VAT Zero-Rating for Renewable Energy: Key Requirements and Implications

The Supreme Court's recent decision in Maibarara Geothermal, Inc. v. Commissioner of Internal Revenue (G.R. No. 256720, August 7, 2024) clarifies the requirements for renewable energy (RE) developers to avail of VAT zero-rating and claim input VAT refunds. The ruling affirms that securing a DOE Certificate of Endorsement is a valid requirement for enjoying these incentives, and that taxpayers must prove actual zero-rated sales during the claim period.

Background of the Case

Maibarara Geothermal, Inc. (MGI) is a corporation registered as an RE Developer for its 20 MW geothermal power project in Batangas and Laguna. It held Certificates of Registration from both the Department of Energy (DOE) and the Board of Investments (BOI), and was a registered VAT taxpayer.

MGI filed administrative claims for refund of unutilized input VAT totaling PHP 81,572,707.81 for the four quarters of taxable year 2013. When the Commissioner of Internal Revenue failed to act on these claims, MGI filed petitions before the Court of Tax Appeals (CTA).

The Core Issue

The central question was whether MGI could claim a refund of input VAT under the National Internal Revenue Code when it had no actual sales during the claim period.

The CTA Division and CTA En Banc both denied MGI's claims. The courts found that MGI had no declared sales during 2013—its own Accounting Manager admitted this, and its Legal Officer confirmed that MGI only sold electricity starting February 2014.

Zero-Rated Sales Must Be Proven

The Supreme Court upheld the CTA's rulings, emphasizing that a taxpayer must establish the existence of zero-rated sales to obtain a VAT refund. Citing San Roque Power Corporation v. Commissioner of Internal Revenue, the Court enumerated the requirements for a claim for refund or tax credit, which include: (1) the taxpayer is VAT-registered; (2) the taxpayer is engaged in zero-rated or effectively zero-rated sales; and (3) the claim is filed within two years after the close of the taxable quarter when such sales were made.

The Court stressed that the two-year prescriptive period is reckoned from the close of the taxable quarter when the zero-rated sales were made—not from when the input VAT was incurred. Without actual zero-rated sales during the period of claim, no refund can be granted.

The DOE Certificate of Endorsement Requirement

MGI argued that a DOE Certificate of Endorsement was not required for VAT zero-rating under Republic Act No. 9513 (Renewable Energy Act of 2008). The Court disagreed.

Under the law, RE developers are entitled to various incentives. The law's Implementing Rules and Regulations (IRR), specifically Part III, Rule 5, Section 13(G) and Section 18, require three documents for VAT zero-rating: (1) DOE Certificate of Registration; (2) BOI Certificate of Registration; and (3) DOE Certificate of Endorsement on a per transaction basis.

The Court held that the law expressly allows government agencies to impose additional requirements beyond DOE registration. The relevant provision states that the DOE certification "shall be without prejudice to any further requirements that may be imposed by the concerned agencies of the government charged with the administration of the fiscal incentives."

The Court also rejected MGI's argument that the IRR exceeded the law's scope. It found that the DOE's authority to impose certification requirements constitutes valid subordinate legislation, as the law provides clear policy guidelines and standards.

Important Note on the 2021 Amendment

The Court noted that on December 24, 2021, the DOE issued Department Circular No. DC2021-12-0042, which removed the Certificate of Endorsement requirement for RE developers to avail of incentives under the RE Law. Under this amendment, RE developers are automatically qualified after securing a DOE Certificate of Registration, except for duty-free importation of machinery and equipment.

However, this amendment came after the taxable year in question (2013). The Court clarified that the requirement still applied to claims covering periods before the amendment took effect.

Practical Takeaways

• Prove actual zero-rated sales. A VAT refund claim requires evidence of actual zero-rated sales during the claim period. Filing VAT returns showing no sales will defeat the claim.
• Secure all three documents. For claims covering periods before December 2021, RE developers must present the DOE Certificate of Registration, BOI Certificate of Registration, and DOE Certificate of Endorsement to qualify for VAT zero-rating.
• Keep legible records. Official receipts and other supporting documents must be clear and readable. Illegible documents will not substantiate a claim.
• Mind the prescriptive period. The two-year period to file a refund claim runs from the close of the taxable quarter when the zero-rated sales were made, not when input VAT was incurred.
• Check the applicable rules. The December 2021 DOE amendment removed the Certificate of Endorsement requirement for future claims, but older claims remain subject to the prior rules.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.