TL;DR

The Supreme Court affirmed the denial of Maibarara Geothermal Inc.’s (MGI) claim for a PHP 81.5 million VAT refund. The Court ruled that MGI failed to prove it made zero-rated sales during the taxable year 2013, a fundamental requirement for VAT refunds. While MGI possessed DOE and BOI registrations as a renewable energy developer, these were insufficient. The Court clarified that while a DOE Certificate of Endorsement is not mandatory for VAT zero-rating on renewable energy sales, the taxpayer must still demonstrate actual zero-rated sales to qualify for a refund. This case underscores the critical need for businesses claiming VAT refunds to meticulously document and substantiate their zero-rated sales to satisfy legal requirements.

No Sales, No Refund: The Zero-Rated Sale Prerequisite for VAT Claims

Can a renewable energy company claim a VAT refund on input taxes if it hasn’t made any sales during the taxable period? This was the central question in Maibarara Geothermal, Inc. v. Commissioner of Internal Revenue. Maibarara Geothermal, Inc. (MGI), a registered renewable energy (RE) developer, sought a refund of over PHP 81 million in unutilized input VAT for 2013. MGI argued it was entitled to a refund because it was engaged in zero-rated sales as an RE developer, even though it had no actual sales in 2013. The Commissioner of Internal Revenue (CIR) denied the claim, and the Court of Tax Appeals (CTA) affirmed the denial, leading to this Supreme Court review.

The legal framework for VAT refunds is rooted in Section 112(A) of the National Internal Revenue Code (NIRC). This provision allows VAT-registered persons with zero-rated or effectively zero-rated sales to apply for a refund or tax credit of input VAT attributable to such sales. The Supreme Court, citing previous jurisprudence, emphasized that establishing zero-rated sales is not merely a procedural formality but a substantive requirement. The Court reiterated the principle from Luzon Hydro Corporation v. Commissioner of Internal Revenue, stating:

The petitioner did not competently establish its claim for refund or tax credit. We agree with the CTA En Banc that the petitioner did not produce evidence showing that it had zero-rated sales for the four quarters of taxable year 2001. As the CTA En Banc precisely found, the petitioner did not reflect any zero-rated sales from its power generation in its four quarterly VAT returns, which indicated that it had not made any sale of electricity.

In MGI’s case, the CTA Division and En Banc both found that MGI failed to demonstrate any sales during the taxable year 2013. MGI’s own witnesses, including its Accounting Manager and Legal Officer, confirmed that sales only commenced in February 2014. The Court scrutinized MGI’s VAT returns for 2013, which showed no sales. MGI attempted to present Official Receipt No. 0501 as proof of zero-rated sales, but the CTA deemed it illegible and insufficient. The Supreme Court upheld the CTA’s factual findings, emphasizing that it is not a trier of facts and defers to the CTA’s expertise in tax matters unless grave abuse of discretion is shown.

MGI contended that a Certificate of Endorsement from the Department of Energy (DOE) was not a prerequisite for VAT zero-rating under Republic Act No. 9513 (Renewable Energy Act of 2008). While the Court agreed that a DOE Certificate of Endorsement is not a blanket requirement for VAT zero-rating on renewable energy sales, it clarified the regulatory landscape. The Court analyzed Section 26 of RA 9513, which allows government agencies to impose further requirements for availing incentives. However, the Court also examined the legislative history and concluded that the DOE’s requirement of a Certificate of Endorsement, as per its Implementing Rules and Regulations (IRR), exceeded the intended scope of Section 26 concerning VAT zero-rating. The Court noted that while DOE registration is necessary, an additional Certificate of Endorsement for each transaction is not mandated by law for VAT zero-rating purposes, especially considering the recent DOE Department Circular No. DC2021-12-0042 which removed this per-transaction endorsement requirement.

Despite clarifying the DOE endorsement issue, the Court ultimately denied MGI’s petition because of its failure to prove the existence of zero-rated sales in 2013. The Court reiterated the fundamental principle that tax refunds are akin to tax exemptions and must be strictly construed against the claimant. The burden of proof rests on the taxpayer to demonstrate entitlement to a refund with sufficient evidence. In this case, MGI did not meet this burden. The Court stated:

As this Court previously held, tax refunds partake the nature of exemption from taxation and, as such, must be looked upon with disfavor. The burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to a claim for refund. As MGI failed to prove the legal and factual bases of its claim for tax refund, its Petition should be denied.

In conclusion, the Supreme Court’s decision underscores that while renewable energy developers enjoy VAT zero-rating incentives, claiming a VAT refund requires strict adherence to legal and evidentiary standards. The absence of zero-rated sales during the claimed period is fatal to a VAT refund claim, regardless of DOE registration or endorsements. Taxpayers must meticulously document and prove their zero-rated transactions to successfully claim VAT refunds.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Maibarara Geothermal, Inc. v. Commissioner of Internal Revenue, G.R. No. 256720, August 07, 2024