Macquarie Offshore Services Pty LTD.-PHILIPPINE Branch vs. Commissioner of Internal Revenue

DECISION

CASANOVA,].:

These are two (2) consolidated Petitions for Review¹, separately filed by Macquarie Offshore Services Pty. Ltd. - Philippine Branch (petitioner), pursuant to Rule 8, Section 4(a) of the Revised Rules of the Court of Tax Appeals (RRCTA), in relation to Rule 4 thereof, to review by appeal the inaction of the respondent Commissioner of Internal Revenue over petitioner's administrative claim for tax refund or issuance of tax credit certificate of its alleged excess and unutilized input value-added tax (VAT) on purchases of goods and services attributable to its zero-rated sales of services~

covering the period July 1, 2008 to March 3 t 2009, in the aggregate amount of P4,318,178.19, broken down as follows: CTA Case No.

Period Covered

Amount

8221

July to December 2008

p 2,129,229.47 8282

January to March 2009

2,188,948.72

TOTAL

P4,318,178.19 Petitioner is the Philippine branch of a multinational company organized and existing under and by virtue of the laws of Australia. It is licensed to do business as a Regional Operating Headquarters

(ROHQ)

in the Philippines by the Securities and Exchange

Commission (SEC) on April 10, 2008, pursuant to the Omnibus Investment Code of 1987, as amended by Republic Act No. 8756 and its implementing rules and regulations, to engage in general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communication and business development.² Its principal place of business is at the 30th Floor, Tower I, The Enterprise Center, Ayala Avenue, Makati City.³ Respondent is the duly appointed Commissioner of Internal Revenue, with the authority to act as such, including the power to decide, approve and grant claims for issuance of tax credit certificate or refund of overpaid internal revenue taxes as provided by law. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City.

As a Regional Operating Headquarters, petitioner is engaged in the business of providing qualifying services to its affiliates and8-.

related parties in the Asia-Pacific Region and in other foreign markets as clearly stated in SEC Certificate of Registration and License.⁴ These services were paid in Australian dollars (AUD) an acceptable foreign currency inwardly remitted through its account at Hong Kong and Shanghai Banking Corporation (HSBC) and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).s Petitioner purchased goods and services in the course of rendering services in the Philippines as a Regional Operating Headquarters to its foreign client.6 It is registered with the Bureau of Internal Revenue (BIR) as a VAT -registered taxpayer, with Taxpayer's Identification No. (TIN) 261-474-856-000, as evidenced by its Certificate of Registration OCN 9RC0000266681 dated June 2, 2008.7 Petitioner filed its original Quarterly VAT Returns for 2nct. 3rct and 4th quarters of fiscal year 2009, on the following dates: 8~

Exhibit

Fiscal Year 2009

D

July to September 2008 (2nd Qtr)

E

October to December 2008 (3rd Qtr)

F

January to March 2009 (4th Qtr)

Date Filed

October 27, 2008 January 22, 2009 April21, 2009 On September 23, 2010, petitioner filed with the BIR Revenue District Office No. 4 7 an Application for Tax Credits/Refunds (BIR Form No. 1914) and a letter9 dated September 23, 2010, requesting for the refund/issuance of Tax Credit Certificate (TCC) in the amount of P2,129,229.4 7, representing unutilized input value-added tax (VAT) attributable to its zero-rated sales for the period covering July 2008 to December 2008 or for second (2nd) and third (3rd) quarters of fiscal year 2009.

On November 25, 2010,10 petitioner filed before the BIR

Revenue

District

Office

No.

47 an

Application

for

Tax

Credits/Refunds (BIR Form No. 1914) and a letterll dated November 24, 2010, requesting for the refund/issuance of Tax Credit Certificate (TCC) in the amount of P2,188,948.72, representing unutilized input value-added tax (VAT) attributable to its zero-rated sales for the period covering January to March 2009 (4th) quarter of fiscal year 2009.

However, due to the inaction of respondent Commissioner of Internal Revenue on petitioner's administrative claims, petitioner filed the two separate Petitions for Review docketed as CT A Case Nos. 8221 and 8282 on January 27, 2011 and April 20, 2011, respectively.

At the instance of petitioner, the two (2) separate cases filed were consolidated by the Third Division on August 22, 201112 which g..

was confirmed by the CTA Second Division in a Resolution13 dated August 31, 2011.

Respondent interposed the following Special and Affirmative Defenses in her Answers to the Petitions for Review docketed as CTA Case Nos. 822114 and 828215:

goods and services attributable to its zero-rated sales for the 2nd to 3rd Quarters of fiscal year 2009 was not fully substantiated by proper documents, such as sales invoices, official receipts and others. 11) In an action for tax credit or refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to discharge the said burden is fatal to the claim (Emmanuel & Zenaida Aguilar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxation in the Philippines, 1 st Edition, p. 206).

12) Claims for refund are construed strictly against the claimant, the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs.

Commissioner of Internal Revenue, 124 SCRA 121)." CTA Case No. 8282 "1.

Respondent reiterates and repleads the preceding paragraphs of the answer as part of her Special and Affirmative Defenses;

2.

Petitioner's claim for refund is still subject to investigation by the Bureau of Internal Revenue; 3.

Petitioner failed to demonstrate that the tax, which is the subject of this case, was erroneously or illegally collected;

4.

Taxes paid and collected are presumed to be made in accordance with the laws and regulations, hence, not refundable;~

5.

It is incumbent upon the Petitioner to show that it has complied with the provision of Section 204(C) in relation to Section 229 of the 1997 Tax Code, as amended;

6.

Petitioner's claim for refund or issuance of tax credit certificate in the amount of Php2,188,948.72, as alleged unutilized input VAT paid on purchases of goods and services attributable to its zero-rated sales for the 4th Quarter of fiscal year 2009 was not fully substantiated by proper documents, such as sales invoices, official receipts and others. 7.

In an action for tax credit or refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to discharge the said burden is fatal to the claim (Emmanuel & Zenaida Aguilar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxation in the Philippines, 1 st Edition, p. 206).

8.

Claims for refund are construed strictly against the claimant, the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor. (Western Minolco Corp. vs.

Commissioner of Internal Revenue, 124 SCRA 121)." On June 23, 2011 and February 2, 2012 this Court, upon Motion16 of petitioner, appointed Jerome Antonio B. Constantino as Independent Certified Public Accountant (Independent CPA).1 7 During trial, petitioner presented as witnesses Garry Taylor, its Division Director and resident agent18 and Jerome Antonio 8~

Constantino, the Independent CPA duly commissioned by this Court19.

Thereafter, on November 16, 2012, petitioner filed its Formal Offer of Documentary Evidence,2o submitting Exhibits ,A, to ,NNN," inclusive of sub-marking which was admitted by the Court in the Resolution21 dated January 7, 2013. During the April 10, 2013 hearing22, petitioner orally offered Exhibit ,000" which was duly admitted by the Court on even date. Likewise, respondent manifested that she will not be presenting any evidence in this case. Thus, this Court granted the parties a period of thirty (30) days from said date or until May 10, 2013 to file their Memoranda; afterwhich, the case shall be deemed submitted for decision.

In the Resolution23 dated July 3, 2013, the case was submitted for decision taking into consideration Petitioner's Memorandum, filed through registered mail on May 17, 2013, and received by this Court on May 30, 2013 and respondent's Memorandum, filed through registered mail on June 7, 2013, and received by this Court on June 20, 2013.

The following are the parties' jointly stipulated issues in CTA Case Nos. 8221 24 and 8282 25 submitted for this Court's resolution: CTA Case No. 8221 "1. Whether or not petitioner rendered services to persons engaged in business conducted outside the Philippines, the services were paid for in Australian Dollars inward!~

remitted to the Philippines and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas for the 2nd to 3rct Quarters of Fiscal Year 2009 (or for the period of July to December 2008).

2. Whether or not petitioner's sales of services to persons engaged in business conducted outside of the Philippines is subject to VAT at zero-percent.

3. Whether or not petitioner has accumulated excess input VAT for the 2nd to 3rct quarters of f. y. 2009 amounting to Php2,129,299.4 7.

4. Whether or not petitioner's input VAT in the amount of Php2,129,229.4 7 is directly attributable to its alleged zero-rated sales for the 2nd to 3rd quarters of f. y. 2009;

5. Whether or not petitioner input VAT in the amount of P2,129,229.47 remains unutilized;

6. Whether or not petitioner's claim for refund/tax credit of alleged input VAT for the 2nd to 3rct quarters of f. y. 2009 is duly substantiated by documentary evidence.

7. Whether or not petitioner has complied with the invoicing requirements pursuant to Revenue Regulation No. 16-2005.

8. Whether or not petitioner is entitled to claim a refund or tax credit in the amount of Php2,129,229.47 representing alleged excess and unutilized input VAT for the 2nd to 3rd quarters of f. y. 2009.~

CTA Case No. 8282 "1. Whether or not petitioner rendered services to persons engaged in business conducted outside the Philippines, the services were paid for in Australian Dollars inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas for the 4th Quarter of Fiscal Year 2009 (or for the period of January to March 2009).

2. Whether or not petitioner's sales of services to persons engaged in business conducted outside of the Philippines is subject to VAT at zero-percent.

3. Whether or not petitioner has accumulated excess input VAT for the 4th Quarter of fiscal year 2009 amounting to Php2,188,948.72.

4. Whether or not petitioner's input VAT in the amount of Php2,188,948.72 is directly attributable to its alleged zero-rated sales for the 4th Quarter of fiscal year 2009.

5. Whether or not petitioner input VAT in the amount of Php2,188,948.72 remains unutilized.

6. Whether or not petitioner's claim for refund/tax credit of alleged input VAT for the 4th Quarter of fiscal year 2009 is duly substantiated by documentary evidence.

7. Whether or not petitioner has complied with the invoicing requirements pursuant to Revenue Regulation No. 16-2005.

8. Whether or not petitioner is entitled to claim a refund or tax credit in the amount of Php2,188,948.72~ representing alleged excess and unutilized input VAT for the 4th Quarter of fiscal year 2009." The foregoing issues boil down to one issue: "Whether or not petitioner is entitled to a refund of and/ or issuance of a TCC in the aggregate amount of P4,318,178.19, representing petitioner's excess and unutilized input VAT paid on purchases of goods and services attributable to its zero-rated sales of services covering the period July 1, 2008 to March 31, 2009. The Court shall first determine the timeliness of the filing of the instant claim, since it will determine the necessity of resolving petitioner's compliance with the other requisites. A. Timeliness of the claim ~ Section 112 (A) of the NIRC of 1997, as amended, plainly provides that a VAT-registered person may apply for the issuance of a tax credit certificate or refund of creditable input tax attributable to zero-rated or effectively zero-rated sales within two years after the close of the taxable quarter when the sales were made. On the other hand, Section 112(C) of the same Tax Code clearly states that the affected taxpayer may appeal with the CTA within thirty (30) days from receipt of the decision or from inaction of the Commissioner of Internal Revenue after the lapse of the one hundred twenty (120) day period, to wit:

"(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 Subsection (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) Taking into consideration the foregoing provisions, petitioner timely filed its claim for refund or tax credit both in the administrative and judicial levels, as illustrated below: Last day of the 2-year Last day of prescriptive the 30-day

Period

Close of the

period to file

Date of

Last day of period to

Covered

taxable administrative

Administrative

the 120-day judicially

Judicial

(FY 2009)

quarter claim

Claim

period appeal

Claim

2nd Quarter

30-Sep-08

30-Sep-10

23-Sep-1026

21-Jan-11

20-Feb-11

27-Jan-11

3rd Quarter

31-Dec-08

31-Dec-10

4th Quarter

31-Mar-09

31-Mar-11

25-Nov-1027

25-Mar-11

24-Apr-11

20-Apr-11

This Court will now proceed to determine petitioner's compliance with the other requisites. Petitioner duly filed with the Bureau of Internal Revenue (BIR) its Quarterly VAT Returns for the second to fourth quarters of Fiscal Year 2009 (or for the period of July 2008 to March 2009) declaring the following:

VAT Sales

Zero-Rated Sales

Total Sales

Output VAT

Less: Allowable Input VAT

Input Tax Carried-Over from Previous

Quarter

Input Tax Deferred on Capital Goods

26 Exhibit "C".

27 Exhibit "ZZ".

2nd Qtr

Exhibit "D"

p 7,165,419.00 7,165,419.00 - p 116,357.14 3rd Qtr 4th Qtr

Exhibit "E"

Exhibit "F"

p 35,092,061.37 p 45,081,987.03 35,092,061.37 45,081,987.03 - - p 933,773.97 p 2,245,586.61 599,771.29 537,427.57

Exceeding P1M from Previous Qtr

Total

Input VAT for the current transactions Purchase of Capital Goods not

Exceeding P1M

Purchase of Capital Goods Exceeding

P1M

Domestic Purchase of Goods other than Capital Goods

Domestic Purchase of Services

Services Rendered by Non-residents

Total Current Input VAT

Total Available Input VAT

Less: Deductions from Input VAT

Input Tax on Purchase of Capital

Goods exceeding P1M deferred for the succeeding period

VAT Refund/TCC Claimed

Total

Total Allowable Input VAT

Excess/Unutilized Input VAT

p 116,357.14 p 1,533,545.26 p 2,783,014.18 662,115.00 150,942.47 406,800.26 417,690.49 604,130.65 842,668.67 1,708,914.51 p 1,417,188.12 p 1,249,468.93 2,126,605.00 1,533,545.26 2,783,014.19 4,909,619.18 599,771.29 537,427.57 475,083.86 p 599,771.29 p 537,427.57 p 475,083.86 p 933,773.97 p 2,245,586.62 p 4,434,535.32 p 933,773.97 p 2,245,586.62 P4,434,535.32 Petitioner is claiming a refund or TCC in the aggregate amount of P4,318,178.19 representing excess and unutilized input VAT paid for the second to fourth quarters of fiscal year 2009, broken down as follows:

2nd Quarter 3rd Quarter 4th Quarter

Total

Input Tax Deferred on Capital

Goods exceeding P1M from

Previous Quarter

p 599,771.29 p 537,427.57 p 1,137,198.86

Add: Input Tax on Capital Goods

exceeding P1M Purchased this

Quarter

p 662,115.00 662,115.00

Total: Unamortized Input Tax on

Capital Goods exceeding P1M p 662,115.00 p 599,771.29 p 537,427.57 p 1, 799,313.86

Less: Input Tax on Purchases of

Capital Goods exceeding P1M deferred for the succeeding _geriod 599,771.29 537,427.57 475,083.86 1,612,282.72

Amortization of Input Tax on

Capital Goods exceeding P1M p 62,343.71 p 62,343.72 p 62,343.71 p 187,031.14

Add: Input Tax on:

-

Domestic Purchase of Goods

other than Capital Goods p 150,942.47 p 406,800.26 p 417,690.49 p 975,433.22

Domestic Purchase of

Services

604,130.65 842,668.67 1,708,914.51 3,1 55,713.83

Total

755,073.12 1,249,468.93 2,126,605.00 4,131,14 7.05

Total Allowable Input Tax

p 817,416.83 p 1,311,812.65 p 2,188,948.71 p 4,318,178.19

Less: Output Tax Due

Excess Input Tax

p 817,416.83 p 1,311,812.65 p 2,188,948.71 P4,318,178.19

U"

Pertinent to the present claim is the provisiOn of Section 112(A) of the NIRC of 1997, as amended, which reads: "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(8) (1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): 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(8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero rated sales."

Based on the foregoing, in order to be entitled to a refund or tax credit of unutilized input VAT, the following must be complied with:

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

2. that input taxes were incurred or paid;

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

4. that the input taxes were not applied against any output tax liability; and

5. that the claim for refund was filed within the two-year prescriptive period.

The Court shall discuss the validity of petitioner's claim by verifying the compliance with the above-mentioned requirements. B. There must be zero-rated or effectively zero-rated sales - In its VAT returns for the 2nd to 4th quarters of FY 2009, petitioner reflected the following zero-rated sales:

Exhibit

Period covered FY 2009

Amount

D

2nd Quarter p 7,165,419.00

E

3rd Quarter 35,092,061.37

F

4th Quarter 45,081,987.03

Total

p 87,339,467.40 Petitioner claims that its sales of services were rendered almost exclusively to Macquarie Financial Holdings Limited (MFHL) during the fiscal year 2009. These services, though rendered in the Philippines, were for the exclusive benefit of MFHL who is domiciled in Australia and the payment of which were in AUD remitted to petitioner's bank account in the Philippines. As such, these sales are VAT zero-rated pursuant to Section 108(B)(2) of the NIRC of 1997, as amended, which reads as follows:

"SEC. 108.-Value-added Tax on Sale of Services and Use or Lease of Properties.- "(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 (Oo/o) rate:~

"(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); "(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);"

In the case of Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. 28, the Supreme Court held that in order for the supply of services to be VAT zero- rated under Section 108(8)(2) of the NIRC of 1997, as amended, the following requisites must be met:

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.

Petitioner complied with the foregoing requirements~

Petitioner is a duly licensed Regional Operating Headquarter (ROHQ)29 engaged in general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communication; and business development.30 Such qualifying services rendered to its affiliates and related parties in the Asia Pacific Region and in other foreign markets services are not the same category as "processing, manufacturing or repacking of goods". For the 2nd to 4th quarters of FY 2009, petitioner rendered services to Macquarie Financial Holdings Limited (MFHL)31, an entity registered under the laws of Australia32 and which is not registered with the Philippine SEC either as a corporation or as a partnership.33 Petitioner's business transactions with MFHL was governed by a Service Agreement dated April 1, 2009 which was duly signed by its representatives and bears the Common Seal of both parties.34 Corollary to the second requisite, Sections 113 (A) (2), (B) (1 ), (2)(c) and (3) of the NIRC of 1997, as amended, and as implemented by Sections 4.113-1(A)(2), 8(1) and (2)(c) of Revenue Regulations (RR) No. 16-05 provides that a VAT taxpayer, like the herein petitioner, shall for every lease of goods or properties and for every sale, barter or exchange of services, issue a VAT official receipt, which must contain the following information: "SEC.

113.

Invoicing

and

Accounting

Requirements for VAT -registered Persons.- "(A) Invoicing Requirements. -

A VAT-registered

person shall issue: e-

XXX

XXX

XXX

"(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.

"(B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt: "(1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN);

"(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided,

That:

XXX

XXX

XXX

"(c) If the sale is subject to zero percent (Oo/o) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;

XXX

XXX

XXX

"(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and xxx (emphasis supplied) SEC. 4.113-1.

Invoicing Requirements. - (A) A VAT -registered person shall issue: - ~

XXX

XXX

XXX

(2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services.

Only VAT -registered persons are required to print their TIN followed by the word "VAT" in their invoice or official receipts. Said documents shall be considered as a "VAT Invoice" or VAT official receipt. All purchases covered by invoices/receipts other than

VAT

Invoice/VAT Official Receipt shall not give rise to any input tax.

VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records.

(B) Information contained in VAT invoice or VAT official receipt. - The following information shall be indicated in VAT invoice or VAT official receipt:

(1) A statement that the seller is a VAT-registered person, followed by his TIN;

(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided, That:

XXX

XXX

XXX

(c) If the sale is subject to zero percent (Oo/o) VAT, the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt;" (emphasis supplied) Pursuant to the foregoing provtswns, the foreign currency remittances referred by Section 108(B)(2) of the NIRC of 1997, as amended, must, likewise, be supported by VAT zero-rated official receipts.~ In compliance thereto and to prove that it generated zero-rated sales and that the corresponding foreign currency payments it received were accounted for in accordance with the rules and regulations of the BSP, petitioner offered in evidence its sales invoices35 and official receipts36 issued to MFHL, as well as the certificates of inward remittances37 issued by HSBC. However, a comparison of the amounts of zero-rated sales/receipts declared in the Quarterly VAT Returns against the amounts supported by sales invoices, official receipts and inward remittances disclosed a discrepancy of P2,139,544.97, detailed as follows:

Per Invoice/OR/Inward

Per VAT Returns

Remittances

Exhibit

Amount

Exhibit

Amount

Discrepancy

Macquarie Group Hold 2 Ltd I

Macquarie Financial Holdings Ltd

LL-1/MM-1/11

p 7,165,419.00 Total 2nd Qtr FY 2009

D

P7, 165,419.00 P7,165,419.00

Macquarie Group Hold 2 Ltd I

Macquarie Financial Holdings Ltd

LL-2/MM-1/11

5,067,371.63

Macquarie Group Hold 2 Ltd I

Macquarie Financial Holdings Ltd

LL-3/MM-1/11

2,810,770.86

Macquarie Group Hold 2 Ltd I

Macquarie Financial Holdings Ltd

LL-4/MM-2/11

6,791,793.69

Macquarie Group Hold 2 Ltd I

Macquarie Financial Holdings Ltd

LL-5/MM-2/11

18,949,421.37 - Total 3rd Qtr FY 2009

E

35,092,061.37 33,619,357.55 P1.4 72,703.82

GGG-1/HHH-

Macquarie Financial Holding Limited

1/lll 8,747,405.21

GGG-2/HHH-

Macquarie Financial Holding Limited

1/lll 10,236,869.56

GGG-3/HHH-

Macquarie Financial Holding Limited

2fJJJ 10,217,066.75

GGG-4/HHH-

Macquarie Financial Holding Limited

2/JJJ

15,213,804.36 Total 4th Qtr FY 2009

F

45,081,987.03 44,415,145.88 666,841.15

Total Zero-Rated Sales

P87,339,467.40 P85,199,922.43 P2,139,544.97 Based on records, the discrepancy of P2,139,544.97 is comprised of the following: eY

Year-end adjustment

Sale to Macquarie Services Hongkong

Limited

Total

p 666,841.15 1,4 72,703.82 p 2,139,544.97 The amount of P666,841.15, allegedly pertaining to year-end adjustment, is not supported by any pertinent document, thus, shall be disallowed.

On the other hand, the alleged zero-rated sale to Macquarie Services Hongkong Limited (MSHL) in the amount of P1,472,703.82 shall, likewise, be disallowed for the same is not duly supported by any other pertinent document such as sales invoice, official receipts or proof of inward remittance. Moreover, no supporting document was presented to prove that MSHL is a corporation registered and conducting business outside the Philippines. Thus, only the amount of P85,199,922.43 representing petitioner's sales to MFHL which are duly supported by documentary evidence qualify for VAT zero rating under Section 108(8)(2) of the NIRC of 1997, as amended. Consequently, only the portion of the input VAT claim attributable thereto may be considered for refund. The rate to be applied is based on the total declared amount of zero- rated receipts and is computed as follows: Substantiated zero-rated sales p 85,199,922.43 Divided by total declared zero-rated sales 87,339,467.40 Rate of substantiated zero-rated sales 0.975503114 C. That input taxes were incurred or paid and were attributable to zero-rated ofeffectivelv zero-rated sales After having resolved that petitioner's sales to MFHL in the amount ofP85,199,922.43 qualify for VAT zero rating, the Court will ~ now proceed to the determination of whether or not petitioner incurred or paid input taxes in connection therewith.

1. Input

VAT

purchases of services other goods on domestic goods and than capital In its VAT Returns for the 2nd to 4th quarters of FY 2009, petitioner declared input VAT on its purchases of services and goods other than capital goods in the aggregate amount of P4,131,147.05, broken down as follows:

Input VAT on:

2nd Quarter 3rd Quarter 4th Quarter

Total

Domestic Purchase of Goods other than

Capital Goods

p 150,942.47 p 406,800.26 p 417,690.49 p 975,433.22

Domestic Purchase of Services

604,130.65 842,668.67 1,708,914.51 3,155,713.83

TOTAL

p 755,073.12 P1,249,468.93 P2,126,605.00 P4,131,147.05 1 2 3 In support thereof, petitioner offered in evidence BIR Form 1600 with bank payment slips, sales invoices and official receipts38 issued by its various suppliers which were examined by the Independent CPA, Mr. Jerome Antonio B. Constantino of Constantino Guadalquiver & Co. In his Report dated March 5, 2012,39 the ICPA summarized his findings as follows: 2nd Quarter 3rd Quarter 4th Quarter

FY March 2009

FY March 2009

FY March 2009

Consolidated

Findings

(Annex 2-A)

(Annex 2-B)

(Annex 2-C)

Total

PROPERLY SUBSTANTIATED

Input VAT on domestic purchases of goods supported by "TIN-VAT" invoices p 85,802.14 p 114,679.28 p 198,566.32 p Input VAT on domestic purchases of services supported by "TIN-VAT" official receipts (ORs) 37,061.03 78,753.54 30,720.65 Input VAT on domestic purchases of goods supported by "VAT REG TIN" invoices 21,428.57 71,218.21 8,653.97 38 Exhibits "NN-1" to "NN-35; "00-1" to "00-7''; "PP-1" to "PP-49" and "MMM-1" to "MMM- 85".

39 Exhibit "FFF".

399,047.74 146,535.22 101,300.75 4 5 6 7 8 9 10 11 12 1 2 3 4

Input VAT on domestic purchase of services supported by "VAT REG TIN"

ORs

Input VAT on domestic purchase of goods supported by "VAT REG TIN" invoices with erasures in the amount but with countersignature Input VAT on domestic purchase of service supported by "VAT REG TIN" ORs with erasures in the amount but with countersignature Input VAT on domestic purchase of service supported by "VAT REG TIN" ORs with erasures in the address but with countersignature Input VAT on domestic purchase of goods supported by "TIN VAT" invoices not dated within the VAT-taxable quarter but within the taxable FY March 31, 2009 Input VAT on domestic purchase of services supported by "TIN VAT" ORs not dated within the VAT-taxable quarter but within the taxable FY March 31, 2009 Input VAT on domestic purchase of services supported by "VAT REG TIN" ORs not dated within the VAT-taxable quarter but within the taxable FY March 31,2009 Input VAT on domestic purchase of goods supported by "VAT REG TIN" invoices not dated within the VAT- taxable quarter but within the taxable FY March 31, 2009 Input VAT on domestic purchases of services supported by BIR Form 1600 and bank payment slip subtotal

OTHER FINDINGS

Input VAT on domestic purchase of services supported by "VAT REG TIN" ORs dated outside the taxable FY March 31,2009 Input VAT on domestic purchase of services supported by "TIN VAT" ORs dated outside the period the taxable FY March 31,2009 Input VAT on domestic purchase of goods supported by "TIN VAT" invoice dated outside the taxable FY March 31, 2009 Input VAT on domestic purchase of services supported by "TIN-VAT" ORs with incomplete petitioner's name (e.g. Macquarie Offshore Services only, Macquarie only) 179,276.80 69,471.64 1,077,560.15 1,326,308.59 18,951.79 18,951.79 76,388.40 37,189.19 113,577.59 182,160.00 191,670.00 373,830.00 103,197.86 152,438.65 255,636.51 900.00 900.00 233,592.99 554,358.48 787,951.47 39,362.49 39,362.49 21,840.00 21,840.00 634,449.93 1,235,041.50 1,715,750.72 3,585,242.15 278,660.64 278,660.64 5,785.70 5,785.70 45,731.39 45,731.39 14,051.80 14,051.80 5 6 7 8 9 10 11 12 13 14 15

Input VAT on domestic purchase of services supported by "VAT REG TIN" ORs with incomplete petitioner's name (e.g. Macquarie Offshore Services only, Macquarie only) Input VAT on domestic purchase of services supported by documents other than ORs Input VAT on domestic purchase of services supported by "TIN" only ORs Input VAT on domestic purchase of services supported by "VAT REG" only

ORs

Input VAT on domestic purchase of goods supported by "TIN VAT" invoice without Petitioner's TIN Input VAT in domestic purchase of services supported by "TIN VAT" ORs with incorrect Petitioner's TIN Input VAT on domestic purchase of goods supported by "TIN-VAT" invoices with incomplete petitioner's name and no TIN Input VAT on domestic purchase of goods supported by "TIN VAT" invoices without petitioner's name and address Input VAT on domestic purchase of services supported by "TIN-VAT" ORs without Petitioner's address Input VAT on domestic purchase of services supported by certified true copy of"VAT REG TIN" ORs Input VAT in domestic purchase of goods supported by certified true copy

of"TIN VAT" Invoice

5,400.00 5,400.00 23,986.21 23,986.21 23,241.29 23,241.29 2,505.50 2,505.50 840.00 8,513.58 9,353.58 128.16 128.16 283.20 283.20 10,080.00 10,080.00 295.14 295.14 60,000.00 60,000.00 66,402.32 66,402.32

Subtotal

120,623.19 14,427.44 410,854.30 545,904.93

GRAND TOTAL

p 755,073.12 P1,249,468. 95 P2, 126,605.02 P4,131,147.08 Based on the above findings, the amount of P545,904.93 under the subtitle "Other Findings" shall be disallowed outright for the reasons stated therein.

Likewise, the Court finds that the following input VAT should be disallowed from petitioner's claim for its 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:

Findings

I Exhibit No. I Input VAT Amount 1 Domestic purchases of services supported by VAT ORs wherein the input VAT are not separately indicated

CTA CASE NOS. 822 1 & 8282

King of Travel

King of Travel

King of Travel

HBO+EMTB Construct, Inc.

King of Travel

King of Travel

King of Travel

King of Travel

Quest Highlands, Inc.

HBO+EMTB Construct, Inc.

subtotal

NN-8

NN-9

NN-10

NN-34

PP-9

PP-12

PP-13

PP-14

PP-24

MMM-19

p 24.32 49.28 24.64 21,533.63 58.93 50.14 50.57 216.75 5,160.00 24,609.86 51,778.12 2 Domestic purchase of goods supported by VAT invoice wherein the input 3 4 VAT is not separately indicated Cornersteel Systems Corp.

PP-7

2,410.71 subtotal 2,410.71 Domestic purchase of services supported by document other than VAT

OR

Business Process Outsourcing

MMM-30

966.36 subtotal 966.36 Over-claimed input VAT on domestic purchases of services supported by

VA TORs

Manila Bulletin Publishing Corp.

MMM-44

Manila Bulletin Publishing Corp.

MMM-45

Manila Bulletin Publishing Corp.

MMM-46

Manila Bulletin Publishing Corp.

MMM-47

Ascott Makati, Inc.

MMM-56

subtotal

TOTAL

2. Input

VAT

on domestic purchases of capital goods and services 178.39 178.39 178.39 178.39 4,117.66 4,831.22 p 59,986.41 A comparison of the total amount of input VAT indicated in the petitioner's VAT returns for the 2nct quarter of FY March 2009 covering the period July to September 2008 against the total amount of input VAT indicated in the invoices issued by HBO+ EMTB for its Space Planning Interior Consultancy Project Administration and Construct Services disclosed the following:~

2nd Quarter FY March 2009 (July 2008 to Sept. 2008):

Per Quarterly VAT Return

Per Invoices of Capital goods for the period

July to December 2008:

Invoice No. 08-06-143 Invoice No. 08-06-144

Total

Difference- VAT return over (under)

Purchases

p 5,517,625.00 5,071,312.50 959,017.86 6,030,330.36 p (512,705.36)

Input VAT on

Domestic

Purchase of

Capital goods

Exceeding P1

Exhibit

Million

Reference

p 662,115.00

Exhibit "D"

608,557.50

Exhibit "0 0-1"

115,082.14

Exhibit "00-2"

723,639.64 p (61,524.64) The ICPA stated in his Report that the difference of PS 12,705.36 in domestic purchases of capital goods exceeding P1 Million is due to the professional fees paid which was included in invoice number 08-06-143 and reported as input tax on domestic purchases of services as indicated in the schedule of HBO+ EMTB prepared by the petitioner.

For the 3rct and 4th quarters of FY 2009, petitioner does not have any purchases of capital goods. Upon examination of the invoices and official receipts related to the claimed input VAT on domestic purchases of goods exceeding P1 Million, the Court finds the following: a) Of the total Purchases of P6,030,330.36 supported by invoices nos. 08-06-143 and 08-06-144, the amount already included as domestic purchases of services (other than capital goods) is PS46,278.67 with the related input VAT of P65,553.44.

Hence, only the amount of PS,484,051.69 pertains to capital goods and services, as presented below:

Domestic Purchases of

Domestic Purchases of Capital

Total Purchases

Services

Goods and Services

Exhibit

NetofVAT

Input VAT

NetofVAT

Input VAT

NetofVAT

Input VAT

NN-11/00 -1

p 1,267,828.13 p 152,139.38 p 128,176.33 p 15,381.16 p 1,139,651.80 p 136,758.22

NN-34/MMM-

760,696.88 91,283.63 179,446.92 21,533.63 581,249.96 69,750.00

CTA C ASE NOS. 8221 & 8282

19 00-4 sub-total 00-2

PP-49

sub-total

TOTAL

1,014,262.50 121,711.50 205,082.17 24,609.86 809,180.33 97,101.64 1,521,393.75 182,567.25 1,521,393.75 182,567.25 253,565.63 30,427.88 253,565.63 30,427.88 126,782.81 15,213.94 126,782.81 15,213.94 126,782.81 15,213.94 126,782.81 15,213.94 5,071,312.51 608,557.52 512,705.42 61,524.65 4,558,607.09 547,032.87 239,754.46 28,770.54 239,754.46 28,770.54 647,337.05 77,680.45 647,337.05 77,680.45 47,950.89 5,754.11 33,573.25 4,028.79 14,377.64 1,725.32 23,975.45 2,877.05 23,975.45 2,877.05 959,017.85 115,082.15 33,573.25 4,028.79 925,444.60 111,053.36 p 6,030,330.36 p 723,639.67 p 546,278.67 P65,553.44 P⁵,484,051.69 p 658,086.23 b) Of the purchases of P5,484,051.69 classified as capital goods and services, only the amount of P2,900,800.01 is duly substantiated by valid official receipts. It bears stressing that the purchases of P5,484,051.69 actually pertain to purchases of services as described in the sales invoice. As such, it must be supported by VAT official receipts in accordance with Sections 110(A), 113(A) and (B) of the NIRC of 1997, as amended, and as implemented by Sections 4.110-2, 4.110-8, 4.113-1 of RR No. 16-2005, as shown below:

Total Purchases

OR Exhibit No.

OR No.

OR Date

NetofVAT

Input VAT

Remarks

NN-11/00-3

00-4

NN-11/00-3

sub-total

NN-34/MMM-

19/00-5

PP-49

sub-total

TOTAL

1091 7/24/2008 p 1,139,651.80 p 136,758.22 supported by valid VAT OR 1094 11/4/2008 1,521,393.75 182,567.25 supported by valid VAT OR 1091 7/24/2008 239,754.46 28,770.54 supported by valid VAT OR 2,900,800.01 348,096.01 1093 9/22/2008 581,249.96 69,750.00 input VAT not separately indicated 809,180.33 97,101.64 input VAT not separately indicated 1099 4/27/2009 14,377.64 1,725.32 dated outside the period of claim 1,404,807. 93 168,576.96 p 4,305,607.94 p 516,672.96 c) Pursuant to Section 110(A) of the NIRC of 1997, as amended, and in relation to Section 4.110-3 of RR No. 16- 2005, the input VAT claim on capital goods with acquisition cost exceeding P1 Million, excluding the VAT component thereof, shall be spread evenly over 60 months or the estimated useful life of the capital good, whichever is shorter. Thus, out of the P348,096.01 substantiated input@-

VAT, as shown above, only the amount of P78,234.89 shall be allowable for refund/credit, computed as follows:

Estimated

useful life

Total Amortization

(No. of

Monthly

(2nd to 4th quarters FY OR Exhibit No.

OR Date

Input VAT

months)

Amortization

2009)

NN-11/00-3

7/24/2008 p 136,758.22 29 p 4,715.80 p 42,442.20 00-4 11/4/2008 182,567.25 29 6,295.42 31,477.10

NN-11/00-3

7/24/ 2008 28,770.54 60 479.51 4,315.59

TOTAL

p 348,096.00 p 11,490.73 p 78,234.89 To recapitulate, petitioner's substantiated input VAT for the z nct to 4th quarters of FY 2009 amounted to P3,790,521.74, computed as follows:

Claimed Input VAT for refundjTCC p 4,318,178.19

Less:

Disallowances

Per !CPA Report p 545,904.93 Per this Court's Findings 59,986.41 605,891.34

Balance

p 3,712,286.85

Add:

Amortization of Input VAT on domestic purchases of services 78,234.89

Substantiated Input VAT

P3,790,521.74 However, out of the substantiated input VAT ofP3,790,521.74, only the amount of P3,697,665.76 can be attributed to the substantiated zero-rated sales of P85,199,922.43, computed as follows:

Substantiated zero-rated sales p 85,199,922.43 Divided by total declared zero-rated sales p 87,339,467.40 Rate of substantiated zero-rated sales 0.975503114 x Substantiated Input VAT p 3, 790,521.7 4

Refundable Input VAT

p 3,697,665.76 D. The input taxes were not applied against any output VAT liability-?-

It was established 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 is no output VAT for the period July 2008 to December 201040 against which the input taxes may be credited or applied. Moreover, in its Quarterly VAT Returns, petitioner deducted the amounts of P2,129,229.47 and P2,188,948.71, the subject claim, as "VAT Refund/TCC Claimed" for the second41 and third42 quarters of FY 2011, respectively. In other words, the aggregate input VAT of P23,972,276.02 43 as of the end of third quarter of FY 2011 carried over to the fourth quarter of FY 2011,44 no longer included the claimed input VAT. In sum, petitioner has sufficiently proven its entitlement to a refund or issuance of a tax credit certificate in the reduced amount of P3,697,665. 7 6, representing unutilized input VAT attributable to its zero-rated sales to Macquarie Financial Holdings Limited (MFHL) for the second, third and fourth quarters of FY March 2009.

WHEREFORE, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent is ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in the amount of P3,697,665.76, representing unutilized input VAT attributable to its zero-rated sales to Macquarie Financial Holdings Limited (MFHL) for the second, third and fourth quarters of FY March 2009.

CAESAR ~ANOVA

Associate Justice

WE CONCUR:

~ CQ;)f-~Q fUANIT(f c. CASTANEDA, cyR. '

Associate Justice

A4~~

AMELIA R. COTANGCO-MANALASTAS

Associate Justice

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, 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.

\k~~ c.~~~ \J f{JANITO C. CAST ANEDA{JIC

Acting Presiding Justice