FACTS:

Petitioner Microsoft Philippines, Inc. (Microsoft) is a value-added tax (VAT) taxpayer registered with the Bureau of Internal Revenue (BIR). Microsoft renders marketing services to affiliated non-resident foreign corporations, Microsoft Operations Pte Ltd. (MOP) and Microsoft Licensing, Inc. (MLI), and is paid in acceptable foreign currency. These services qualify as zero-rated sales for VAT purposes under Section 108(B)(2) of the National Internal Revenue Code (NIRC) of 1997, as amended. For the year 2001, Microsoft had total sales of P261,901,858.99, with P235,724,614.68 derived from services rendered to MOP and MLI, and P26,177,244.31 from sales to local customers. Microsoft paid VAT input taxes amounting to P11,449,814.99 on its domestic purchases. Microsoft filed an administrative claim for tax credit of VAT input taxes with the BIR on 27 December 2002, which was within the two-year period from the close of the taxable quarters when the zero-rated sales were made. Due to BIR's inaction, Microsoft filed a petition for review with the Court of Tax Appeals (CTA) on 23 April 2003. The CTA Second Division denied the claim for tax credit, citing non-compliance with invoicing requirements. Microsoft's motion for reconsideration was also denied. Microsoft then filed a petition for review with the CTA En Banc, which was likewise denied, prompting the present petition. The main issue is whether Microsoft is entitled to a claim for tax credit or refund of VAT input taxes on domestic purchases attributable to zero-rated sales, even without the word "zero-rated" imprinted on its official receipts.

ISSUES:

RULING:

PRINCIPLES:

• Section 108(B)(2) of the National Internal Revenue Code (NIRC) provides that services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP), shall be subject to zero percent (0%) rate.

• The invoicing requirements of Sections 113 and 237 of the NIRC, as well as Section 4.108-1 of Revenue Regulations No. 7-95 (RR 7-95), require official receipts to bear the imprinted word "zero-rated" to prove zero-rated sales for VAT purposes.