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ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION v.

CIR
GR Nos. 141104 & 148763
June 8, 2007
Chico-Nazario, J.
DOCTRINE:
Export processing zones are to be managed as a separate customs territory from the
rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign
territory.
FACTS:
Both cases involved applications for tax refund of the input VAT by petitioner
corporation on its zero-rated sales in the taxable quarters of the years 1990 and 1992.
The Court of Tax Appeals and Court of Appeals denied the claims for failure to meet the
requirements of Sec 2 of Revenue Regulation No. 2-88 which provides that, sale of raw
materials to export-oriented BOI-registered enterprises whose export sales, under rules
and regulations of the BOI, exceed 70% of the total annual production, shall be subject
to zero-rate.
Petitioner corporation assails the validity of said regulation contending that it
imposes additional requirements, not found in Sec 100(a) of the Tax Code of 1977. Also
that, PASAR and PHILPHOS to whom the sale were made are registered not only with
BOI, but also with the then Export Processing Zone Authority.
Under Sec. 100(a) of the Tax Code, Export Sales are subject to 0% VAT and
Export Sale means the sale and shipment of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported, or foreign
currency denominates sales.
ISSUE:
Whether or not petitioner corporation is entitled to the refund of input VAT.
HELD:
YES, petitioner corporation is entitled to tax refund of input VAT. The Supreme
Court held that Sec 2 of Revenue Regulation No. 2-88 should not have been applied.
PASAR and PHILPHOS, in addition to being registered with BOI, were also registered
with EPZA and located within an export-processing zone. The transactions were
considered export sale.
According to the Destination Principle, goods and services are taxed only
in the country where these are consumed. In connection with the said principle,
the Cross Border Doctrine mandates that no VAT shall be imposed to form part of
the cost of the goods destined for consumption outside the territorial border of
the taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for use
or consumption within the Philippines shall be imposed with 10% VAT(Now 12%
under R.A. No 9337). Export processing zones are to be managed as a separate
customs territory from the rest of the Philippines and, thus, for tax purposes, are
effectively considered as foreign territory. For this reason, sales by persons from
the Philippine customs territory to those inside the export processing zones are
already taxed as exports.