DEUTSCHE KNOWLEDGE SERVICES PTE. LTD. v. COMMISSIONER OF INTERNAL REVENUE (Consolidated with CTA Case No. 8656, 8661 and 8685)

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION DEUTSCHE KNOWLEDGE CTA CASE NOS. 8623, 8656, 8661 & 8685 SERVICES, PTE LTD., I Members: Petitioner, -versus- BAUTISTA, Chairperson; FABON-VICTORINO, and RINGPIS LIBAN, lL_ COMMISSIONER OF INTERNAL REVENUE, Promulgated: Respondent. x- - - - - - - - - - - - - - - - - - - - - - - - - -~- - - - -1J- ~-.1-l ~-� --� - - - - - -x RESOLUTION Fabon-Victorino, J.: On August 4, 2017, the Court rendered a Decision, the falla of which reads: WHEREFORE, the !present Petitions for Review are hereby PARTIALLY GR~NTED . Accordingly, let a tax refund or a tax credit certificate be issued in favor of petitioner in the reduced amount of f>17, 188,625.90, representing its unutilized and excess input VAT attributable to zero-rated sales for the first, second, third, and fourth quarters of calendar year 2011. SO ORDERED .1 Both respondent and petitioner filed their respective / Motions for Partial Reconsideration dated August 18 and 24, 2017. 1 Docket, p. 4074.

RESOLUTION CTA CASE NOS. 8623, 8656, 8661 & 8685 Respondent's Motion or Partial Reconsideration Respondent ascribes error on the Court's ruling that petitioner is entitled to a artial refund of P17,188,625.90, as there is no showing th t the said amount bears a direct relation to petitioner's ze o-rated activity. That being the case, petitioner's claim f r input VAT refund should be disallowed in its entirety. Respondent also clai s that the data in petitioner's VAT Returns for taxable year ( Y) 2013 must be totally ignored for it is a product of the I tter's self-serving representation. In his view, petitioner mu t demonstrate by concrete proof that the amount claimed as not utilized in the succeeding quarters of 2014. Allege ly, petitioner's failure to present its 2014 VAT Returns lead to a conclusion that its input VAT claim was consumed in the succeeding taxable quarters. On the contrary, s ys petitioner, it was able to establish that the input V T subject of the refund is directly imputable to its zero-rat d sales. Citing portions of the challenged Decision and findings of the Independent Certified Public Accountan (!CPA), it claims that the input VAT for CY 2011 was roperly substantiated with both testimonial and document ry evidence. Hence, its claim for refund is in order. It likewise disagrees ith respondent's perception that the data contained in its AT Returns forTY 2013 was self- serving. Citing jurispru ence,2 it explains that the information stated in a ta return is presumed to be lawful and accurate. Further, th said information was adequately supported by the declara ion in open court of its witness Rachel Concepcion. To dd, its 2013 VAT Returns were prepared ante litem m tam or not in anticipation of litigation, thus, must be accorded evidentiary weight. All these taken together reve I that the subject claim remains unutilized or unused in the succeeding taxable quarters. / 2 SMI-ED Philippines Technology, In . vs. Commissioner of Internal Revenue, G.R. No. 175410, November 12, 2014.

RESOLUTION CTA CASE NOS. 8623, 8656, 8661 & 8685 Petitioner's Motion or Partial Reconsideration with Motion to Reopen Trial Petitioner alleges that the Court erred in declaring a portion of its sales disqu lified for VAT zero-rating on the ground that it failed to prove that all its clients were foreign entities doing business out ide the Philippines. It points out that the Securities and Exchange Commission (SEC) Certificates of Non-Regist ation coupled with its IGSA with various clients, 3 as well a business registration documents found in the Deutsche Minet database show that its customers are non-resid nt foreign corporations. On account thereof, its sales of services are 100�/o zero-rated per Section 108(8)(2) oft e NIRC, as amended. It should likewise not be faulted for its supplier's neglect to strictly adhere ith the invoicing requirements set forth under Sections 110 and 113 of the NIRC, as amended. The responsibility of indi ating the amount of VAT as a separate item in a VAT invoice or official receipts (O.Rs) lies with the supplier of g ads or services and not with petitioner. Further, the a aunt of input tax may be readily computed from the info mation contained on the said documents. For that r ason, an additional amount of unutilized input tax claim to the extent of P73,793,995.98 should be granted. Likewise, there is no basis for the Court to deny petitioner's input tax cia m of P5,382,960.55 as it was already disallowed by t e Independent Certified Public Accountant (ICPA) in his I PA Report. Grounded upon the i formation stated in its Quarterly VAT Return (BIR Form 2 50-Q) for the 4th Quarter of CY 2011, petitioner submits that it has excess input taxes amounting to P256,549,78 .80, clearly sufficient to cover its entire input tax claim fo the four quarters of CY 2011 amounting to P153,201,14 .71. Finally, invoking substantial interest of justice and the tenet that this tribunal is not bound by the technical niceties / 3 IntraGroup Service Agreements.

RESOLUTION CTA CASE NOS. 8623, 8656, 8661 & 8685 of the Rules of Court, peti ioner prays that it be allowed to present various SEC Certif cates of Non-Registration to fully ventilate the merits of th case and accordingly prove its entitlement to additional in ut tax for the covered period. By way of comment, respondent, echoing the Court's findings in the challenged ecision, maintains that petitioner failed to demonstrate th t all of its clients are foreign entities conducting busine s outside the Philippines, hence, its services are not VAT ze o-rated per Section 108(B)(2) of the NIRC, as amended, and that the VAT O.Rs and/or invoices it presented fell s art of meeting the invoicing and substantiation requirement mandated in Sections 110 and 113 of the same Code. THE RUL NG OF THE COURT Respondent's Motion n r Partial Reconsideration On whether petitione has proved that its input taxes are attributable to its zero-rated sales of services, the same was determined and pas ed upon by the Court in the challenged Decision of Aug st 4, 2017, particularly in pages 24 to 36 thereof. To repeat, petitioner has clearly established by convincing proof that it is entitled, albeit partially, in the aggrega e amount of P17,188,625.90, pertaining to its excess an unutilized input tax attributable to its zero-rated sales fort e four quarters of CY 2011. Similarly, the issue n petitioner's non-utilization of claimed input taxes for the our quarters of CY 2011 was laid to rest by the Court in pag s 36 to 38 of the same Decision. To reinvent what has been ecreed upon is surely a waste of time and resources of the Court. Hence, respondent's Motion for Partial Reconsideration ust be denied. Petitioner's Motion n r Partial Reconsideration with Motion to Reopen Trial Are petitioner's sales o services 100�/o zero-rated? The / answer is in the negative.

RESOLUTION CTA CASE NOS. 8623, 8656, 8661 & 8685 To qualify for zero-r ting under Section 108(B)(2) of the NIRC, as amended, petitioner must prove that it rendered services to foreig entities not conducting business in the Philippines. 4 This �ay be proved by presenting their clients' SEC Certificates of Non-Registration and Certificates of Foreign Registration/Inc rporation/Association, no less. As found by the C urt in pages 15 to 19 of the challenged Decision, only six (6) 5 of petitioner's client- corporations were comple ented by both a SEC Certificate of Non-Registration nd Certificate of Foreign Registration/Incorporation/ ssociation. Hence, only the said entities may be considere for VAT zero-rating per Section 108(B)(2) of the NIRC, as mended. Equally unavailing i petitioner's posture that it is entitled to additional input AT refund in the total amount of P79,176,956.52.6 The ruling of the Hi h Court in Microsoft Philippines, Inc. vs. Commissioner of I ternal Revenue7 is instructive. A VAT-registered taxpayer is strictly required to present VAT O.Rs or invoices which are in harmony with QU the substantiation requiremen s set forth under the NIRC, as amended and its impleme ting regulations. No valid input taxes can be demanded fo non-compliant VAT O.Rs and/or invoices. Here, the Court weig ed the various O.Rs and invoices presented by petitioner an found that a part8 thereof failed to pass the benchmark f substantiation provided under Sections 110(A) and 11 (A) and (B) of the NIRC, as amended. As such, no in ut tax may be claimed on said VAT O.Rs and invoices. Hence, the disallowance of the 4 See Accenture, Inc. vs. Commissione of Internal Revenue, 690 Phil. 676 (2012). 5 Deutsche Asia Pacific Holdings Pte Ltd., Deutsche Bank Aktiengesellschaft, Asia Pacific Head Office, Deutsche Ban Aktiengesellschaft, Filiale Jakarta, Deutsche Bank Aktiengesellschaft, Filiale New ork and Deutsche Securities Inc. 6 The amount of P73,793,995.98 per ains to disallowance made by the ICPA which was adopted by the Court. While P5,382,960.55 relates to a disallowance of input VAT by the Court's own findings. (P73,793,995.98+P5,382,960.55= P79, 176,956.52). 7 G.R. No. 180173, April 6, 2011. / 8 The lists of non-compliant O.Rs or invoices are found in pages 25 to 36 of the~ challenged Decision.

RESOLUTION CTA CASE NOS. 8623, 8656, 8661 & 8685 resulting input VAT t erefrom in the amount of P79,176.956.52 is justified. Neither does the Co rt find any plausible reason to reopen the case to suit pet tioner's cause. Section S(a), Rule 30 of the Rules of Court is clear and unequivocal. It is during the trial stage where petitioner should adduce evidence in support of its petition for review. However, by way of e ception, the Court may allow presentation of evidence ven after trial upon showing of special justifiable reasons. Jurisprudence10 teac es us that concomitant to a procedure adopting a libe al application of the rules should be an effort on the part f the party invoking liberality to explain its failure to abi e by the rules. This petitioner utterly failed to do. For the grant of it request to reopen the case, petitioner merely cited s bstantial interest of justice and liberality in compliance wi h technical rules of procedure by the Court as grounds the efor. In other words, petitioner failed to set forth any co pelling reason for the Court to allow the reopening of th case. Accordingly, petitioner's Motion for Reopening of Tr al must as well fail. Invocation of subst ntial justice is not a magical incantation that will aut matically compel the Court to suspend procedural rules. Such tenets are not to be belittled or dismissed sim ly because their non-observance may have resulted in pr judice to a party's substantive rights. 11 9 Section 5. Order of trial. - xxx nless the court for special reasons otherwise directs, the trial shall be limited to t e issues stated in the pre-trial order and shall proceed as follows: (a) The plaintiff shall adduce evidenc in support of his complaint; xxx 10 See Abrenica vs. Law Firm of A renica, Tunga/ and Tibayan, et a/., G.R. No. 169420, September 22, 2006. 11 See Cu-Unjieng vs. Hon. Court of Appeals, et a/., G.R. No. 139596, January 24, 2006. /

RESOLUTION CTA CASE NOS. 8623, 8656, 8661 & 8685 WHEREFORE, the Court DENIES, for lack of merit: 1. Respondent's and etitioner's respective Motions for Partial Reconsider tion dated August 18 and 24, 2017; and 2. Petitioner's Motion o Reopen Trial incorporated in its Motion for Partial R consideration. SO ORDERED. We Concur: <IN. ~ _v \._ - LOVEL~ BAUTISTA MA. BELEN M. RINGPIS-LIBAN Associate Justice Associate Justice