The Supreme Court has ruled that businesses registered with the Philippine Export Zone Authority (PEZA) are not entirely exempt from paying Value Added Tax (VAT).
In a 15-page decision promulgated on March 5, 2025, but made public only yesterday, the SC Third Division, through Associate Justice Japar Dimaampao, partially granted the claim for a VAT refund filed by Coral Bay Nickel Corporation, a PEZA-registered firm that exports nickel and cobalt mixed sulfide.
Records showed that the company sought a refund from the Bureau of Internal Revenue (BIR) for unutilized input VAT paid on goods and services used outside the PEZA zone.
However, the BIR failed to act on the claim, prompting Coral Bay to elevate the case to the Court of Tax Appeals (CTA).
The CTA’s Third Division granted the refund amounting to P11.8 million, but only for purchases proven to have been consumed outside the PEZA zone, allowing input VAT in proportion to the company’s zero-rated sales.
The CTA en banc reversed the Third Division’s ruling, treating the company as fully VAT-exempt.
It held that Coral Bay’s purchases were considered zero-rated, making the company ineligible for a VAT refund from the BIR.
Coral Bay brought the case to the SC, which ruled in its favor.
The SC clarified that while PEZA-registered companies are generally exempt from most national and local taxes under Republic Act No. 7916 or the Special Economic Zone Act of 1995, this exemption does not extend to VAT.
However, it added that companies operating within ecozones—treated by law as foreign territory—may claim zero-rated VAT under the cross-border principle.
This principle provides that no VAT is charged on goods and services intended for use outside the taxing jurisdiction.
But when goods are consumed outside the ecozone yet within the country, the cross-border principle does not apply.
Instead, the SC ruled that the destination principle governs such cases, under which goods are taxed in the location where they are consumed.
In Coral Bay’s case, the purchases were made outside the ecozone but consumed within Philippine territory. As such, they were subject to VAT.
Consequently, the SC held that Coral Bay is “entitled to a refund for unutilized input VAT.”
The Court reinstated the ruling and computation of the CTA Third Division, awarding P11,873,651.48 as the unutilized input VAT attributable to the company’s zero-rated sales for taxable year 2012.
Concurring with the decision were Associate Justices Alfredo Benjamin Caguioa, Samuel Gaerlan, and Henri Jean Paul Inting.
