COMMISIONER OF INTERNAL REVENUE vs. COURT OF APPEALSG.R. No. 125355March 30, 2000

Facts:The BIR issued an assessment to private respondent corporation for the deficiency value-added tax for taxable year 1988. The corporation averred that since it was not engaged in business, it was not liable to pay VAT. Furthermore, it contended that the term in the course of trade or business required that the business be carried on with a view of profit. Since the services it offers were on a non-profit basis, thus, not engaged in business. The petitioner however avers that VAT is a tax on the value added by the performance of the service. It is immaterial whether profit is derived in rendering the service.

Issue:Does the phrase in the course of trade or business imply that the transactions should be motivated by profit?

Held:No. The phrase in the course of trade or business means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit organization or government entity.VAT is a tax on transactions, imposed on every stage of distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto.

NOTE: PERSON LIABLE TO VAT:Any person who in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods. (Sec. 105 of NIRC)

G.R. No. 164365 June 8, 2007COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.PLACER DOME TECHNICAL SERVICES (PHILS.), INC., respondent.FACTS: At the San Antonio Mines in Marinduque owned by Marcopper Mining Corporation (Marcopper), mine tailings from the Taipan Pit started to escape through the Makulapnit Tunnel and Boac Rivers, causing the cessation of mining and milling operations, and causing potential environmental damage. To contain the damage and prevent the further spread of the tailing leak, Placer Dome, Inc. (PDI), the owner of 39.9% of Marcopper, undertook to perform the clean-up and rehabilitation of the Makalupnit and Boac Rivers, through a subsidiary. To accomplish this, PDI engaged Placer Dome Technical Services Limited (PDTSL), a non-resident foreign corporation with office in Canada, to carry out the project. In turn, PDTSL engaged the services of Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic corporation and registered Value-Added Tax (VAT) entity, to implement the project in the Philippines.PDTSL and respondent thus entered into an Implementation Agreement. Due to the urgency and potentially significant damage to the environment, respondent had agreed to immediately implement the project, and the Implementation Agreement stipulated that all implementation services rendered by respondent even prior to the agreements signing shall be deemed to have been provided pursuant to the said Agreement. The Agreement further stipulated that PDTSL was to pay respondent "an amount of money, in U.S. funds, equal to all Costs incurred for Implementation Services as well as a fee agreed to one percent (1%) of such Costs."Respondent amended its quarterly VAT returns. In the amended returns, respondent declared a total input VAT payment of P43,015,461.98 for the said quarters, and P42,837,933.60 as its total excess input VAT for the same period. Then respondent filed an administrative claim for the refund of its reported total input VAT payments in relation to the project it had contracted from PDTSL, amounting to P43,015,461.98. Respondent argued that the revenues it derived from services rendered to PDTSL, pursuant to the Agreement, qualified as zero-rated sales under Section 102(b)(2) of the then Tax Code, since it was paid in foreign currency inwardly remitted to the Philippines. When the CIR did not act on this claim, respondent duly filed a Petition for Review with the CTA, praying for the refund. CIR merely invoked the presumption that taxes are collected in accordance with law, and that claims for refund of taxes are construed strictly against claimants.CTA ruled in favor of respondent but only the resulting input VAT of P17,178,373.12 could be refunded.The rulings of the CTA were elevated by petitioner to the CA on Petition for Review. CA affirmed the CTA ruling. ISSUE: Whether Placer is entitled to the refund as the revenues qualified as zero-rated salesHELD: YesSection 102. 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 (0%) 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 subparagraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP].It is Section 102(b)(2) which finds special relevance to this case. The VAT is a tax on consumption "expressed as a percentage of the value added to goods or services" purchased by the producer or taxpayer. As an indirect tax on services, its main object is the transaction itself or, more concretely, the performance of all kinds of services conducted in the course of trade or business in the Philippines. These services must be regularly conducted in this country; undertaken in "pursuit of a commercial or an economic activity;" for a valuable consideration; and not exempt under the Tax Code, other special laws, or any international agreement.Yet even as services may be subject to VAT, our tax laws extend the benefit of zero-rating the VAT due on certain services. The law is very clear. Under the last paragraph [of Section 102(b)], services performed by VAT-registered persons in the Philippines (other than the processing, manufacturing or repacking of goods for persons doing business outside the Philippines), when paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated.Petitioner presently invokes the "destination principle," citing that [r]espondents services, while rendered to a non-resident foreign corporation, are not destined to be consumed abroad. Hence, the onus of taxation of the revenue arising therefrom, for VAT purposes, is also within the Philippines. Yet the Court in American Express debunked this argument:As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed.Confusion in zero rating arises because petitioner equates the performance of a particular type of service with the consumption of its output abroad. The consumption contemplated by law, contrary to petitioner's administrative interpretation, does not imply that the service be done abroad in order to be zero-rated.Consumption is "the use of a thing in a way that thereby exhausts it." Applied to services, the term means the performance or "successful completion of a contractual duty, usually resulting in the performer's release from any past or future liability x x x" Its services, having been performed in the Philippines, are therefore also consumed in the Philippines.Unlike goods, services cannot be physically used in or bound for a specific place when their destination is determined. Instead, there can only be a "predetermined end of a course" when determining the service "location or position x x x for legal purposes." However, the law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP]." x x x xAgain, contrary to petitioner's stand, for the cost of respondent's service to be zero-rated, it need not be tacked in as part of the cost of goods exported. The law neither imposes such requirement nor associates services with exported goods. It simply states that the services performed by VAT-registered persons in the Philippines services other than the processing, manufacturing or repacking of goods for persons doing business outside this country if paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, are zero-rated. The service rendered by respondent is clearly different from the product that arises from the rendition of such service. The activity that creates the income must not be confused with the main business in the course of which that income is realized. The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. Under this criterion, the place where the service is rendered determines the jurisdiction to impose the VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction, for the State necessarily has to have "a substantial connection" to it, in order to enforce a zero rate. The place of payment is immaterial; much less is the place where the output of the service will be further or ultimately used.

COMMISSIONER OF INTERNAL REVENUE vs. BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC.Facts: Respondent Burmeister is a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines. A foreign consortium composed of Burmeister and Wain Scandinavian Contractor A/S (BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for the operation and maintenance of NAPOCORs two power barges. The Consortium appointed BWSC-Denmark as its coordination manager. BWSC-Denmark established Burmeister (respondent) which subcontracted the actual operation and maintenance of NAPOCORs two power barges as well as the performance of other duties and acts which necessarily have to be done in the Philippines.

NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and Peso). The freely convertible non-Peso component is deposited directly to the Consortiums bank accounts in Denmark and Japan, while the Peso-denominated component is deposited in a separate and special designated bank account in the Philippines. On the other hand, the Consortium pays the respondent in foreign currency inwardly remitted to the Philippines through the banking system. In order to ascertain the tax implications of the transactions, Burmeister sought a ruling from the BIR which responded that if Burmeister chooses to register as a VAT person and the consideration for its services is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, the aforesaid services shall be subject to VAT at zero-rate.

For 1996, Burmeister filed VAT Returns reflecting a total zero-rated sales of P147,000,000 with VAT input taxes of P3,300,000. The next year, it availed of the Voluntary Assessment Program (VAP) of the BIR, allegedly misrepresented certain regulations to be applicable to its case. Burmeister in 1999 secured a ruling from the VAT Committee that services provided by the former is VAT-free who then filed a claim for a tax credit certificate for the erroneously paid output VAT in 1996.

Issue: Whether or not respondent is entitled to the refund of the erroneously paid output VAT for the year 1996.

Ruling: No.

Court declares that the denial of the instant petition is not on the ground that respondents services are subject to 0% VAT. Rather, it is based on the non-retroactivity of the prejudicial revocation of BIR Ruling No. 023-95 and VAT Ruling No. 003-99, which held that respondents services are subject to 0% VAT and which respondent invoked in applying for refund of the output VAT.

The Tax Code enumerates which services are zero-rated, thus:

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);

1. Services other than those mentioned in the preceding sub-paragraph, 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);

1. Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero rate;

1. Services rendered to vessels engaged exclusively in international shipping; and

1. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production.

Another essential condition for qualification to zero-rating under the tax code is that the recipient of such services is doing business outside the Philippines. Services other than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside the Philippines. If the provider and recipient of the other services are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under Section 102(a) can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services.

In this case, the payer-recipient of respondents services is the Consortium which is a joint-venture doing business in the Philippines. While the Consortiums principal members are non-resident foreign corporations, the Consortium itself is doing business in the Philippines.

Respondent, as subcontractor of the Consortium, operates and maintains NAPOCORs power barges in the Philippines. NAPOCOR pays the Consortium, through its non-resident partners, partly in foreign currency outwardly remitted. In turn, the Consortium pays respondent also in foreign currency inwardly remitted and accounted for in accordance with BSP rules. This payment scheme does not entitle respondent to 0% VAT.

PANASONIC VS CIRFacts: Petitioner Panasonic Communications Imaging Corporation of the Philippines produces and exports plain paper copiers and their sub-assemblies, parts, and components. It is a registered value-added tax (VAT) enterprise. From 1998 to 1999, petitioner generated export sales where it paid input VAT ofP9,368,482.40 believing that its sales are zero-rated sales. Claiming that the input VAT it paid remained unutilized. Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for refund or tax credit of what it paid. When the BIR did not act on the same, Panasonic filed a petition for review with the Court of Tax Appeals (CTA). The CTA First Division denied the petition stating that while petitioners export sales were subject to 0% VAT under the NIRC, the same did not qualify for zero-rating because the word "zero-rated" was not printed on its export invoices. This omission violates the invoicing requirements of Section 4.108-1 of Revenue Regulations (RR) 7-95. The motion for reconsideration was denied. On appeal, the CTAen banc upheld the First Divisions decision.Issue: Whether or not the words "zero-rated" must appear in the sales invoice so that a claim for refund of unutilized input VAT on zero-rated sales will be proper.Ruling: Yes. Zero-rated transactions generally refer to the export sale of goods and services. When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output tax, he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which allows him to recover the input taxes he paid relating to the export sales, making him internationally competitive. For the effective zero rating of such transactions, however, the taxpayer has to be VAT-registered and must comply with invoicing requirements. Interpreting these requirements, respondent CIR ruled that under Revenue Memorandum Circular (RMC) 42-2003, the taxpayers failure to comply with invoicing requirements will result in the disallowance of his claim for refund. If the claim for refund is based on the existence of zero-rated sales by the taxpayer but it fails to comply with the invoicing requirements in the issuance of sales invoices, its claim for tax credit/refund of VAT on its purchases shall be denied considering that the invoice it is issuing to its customers does not depict its being a VAT-registered taxpayer whose sales are classified as zero-rated sales. Nonetheless, this treatment is without prejudice to the right of the taxpayer to charge the input taxes to the appropriate expense account or asset account subject to depreciation, whichever is applicable. Moreover, the case shall be referred by the processing office to the concerned BIR office for verification of other tax liabilities of the taxpayer.