CTA Case No. 4875 (Decision)

- REPUBLIC OF THE PHILIPPINES COURT OF TAX APALS QUEZON Cl IV KANMAJSU COHPOHAJION, MANILA UHANH (tormerly KANMAIBU-UOSHO LIU. , Man 1 Ia Branch), Petttton e t - versus - C.I.A. CAb N0.4815 lH OMMISIONH U f;:; Pr ntuu 1 qa l eel: INJLRNIL HVlNU, EEB_12J9M Hesponu e nl. __ X - - �� ------ �X LH- C I 8 I ()N 1 nst a 11 t cnse 1etets tn det tL:Iency value-added t ax (VA I) BSSt-!Sment I S!:;Ued aiilltsl 1Jel1t1oner tn the total amount of P1.3b.\:1ii.H14.1U. llll llf,fVe 0t 111ten: sts, Sllr<;halqes lid 00111pt llllll se p->llcilltet> covet 1 1 1 \J taxable yeat s 1 Hl nd I HI:H lhe tollowtny dte the tcH.t ul lilt> case a s na r� r a t ed by petttlnllel . Pelt t 1nne1 IS 1es1tlH1tl t or�e 1 gn cor'porat 1 on and P.XIStrng t ltP la\IS ot Jnpan. It transacts IHIS I lte..,s Ill ttt e PIt I I I p p I II es ltnough a B1 anct1 WI t II at ttte 4th lluor Uon {.,hua Lamko Al1aro corn e r Uela Costa st r e e t c, , ::.a I c e do v 1 I I ag e . Ma k . tI ' lie ll ll rIanI I a. It 1 s engag e d 1 n qenera I 1 ndent 1 ng

...., OE:CISION C.l.A. CASE: N0.481b -2- off tee, Kanematsu C..o r� p or a t 1 on ot Japan (formerly Kanematsu-Gosho Ltd. >, and Its customers In the Philippines. In letter , dated July 2;:5. I 1, respondent I tl f 0 rIll t' d p t I t I < l rIP I t II a t It had df-'t ICIncy VAl I I ab I I I ty tor ta.<atlle year s and rn the amounts ot P H � 1 b 1 . 1 0 u . t.s h a n (1 f-'1b,H41,?8':1.: 4f, tE'">f,et;tlvel'f, computed as 1 o I I owe; : U I� I L I l- N (, 'f V 11 L U l: . LJ Ll L1 I A>.. 198H-1+HY lot .-..,. I" VAl due tllu1eu11 tit 10o f-' d,'::l.:i\;!. 94dj H4,88b.bb Add: 2!.J .;,UI (,IJdl tJt! P 4,9<:'4,!-i,�U .I SutJ-total d,201 ,LOJ.Ub Add: LUo 111terec,t up to B� LV-':-:11 :?b,UOU. UlJ C 0 Ill p I t l Ill I e IJ H.lbi.Ltl,Hb I 0 IA I f\t I U UN I l r lJ 1:- b. V!L I L L I I B I I v A I t1 ue l t1 P r eon a t I lJ "'> � H, fch,L4. I' Add: 2b SUI ChdtQH 2 -- . I H-I , b-bB - . bb ::.:uu toit:t l P 1 U, JU 1. dU . 14 Add: LU"o 11tte1est up to 8-.cu ':II 4."dUB,bUb. 1-l c'1,UUU.LJO (.. 0Ill p I 0 Ill I S H I 0 I A L A II 0 IJ 1\1 I l l U L & C. 0 L l - L I I B l f� a l1 o v e- 111 e 11 t 1 on e d tlSSeS5111PI1i' w.- r based Olt Heve1rue AUdIt LltIIIOI'dl)dUIIl Ur�der (1-!AtiV) ob , Wlll l'h cons t 1 u c t 1 v e t r ad 1 n t he or y t hat t 11-' s H 1 e s o t t 11 P. H o 111 e

DECISION C.f.A. CASE N0.4875 - 3- Office based on the solicitation of the Branch, are In su bs t ance sales of the branch, because the sales are constr�uct 1 ve I y consummated In the Phi I ipplnes. As the sellet', the Branch IS ther�etor�e I iable for 10% VAT on the total valor> ot ooods bought by the PhiliPPine i m po r t ers dtl'ectly 110111 Japan and othet' countries tor� the sub j ect tax a b Ie v�d r� s . In 1lf letter , rJa ted I 91, pet1 t1oner 1ts external au (J i t o r s protested the atorelltellt 1unet.J proposPd assessltlellts. I t aryued that HAI'IO 1-cHJ apr� I I ed only to I ll Co Ill>-' t 3 X , not tn VAl. WhiGI't IS bus 1 n t�.., � t d < � floreover , l.lle cor.,;truc.:tlve trad1ttq has II�., la�cH 1 nq I n1 ol t II t> VA I � the I 1 ab 1 1 1 t y I or� t h � , d I d t :1 X I S I Ill p 0 L e d on 1ne f-'htllpptne 1 mpo1 lt't s ut 1 , � 1 1 p 11 r c ll a c, ,. r� s ol t liP not upon t d ... Pi� JP t � Ull Jdll Jtll y 1 �<-J c , r f ,., p o n d e n t 1 ,;..uetl det1�1ency VAf as s�� '� �.,m, ' ' t �� aqaln<,t pt->tltlnl!er Itt t tt P tot a 1 amount ot I' I - n , ':J: ,1 I , t; f 4 . 1 0 , I ll c I II S I v f' ut� tnt��rests, sut'Citat-les. and 00111(.�1 01111 '>!? pPntl11t >. lOVPI tnq ldXCiltfP yectrs 1 !H8 I e I I I e <. P I V fHJ by pellli�Jilet un January 14.

... UE:CISION p 8,726,234.19 C.l.A. CASE N0. 4 875 2,181,558.55 5,661,144.37 -4- 2 5 ,_Q_20_:J.>O Deflctency VAT-1989 CFAS-4-89-91-3649) Plb,511,4J7.11 Uettc1ency VAl 5% Surcharge lnter'est uue comprotntse penalty lotal amount due [)e f I c I P. II c 'y VA I 1 Y H < I AS- 4 - 8 l- Y 1 . t b L1 U ) (Jp I It, I t>ltr,y v,., I 1-'.:.1. 1 rt"l.55.1b 20. Jt5 1 , boY. d I Lb'l> c-ur�ehal ue 2c.8.:!Y,14H.bl 100,000.00 lntPt t du � t r U , ,3 I 1. tl \1 \,; 0Ill pI 0 Ill I <;, �� p � II a I l y luI d I 111011 II I d U Oef lclency vf.;.l IYHU I A. 4 >i 1 uu bb I I Uet IL.IeltL.V .JAI 1-' -,':1dY 4::>. J Ltl% .111 ch 1 tie t54. YH5.'">b I t1 l e r est d 11 e (,OilliJI'UIIIIe flP.IldllV J.b41.112j.U1 lo1al amflun1 du :!.b.OUU. UO UetiC:I: tc'llV VA l-lYHU (fA -4�tlti 1-UUHl�l � :150. Hb lle11t,lt:>l1CY VAl 1-'14,4 ( ,44L. 0 1 Lb 'Ill r�ft H Qt-> /,2. 1 0.2.l. lb I ,.,. , L !'1 1 � .5 0 4 � ':1 �l llll t t .JIJP 1uu.uuo. uu Jill I c, p t II ly fJ41 . 4 b . 1 u 8 . lj d 111 u U II l I u Utt 111n lliil 1 1 .5 � I \1; , p!o!1 1 1itJtlE'l plote-tP.rl the abov�� tnent 1 uned "' s es "111 e n l ,, on t l11 ::,an1e grounds S l a t t' \J I ll I t S e i:l I I I (:� I p I o t t 1 I 0 t tl t� p I � l 1J t) 5 t:> tl 8 !'. P S S Ill t-> ll t . l h I S t litH: . 11 0 W t V tH � I t I dIlle II l e d l II e l I b I t f d I y I It ( I e a<; e (,I that lilt lllC!f-'dSe d tc:! \t o I 1.! 0 I urpur t 1nq d oc u 111 e t1 t . lfi<Hle t>y 1 IH Hf->dd Ut t I t:e l'cHII!Ot l>e c ons 1 d t:'! r-e d as con::.tt uct 1vely Cllii<;Uilllll led ltl the f-' h I I I p p I II\-! S t 0 r t he ownership or tl11-> to the qoods sold

DECISION C. f.A. CASE N0.4875 -b- passed to the Pht I lpp1ne buyers upon del 1very thereof 1n Japan. In a letter, dated September 1992, WhiCh was rene1ved by pet1t1oner 011 Octo ber 15, 1992. respondent dented W I t ll I ll I I I l y !Jet I l I II II e I' B pI 0 tt!b t . Hence, the I nstant tl IOit tU I rev 1 ew t I It d With till Noven1bt-!r 1..., 1 Y,J ' I he u I� qal l "i ..:. Ue tu IJP reulvelJ rn thlb vdSe, IS Pt I t I ultt>l ,. llat>lf' tor 10% VAT l)fl th sale (J f 4UOd I y It::; ._ldpctll liedd (J I I ICe to cust )lite I , I II Jlf.� I d t: I� I c I . I t t-> r 1 cHIt' ( t X h. (, p . 1 t> . L.IA Pt', ). r espunlJer1l tha 1 : 1 h t> <.1 1 e , < 1 t1 .._, u 111111 n t e d .'1 t) 1 �> d d L�y lllf' Hotllf> tlf 1 I � t"' shdl I l>e t t eatt.�d d ' d I .. ' n II , l I U < I I V" I V C t) II b IWilil t1 I e d I II t 11 e h I I I p l I 'l t� II d Ill d d t t�J V t tI e tJl a tl G h U t f I ( e . ilt>llft}, lllt...:(llllf' Lheretr<.llll &hail tJe liS I rjf I I'd l. I ll(. llllf> t r ()fl our 'P wIth I II lilt-> f'hlltp�lllf�-,. llle ,o!tt'llltloltS made I.J V dCt S 111d t ilr� Ill a n t' 11 I t-� d C t II a I I y l r ad I 11 q rls the h flit> (l!lrt:e . 111 pUt'SUrtl!J 11dtlltCJ bu tnt� '� llt->le 111 tile 1-'lltltPPIII-'' I, 1 b I I I t t' d tu lJ p p I y I t , b t d 11 C II i I t 11 lliPr chcl nd r se or d t t>d by 1"1 buyers. 'hE> lies lt1nn. that wel't fltddP IJV tile llorne ot r 1 ce slid t I l1e r;ons 1 der t->fl 110 lrlOt e tltarr lllt:ltely d ..n,lructtve ,,upplylrtq ot til UH" I chand 1 se to 1 t hr ar1<.ll wil l el1 event ua I I v 'J u 11 s t rut..: t 1 v I y s e I I "' l h t� .., d111 t:! lu 11e !Jh I I I p p Ine b U y e r� s \fiCH � 0 . 1 H fill 0 No . 1 - H b } '

DECISION C.T.A. CASt N0.48f5 -6- On page 2 of the satne letter/E.xh. "C" , Pet. ( p. 1 7. CTA reo .), respondent further stated that: "Under Sect1on 100 of the Tax Code, a value-added t ax equivalent to 10% of the gr�oss selling pr1oe or gros s va l ue 1n money or the goods sold, bartered or f'XL'I1HIH,lPll shall be IJlipOS':-'d Oil the Seller o1 t I' a n s t e r o t' � As c I ea 1 1 y p ort r ay e d , t'B!lP-rnatf;U Coq.Joratlon-htantla I:H�ancl1 ts the <H'tuat seller or transferor ot the goods .qpplted by 1ts head ol1tc-: . uch 1Je1nq tit�� case, tt I S lt ti ble to tile assessed IU% va I ue -added tax . " I h e c o u r t c d 11n o t s u IJ tl �; 1 1 be t o r�t>pondent's Idea thd pe t I t I 0 fl t I I S , II j) f!:' t.' t t u 1 U "o V A I � c u r r� e c t I v a r cJ u e cl by pet I t I 0 II e I) H \I;IU - >J b d p p I I e �-; on I y I t> IIICOilltl tax :illd not to VA I . illll'> :-:;pct1on ..�.1 thett-!ot proV Ides: ' ,). I he Ph I I I pp I ne bt dllCil SO I I C I t S pur ot1ase Ol'der s t 1om 1 ucd I t.H!YE'I. s. r�e I ays t 11 e 1 n 1 or� n1 a t 1 on t. o 1 t :-, home o1 I t ce , 1 ' u t p o r� i. P. d I y d 1 r� e c t I v m a [( .� :O ,, t I 1 e s a I e � In thts type or uperatton: { I ) Sclle3 p u r p o t' t e d I y c un s u m 111 a t t' d I 1 n r1 d t'.Jy t h e 11 om .- o t t 1 ce s II a I I IJ t-:> t r ea t eu as sd I e s VUili.IIJr,1tVf:ly !OtlSUI'IIIIIdtPd Ill thl'-' Pttlllpplne , and madt� by tilt! i.H'dllC I I ort 1 ce , ht-'n<e . 1ncome tl1etP1 1 nltr c;hall lH t tl e ' ons1 r 1 ; 1 e d 1 n c o 111 e I' r� o rn ; o u r c e ts w 1 t h1 n Phtllpptnes: \ It) l tH br Utdt sha I 1 t'ecord and repor't the qross selltng pr1c.:e ot cornmod1t1es sold t h r u t h l h u Hi n t t 1 G f"' : Fl n (i ta >I pLH'j)OSt.-1S I t::; ! I l l) reryrt tor IIIGOillt. It f' t 1 n c om e t 11 ( r e r 1 orn : J> :::. 1 n c e under thiS s1tuat1on, t iH llll J�O I t taxes , du t 1 es Htd ctlal'lles have d It eadv bt->t-'11 pa 1 d bV 1' he I u G a I lJ U y e I' _; , t h t.' & .; Ill e ' II a I I n 0 t a n V HI <J I' e l1e cllar�geable aneln ,t the br�ancll. " \ Undet's!;or� llll J supp I 1 ed) C I e a 1 I y , as e a n l)e se e n 1 r o Ill 'c>UI> ..�sectton ( I ll), RAHU 1-86 covers only 1 ncome tax and not VA I. FIAMU 1-86 was

OE:.CISION C.T.A. CASt N0.4875 - 7- passed tn January 1986 wh i I e VAT was passed only in January 1988, or two years later . �r tu: years covered in the Instant case are 1988 and 1989. 111l k tnu ol tax 1 nvo I ved 1 s VAT. Therefor-e. the proper law thnt houlc:i govern IS t:xecuttv e OrcJ e r No.213. be t t e t' k 110 w n as tile 'vflf law, whtoll was Incorporat e d tn the lax Lode ut 19tiB, st:trtltllJ !rom :-:;ect 1 ort to Sect 1 on I l I t h e r r�u I . Pur s u R n l to :.:.,ttion ':.IY, the table 1or VAl ar'e the seller ot ,JOfldS or <>'-'rVIOP', a ttt.l tt1e tmpor lE..I, ' . In the 1 n s t a'' t ,, a � e, a i t h o u q It I II t� ,ct- l U d I s e I I e I' o I oonds IS the Head Ulttue ttl ,Japan , 11 CcHIIIUt tn: made 1 ah I e tor VAT as lltt.� Si:l t: ; ,,a.;; COIISUiillll<'it�>d IIi Jdf-ldlt, N e 1 t her 1 s t II e h r .liH: h < 1 he h f' I t� I ll fH': t I t I o Ill:! I ) I I a b I e t 01' VA I 1 � � t t1 d I �, �-' I I e r� , litiS Wd<. the I fld I llQ I II d II P a I I I e I '' d 5"' o l pet I t I t) tl P. I In�:: cl�c 1 ton 111 f�:ltl states: '1\anewatsu tiost1o, I. t d . - 1�1 cl II I I a b I a n C It VS . '2.1, 18Yb; GIH, prom. March Under' scar� 1 nJ suppt ted)

r DE:CISION C.l.A. CASE N0.48T5 -8 - I n the case at bar, VAf 1s properly and I ega I I y due on the local buyers who are considered the importers . As ear I 1 er sa1 d. under- Sect 1 on 99 of the lax Code, VAT IS a I I ab I I it y ot the se I I er of goods or services and the 1010101ter A I t ll o u q h 1 t has been establ 1 shed that t he r e was no .., I e SUbJeCt to VAl sa1d s le was c onsumrna lt>d 1 n ,Japan d�l tnttely llllpurtatton ol goorjs by I o �a I pur clla::.e1 �, who dl t' table f 0I VA I. .,;,.,. 1 or1 1 rnp<.JI tat 1 on all'tHy H.I pel I d by t llt� 1 oca 1 b11yer t. , 1 l stloult1 no longer be 1m po s e d o n t t1 e h e 1 e 1 n 1> e t 1 t 1 c j n e t � f- I II d I II g l ll e pelttrull lot r � v 1 e w 111 e r 1 t' o r 1 o u , a n -1 Ill acc u r d a n <, e w 1 t t1 I aw � t 11 e 1� n u r t l1 H AN 1 t he s a111 e . WHl:Hl 1-0 - Hl:. respondent 1 s and W I IHliHAWv the "'UIJ .1 e t rlel1c1en< v VA I aSSeS'> IlleII t S Ill the toLl I dHIOIIIll ot P1Jb.'St ,Hl<l.1U. tn�Jiustve ot 1n t er� est < � SUI Ghat qf S altd c o111 JH n 111 1 , e pend I t 1 e s oover 1 ng taxable Vf'dl s 1':1t.lt3 llld 1 t:H1 tor� I I h 0f a11y l e ya l lid 1actual llas,.,.s . SU OIILH HHJ. llJNCUI : C - l:UNU 10 U. A< 0.-:il 'r f!:s 1 d 1ng Judqe

Of:C : ISION C.I.A. CASE N0.481b -9- CE::RT If-= I CAr I ON hereby cert1ty that this decision was reached attr due consultation w1th the member of the Court of f a >' A p pea I ,, tn acc,ordance With Sect1on 1.:i, Article VIII ot the con::>t1tut1on . &C2 lNNlIO U. ALUIA I' I " S I d I tl g ._j U d g e (OUI t or 1 )( Appeals