Tax notes: Effect of issuing an erroneous VAT invoice or official receipt

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Monday, March 3, 2014


AN enterprise registered with the Philippine Economic Zone Authority (Peza) under the five percent preferential tax rate is entitled to exemption from national and local taxes, including value-added tax (VAT). Being exempt from VAT, a Peza-registered enterprise may not register as a VAT taxpayer.

However, when a Peza-registered enterprise opts to be registered as a VAT taxpayer, it is mandated to issue a VAT invoice or official receipt for every sale, barter, exchange of goods, properties or services, and these documents should contain the information required to be contained in the VAT official receipt or VAT invoice for its transactions. Thus, in case of VAT-exempt sales transactions, Section 113(B)(2)(b) in relation to Section 113(D)(2) of the Tax Code requires that the term “VAT-exempt sale” shall be written or printed prominently on the VAT invoice or official receipt. Otherwise, the issuer shall be liable to pay VAT.

In the lease of its factory to another PEZA-registered enterprise, a PEZA-registered ecozone facilities enterprise as lessor issued VAT official receipts without the words “VAT-exempt sale” written or printed on it. The Court of Tax Appeals (CTA) held in the case of Commissioner of Internal Revenue v. First Sumiden Realty, Inc. CTA EB No. 975 re: CTA Case No. 8151, Jan. 7, 2014, that although the lease by a PEZA ecozone facilities enterprise of its factory to another PEZA-registered enterprise is considered an “Intra Ecozone Enterprise Sale of Service” that is exempt from VAT under Section 5(4a) of Revenue Memorandum Circular No. 74-99, the VAT official receipt issued by the PEZA-registered ecozone facilities enterprise as VAT taxpayer should have contained the words “VAT exempt sale” in order to be considered a VAT-exempt transaction.

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Due to the taxpayer’s failure to indicate or display the words “VAT-exempt sale” on its VAT official receipts, the transaction shall become taxable and as such, the Peza-registered ecozone facilities enterprise shall be liable to pay for deficiency VAT, including penalties.

(Source: Punongbayan & Araullo)

Published in the Sun.Star Cebu newspaper on March 04, 2014.

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