Sony Ericsson Mobile Communications International Ab vs. Commissioner of Internal Revenue

DECISION

Fabon-Victorino, J.:

This case involves a claim for refund or issuance of a tax credit certificate in the amount of Ten Million Six

Hundred Seventy Three Thousand Five Hundred Ninety

Eight Pesos and

Eleven Centavos (Php10,673,598.11), allegedly representing petitioner's unutilized input value- added tax (VAT) attributable to zero-rated sales for the period covering January 2007 to December 2007.

THE FACTS

Petitioner Sony Ericsson Mobile Communications AB

claims that it is a branch office registered with and licensed

by the Securities and Exchange Commission (SEC) to

transact business in the Philippines, with office address at 7th

Floor

Octagon

Building,

San

Miguel

Avenue,

Ortigas

Complex, San Antonio, Pasig City. 1 It is a registered VAT ~

taxpayer with Taxpayer Identification Number {TIN) 219- 660-821-000 as evidenced by Certificate of Registration No. 0000172137 VAT issued by the Bureau of Internal Revenue {BIR). 2 Respondent, on the other hand, is the Commissioner of the BIR, who has the power, among others, to decide, approve, and grant claims for refund or tax credit of erroneously or excessively paid taxes. She holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City.

During the 1st, 2nd I 3rd I and 4th quarters of taxable year 2007, petitioner allegedly rendered services to its foreign affiliates by organizing promotional events for the local market to launch new products and services under the brand name "Sony Ericsson."

As compensation for services rendered, it received fees in foreign currency remitted to its local bank. 3 In relation to the aforementioned marketing services, petitioner incurred/paid input taxes on its purchases of goods and services. Petitioner further posits that for the four quarters of 2007, it filed Quarterly VAT Returns 4 to which it reported

VAT

zero-rated sales/receipts in the amount of Php137,277,662.33 and input VAT of Php10,673,598.12, broken down as follows:

Zero-rated

Exhibit

Year2007

Sales/ Receipts

Input VAT

F

1st Quarter p 34 360,383.76 p 2,072,882.37

G

2nd Quarter 30,525,192.08 3,523,168.85

H

3rd Quarter 30,898,017.51 2,667,318.05

I

4th Quarter 41,494,068.98 2,410,228.85

TOTAL

P137,277,662.33 P10,673,598.12 On March 30, 2009, petitioner filed an application for refund or issuance of tax credit certificate with the BIR

erA Case No. 7897

Revenue District Office (RDO) No. 43-Pasig of its alleged unutilized input VAT attributable to its zero-rated sales covering the period from January 2007 to December 2007 in the amount of Php10,673,598.11. 5 The day after or on March 31, 2009, petitioner filed the instant Petition for Review 6 citing respondent's inaction on its administrative claim for refund or tax credit. On May 15, 2009, respondent filed her Answer 7 interposing the following special and affirmative defenses: 7.

The claim for refund is still under examination by the respondent's Bureau;

8.

The burden of proof is upon the petitioner to prove that it is entitled to the claim for refund or issuance of tax credit certificate;

9.

The grant of claim for refund tantamount to an exemption from taxation which is construed strictly against the claimant and in favor of the taxing authority;

10.

The taxes sought to be refunded were paid in accordance with law; the burden of proof to the contrary is upon the petitioner-claimant to show with clear and unambiguous provision of law supporting the same. After the Pre-trial Conference, 8 the parties filed their Joint Stipulation of Facts and Issues9(JSFI), which the Court approved on July 8, 2009. 10

In support of its allegations, petitioner presented three witnesses, namely: 1) Reggie Dela Cruz-Zhang, its Business Controller; 2) Edward L. Roguel, the Court Commissioned Independent Certified Public Accountant (ICPA); and 3) Christian M. Cantera, its Contracts and Tax Manager, all of whom executed a Judicial Affidavit for their respective direct testimonies.

Witness

Reggie

Dela

Cruz-Zhang

testified 11 that petitioner is primarily engaged in providing marketing services to its affiliate companies located outside the Philippines by organizing promotional events for the local marker to launch new products and services under the brand name "Sony Ericsson".

In providing these marketing services, it imports products and materials from abroad for displays in the promotional blitz. It also hires advertising agencies and other contractors to facilitate the event. As compensation for these services rendered to foreign affiliates, petitioner is paid in foreign currency duly remitted to its local bank.

Further, petitioner's input VAT on the purchases made have not been applied against any output VAT in the same and subsequent taxable periods as all its sales were VAT zero-rated pursuant to Section 108(B)(¹) and (²) of the

National

Internal Revenue Code

(NIRC) of 1997, as amended. On March 30, 2009, petitioner filed an application for tax refund with the RDO No. 43 - Pasig, in the amount of Php10,673,598.11 which was deducted from the total available input taxes of petitioner. 12 ICPA Edward L. Roguel claimed that he verified the original documents supporting petitioner's claim for refund for the period January 1, 2007 to December 31, 2007. As appearing in his Report13 dated December 7, 2009 and the Supplemental Report14 dated June 16, 2010, the amount of input VAT that may be subject of refund is Php7,201,432. 72. Atty. Christian M. Cantera, petitioner's Contracts and ~ Tax Manager, testified that petitioner is a VAT registered

entity with

Certificate

of

Registration

No.

OCNSRC0000172137 and Tax Identification Number (TIN)

219-660-821-000 issued by the BIR. It is primarily engaged in providing marketing services to its affiliate companies located outside the Philippines by organizing promotional events for the local market to launch new products and services under the brand name "Sony Ericsson." Petitioner is a Philippine Branch of Sony Ericsson Mobile Communications International, AB - the Head Office. The services rendered to its Head Office is subject to VAT at zero percent (0%) rate pursuant to Section 108(B)(2) of the NIRC of 1997 since the Head Office is engaged in business conducted outside the Philippines. On recall Atty. Cantera rectified his previous statement in his affidavit dated April 21, 2010 saying that petitioner renders services not to its Head Office but to Sony Ericsson Mobile Communications, AB, a corporation organized in Sweden (Exhibit "QQ") and not engaged in business in the Philippines. 15 After petitioner was deemed to have rested its case, counsel for respondent manifested that respondent would no longer present evidence and would submit the case for decision 16 after the parties' filing of their respective memoranda. 17 In any event, only petitioner filed a memorandum. 18

THE ISSUES

In their JSFI, 19 the parties listed the following issues for the resolution of the Court, to wit:

erA Case No. 7897

A.

WHETHER

OR

NOT

PETITIONER'S

SALES

OF

SERVICES

TO

ITS

AFFILIATE

COMPANIES

LOCATED

OUTSIDE

THE

PHILIPPINES

ARE

ZERO-RATED SALES.

B.

WHETHER OR NOT PETITIONER HAS

UNUTILIZED INPUT VAT FOR THE

FOUR QUARTERS OF TAXABLE YEAR

2007 ATTRIBUTABLE TO ITS SALES

OF

SERVICES

TO

ITS

AFFILIATE

COMPANIES LOCATED OUTSIDE THE

PHILIPPINES IN THE TOTAL AMOUNT

OF Php10,673,598.11.

C.

WHETHER OR NOT THE PETITIONER

SEASONABLY

FILED

ITS

ADMINISTRATIVE

AND

JUDICIAL

CLAIMS FOR REFUND.

D.

WHETHER OR NOT PETITIONER IS

ENTITLED TO A TAX CREDIT/REFUND

FOR ITS UNUTILIZED CREDITABLE

INPUT VAT FOR THE FOUR QUARTERS

OF TAXABLE

YEAR

2007 IN THE

TOTAL

AMOUNT

OF

Php10,673,598.11.

Clear from the foregoing that the key issue is whether petitioner is entitled to refund or issuance of tax credit certificate in the amount of Php10,673,598.11, representing its alleged unutilized input VAT for the period covering January 1, 2007 to December 31, 2007.

THE COURT'S RULING

Petitioner anchors its claim for refund or tax credit on Section 112 of the NIRC of 1997, as amended, which readsJ as follows:

SEC. 112. Refunds or Tax Credits of Input Tax.-

(A) Zero-Rated or Effectively Zero-

Rated Sales. - Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(6)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the 6angko Sentral ng Pilipinas (6SP): Provided, further, That where the taxpayer is engaged in zero- rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(6)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales.

Thus, to be entitled to a refund or tax credit of unutilized input VAT attributable to zero-rated or effectively zero-rated sales, petitioner must prove the following elements:

1. That there must be zero-rated or effectively zero-rated sales;

2. That input taxes were incurred or paid; v

3. That such input taxes are attributable to zero- rated or effectively zero-rated sales;

4. That the input taxes were not applied against any output VAT liability; and

5. That the claim for refund was filed within the two-year prescriptive period. The Court finds it paramount to address first the timeliness of the filing of petitioner's refund claim. Pursuant to Section 112(A) of the NIRC of 1997, a taxpayer must file an application for refund or tax credit of unutilized or excess creditable input VAT attributable to its zero-rated sales within two (2) years after the close of the taxable quarter when the sales were made. In the present case, the subject of the claim for refund or issuance of tax credit certificate is petitioner's unutilized creditable input VAT attributable to its alleged zero-rated sales for the four quarters of taxable year 2007.

Counting

from March 31, 2007, June 30, 2007, September 30, 2007, and December 31, 2007, the close of the first, second, third, and fourth quarters, respectively, petitioner had until March 31, 2009, June 30, 2009, September 30, 2009, and December 31, 2009, respectively, within which to file its administrative claim with respondent. Evidently, petitioner seasonably filed its administrative claim for the period covering January 1, 2007 to December 31, 2007 on March 30, 2009. 20 This however is not true insofar as petitioner's judicial claim for refund/tax credit is concerned. Section 112(C) of the NIRC of 1997, as amended, provides, thus: SEC. 112. Refunds or Tax Credits of Input Tax.-

XXX

XXX

XXX

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the

Court

of

Tax

Appeals.

(Emphasis

supplied) Thus, respondent had 120 days from the submission of complete documents by petitioner within which to act on the latter's claim for refund/tax credit. In case of full or partial denial of the claim for refund or tax credit, or after the lapse of the allowable 120-day period without any action from respondent, petitioner had 30 days from receipt of the adverse decision or from the lapse of the 120-day period, within which to seek relief from the Court via a Petition for Review.

Since petitioner's administrative claim for refund was filed on March 30, 2009, it had 120-days or until July 28, 2009, as enunciated in Section 112(C), to seek judicial relief. In the instant case however, petitioner did not wait for the 120- day period to lapse and prematurely filed its Petition for Review with the Court on March 31, 2009 which would have otherwise justify a denial of the petition due to premature filing depriving the Court of jurisdiction to hear and determine the same.

V

However, in the recent consolidated cases of Commissioner of Internal Revenue vs. San Roque Power Corporation, Taganito Mining Corporation vs. Commissioner of Internal Revenue, and Phi/ex Mining Corporation vs. Commissioner of Internal Reveneu/ 1 the Supreme Court En Bane provided a window in the application of the prescribed 120-30 day periods in claims for refund of input VAT. The Final Arbiter ruled that the mandatory and jurisdictional nature of the 120+30 day period does not apply on claims for refund filed from December 10, 2003, when BIR Ruling No. DA-489-03 was issued, up to October 6, 2010, when it was reversed by the Supreme Court in the case of

Commissioner of Internal Revenue

vs.

Aichi Forging

Company of Asia, Inc.

The Supreme Court explained that BIR Ruling No. DA-489-03 which expressly provides that the "taxpayer-claimant need not wait for the lapse of the 120- day period before it could seek judicial relief with the CTA by way of a Petition for Review", is a general interpretative rule which can be relied upon by all taxpayers from the time of its issuance on December 10, 2003 up to its reversal by the Supreme Court on October 6, 2010 in the case of

Commissioner of Internal Revenue

vs.

Aichi Forging

Company of Asia, Inc. 22 Accordingly, the filing of petitioner's judicial claim on March 31, 2009 should be considered on time.

Proceeding with the other requisites for entitlement to a refund, petitioner submits that its sale of services to its affiliate abroad is zero-rated pursuant to Section 108(B)(2) of the NIRC of 1997, which reads as follows: SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.

XXX

XXX

XXX

(B) Transactions Subject to Zero Percent

(0%) Rate.

The following services performed in the

Philippines by VAT-

registered persons shall be subject to zero percent (0%) rate:

J

XXX

XXX

XXX

(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the

Bangko

Sentral

ng

Pilipinas

(BSP);

Moreover, in the case of Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc, 23 the Final Arbiter enumerated the requisites in order that the sales of goods and services may be considered VAT zero-rated, to wit:

1. The services must be other than processing, manufacturing or repacking of goods;

2. Payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations; and

3. The recipient of such services is doing business outside the Philippines.

The record shows that petitioner complied with the first and third requirements.

For the taxable year 2007, petitioner rendered services to Sony

Ericsson

Mobile

Communications, AB, a non-resident foreign corporation engaged in business conducted outside the Philippines, by providing marketing services like organizing promotional J

events to launch new products and services under the brand name "Sony Ericsson" in the local market. 24 To prove that that Sony Ericsson Mobile Communications, AB is a non- resident foreign corporation engaged in business conducted outside the Philippines, petitioner presented a Certification of Non-Registration 25 issued by the Philippine SEC together with the Certificate of Registration of Sony Ericsson Mobile Communications, AB26 in a foreign country and the Articles of Association 27 of "Sony Ericsson Mobile Communications International AB"28, petitioner's Head Office. The second requirement was likewise satisfied. For services rendered in the taxable year 2007, petitioner received foreign currency payments which were accounted for in accordance with the BSP rules and regulations as evidenced by official receipts 29 issued by petitioner, Verification of Foreign Currency Inward Remittance per Bank Statemene0 and Bank Statements. 31 However, a comparison of the amount of zero-rated sales/receipts declared in the Quarterly VAT Returns 32 against the amount of collections per Cash Receipts Book33 disclosed a discrepancy of Php993,191.92, detailed as follows:

2007 Zero-Rated Receipts

Period

Per

Per Cash

Covered

Exhibit

VAT Returns

Exhibit

Receipts Books

Variance

1st Quarter

F

p 34 360 383.76

X-1 to X-3

p 34,342 094.39 p 18 289.37 2nd Quarter

G

30,525 192.08

X-4 to X-6

30,298 437.46 226 754.62 3rd Quarter

H

30,898 017.51

X-7 to X-9

30 914 030.00 (16 012.49) 4th Quarter

I

41 494,068.98 X-10 to X-12 40,729 908.56 764 160.42

Total

P137,277,662.33 P136,284,470.41 P993,191.92

ICPA Edward L. Roguel explained that the variance amounting to Php993,191.92 was due to the difference in foreign exchange rate used in converting the dollar amount into peso.

For VAT reporting purposes, the collections in dollar were converted into peso using the foreign exchange rates at the time of sale, except for the collections during the month of September, which were reported based on the exchange rate at the time of collection. However, in the cash receipts book, the collections in dollars were converted into peso using the foreign exchange rates at the time of collections.

Accordingly, except for the foregoing noted differences, the reported zero-rated sales/gross receipts transactions were recorded in the Company's general ledger and reported in the Audited Financial Statements. 34 Thus, petitioner's sales of services in the aggregate amount of Php136,284,470.41 to Sony Ericsson Mobile Communications, AB, its sole non-resident foreign client/affiliate, which are properly supported by valid VAT zero-rated official receipts, qualify for VAT zero-rating under Section 108(8)(2) of the NIRC of 1997, as amended, to wit:

Per Official Receipt

Per Bank Statement

Per Cash Receipt Book

Amount in

Amount in

Amount

Date

Exhibit

USD

Exhibit

USD

Exhibit in Peso

01/09/07

Z-1

$ 67 078.39

AA-1

$ 276,265.39

X-1

p 3 279 127.09 01/09/07

Z-2

209 187.00 10 226 106.50 02/02/07

Z-3

75 390.32

AA-2 & AA-3

75 390.32

X-2

3,677,615.20 02/06/07

Z-4

44,180.89

AA-2 & AA-3

44,180.89

X-2

2 152 183.59 03/02/07

Z-5

98 610.34 4 789 602.82 03/02/07

Z-6

24 075.76

AA-4

308,971.65

X-3

1169 383.74

03/02/07

Z-7

186 285.55 9 048 075.45 04/12/07

Z-8

191 759.77

AA-5

191 759.77

X-4

9,226,713.09 04/27/07

Z-9

70 204.36

AA-6

70 204.36

X-5

3,338,287.52 05/07/07

Z-10

152 520.05

AA-6 &AA-7

152 520.05

X-5

7,271 088.34 06/05/07

Z-11

39 077.50

AA-8

228,845.28 1 786 545.14 06/05/07

Z-12

189 767.78

X-6

8 675 803.37 07/03/07

Z-13

139,763.97

AA-9

178,086.30 6 428 583.56 07/03/07

Z-14

38 322.33

X-7

1 762 673.89 08/06/07

Z-15

128 321.25

AA-10

242,915.83 5,874 546.83 08/06/07

Z-16

114 594.58

X-8

5,246,139.87 09/06/07

Z-17

135 099.22

AA-11

135,099.22

X-9

6 272 251.49 09/10/07

Z-18

114,163.44

AA-12

114 163.44

X-9

5 329 834.36 10/04/07

Z-19

117 671.32

AA-13

117 671.32

X-10

5 295 091.73 10/11/07

Z-20

173 982.24

AA-14

173 982.24

X-10

7,685,317.49 10/23/07

Z-21

80 596.06

AA-15

80 596.06

X-10

3,552 835.52 11/05/07

Z-22

177 080.51

AA-16 & AA-17

177,080.51

X-11

7 782 157.17 34 Exhibit "BB", pages 5-6, under letter "d".

J

11/20/07

Z-23

110 612.64

AA-16 & AA-17

110 612.64

X-11

4 798 708.16 12/04/07

Z-24

220 026.66

AA-18

220 026.66

X-12

9 320,769.37 12/14/07

Z-25

55 783.12

AA-18

55 783.12

X-12

2 295 029.12 A.

B.

c.

D.

E.

F.

$2,954,155.05 $2,954,155.05 P136 284 470.41 Anent the second requisite for the entitlement to a refund of input VAT, petitioner reported input VAT for the four quarters of taxable year 2007 in the aggregate amount of Php10,673,598.12, details of which are as follows:

PURCHASES

IMPORTATION

OF GOODS

OF GOODS

OTHER

OTHER

THAN Capital

THAN Capital

PURCHASE

Exhibit

Year 2007

Goods

Goods

OF SERVICES

Input VAT

F

1st Quarter p 157,109.00 p 172 820.40 p 1,742 952.97 p 2 072 882.37

G

2nd Quarter 43,396.06 460 726.00 3,019 046.79 3 523 168.85

H

3rd Quarter 2 260 701.48 4 718.57 401898.00 2 667 318.05

I

4th Quarter 1 628 030.92 148 635.93 633 562.00 2 410 228.85 P10 673 598.12

The ICPA

presented two separate reports dated December 7, 2009 and June 16, 2010. In his report dated December 7, 2009, 35 he assured that petitioner's claimed input VAT on purchases of goods and services are properly supported by original copies of appropriate VAT invoices (for purchases of goods) and VAT official receipts (for purchases of services), except for the input

VAT

claim of Php4,212,159.64 summarized in items "A" to "0", as follows:

INPUT VAT

EXCEPTIONS NOTED

EXHIBIT

CLAIM

Certain local purchases of services were not supported by

AF-3

VAT official receipts p 35,619.00 Certain local purchases of goods were not supported by

AF-4

VAT invoices 4,060.72 Certain invoices and official receipts were dated outside the

AF-5

year of claim 758,560.05 Certain invoices and official receipts were not named after

AF-6

the Company

39 352.72 Certain invoices and official receipts did not show the

AF-7

address of the Comoanv 1 825.01 Certain invoices and/or official receipts were supported by

AF-8

Non-VAT invoice and/or Non-VAT official receipts 77,579.12 35 Exhibit "BB", p. 9.

G.

H.

I.

J.

K.

L.

M.

N.

o.

Certain invoices and/or official receipts which had been previously claimed in other quarters were claimed again in anotherquarter Importations supported by Import Entry and Internal Revenue Declaration which are dated outside the year of claim Importations supported with photocopied IEIRD or IIDE

and Official Receipts

Importations Supported by BOC Form No. 38A only ImPOrtations with no suooortino documents

Importations with Import Entry and Internal Declaration

which does not show the complete name of the Company Importations Supported by BOC Form No. 38A which reflects the incomplete name of the Company and supported by Informal Import Declaration and Entry but containing the incomplete name of the Company Local purchases wherein no documents were provided for examination Excess amount of input VAT claimed based on the comparison between the amount reflected in the schedule aoainst the supportino documents Total Exceptions noted Amount of Input VAT without exceptions

AF-9

224,904.00

AF-10

40,145.40

AF-11

2 808.00

AF-12

2,722.00

AF-13

6 511.00

AF-14

36,932.00

AF-15

19 648.00

AF-16

2 926 411.12

AF-17

35,081.50 p 4,212,159.64

AF-1 and AF-2

p 6,461 438.47 In his subsequent Supplemental Report dated June 16, 2010, 36 the ICPA examined additional invoices and official receipts of petitioner's purchases supporting the input VAT of Php2,926,411.11 previously marked as input VAT from "local purchases wherein no documents were provided for examination"37 and was included in the disallowed amount of Php4,212,159.64 in his original report of December 7, 2009 and made the following findings: Total amount of input VAT previously marked "Input VAT from local purchases wherein no documents were provided for examination" in !CPA's report dated December 7, 2009.

Less: Exceptions noted

EXCEPTIONS NOTED

A.

Certain local purchase supported by debit note and the amount of VAT is not separately shown B.

Certain official receipts were dated outside the year of claim c.

Certain official receipts which had been previously claimed in other quarters were claimed again in another quarter D.

Certain official receipts did not show the address

and TIN of the Company

36 Exhibit "00", p. 3.

37 Exhibit "AF-16".

EXHIBIT

AMOUNT

HH

P107 142.86

II

75 198.84

JJ

41 244.91

KK

3 118.06 p 2,926,411.11

J

E.

Certain official receipts did not show the TIN

of the Company

LL

1 244.81 F.

Local purchases that were still no documents provided for examination

MM

1 958 467.38 P2 186.416.86 Amount of Input VAT without exceptions

GG

Accordingly, the amount of input exceptions per the !CPA's findings Php7,201,432.72, detailed as follows:

INPUT VAT WITHOUT EXCEPTIONS PER ICPA'S

FINDINGS

EXHIBIT

p 739,994.25

VAT

without amounted to

AMOUNT

Per Exhibit "BB" (original !CPA report)

AF-1 and AF-2

p 6 461,438.47 Per Exhibit "00" (supplemental !CPA report)

GG

739,994.25 Total Input VAT without exceptions per ICPA's findings P7 201 432.72 It should be noted that the ICPA findings under "Exceptions noted" were disallowed for failure to meet the substantiation requirements under Sections 110{A) and 113{A) and (B) of the NIRC of 1997, as amended, and as implemented by Sections 4.110-1, 4.110-8, and 4.113-1 of Revenue Regulations No.

16-2005.

Hence, the total disallowances per

ICPA

report amounted to Php³,472, 165.3938 • But further evaluation of the official receipts, invoices, Informal Import Declaration and Entry (IIDEs), and Import Entry and Internal Revenue Declaration {IEIRDs)39 revealed that the following additional input taxes in the amount of Php163,242.37 should be disallowed for reasons as indicated below:

Exhibit

Supplier

OR No.

Input Tax

1. Input VAT on purchases of setvices wherein the VAT amount was not separately shown in the official receipts.

AF-1-38-a

Staff Alliance Inc.

14559 p 4 161.95

AF-1-39-a

Staff Alliance Inc.

14814 4 605.94

AF-1-40-a

Staff Alliance Inc.

14222 3 542.22 38 Php10,673,598.1lless Php7,201,432.72.

Af-1-40-a

Staff Alliance Inc.

AF-1-41-a

Staff Alliance Inc.

AF-1-42-a

Staff Alliance Inc.

AF-1-43-a

Diai-Ads Inc.

AF-1-44-a

Diai-Ads Inc.

Af-1-89-a

Staff Alliance Inc.

AF-1-90-a

Staff Alliance Inc.

AF-1-91-a

Staff Alliance Inc.

Af-1-92-a

Staff Alliance Inc.

Af-1-93-a

Insiahts & Ideas Research Consultancv

AF-1-94-a

Uvb Printina Corooration

AF-1-152-a

Isla liMna & Co.

AF-1-153-a

Staff Alliance Inc.

AF-1-154-a

Minuteman Printers Inc.

AF-1-155-a

Staff Alliance Inc.

AF-1-155-a

Staff Alliance Inc.

AF-1-156-a

Staff Alliance Inc.

AF-1-157-a

Staff Alliance Inc.

Af-1-158-a

The Wallace Business Forum Inc.

AF-1-191-a

Imavlsion Corooration

Af-1-192-a

Siahtads Coraoration

AF-1-193-a

Schenker Phils. Inc.

AF-1-194-a

Rounce Printina Coro.

AF-1-196

Sommelier Selection Inc.

Subtotal

14222 2 062.10 14394 6 794.71 14670 4 228.59 5604 648.00 5605 275.40 14974 8 120.68 15179 2 072.62 15231 5 776.68 15378 8 417.78 368 6 000.00 15404 1 566.96 9089 1545.00 15696 1 371.96 24846 3 000.00 16075 2 907.21 16075 1492.51 15534 3 796.90 15842 6,129.90 1739 19 714.29 1993 195.00 0056 37 500.00 038776 6 861.77 11692 4 102.71 5654 696.00 Pl47,S86.88

2. Discrem~nrv between Inout VAT oer claim and inout VAT oer suoo rlino documents. per

IEIRD/

per supporting

Exhibit

Suoolier

OR No.

claim document

Input Tax

AF-1-6

Exel Loaistics Mamt. Phils. Inc. 37062 p 882.95 p 852.00 p 30.95

AF-1-7

Exel Loaistics Mamt. Phils. Inc. 37090 1 290.20 1224.00 66.20

AF-1-8

Exel Laaistics Mamt. Phils. Inc. 37234 7,089.83 6,393.36 696.47

Sycip Salazar Hernandez & Gatmaitan Law

AF-1-11

Offices

5013707 4 296.00 4 096.00 200.00

AF-1-12

Thouahts & Notions Inc.

0081 1800.00 1500.00 300.00

AF-1-83

Y & R Philiooines Inc.

1229 26 639.96 13 553.14 13,086.82

AF-1-128

Asao Industrial Corooration

9683 2 080.71 2 062.14 18.57

AF-1-162-a

Chateau Louise Resources Inc. 1693 78.56 72.12 6.44

AF-2-17-a

Sonv Ericsson Mobile Communication AB

SN77852957

1 569.00 1 319.00 250.00

AF-2-115-a

Sonv Ericsson Mobile Communication AB

SN84133183

22 343.04 22 343.00 0.04

GG-9

Brand Worx Inc.

321 6 420.00 5 420.00 1 000.00

Subtotal

p lS,6SS.49

Total

P163,242.37 Thus, petitioner's substantiated input taxes for the four quarters of taxable year 2007 amounted to Php7,038,190.35, computed as follows: Inout VAT oer claim p 10,673,598.11 Less: Disallowances oer !CPA's findinos P3.472.165.39 Disallowances per this Court's further verification 163,242.37 3,635.407.76 Substantiated input VAT P7,038,190.35

Evidence show that petitioner's claimed input taxes were not applied against any output VAT liability during the period of claim and in the succeeding quarters since there was no output VAT for the period from January 2007 to September 2009 40 from which the input taxes might be credited or applied.

Albeit petitioner carried over the said input VAT to the succeeding first quarter of 2008 until the second quarter of 2009, the same remained unutilized until it was fully deducted as "VAT Refund/TCC Claimed" in the second quarter of 2009.

In other words, the input tax of Php15,864,398. 71 41 as of the end of the second quarter of 2009 carried over to the third quarter of 200942 no longer included the claimed input VAT. All stated, petitioner has sufficiently established that it is entitled to a refund or issuance of tax credit certificate corresponding to its unutilized input VAT for the period covering January 1, 2007 to December 31, 2007, but in a the reduced amount of Php7,038,190.35.

WHEREFORE, the instant Petition for Review is

PARTIALLY

GRANTED.

Accordingly, respondent Commissioner of Internal Revenue is hereby DIRECTED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner Sony Ericsson Mobile Communications International AB in the reduced amount of Php7,038,190.35, representing its unutilized input VAT attributable to its zero- rated sales for the taxable year 2007.

I Concur:

ER~P. UY

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. ER~.

UY

Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

Presiding Justice