PEZA-registered businesses not fully exempt from VAT —SC

Businesses registered with the Philippine Economic Zone Authority (PEZA) are not completely exempt from paying value added tax (VAT), according to the Supreme Court (SC).

In a statement, the SC said that when a PEZA-registered company purchases goods outside the PEZA zone (ecozone) and consumes them within the Philippines, the goods are subjected to VAT.

“PEZA-registered enterprises are not absolute VAT-exempt entities; and two, the VAT treatment of its transactions depend on whether the cross-border doctrine applies,” the SC said.

“VAT is a tax on consumption. As such, the cross-border doctrine and the destination principle apply. Indeed, the situs of VAT is determined by where goods are consumed or where services are rendered,” it added.

The SC issued the clarification as it partially granted the claim of a PEZA-registered domestic corporation for a VAT refund.

The corporation, which manufactures and exports nickel and cobalt mixed sulfide, asked the Bureau of Internal Revenue for a refund for unutilized input VAT it paid for goods and services used outside the ecozone.

According to the court, the BIR failed to act on the claim, prompting the corporation to bring the case to the Court of Tax Appeals (CTA).

The CTA Third Division granted the refund for purchases proven to be consumed outside the ecozone.

However, this was overturned by the CTA En Banc. The CTA En Banc ruled that the corporation is fully exempt from VAT and that its purchases were considered zero-rated, thus making it ineligible for a VAT refund.

This prompted the corporation to file the present petition before the High Court.

The SC said that in the corporation’s case, the purchases were consumed outside the ecozone but within Philippine territory, making them subjected to VAT. Due to this, the corporation is entitled to a refund for unutilized input VAT. — BM, GMA Integrated News