Tax consequences of issuance of erroneous VAT invoice or official receipts

Pursuant to Republic Act No. 7916 (PEZA Law), an enterprise registered with the Philippine Economic Zone Authority (PEZA) under 5% preferential tax rate is entitled to exemption from national and local taxes including VAT. Being exempt from VAT, a PEZA registered enterprise may not register as a VAT taxpayer.

However, once a PEZA-registered enterprise opts to be registered as a VAT taxpayer, it should follow the VAT invoicing requirements, particularly the information required to be contained in the VAT official receipt or VAT invoice for its transactions. Thus, in case of VAT-exempt sale transactions, Section 113(B)(2)(b) in relation to Section 113(D)(2) of the Tax Code requires that the term “VAT-exempt sale” be written or printed prominently on the VAT invoice or official receipt. Otherwise, the issuer shall be liable to pay the VAT.

In the lease of its factory to another PEZA-registered enterprise, the PEZA-registered ecozone facilities enterprise as lessor issued VAT official receipts without the words “VAT-exempt sale” written or printed on it. The CTA held 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,” which 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-registered taxpayer should have contained the words “VAT-exempt sale” in order to be considered a VAT-exempt transaction.

Hence, due to the PEZA-registered enterprise’s failure to indicate the words “VAT-exempt sale” in its VAT official receipts, the transaction shall become taxable and as such, the enterprise shall be liable to pay for deficiency VAT including penalties.

(First Sumiden Realty, Inc. v. Commissioner of Internal Revenue, CTA Case No. 8151, September 27, 2012)

Tax Brief – October 2012

Punongbayan and Araullo