Commissioner of Internal Revenue vs. Filminera Resources Corporation

A BOI Certification attesting to 100% exportation by a registered enterprise serves as basis for VAT zero-rating only for the specific period covered by the certification, not merely for the duration of its validity period; the certification must prove that the buyer actually exported the goods during the taxable period subject of the claim for refund, consistent with the requirement under Section 106(A)(2)(a)(5) of the 1997 National Internal Revenue Code and Revenue Regulations No. 16-2005 that sales to BOI-registered manufacturers are zero-rated only when their products are 100% exported and actually consumed outside the Philippines.

Filminera Resources Corporation, a VAT-registered mining corporation, entered into an Ore Sales and Purchase Agreement with Philippine Gold Processing and Refining Corporation (PGPRC), a domestic corporation registered with the Board of Investments (BOI). For the third and fourth quarters of fiscal year ending June 30, 2010, Filminera Resources made sales exclusively to PGPRC. Filminera Resources treated these sales as zero-rated export sales and subsequently filed administrative and judicial claims for refund or tax credit certificate (TCC) of unutilized input VAT attributable to these sales, aggregating P111,579,541.76. The claims were predicated on a BOI Certification issued to PGPRC on January 27, 2010, which certified 100% exportation for calendar year 2009 and was valid until December 31, 2010.

• Nature of Transaction: Filminera Resources, a VAT-registered mining corporation, entered into an Ore Sales and Purchase Agreement with PGPRC on July 5, 2007. PGPRC was a BOI-registered enterprise engaged in gold processing and refining.
• Sales Period: For the third and fourth quarters of fiscal year ending June 30, 2010 (covering January 1, 2010 to June 30, 2010), Filminera Resources made sales exclusively to PGPRC and treated these as zero-rated export sales in its amended quarterly VAT returns filed on March 30, 2012 and June 29, 2012.
• Administrative Claims: On the same dates as the amended returns, Filminera Resources filed administrative claims for refund or TCC of unutilized input VAT attributable to the alleged zero-rated sales.
• BOI Certification: The basis for the zero-rating claim was BOI Certification No. 2010-057 issued to PGPRC on January 27, 2010. The certification stated that PGPRC exported 100% of its total sales volume/value for the calendar year covering January 1 to December 31, 2009. The certification bore a validity period from January 1 to December 31, 2010, subject to revocation for failure to export 100% or submission of fraudulent documents.
• CTA Division Rulings: Initially, the CTA Division denied the petitions on September 25, 2014 for insufficiency of evidence. On reconsideration, Filminera Resources submitted a certified true copy of the BOI Certification. The CTA Division amended its decision on May 25, 2015, granting the refund on the basis that the validity period of the certification covered the period subject of the claims.
• CTA En Banc Ruling: The CTA En Banc affirmed the amended decision, ruling that because the certification was valid from January 1 to December 31, 2010, and the claim period (January 1 to June 30, 2010) fell within this validity period, the sales qualified for zero-rating.

• Scope of BOI Certification: The CIR maintained that the BOI Certification dated January 27, 2010 only established that PGPRC exported 100% of its products for calendar year 2009 (January 1 to December 31, 2009), not for the period subject of the refund claims (January 1 to June 30, 2010). The certification was issued on January 27, 2010, making it impossible to certify exportation for periods subsequent to its issuance, specifically for the first half of 2010.
• Validity Period vs. Export Period: The CIR argued that the extension of the certification's validity until December 31, 2010 was intended merely to give taxpayers an extended period to avail of the benefits of zero-rating, not to certify that PGPRC actually exported its products during that extended validity period.
• Question of Law: The CIR asserted that the petition raised a pure question of law regarding the proper interpretation of the scope and legal effect of the BOI Certification and the requirements for zero-rating under Section 106(A)(2)(a)(5) of the 1997 NIRC, not a question of fact regarding the probative value of evidence.

• Procedural Defects: Filminera Resources countered that the petition should be dismissed for failure to conform to the prescribed format under Section 4, Rule 45 of the Rules of Court, alleging that the copy served to it was not accompanied by the CTA En Banc's assailed Decision and Resolution or material portions of the records.
• Question of Fact: Filminera Resources argued that the petition raised a question of fact regarding the probative value of the BOI Certification, which is beyond the ambit of a Rule 45 petition limited to questions of law.
• Substantive Compliance: Filminera Resources posited that the CTA En Banc did not err in concluding that the sales were zero-rated because the BOI Certification's validity period covered the sales period in question, and the certification served as sufficient proof of PGPRC's export status.

• Procedural Compliance: Whether the CIR substantially complied with the requirements of Section 4, Rule 45 of the Rules of Court regarding attachments to the petition.
• Nature of Issue: Whether the petition raises a question of law proper for review under Rule 45, or a question of fact regarding the probative value of the BOI Certification.
• Zero-Rating Requirements: Whether the sales made by Filminera Resources to PGPRC during the third and fourth quarters of FY 2010 qualify as zero-rated export sales based on the BOI Certification dated January 27, 2010, notwithstanding that the certification covered exportation for calendar year 2009 but was valid until December 31, 2010.

• Procedural Compliance: Substantial compliance with Section 4, Rule 45 was satisfied where the CIR attached a duplicate original of the Dissenting Opinion which reproduced verbatim the BOI Certification, following the precedent in Cadayona v. Court of Appeals that strict and rigid application of rules that would frustrate substantial justice must be avoided.
• Nature of Issue: The issue constitutes a question of law because it requires the interpretation of the scope and legal effect of the BOI Certification and the application of statutory provisions (Section 106(A)(2)(a)(5) of the 1997 NIRC and RR No. 16-2005) to determine whether the sales qualify for zero-rating, without requiring re-examination of the probative value of the evidence presented.
• Zero-Rating Requirements: The sales do not qualify for zero-rating. Under Section 106(A)(2)(a)(5) of the 1997 NIRC and Section 4.106-5(a)(5) of RR No. 16-2005, sales to a BOI-registered manufacturer/producer qualify as export sales only if the buyer's products are 100% exported, as certified by the BOI. The BOI Certification must attest to actual exportation for the specific period covered by the claim, not merely possess a validity period that encompasses the claim period. The Destination Principle and Cross Border Doctrine mandate that goods are taxed only where consumed; thus, actual exportation must be proved for the specific transaction period. The January 27, 2010 certification covered only January 1 to December 31, 2009, and could not certify exportation for January 1 to June 30, 2010. The validity period extension to December 31, 2010 served only to allow sellers to avail of zero-rating benefits for sales made during that validity period, provided the BOI subsequently certifies actual exportation, but did not itself establish that PGPRC exported 100% of its products during the first half of 2010.

• Destination Principle and Cross Border Doctrine — Under the Philippine VAT system, goods and services are taxed only in the jurisdiction where consumed. The Cross Border Doctrine mandates that no VAT shall form part of the cost of goods destined for consumption outside the territorial border of the taxing authority. Consequently, actual export of goods from the Philippines to a foreign country must be free of VAT, and sales to BOI-registered enterprises qualify for zero-rating only upon proof that the buyer actually exported 100% of its products to foreign countries.
• Strictissimi Juris in Tax Refunds — Tax refunds partake the nature of exemption from taxation and must be construed strictly against the claimant. The burden of proof rests upon the taxpayer to establish by sufficient and competent evidence its entitlement to a claim for refund, justifying the claim by the clearest grant of organic or statute law and not standing on vague implications.
• Requirements for Zero-Rating of Sales to BOI-Registered Enterprises — Pursuant to Section 106(A)(2)(a)(5) of the 1997 NIRC, RR No. 16-2005, and RMO No. 09-00, sales by VAT-registered suppliers to BOI-registered manufacturers/producers are considered export sales subject to zero percent rate only upon compliance with the following: (1) the supplier is VAT-registered; (2) the buyer is VAT-registered and BOI-registered; (3) the buyer's products are 100% exported; (4) the BOI issues a certification attesting to such 100% exportation; and (5) the supplier issues VAT invoices stamped "zero-rated" indicating the buyer's name and BOI registry number. The BOI Certification serves as authority for the supplier to avail of zero-rating but must specifically cover the period when the buyer actually exported the goods.

• "Proof of actual exportation of goods sold by a Value Added Tax (VAT)-registered taxpayer to a Board of Investments (BOI)-registered enterprise is vital for the transaction to be considered as zero-rated export sales."
• "The validity period of the BOI certification should not be confused with the period identified in the certification when the buyer actually exported 100% of its products."
• "Tax refunds partake the nature of exemption from taxation, and as such, must be looked upon with disfavor. It is regarded as in derogation of the sovereign authority, and should be construed in strictissimi juris against the person or entity claiming the exemption."
• "Plainly, sales of export products to another producer or to an export trader are subject to zero percent rate provided the export products are actually exported and consumed in a foreign country."

• Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue, 551 Phil. 519 (2007) — Cited for the proposition that the tax treatment of export sales is based on the Cross Border Doctrine and Destination Principle of the Philippine VAT system.
• Fortune Tobacco Corporation v. Commissioner of Internal Revenue, 762 Phil. 450 (2015) — Applied for the distinction between questions of law and questions of fact in tax refund cases, holding that interpretation of tax refund provisions is a question of law while examination of probative value of evidence is a question of fact.
• Cusi-Hernandez v. Spouses Diaz, 390 Phil. 1245 (2000) and Cadayona v. Court of Appeals, 381 Phil. 619 (2000) — Followed for the principle that not all supporting papers accompanying a petition under Rule 45 need be certified true copies, and that substantial compliance with procedural rules is sufficient to avoid technicalities that frustrate justice.

• Section 106(A)(2)(a)(5), National Internal Revenue Code of 1997 (Republic Act No. 8424) — Defines export sales to include "those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws," requiring that sales to BOI-registered manufacturers be subject to zero percent rate only when the buyer's products are 100% exported.
• Section 112(A), National Internal Revenue Code of 1997 — Governs refunds or tax credits of input tax for zero-rated or effectively zero-rated sales, requiring that the taxpayer prove it is engaged in zero-rated sales and that the input tax is attributable to such sales.
• Section 4.106-5(a)(5), Revenue Regulations No. 16-2005 (Consolidated VAT Regulations of 2005) — Implements the zero-rating of sales to BOI-registered manufacturers/producers whose products are 100% exported, requiring a BOI Certification valid for one year unless re-issued.
• Section 3, Revenue Memorandum Order No. 09-00 — Enumerates the conditions for automatic zero-rating of sales to BOI-registered exporters, including the requirement that the BOI Certification attests the buyer exported 100% of its products and that the certification is valid for one year.
• Section 4, Rule 45 of the Rules of Court — Requires petitions for review on certiorari to be accompanied by material portions of the record as would support the petition.

Peralta, C.J. (Chairperson), Caguioa, Reyes, Jr., and Lazaro-Javier, JJ.