In a landmark decision in The Subic Bay Freeport Chamber of Commerce, Inc. and Benjamin E. Antonio III v. Department of Finance, et al. (G.R. No. 266016, 4 February 2025), the Supreme Court struck down portions of the CREATE Act’s implementing rules and revenue issuances that attempted to limit VAT zero-rating exclusively to export enterprises. The Court ruled that these administrative issuances were ultra vires, as they went beyond the language and intent of the CREATE Act (RA 11534), and unlawfully restricted tax incentives granted by Congress.
The petition originated from the Subic Bay Freeport Zone, a special customs territory designed to promote investment, trade, and fiscal incentives. Under the CREATE Act, registered business enterprises (RBEs) may avail of VAT zero-rating on local purchases of goods and services that are “directly and exclusively used” in their registered project or activity. However, the Department of Finance and the Bureau of Internal Revenue issued rules that narrowed this benefit only to registered export enterprises (REEs) and excluded registered domestic market enterprises (DMEs).
The Supreme Court held that this limitation had no basis in the statute. The CREATE Act itself does not distinguish between export and domestic market enterprises for purposes of VAT zero-rating. What the law requires is simply that:
(1) the enterprise is a registered business enterprise under an investment promotion agency or the Fiscal Incentives Review Board; and
(2) the goods or services purchased are directly and exclusively used in the registered project or activity.
By creating additional exclusions, the DOF and BIR effectively amended the law—an act they had no authority to do. The Court reaffirmed a longstanding principle: administrative regulations cannot restrict or curtail rights granted by statute, and any implementing rule that contradicts the law is void.
The Court also underscored the congressional intent behind CREATE: rationalizing fiscal incentives, promoting competitiveness, supporting recovery, and reducing the cost of doing business in the Philippines. Limiting incentives to exporters alone contradicts this purpose and undermines the broad incentive framework meant to stimulate investment across sectors.
With this ruling, domestic market enterprises may now properly claim VAT zero-rating on qualified local purchases, provided these purchases are truly and exclusively connected to their registered project. This benefits numerous industries—from manufacturing and logistics to technology, gaming, and service providers—particularly those located in freeport zones or registered with BOI, PEZA, or other IPAs.
The decision carries significant practical implications. Companies that were previously denied VAT zero-rating because they catered mainly to the local market may now revisit their eligibility. Firms with pending VAT refund claims may also have stronger legal footing. Likewise, existing RBEs may need to reassess contracts, purchase flows, and documentation to maximize the incentive and avoid disputes during audits.
This ruling is a reminder that businesses should not rely solely on administrative issuances but must anchor their compliance and entitlement to the statutory text itself. For enterprises seeking guidance on VAT zero-rating qualifications, documentation requirements, or potential refund claims, GVES Law is ready to assist in evaluating and securing the full tax incentives granted under the CREATE Act.
This guide provides a general overview of the above transactions at the time of writing only and is not intended to be a comprehensive legal advice. This should also not be taken as an opinion on the topic. For more details and information, you may coordinate with any GVES Law Partner regarding the matter.
Atty. Ludanielle N. Legarde is a Partner of GVES Law.