How the CREATE MORE Act Fixes VAT Zero-Rating with the “Directly Attributable” Rule

Introduction: why “directly attributable” matters for VAT zero-rating

For years, many registered export-oriented enterprises and their Philippine suppliers struggled with VAT zero-rating because of a narrow interpretation of what purchases count as sufficiently connected to export activity. Under the CREATE Act regime and its early implementing rules, VAT zero-rating was often tied to a restrictive “directly and exclusively used” standard, which in practice created uncertainty for common support services needed to run export operations (such as accounting, legal, security, and human resources).

The CREATE MORE Act (R.A. No. 12066, 2024) responds by expressly moving the statutory framing toward a “directly attributable” rule for certain VAT zero-rating categories, and by clarifying that incidental but necessary services for export activity can qualify when they are reasonably necessary to carry out the export business.

Governing legal framework (statutes, regulations, and jurisprudence)

The rules on VAT zero-rating for export-related transactions are primarily found in the National Internal Revenue Code (NIRC), as amended, and the administrative issuances that implement it. The most relevant authorities for the “directly attributable” shift include:

• R.A. No. 12066 (2024) (CREATE MORE Act), amending NIRC provisions on VAT zero-rating and related incentive rules.
• Subic Bay Freeport Chamber of Commerce, Inc. v. Department of Finance, et al. (G.R. No. 266016, 2025), emphasizing that administrative issuances cannot restrict what the statute grants.
• Revenue Regulations (RR) No. 21-2021 (2021), which implemented CREATE-era VAT zero-rating and used the “directly and exclusively used” approach for registered export projects/activities.
• RR No. 3-2023 (2023), streamlining documentation by removing the need for prior BIR approval for certain zero-rating transactions when IPA certification is available.
• BIR Ruling No. 055-2025 (2025) and BIR Ruling No. 065-2025 (2025), illustrating BIR’s fact-based approach and narrower reading of “direct and exclusive use” under CREATE-era guidance.

The earlier problem: “directly and exclusively used” and how it narrowed claims

Under CREATE-era implementation, VAT zero-rating was frequently tied to whether goods or services were directly and exclusively used in a registered export project or activity (as reflected in RR No. 21-2021, 2021; and discussed in BIR rulings applying the standard such as BIR Ruling No. 055-2025, 2025 and BIR Ruling No. 065-2025, 2025).

In many audits and refund claims, disputes tended to arise because support functions are not always “exclusively” tied to export production in a literal sense. Businesses still require finance, compliance, human resources, site security, janitorial support, legal services, and other operational services to maintain the export activity—yet these may be viewed as general overhead if the standard is read too strictly.

CREATE MORE’s statutory correction: the “directly attributable” rule

R.A. No. 12066 (2024) introduced explicit language that strengthens VAT zero-rating for export-oriented enterprises meeting the statutory threshold and clarifies what “directly attributable” includes. The amendments are significant in two ways:

• It recognizes “directly attributable” services beyond factory-floor inputs. The law’s text expressly states that “directly attributable” covers goods and services incidental to and reasonably necessary for the export activity, including janitorial, security, financial, consultancy, marketing and promotion services, and administrative operations such as human resources, legal, and accounting.
• It ties VAT zero-rating (in these categories) to an export-orientation threshold. For the specific transactions covered, export-oriented enterprises must generally show that export sales are at least 70% of total annual production of the preceding taxable year, with compliance determined by the Export Marketing Bureau of the DTI.

This statutory language is found in the amended provisions on VAT zero-rating for sales of goods and services to qualifying export-oriented enterprises under R.A. No. 12066 (2024), which revised NIRC provisions on zero-rated transactions and the definition/coverage of “directly attributable.”

Why this change is legally significant: statute controls over restrictive issuances

The Supreme Court’s 2025 ruling in Subic Bay Freeport Chamber of Commerce, Inc. v. Department of Finance, et al. (G.R. No. 266016, 2025) reinforces a central point for VAT incentives: administrative regulations cannot amend or restrict the clear terms of the statute. In that case, the Court ruled that DOF/BIR issuances exceeded delegated authority when they limited VAT zero-rating in a manner inconsistent with what the law granted.

Applied to CREATE MORE, this jurisprudential backdrop matters because R.A. No. 12066 (2024) itself now provides the “directly attributable” framing and enumerates incidental-but-necessary services. This makes it harder to sustain an interpretation that automatically treats support services as non-qualifying “overhead” when the statute expressly includes them (subject to the law’s conditions and documentation rules).

What transactions does the “directly attributable” language most directly support?

Based on the amendments in R.A. No. 12066 (2024), the “directly attributable” approach is most relevant to VAT zero-rating for:

• Services performed for an export-oriented enterprise that meets the 70% export sales threshold, provided the services are directly attributable to export activity.
• Goods sold to an export-oriented enterprise meeting the same threshold, particularly where the goods are used in the export activity.

In addition, R.A. No. 12066 (2024) continues to address VAT incentives for registered export enterprises and registered projects/activities, including rules on VAT exemption on importation and VAT zero-rating on local purchases that must be connected to the registered project/activity (and related conditions stated in the amended provisions).

Typical scenarios: how incidental services can qualify under “directly attributable”

The following examples illustrate how the CREATE MORE language is designed to work. These are not automatic entitlements; they still depend on proof that the expense is incidental to and reasonably necessary for export activity, and on compliance with certification and invoicing requirements.

• Accounting and audit support. An export-oriented enterprise engages an external accounting firm for statutory reporting, export-cost tracking, and compliance work required to maintain export operations and incentives. Under the “directly attributable” rule, these services may qualify when they are reasonably necessary for export activity and properly supported by documentation (R.A. No. 12066, 2024).
• Legal services. Legal support for export contracts, regulatory compliance, labor matters supporting export operations, and tax compliance can fall within “administrative operations such as human resources, legal, and accounting,” when connected to export activity (R.A. No. 12066, 2024).
• Security services. Security guarding for production sites and warehouses used for export production and staging may be treated as directly attributable because it is incidental to and reasonably necessary for the export activity (R.A. No. 12066, 2024).
• HR and staffing administration. HR services (recruitment processing, payroll administration, compliance) can qualify where they support the workforce needed for export operations and meet the “incidental and reasonably necessary” description (R.A. No. 12066, 2024).

Requirements and documentation: what enterprises and suppliers should prepare

Even with friendlier statutory text, VAT zero-rating remains documentation-heavy because it affects tax collection and refunds. Documentation must show: (a) eligibility of the buyer (export-oriented enterprise meeting the threshold, where applicable, or registered export enterprise/project rules where applicable), (b) that the goods/services are directly attributable to export activity, and (c) that invoicing and certification requirements are satisfied.

Supplier-side documentation and invoicing

• Invoice/OR must reflect zero-rated sale properly. Suppliers should ensure their VAT invoices/official receipts describe the service clearly enough to show its relationship to export activity (e.g., “security services for export production facility,” “accounting services for export compliance and reporting”).
• Rely on certification where allowed. RR No. 3-2023 (2023) is relevant because it removed the requirement for local suppliers to secure prior BIR approval for VAT zero-rating in certain cases; instead, zero-rating can be supported by certification from the concerned Investment Promotion Agency (IPA), reducing process friction.

Buyer-side substantiation (export-oriented enterprise)

• Proof of export-orientation threshold (where applicable). R.A. No. 12066 (2024) places significance on the 70% export sales threshold for export-oriented enterprises in the relevant provisions, with compliance determined by the Export Marketing Bureau of the DTI.
• Internal tagging of costs to export activity. Maintain a cost allocation method (cost centers, project codes, narrative memos) showing that the support service is incidental to and reasonably necessary for export operations.
• Contract and scope of work. Service agreements should describe the export-facing purpose (e.g., warehouse security for export goods, HR for export production personnel, legal review of export supply agreements).

From “directly and exclusively” to “directly attributable”: side-by-side comparison

Aspect	CREATE-era restrictive framing	CREATE MORE statutory clarification
Standard commonly applied	Directly and exclusively used (as reflected in RR No. 21-2021, 2021 and BIR rulings applying the standard)	Directly attributable, including incidental and reasonably necessary services (R.A. No. 12066, 2024)
Impact on support services (legal, accounting, security)	More disputes; often questioned as overhead depending on facts	Statute expressly recognizes these as potentially qualifying if incidental and reasonably necessary (R.A. No. 12066, 2024)
Role of administrative issuances	Could narrow incentives in implementation	Supreme Court warns that issuances cannot restrict statute (Subic Bay Freeport Chamber of Commerce, Inc. v. DOF, G.R. No. 266016, 2025)

Refunds and audit posture: what changes and what does not

CREATE MORE’s “directly attributable” language improves the legal footing for zero-rating of incidental services, but it does not remove the need to prove entitlement, especially in refund claims where the taxpayer must show compliance with statutory and documentary requirements. R.A. No. 12066 (2024) also emphasizes institutional mechanisms (such as VAT refund processing structures) and timelines designed to address long-standing delays, although actual outcomes will still depend on implementation and record quality.

Enterprises should assume that BIR will still examine whether the service is truly tied to export activity, particularly because prior rulings demonstrate a fact-sensitive approach in determining qualifying use (BIR Ruling No. 055-2025, 2025; BIR Ruling No. 065-2025, 2025).

Common compliance mistakes to avoid

• Generic descriptions on invoices. “Professional fees” or “security services” without indicating the export-facing facility or function invites disallowance risk.
• No linkage between service scope and export activity. If the contract and internal memos do not show why the service is reasonably necessary for export operations, it may be treated as general overhead.
• Incomplete eligibility support. Where the 70% export sales threshold applies, maintain proof and confirmation from the appropriate authority as contemplated by R.A. No. 12066 (2024).

Final observations and recommendations

R.A. No. 12066 (2024) strengthens the statutory basis for VAT zero-rating by expressly adopting a “directly attributable” framing that recognizes incidental but necessary support services—expressly including legal, accounting, HR, and security—when they are tied to export activity. The Supreme Court’s 2025 guidance in Subic Bay Freeport Chamber of Commerce, Inc. v. Department of Finance supports a disciplined approach: implementing rules cannot narrow what the law provides.

To maximize defensibility in audits and refund claims, export-oriented enterprises and their suppliers should: (1) align contracts, invoices, and narratives to export activity; (2) maintain eligibility proof (including export-sales threshold documentation where applicable); and (3) use IPA certifications and streamlined procedures recognized in RR No. 3-2023 (2023) when available.

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