901,858.99, where P235, 724,614.68 belong
to sales derived from services rendered to MOP and MLI and P26, 177,244.31 refer to sales to
various local customers. Microsoft paid VAT input taxes amounting to P11, 449,814.99 on its
domestic purchases of taxable goods and services.
On December 27, 2002, Microsoft filed an administrative claim for tax credit of VAT
input taxes (P11, 449,814.99) with the BIR. Due to BIRs inaction, Microsoft filed a petition for
review with the CTA, claiming that are entitled to a refund of unutilized input VAT attributable to
its zero-rated sales and that judgment be rendered directing the claim for tax credit or refund of
VAT input taxes for taxable year 2001. CIR, on the other hand, filed his answer and prayed for
the dismissal of the petition for review.
CTA Second Division denied the claim for tax credit of VAT input taxes because
Microsoft's official receipts do not bear the imprinted word zero-rated on its face, so they 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. Microsoft then filed a
petition for review with the CTA en Banc which was also denied because no new matters was
found 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..
Issue:
Whether Microsoft is entitled to a claim for a tax credit or refund of VAT input taxes on
zero-rated sales for the year 2001 even if the word zero-rated is not imprinted on Microsoft's
official receipts?
Ruling:

The petition lacks merit. Microsoft insists that Sections 113 and 237 of the NIRC and
Section 4.108-1 of RR 7-95 do not provide that failure to indicate the word zero-rated in the
invoices or receipts would result in the outright invalidation of these 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, in this case VAT input tax, by submitting evidence that he has complied with the
requirements laid down in the tax code and the BIR's revenue regulations under which such
privilege of credit or refund is accorded.
However, 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 all 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.
The court have ruled in several cases 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. Absent such word, the government may be refunding taxes it did not
collect.

SECOND DIVISION

MICROSOFT PHILIPPINES, INC.,

G.R. No. 180173

Petitioner,
Present:

CARPIO, J., Chairperson,

- versus -

PERALTA,
ABAD,
MENDOZA, and
SERENO,* JJ.

COMMISSIONER
REVENUE,

OF

INTERNAL

Promulgated:

Respondent.
April 6, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION

CARPIO, J.:

The Case

Before the Court is a petition1 for review on certiorari assailing the Decision 2 dated 24 October
2007 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 258, which affirmed the
Decision3 dated 31 August 2006 and Resolution4 dated 8 January 2007 of the CTA Second
Division in CTA Case No. 6681.

The Facts

Petitioner Microsoft Philippines, Inc. (Microsoft) is a value-added tax (VAT) taxpayer duly
registered with the Bureau of Internal Revenue (BIR). Microsoft renders marketing services to
Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), both affiliated nonresident foreign corporations. The services are paid for in acceptable foreign currency and
qualify as zero-rated sales for VAT purposes under Section 108(B)(2) of the National Internal
Revenue Code (NIRC) of 1997,5 as amended. Section 108(B)(2) states:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.
(B) Transactions Subject to Zero Percent (0%) Rate. The following services
performed in the Philippines by VAT-registered persons shall be subject to zero
percent (0%) rate:
(1) Processing, manufacturing or repacking goods for other persons doing
business outside the Philippines which goods are subsequently exported
x x x;
(2) Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of
the Bangko Sentral ng Pilipinas (BSP); x x x

For the year 2001, Microsoft yielded total sales in the amount of P261,901,858.99. Of this
amount, P235,724,614.68 pertain to sales derived from services rendered to MOP and MLI
while P26,177,244.31 refer to sales to various local customers. Microsoft paid VAT input taxes in
the amount of P11,449,814.99 on its domestic purchases of taxable goods and services.

On 27 December 2002, Microsoft filed an administrative claim for tax credit of VAT input taxes
in the amount of P11,449,814.99 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.6 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.8 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.

The 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.
The Courts Ruling

The petition lacks merit.

Microsoft insists that Sections 113 and 237 of the NIRC and Section 4.108-1 of RR 7-95 do not
provide that failure to indicate the word zero-rated in the invoices or receipts would result in the
outright invalidation of these invoices or receipts and the disallowance of a claim for tax credit or
refund.

At the outset, a tax credit or refund, like tax exemption, is strictly construed against the
taxpayer.9 The taxpayer claiming the tax credit or refund has the burden of proving that he is
entitled to the refund or credit, in this case VAT input tax, by submitting evidence that he has
complied with the requirements laid down in the tax code and the BIR's revenue regulations
under which such privilege of credit or refund is accorded.

Sections 113(A) and 237 of the NIRC which provide for the invoicing requirements for VATregistered persons state:

SEC. 113. Invoicing and Accounting Requirements for VAT-Registered

Persons.
(A) Invoicing Requirements. A VAT-registered person shall, for every sale, issue
an invoice or receipt. In addition to the information required under Section 237,
the following information shall be indicated in the invoice or receipt:
(1) A statement that the seller is a VAT-registered person, followed by his
taxpayer's identification number (TIN); and
(2) The total amount which the purchaser pays or is obligated to pay to the seller
with the indication that such amount includes the value-added tax. x x x

SEC. 237. Issuance of Receipts or Sales or Commercial Invoices. All persons

subject to an internal revenue tax shall, for each sale or transfer of merchandise or
for services rendered valued at Twenty-five pesos (P25.00) or more, issue duly
registered receipts or sales or commercial invoices, prepared at least in duplicate,
showing the date of transaction, quantity, unit cost and description of merchandise
or nature of service: Provided, however, That in the case of sales, receipts or
transfers in the amount of One hundred pesos (P100.00) or more, or regardless of
the amount, where the sale or transfer is made by a person liable to value-added
tax to another person also liable to value-added tax; or where the receipt is issued
to cover payment made as rentals, commissions, compensations or fees, receipts
or invoices shall be issued which shall show the name, business style, if any, and
address of the purchaser, customer or client: Provided, further,That where the
purchaser is a VAT-registered person, in addition to the information herein
required, the invoice or receipt shall further show the Taxpayer Identification
Number (TIN) of the purchaser.
The original of each receipt or invoice shall be issued to the purchaser, customer
or client at the time the transaction is effected, who, if engaged in business or in
the exercise of profession, shall keep and preserve the same in his place of
business for a period of three (3) years from the close of the taxable year in which
such invoice or receipt was issued, while the duplicate shall be kept and preserved
by the issuer, also in his place of business, for a like period.
The Commissioner may, in meritorious cases, exempt any person subject to
internal revenue tax from compliance with the provisions of this Section.

Related to these provisions, Section 4.108-1 of RR 7-95 enumerates the information which must
appear on the face of the official receipts or invoices for every sale of goods by VAT-registered
persons. At the time Microsoft filed its claim for credit of VAT input tax, RR 7-95 was already in
effect. The provision states:

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.

xxx
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.

The subsequent enactment of Republic Act No. 933710 on 1 November 2005 elevating provisions
of RR 7-95 into law merely codified into law administrative regulations that already had the
force and effect of law. Such codification does not mean that prior to the codification the
administrative regulations were not enforceable.

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.

Here, both the CTA Second Division and CTA En Banc found that Microsoft's receipts did not
indicate the word zero-rated on its official receipts. The findings of fact of the CTA are not to be

disturbed unless clearly shown to be unsupported by substantial evidence. 13 We see no reason to

disturb the CTA's findings. Indisputably, Microsoft failed to comply with the invoicing
requirements of the NIRC and its implementing revenue regulation to claim a tax credit or refund
of VAT input tax for taxable year 2001.

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 24 October 2007 of
the Court of Tax Appeals En Banc in CTA EB No. 258.

SO ORDERED.