I-Remit, Inc. vs. Commissioner of Internal Revenue

DECISION

MANAHAN, J.:

This Petition for Review pertains to the claim for taJC refund/ credit of petitioner's alleged unutilized input (value- added taJC) VAT from Janu ary 1 to December 31, 2015, amounting to P10,582,022.34. 1

THE PARTIES

Petitioner I-Remit, Inc. is a remittance corporation duly organized and eJCisting under and by virtue of the laws of the Republic of the Philippines, with principal office at 26th Floor Discovery Centre, 25 ADB Avenue, Ortigas Center, Pasig City 1605.2 Respondent Commissioner of Internal Revenue is h erein impleaded in his official capacity, having been duly appointed and empowered to perform the duties of his office, including, among others, the duty to act on and approve claims for 1 Docket, CTA Case No. 9733, Vol. 1, Summary of the Case, Pre-Trial Order dated May 23, 2018, p. 173.

2 /d., Vol. 1, Par. 1, The Parties, Petition for Review, p. 11, vis-a-vis Par. 1, Answer, Docket, Vol. 1, p. 64; Docket, Vol. 1, Part II(A)(1), Pre-Trial Order dated May 23, 2018,

p. 173; Docket, Vol. 1, Exhibit "P-2", p. 104. o.-- refund as provided by law. 3 He is the head of the Bureau of Internal Revenue (BIR), the government agency tasked to, among others, assess and collect all national internal revenue taxes with the power to decide disputed assessments, refunds of international revenue taxes, fees or other charges, penalties imposed in relation thereto or other matters arising under the Tax Code or other laws or portions thereof administered by the BIR. 4

THE FACTS

On July 18, 2017, petitioner filed with the BIR its administrative claim for refund, embodied in the letter dated July 17, 20 17,5 accompanied by an Application for Tax Credits/ Refunds (BIR Form No. 1914), 6 requesting for the refund of input VAT paid by petitioner from January 1 to December 31, 2015 in the total amount ofP10,582,022.34. However, the said administrative claim of petitioner was denied by Ms.

Teresita

M.

Angeles,

OIC-Assistant

Commissioner for Large Taxpayers Service of the BIR, in her letter dated November 9, 2017, which was received by petitioner on November 16, 2017,7 pertinent portions of which read:

"Based on our evaluation of the documents submitted, it merely substantiated the existence of the sales/revenue, receipt of foreign currency payments and inward remittance of the proceeds of the sale/revenue.

Nothing in the

documents presented would support that your clients were doing business outside the Philippines which is an essential condition under the above provisions of the NIRC.

This

specific condition for zero-rating was affirmed in the case of Commissioner of Internal Revenue vs. Accenture, Inc. under G.R. No. 190102 dated July 11,2012. In this regard, we regret to inform you that your Application for Tax Credit for the period January 1, 2015 to December 31, 2015 is hereby DENIED." 3 Docket, Vol. 1, Par. 2, The Parties, Petition for Review, p. 11, vis-a-vis Par. 1, Answer, Docket, Vol. 1, p. 64; Docket, Vol. 1, Part II(A)(2), Pre-Trial Order dated May 23, 2018,

p. 173. • Id., Vol. 1, Part II(A)(3), Pre-trial Order dated May 23,2018, pp. 173 to 174.

Petitioner filed the instant Petition for Review December 14, 2017. 8 The case was initially raffled to Third Division of this Court.

on the On February 12, 2018, respondent filed his Answer,9 interposing the following special and affirmative defenses, to wit:

"SPECIAL AND AFFIRMATIVE DEFENSES

4. Respondent reiterates and re-pleads the preceding paragraphs of this Answer as part of his Special and Affirmative Defenses.

Petitioner is not entitled to refund of its alleged unutilized Input VAT 5.

Petitioner is claiming for its excess input VAT from zero-rated revenues pursuant to Section 108 B (2) of the NIRC of 1997, as amended, which provides: 'Section. 108.

Value-Added Tax on Sale of

Services and Use or Lease of Properties.-

(A) X X X

(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:

(1) 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);' 6.

However, evaluation of the documents submitted by petitioner related to its zero-rated sales show that it merely substantiated the existence of the sales/revenue, receipt of foreign currency payments and inward remittance of the proceeds of the sale/revenue.

Nothing in the

documents would support petitioner's claim that its clients were doing business outside the Philippines which is an B Docket, Vol. 1, pp. 10 to 18.

essential requirement under the above-mentioned provision of the NIRC. Hence, petitioner 7.

The requirements for zero-rating, including the essential condition that the recipient of service is doing business outside the Philippines must be clearly established to treat the transaction as zero-rated and to allow any excess input taxes attributable thereto as eligible for tax refund or TCC application.

8.

Likewise, in the recent case of Deutsche Knowledge Services Pte Ltd vs. Commissioner of Internal Revenue, CTA Case Nos. 8623, 8656 and 8685 dated April 4, 2017, additional documents such as SEC Certificate of Non-

Registration

of

Corporation/Partnership

and

Certificate/ Articles

of

Incorporation/

Association/

Registration for the

sixty-nine (69) foreign affiliates/ customers are required to substantiate that the recipient of the service is engaged in business conducted outside the Philippines.

9.

In this light, as petitioner failed to show proof that the recipients of its services are doing business outside the Philippines, which is a mandatory requirement in order to treat its transactions as zero-rated, it is unquestionably not entitled to any refund.

It

is incumbent upon petitioner to prove that it is entitled to the refund sought because a claim for refund is not ipso facto granted upon filing of the claim.

10.

The power of taxation is an inherent attribute of sovereignty; the government chiefly relies on taxation to obtain the means to carry on its operations. Taxes are essential to its very existence; hence, the dictum that taxes are the lifeblood of the government. For this reason, the right of taxation cannot easily be surrendered. 11.

Since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayers and liberally in favor of the taxing authority. 12.

Tax refunds partake of the nature of tax exemptions which are a derogation of the power of taxation of the State. Consequently, they are construed strictly against a taxpayer and liberally in favor of the State.-

13.

Thus, petitioner is charged with the heavy burden of proving that it has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund.

14.

Likewise, not only should petitioner establish that it is entitled to tax refund, it is also imperative that petitioner prove its compliance with the following:

a. The registration requirement of a VAT taxpayer in compliance with Revenue Regulations No. 7- 2012 in relation to Section 236 (A), (B), (C) and (D) of the Tax Code;

b. The invoicing and accounting requirements for VAT registered persons, as well as the filing and payment of VAT in compliance with the provisions of Sections 113 and 114 of the Tax Code;

c. Proof of compliance with the prescribed checklist of requirements to be submitted in cases involving a claim for VAT refund pursuant to Revenue Memorandum Order No. 53-1998 and Revenue Memorandum Circular No. 54-2014. Otherwise, there would be no sufficient compliance with the filing of an administrative application for tax refund which is a condition sine qua non prior to the filing of a judicial claim in accordance with Section 112 of the Tax Code. This requires the submission of complete documents in support of the application filed with the Bureau of Internal Revenue before the 120-day audit period shall apply and before the taxpayer could avail of the judicial remedies as provided for in the law. Hence, petitioner's failure to submit proof of compliance with the above-stated requirements warrants immediate dismissal of the Petition for Review;

d. That the petitioner's alleged zero rated sales complied with the requirements set forth in Section 108 of the Tax Code;

e. That the input taxes in the amount of Thirty

Seven Million Three Hundred Ninety Three

Thousand One Hundred Ninety Five Pesos

(P37 ,393, 195.00) allegedly representing unutilized Input VAT were directly attributable to its zero rated sales and such have not been applied against any Output VAT and were not carried over to the succeeding taxable quarter or quarters;~ f. That petitioner's administrative and judicial claims for tax refund was filed within the periods provided in Section 112 (A) and (C) of the Tax Code;

g. That petitioner's local purchases and importation of goods and services were made in the course of its trade or business, properly supported by VAT invoices and/or official receipts under Sections 110 (A) (2) and 113 of the Tax Code; and

h. The requirements as enumerated under Section 4-110-7 of Revenue Regulations No. 14-2005. 15.

In the case at hand, for failure of petitioner to show that it has strictly complied with the conditions for the grant of the VAT refund/credit, petitioner is not entitled to claim for tax refund/credit.

16.

Based on the foregoing, petitioner's claim for refund in the total amount of P10,582,022.34 has no bases in fact and in Jaw.

Thus, the instant petition should be denied for lack of merit."

The Pre-Trial Conference was set and held on May 8, 2018.10 In the meantime, Respondent's Pre-Trial Briefwas filed on April 30, 2018, 11 while petitioner's Pre-Trial Brief was submitted through private courier on May 4, 2018.12 On May 23, 2018, the Pre-Trial Order was issued,13 thereby deeming the termination the Pre-Trial Conference. Thereafter, respondent filed the BIR Records for the instant case on May 25, 2018.14 The trial of the case proceeded. During trial, petitioner presented its documentary and testimonial evidence.

It offered the testimony of its sole 10 Docket, Vol. 1, Notice of Pre-Trial Conference dated February 14, 2018, pp. 71 to 72; Docket, Vol. 1, Minutes of the hearing held on May 8, 2018, p. 169. II ld., Vol. 1, pp. 83 to 86.

witness, Ms. Analie M. Angeles,15 former Vice President and Comptroller of petitioner.

On September 18, 2018, petitioner filed its Formal Offer of Evidence. 16 Respondent filed his Comment (Re: Petitioner's Formal Offer of Evidence) on September 20, 2018.17 Thus, in the Resolution dated January 7, 2019, 18 the Court admitted petitioner's Exhibits.

Meanwhile, in the Order dated September 20, 2018,19 the instant case was transferred to this Court's First Division. For his part, respondent likewise presented his documentary and testimonial evidence.

He

offered the testimony of Ms. Catherine Obias,2° a Revenue Officer 1 of the BIR.

Respondent filed his Formal Offer of Evidence through private courier on March 7, 2019.21 Petitioner filed its Comment thereon on March 15, 2019.22 Thus, in the Resolution dated May 2, 2019,23 the Court admitted respondent's Exhibits, except for Exhibit "R-1-a", for being unmarked.

On June 3, 20 19, petitioner filed a Manifestation, 24 through private courier, stating that it no longer intends to present its rebuttal evidence. Thus, in the Resolution dated June 4, 2019,25 the Court admitted petitioner's Manifestation; cancelled the supposed hearing for the presentation of petitioner's rebuttal evidence; and ordered both parties to submit their respective memoranda. 15 Docket, Vol. 1, Exhibit "P-111", pp. 209 to 219; Docket, Vol. 2, Minutes of the hearing held on, and Order dated, September 4, 2018, pp. 909 to 910. 16 Jd., Vol. 2, pp. 911 to 916.

17 Id., Vol. 2, pp. 917 to 920.

1s Jd., Vol. 2, pp. 926 to 927.

19 Id., Vol. 2, p. 921.

2o Id., Vol. 2, Exhibit "R-4", pp. 932 to 935; Docket, Vol. 2, Minutes of the hearing held on, and Order dated, March 5, 2019, pp. 949 to 950. " Id., Vol. 2, pp. 952 to 955.

Respondent filed his Memorandum on July 8, 2019,26 while petitioner failed to file its memorandum.27 wit:

The case was submitted for decision on July 29, 2019.28

ISSUES

The sole issue for the Court's resolution is as follows, to "Whether petitioner is entitled to refund of its unutilized Input VAT paid from January 1, 2015 to December 31, 2015 in the total amount of P10,582,022.34 consequential to its alleged zero- rated sales." 29

Petitioner's Arguments

Petitioner argues that it has submitted all the required documents in support of its claim for tax refund, pursuant to Revenue Memorandum Circular (RMC) No. 54-2014; and that petitioner has fully complied with the provision of Section 108(B)(2) of the National Internal Revenue Code (NIRC) of 1997, as amended.

Respondent's Arguments

Respondent counter-argues that the petition must be dismissed for failure of petitioner to substantiate its administrative claim for refund; and that petitioner is not entitled to the claim for refund of alleged excess and unutilized input taxes.

RULING OF THE COURT

This Court shall determine first whether it has jurisdiction on the instant petition. Sections 7(a) and 11 of 26 Docket, Vol. 2, pp. 972 to 981. 27 Id., Vol. 2, Records Verification dated July 18, 2019 issued by the Judicial Records Division of this Court, p. 983.

2s Jd., Vol. 2, Resolution dated July 29, 2019, p. 985.

Republic Act (RA) No. 112530, as amended by RA No. 928231 , provides as follows:

"SEC. 7. Jurisdiction.- The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue;

XXX

XXX

XXX

"SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal Revenue xxx may file an appeal with the CTA within thirty (30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law _for actions as referred to in Section 7(a)(2) herein.

Appeal shall be made by filing a petition for review under a procedure analogous to that provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from receipt of the decision or ruling or in the case of inaction as herein provided, from the expiration of the period fixed by law to act thereon. xxx." (Emphasis supplied) Based on the foregoing provisions, this Court has exclusive appellate jurisdiction, inter alia, to take cognizance of decisions involving claims for refund of any intemal revenue taxes and the concerned taxpayer or party adversely affected by said decision of respondent may file an appeal with this Court within thirty (30) days after the receipt of such decision. In the instant case, petitioner filed the instant Petition for Review on the letter of denial of its claim for input VAT refund dated November 9, 2017 issued by Ms. Teresita M. Angeles, 30 AN ACT CREATING THE COURT OF TAX APPEALS. 31 AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA), ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL

JURISDICTION

AND

ENLARGING

ITS

MEMBERSHIP,

AMENDING FOR THE

PURPOSE CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125, AS AMENDED, OTHERWISE KNOWN AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES. ~

OIC-Assistant Commissioner for Large Taxpayers Service of the BIR which it received on November 16, 2017. Such is the final decision of the respondent on said claim for refund, hence, the instant case is within the jurisdiction of this Court. Requisites for the grant of refund under the law.

Section 112 of the NIRC of 1997, as amended by Republic Act (RAJ No. 9337,32 provides 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(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 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: XXX.

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 a 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 32 AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110, Ill, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES._.

(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."

Based on the foregoing provision, jurisprudence has laid down certain requisites which the taxpayer-applicant must comply with in order to successfully obtain a credit/refund of input VAT.

Said requisites are classified into certain categories, to wit:

As to the timeliness of the filing of the administrative and judicial claims:

1. that the claim is filed with the BIR within two years after the close of the taxable quarter when the sales were made;33

2. that in case of full or partial denial of the refund claim, or the failure on the part of the Commissioner to act on the said claim within a period of 120 days from the submission of complete documents, the judicial claim has been filed with this Court, within 30 days from receipt of the decision or after the expiration of the said 120-day period;34 In relation to the taxpayer's output VAT:

3. the taxpayer is engaged in zero-rated or effectively zero-rated sales;35

4. for zero-rated sales under Section 106(A)(2)(a)(1),

(2) and (b), and Section 108(B)(1) and (2), the 33 Intel Technology Philippines, Inc. us. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007; San Roque Power Corporation us. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009; and AT&T Communications Services Philippines, Inc. us. Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010.

34 Steag State Power, Inc. (Formerly State Power Development Corporation} us. Commissioner of Internal Revenue, G.R. No. 205282, January 14, 2019; Rohm Apollo Semiconductor Philippines us. Commissioner of Internal Revenue, G.R. No. 168950, January 14, 2015.

35 Intel Technology Philippines, Inc. us. Commissioner of Internal Revenue, supra; San Roque Power Corporation us. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc. us. Commissioner of Internal Revenue, supra.-- acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;36 With reference to the taxpayer's registration with

the BIR:

5. the taxpayer is a VAT-registered person;37 As regards the taxpayer's input VAT being refunded:

6. the input taxes are not transitional input taxes;38

7. the input taxes are due or paid;39

8. the input taxes claimed are attributable to zero- rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume; 4o and

9. the input taxes have not been applied against output taxes during and in the succeeding quarters. 41 In cases filed before this Court, which are litigated de novo, party-litigants must prove every minute aspect of their case. 42 Thus, it behooves petitioner to show compliance with each of the foregoing requisites. 36 Id.

37 Id.

38 Id.

39 Id.

40 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; and San Roque Power Corporation vs. Commissioner of Internal Revenue, supra. 41 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; San Roque Power Corporation vs. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc. vs. Commissioner of Internal Revenue, supra.

Petitioner's administrative claim pertaining to the 1st and 2nd quarters of2015 has prescribed.

The first requisite pertains to the filing of a claim for tax refund or tax credit of input VAT before the BIR, within two (2) years from the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. The present claim covers the four (4) quarters of taxable year 2015, which closed on: (1) March 31, 2015 for the 1•t quarter thereof; (2) June 30, 2015 for the 2nd quarter; (3) September 30, 2015 for the 3rd quarter; and (4) December 31, 2015 for the 4th quarter. Counting two (2) years from the said dates, petitioner had until March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017, respectively, within which to file its administrative claim for refund. Considering that petitioner's administrative claim for refund, covering the four (4) quarters of 2015, was filed with the BIR only on July 18, 2017,43 petitioner's right to claim for tax refund/credit of its alleged input VAT for the 1•t and 2nd quarters of 2015 has already prescribed. As a corollary, the refund claim pertaining to the 3rd and 4th quarters of 2015 was filed within the prescriptive period. Anent the prescribed portion of the instant refund claim, petitioner's sole witness, Ms. Angeles, testified, in effect, that petitioner attempted to file its administrative claim on March 24, 2017, but respondent refused to accept the same on the ground that it failed to submit complete documents as required in Annex "A", Section II ofRMC No. 54-2014.44 The Court, however, finds that even granting that the said testimony is true, the fact still remains that petitioner belatedly filed its administrative claim insofar as the 1st and Revenue us. Philippine National Bank, G.R. No. 180290, September 29, 2014;

Commissioner of Internal Revenue us. United Salvage and Towage (Phils.), Inc., G.R. No. 197515, July 2, 2014; Dizon us. Court of Tax Appeals, et al., G.R. No. 140944, April 30, 2008; Atlas Consolidated Mining and Development Corporation us. Commissioner of Internal Revenue, G.R. No.

145526, March 16, 2007; and Commissioner of Internal Revenue us. Manila Mining Corporation, G.R. No. 153204, August 31, 2005.

43 Docket, Vol. 1, Exhibits "P-5" and "P-4", pp. 107 to 109, and 106, respectively. 44 Id., Vol. 1, Par. 4, Statement of Facts, Petition for Review, p. 11; Docket, Vol. 1, Par. 20, Exhibit "P-111", p. 212. ~

2nd quarters of 2015 are concemed. After all, petitioner is indeed required to submit the complete documents in support of its refund application.

To be clear, petitioner's compliance with the first requisite pertains only to the the 3rct and 4th quarters of 20 15. Correspondingly, this

Court

shall confine its further determination on whether petitioner complied with the other requisites only to these unprescribed periods. Petitioner's judicial claim was timely filed.

The second requisite is to the effect that the judicial claim must have been filed within thirty (30) days from the receipt of respondent's decision or after the expiration of the 120-day period, as enunciated in Section 112(C) of the NIRC of 1997, as amended.

Records reveal that the letter dated November 9, 2017, denying its administrative claim for tax refund/ credit, was received by petitioner on November 16, 2017. 45

Counting

thirty (30) days from November 16, 2017, petitioner had until December 16, 20 17, within which to file its judicial claim for refund.

Since the instant Petition for Review was filed on

December

14, 2017,46 petitioner's judicial claim was seasonably filed. Such being the case, petitioner fulfilled the above-stated second requisite.

Petitioner failed to establish that it was engaged in zero- rated or effectively zero-rated sales during the 3rd and 4th quarters of 2015.

The third and fourth requisites require that the taxpayer is engaged in zero-rated or effectively zero-rated sales, and for zero-rated sales under Sections 106 (A)(2)(a)(1), (2) and (b), and 1 08(B) ( 1) and (2), of the NIRC of 1997, as amended by RA No. 9337, the acceptable foreign currency exchange proceeds have

been duly accounted for in accordance with the BSP rules and regulations.

Section 1 08(B) of the NIRC of 1997, as amended, provides, in part, 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:

(1) Processing, manufacturing or repacking of 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);" (Emphases supplied) Based on the foregoing provision, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of zero percent (0%), under Section 108(B)(2) of the NIRC of 1997, as amended, to wit: 1) The services fall under any of the categories under Section 108(8)(2),47 or simply, the services rendered should be other than ''processing, manufacturing or repacking goods ";48 2) The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in 47 Commissioner of Internal Revenue us. American Express International, Inc. (Philippine Branch), G.R. No. 152609, June 29, 2005. 48 Commissioner of Internal Reue nue us. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007 . ........__ business who is outside the Philippines when the services were performed;49 3) The service must be performed in the Philippinesso by a VAT-registered person; and 4) The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules.51 As for the first essential element, records reveal that based on the Certificate of Registration (MSB Registration No. 60-00106-0-00000) dated October 13, 2017, issued by the BSP, petitioner is authorized to operate as a "REMITTANCE and

TRANSFER

COMPANY

(RTC)

with a

Type

'A'

REMITTANCE

AGENT

(RA)

with

MONEY

CHANGING

(MC)/FOREIGN EXCHANGE DEALING (FXD) registration in the Philippines."52

Relative

thereto, pursuant to the Memoranda of Agreement between petitioner and its clients, petitioner was required to perform "Distribution Fulfillment Services" or one that involves money remittance services to local beneficiaries in the Philippines for foreign-based customers.53 The services rendered by petitioner are certainly not in the same category as "processing, manufacturing or repacking of goods". Thus, petitioner satisfied the first essential element. Anent the second essential element, in order 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 Certification of Non-

Registration of Corporation/ Partnership

issued by the Philippine Securities and Exchange Commission (SEC), and 49 Site! Philippines Corporation (Formerly Clientlogic Phils. Inc.) vs. Commissioner of Internal Revenue, G.R. No. 201326, February 8, 2017; Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007; Accenture, Inc. vs. Commissioner of Internal Revenue, G.R. No. 190102, July 11,2012.

5° Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., supra; Commissioner of Internal Revenue vs. American Express International, Inc. (Philippine Branch}, G.R. No. 152609, June 29, 2005. 51 Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., supra; Commissioner of Internal Revenue vs. American Express International, Inc. (Philippine Branch), supra.

proof of incorporation/registration in a foreign country (e.g., Articles I Certificate of Incorporation/ Registration and/ or Tax Residence Certificate). As a corollary, there must be no other indication which would disqualify said entity from- being classified as a non-resident foreign corporation. The Philippine SEC's Certification of Non-Registration of Corporation establishes that the recipient of the service has no registered business in the Philippines, and that it is not engaged in trade or business within the Philippines; while the certificate I articles of incorporation/ association will prove that the said recipient of the service is indeed foreign. In this case, petitioner's witness, Ms. Angeles, testified that during the year 2015, petitioner rendered services to forty-seven (4 7) foreign corporations doing business outside the Philippines.54 However, the Court notes certain discrepancies in the names of the corporations stated in the supporting documents vis-a-vis the names of the entities as identified by petitioner's witness. Furthermore, not all corporations mentioned by petitioner's witness were duly supported with both SEC Certification of Non-Registration of Corporation/ Partnership and proof of incorporation/registration in a foreign country. Thus, the Court did not consider the said corporations as non- resident foreign corporations doing business outside the Philippines, as shown in the table below:

Articles of Association/

Certificate of

SEC

Registration/

Whether with

Name of the

Certificate

Incorporation and/or

Memorandum

Entity as

of other similar documents of Agreement Reason/ s for

Identified by

Non-

Exhibit

Document

(MOAI or not

Denial 55

Ms. Angeles

Registration

No.

1. AI Bader

P-6456

P-1757

Commercial

With MOA

The registered name

Exchange

License in the Commercial

License is "AI Bader Money Exchange";

while the same was identified by the witness as "AI Bader Exchange".

54 Docket, Vol. I, Par. 52, Exhibit "P-111", pp. 216 to 217. 55 Inconsistency in the name of the entity or no SEC Certificate of Non-Registration or Certificate of Registration/Incorporation and/or other similar documents.

2. AI Ahalia

P-6558

Money

Exchange

3. Alfa

P:6660

Exchange

4. Alfalah

P-6762

Exchange

5. AI Ghurair

P-6864

Exchange

6. Arab

P-6966

Exchange Co.

7. National P-7o68

Finance &

Exchange Co.

58 Docket, Vol. I, p. 123.

59 Id., Vol. 1, pp. 240 to 249.

6o Id., Vol. I, p. 124.

61 Id., Vol. 1, pp. 250 to 276.

62 Id., Vol. 1, p. 125.

63 Id., Vol. 1, pp. 277 to 324.

64 Id., Vol. I, p. 126.

65 Id., Vol. 1, pp. 325 to 343.

66 Id., Vol. 1, p. 127.

P-1859

Commercial

License

P-1961:' CommercillJ.

License

:

P-2o63

Commercial

License

Memorandum

of

Incorporation

P-2165

Commercial

License

P-2267

Registration

Certificate Of

With Limited

Liability

Company

P-2369

Registration

Certificate Of

With Limited

Liability

Company

67 Id., Vol. 1, pp. 344 to 345.

68 Id., Vol. 1, p. 128.

69 Id., Vol. 1, pp. 346 to 347 . .,...........--

With MOA

The registered name

in the Certificate of

Non-Registration and

Commercial License is "Alhalia Money Exchange Bureau";

while the same was identified by the witness as "AI Ahalia Money Exchange".

WithMOA

c " ";"

With MOA

The registered name

in the Certificate of

Non-Registration,

Commercial License and Memorandum of

Incorporation is "Alfalah Exchange Company"; while the same was identified by the witness as "Alfalah Exchange".

With MOA

The registered name

in the Commercial

License is "AI Ghurair

International

Exchange"; while the same was identified by the witness "AI Ghurair Exchange".

- The registered name

in the Certificate of

Non-Registration and

Registration

Certificate Of With

Limited Liability

Company is "Arab 1 Exchange Co. W.L.L.";

I

while the same was identified by the witness as "Arab Exchange Co."

- The registered name

in the Registration

Certificate Of With

Limited Liability

Company is "National

Finance & Exchange

Co. W.L.L.," while the same was identified by the witness as “National Finance & Exchange Co.”

9. Al Ansari p-7272 No Articles of

Exchange Association / Certificate of Registration /

Incorporation and/or

other similar documents

10. Arab Link p-7373 __ _ _ No Articles of

Money Association / Certificate

Transfer of Registration /

Incorporation and/or

other similar documents

11. Day ae Commercial...

Exchange LLC |» ce ‘ey

13. Deniba - Commercial International © lKeenee Exchange .

14; Economic a3 Commercial fone

Exchange ~~ License

Centre’ Ee E Be EE SESAES

15. Al Fardan Commercial With MOA |The registered name

Exchange License in the Commercial

License is “Al Fardan Exchange LLC”; while the same was identified by the witness as “Al Fardan Exchange”.

16. Federal p-7984 __ __ __ No Articles of

Exchange Association / Certificate of Registration /

Incorporation and/or

other similar documents

17. GCC P-8085 p-3086 [Certificate of _ The registered name

Exchange Incorporation in the Certificate of of Private Incorporation of

70 Docket, Vol. 1, p. 129.

71 Id., Vol. 1, pp. 348 to 373.

72 Id., Vol. 1, p. 130.

73 Id., Vol. 1, p. 131.

74 Id., Vol. 1, p. 132.

75 Id., Vol. 1, pp. 374 to 401.

76 Id., Vol. 1, p. 133.

77 Id., Vol. 1, pp. 402 to 417.

78 Id., Vol. 1, p. 134.

79 Id., Vol. 1, pp. 418 to 440, 80 Id., Vol. 1, p. 135.

81 Id., Vol. 1, pp. 441 to 455.

82 Id., Vol. 1, p. 136.

83 Id., Vol. 1, pp. 456 to 478.

84 Id., Vol. 1, p. 137.

§5 Docket, Vol. 1, p. 138.

18. Haw! Al

P-8187

Khaleej

Exchange

19. Lart

Exchange

.

P-8289"

Establishment

20. Orient

P-8391

Exchange Co.

21. Premier

P-8492

International

Exchange

22.Sultan

Althabab

P-8s93 Exchane:e 87 Id., Vol. 1, p. 139.

Limited

Company

Memorandum and Articles of

Association

P-3188

Trading License

P"3~;o Corl1Iljercial ;, License.;~ <.;

- - - -

P-3394 ·· Commercial"·

Li8ense · .

";

..

88 Id., Vol. 1, p. 500; Docket- Vol. 2, pp. 501 to 520. 89 Id., Vol. 1, p. 140.

90 Id., Vol. 2, pp. 521 to 534.

91 Id., Vol. 1, p. 141.

92 Id., Vol. 1, p. 142.

93 Docket, Vol. 1, p. 143.

94 Id., Vol. 2, pp. 535 to 553. ~

Private Limited

Company and

Memorandum and

Articles of Association

is "GCC Exchange Private Limited";

while the same was identified by the witness as "GCC Exchange".

With MOA

The registered name

in the Certificate of

Non-Registration is "Haw! AI Khaleei Exhange"; while the same was identified by the witness as "Haw!

AI Khaleej Exchange".

WithMOA

~,2 . '*··~.£r.

· ..

. .

""'; .

.. · •;

- The registered name

in the Certificate of

Non-Registration is "Orient Exchange Co.

LLC"; while the same was identified by the witness as "Orient Exchange Co."

No Articles of

Association/ Certificate of Registration/

Incorporation and/ or

other similar documents - The registered name

in the Certificate of

Non-Registration is "Premier International Exchange Est."; while the same was identified by the witness as "Premier

International

Exchange".

No Articles of

Association/ Certificate of Registration/

Incorporation and/ or

other similar documents

WithMOA

.A.

••••• :

;, ., J .. ·.

' 23. Smart

Exchange

24. Gulf.

Express

Exchange

25. Intel

Express

Giorgia

26. Universal -. Exchange.

Center

27. Filipino

Television

28. Leela

Megh *

Exchange LLC.

29,

International

Trade Agency

Dela Cruz:

Commercial

p-38107

World

Financial

Services

Group

Incorporation on Change of

Name

Articles of

Association

95 Id., Vol. 1, p. 144.

96 Id., Vol. 1, p. 145 97 Id., Vol. 2, pp. 554 to 573.

98 Id., Vol. 1, p. 146.

99 Id., Vol. 1, p. 147.

100 Id., Vol. 2, pp. 574 to 596. 101 Id., Vol. 1, p. 148.

102 Id., Vol. 1, p. 149.

103 Id., Vol. 2, pp. 597 to 616. 104 Id,, Vol. 1, p. 150.

105 Id., Vol. 2, pp. 617 to 623, 106 Id., Vol. 1, p. 151.

107 Id., Vol. 2, pp. 624 to 731. ome—

No Articles of

Association/

Certificate of

Registration /

Incorporation and/or

other similar documents

No Articles of

Association / Certificate of Registration /

Incorporation and/or

other similar documents

No Articles of

Association / Certificate of Registration /

Incorporation and/or

other similar documents The registered name

in the Certificate of

Non-Registration is “Small World

Financial Services

Group Ltd”; the

Incorporation of a

Private Limited

Company is “Small

World Financial

Services Group

Limited”; while the same was identified b

31.

P-94 108

Joyalukkas

Exchange

-

32. Al-Sadd

P-95109

P-39110

Exchange

33. Al-Jazeera

P-96111

Exchange

34. Habib

P-97 113

Qatar

International

Exchange

JOB Docket, Vol. 1, p. 152.

109 Id., Vol. 1, p. 153.

P-40112

P-41 114

no ld., Vol. 2, pp. 732 to 734.

111 Id., Vol. 1, p. 154.

112 Id., Vol. 2, pp. 735 to 760. 113 Id., Vol. 1, p. 155.

114 Id., Vol. 2, pp. 761 to 763. a.--- - -

Commercial

-

Registration

Data

Memorandum

-

of Association

Commercial

-

Registration

Data

the witness as "Small

World Financial

Services Group".

The registered name

in the Certificate of

Non-Registration is "Joyalukkas Exchange Co. WLL"; while the same was identified by the witness as "Joyalukkas Exchange".

No Articles of

Association I Certificate of Registration/

Incorporation and/ or

other similar documents The registered name

in the Certificate of

Non-Registration is "Al-Sadd Exchange Company"; the registered name in the

Commercial

Registration Data is "Aisad Money- exchange"; while the same was identified by the witness as "Al- Sadd Exchange".

The registered name

in the Memorandum

of Association is "Al-

Jazeera Exchange

Company"; while the same was identified by the witness as "Al- Jazeera Exchange".

The registered name

in the Commercial

Registration Data is "Habib Qatar

AIDowaliya for

Exchange"; the registered name in the

Certificate of Non-

Registration is "Habib

Qatar International

Exchange Ltd."; while the same was identified by the witness as Habib

Qatar International

Exchange".

35. Union

P-98115

Exchange

Company

-

36. AI Dar For

P-99116

P-42117

Exchange

Works

37. !-Remit P-1oo118

Global

Remittance

Ltd.

38. Lucky Star

P-101120

Management

11s Docket, Vol. 1, p. 156.

116 Id., Vol. 1, p. 157.

P-43119

P-44121

m Id., Vol. 2, pp. 764 to 795.

11s Id., Vol. 1, p. 158.

119 Id., Vol. 2, pp. 796 to 816. 12o Id., Vol. 1, p. 159.

121 Id., Vol. 2, pp. 817 to 826.__. -

Articles of

Association

Certificate of

Incorporation on Change of

Name

Memorandum and Articles of

Association

- The registered name

in the Certificate of

Non-Registration is "Union Exchange Company WLL"; while the same was identified by the witness as "Union Exchange Company".

No Articles of

Association/ Certificate of Registration/

Incorporation and/ or

other similar documents - '!'he registered name

in the Articles of

Association is "ALDAR Exchange Company";

while the same was identified by the witness as "AI Dar For Exchange Works".

- The registered name

in the Certificate of

Incorporation on

Change of Name is "Iremit Global Remittance Limited";

while the same was identified by the witness as "1-Remit

Global Remittance

Ltd."

- The registered name

in the Certificate of

Non-Registration is "Lucky Star Management Ltd"; the registered name in the

Articles of Association

"Lucky Star

Management

Limited"; while the same was identified by the witness as "Lucky Star Management".

39. Hwa Kung

P-102 122

Hong and

Company

40. !remit

P-103124

Global

Remittance

Italy

41. Laxmidas

P-104 125

Tharia Ved

Exchange

42. Worlwide

P-105126

Exchange Pty.

Ltd.

43.

P-106127

International

Remittance

(Canada)

122 Docket. Vol. 1, p. 160.

P-45123

- - -

P-46128

123 Id., Vol. 2, pp. 827 to 837. 124Jd., Vol. 1,p. 161.

12s Jd., Vol. I, p. 162.

126 Id., Vol. 1, p. 163.

121 Jd., Vol. 1, p. 164.

12s Id., Vol. 2, pp. 838 to 850. ----

Articles of

Incorporation

- - -

Certificate of

Incorporation

- The registered name

in the Certificate of

Non-Registration is "Hwa Kung Hong and Company Limited";

the registered name in

the Articles of

Incorporation is "Hwa Kung Hong & Co., Ltd."; while the same was identified by the witness as "Hwa Kung Hong and Company".

- The registered name

in the Certificate of

Non-Registration is !remit Global

Remittance Limited

(Italy), while the same was identified by the witness as !remit

Global Remittance

Italy

No Articles of

Association/ Certificate of Registration/

Incorporation and/ or

other similar documents - The registered name

in the Certificate of

Non-Registration is "Laxmidas Tharia Ved Exchange Co LLC";

while the same was identified by the witness as "Laxmidas Tharia Ved Exchange".

No Articles of

Association/ Certificate of Registration/

Incorporation and/ or

other similar documents -

No Articles of

Association/ Certificate of Registration/

Incorporation and/ or

other similar documents - The registered name

in the Certificate of

Non-Registration is "International 44. I-

P-107129

Remittance

Singapore Pte.

Ltd.

45. KK I-Remit

P-108131

Japan

46. GCC

P-109 133

Exchange UK

47. Luck

P-110135

Travel Ltd.

P-47130 Memorandum and Articles of

Association

P-48132 No English

translation of the attached document.

P-49134 Certificate of

Incorporation on Change of

Name

- -

Remittance (Canada)

Ltd."; while the same was identified by the witness as "International

Remittance (Canada)"

- The registered name

in the Memorandum and Articles of

Association is "lremit Singapore Pte Ltd";

while the same was identified by the witness as "International Remittance (Canada)".

- The registered name

in the Authentication

is "1-Remit Japan";

while the same was identified by the witness as "KK I- Remit Japan".

No English translation of the attached document.

With MOA

The registered name

in the Certificate of

Non-Registration is "GCC Exchange UK Ltd."; the registered name in the Certificate

of Incorporation on

Change of Name is "GCC Exchange UK Limited"; while the same was identified by the witness as "GCC Exchange UK".

- As a result, the Court finds that out of petitioner's 4 7 foreign clients, only the following twelve (12) entities shall be considered as non-resident foreign corporations doing business outside the Philippines:

Articles of

SEC

Association/ Certificate of

Certificate

Registration/Incorporation

Name of the Entity

of and/ or other similar

Non-

documents

Registratio

Exhibit

Document/s n No.

1. Alfa Exchange

"P-66"

"P-19"

Commercial

License

2. Al Nee! Exchange

"P-71"

"P-24"

Commercial

License

3. Day Exchange LLC

"P-74"

"P-25"

Commercial

License

4. Delma Exchange

"P-75"

"P-26"

Commercial

License

5. Deniba International

"P-76"

"P-27"

Commercial

Exchange

License

6. Economic Exchange Centre

"P-77"

"P-28"

Commercial

License

7. Lari Exchange

"P-82"

"P-32"

Commercial

Establishment

License

8. Sultan Althabab Exchange

"P-85"

"P-33"

Commercial

License

9. Gulf Express Exchange

"P-87"

"P-34"

Commercial

License

10.

Universal Exchange

"P-89"

"P-35"

Commercial

Center

License

11.

Leela Megh Exchange

"P-91"

"P-36"

Commercial

LLC

License

12.

International Trade

"P-92"

"P-37"

Certificate of

Agency Dela Cruz

Membership of the

Chamber of

Commerce of the

District of

Bonn/Rhine-Sieg

Petitioner

complied with the above-stated second essential element with respect to the foregoing enumerated twelve (12) foreign entities.

As for the third essential element, i.e., that the subject services were performed in the Philippines, except for the International Trade Agency Dela Cruz, petitioner was able to show its compliance with the said essential element with reference to the said enumerated foreign entities. This is so because petitioner has shown that it has individually entered into a Memorandum of Agreement with the remaining eleven...__ .

'

I

i '

(11) foreign entities,l36 wherein petitioner obligated itself to perform "Distribution Fulfillment Services" or one that involves money remittance services to local beneficiaries in the Philippines for foreign based customers. In any event, the fourth essential element was not complied with because petitioner did not submit any proof that the services rendered to foreign clients were paid for "in acceptable foreign currency . . . and accounted for in accordance with the rules and regulations of the BSP". 137 Such being the case, petitioner failed to fulfill the fourth requisite for the successful prosecution of the instant refund claim. Needless to state, it is only when the sales of a VAT- registered person are zero-rated or effectively zero-rated that he/she/it may have the option of applying for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales.l3B Considering petitioner's failure to establish its zero-rated or effectively zero-rated sales for the subject periods, the instant Petition for Review must already be denied.

Consequently, it becomes unnecessary to look into petitioner's compliance with the other remaining requisites. Finally, it must be emphasized that actions for tax refund or credit, as in the instant case, are in the nature of a claim for exemption and the law is not only construed in strictissimi juris against the taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption are strictissimi scrutinized and duly proven. 139 Thus, the burden is on the 136 Docket, Vol. 1, Exhibit "P-19", Docket- Vol. 1, pp. 251 to 263; Exhibit "P-24", pp. 349 to 362; Docket, Vol. 1, Exhibit "P-25", pp. 375 to 387; Docket, Vol. 1, Exhibit "P- 26", pp. 403 to 413; Docket, Vol. 1, Exhibit "P-27", pp. 419 to 431; Docket, Vol. 1, Exhibit "P-28", pp. 442 to 451; Docket, Vol. 2, Exhibit "P-32", pp. 522 to 529; Docket, Vol. 2, Exhibit "P-33", pp. 536 to 547; Docket, Vol. 2, Exhibit "P-34", pp. 555 to 566; Docket, Vol. 2, Exhibit "P-35", pp. 575 to 584; and, Docket, Vol. 2, Exhibit "P-36", pp. 598 to 608.

137 Refer to Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 166732, April 27, 2007.

138 Coca-Cola Bottlers Philippines, Inc. vs Commissioner of Internal Revenue, G.R. No. 222428, July 19, 2018.

taxpayer to show that he/she/it has strictly complied with the conditions for the grant of the tax refund or credit. 140

WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is DENIED for lack of merit.

WE CONCUR:

~~·;: ~ .....

,oec.~A4"'-· -- CATHERINE T. MANAHAN

Associate Justice

Presiding 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's Division.

Presiding Justice

140 Commissioner of Internal Revenue vs. San Roque Power Corporation, G.R. Nos. 187485, 196113, and 197156, February 12, 2013.