Msci Hong Kong Limited vs. Commissioner of Internal Revenue

DECISION

Fabon- Victorino, J. :

This case is for refund or issuance of a tax credit certificate (TCC) in the amount of Seven Million Three

Hundred Thirty-Eight Thousand One Hundred Forty-Two

Pesos

and Ninety Centavos (P7,338,142.90), allegedly representing its excess and unutilized input value-added tax (VAT) for the four quarters of calendar year (CY) 2014, filed by petitioner MSCI Hong Kong Limited on July 26, 2016.

THE FACTS

Petitioner MSCI Hong Kong Limited is a Philippine branch office of a multi-national company registered in Hong Kong 1, with business address at 29th Floor Zuellig Building, Makati Avenue corner Paseo de Roxas, Makati City. It is engaged in the business of performing index benchmarking, portfolio risk and performance analytics, and research support services.

Petitioner is registered with the Securities and Exchange Commission (SEC) as a regional operating headquarters (ROHQ) with SEC Registration No. FS201404144 dated March 3, 2014, and with the Bureau of Internal Revenue (BIR) with Taxpayer Identification Number (TIN) 008-724-942-000. 2 Respondent, on the other hand, is the Commissioner of Internal Revenue (CIR) with the power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the National Internal Revenue Code (NIRC) or other laws or portions thereof administered by the BIR. He holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. Pursuant to a Service Agreement3 dated April 1, 2014, petitioner rendered administration, sales support and marketing, analytics, management and index research and production services in the Philippines to MSCI, Inc., a corporation established and registered in Delaware, United States of America (USA), with headquarters in New York, USA4 • For the services rendered to MSCI, Inc., petitioner was paid service fees amounting to P195,786,948.60. 5 On various dates, petitioner filed with the BIR its original and amended Quarterly VAT Returns for the four quarters of CY 20146, showing VAT zero-rated sales for the four quarters of CY 2014 amounting to P195, 786,948.60. On March 31, 2016, petitioner filed an Application for Tax Credits/Refund with the BIR Revenue District Office (ROO) No. 50 for its alleged unutilized input VAT for the four quarters of CY 2014 in the total amount of P7,338,142.907 appending thereto documents relevant to its claim. On April 19, 2016, petitioner received Letter of Authority

(LOA)

No.

LOA-050-2016-0000010

(eLA201200035798) 2 Exhibit "P-3".

3 Exhibit "P-4".

4 Exhibits "P-5", "P-6" and "P-7". 5 Exhibits "P-38" to "P-62". 6 Exhibits "P-9" to "P-16". 7 Exhibits "P-17'' to "P-18". / dated April 15, 20168, for examination of its books of accounts and other accounting records for VAT for the period covering January 1 to December 31, 2014. On June 27, 2016, petitioner received a letter signed by Revenue District Officer of BIR RDO No. 50, Rosita U. Meniano, denying the cited administrative claim for refund/tax credit9 • On July 26, 2016, petitioner filed the instant Petition for Review.

In his Answer10, respondent argues that petitioner failed to demonstrate that the subject tax was erroneously or illegally collected, thus, the presumption in favor of correctness of the taxes paid and collected applies. Besides, petitioner not only failed to prove entitlement to refund/TCC but also to substantiate it with proper documents. Lastly, respondent invokes the principle that claims for refund are construed strictly against the claimant for it partakes the nature of exemption from taxation 11 and as such, they are looked upon with disfavor12 • After the pre-trial conference13, the parties filed their Joint Stipulation of Facts and Issues (JSFI) 14 upon which the Pre-Trial Order15 dated February 28, 2017 was based. Trial ensued, during which petitioner presented Nerissa Tolentino and Katherine 0. Constantino, as its witnesses. Witness,

Nerissa

Tolentino, testified 16 that as petitioner's Senior Associate for Finance since May 2014, she reviews and safekeeps petitioner's corporate and financial documents, including tax returns and financial statements; oversees petitioner's compliance with the BIR requirements; 8 Exhibit "P-19".

9 Exhibit "P-20".

10 Docket, val. 1, pp. 160-163. 11 Commissioner of Internal Revenue v. Ledesma, 31 SCRA 95. 12 Western Minolco Corp. v. Commissioner of Internal Revenue, 124 SCRA 1211.

and coordinates with petitioner's external auditors and counsel regarding tax matters. She further testified that petitioner is the Philippine branch office of a multinational company registered in Hong Kong .17 It is a ROHQ engaged in the business of performing index bench marking, portfolio risk and performance analytics and research support services 18 and is a registered taxpayer with the BIR. 19 The instant case involves petitioner's claim for refund/TCC resulting from its excess and unutilized input VAT attributable to its zero-rated sales of services for CY 2014 in the amount of P7, 338,142.90.

Petitioner

rendered administration, sales support and marketing, analytics, management and index research and production services in the Philippines to MSCI, Inc. pursuant to its Service Agreement with MSCI, Inc. dated April 1, 201420 • She also declared that MSCI, Inc. is a foreign entity registered in Delaware, USA21 , therefore, not engaged in business in the Philippines22 • On this account, it appointed petitioner to perform the services indicated in the Service Agreement for which it was paid service fees equivalent to the amount of the actual costs and expenses it incurred plus ten percent (10°/o) mark-up.

For the 1st to 4th quarters of CY 2014, petitioner generated sales amounting to P195, 786,948.60. For the same period and in the course of rendering services to MSCI, Inc., it incurred excess and unutilized input VAT of P7,338,142.90. This occurred 23 since petitioner did not have any sales subject to twelve percent (12°/o) VAT and did not have any exempt sales during the four quarters of CY 2014, as reflected in its Quarterly VAT Returns. Hence, its input taxes amounting to P7 ,338, 142.90 were not utilized or applied against any output tax liability for the same or succeeding taxable periods.

The witness continued to state that on March 31, 2016, petitioner filed with BIR ROO No. SO a letter24 and Application for Tax Credits/Refunds25 of its unutilized input VAT for the 1st to 4th quarters of CY 2014 in the total amount of P7,338,142.90, with complete supporting documents. On April 19, 2016, petitioner received LOA-OS0-2016-0000010 (eLA20120003S798) dated April 1S, 201626 from the BIR authorizing the examination of its books of accounts and other accounting record for VAT for the period January 1, 2014 to December 31, 2014. On June 27, 2016, petitioner received a letter signed by Rosita U. Meniano, Revenue District Officer of BIR ROO No.

SO, denying its administrative claim for refund/TCC27, on the ground that petitioner carried over the amount subject of the claim for refund/TCC to the succeeding taxable period. According to the witness, while it is true that petitioner carried over its excess input taxes for the 1st to 4th quarters of CY 2014 amounting to P7,338,142.90 to the succeeding taxable period, it did not credit its input taxes against any output taxes from the 1st to 4th quarters of CY 201S28 there being no sales subject to 12°/o VAT. In fact, petitioner removed the said excess input taxes when it filed its Amended Quarterly VAT Return for the 4th Quarter of CY

201S 29 •

On July 26, 2016, petitioner elevated the said denial of its administrative claim for refund/TCC before the Court in Division.

Independent

Certified

Public

Accountant

(ICPA), Katherine 0. Constantino declared30 that she audited and evaluated petitioner's documents and records in support of its claim for refund/TCC for its excess and unutilized input VAT on its purchases of goods and services attributable to its zero- rated sales for the 1st to 4th quarters of CY 2014. Per her examination and as stated in his ICPA Report dated April 26, 201731 , petitioner is entitled to its claim for 24 Exhibit "P-17".

25 Exhibit "P-18".

26 Exhibit "P-19".

27 Exhibit "P-20".

28 Exhibits "P-21" to "P-26". 29 Exhibit "P-26".

30 Exhibits "P-29" and "P-29-1". 31 Exhibit "P-30".

/ refund of its excess and unutilized input VAT but in the reduced amount of PS,404,935.51. Such recommendation is based on the finding that some of petitioner's documents did not conform with the invoicing requirement as prescribed by law.

After formal offer of its evidence, petitioner rested, per Resolutions dated August 18, 201732 and January 4, 201833 • Respondent, on the other hand, did not present any evidence. 34 On March 12, 201835, the case was submitted for decision after the parties filed their respective memoranda.

THE ISSUE

The parties submitted the following issue36 for the Court's resolution:

Whether petitioner is entitled to the refund of or issuance of a TCC for its excess and unutilized input VAT attributable to its zero- rated sales of service for the 1st to 4th Quarters of CY 2014 in the amount of P7 ,338, 142.90.

THE RULING OF THE COURT

Sections 112(A) and (C) of the NIRC of 1997, as amended, relevantly provides: SEC. 112. Refunds or Tax Credits of Input Tax.- 32 Docket, vol. 2, pp. 1003-1004. 33 Docket, vol. 3, pp. 1049-1051. 34 Order dated August 22, 2017, docket, vol. 3, p. 1006. 35 Resolution, docket, vol. 3, p. 1092. 36 Issue, JSFI, docket, vol. 2, p. 516. /

(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 (B)(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 of 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 (B)(6), the input taxes shall be allocated ratably between his zero- rated and non-zero-rated sales.

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 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. Thus, to be entitled to refund/TCC of input tax due or paid attributable to zero-rated or effectively zero-rated sales, the following requisites must be satisfied: 1.

that the taxpayer is VAT-registered; 2.

that the claim for refund was filed within the prescriptive period;

3.

that there must be zero-rated or effectively zero-rated sales; 4.

that input taxes were incurred or paid; 5.

that such input taxes are attributable to zero-rated or effectively zero-rated sales; and 6.

that the input taxes were not applied against any output VAT liability.

Petitioner

is a

VAT-

registered taxpayer.

Undeniably, petitioner is a VAT-registered taxpayer with the BIR as evidenced by the Certificate of Registration No. OCN 9RC0000442793 dated March 13, 2014, and its Taxpayer Identification No. 008-724-942-000. 37 Petitioner's administrative and judicial claims were seasonably filed.

The second requisite was likewise satisfied. Per Section 112(A) of the NIRC of 1997, as amended, petitioner had two

(2) years to file a claim for refund/TCC of input VAT attributable to zero-rated or effectively zero-rated sales reckoned from the close of the taxable quarter when the relevant sales were made. Shown below are the dates of the last day of the two-year period for petitioner to file its administrative claim for the four taxable quarters of CY 2014:

Quarter

Close of Taxable Quarter

12014) pt March 31, 2014 2nd June 30, 2014 3rd September 30, 2014 4th

December 31 2014

Last day of the 2-year Prescri~tive Period March 31, 2016 June 30, 2016 September 30, 2016

December 31 2016

Evidently, petitioner's administrative claim for refund38 covering the four quarters of CY 2014 was timely filed on March 31, 2016.

As to the timeliness of petitioner's judicial claim for refund, Section 112(C) of the NIRC of 1997, as amended speaks of two periods for filing judicial claim for refund, namely: (1) the period of 120 days for respondent to act on the administrative claim for refund/TCC; and (2) the 30-day period from notice of respondent's adverse ruling or the lapse of the 120 period without any action from respondent within which to file a judicial claim with the Court of Tax Appeals. 39 In the landmark case of Commissioner of Internal Revenue vs. San Roque Power Corporation40, the Supreme Court held that the taxpayer can seek judicial review of its claim for refund/TCC in either of the following ways: (1) file the judicial claim within 30 days after the respondent denies the claim within the 120-day waiting period, or (2) file the judicial claim within 30 days from the expiration of the 120- day period if respondent does not act within that period. 41 Thus, from the filing of petitioner's administrative claim, together with the supporting documents, on March 31, 2016, respondent had one hundred twenty (120) days or until July 29, 2016 to act on the said claim. Considering that respondent issued a letter denying the claim on June 27, 201642, petitioner had thirty (30) days or until July 27, 2016, within which to file a judicial claim before this Court. Thus, the instant Petition for Review was also seasonably filed on July 26, 2016.

38 Exhibits "P-17" to "P-18". 39 ROHM Apollo Semiconductor Philippines v. Commissioner of Internal Revenue, G.R. No. 168950, January 14, 2015. 40 G.R. Nos. 187485, 196113, and 197156, February 12, 2013. 41 Supra, Note 39.

/ 42 Exhibit "P-20".

V

Petitioner is engaged in zero-rated or effectively zero-rated sales Petitioner alleges that for CY year 2014, it rendered services to MSCI, Inc., a corporation registered in the USA. In relation thereto, it claims that its sales of services to MSCI, Inc. for the four quarters of CY 2014 qualify as VAT zero-rated sales under Section 108(B)(2) of the NIRC of 1997, as amended, which reads:

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°/o) Rate. - The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0°/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); For the supply of services to be VAT zero-rated under Section 108(B)(2) of the NIRC of 1997, as amended, the following requisites must concur:

1.

the services must be other than processing, manufacturing or repacking of goods;

2.

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

the payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations. 43 Evidence shows that petitioner is engaged in the business of performing index benchmarking, portfolio risk and performance analytics, and research support services.

Further, per the Service Agreement entered into by and between petitioner and MSCI, Inc., the former shall provide administration, sales support and marketing, analytics, management and index research and production services to MSCI, Inc .. 44 Evidently, such services are not in the same category as "processing, manufacturing or repacking of goods".

With respect to the requisite that the recipient of such services must be doing business outside the Philippines, petitioner points out that it rendered services to MSCI, Inc., which is registered as a corporation in the State of Delaware, United States of America, and is engaged in business therein. In the the case of Deutsche Knowledge Services, Pte Ltd.

v. Commissioner of Internal Revenue45 Court En Bane held that to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both a certificate of non- registration of corporation/partnership issued by the

Philippine Securities and Exchange Commission (SEC) and

certificate/articles of foreign incorporation/association, and that there is no other indication that the recipient of the services is doing business in the Philippines. 43 Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007. j

To prove that petitioner's client, MSCI, Inc., is a non- resident foreign corporation doing business outside the Philippines, petitioner presented the SEC Certificate of Non- Registration of MSCI, Inc. 46 ;

the Authenticated Third

Amended and Restated Certificate of Incorporation,47 and Amended and Restated By Laws48 of MSCI, Inc., issued by the Secretary of the State of Delaware; and the Certificate of Tax Residence of MSCI, Inc.49 issued by the U.S. Internal Revenue Service.

In relation to the third requisite, Sections 113(A)(2), (8)(1), (2)(c) and (3) of the NIRC of 1997, as amended, as implemented by Sections 4.113-1(A)(2), (B)(1) and (2)(c) of Revenue Regulations (RR) No. 16-05, provide that a VAT taxpayer, such as 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:

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 (0°/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 (Emphases supplied) SECTION 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 (0°/o) VAT, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt;"

(Emphases supplied) Based on the foregoing provisions, the foreign currency remittances referred to under Section 108(B)(2) of the NIRC of 1997, as amended, must likewise be supported by VAT zero-rated official receipts. In its Quarterly VAT Returns for the four quarters of CY 2014, petitioner declared total zero-rated sales of P195,786,948.60, detailed as follows:

EXHIBIT

PERIOD COVERED

ZERO-RATED SALES

P-13

1st Quarter p -

P-14

2nd Quarter 40,490/242.79

P-15

3rd Quarter 74,007 373.17

P-16

4th Quarter 81,289,332.64

TOTAL

P195,786,948.60 Evidence shows that for services it rendered to MSCI, Inc. for the four taxable quarters of CY 2014, petitioner received the amount of US$4,426,842.34 with peso equivalent of P195, 786,948.60, 50 which were accounted for in accordance with the BSP rules and regulations, as evidenced by the Transaction Credit Ad vices from Bank of America, 51 and duly supported by the zero-rated official receipts and invoices, 52 which were all examined by the ICPA. 50 Exhibit "P-35".

51 Exhibits "P-47" to "P-54". 52 Exhibits "P-38" to "P-45" and "P-55" to "P-62".

OR No.

0001 0002 0003 0004

As ascertained by the !CPA, the zero-rated sales of US$4,426,842.34 were duly supported by official receipts. However, only the amount of US$4,400,758.1453 was inwardly remitted as shown in the Transaction Credit Advices from Bank of America. As represented by petitioner, the difference of US$26,084.20 pertains to expenses payable to MSCI, Inc. deducted in invoice amount and foreign exchange difference, accounted as follows: 54 Expenses payable to MSCI Inc.

US$

27,548.75

Forex Difference

(1,464.55)

Total

US$ 26,084.20 Petitioner however failed to substantiate its claim that the expenses amounting to US$27,458. 75 were indeed incurred and was due to MSCI, Inc., to warrant proper offsetting with its sales receipts. Likewise, the Court cannot ascertain whether the amount of US$1,464.55 indeed pertains to foreign exchange (forex) difference in the absence of any supporting document. This also casts doubt as it is denominated in US dollars. Usually, the impact of forex differences is on the peso conversion of the US dollar amounts since the denomination of the sale in US dollar is fixed. As such, the Court cannot subscribe to petitioner's justification on the noted differences. Consequently, the same shall be disallowed as zero-rated sales. Converting the US dollar amounts of the disallowed zero- rated sales using the rates used by petitioner as of the date of sale, the amount disallowed in peso is P1,156,979.30, as computed below:

Details of Difference in

USD55

Peso Conversion

Expenses

Forex

Expenses

Forex

Exhibit

Conversion

payable to

Difference

payable to

Difference

No.

Rate 56

MSCI Inc.

MSCI Inc.

P-38

44.579 $ - $_ - p - p

P-39

43.755 3 139.38 - 137,363.57 - -

P-40

43.650 5 580.51 (1 464.55) 243,589.26 (63 927.61)

P-41

43.480 340.73 53 !CPA Report, Exhibit "P-30". 54 Annex 4, ICPA Report, Exhibit "P-30". 55 Annex 4, !CPA Report, Exhibit "P-30". 56 Exhibit "P-35".

- 14/814.94 - 0005 0007 0008 0009

P-42

43.600

P-43

44.877

P-44

44.875

P-45

44.905 3 618.94 - 157 785.78 - 7 475.71 - 335 487.44 - 4 610.09 - 206 877.79 - 2 783.39 - 124 988.13 -

Total

$27,548.75 $(1J464.55l Pl_L220L906.91 p (63,927.61)

Net Total

$ 26,084.20 P1,156,979.30 Based on the foregoing, out of petitioner's reported zero- rated sales of P195,786,948.60 for the subject period of claim, only the amount of P194,629,969.30 (P195,786,948.60 less P1,156,979.30) qualifies for VAT zero- rating under Section 108(8)(2) of the NIRC of 1997, as amended.

Input taxes were incurred or paid.

In its Quarterly VAT Returns for CY 2014, petitioner reported a total input VAT of P7,338,142.8257, broken down as follows:

Input tax on:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total

Input tax deferred on capital goods exceeding P1million from previous quarter p - p 1 394 063.43 p 2 044 548.75 p 2 343 164.74 p 5 781 776.92 Purchase of capital goods exceedinq P1miilion 1 440 681.93 828 735.86 505 613.08 498 454.95 3 273 485.82 Less: Input tax on capital goods exceeding P1million deferred for the succeeding period 1 394 063.44 2 044 548.77 2 343 164.78 2 616 516.77 8 398 293.76 Input tax amortization on ourchase of caoital aoods p 46 618.49 p 178 250.52 p 206 997.05 p 225102.92 p 656 968.98 Purchase of capital goods not exceedinq P1million - 11 738.52 35 264.34 - p 47 002.86 Domestic purchase of goods other than capital goods 43 255.77 213 644.22 27 940.72 37 038.32 321 879.03 Domestic purchase of services 623 028.71 2 230 024.41 1 919 481.09 1 539 757.74 6 312 291.95 Total current inout VAT p 666 284.48 p 2 455 407.15 p 1 982 686.15 p 1 576 796.06 p 6 681 173.84 Total available input VAT P712 902.97 P2,633,657 .67 P2 189 683.20 P1,801,898.98 P7 ,338,142.82 In support of the input VAT on its purchases of goods and services, petitioner submitted various suppliers' invoices and official receipts58 which were examined by the ICPA. 57 With P0.08 difference against the present claim of P7,338,142.90.

As regards the input VAT on amounting to P6,681,173.84, the findings as follows:

its current purchases ICPA summarized her

Annex

Reference to

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total

Exhibit P-30

Proi)erly Supported by VAT Invoices/Official Receipts

Domestic

Purchases of Goods

Other than

Annex 5-1Q-a

Capital

1

Goods

Annex 5-2Q-a

properly

Annex 5-3Q-a

supported

Annex 5-4Q-a by VAT

REG TIN

invoices p 26 855.36 p 179 818.50 p 3 221.79 p 27 700.82 p 237 596.47

Domestic

Purchases of Services

Annex 5-1Q-b

2 supported

Annex 5-2Q-b by VAT

Annex 5-3Q-b

REG TIN

Annex 5-4Q-b

Official

Receipts

623 028.71 1 491 764.76 1 356 728.94 1 323 929.58 4 795 451.99

Domestic

Purchases of Capital

Goods Not

Exceeding

Annex 5-2Q-n

3 fl1 million properly

Annex 5-3Q-m

supported

by VAT

REG TIN

invoices - 11 738.52 35 264.34 - 47 002.86

Domestic

Purchase of

Goods

Other than

Capital

Goods

supported 4

by VAT

Annex 5-3Q-c

REG TIN

invoice not dated within the quarter but within the period of claim - - 22 500.00 - 22 500.00

TOTAL- PROPERLY

SUPPORTED

P649_L884.07 P~6831 321.78 Pl 417 715.07 P1,351,630.40 P5 102 551.32

Other Findings

Purchase of Goods Other Than Capital Goods

Domestic

Purchase of

Goods

Other than

Capital

Goods

supported

by VAT

1

REG TIN

Annex 5-2Q-c

invoice not dated within the quarter but within the period of claim with inserted p - p 2 903.57 p - p - p 2 903.57 2 3 4 5 6 name and

TIN of

Petitioner

Domestic

Purchase of

Goods

Other than

Capital

Goods

supported

Annex 5-2Q-d by VAT

REG TIN

invoice with altered date

Domestic

Purchases of Goods

Other than

Capital

Goods

supported

Annex 5-2Q-e by VAT

REG TIN

Annex 5-4Q-e

invoices with altered name of the

Petitioner

Domestic

Purchases of Goods

Other than

Capital

Goods

supported

by VAT

Annex 5-2Q-f

REG TIN

invoices

Annex 5-3Q-d

with abbreviated name and incomplete address of the

Petitioner

Domestic

Purchases of Goods

Other than

Capital

Annex 5-1Q- c

Goods

supported Annex 5-2Q- g

by VAT

Annex 5-3Q-e

REG TIN

Annex 5-4Q-d

invoices with incomplete address

Domestic

Purchase of

Goods

Other than

Capital

Goods

supported

by VAT

Annex 5-2Q-h

REG TIN

invoice with incomplete address and altered

VAT

breakdown - 3 900.00 - - 3 900.00 - 7 392.00 - 6 642.86 14 034.86 - 1 285.72 535.71 - 1 821.43 16 400.42 16 383.00 1 683.22 1 275.00 35 741.64 - 1 635.75 - - 1 635.75 7 8

Domestic

Purchase of

Goods

Other than

Capital

Goods

supported

by VAT

REG TIN

Annex 5-2Q-i

invoice with incomplete address

with VAT

per support higher than per schedule

Domestic

Purchase of

Goods

Other than

Capital

Goods

supported

by VAT

REG TIN

Annex 5-4Q-c

invoice with altered TIN and higher VAT input per support than schedule

SUBTOTAL

p

Purchase of Services

Domestic

Purchases of Services

supported

by VAT

Annex 5-2Q-j

1

REG TIN

Annex 5-3Q-f

ORs with

Annex 5-4Q-g

incomplete/ altered name of

Petitioner

p

Domestic

Purchases of Services

Annex 5-2Q-k

supported 2

by VAT

Annex 5-3Q-g

REG TIN

Annex 5-4Q-i

ORs with

altered TIN

Domestic

Purchases of Services

supported

Annex 5-2Q-1

3

by VAT

Annex 5-3Q-h

REG TIN

Annex 5-4Q-j

ORs with

incomplete address

Domestic

Purchases of Services

supported 4

by TIN ORs

Annex 5-2Q-m

with abbreviated name of

Petitioner

Domestic

Purchases

5

of Services

Annex 5-4Q-h

supported

by VAT

- 284.46 - - 284.46 - - - 1 419.65 1 419.65 16 400.42 p 33 784.50 p 2,218.93 p 9,337.51 p 61,741.36 - p 122.69 p 82 587.87 p 1 440.00 p 84 150.56 - 285 182.10 49 832.35 112 891.95 447 906.40 - 322 947.86 268 395.07 7 203.63 598 546.56 - 94 486.98 - - 94 486.98 - - - 24 252.27 24 252.27 6 7 8 9 10 11 12

REG TIN

ORs with

abbreviated name and incomplete address of the

Petitioner

Domestic

Purchases of Services

supported

by VAT

REG TIN

Annex 5-3Q-i

ORs with

incomplete address and altered

VAT

breakdown

Domestic

Purchases of Services

supported

Annex 5-3Q-j by VAT

Annex 5-4Q-k

REG TIN

ORs with

altered VAT breakdown

Domestic

Purchases of Services

Annex 5-4Q-1

supported

by TIN ORs

Domestic

Purchases of Services

supported

Annex 5-3Q-k by TIN ORs

with incomplete address

Domestic

Purchase of

Services

supported

by VAT

REG TIN

OR with altered

Annex 5-3Q-I

name and

TIN of

Petitioner

and higher

VAT per

schedule than per

SUPPOrt

Domestic

Purchase of

Services

supported

by VAT

REG TIN

OR without

Annex 5-4Q-f

year indicated and with incomplete address of the

Petitioner

Domestic

Purchase of

Services

supported

Annex 5-2Q-o by VAT

REG TIN

OR without - - 7 620.46 - 7 620.46 - - 81 594.55 5 767.15 87 361.70 - - - 63 847.20 63 847.20 - - 41 822.00 - 41 822.00 - - 30 899.86 - 30 899.86 - - - 426.00 426.00 - 35 520.00 - - 35 520.00

TIN and

with altered

Petitioner's

address

SUBTOTAL

p - p 738,259.63 p 562 752.16 p 215 828.20 P1 516 839.99

TOTAL - OTHER FINDINGS

p 16,400.42 p 772,044.13 p 564 971.09 p 225 165.71 P1 578 581.35

GRAND TOTAL

P666,284.49 P2 455 365.91 P1,982 686.16 P1 576 796.11 P6,681 132.67 Since, the ICPA failed to account for the difference of P41.17 (P6,681, 173.84 less P6,681, 132.67), the same shall be disallowed.

Likewise, the exceptions (under Other Findings) noted by the ICPA in the amount of P1,578,581.35 shall be disallowed for petitioner's failure to meet the substantiation requirements under Sections 110(A) and 113(A) and (B) of the NIRC of 1997, as amended by Republic Act No. 9337, and as implemented by Sections 4.110-2, 4.110-8, and 4.113-1 of Revenue Regulations (RR) No. 16-

05. Moreover, part of the total input VAT claim is the amount of P656,968.98, representing the amortization of the input VAT on purchases of capital goods exceeding P1Million, as determined below:

Input tax on:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total

Input tax deferred on capital goods exceeding P1million from previous quarter p - p 1 394 063.43 p 2 044 548.75 p 2,343 164.74 p 5 781 776.92 Purchase of capital goods exceeding P1miilion 1 440 681.93 828 735.86 505 613.08 498 454.95 3,273 485.82 Less: Input tax on capital goods exceeding P1million deferred for the succeeding period 1 394 063.44 2 044 548.77 2 343 164.78 2 616 516.77 8 398 293.76 Input tax amortization on purchase of capital goods p 46,618.49 p 178,250.52 p 206 997.05 p 225,102.92 p 656,968.98 Upon examination of the supporting sales invoices and official receipts, 59 the ICPA summarized her findings as follows:

Annex

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total

Reference

Allowable

Allowable

Allowable

Allowable

Allowable

Input VAT

Input VAT

Input VAT

Input VAT

Input VAT

Properly Supported by VAT Invoices

Domestic

purchases of capital goods

Annex 8-1Q-a

1 exceeding P1

Annex 8-2Q-a

p 4,406.11 p 48,449.78 p 76,481.66 p 103,501.33 p 232,838.88 million properly

Annex 8-3Q-a

supported by

Annex 8-4Q-a

VAT REG TIN

invoices 59 Exhibits "P-339" to "P-394".

2

Domestic

purchases of capital goods (services)

Annex 8-1Q-b

exceeding P1 million

Annex 8-4Q-b

supported by

VAT REG TIN

ORs

TOTAL - Properly SUPI:>Orted

Other Findings

Domestic

purchase of capital goods exceeding P1 million 1 supported by

Annex 8-1Q-c

VAT REG TIN

invoice with altered name

and TIN of

Petitioner

Domestic

Purchase of

Capital Goods

2

Exceeding P1

Annex 8-3Q-b

million with altered name of

Petitioner

Domestic

Purchases of

Capital Goods

Exceeding P1

3 million

Annex 8-4Q-c

supported by

VAT REG TIN

invoices with altered TIN of

Petitioner

Domestic

Annex 8-1Q-d

purchases of capital goods exceeding P1 4 million supported by

Annex 8-2Q-b

VAT REG TIN

NO. invoices without

Petitioner's TIN

Domestic

Purchase of

Capital Goods

Exceeding P1

million 5 supported by

Annex 8-4Q-d

VAT REG TIN

invoice without

Petitioner's TIN

and incomplete address

Domestic

purchase of capital goods exceeding P1 6 million

Annex 8-1Q-e

supported by

VAT REG TIN

invoice with wrong

Petitioner's TIN

Domestic

Annex 8-lQ-f purchases of capital goods (services) 7 exceeding P1 million with

Annex 8-4Q-e

supporting documents other than 6,902.38 20,707.14 20,707.14 21,228.65 69,545.31 p 11,308.49 p 69,156.92 p 97,188.80 p 124 729.98 p 302 384.19 p 8,392.86 p 25,178.57 p 25,178.57 p 25,178.57 p 83,928.57 714.67 1,072.00 1,786.67 2,765.48 2,765.48 3,928.22 14,948.22 14,948.21 14,948.22 48,772.87 327.61 327.61 4,168.15 12,504.46 12,504.46 12,504.46 41,681.53 18,820.79 56,462.37 56,462.37 43,576.61 175,322.14

I

invoice (goods) I OR (services)

Total - Other

p 35,310.02 p 109,093.62 p 109,808.28 p 100,372.95 p 354,584.87 findings

GRAND TOTAL

p 46,618.51 p 178,250.54 p 206,997.08 p 225 102.93 P656,969.0660 The Court finds the above !CPA's findings in order, except for the amortized input VAT in the amount of P4,064.84 under Annex 8-4Q-e (included in the total amount of P43,576.61), which was noted as exception by the !CPA and described as "Domestic purchase of capital goods (services) exceeding P1 million with supporting documents other than invoice (goods)/OR (services)", since upon further verification, the Court finds that the same was in fact properly supported with VAT Reg TIN OR. Therefore, only the amount of P350,520.03 (P354,584.87 less P4,064.84), representing the amortization of the input VAT on purchases of capital goods exceeding

P1Million

shall be disallowed from petitioner's claim.

In sum, out of petitioner's claimed unutilized input VAT of P7,338,142.90, only the amount of P5,409,000.35 represents petitioner's substantiated and valid input VAT for the four quarters of CY 2014, computed as follows: Input VAT claimed for refund

Less: Disallowances

Unaccounted input VAT Exceptions noted per ICPA Report: Input VAT on current purchases other than capital goods Amortized input VAT on capital goods exceeding P1M

Substantiated Input VAT

Petitioner's input taxes were attributable to its zero-rated sales and were not applied to any output tax liability. p 7 ,338, 142.90 p 41.17 1,578,581.35 350,520.03 1,929 142.55 P5,409,000.35 Since petitioner reported 100°/o zero-rated sales for CY 2014, the substantiated input VAT of P5,409,000.35 is wholly attributable thereto.

However, only the amount of P5,377,036.52 is 60 With PO.OB difference against the declared input VAT of P656,968.98.

attributable to the valid zero-rated sales of P194,629,969.30, as computed below:

Substantiated Input VAT

p 5,409,000.35 Divide by total reported zero-rated sales 195,786,948.60 Multiply by substantiated zero-rated sales 194,629,969.30 Input VAT allowable for refund/issuance of TCC PS,377,036.52 Moreover, although the claimed input VAT was carried over by petitioner in its succeeding Quarterly VAT Returns61 , the same remained unutilized until it was deducted as "VAT Refund/TCC Claimed" in its Amended Quarterly VAT Return for the fourth quarter of CY 2015. 62 Consequently, the subject claim no longer formed part of the excess input VAT of P7,958,036.6363 as of the end of the fourth quarter of CY 2015 that was to be carried over/applied to the succeeding quarters. As such, it eliminates the possibility that the present claim would be applied to future output VAT liability. All stated, petitioner has sufficiently established that it is entitled to a refund or issuance of tax credit certificate corresponding to its unutilized and excess input VAT for the four quarters of CY 2014 but in the reduced amount of P5,377,036.52.

WHEREFORE, the instant Petition for Review is hereby

PARTIALLY

GRANTED.

Accordingly, respondent Commissioner of Internal Revenue is hereby DIRECTED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner MSCI Hong Kong Limited in the reduced amount of P5,377 ,036.52, representing its unutilized and excess input VAT attributable to its zero-rated sales for the four quarters of calendar year 2014

I Concur:

~. ~ ~-z...

MA. BELEN M. RINGPIS-LIBAN

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.

Associate Justice

Acting Chairperson

CERTIFICATION

Pursuant to Section 13 of Article VIII of the Constitution, and the Division Acting 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's Division.

Presiding Justice