Landmark Supreme Court Ruling Clarifies VAT Refunds for PEZA-Registered Enterprises

Case: Coral Bay Nickel Corporation v. Commissioner of Internal Revenue

*G.R. Nos. 251333–34 | March 5, 2025 | Supreme Court, Third Division

Overview

In a major win for export enterprises, the Supreme Court recently clarified a key issue affecting many Philippine Economic Zone Authority (PEZA)-registered entities: Can a PEZA-registered company claim a refund of input VAT on purchases made outside the ecozone?

The answer? Yes, but only if the purchases are directly attributable to zero-rated export sales.

This ruling reiterates that PEZA registration does not automatically exempt enterprises from VAT on all transactions. Instead, VAT treatment depends on where the goods or services were rendered and whether they support zero-rated activities.

The Facts

Coral Bay Nickel Corporation, a PEZA-registered exporter, incurred over ₱22 million in input VAT in 2012 from purchases outside the ecozone. When the BIR did not act on its refund claim, it filed a petition before the Court of Tax Appeals (CTA).

• The CTA Third Division granted a partial refund of ₱11.8 million for purchases proven to support zero-rated export sales.

• The CTA En Banc reversed, stating Coral Bay is VAT-exempt and entitled to full zero-rating—even for purchases outside the ecozone.

• The Supreme Court reinstated the Third Division’s decision.

Supreme Court Ruling: Key Doctrines

1. PEZA Registration Does Not Mean Blanket VAT ExemptionWhile PEZA entities enjoy incentives, they are not absolutely exempt from VAT. Exemptions are limited to registered activities within the ecozone.

2. Cross-Border DoctrinePEZA ecozones are considered separate customs territories. Purchases made from outside the zone and consumed within the ecozone are treated like exports and are zero-rated.But if the goods or services are consumed outside the zone? The cross-border principle does not apply, and VAT is due.

3. Destination PrincipleVAT is imposed where consumption occurs. Coral Bay’s purchases consumed outside the ecozone are subject to VAT, unless tied to zero-rated export sales.

4. Strict Interpretation of Tax ExemptionsThe Court emphasized that tax exemptions must be clearly stated by law and cannot be broadly interpreted to cover unrelated transactions.

What This Means for Businesses

• If you’re a PEZA-registered enterprise, you can claim a VAT refund—but only for purchases directly supporting zero-rated activities.

• You cannot assume all your transactions are VAT-free, especially if they’re outside your registered ecozone or unrelated to your export operations.

Legal Basis

• NIRC Secs. 106(A)(2)(c), 108(B)(3), 112

• RA No. 7916, as amended by RA No. 8748

• Revenue Memorandum Circular Nos. 42-03, 74-99

• Cross-Border and Destination Principles

• Seagate Technology, Toshiba, Filminera, Coral Bay precedents

Need Help Navigating VAT and PEZA Tax Rules?

At Aureada CPA Law and YRA Consulting Group, we guide export-oriented businesses in securing lawful VAT refunds, PEZA tax incentives, and ensuring full BIR compliance.

Let us help you maximize your tax efficiency—without crossing the line.

Contact us today for a consult.

251333-34.pdf

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