Recent developments in tax jurisprudence highlight important considerations for taxpayers seeking refunds or tax credits of excess and unutilized input VAT attributable to zero-rated sales. These developments are consistent with established jurisprudence recognizing the evidentiary and procedural requirements governing VAT refund claims, including Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue (G.R. No. 145526, 16 March 2007), Commissioner of Internal Revenue v. Manila Mining Corporation (G.R. No. 153204, 31 August 2005), and Chevron Holdings, Inc. v. Commissioner of Internal Revenue (G.R. No. 215159, 5 July 2022).
Two recurring issues continue to arise in VAT refund litigation:
- The admissibility of evidence not submitted during the administrative stage, and
- Compliance with invoicing requirements for zero-rated transactions.
A recent ruling of the Court of Tax Appeals (CTA), Commissioner of Internal Revenue v. Stefanini Philippines, Inc., CTA EB No. 2864 (2 March 2026), provides further guidance on how evidentiary requirements and invoicing compliance may be evaluated in VAT refund claims.
While each case is decided based on its own facts, the ruling offers useful insights for taxpayers engaged in export sales or services rendered to non-resident foreign clients.
Evidentiary Considerations in VAT Refund Claims
VAT refund claims generally begin with an administrative application filed with the Bureau of Internal Revenue (BIR). If the claim is denied or not acted upon within the prescribed period, the taxpayer may elevate the matter to the CTA.
One recurring issue in refund litigation is whether the CTA may consider documents that were not presented during the administrative proceedings.
CTA jurisprudence has consistently recognized that proceedings before the Court are litigated de novo. This means that the CTA conducts its own evaluation of evidence and is not limited to the evidence previously submitted to the BIR. In practice, this allows taxpayers to present and formally offer supporting documents during trial, even if such documents were not submitted at the administrative stage.
However, taxpayers should not rely solely on this procedural principle. Failure to submit key documents during the administrative claim may still raise challenges from the tax authorities and may affect the evaluation of the claim.
Invoicing Requirements for Zero-Rated Sales
One of the issues frequently raised by the tax authorities in VAT refund claims is non-compliance with invoicing requirements under Section 113(B)(2) of the National Internal Revenue Code (NIRC), as amended.
Following the amendments introduced by the Ease of Paying Taxes Act and its implementing regulations, particularly Revenue Regulations No. 7-2024, as amended by Revenue Regulations No. 11-2024, the VAT invoice is now the principal document evidencing the sale of goods, properties, services, or lease of properties. Official receipts, which were previously relied upon in service transactions, are now generally treated as supplementary documents and are not, by themselves, valid proof to support input VAT claims.
Under the current rules, a VAT invoice must contain the prescribed information, including the VAT amount shown as a separate item, where applicable. If the sale is subject to zero percent (0%) VAT, the term “Zero-Rated Sale” must be written or printed on the VAT invoice.
For mixed transactions involving VATable, VAT-exempt, and zero-rated sales, the invoice must clearly indicate the breakdown of the sale price among the taxable, exempt, and zero-rated components, as well as the VAT calculation on each applicable portion. The seller may also issue separate invoices for the taxable, exempt, and zero-rated components of the sale.
Failure to comply with these invoicing requirements has historically been raised by the BIR as a basis to disallow zero-rated sales and, consequently, deny claims for refund or tax credit of excess and unutilized input VAT. Accordingly, taxpayers should ensure that their invoicing templates and documentation practices are aligned with the current EOPT-based invoicing rules.
Clarifying Treatment of Mixed Transactions
The Tax Code also recognizes that transactions may involve mixed sales, meaning that a single invoice or receipt may cover: 1) VAT-taxable sales (12%); 2) VAT-exempt sales; and 3.) Zero-rated sales.
In such cases, the law requires that the invoice or receipt must clearly indicate the breakdown of the sale price between taxable, exempt, and zero-rated components. The court noted that the breakdown requirement did not provide for any writing/printing of the term “zero-rated” in case a single document is to be issued or a mixed transaction.
Alternatively, the seller may issue separate invoices or receipts for each type of transaction.
In Commissioner of Internal Revenue v. Stefanini Philippines, Inc., CTA EB No. 2864, 2 March 2026, the CTA En Banc examined the official receipts presented to support the taxpayer’s zero-rated sales. The Court noted that the receipts contained a breakdown portion on the face of the document, with the amounts collected specifically reflected beside the entry “Zero Rated Sales.”
Specifically:
- The receipts included a breakdown section listing the categories of sales.
- The amount collected was written beside the entry “Zero Rated Sales.”
- The amounts were clearly identifiable as pertaining to zero-rated transactions.
Because of this presentation, the Court found that the receipts sufficiently conveyed the nature of the transaction as zero-rated, even if the words “zero-rated sale” were not prominently printed in the exact format argued by the BIR.
The Court reasoned that when the breakdown portion clearly identifies the sales as zero-rated, and the amounts correspond to that classification, there is no ambiguity as to the nature of the transaction.
Thus, the Court concluded that the receipts substantially complied with the invoicing requirement under Section 113 of the Tax Code.
The ruling suggests that in cases involving mixed transactions, the presence of a clear breakdown identifying zero-rated components may be sufficient to satisfy the invoicing requirement, provided that the documents unmistakably indicate the nature of the sale.
However, this should not be interpreted as relaxing the invoicing rules.
While courts have, in certain instances, recognized substantial compliance where the nature of the transaction is clearly reflected in the document, taxpayers should still strive for full compliance to avoid disputes during refund claims or tax assessments.
Practical Implications for Businesses
Companies engaged in zero-rated transactions may consider the following measures to strengthen their VAT refund claims:
1. Ensure completeness of supporting documents
Maintain organized documentation for zero-rated transactions, including:
- Contracts or service agreements
- Billing statements or statements of account
- VAT invoices and official receipts
- Proof of payment and accounting records
2. Review invoicing formats
Verify that invoices and official receipts clearly contain the phrase “Zero-Rated Sale” and comply with all VAT invoicing requirements.
3. Strengthen internal VAT documentation procedures
Regular compliance reviews can help ensure that documentation requirements are satisfied before filing refund claims.
4. Prepare for possible litigation
Since VAT refund claims may ultimately be resolved through judicial proceedings, taxpayers should ensure that documentation is properly preserved and capable of being formally presented as evidence before the CTA.
Reference:
These issues were recently discussed in CTA EB No. 2864 (2 March 2026), where the Court addressed evidentiary rules and invoicing compliance in the context of a VAT refund claim for zero-rated sales.
