Kawasaki Heavy Industries Ltd. vs. The Commissioner of Internal Revenue

DECISION

This cese involves petitioner's clljim for refund of erroneousllf paid 10% Va lue Added Tax (VAT) in the amount of P112, 167.34 for tile third quflrter ending September 30, 1988. Petitioner, Kewaseki Heavy Industri es Ltd. (1'"1enile Office), is t he representative off ice in the Philippines of Kawasaki Heavy Industries Ltd. (KHI), FJ foreign corporation orgl3nized 13nd exi sti ng · under the 1 ews of Jop13n.

v\'it.h the prior epprovl31 of the Boerd of Investments [Exhs.

I

D end D-1, pp. 40-41, CT A record] KH I W13S able t o acquire a li cense from the Securities end E~<cht.mge Commission [Exh. C, p. 40, CTA record] to establish a representative office, he~v ing the follo wing functions:

69~ . '

DECISION

C. T.A. Case Ho. 4507

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a.

To oversee the 1rnplementat10n of the Joint

Venture

Agreement

between the

Philippine

Government (through NIDC) and Kawasaki Heavy Industries Ltd . ~ b.

To conduct and make surveys end studies of m8rket, economic and finencial conditions in the Philippines; and c.

To advi se and render assistance to local ,jistributors/indentors and customers in the Philippines.

On October 20, 1988, petitioner paid the 10% VAT for the third quarter ending September 30, 1988, amounting to P 11 2,167.34, covered by BIR Payment Order No. C 4036610 [Exh. F, p. 44, CT A record] and CB Confirmation Receipt No. B 15565546 [Exit G, p. 44, CTa record].

On July 4, 1989, respondent issued BIR Revenue Ruling No. 25- 000-00-136-89, the pertinent portion of which reads as follows: [Exh. H, pp. 45-47, CT A record.] "In reply, please be informed as follows: I.

Questions I, 2 and 3 being interrelated are hereby answered jointly.

KHI

Manila

Representative is not a resident foreign corporation since it is not engaged in any income generattng business in the Philippines.

A resident foreign corporation is a foreign corporation engaged in trade or business in the Philippines [Section 20(h), Tax Code).

Accordingly, KHI 1'-lanila is not subject to income tax; hence, it is exempt from filing of the corporate income tax return. (BIR Ruling No. 370-87) 700 .'t ' !

DECISIOB

C.T.A. Case Ho . 4507

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KHI

is a non-resident foreign corporation since it is a foreign corporati on not engaged in trade or business in the Philippines [Sec. 20(i), Tax Code]. The technical service fees 'Nhich you rernit to KHI are considered royalties since they are in consideration for the "technical advice, assistance or services rendered in connection with technical management or edrninistretlon of any scientific, industrial or comrnercial undertaking, venture, project or scheme". [Sec. 36(a)(3)(F), Ibid.] Said technicel service fees being Philippine source income of KHI ere subject to Phi l ipplne corporete income tex et the rete of 35% [Sec. 25(b)( 1 ), Ibid.] which shall be withheld by you es the payor-corporation and paid in the se1me menner f.md subject to the s8me conditions es provided in Sec. 5 1 of the Tax Code. [Sec. 50(e), Ibid. I 2.

KHI does not maintai n a branch i n the Philippines. Hence, by payfng directly the technical service fees to KH I in Japan, it cannot be said that there is remittance of profits, directly or indirectly, from the brench to its head offi ce. Your Question No. 4 is, therefore, answered in t.he negative si nce, the 15% branch profit tax i mposed under Section 25{a)(5) of the Tax Code is a tsx on any profit remitted by a branch to its head office. 3.

KHI Manila Office is not subject to VAT since it is not engaged in any income- gener ting business activity jn the Philippines. A person is subject to VAT if it renders service ·in the course of trade or business"_ (Sec. 9 Tax Code)

X X X

X X X

X X X.'' In 1 ine with th1 s ruling, petft1oner fil ed on April 19, 1990 a cl aim for refund 1n the tot~t amount of P757, 160.37, es erroneot~sly paid 4% contractor's tex for the first quarter of 701 • i

DlCISIOR

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1988 and the 10% value-added tax for the second, third and f ourth quarters of 1988 and the first quarter of 1989.

Up to the

fi l ing of the instant petition on October 19, 1990, respondent has not acted on such clai m for refund. In answer, respondent contends that the petition states no cause of action since the claim for refund i s still pending investigation in the Bureau of Internal Revenue. The petition f8il ed to mention petit.ioner· l eg I cap city to sue. In claims for refund tt1e burden is ot the taxpayer to prove entitlement thereto.

During the

trial, petitioner presented the following docurnentf:lry ev1den e to support its clai m for re und: 1.

Letter claim for refund with the BIR dated Aprll 19, 1990 [Exhs. A, A-1 to A-5-a, inclusive);

2. Letter of petitioner's General l"lanager aut hori zing Atty. Douglas G. Baarde to file a claim for refund on behalf of petitioner [Exhs. 6 and B-ll;

3.

SEC Registratlon Certificate and 801 Certificate of

Authoritw [Exhs. C, D and D-1 ];

4. Contractor's Quarterly Percentage Tax Return for the third quarter ending September 30, 1988 [Exhs. E, E- 1 t o E-3, inclusive];

5. BIR Payment Order No. C 40366 1 o and CB Confirmation • Receipt No. B 15565546 [Exhs. F, F -1, F - 1, G, G-1 and G-2l; and

6. BIR Legislative end Research Di vision Rul ing No. 25- 000-00-136-89 dated .Jul 4, 1989 [Exhs. H, H- 1 to H-2b, i nclusi ve].

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/

DECISION

C. T.A.

Ca~e Ho . 4507

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Respondent did not object to their admission. When it was time for respondent to present his evidence, after a series of postponements, he opted instead to submit the case based on the records and pleadings.

The sole i ssue for determination is whether or not petitioner is subject to t he Value-Added Tax. This same question has been resolved in an earlier case involvinQ the same parties v·there this Court ruled: "The app 1 i cable pro vision of 1 aw i s Section 99 or

the National

Internal Revenue Code, quoted rlereunder:

·sec. 99.

Persons l iob/e. - Any person who, in the course of trade or business, se 11 s, berters or exchanges goods, renders services, or engages in simi 1 ar transactions and any per son who imports goods shall be subJect to the value-added t ax (VAT) imposed in Sections 100 to 102 of this Code.' In vievv of the findings of the BIR as embodied in its tJforementioned ruling that Petitioner i s not engaged in an~J income generating business acti vity in the Philippines, this Court likewise believes that it w1ll not. be subjected to va 1 ue-added t ax pursuant to the 8f orequoted Section 99 of the Tax Code. Value-added tax is irnposable only against person, individual or juridical entity, in the course of their tn11je or business activities selling, barteri ng or exctumging of goods, or renderi ng ser vices for a .fee or other si mll ar transaction. Respondent failed to present any evidence that will show that Petitioner has t1een enQaQed in anq of t hese econom1c ~ - - activities, at l east to di spute its ovvn findinqs contained in tlie said BIR Rul ing ... [Kowosol<i Heovy Industries ltd. (Monilo Office) v. Commr. of

DECISION

C. T. A. Case Ho . 4507

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Internal Revenue .. CTA Case No. 4473. June

11. 1993.1 In v 1 ew of Our op1 m on that petitioner is not engaged 1n any trade or business, cons1denng that it is only a representative office, and pursuant to BIR Ruling No. 25-000-00-136-89 in relation wtth Section 99 of the Tax Code, 'We find it unnecessary to pass upon the same issue rai sed. To reiterate petitioner is not subject t the Value- Added Tax.

WH REFORE# finding the petition meri orious, respondent is hereby ordered to refund to petitioner the amount of Pl12,167.34 which was erroneously paid by the latter as value- added tax for the third quarter end1ng September 30, 1988. No costs.

WE CONCUR:

~tJ .~

ERN

TO D. ACOSTA

Presiding Judge

~u Associ ate Judge - ~

P~~

RAMON 0_ OE ~~A

Associate Judge

DECISION

C_T_A_ Case No _ 4507

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CERTIFICATION

I heret1y certify that this decisi on vvas reached after due consultation among the members of the Court of Tax Appeals in accordance with Section 13, Arti cle VIII of the Constitution. 705 ~0 .. ~

ERNESTO 0_ ACOSTA

Presiding Judge

Court of Tax Appeals

'l