Are a Power Plant's Ancillary Services VAT Zero-Rated Too? The San Roque Power CTA Ruling

Yes — under the Court of Tax Appeals’ decision in CTA Case No. 10731 (June 9, 2026), a renewable energy developer’s ancillary services (power capacity and reserves sold to the grid) qualify for the same 0% value-added tax (VAT) treatment as its sale of generated electricity. The CTA Special Third Division ordered the Bureau of Internal Revenue (BIR) to refund or issue a tax credit certificate for ₱32.6 million to San Roque Power Corp., covering excess and unutilized input VAT tied to zero-rated sales across fiscal year 2020’s four quarters — because the ancillary services, sourced from its hydropower facility, counted as a sale of renewable power, not a separately taxable service.

The question this case answers #

A renewable energy (RE) developer’s sale of generated power is well established as 0%-VAT-rated under Section 15 of RA 9513, but many developers also sell ancillary services — reserved capacity, frequency regulation, and similar grid-support functions — that don’t involve dispatching a single kilowatt-hour. Until CTA Case No. 10731, whether those non-dispatch revenue streams shared the same zero-rating was an open, and contested, question. The BIR’s position was that ancillary services are a distinct, standard-rated service because no actual energy is delivered. This post covers that specific question; for the underlying RA 9513 rule on power sales themselves, see the companion pillar post VAT Zero-Rating for Renewable Energy Developers: How RA 9513 Works.

What CTA Case No. 10731 decided #

In San Roque Power Corporation v. Commissioner of Internal Revenue, CTA Case No. 10731, the CTA Special Third Division issued a 36-page decision on June 9, 2026 partially granting San Roque’s petition and ordering the BIR to refund or issue a tax credit certificate for ₱32.6 million in excess and unutilized input VAT attributable to zero-rated sales for the 1st to 4th quarters of fiscal year 2020. San Roque Power operates the 345-megawatt San Roque Hydroelectric Power Plant in Pangasinan and, under a 2017 procurement agreement, supplies both electricity and ancillary services to the National Grid Corporation of the Philippines (NGCP). The BIR had treated the ancillary-service revenue as ineligible for the 0% rate; the CTA disagreed.

As summarized in BusinessWorld Online’s June 12, 2026 report on the decision (“CTA orders BIR to refund P32.58 million to San Roque Power”), the CTA found that ancillary services — including power capacity and reserves sourced from the hydro facility — constitute sales of power generated from renewable energy and therefore qualify for zero-rated VAT, rejecting the BIR’s argument that the services were taxable because they did not involve actual energy dispatch.

That summary reflects BusinessWorld’s account of the decision’s reasoning rather than a verbatim excerpt of the 36-page ruling itself, which is not yet publicly indexed in full text as of this writing.

The statute the ruling rests on #

The CTA grounded the ancillary-services holding in the same two provisions that zero-rate a renewable energy developer’s ordinary power sales: Section 108(B)(7) of the National Internal Revenue Code (NIRC) and Section 15 of RA 9513, the Renewable Energy Act of 2008. Both provisions define the zero-rated transaction as the “sale of power generated from renewable sources,” without limiting that phrase to dispatched, metered electricity. Section 15 of RA 9513 provides, in relevant part:

“The sale of fuel or power generated from renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy and other emerging energy sources using technologies such as fuel cells and hydrogen fuels, shall be subject to zero percent (0%) value-added tax (VAT), pursuant to the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act No. 9337.”

— Republic Act No. 9513 (Renewable Energy Act of 2008), Section 15

The CTA’s reading in CTA Case No. 10731 treats “sale of power” broadly enough to capture capacity and reserves sourced from a renewable facility, not only energy actually delivered to the grid at a given moment — the point on which the BIR’s assessment and the court’s decision diverged.

A related decision corroborates the same reasoning #

A second, separate CTA decision — promulgated July 16, 2026 and reported by BusinessWorld on July 21, 2026 — voided a ₱212.48 million deficiency VAT assessment against San Roque Power Corp. on similar zero-rating grounds, this time covering a fiscal year ended March 31, 2020. While CTA Case No. 10731 is this post’s primary citation because its case number, date, and figures are most clearly documented in available reporting, the July decision reinforces the same underlying position: that ancillary-service revenue from a renewable energy facility falls within the RA 9513 and Section 108(B)(7) zero-rating, not outside it. Two decisions reaching a consistent result on the same taxpayer and the same legal question is a stronger signal than either ruling alone, though both remain subject to the standard appeal periods before becoming final.

Worked example: capacity revenue with and without the zero-rating #

A hypothetical renewable energy developer that treats ancillary-service revenue as zero-rated keeps its input VAT fully creditable or refundable; treating the same revenue as standard-rated instead turns a portion of that input VAT into an added cost, because the output VAT charged on ancillary sales would then need to be remitted rather than simply passed through at 0%. The following applies CTA Case No. 10731’s reasoning to a stated hypothetical, using fictional but realistic figures for illustration only — actual treatment depends on a taxpayer’s own facts, documentation, and any final resolution of these cases.

Assume a registered hydropower developer’s quarter includes both energy sales and ancillary-service revenue, with the following figures:

Under the zero-rated treatment the CTA applied, the developer’s full ₱480,000 in input VAT stays refundable or creditable, matching how its electricity sales are already treated. Under the standard-rated alternative the BIR had argued for, the same developer would owe ₱360,000 in output VAT on capacity revenue alone, shrinking its net refundable position to ₱120,000 and reducing the working-capital benefit that zero-rating is meant to provide.

What this means for filers claiming the refund #

A developer relying on CTA Case No. 10731 should still expect the BIR to scrutinize the ancillary-service classification of each contract line, because the ruling turns on the specific facts of a hydropower facility selling capacity and reserves under an NGCP procurement agreement — not a blanket exemption for every service a power company invoices. Filers should keep the underlying grid-services agreement, DOE registration, and BOI/DOE certificates on hand (the same documentation requirements discussed in VAT Zero-Rating for Renewable Energy Developers), and should not assume every fee charged to a grid operator automatically qualifies — the CTA’s holding was specific to power capacity and reserves sourced from a renewable facility, decided on a full evidentiary record. A separate line of cases on RA 9513 incentives, including Hedcor v. CIR: RE Act VAT Incentives Aren’t Automatic, shows that missing DOE certification can defeat a zero-rating claim even where the underlying transaction would otherwise qualify.

Because CTA Case No. 10731 and the related July 2026 decision remain subject to the CTA En Banc appeal period and potential further review, developers should treat the ruling as persuasive and instructive rather than as a guaranteed final outcome for every similar claim, and should consult the BIR’s own guidance and a qualified tax professional before applying it to their own filings.

Frequently asked questions #

Do a power plant’s ancillary services qualify for VAT zero-rating? #

Yes, according to the Court of Tax Appeals in CTA Case No. 10731 (June 9, 2026). The court held that San Roque Power Corp.’s sale of ancillary services — power capacity and reserves sourced from its hydropower facility — qualifies as a sale of power generated from renewable energy and is entitled to 0% VAT, the same treatment as the sale of the electricity itself.

What is an ancillary service in the electricity industry? #

An ancillary service is a support function a power plant sells to the grid operator alongside energy itself — such as reserved generating capacity on standby, frequency regulation, or voltage support — rather than dispatched kilowatt-hours. The BIR had argued these services were separately taxable because no energy was actually dispatched; the CTA rejected that distinction in CTA Case No. 10731.

How much did the CTA order the BIR to refund San Roque Power? #

₱32.6 million, representing excess and unutilized input VAT attributable to zero-rated sales for the first to fourth quarters of fiscal year 2020, per the CTA Special Third Division’s 36-page decision promulgated June 9, 2026 in CTA Case No. 10731.

Does this ruling apply to all renewable energy developers, not just hydropower? #

The case itself concerns a hydropower facility, and the CTA’s reasoning rests on Section 108(B)(7) of the NIRC and Section 15 of RA 9513, both of which name hydropower, solar, wind, geothermal, biomass, and ocean energy alike. The underlying logic — that ancillary services sourced from a renewable facility are part of its zero-rated power sale — is not limited to hydropower by its terms, though each developer’s facts and documentation still control the outcome.

Is CTA Case No. 10731 the only recent ruling favoring San Roque Power on this issue? #

No. In a related decision promulgated July 16, 2026 and reported July 21, 2026, the CTA also voided a separate ₱212.48 million deficiency VAT assessment against San Roque Power Corp. on similar zero-rating grounds, for a fiscal year ended March 31, 2020. The two decisions corroborate each other on the same underlying question of ancillary-service zero-rating.

Summary #

CTA Case No. 10731 extends a renewable energy developer’s RA 9513 zero-rating beyond the electricity it dispatches to the ancillary services — capacity and reserves — it also sells to the grid, and a ₱32.6 million refund to San Roque Power Corp. followed from that reading. A related July 2026 decision voiding a separate ₱212.48 million assessment against the same taxpayer points the same direction. Developers with similar ancillary-service revenue should document the underlying grid agreement and DOE/BOI registration carefully, report zero-rated sales correctly on their RELIEF SLSP, and watch whether either decision is appealed before treating the position as fully settled.