AMERICAN EXPRESS INTERNATIONAL INC. - PHILIPPINE BRANCH v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY AMERICAN EXPRESS INTERNATIONAL C.T.A. CASE NO. 5475 INC.- PHILIPPINE BRANCH, ;�;. Promulgated: Petitioner, JUN 16 2000 -versus - COMMISSIONER OF INTERNAL REVENUE, Respondent. x -----------------------------------------------------------x DECISION This petition is seeking for the refund or issuance of a tax credit certificate in the amount of P1,983,858.92 representing excess input taxes attributable to zero rated sales of services for the period January 1, 1995 to December 31, 1995 pursuant to Section 106(b) of the Tax Code, as amended. Petitioner is a Philippine branch of American Express International, Inc., (AMEX, ,. / for brevity), a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, USA, with office address at Ground Floor, ACE Building, corner Rada and De La Rosa Streets, Legaspi Village, Makati City. It is a servicing unit of AMEX-Hongkong whose primary function is to facilitate collection of AMEX receivables from card members situated in the Philippines and payment to service establishments in the Philippines.

DECISION- CTA CASE NO. 5475 PAGE2 Pursuant to Section 107 of the National Internal Revenue Code, as amended, petitioner registered itself as a value-added tax entity with VAT Registration No. 470- 000-106-198V/NV effective June 30, 1994 (Exh. A).1 For the period January 1, 1995 to December 31, 1995, petitioner alleges that it earned revenues in the amount of P56,087,860.93 which were paid for in acceptable foreign currency inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. Petitioner further avers that these revenues were zero-rated based on Section 102(a)(2) of the 1995 National Internal Revenue Code, as amended. Also, for the same period, petitioner alleges that it incurred and paid VAT input taxes on domestic purchases of taxable goods and services in the sum ofP1,983,858.32 which were all directly attributable to its zero-rated revenues. On January 28, 1997, petitioner filed an application for tax credit/refund of value added tax paid with the Bureau of Internal Revenue in the amount of P1,983,858.32, representing unutilized input taxes for the year 1995 (Exhs. G, G-1, H, and H-1). The inaction of the respondent on its claim for refund compelled petitioner to file the instant petition for review on March 25, 1997, pursuant to Section 230 of the National Internal Revenue Code, as amended. Respondent in his Answer raises the following special and affirmative defenses: 4. Petitioner's claim for refund is still undergoing administrative routinary investigation/examination by respondent's Bureau and petitioner's claim for refund had already cropped up, such as: 1 The original VAT Registration Certificate was effective March 1988 with Registration No. 32A-3-004868 (Annex 8, Petition for Review). [) -. (-J, ::. h)

DECISION- CTA CASE NO. 5475 PAGE3 (a) the total amount of P1,983,858.32, claimed by petitioner as allegedly refundable input taxes was not properly documented since petitioner failed to show that it followed the existing regulations of the Bangko Sentral ng Pilipinas (BSP). (b) the input taxes were not allegedly applied to output taxes were not properly substantiated. 5. In an action for tax refund, the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim for refund (Surigao Consolidated Mining Co. v. CIR, 9 SCRA 728 [1963]); 6. It is incumbent upon the petitioner to show that it has complied with the provisions of Section 204 in relation to Section 230 of the Tax Code, as amended; 7. Well-entrenched in this jurisdiction that claims for tax refund are construed in strictissimi juris against the taxpayer as it is incumbent upon petitioner to show that it is entitled thereto under the law (CIR v. Tokyo Shipping Co., Ltd., 244 SCRA 332, 336 [1995]). In support of its claim for refund, petitioner presented various documentary exhibits which consists of: 1. Certificate of Registration with the BIR (Exh. A); 2. VAT Ruling No. 080-89, dated April 3, 1989 (Exhs. B and B-1); 3. ..Q . uarterly VAT returns for the years 1995, 1996, and 1997 with some attachments of Monthly VAT Declarations (Exhs. C, D, E, F, L, M, N, 0, P, Q, R, S, T, U, V, W, X, Y, and Z); 4. Application for VAT refund/credit (Exhs. G, G-1, and I-I-I); 5. Certification issued by Punongbayan and Araullo with respect to petitioer's Schedule of Input Taxes Paid and Schedule of Zero-rated p 0.�'!'

DECISION- CTA CASE NO. 5475 PAGE4 Revenues for the period January 1, 1995 to December 31, 1995 (Exhs. I, and I-1 to I-3-5, inclusive); 6. Photocopies of supplier's sales invoices and/or official receipts for the subject period (Exhs. J-1 to J-963); and 7. Photocopies of transmittal letters, telex, advice, journal entry forms and bank credit vouchers for the year 1995 (Exhs. K-1 to K-502). Cow1sel for the respondent, on the other hand, was constrained to submit the instant case for decision sans presentation of evidence due to the non pursuance of investigation by the RDO of Makati (see Minutes of the session, January 8, 1998, CTA records, p. 106). This case was eventually submitted for decision after both parties presented their respective memoranda. The issues to be resolved are as follows: 1. Whether or not the petitioner is engaged in the sale of services that can qualify it as zero-rated, and if in the affirmative 2. Whether or not petitioner was able to comply with the provisions of Section 204 in relation with Section 230 of the Tax Code in filing a claim for refund; and 3. Whether or not petitioner was able to support its claim for refund with substantial evidence pursuant to Section 106(b) of the 1995 Tax Code. Respondent avers that petitioner is not engaged in zero-rated sales of services as contemplated under Section 102(a)(2) of the Tax Code and thus, cannot legally claim refund of input taxes pursuant to Section 106(b) of the same Code. In his memorandum,

DECISION- CTA CASE NO. 5475 PAGES respondent questions the corporate personality and nature of business of petitioner. He asseverates that petitioner is not merely a servicing unit of AMEX-Hongkong but is a regional headquarter of AMEX, USA, hence, petitioner is classified as a credit company engaged in financial service business in the Philippines. Respondent disputes the allegation of petitioner that it is engaged in the sale of services to AMEX-USA because records allegedly show that the former corporation does not have a personality of its own distinct from the latter and neither was it independently incorporated in the Philippines for the purpose of engaging in the sale of services. By putting forth this argument, respondent wants to show this Court that petitioner, contrary to allegations, is not engaged in the sale of services hence ca.mJ ot claim refund of input VAT. We would like to emphasize that We already have ruled in several cases, involving the Saine issues and parties, that petitioner's sales of services is subject to VAT at 0% pursuant to Section 102(a)(2) of the Tax Code (sec CTA Case No. 5031, promulgated on August 16, 1996; CTA Case No. 5139, promulgated on February 3, 1997, CTA Case No. 5209, promulgated on December 22, 19987; and CTA Case No. 5308, promulgated on December 29, 1997; all entitled American Express International, Inc., - Philippine Branch vs. Commissioner of Internal Revenue). This zero-rating of petitioner was even confirmed by then Deputy Commissioner, Eufracio D. Santos, Office of the Commissioner, Kawaniha11 ng Rentas Internas, in VAT Ruling No. 080-89, dated April3, 1989 (Exh. B), pertinent portions of which read as follows: "In reply,. please be informed that, as a VAT registered entity whose service is paid for in acceptable foreign currency which is remitted inwardly

DECISION- CTA CASE NO. 5475 PAGE6 to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines, your service income is automatically zero-rated effective January 1, 1988, [Section 102(a)(2) of the Tax Code, as amended]. For this, there is no need to file an application for zero-rate. (Underlining supplied) Despite the above decisions and VAT Ruling No. 080-89, respondent still raises the legal issue that petitioner is not engaged in zero-rated sale of services and further opines that the factual basis or representation upon which the ruling was issued is entirely distinct from the actual factual milieu of the present case. We do not agree with respondent's disquisitions. During the hearing held on June 4, 1997, petitioner's witness, Mr. Romel B. Paglinawan, Manager, Accounting, Plmming and Administrative Services, testified on the nature of petitioner's business. He clarified that American Express International, Inc., Philippine Branch is a servicing company of AMEX-Hongkong whose function is to render services to American Express card members (TSN, June 4, 1997, pp. 6, 7, and 19). Respondent was then given an opportunity to cross examine the said witness regarding such issue, but he chose to remain silent. We cam}Ot deny a claim for refund simply on the strength of respondent's contentions which are baseless and gratuitous for not having presented any proof to support such statements. It should be stressed that a court's decisions are based on uncontrovertible evidence on record and not in good faith or speculation or unsupported assumption (Philippine Associate Smelting and Refining Corp., Employee's Retirement Plan v. Commissioner of Internal Revenue, CTA Case No. 4894, ) ( l0 ) -

DECISION- CTA CASE NO. 5475 PAGE7 February 2, 1996). More so, We see no misrepresentation of facts stated in VAT Ruling No. 080-89. Anent the second issue, We are convinced that petitioner was able to comply with the provisions of Section 204 of the Tax Code in relation with Section 230 of the same code in filing its claim for refund. The two-year judicial prescriptive period in claiming for refund of input VAT under the Tax Code is reckoned from the date of filing of the quarterly VAT return (Hopewell Power [Philippines] Corp. vs. Commissioner of Internal Revenue, CTA Case No. 5389, January 4, 1999). It is clear from the record of the case that the claim for refund/credit of petitioner for the year 1995 was timely filed within two years from the dates of filing of petitioner's respective quarterly VAT returns considering that the application for refund/credit of input VAT with the BIR was filed on January 28, 1997 and the petition for review was filed on march 25, 1997, to wit: Period Covered Exh. Date of Filing of Quarterly VAT Return January to March 1995 C April 20, 1995 July 20, 1995 April to June 1995 D October 20, 1995 January 16, 1996 July to September 1995 E " October to December 1995 F We now delve on the third issue at bar which is whether or not petitioner was able to present proofs to supp01i the input taxes claimed. After a careful perusal of all the evidence supporting the input taxes claimed by petitioner together with the Certification issued by Punongbayan & Araullo (Exhs. I to 1- 3-5, J-1 to J-963, and K-1 to K-502), the Court is inclined to grant petitioner's claim for 1))4 -'-

DECISION- CTA CASE NO. 5475 PAGES refund in a reduced amount. This is due to further disallowance of input taxes in the amount of P302,254.61 because of the following reasons: 1. The input taxes were incorrectly recorded while some were recorded twice; 2. Some invoices or official receipts are not within the period covered by the claim; 3. The suppliers are non-VAT taxpayers; 4. Invoices are without BIR permit. The records of the case also show that petitioner did not carry-over the input taxes for the year 1995, to the succeeding taxable years. This can be seen in petitioner's first quarter VAT return for the year 1997 wherein the total amount of P16,908,074.34, which included the amount of P1,983,122.81 claimed by petitioner, no longer appears in the 1997 second quarter VAT return (Exhs. V and W). A re-computation of petitioner's valid input taxes revealed that only the sum of P1,571,492.36 is supported by evidence, to wit: Quartt?t Amount claimed Findings of Allowable Involved by Petitioner Independent CPA Refund (Exhs. I & I-2-1) (Exhs. G & G-1) p 562,130.19 575,025.88 1st P 599,787.53 p 562,130.19 357,796.57 2nd 575,025.88 378 794.34 3rd 647,479.88 452,095.89 388,870.85 Pl,873,746.98 4th 357,796.57 P1.978.122.81 302,254.62 378 794.34 P1.571.492.36 Total Pl .983.858.32 Less disallowances by the Court (see Annex A, for details) AMOUNT. REFUNDABLE '�14 I 0 {..

DECISION- CTA CASE NO. 5475 PAGE9 WHEREFORE, finding the petition for review partially meritorious, respondent is hereby ORDERED to REFUND or, in the alternative, ISSUE a TAX CREDIT CERTIFICATE in favor of petitioner the amount ofP1,571,492.36. SO ORDERED. WE CONCUR: LO- ERNESTO D. ACOSTA Pr.esiding Judge 4i!RA CERTIFICATION I hereby certify that the above decision was reached after due consultation with the members of the Comi of Tax Appeals in accordance with Section 13, Article VIII of the Constitution. L-LQ ERNESTO D. ACOSTA Presiding Judge 10)4 d

AMERICAN EXPRESS INTERNATIONAL, INC. ANNEX A SCHEDULE OF DISALLOWED INPUT TAXES For the period January 01 - December 31, 1995 1ST QTR SUPPLIER PATE EXHIBIT COMPUTATION AMOUNT REMARK Associated Medical & Clinical Services 2f24/95 J-6 93.69 Non-Vat 72.08 Non-Vat Cosmopolitan Office 2f24/96 J-7 59.57 Non-Vat & Supplies Mdse. D'Robe Security 3124/95 J-8 Agency Inc. 1/10/95 J-30 Amt. 198.98 DELBROS Shld. be 108.52 DHL 90.46 Erroneous Recording ECOLINE 3/31/95 7,451.32 No Document EIU Mills, Inc. 3/15/95 6,499.15 No Document 1/19/95 Equitable Tech. Corp. J-46 Amt. 966.82 Hilarion-Levy Co. Inc. Shld. be 958.03 Kimberly Clark 8.79 Erroneous Recording Phils. 3/17/95 61.78 No Document 1/31/95 J-63 Amt. 11,688.25 116.88 Erroneous Recording 3/9/95 J-64 Shld. be 11 571.37 11,905.16 Amt. 11,786.12 119.04 Erroneous Recording Shld. be 213/95 J-68 341.86 No BIR Permit 1120/95 J-70 Amt. 11,210.28 J-71 Shld. be 11,098.19 112.09 Erroneous Recording 9,800.00 1994 Invoice 3/17/95 J-79 6,400.00 Recorded Twice 2/15/95 143.64 No Document 1124/95 J-119 Amt. 212.95 13.97 Erroneous Recording 2f24/95 J-121 Shld. be 198.98 497.45 Amt. 483.49 13.96 Erroneous Recording Shld. be KODAKPhils. 143.02 No Document Professional 116/95 J-163 1,908.49 No BIR Permit CoLtrier 1/30/96 J-165 614.96 No BIR Permit 2/16/95 J-164 701.56 No BIR Pem1it 219/95 J-166 6.54 No BIR Permit 3/6/95 J-167 690.86 No BIR Permit 3/16/95 J-168 27.94 No BIR Pem1it 3/16/95 J-169 23.19 No BIR Permit 3122195 J-170 No BIR Permit 3/30195 J-171 2,447.64 No BIR Pem1it 3/30195 J-173 749.13 No BIR Permit 649.15

Steady Prints 3/11/95 466.00 No Document UPS Phils. Inc. 3/30/95 2!23/95 494.52 No Document 2!23/95 2/19/95 J-245 Amt. 120.11 7.84 Erroneous Recording 3/17/95 J-247 Shld. be 112.27 J-252 404.36 151.63 Erroneous Recording Subtotal J-254 Amt. 252.73 Shld. be 198.45 6.64 Erroneous Recording 191.81 Amt. 4.64 Erroneous Recording Shld. be 53.73 49 09 Amt. Shld. be p 40,492.03 2NDQTR SUPPLIER DATE EXHIBIT COMPUTATION AMOUNT REMARK Associated Medical 4/21/95 J-262 72.73 Non-Vat & Clinical Services 6/23/95 J-264 72.73 Non-Vat Cardcraft Phils. Hypercom Phils. Inc 5/11/95 J-275 Amt. 606.00 Lane Moving & Shld. be 540.00 66.00 Erroneous Recording Storage Mode Matrix 5/10/95 J-316 136,718.18 Recorded twice Professional Couriers 4/15/95 J-349 1,909.09 Recorded twice 5/24/95 J-343 Amt. 2,000.00 Shld. be 1,909.09 90.91 Erroneous Recording 5/15/95 J-358 Amt. 2.267.14 33.50 Erroneous Recording 5/15/95 J-359 Shld. be 2,233.64 5/25/95 J-362 3,487.91 51.55 Erroneus Recording 5/25/95 J-363 Amt. 3,436.36 5/19/95 J-361 Shld.be 1,943.26 28.71 Erroneous Recording 1,914.55 Amt. 2,267.14 33.50 Erroneous Recording Shld. be 2,233.64 3,487.91 51.55 Erroneous Recording Amt. 3,436.36 Shld. be Arnt. Shld. be 4/6/95 J-380 472.07 No BIR Pem1it 4/11/95 J-381 1,173.63 No BIR Permit 4/27/95 J-382 1,475.66 No BIR Permit 5/10/95 J-383 No BIR Pem1it 5/17/95 J-384 79.07 No BIR Permit 5/9/95 J-385 1,983.40 No BIR Permit 6/8/95 J-386 No BIR Pem1it 6/15/95 J-387 430.45 No BIR Permit 716.43 1,699.21 () d :.)

UPS 6/30/95 J-439 Amt. 24.64 Subtotal 3RDQTR Shld. be ___2::_: .3:..;1_;8._:. 1.46 Erroneous Recording SUP PLIER 36.75 No Document Associated Medical p 147 196.58 &Clinical Services D-Robe Security DATE EXHIBIT COMPUTATION AMOUNT REMAR!< KODAK Pllils. Lane Moving 9/15/95 J-449 72.07 Non-Vat Professional Couriers 8/25/95 J-450 72.07 Non-Vat 9/15/95 J-451 72.07 Non-V at Robbie Styfographlcs Serve Well Service 9/19/95 J-514 Amt. 6,505.12 9/29/95 Shld. be 6,440.07 & Supplies Corp. 65.05 Erroneous Recording UPS 85.96 No Document 9/11/95 J-555 Amt. 2,000.00 Sllld. be 1,909.09 90.91 Erroneous Recording 812/95 J-604-608 2,512.47 Lacking in documents 8/24/95 J-615 4,097.61 7/25/95 J-617 No BIR Pem1it 8/10/95 J-618 36.27 No BIR Permit 8/14/95 J-619 4,987.64 No BIR Pem1it No BIR Pennit 36.27 7/17/95 J-647-648 3.654.55 Recorded twice 7/19/95 545.23 No Document 7/28/95 J-708 Amt. 423.93 19.39 Erroneous Recording 7/28/95 J-714 Shld. be 404.54 7128/95 J-718 235.31 12.03 Erroneous Recording 8/7/95 J-720 Amt. 223.18 Shld. be 2.18 Erroneous Recordillg 30.36 Amt. 28.18 6.89 Erroneous RecorQl!}g__ 160.53 Sl1ld. be Amt. :15364 Shld. be Subtotal p 16 368.66

4TH QTR SUPPLIER DATE EXHIBIT COMPUTATION AMOUNT REMARK Alliance Technologies Associated Medical 12/16/95 78,382.17 No Document & Clinical Services AM Enriquez 11/17/95 J-731 72.73 Nort-Vat DHL Phlls. 1219/95 J-733 72.73 Non- Vat Don Bee Printing 10/10/95 16,537.00 No Document Ecoline GOP Advertising 11/27/95 9.09 No Document Lane & Moving 12127/95 1 53.95 No Document storage 10/24/95 10/31/95 J-783 Amt. 3,317.44 33.18 Erroneous Recording Prosperous Manpower 10/24/95 J-784 Shld. be 3,284.26 11/29/95 J785 0.10 Erroneous Recording Serve Well Services 11/14/95 J-786 Amt. 9.10 12/27/95 J-787 Shld. be 33.75 Erroneous Recording 121'27/95 J-788 9QQ J-789 Amt. 69.56 Erroneous Recording Shld. be 3,374.62 0.37 Erroneous Recording Amt. 3.3Q.8Z Shld. be 2.20 Erroneous Recording 6,955.27 Amt. 0.80 Erroneous Recording Shld. be 6 88(:) 71 Amt. 36.40 Shld. be 36 Q3. Amt. Shld. be 219.20 2:1Z QQ 79.53 78 73 10/5/95 178.64 No Document 10/19/95 J-805 129.00 No BIR Permit 12111/95 J-815 1,068.18 Non-va t 11/21/95 J-841 Amt. 2,000.00 90.91 Erroneous Recording 11/21/95 J-844 Shld. be 12129/95 J-843 :1 9Q9..Q9 90.91 Erroneous Recording Amt. Shld. be 2,000.00 90.91 Erroneous Recording Amt. :l.9Q9.Q9 Shld. be 2,000.00 j 909 09 11/20/95 J-885-894 Arnt. 6,045.86 10/26/95 Shld. be 8.0 1,064.06 Erroneous Recording A mt. J-897 2,308.16 Shld. be 2 3Q5 73 2.43 Erroneous Recording 10/21/95 J-932 Amt. 2,377.37 Sl1ld. be 2,262 69 114.68 Erroneous Recording Subtotal p 98 197.35 Totals p 302,254.62 J' j_ ' I _) ..,. I