BURMISTER & WAIN SCANDINAVIAN CONTRACTORS, MINDANAO, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY BUfWEISTER f. WAIN SCANDINA\.' IAN CONTRACTORS, MINDANAO, INC., ~ :. r~ � .;. t " :J n o;: r"' ; -� V�:.'!i"'SI.,.~ �- C. T. A. CASE NO. 5471 COMMISSIONER OF INTERNAL REVENUE, - '( - _. - DECISION t... ,., .. ~ F<eviev-J is '-� I 1ssuance of a tax c red1t certificate in the total amount of P4,675.072.~9. represent:ng excess iPout val.ue-acdec ta.x (VAT, fat' Or'evity) p.:.:nd for the per1od January 1 .1. 1 Detitioner is a domestic corporatio~ duly ot�gar 1 zed a~c ex1sting under the l.a.~�Js cf tile Phi� ipoines. It . (;' who 11 v�-own ed tly B u t' me i s t e t' Wain Scare; i nav ian Contt�act at's Denmat�k fat' D;�e�.-ity) pt�inc1pal office address located 1n Daruma Industries 1..::or'p 01���a"Cion Bldg., i-<1:. l, L.. anang~ D3'v'ao City. The petition alleges that a consortium composed of fWSC-Denmark, Mitsui Eng:neering 8 Shipbt~:� 1.rliTlg .. Ltd . and Jvi i ~; s �.., 1 & :::; o � , :_. t d � , en t e t' e d into a ConsortiJm Agreement w~. th NAPOCOR., go v eJ�'n ment -�-owned 2.nd contr��o l ~ ec; o per' a .j... on "'\no� mair~en3nce or two- 1 'J ~ower barges for a fifteen-vear term. BW3C-.. Denmark was e!ected ~o be the Consart�um's coordination

DEC ISION - C.T.A. CASE NO. 5 471. 2- As t~e coord1nation manager, BWSC-Denmark organized B~rmeister Wain and Scand1navian Contractors~ Inc., ano thereafter, Consequent 1. y. Petitioner undertook the main respons~bi~ity of act~al ooeration and maintenance of the two well as all the works under the Consortium Agreement that will necessarily have ~o be performed in the P h ilippines (TSN, :1. ':3'37" p p.. '3-�- .L .1. } � In exchange for the services rendere d, Petitioner receives a subcontract fee. In the belief that its sales of services are subject to VAT, Petitioner registered itself with RDD No. 11~ <Da.vao City) of the Bureau of Internal Revenue as a uqr registered taxpayer with VAT Registration No. 003-2'35-598 (Exh. r::1). On FebJ�~uat'Y 14, 1'3'35, Petitioner was able to secure BIR Rul i ng No. 25(a) (1)-000-00-023-'35, subjE~cting gross receiots from the services it renders to the Consortium to zero-rate because the consideration it t''ece i ves from said sales of services is paid for in acceptable foreion currency inwardly remitted to the Philippines in accordance with the rules and regulations of Bangko Sentral ng Pilipinas \~xn. F). For the year 1995, Petitioner timely filed its quarterly Vr::1T returns declaring therein total s.:::tl es in the amount of P155,515,05'3.87 with total

DECISION - C. T.A . CASE NO. 5 4 71. - 3- corresponding purchases of taxable goods and services in the sum of ?46,750,072.45, inclusive of input 1JAT, detailed as follows: ( 1995) A 0 uNT Duay�t e��~ E><h. ~3a 1 e s 1st B F- 36,875?700 .. 00 PU::, 1-}':3':3 7 810. 48 2nd c 41' '352~ 000. 0 0 18~ 166, 31.0. 63 3~��d '1�8, 534, 333. 00 D '+ a, 25 1 , 1 7. o;~ L!�th E E:B, 153, 026. 87 7 n (333, 181-j.,. 3~~ P1.5:':5., 515. 05'3. 87 P46, 750 .. 72::::. Lf.;':'.) As a consequence of the zero-reted status of its sales of set~v:i.ces, Petitionet~ filed, on two separate occasions, Applications for Tax Credit/Refund of Value- Added Tax Paid, pursuant to Section 106(b) of the 1 ':3'35 Tax Co d e, as amended, to wit: Inclusive Dates of Date Amount In p ut Tax Pavments of FiU.nc1 Janu.at''Y 1.995 10--17-95 I ?3,066~612.29 to June 1.9':35 .July 1. 99:'.'i 02--06--97 J 1. 608. 460. 10 to Dec e mbet~ 1995 Tot a 1 p L~, 6 75. 072. 3':3 The i naction of the Respondent on said applications compelled Petitioner t o f i le t he instant Petition for to judicially claim for the refund of excess input VAT pa�1 ment s. Res !:'JOndent .1 in his Answer~, raised the following special and affirmative defenses:

DECISION - C.T.A. CASE NO. 547 1. 4- 9. Petitioner~s c~a1m for r-�efttr\d has already prescribed. 10. The total amount of P4,675~072.39 claimed by petitioner d~ alleged refundable in~ut taxes was not properly documented. 11. Taxes paid and collected are presumed to have been made in accordance with law and J�~egulat ions. In an aci:; :i. on f G~�-� t~e fund I ct��ed it'! it is incumbent upon the taxpayer to establish that the taxes paid were erroneously or illegally collected. Failure to meet this burden is fatal to the claim for t~efund/ct~edit. In the pt~esent case, petitioner~ has not shown that the tax claimed was erroneously or illegally collected. l ~==�. It: -: �o; :i. ncumbent upon thP pet 1t ionE.'t' to show that it has complied with the of Section 204 in relation with Section ;::~30 of the National Internal Revenue Code, a'; 13. BIR Ruling No. Oi=:-3-95 does not apply to the present case because thE.' facts at"E� materially different from the facts on which the ruling 1s based. To bolster its claim for refund, Petitioner formally offered the following documentary evidence; L VAT registration certificate (Exh. Val !.I.e-Added Tax f~ettu�~ns for~ the 1 '3'3;'5 pe�r�� i oci J 2.n u.a�:���y 1 ~ l'3':3~5 t (\ D e c e mb e ~- 3 1 , (Exhs .. B to E~ inclusive of s u.b-mat~l-<i n g s) ; 3.. B I !i ~~ u ::. 1 n g \i o. ~==~~5 (A) ( 1 ) �-000��-�00-0c~3��- 95, classifying petitioner's sale of services as a Vatable transaction at 0~ CExh. F); 4. Applications for tax credit/refund of VAT paid CExhs. G and H>; 5. Independent CPA cet��t if i cation pertaining to Petitione~'s claim for~ l�~efu.nd of inout taxes and sales of services (Exh. ,. ) u J. ' " G. Sch~?dule of :i.nput ta}<e<; p.:3.:i.d zero-rated sales CExhs. J and !-\) ; and

DECISION - C. T.A. CASE NO. 5471. 5- 7. i-'hotocop1e~; of �;u.pl::.1l1E'\''�:;' <:.a.~Lt:��:; invoices and/or official receiots and photoccp1es of Pet1tioner3 s sales Invoices and bank credit ~emos <Exhs. J-1 to J-949 and K-1 t o 1-< --;:::8) � Respondent, on the other~ hand, failed to submit any con�;::�r~over��t 1ng e v 1 ci ence. Th L''i evf?ntually submitted for~ decision sans the me mcn��and u.m of +;he F<e s pond ent. The issues to be r~esolved by this ar~e as follo~>Js~ 1. Whether or not Petitioner's sales of set'V ices. to the Consort:um are subject to ze l'~o of Tax Code~ vr-n, put~su a nt to Section 102(a) (2) of the 1'395 a~:, amended; and Whether Ot' no1; Petitioner is entitled to in put VAT refund, pursuant to Section 106(b) of the same code. the r~esolution of the is ' 102 (a.) (\ L�:-..:.� i 0.f' Tax Code~ SEC. 10 2. Value-added tax on sale ot= services. (a) Rate and base oF tax. There shall be levied, assessed and collected, a value-added tax e quivalent to 10% percent of gross receipt s derived by any person engaged i n the salP of ser~vices. The phl�'a<:;e "sale~; of sr.>t'Vices" means th e pet'fot~mance o�f all kinds of services for ot~ers for a fee. re~uneration or consid e ration including those performed or rendered by construction and se~vic= contt'actcw~:;:; stoc~<.1 r'eal estate, commer'c:i. al~ 1mmigrat1on bYokers; rustoms and lessors of oersonal property; lesso~s or distributors of cinematograptic fil~s; persons engaged 1n milling, pt'ocessing, manufactm~ i n g <Jr' r~ epacki n g goods for others; and s im ilar services regardless o f whether or not the p e rformance thereof calls for the exercise or use of the physical (Jt'' mE)nta:L facl..,:'.tit''C.i" Pr'OI/.ided, That

DECISION - C.T.A. CASE NO. 5 47 1. - 6- the fol:i.ol'lling services per�orrned 1n t j-lt'' Philipp:tnes by VAT-registered persons shall be subject to OY.:: (1) XXX (2) Services other than those mentioned in the precedi~g sub-paragraph, the consideration for which is paid for in acceptable foreign currency which is rem1tted inwardly to the Phil1ppines and accounted for in accordance with the rules and reg~lations of the Central Bank of the Philippines. XXX HXX }(}{}{ It can be deduced a f oJ-~eq uot ed pr"ovision that whenever (1) the considerat1on for serv1ces rendered by a VAT pe1�~son is paid for~ in acceptable inwardly remitted to the Philippines; and accounted for' in accor~dance with the r~ul es and regulations of Central B-3nl-< of the Phil i ppines.1 the same is subject to 0~ VAT. It is undeniable that Petitioner was able to sat isfy all of the above requirements. Petitioner presented in evidence the bank cr~ed it memos to show tilat the consideration for services it rendered tr the Consort1um wet"e paid for~ in fol''eign to the Pilipinas? rules and regulations. In fact, the z er~o-- rating of Petitioner's sales of services th e Respondent in BIR Ruli n g No. 25CA) (1)-000-00-023-95, clc\ssifying it 5 ,. ,,-~ renders to the Consortium to zero-rate <Exh. F) .

DECI SION - C.T.A. CASE NO . 5 471. 7 With respect to Responde~t 1 s aforementioned rul1ng is misrepresented, this Co ur��1; fin cis t~e same to be w1thcut merit. BIR Revenue Officer, Ms. Nynette Montana, opines that an addendum to the Sub-Contract Agreement nullifies the validity of the ruling because the addendum changes the payment procedure of Napocor to the Consortium. Instead of Napocor paying d1rect to the Consortium members, Napocor coursed its payment to Petitioner being the appointed collection agent. As such, Napocor pays Mitsui Eng~neeri~g & ~3hipbuildinr,:l-J i....td. l and ir"iitsui & Co .. , L.td., thr~ough Peti�t;ioner~, in the for~m of three different currencies; the Mark. the ven, and the Peso. Ms. Montana believes that the peso payment to BWSC- Denm.:3.t"'i-{ wa~; offset against Petit1oner's charges for the services rendered to the Consortium. Pet~t i nent por~t ion of the testimony of Ms. Montana is quoted hereunder: AT"TY. DE DIOS: Q. !Yls. Witness, you mentioned e,3x'liet~ that thet~e is a misrepresentation on thE�~ pay�t of the petitioner, is that correct~ A. Yes, Sir��. what this r:Yi"f"Y DE DIOS: Can you please state again misr~epr~E~sent<::\tion is~ !Vis . VJitnE":<;C.� IriS. iY!ONTANA:

DECISION - C. T.A. CASE NO. 547 1. - 8- A. DIR Ruling No. 23-95 stated there: "That Napoccw w111 pay directly to BWSC Now, what actually happened was that there was an Addendum to the Sub-contract Agreement, w~ere1n BWSC Mindanao acted as a Collection Agent in behe.lf of the consor-�tiu.m, collecting thY~~e (.]) kinds of foreign currency from Napocor. These thr�ee (3) Yen~ and Philippine Peso~ ;c::�>lr. ATTY. DE DIDS:: So, BWSC i�iindanao, Inc. , a.cted as the CollE!ction i=1gent? meaning to sav, es cur��~-~enci remitted to Burmeister th,:,:..t all Scandinavian Contractors Mindanao coming f1�'om foreign sources, is that and Wain !Tis,. Witness? v~<?..s not c-or't'ect, A. Actually it's a Collection Agent of Napocor, Si�r"-.11 ATTY . DE DIDS~ Q. Your answer is not responsive to my question. J"UDf3E (~CClf:)TI=:t: l.,Jh o i s pay in g ~) i=HTY . DE DIOS~ Who is paying? Is it coming from abroad? .JUDGE ACOSTA: Do you know trJho is paying'' Napocor' Bur�m e is t er��; iYIS. IYIONTAN~): 1=1. Napoco1�'. The money ft'om Napoco1�' was CQUJ�'S(;>d thr��ou.gh BlrJ~3C iYl i ndanao for�� the fm~E i gn consot'tium, Si1�'. ~HTY. DE D IDS: So you are saying

DECISION - C.T.A. CASE NO. 5471. - 9- J"UDGE ACOSTI-1: So, the local Burmeister was the one t~emitted to Burmeister Scandinavian? !'r1S. MONTANA: JUDGE ACOSTA= Okay, counseL ATTY. DE DIOS: Q. And vou are sayino that instead of Burmeister and Wain Denmark paying directlv BWSC Mindanao, Inc., in foreign currencv the latter merelv offset or set off the payments cominq from Napocot~, is that con-~ect, l11s. Witness? MS. MONTANA: A. That is what I believe. Sir. ATTY. DE DIOS: Q. So you a~~e saying, yes, Ms. Witness? jvjE).. I~IONT !=li\IA : A. Yes, Sir~. CTSN, February 16, 1998, pp. 35 to 37; underlining supolied). The position of Ms. Montana that there was an offsetting between BWSC-Denmark and Petitioner with regard to the sub-contract fee is untenable. In fact, Pet1tioner was able to support the inward remittances of foreign currencies from BWSC-Denmark with bank credit memos evidencing payments for the services rendered to the Consortium which tallies with the billings of Moreover, the payment between Petitioner and the Consortium and the payment between the Consortium and

DECIS ION - C~T.A . CASE NO. 5471. - 10 - ~apoco- are two different transactions and should be t 1���eat ed separ~ately. in the a bsence of evidence that will establish that Peti~:oner and BWSC- Denmark hac an arrangement of setting-off of obligations, the opinion of the t~f:venue aff:icpr~ holds li t tle It 1s worth stressing though that Respondent failed to present to this Court ~he BIR reco~ds of the case and even failed to formally offer the do c uments it previously Wit h rega rd to the second issue a t bar, We find Petitioner�� to be leg<::\lly i.:!ntitlec! to the cl.:um ftn' r~efu.nd as ma nd ated by Sec t ion 106(b) of the Tax Code~ SEC. 106. Ret=und ot�1 tax cr1 edits at= input X X X. (b) Zero-rated or eFFectively zero ..-r.:.~t�ed sa l t'S. Any pey�son, excE!pt tho�:;p covey�eci iJy paragraph (a) abo~e, whose c0les are zero �rat8d or are effectiv e ly zero-rated may, within two years after the close of the quarter when such sal e s were made~ apply for the issuance of a tax credit certificate or r~efund of the input taxes attributabl e to such sales to the extent that such i n put tax has Tcot be!~n 21.pp ., i eo against output t ax. Howe v er, Petitioner still has the burd en of proving its enti t le ment to the claim for refund as requ i red under Sec. 16 (a) and 16(c) o f Re venue Regulations No. 5�--87, as amended, to quote: SECTION 16. Ret=und or tax credits ot= input tax. (a.) Zr.-?l���o�--rat�t'd s,=.�les of' goods d!nd services. - Only a VAT registered person may b e granted a tax credit or refund of value-added

DECISION - C.T.A. CASE NO. 5471. - 11 - taxes paid corresponding to the zero-rated sales of goods and service~ to the extent that such taxes have not been applied against out taxes, upon showing of the proof of the compliance with t~e conditions stated in Section 8 of these Regulations. XXX XXH }( H X (c) Claims fm~ ta>< credits/refunds. Application For Tax Credit/Refund of Va:~e f:.'tdded Ta>< Paid <BIR For~m No. ;:::552) shall be filed with the Revenue District Office of the city or municipality where the principal place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division. A photocopy of the ourchase invoice or receipt evidencing the value aooed tax pa~d shall be submitted together with the applic-::d:;u:m. 1ne or~iginal copy of t 1!e s.,::;id invoiceh~eceipt, ho~<~eve~~, shall be pt~esented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following documents shall be attached whenever applicable: XXX X}( X XXX (2) Zero-rated sale of services. i) Authenticated copy of the contract showing the person for whom the services were rendered, the amount of consideration and description of the services and document evidencing actual payments. ii) Statement from the Central Ban~ or any of its accredited agent bank that the consideration in acceotable foreign currency has been inwardly remitted and accounted for in accordance with applicable banking regulations. Under~ subpar~agr~aphs 1 ( i i) and 2 ( i i) ~ the statement shall show the amount in foreign currency of the export proceeds or consideration and the date of inward remittance, conversion rate into Philippine currency and the total peso value thereof.

DECISION - C.T.A. CASE NO. 5471. - 12 - The evidence presented by established the following facts~ 1. That Petitioner is a VAT registered person with VAT Registration No. 003-295-598V (Exh. A); That input taxes sought to be refunded herein were never carried-over to succeeding taxable year 1996 3. That applications for tax credit/refund of VAT duly filed ~"ith BIR Revenue Region No. of Davao City CExhs. G and H); 4. That there were payments of input taxes as sholl'm by the photocopies of pu.r��chas&? invoices and/01� official receipts issued to Petitioner <Exhs. J-1 to J- 949) ; ;:mci That Petitioner received for�e i gn cur�r�ency remittances for the services rendered to tne Ccnsortium <Exhs. 1-\-1 to :-\-28). An analysis of the evidence reveal t~at P e t i t i o n e r' is only ent1tled to Q lesser su.m of ?4,424,584.47 as found by Mr�. the independent CPA engaged by Petitioner and commissioned by the Court~ to check on the accuracy of Petitioner's summary of input taxes <"::>>. c:::> well as the summary of sales of services. WHEREFORE, jn view of the foregoing, the Petition for Review is hereby PARTIALLY GRANTED. RE-! s pond ent ORDERED to REFUND or�~ in the alter'n,:~i~VF2; to ISSUE -::1 t.::t~<

DECISION - C.T.A. CASE NO. 5471. - 13 - crecit ce~t1~ic2te 1n favor of retitloner t~e amount of .:.4,424,584 .47 . SO ORDERED. /. 4 A1A: R . ON 0. DE VE' A 3 lr)-.,..-. OC-....J: .a-.l-,e� 1.l r J c0. WE CONCUR : I .' l c. ~ lQ. ~ ERNESTO D. ACOSTA Pt'esiding Judge CERT I F I CAT I 0 1-..... I hereby c e rtify that t,e above decision was reached after due consultation with the mem~ers of t,e Co~~t of Tax ~~ppeal s in accordance with Sect:on Ar't ic 1 e VI II of the Constitut1on.