MANULIFE DATA SERVICES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY Special Third Division MANULIFE DATA SERVICES, CTA CASE N0.10381 INC., Petitioner, Members: -versus- RINGPIS-LIBAN, Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES, JJ COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. APR 11 202~- X -----------------------------------------------------------------~-------------!i/.;_W_I"-:!-~-!------------- X DECISION MODESTO-SAN PEDRO, J.: The Case The instant Petition for Review ("Petition"), filed on October 22, 2020, 1 prays for the refund of the amount of Php 102,180,142.62 allegedly representing petitioner's excess and unutilized creditable input value-added taxes ("VAT") paid for the four quarters of the calendar year ("CY") 2018.2 The Parties Petitioner is duly licensed by the Securities and Exchange Commission ("SEC") to operate as a regional operating headquarters ("ROHQ") under SEC Certificate of Registration and License No. FS200603505, issued on March 3, 2006 .3 As an ROHQ, petitioner is allowed to render qualifying services to its affiliates and related parties in the Asia-Pacific region and in other foreign markets. It is registered with the Bureau of Internal Revenue/ Rollo, Vols. 1-3, pp. 6-1682. 2 See Statement of the Case, Pre-Trial Order, Rollo, Vol. 4, p. 1829. Exhibit " P-I ".

DECISION CTACaseNo.\0381 ("BIR") as a VAT entity under Certificate of Registration OCN 8RC0000525020.4 Meanwhile, respondent is the duly appointed Commissioner oflnternal Revenue ("CIR") empowered to perform the duties of the said office, including, among others, the power to decide, approve, and grant claims for refund or tax credit of erroneously paid or overpaid taxes, as provided by law, particularly the National Internal Revenue Code, as amended ("NIRC'). He holds office at the BIR National Office Building, BIR Road, Diliman, Quezon City. 5 The Facts As provided above, petitioner is an ROHQ. It is registered as a VAT taxpayer with the BIR under Certificate of Registration OCN 8RC0000525020.6 During CY 2018, petitioner generated both VAT zero-rated sales and VATable sales as shown in its schedules of zero-rated sales7 and VATable sales8 and its quarterly VAT returns. 9 On July 14, 2020, petitioner filed its administrative claim for VAT refund for CY 2018 before the BIR' s VAT Credit Audit Division ("VCAD"). 10 After initially receiving the application, the VCAD, through revenue officer ("RO") Jovelyn Borromeo, repudiated the receipt of the VAT refund application and required petitioner to retrieve its entire filing on the verbal notice that certain documents allegedly did not conform to Revenue Memorandum Circular ("RMC') No. 47-2019, to wit: a. The deduction of the claim from the available input VAT was indicated in a monthly VAT declaration, not in a quatierly VAT return; and b. The bank statements submitted as proof of the inward remittances were not certified by an officer of the issuing bank.j 1 Exhibits "P-3", "P-4-ICPA", and '�P-5-ICPA". See Stipulation of Facts, Joint Stipulation of Facts, Rollo, Vol. 4, p. !808. 6 Exhibits "P-3", �'P-4-ICPA" and "P-5-ICPA". Exhibits "P-22'' to "P-25''. Exhibits "P-18" to "P-21". 9 Exhibits "P-5" to "P-8"; see also Memorandum, Rollo, Vol. 5, p. 2370. 10 See Stipulation of Facts, Joint Stipulation of Facts, Rollo, Vol. 4, p. 1808; Exhibit "P-11" to "P-13". 11 See Stipulation of Facts, Joint Stipulation of Facts, Rollo, Vol. 4, p. I809.

DECISION CTA Case No. 10381 On 30 July 2020, petitioner sent a Letter, dated July 29, 2020, to the CIR, questioning the actions of RO BoiTomeo and requesting that the CIR confirm the receipt ofthe administrative claim on 14 July 2020. 12 On 23 September 2020, petitioner received a Letter, dated August 27, 2020, 13 which effectively affirmed RO Bm-romeo's actions. The CIR further noted that petitioner's VAT refund claim was deemed not filed for failure to comply with RMC 47-2019. Petitioner considered the August 17, 2020 Letter as a denial of its administrative VAT refund claim. Thus, on October 22, 2020, petitioner filed the instant Petition. Summons were issued to respondent, 14 who filed his Answer on November 26, 2020. 15 On December 4, 2020, a Notice of Pre-Trial Conference was issued. 16 Respondent filed his Pre-Trial Brief on December 15, 2020, 17 while petitioner filed its Pre-Trial Brief on February 3, 2021. 18 On December 18, 2020, respondent filed a Motion for Early Resolution on the Issue of Jurisdiction of the Honorable Court, alleging that this Court has no jurisdiction to entertain the present claim for VAT refund since no administrative claim was properly filed before respondent. 19 Petitioner then filed a Comment (Re: "Motion for Early Resolution ... " dated 18 December 2020) on January 8, 2021 counter-arguing that it (a) properly filed an administrative claim for VAT refund before respondent; and (b) that the issue of whether or not the supporting documents submitted in support of a VAT refund claim is complete is an issue that decides whether a VAT refund application is granted, not whether such VAT refund claim is filed.20 In a Resolution, dated January 27, 2021,21 the Court denied respondent's Motion considering that there are still factual issues that needs to be tackled through full blown proceedings. The Pre-Trial Conference ensued on February 10, 2021.~ " /d.; Exhibits "P-16" and "P-16-\-\CPA" to "P-16-4-\CPA''. 13 See Stipulation of Facts, Joint Stipulation of Facts. Rollo, Vol. 4. p. 1809; Exhibits "P-1 T' and "P-11-1- ICPA" to "P-11-3-\CPA". 14 Records, Vol. 4, pp. 1683-1684. 15 !d. pp. 1685-\691. 16 /d..,pp.\704-1705. 17 /d.. pp. 1692-\696. l8 /d., pp. 1719-1742. 19 !d. pp. 1697-1703. 20 /d., pp. 1708-1712. 21 /d., pp. 1714-1718. 21 /d., pp. 1743-1745.

DECISION CTA Case No. I0381 On March 9, 2021, petitiOner filed a Motion (To Commission Independent CPA) and the Judicial Affidavit of its Independent Certified Public Accountant ("ICPA"), Mr. Michael L. Aguirre, showing his qualifications to act as an ICPA for the case at bar.23 During the hearing, conducted on June 16, 2021, Mr. Aguirre was commissioned by this Court to act as the ICPA for the instant case and required him to submit an ICPA Report summarizing his findings.24 Meanwhile, during the hearing conducted on March 22, 2021, petitioner's witnesses, Inigo P. Garcia and Clarissa L. Magrarao, whose Judicial Affidavits were appended to the Petition, testified and were cross- examined by respondent's counsels and by this Court.25 On same date, the pmiies filed a Joint Stipulation of Facts and Issues.26 A Pre-Trial Order was then issued by this Court on May 24, 2021 _27 Respondent submitted the Judicial Affidavit of its lone witness, RO Borromeo, on May 26, 2021.28 On September 7, 2021, Mr. Aguirre submitted his ICPA Report summarizing his findings for the instant judicial claim for VAT refund.29 Petitioner then submitted the Judicial Affidavit of Mr. Aguirre in relation to said Report on October 6, 2021.30 Petitioner then presented Mr. Aguirre through a video conference 31 Petitioner filed its Formal Offer of Evidence on November 17, 2021,32 to which respondent interposed no objections.33 This Court admitted all of petitioner's Exhibits.3:/ 2) !d., pp. 1763-1790. " !d., pp. 1883-1885. 2; !d., pp. 1806-1807. 26 !d., pp. 1808-1822. 27 !d., pp. 1828-1841. 28 Exhibit "R-4", id., pp. 1848-1865. 19 Exhibit "P-I 07", id., pp. 1887-2028. 30 Exhibit "P-I 05", id., pp. 2029-2061. 31 Rollo, Vol. 5, p. 2063. 32 !d.. pp. 2246-2264. " !d., pp. 2265-2268. " See Resolutions, dated February 22. 2022, id. pp. 2269-2273; dated May 23, 2022, id, pp. 2300-2303; dated January 37, 2023, id., pp. 2366-2372.

DECISION CTACaseNo.I0381 During the Hearing conducted on March 30, 2022, respondent presented his lone witness, RO Bon�omeo. He then made an oral offer of evidence which petitioner interposed no objection to. Thus, all ofrespondent's Exhibits were admitted in evidence.35 Petitioner filed its Memorandum on March 9, 2023,36 while respondent filed his Memorandum on March 10, 2023.37 Thus, in a Resolution, dated April II, 2023, the instant case was submitted for Decision.38 Hence, this Decision. The [ssues39 Whether or not the Court has jurisdiction to act on the present Petition due to the alleged failure by petitioner to file a valid administrative claim for refund; and Whether or not petitioner is entitled to the claim for refund of its alleged excess and/or unutilized input VAT in the amount ofPhpl02,180,142.62 for CY 2018. Arguments ofthe Parties Petitioner's Arguments40 Petitioner avers that it is entitled to a refund of excess and unutilized input VAT. Petitioner posits the following arguments: (a) The Court has jurisdiction to act on the Petition considering that petitioner validly filed an administrative claim for refund before the BIR. Petitioner posits that respondent has the power to decide whether to grant or deny a VAT refund claim but not the power to determine whether an administrative claim has been validly filed and, thus, not the discretion to refuse or repudiate receipt of an administrative claim. Once an administrative claim has been lodged by a taxpayer, respondent has no other recourse but to determine the validity of such claims (i.e., grant or deny the VATv 35 !d., pp. 2284-2285. )6 !d.. pp. 2369-2379. 37 !d.. pp. 2380-2386. 38 Rollo. 59 See Manifestation, dated March 24, 2021; see also Manifestation, (Re: Proposed Statement of Issue), dated June 9, 2021. 40 See Memorandum, Rollo, Vol. 5. pp. 2372-2377.

DECISIO'I CTA Case No. l 0381 refund claim) based on the supporting evidence adduced. To give discretion on the part of respondent as to whether an application has been validly filed or not will result in having unbridled power to run the prescriptive period provided for filing VAT refund claims; (b) Petitioner's claim for refund of its accumulated (excess) input VAT finds legal support in the NJRC. (c) Petitioner is a VAT-registered entity; (d) Petitioner is engaged in zero-rated transactions as required under Section 108 (B) (2) ofthe NIRC, and such sales were paid for in acceptable foreign currency exchange; (e) Petitioner paid input taxes during CY 2018 from domestic purchases of goods and services; (f) Petitioner's excess and unutilized input VAT is directly attributable to its zero-rated sales for CY 2018 and not applied against any output tax in the same or succeeding periods; and (g) Petitioner has complied with the complete documentation m support of its claim for refund. Respondent's Arguments41 In refutation, respondent alleges that the instant Petition must be dismissed for lack of jurisdiction. Petitioner failed to properly file an administrative claim for VAT refund before respondent. Without complying with such prerequisite, this Court cannot assume jurisdiction over a judicial claim involving the same VAT refund claim. The Ruling ofthe Court The instant Petition is PARTIALLY GRANTED:!-' 41 See Memorandum, id.. pp. 2381-2383.

DECISI0:-1 CT A Cnse No. l 0381 Requisites for claiming unutilized input VAT attributable to zero-rated sales. The provision that governs the present claim for refund of excess and/or unutilized input VAT attributable to zero-rated sales is Section 112 (A) and (C) ofthe NJRC, which reads: "SEC. 112. Refunds or Tax Credits oflnput 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 afier the close of the taxable quarter when the sales were made, applyfor the issuance ofa tax credit cert{fzcate or r~fund ofcreditable 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)(l), (2) and (b) and Section 108 (B)(!) and (2), the acceptable foreign currency exchange proceeds thereofhad been duly accountedfor in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (ESP): 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 ofsales. Provided, finally, That for a person making sales that are zero-rated under Section I08(8) (6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. (B) ... (C) Period witl,in which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days.fi'om the date of submission of the official receipts or invoices and other documents in support of the application .filed in accordance �with Subsections (A) and (B) hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial. In case of.full or partial denial of the claim for tax rejimd, the taxpayer q[fected may, within thirty (30) days.fi'om the receipt ofthe decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, That failure on the part of any official, agent, or employee of the BIR to act on the application within ninety (90) days period shall be punishable under Section 269 of this Code." (Emphasis, Ours.) Based on the foregoing provisions, jurisprudence has laid down the following requisites that must be complied with by the taxpayer-applicant to successfully obtain a tax refund/credit:.,. .

DECISION CTA Case No. I0381 As to the timeliness of the filing of the administrative and judicial claims: I. the refund claim is filed with the BIR within two years after the close of the taxable quarter when the sales were made;42 2. the judicial claim is filed with this Court within 30 days from receipt of an adverse decision (i.e., partial or full denial of the administrative claim)43 or upon the lapse of the period given to the CIR to act on an administrative claim (i.e., 90 days from the filing of such claim) when the CIR fails to act on the same within such period (in which case, the claim for refund is deemed denied by the CIR), whichever comes first; 44 With reference to the taxpayer's registration with the BIR: 3. the taxpayer is a VAT-registered person;45 In relation to the taxpayer's output VAT: 4. the taxpayer IS engaged m zero-rated or effectively zero-rated sales.,46 5. for zero-rated sales under Section 106(A)(2)(1) and (2), 106(B), and 108(B)(l) and (2) of the NIRC, the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations;47 As regards the taxpayer's input VAT being refunded: 6. the input taxes are not transitional input taxes; 48 7. the input taxes are due or paid;~ 42 Intel Technology Philippines. Inc. v. Commissioner of Internal Revenue, G.R. No. 155732, April 27, 2007; San Roque Power Corporation v. Commissioner ofInternal Revenue, G.R. No. 180345, November 25, 2009; AT&T Communications Services Philippines, Inc. v. Commissioner ofInternal Revenue, G.R. No. 182364, August 3, 20 I0. 43 Steag State Power, Inc. vs. Commissioner of Internal Revenue, G.R. No. 205282, January 14, 2019; Rohm Apollo Semiconductor PhiUppines vs. Commissioner of Internal Revenue, G.R. No. 168950, January 14,2015. 44 Silicon Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 182737, March 2, 2016. 45 Supra note 42. 46 /d 47 /d 48 !d. 49 !d.

DECISION CT A Case No. I 0381 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 ofthese sales, the input taxes shall be proportionately allocated on the basis of sales volume; 50 and 9. the input taxes have not been applied against output taxes during and in the succeeding quarters.51 At this juncture, it must be emphasized that cases filed before the Court of Tax Appeals ("CTA") are litigated de novo.52 Parties are thus expected to litigate and prove every minute aspect of their case anew by presenting, formally offering, and submitting to the CTA all evidence required for the successful prosecution of its claim.53 Consequently, petitioner must competently establish its claim for refund or tax credit following the foregoing requisites. Petitioner's administrative and judicial claims for refund were timely filed. Pursuant to Sections 112 (A) and (C) of the NIRC, the refund of unutilized input VAT attributable to zero-rated or effectively zero-rated sales must be administratively filed with the BIR within two years counted from the close of the taxable quarter when the relevant sales were made. Meanwhile, the judicial claim for refund must be filed in Court within 30 days from either: (1) receipt of respondent's decision but such decision must be rendered within the 90-day period to resolve; or (2) after the expiration of the 90-day period, in which case there is deemed denial of the claim. Applying the foregoing, the table below summarizes the relevant dates pertaining to the filing of the administrative and judicial claims for refundj/ 50 G.R. No. 155732, April 27, 2007; G.R. No. 180345, November 25, 2009. 51 Supra note 42. 52 Commissioner qf Internal Revenue v. Univation !vlotor Philippines, Inc., G.R. No. 231581, April I 0, 2019. 53 !d.: Philippine Airlines, Inc. v. Commissioner o.llnternal Revenue, G.R. No. 206079-80 and 206309, January 17,2018.

DECISIO~ CT A Case No_ I 038! Page !Oof\9 Period Close of Last day for Date of filing Last day of the Date of receipt Last day Date of of the filing of the of the CIR's for filing filing of administrative of the CIR to act on denial of the claim taxable of the judicial quarter claim administrative the administrative judicial claim I" claim Quarter March 31, March 3 I, 20 I 8 claim administrative claim ofCY 2018 September 23, (30 days) claim 202055 October October 2018 23,2020 22, 202056 (90 days) 2nd October October July 14, 20205'1 October 12, Quarter 2020 23,2020 22, 202059 ofCY 2018 June 30, June 30, 2020 July 14, 202057 October 12, September 23, October October 2018 2020 2020 58 23,2020 22, 202062 yd Quarter September September 30, July 14, 202060 October 12, September 23, October October ofCY 2020 202061 30,2018 2018 23,2020 22, 202065 2018 December December 31, July 14, 202063 October 12, September 23, 4th 2020 202064 31,2018 2020 Quarter ofCY 2018 The present case covers all of the VATable quarters of CY 2018. Counting two years from close of the 1''quarter, 2nd quarter, 3'd quarter, and 4'h quarter of CY 2018 on March 31, 2018, June 30, 2018, September 30, 2018, and December 31, 2018, respectively, petitioner had until March 31, 2020, June 30, 2020, September 30, 2020, and December 31, 2020 to file its administrative claim for VAT refund for the Ist quarter, 2"d quarter, 3'd quarter, and 4th quarter of CY 2018, respectively. However, pursuant to Revenue Regulation No. 16-2020, the due date for all administrative VAT refund claims for the calendar quarter ending on March 31, 2018 was extended until July 15, 2020 while the due date for all administrative VAT refund claims for the calendar quarter ending on June 30, 2018 was extended until August 31, 2020. Thus, the administrative claim filed on July 14, 2020 for all of the VATable quarters of CY 2018 was timely made. Respondents raises that since petitioner allegedly did not submit all documents required under RMC 47-2019, it did not validly file an administrative claim for refund. And without a prior administrative claim for refund filed before the BIR, respondents argues that this Court has no jurisdiction ente1iain the present judicial claim/ 5~ Supra note 10. 55 Supra note 13. 56 Supra note 2. 57 Supra note I0. 58 Supra note 13. 59 Supra note 2. 60 Supra note 10. 61 Supra note 13. 62 Supra note 2. 63 Supra note I 0. 6 Supra note 13. <1 65 Supra note 2.

DECISION CT A Case No. 1038 I Page 11 ofl9 This argument is flawed. In Pilipinas Total Gas, Inc. v. Commissioner ofInternal Revenue,56 the Supreme Court ruled that the BIR has no discretion to determine whether the supporting documents submitted by a taxpayer are complete or not and thus dictate the statiing point of the period given to respondent to decide a VAT refund claim. Otherwise, the CIR will have uncontrolled power to delay the period to decide administrative claims and ultimately bar the filing ofjudicial claims, viz.: Indeed, the 120-day period granted to the CIR to decide the administrative claim under the Section 112 is primarily intended to benefit the taxpayer, to ensure that his claim is decided judiciously and expeditiously. After all, the sooner the taxpayer successfully processes his refund, the sooner can such resources be further reinvested to the business translating to greater efficiencies and productivities that would ultimately uplift the general welfare. To allow the CIR to determine the completeness of the documents submitted and, thus, dictate the running of the 120-day period, would undermine these objectives, as it would provide the CIR the unbridled power to indefinitely delay the administrative claim, which would ultimately prevent the filing of a judicial claim with the CTA. A hypothetical situation illustrates the hazards of granting the CIR the authority to decide when complete documents have been submitted - A taxpayer files its administrative claim for VAT refund/credit with supporting documents. After 121 days, the CJR informs the taxpayer that it must submit additional documents. Considering that the CIR had determined that complete documents have not yet been submitted, the 120- day period to decide the administrative claim has not yet begun to run. In the meantime, more than 120 days have already passed since the application with the supporting documents was filed to the detriment of the taxpayer, who has no opportunity to file a judicial claim until the lapse of the 120+30 day period in Section 112(C). With no limitation to the period for the CIR to determine when complete documents have been submitted, the taxpayer may be left in a limbo and at the mercy of the CIR, with no adequate remedy available to hasten the processing of its administrative claim. Moreover, in said case, the High Court ruled that "it is the taxpayer who has that right and the burden of providing any and all documents that would support his claim for tax credit or refund." It is thus the taxpayer who ultimately decides what documents ought to be presented before the BIR to substantiate its VAT refund claim. The Letter, dated July 29, 2020,67 sent by petitioner to the CIR which questioned the act of RO Borromeo of repudiating the receipt of its VAT refund claim and requested the CIR to issue a ruling in writing on its VAT refund claim, is a manifestation by petitioner that the VAT refund applicationt/ 66 G.R. No. 207112. December 8, 2015. 67 See Stipulation of Facts, Joint Stipulation of Facts, Rollo, Vol. 4, p. 1809; Exhibits "P-16" and "P-16-1- ICPA" to "P-16-4-ICPA".

DECISION CTA Case No. I 0381 it filed before the VCAD on July 14, 2020 already contains all of the supporting documents necessary to substantiate its VAT refund claim. Otherwise, petitioner would not have requested the CIR to immediately act on said VAT refund claim (i.e., whether to grant or deny the same, as long as such decision is in writing and with explanation). Since petitioner already manifested before the BIR that the entire docket composed of various documentary evidence submitted along with the VAT refund application on July 14, 2020 already constitutes the complete supporting documents, the BIR was duty-bound to decide the VAT refund claim within 90 days or until October 12, 2020. Failing to decide within such period would mean that petitioner's VAT refund claim is deemed denied in accordance with Section 112 (C) ofthe N1RC. However, respondent, in the case at bar, was able to beat the 90-day deadline when he issued the Letter, dated August 17, 2020,68 which was received by petitioner on 23 September 2020. In said Letter, he confirmed RO Borromeo's act of repudiating receipt of petitioner's VAT refund claim based on the latter's failure to comply with RMC 47-2019. Through this Letter, respondent adopted a position contrary to a grant of petitioner's VAT refund claims. Consequently, said Letter is effectively a denial of petitioner's VAT refund claims. Accordingly, when petitioner received said denial Letter on September 23, 2020, it had 30 days or until October 23, 2020 to institute a judicial claim before this Court. Thus, when petitioner filed the instant Petition on 22 October 2020, the same was timely instituted. Therefore, this Court properly assumed jurisdiction over the instant VAT refund claim. Given the foregoing, petitioner complied with the first and second requirements that the administrative and judicial claims should be timely filed. Petitioner is a VAT-registered taxpayer. It is undisputed that petitioner is duly registered with the BIR as a VAT taxpayer under Certificate of Registration No. OCN 8RC0000525020.69 Hence, petitioner complied with the third requisite that the claimant must be a VAT-registered taxpayer.!" 68 Supra note 13. 69 Exhibits "P-3", "P-4-ICPA". and "P-5-ICPA".

DECISIOr< CT A Case No. I 038 I Page 13 ofl9 Petitioner has proven that it is engaged in zero-rated or effectively zero-rated sales. Petitioner claims that it is engaged in zero-rated sales of services under Section 108 (B) (2) ofthe NJRC. Zero-rated sales of services, other than processing, manufacturing, or repacking ofgoods, to non-resident persons or entities not engaged in business in the Philippines under Section 108 (B) (2) of the NIRC is delineated, as follows: (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": (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);" In applying the above provision, Section 4.108-5 (b)(2) of Revenue Regulations No. ("RR '') 16-05, as amended, provides that: (b) Transactions Subject to Zero Percent (0%) VAT Rate.- The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate: (2) Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a non- resident 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 BSP;" For a sale of service to quality for VAT zero-rating under these provisions, it must be proven that: (a) the services rendered were other than processing, manufacturing or repacking of goods; (b) the services were rendered to Non-Resident Foreign Corporations ("NRFCs") doing business outside the Philippines; and (c) the services were paid for in acceptable foreign,...

DECISION CTA Case No. I038\ Page l4ofl9 currency accounted for in accordance with BSP rules and regulations.70 Petitioner rendered services other than processing, manufacturing or repacking of goods to NRFCs doing business outside ofthe Philippines. To verify whether petitioner is authorized to provide services other than processing, manufacturing, or repacking of goods, petitioner's License to Do Business in the Philippines as issued by the SEC was examined by this Court.71 As duly found, petitioner is a Philippine branch of a multinational company, Manulife Data Services, Inc., which was organized and existing under of the laws of Barbados. It was also licensed to carry out its business as an ROHQ in the Philippines by the SEC on March 3, 2006 with SEC Registration No. FS200603505. Petitioner is primarily engaged in general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistics services; research and development services and product development; technical support and maintenance; data processing communication; and business development. 72 Petitioner is thus only allowed to render services as provided which do not take the form of processing, manufacturing, or repacking of goods. Moreover, to determine if petitioner indeed rendered services other than processing, manufacturing, or repacking of goods, and if such services were actually rendered to NRFCs, this Court perused the various Service Agreements73 entered into between petitioner and its affiliates. Under the said Service Agreements, petitioner is simply required to perform qualifYing services (i.e., not processing, manufacturing, or repacking of goods) in favor of its affiliates. Petitioner is thus actually providing services other than processing, manufacturing, or repacking of goods to NRFCs. In addition, petitioner presented the various foreign registration documents74 and SEC negative certifications75 of its various clients. Altogether, these documents prove that petitioner's clients are NRFCs who are not doing business in the Philippines�,/ 7� Commissioner qf Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22. 2007. 71 Exhibit "P-I ��. T!. /d. 73 Exhibits "P-32" to "P-50". 74 Exhibits "P-72" to "P-97". 75 Exhibits"P-55" to"P-71".

DECISION CTA Case No. ! 0381 Petitioner proved that it was paid in foreign currency for the services it rendered to its NRFC clients. As duly shown in the ICPA Report76 and through tracing made in the various proofs of inward remittances,77 petitioner's zero-rated sales of services to its NRFC affiliates were paid for in acceptable foreign currency. Thus, petitioner's sales of services to its NRFC affiliates qualify for VAT zero-rating, in compliance with the fourth andfifth requisites. The zero-rated sales reflected in the VAT returns differs from those reflected in the Schedule ofSales. While petitioner was able to prove that its sales of services to its NRFC affiliates qualify for zero-rating, the ICPA noted a difference between the amount of zero-rated sales reflected in the VAT returns78 versus those reflected in the Schedule ofSales.79 Per VAT returns, the zero-rated sales total Php4,41 0,396,294.30 while the zero-rated sales per Schedule of Sales total Php3,862,789,453.27. The Php547,606,841.03 could not be explained.80 Thus, only Php3,862,789,453.27 shall be deemed as valid zero-rated sales for purposes of determining the refundable input VAT. Petitioner proved that the input taxes it is claiming for refund are not transitional input taxes. A perusal of the VAT Returns81 presented by petitioner proves that the input VAT claimed for refund are not transitional input taxes. This complies with the sixth requisite./ 76 Exhibit "P-I 07". 77 Exhibits "P-17-A-ICPA" to "P-17-12-D-ICPA". 78 Exhibits "P-5'' to "P-8". 79 Exhibits "P-22" to "P-25". 80 !CPA Report, Exhibit "P-I 07'', p. 8. 81 Exhibits "P-5" to "P-8".

DECISION CTA Case 1\o. l 0381 Petitioner proved that the input taxes sought to be refunded were paid in relation to local purchases of goods and services attributable to its zero- rated sales. As duly shown in the ICPA Report82 and as verified by this Court, petitioner was able to establish that the input VAT it seeks to be refunded were paid for in relation to its local purchases of goods and services, which, in tum, were attributable to its zero-rated sales. However, there were certain discrepancies noted by the ICPA and not fully explained by petitioner which should reduce the amount of input VAT sought to be refunded. Furthermore, as petitioner engaged in VATable sales83 during the year, there is a need to apportion the input VAT attributable to VATable sales and those attributable to zero-rated sales, only the latter of which may be claimed for refund. As such, the amount of the claim to which petitioner is entitled only totals Php73,710,442.20 after taking into account the discrepancies noted by the ICPA and the difference between the amount of zero-rated sales reflected in the VAT returns and the Schedule of Sales, asv follows: 82 Exhibit"P-107". 83 Exhibits "P-18" to "P-21 ".

DECISION CTA Case No. 10381 Particulars Amount Reference Phpl2,749,228.1 0 Output Tax 111,119,062.11 ANNEXE- ICPA Less: Input Tax (Php98,369,834.0 U_ Total 150,014,049.14 Less: Deferred 146,203,740.45 Input VAT - prior quarters Add: Deferred Input VAT- next period Amount of Input VAT initially for Refund (Php l 02,180,142. 70) Add: Audit .�. Exceptions c.2. Sales Invoice/Official Receipts with vm. ivo0la1.tci.omng of ANNEXD.l- ICPA requirement: I. Errors m Tax Identification Number ("TIN") Php380,707.6l 994,952.?2 II. Not under the ANNEXD.2- 60 l ,304. 72 ICPA name of petitioner 5,252,625.20 ANNEXD.3- III. Inconsistencies ICPA on registered address IV. Input VAT ANNEXD.4- ICPA amount not specifically stated Php7,229,589.82 c.3. VAT amount per Source ANNEXD.S- ICPA Document does not tally with Schedule 210,288.08 c.4. Not valid source of Input VAT (i.e., ANNEXD.6- ICPA Provisional Receipts/Collection Receipts) 633,216.82 9,498,251.21 c.5. Out of Period ANNEX 0.7- 38,366.19 ICPA c.6. Faded 410,456.28 Php 18,020,168.40 ANNEXD.8- Documents ICPA c.7 Unsupported ANNEXD.9- ICPA Purchases Total Exceptions Input VAT Available for Refund (Php84, 159,974.30) Multiply by: Rate of Valid Zero-Rated Sales I

DECISION CTA Case No. I038\ Valid Zero-Rated Sales Php3,862, 789,453.27 ANNEXA.2- Php4,41 0,396,294.30 ICPA Divided by: Total . ANNEXE- Zero-Rated Sales 87.58% ICPA (Php73,71 0,442.20) Input VAT available for Refund The above also shows, however, that there is compliance with seventh to ninth requisites. All told, petitioner is partially entitled to the claim sought. ACCORDINGLY, the instant Petition for Review is hereby PARTIALLY GRANTED. Respondent is ORDERED to refund or issue a tax credit certificate in the amount ofPhp73,710,442.20 to petitioner. SO ORDERED. ustice WE CONCUR: ~- ~ --v'-- MA. BELEN M. RINGPIS-LIBAN Associate Justice C~N~~R~ES Associate Justice

DECISIO~ CTA Case l\'o. ! 038! Page !9 of 19 ATTESTATION I attest 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. 9Jv. - ~. '"tF '----- MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution and the Division Chairperson's Attestation, 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. Presiding Justice