MAERSK GLOBAL SERVICES CENTRES (PHILIPPINES) LTD. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY THIRD DIVISION ********* MAERSK GLOBAL SERVICES CTA Case No. 9537 CENTRES (PHILIPPINES) LTD., Members: Petitioner, UY, Chairperson, -versus - RINGPIS-LIBAN, and MODESTO-SAN PEDRO, JJ. COMMISSIONER OF INTERNAL Promulgated: REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION UY, J.: Before this Court is a Petition for Review filed by petitioner, Maersk Global Services Centres (Philippines), Ltd., on February 21 , 2017, against respondent, Commissioner of Interna l Revenue, seeking the refund or issuance of tax credit certificates (TCC) in the total amount of P48,087,076.37, allegedly representing its unutilized input value-added tax (VAT) on its zero-rated sales for calendar year (CY) 2015. THE FACTS Petitioner Maersk Global Services Centres (Philippines) Ltd, formerly known as Maersk Administrative Center Ltd. , is a foreign corporation organized and existing under the laws of Hongkong. It is licensed to do business in the Philippines pursuant to its Amended License No. A199809559 issued by the Securities and Exchange Commission (SEC). 1 It is registered with the Bureau of Internal 1 Exhibit " P-1 " , Docket - Vol. 2, p. 598. ~

DECISION CTA Case No. 9537 Page 2 of25 Revenue (BIR) as a VAT entity, among others, with Tax Identification No. 005-650-708-000 and Certificates of Registration Nos. 3RC0000466671 2 and No. 3RC00006853493 both dated August 24, 1998. Respondent is the duly appointed Commissioner of Internal Revenue with office address at BIR Building, Diliman, Quezon City4 For taxable year 2015, petitioner filed its quarterly VAT Returns on the following dates, to wit: Quarterly VAT Return Tax Return Date Filed Period August 18, 2016b Amended Quarterly August 17, 2016" 151 Quarter VAT Return January 23, 2016' August 18, 2016tl 2"0 Quarter Amended Quarterly VAT Return 3'0 Quarter Amended Quarterly 4m Quarter VAT Return Amended Quarterly VAT Return On September 26, 2016, petitioner filed with the BIR RDO No. 043, an Application for Tax Credits/Refunds (BIR Form No. 1914) of its unutilized and excess creditable input taxes attributable to its zero- rated sales for the 1st to 41h quarters of taxable year 2015 amounting to P48,087,076.37.9 On even date, petitioner likewise submitted supporting documents through a transmittal letter indicating a checklist of documents as part of the requirements of Revenue Memorandum Circular No. 54-2014. 10 On November 11, 2016, petitioner received a Letter of Authority (LOA) No. 43A-2016-00000319, authorizing Revenue Officer Gerard Christopher Tamayo and Group Supervisor Dahlia Nitura of Revenue 2 Exhibit "P-13", Docket- Vol. 2, p. 649. 3 Exhibit "P-14", Docket- Vol. 2, p. 650. 4 Par. 1.1, Summary of Admitted Facts, Joint Stipulation of Facts and Issues (JSFI), Docket- Vol. I, p. 207. 5 Exhibit "P-15'', Docket- Vol. 2, pp. 651 to 652. 6 Exhibit "P-16", Docket- Vol. 2, pp. 653 to 654. 7 Exhibit "P-17", Docket- Vol. 2, pp. 655 to 656. 8 Exhibit "P-18", Docket- Vol. 2, pp. 657 to 658. r 9 Exhibit "P-20", Docket-Val. 2, p. 663. \.. 10 Exhibit "P-21" and Exhibit "P-22", Docket- Vol. I, p. 664 to 665.

DECISION CTA Case No. 9537 Page 3 of25 District Office No. 43A - East Pasig, to examine petitioner's books of accounts and other accounting records for Value Added Tax (VAT) for the period January 1, 2015 to December 31, 2015 pursuant to mandatory audit-claim for VAT credit certificate. 11 There being no action taken by respondent on petitioner's application for tax credits/refund, fetitioner filed the present Petition for Review on February 21,2017. 1 Respondent filed his Answer on April 20, 2017, 13 interposing the following special and affirmative defenses, to wit : (1) petitioner's claim for refund was prematurely filed; (2) petitioner's alleged claim for refund is still under administrative routine investigation/examination by the respondent; (3) in order for petitioner to validly claim for tax credit/refund, it is imperative for the petitioner to prove its compliance under pertinent provisions of the National Internal Revenue Code (NIRC) of 1997; and, (4) petitioner failed to sufficiently prove and demonstrate that the subject tax was erroneously or illegally collected. Hence, not refundable. The Pre-Trial Conference was conducted on July 11, 2017, 14 and the parties filed their Joint Stipulation of Facts and Issues on July 26, 2017. 15 Thereafter, the Court issued a Pre- Trial Order on August 15, 2017. 16 In the meantime, upon the filing of a "Motion to Commission Independent Certified Public Accountant" by petitioner on October 5, 201717, Edward L. Roguel of Punongbayan & Araullo, was commissioned as the independent certified public accountant (ICPA) for the instant case on October 9, 2017. 18 11 Exhibit "P-23", Docket-Yo!. 2, p. 666. 12 Docket- Vol. 1, pp. 10 to 20. 13 Docket- Vol. 1, pp. 43 to 48. 14 Minutes of the hearing dated July 11, 2017, Docket- Vol. I, p. 191. 15 Docket- Vol. I, pp. 207 to 212. 16 Docket- Vol. 1, pp. 215 to 222. 17 Docket- Vol. I, pp. 234 to 235. 18 Minutes of the hearing and Order dated October 9, 2017, Docket- Vol. I, pp. 252 and 254. tit}

DECISION CTA Case No. 9537 Page 4 of25 During trial, petitioner presented two (2) witnesses, Rochelle V. Ducla/ 9, its Finance Accountant; and ICPA Edward L. Roguel. 20 Petitioner filed its Formal Offer of Evidence for Petitioner Maersk Global Services Centres (Philippines) (FOE), Ltd on March 5, 2018. 21 Subsequently however on April 3, 2018, petitioner filed a "Manifestation, Motion, and Submission'122 stating that after the filing of the petitioner's FOE on March 5, 2018, the ICPA discovered that certain exhibits were not contained in the USB drive submitted to the Court. Thus, petitioner moved that the USB drive filed with the Court on November 8, 2017 be replaced with the enclosed USB drive containing the copies of the ICPA exhibits. In the Resolution dated June 19, 2018, the Court noted and granted petitioner's Manifestation, Motion and Submission and admitted petitioner's documentary evidence, except Exhibit "P-133" for not being found in the records of the case. 23 On the part of respondent, no evidence was presented in the instant case. Thus, the parties were given a period of thirty (30) days to submit their respective memoranda. 24 Thereafter, petitioner filed its Memorandum within the extension period granted by the Court on April 17, 2019,25 without respondent's Memorandum despite notice.26 Consequently, this case was submitted for decision on May 14, 2019. 27 Hence, this Decision. THE ISSUES As stipulated by the parties, the sole issue for this Court's resolution is as follows: 19 Exhibit "P-28", Docket-Yo!. I, pp. 66 to 88; Exhibit "P-29", Docket -Vol. 2, pp. 710 to 721. 20 Exhibit "P-30", Vol.- 2, pp. 722 to 730. 21 Docket- Vol. 2, pp. 583 to 597. 22 Docket- Vol. 2, pp. 892 to 895. 23 Resolution dated June 19, 2018, Docket- Vol. 2, pp. 907 to 909. 24 Minutes of the hearing dated and Order dated March 12, 2019, Docket- Vol. 2, pp. 917 to 918. 25 Docket-Yo!. 2, pp. 927 to 946. 26 Records Verification Report dated April30, 2019, Docket -Vol. 2, p. 949. 27 Resolution dated May 14, 2019, Docket -Vol. 2, p. 951.Jfb

DECISION CTA Case No. 9537 Page 5 of25 "Whether or not petitioner is entitled to a refund in the total amount of P48,087,076.37, representing unutilized and excess input VAT attributable to zero-rated sales for the year 2015." 28 Petitioner's arguments: Petitioner argues its export sales of services are entitled to the benefit of zero-rate (0%) pursuant to Sections 108(8)(2) and 108(8)(4) of the Tax Code. As a VAT-registered taxpayer whose sales are zero-rated, petitioner is allegedly entitled to refund the excess and unutilized input taxes attributable to its zero-rated sales under Section 112 (A) and (C) of the Tax Code as implemented by Section 4.112.1 of the Consolidated VAT Regulations of 2005 or Revenue Regulations No. 16-2005). Hence, petitioner claims that it is entitled to a refund or issuance of a tax credit certificate for unutilized and excess input VAT in the aggregate amount of P48,087,076.37. Respondent's counter-arguments: Respondent counter-argues that petitioner is not entitled to the benefit of zero-rate (0%) pursuant to Section 108(8)(2) of the Tax Code. According to respondent, A.P. Moller-Maersk NS, the recipient of the services of petitioner, is an entity doing business in the Philippines. To qualify as a transaction subject to zero percent (0%) rate, Section 108(8)(2), as amended, explicitly requires, among other things, that the services be rendered to a person engaged in business must be conducted outside the Philippines. Furthermore, petitioner's claim for refund was prematurely filed. Allegedly, petitioner failed to submit the complete documents in support of the application filed and that petitioner's alleged claim for refund is still under administrative routine investigation/examination. In order to validly claim for tax credit/refund, it is imperative that petitioner prove its compliance to the pertinent provisions of the NIRC of 1997 and its implementing revenue regulations. 28 Stipulation oflssue, JSFI, Docket- Vol. I, pp. 207 to 208.r4

DECISION CIA Case No. 9537 Page 6 of25 Lastly, respondent submits that petitioner failed to sufficiently prove and demonstrate that the subject tax was erroneously or illegally collected. Hence, not refundable. THE COURT'S RULING Relevant to the instant refund claim are the provisions of Section 112(A) and (C) of the NIRC of 1997, as amended by Republic Act (RA) No. 933729, to wit: "SEC. 112. Refunds or Tax Credits of Input 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 after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable 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)(1 ), (2) and (b) and Section 108(8)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the 8angko Sentral ng Pilipinas (8SP): 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 of sales: Provided, finally, That for a person making sales that are zero-rated under Section 108(8)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. XXX XXX XXX 29 AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES.I0

DECISION CTA Case No. 9537 Page 7 of25 (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals." Based on the foregoing provisions, the following requisites must be satisfied to be entitled to a refund or issuance of tax credit certificate of unutilized input VAT attributable to zero-rated or effectively zero-rated sales, except for transitional input VAT, to wit: 1. The taxpayer is VAT-registered; 2. The claim for refund was filed within the prescriptive periods in the administrative and judicial levels; 3. The taxpayer is engaged in zero-rated or effectively zero-rated sales. In case of zero-rated sales under Section 106(A)(2)(a)(1 ),(2) and (b), and Section 108(8) (1) and (2), of the NIRC of 1997, as amended, the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the SSP; 4. The said input VAT was incurred or paid; 5. Such input VAT is attributable to zero-rated or effectively zero-rated sales. However, where the taxpayer is engaged in zero-rated or effectively zero-rated sales and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input VAT due or paid cannot be directly or entirely attributed to any of the transactions, it shall be allocated proportionately on the basis of the volume of the sales; and I'D

DECISION CIA Case No. 9537 Page 8 of25 6. The input VAT being claimed was not applied against any output VAT liability; With the foregoing requisites as references, We now look into petitioner's compliance therewith. Petitioner is a VAT registered entity. In the instant case, it is undisputed that petitioner is duly registered with the BIR as a VAT taxpayer with TIN 005-650-708-000 � as evidenced blc its BIR Certificate of Registration Nos. OCN 3RC0000466671 and OCN 3RC000068534931 with Registration date on August 24, 1998. Hence, the first requisite is satisfied. Petitioner's administrative and judicial claims were filed within the prescriptive periods. Pursuant to Section 112(A) of the NIRC of 1997, as amended, the administrative claim for the issuance of a TCC or refund of input VAT must be filed within two (2) years after the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. The instant claim covers the first to fourth quarters of CY 2015. Thus, petitioner's last day for filing of its administrative claim for the four quarters of CY 2015 fell on the following dates: Taxable Close of Last Day of Filing of Administrative Quarter Taxable Administrative Claim Claim Filed Quarter 151 Quarter March 31, March 31,2017 Sept. 26, 2016 (Jan. to Mar. 2015) 2015 June 30, 2017 Sept. 26, 2016 200 Quarter June 30, (Apr. to Jun. 2015) Sept. 30, 2017 Sept. 26, 2016 2015 Dec. 31, 2017 Sept. 26, 201632 3ra Quarter Sept. 30, (Jul. to Sep. 2015) 2015 4'" Quarter Dec. 31, (Oct. to Dec. 2015) 2015 30 Exhibit "P-13", Docket- Vol. 2, p. 649. 31 Exhibit "P-14", Docket- Vol. 2, p. 650. 32 Exhibit "P-20", Docket- Vol. 2, p.663.!6

DECISION CTA Case No. 9537 Page 9 of25 Evidently, petitioner's Application for Tax Credits/Refund (BIR Form No. 1914) of its excess and unutilized input VAT for the 1st to 4th quarters of CY 2015 was timely filed on September 26, 2016. With regard to the timeliness of petitioner's judicial claim, respondent alleges that petitioner's claim for refund was prematurely filed, and that petitioner failed to submit complete documents in support of its refund application. We do not agree. Pursuant to Section 112(C) of the NIRC of 1997, as amended, the CIR has one hundred twenty (120) days from date of submission of the complete documents in support of the application for refund or tax credit certificate within which to grant or deny the claim. In case of full or partial denial by the CIR, the taxpayer's recourse is to file an appeal before the Court of Tax Appeals (CTA) within thirty (30) days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to the CTA within thirty (30) days. It must be noted that the 120-day period begins to run from the filing of the administrative claim for VAT refund/tax credit, which must be accompanied by complete supporting documents, pursuant to Revenue Memorandum Circular (RMC) No. 54-201433 issued by the CIR on June 11, 2014, to wit: "II. Filing and Processing of Administrative Claims- The application for VAT refund/tax credit must be accompanied by complete supporting documents as enumerated in Annex "A" hereof. In addition, the taxpayer shall attach a statement under oath attesting to the completeness of the submitted documents (Annex "B"). The affidavit shall further state that the said documents are the only documents which the taxpayer will present to support the claim. XXX XXX XXX fb 33 Subject: Clarifying Issues Relative to the Application for Value Added Tax (VAT) Refund/Credit under Section 112 of the Tax Code, as amended.

DECISION CTA Case No. 9537 Page 10 of25 Upon submission of the administrative claim and its supporting documents, the claim shall be processed and no other documents shall be accepted/required from the taxpayer in the course of its evaluation. A decision shall be rendered by the Commissioner based only on the documents submitted by the taxpayer. The application for tax refund/tax credit shall be denied where the taxpayer/claimant failed to submit the complete supporting documents. For this purpose, the concerned processing/investigating office shall prepare and issue the corresponding Denial Letter to the taxpayer/claimant." Based on the foregoing, it is required that when an administrative claim for VAT refund/tax credit is filed, the same must be accompanied by complete supporting documents. Further, the taxpayer-claimant shall attach a statement under oath attesting to the completeness of the submitted documents, and that the said documents are the only documents which the taxpayer will present to support the claim. Thus, the taxpayer-claimant is barred from submitting additional documents after the filing of the administrative claim. 34 In case the taxpayer/claimant fails to submit complete documents, the CIR is authorized to deny the application for tax refund/tax credit. In the instant case, records show that petitioner filed its administrative claim, together with transmittal of supporting documents35, on September 26, 2016. Thus, respondent had one hundred twenty (120) days from September 26, 2016, or until January 24, 2017, to act on said claim. Considering that respondent did not act on petitioner's claim on or before January 24, 2017, petitioner had until February 23, 2017, the last day of the 30-day period, within which to file its appeal before this Court. Petitioner filed the instant judicial claim on February 21, 2017. Clearly, petitioner's judicial claim was filed within the period prescribed by law. Petitioner is engaged in zero- rated sales or effectively zero-rated sales. 34 Pilipinas Total Gas, Inc., vs. Commissioner of Internal Revenue, G.R. No. 207112, December 8, 2015. 35 Exhibit "P-21" and Exhibit "P-22", Docket- Vol. I, p. 664 to 66~

DECISION CTA Case No. 9537 Page II of25 Section 108 (B) of the NIRC of 1997, as amended, specifies the transactions subject to zero percent (0%) rate, which read as follows: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - XXX XXX XXX (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: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (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); (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; (4) Services rendered to persons engaged in international shipping or International air-transport operations, including leases of property for use thereof; (5) Services performed by subcontractors and/or contractors in processing, converting, or I()

DECISION CTA Case No. 9537 Page 12 of25 manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production. (6) Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country; and (7) Sale of power or fuel generated through renewable sources of energy such, but not limited to, biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources using technologies such as fuel cells and hydrogen fuels." In the Petition for Review, petitioner alleges that it rendered corporate and administrative services for the ocean transportation business of its affiliates, A.O. Moiler - Maersk A!S (APMM) and Maersk Line A!S (ML), both non-resident foreign corporations doing business outside the Philippines with address at Denmark, Copenhagen. Allegedly, petitioner's export services includes, among others, processing of import and export documentation, procurement, finance and accounting services and information technology-related services; and that petitioner's billings for services are in foreign currency and the payments are made in US dollars or other acceptable foreign currency, which are remitted inwardly through the banking system and accounted for in accordance with the rules and regulations of the 8angko Sentral ng Pilipinas (8SP). Thus, petitioner claims that its export sales of services are subject to VAT at zero-rate (0%) pursuant to Section 108(8)(2) of the Tax Code. The Court however finds petitioner's reliance on said provision [Section 108(8)(2)] misplaced in view of the allegation stated in paragraph 10 of the instant Petition for Review, which states that "APMM and ML's respective international shipping businesses are priman'ly conducted outside the Philippines. However, less than one percent of their respective shipping businesses may be considered related to the Philippines because its international vessels ply Philippine ports. "36 n 36 Par. I0, Petition for Review, Docket - Vol. I, p. 12; Par. 2, Summary of Admitted Facts, JSFI, Docket- Vol. I, p. 207.

DECISION CTA Case No. 9537 Page 13 of25 Clearly, the foregoing allegation is an admission from petitioner that the recipients of its services are doing business in the Philippines. Thus, the Court finds that such sales of services to APMM and ML cannot qualify for VAT zero-rating under Section 108(B)(2) of the NIRC of 1997, as amended. Instead, the Court finds that petitioner's refund claim is anchored under Section 108 (B) (4) of the Tax Code, or specifically, sales of services rendered to persons engaged in international shipping, in conjunction with said Section 108 (B) (4) of the Tax Code, are the provisions of Section 4.108-5(b)(4) of RR No. 16- 2005, as amended by RR No. 4-2007, 37 which read as follows: "SEC. 4.108-5. Zero-Rated Sale of Services.- XXX XXX XXX (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: XXX XXX XXX (4) Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however, that the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1' 2006�'" In the instant case, petitioner presented in evidence the following documents to prove that its clients, APMM and ML, are engaged in international shipping business: 1) Articles of Association 37 Subject: Amending Certain Provisions of Revenue Regulations No. 16-2005, As Amended, Otherwise Known as the Consolidated Value-Added Tax Regulations of 2005. !"(\

DECISION CTA Case No. 9537 Page 14 of25 of APMM38 ; 2) Authenticated Compiled Summary for APMM39; 3) Authenticated Novation Agreement among APMM, ML and petitioner40; 4) Testimony of Rochelle V. Duclay by way of Judicial Affidavit41 ; and 5) Service Agreement42 between APMM and petitioner. From the foregoing documentary exhibits, it is gathered that APMM is a corporation organized and existing under the laws of Denmark and its main objects are to carry on shipping, chartering and related business, among others, 43 while ML is an entity created pursuant to a Novation Agreement44 between APMM, ML and petitioner, whereby the international shipping business of APMM was transferred to ML. In the Judicial Affidavit of Rochelle V. Duclay petitioner's Finance Accountant, the latter testified that in the Novation Agreement, the container shipping activities of APMM were transferred to ML starting February 2015. She added that the international shipping lines of APMM and ML transport and receive cargoes to and from the Philippines.45 In addition, the Service Agreement46 between APMM and petitioner shows that APMM/ML owns container vessels/ containers that operates worldwide through its subsidiaries and is required to handle various back office tasks including the processing of shipping documents on behalf of its clients and APMM contracted petitioner to perform back office tasks including documentation and certain other processes. Hence, the Court finds that petitioner's sales of services to APMM and ML qualify for VAT zero-rating pursuant to Section 108(8)(4) of the NIRC of 1997, as amended because said services are rendered to persons engaged in international shipping. 38 Exhibit "P-5", Docket- Vol. 2, pp. 624 to 635. 39 Exhibit "P-6", Docket- Vol. 2, pp. 636 to 644. 40 Exhibit "P-3", Docket- Vol. 2, pp. 605 to 610. 41 Exhibit "P-28", Docket- Vol. I, p. 74. 42 Exhibit "P-4", Docket- Vol. 2, pp. 611 to 623. 43 Exhibit "P-5" and Exhibit "P-6", Docket- Vol. 2, pp. 624 to 644. 44 Exhibit "P-3", Docket- Vol. 2, pp. 605 to 610. 45 Exhibit "P-28", A37 and A38, Docket- Vol. I, p, 74. 46 Exhibit "P-4", Docket- Vol. 2, pp. 611 to 623~

DECISION CIA Case No. 9537 Page 15 of25 Anent petitioner's zero-rated sales, petitioner declared in its Quarterly VAT Returns for the four quarters of taxable year 2015, the total amount of P2, 151,275,117.97, as shown below: Period Zero-Rated Sales 1st Quarter41 2na Quarter4~ p 524,379,479.16 3'0 Quarter4~ 4m Quarterou 569,364,756.91 540,955,642.81 TOTAL 516,575,239.08 P2, 151,275,117.96 Petitioner submitted official receipts ("0Rs")51 in support of its zero-rated sales for taxable year 2015. The same were duly examined by the court-commissioned ICPA and finally verified by the Court. In relation to said official receipts, petitioner is mandated to comply with Section 113 of the NIRC of 1997, as amended, pertaining to invoicing and accounting requirements, to wit: "SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons.- (A) Invoicing Requirements. - A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter, exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter of exchange of services. (B) Information Contained in the VAT Invoice or VAT Official Receipt. - The following information shall be indicated in the VAT invoice or VAT official receipt: 47 Line 17, Exhibit"P-15", Docket- Vol. 2,p. 651. 48 Line 17, Exhibit "P-16", Docket- Vol. 2, p. 653. 49 Line 17, Exhibit "P-17", Docket- Vol. 2, p. 655. ,Ntl 50 Line 17, Exhibit "P-18", Docket- Vol. 2,p. 657. 51 Exhibits "P-31" to "P-31.23", USB.

DECISION CTA Case No. 9537 Page 16 of25 (1) A statement that the seller is a VAT- registered person, followed by his Taxpayer's Identification Number (TIN); (2) The total amount which the purchaser pays or is obligated to pay the seller with the indication that such amount includes the value-added tax: Provided, That: XXX XXX XXX (c) If the sale is subject to zero percent (0%) value-added tax, the term 'zero- rated sale' shall be written or printed prominently on the invoice or receipt; XXX XXX XXX (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; xxx xxx xxx" Upon verification of the submitted documents, this Court finds that petitioner's sales of services to its clients APMM and ML in the amount of P213,635,665.07 (or equivalent to US$4,784,458.20) shall be disallowed for violation of the invoicing requirements prescribed by Section 113 of the NIRC of 1997, as amended. The details are presented below: OR OR Date Customer Name Amount Amount Exhibit No. (in USD) (in Php) VALID ZERO 1,612,534.05 72,428,579.24 P-31.1 RATED SALES: 1,656,993.29 73,930,069.62 P-31.2 1'718,356.35 76,667,905.27 P-31.3 146 23/01/2015 A.P. MOLLER 1,966,005.33 87,717,259.81 P-31.4 MAERSKAIS 2,513,783.10 110,938,275.77 P-31.7 2,294,457.05 101 '155, 727.96 P-31.8 148 09/02/2015 MAERSK LINE AIS P-31.9 150 20/02/2015 MAERSK LINE A/S A; 151 06/03/2015 MAERSK LINE AIS 159 08/04/2015 MAERSK LINE AIS 161 23/04/2015 MAERSK LINE AIS 163 06/05/2015 MAERSK LINE A/S

DECISION CTA Case No. 9537 Page 17 of25 164 20/05/2015 MAERSK LINENS 3,001,203.47 133,459,373.27 P-31.10 165 05/06/2015 MAERSK LINENS 1'187,606.04 53,200,000.17 P-31.11 166 19/06/2015 MAERSK LINENS 2,103,713.22 93,611,379.87 P-31.12 168 10/07/2015 MAERSK LINENS 1 ,740,112.99 76,999,999.81 P-31.13 169 22/07/2015 MAERSK LINENS 1,954,975.85 86,969,765.48 P-31.14 171 07/08/2015 MAERSK LINENS 2,299,304.88 102,663,962.89 P-31.15 172 24/08/2015 MAERSK LINENS 2,076,144.85 93,472,410.96 P-31.16 173 10/09/2015 MAERSK LINENS 1,099,557.52 49,699,999.90 P-31.17 173 10/09/2015 MAERSK LINENS 1,619,527.05 73,202,622.66 P-31.17 174 18/09/2015 MAERSK LINENS 548,029.29 25,000,000.15 P-31.18 177 07/10/2015 MAERSK LINENS 2,41 0,164.42 109,946,880.51 P-31.19 177 07/10/2015 MAERSK LINENS 1,341,557.62 61 '199, 175.51 P-31.19 178 21/10/2015 MAERSK LINENS 117,778.06 5,500,824.29 P-31.20 181 11/11/2015 MAERSK LINENS 1 ,496,380.27 69,888,440.51 P-31.21 181 11/11/2015 MAERSK LINENS 2,407,442.41 112,439,575.36 P-31.21 179 20/11/2015 MAERSK LINENS 217,655.61 10,213,729.66 P-31.22 180 04/12/2015 MAERSK LINENS 1 ,687,121.93 79,169,883.69 P-31.23 180 04/12/2015 MAERSK LINENS 1,745,331.88 81,901,443.80 P-31.23 2,052,935.93 96,262,165.76 Sub-Total 42,868,672.46 1,937,639,451.92 DISALLOWED ZERO RATED SALES: 144 07/01/2015 AP. MOLLER P-31 MAERSKNS (Not indicated as 3,053,628.94 137,156,797.47 zero-rated sales) 154 18/03/2015 MAERSK LINENS P-31.5 (Without Supporting 193,630.31 8,639,203.54 OR) 155 18/03/2015 MAERSK LINENS 1 ,537,198.95 67,839,664.06 P-31.6 (Zero-rated sales ~ amount not the same)

DECISION CTA Case No. 9537 Page 18 of25 Sub-Total 4,784,458.20 213,635,665.07 Grand Total 47,653,130.66 2,151 ,275,116.99 Based on the foregoing, out of the reported zero-rated sales of P2, 151,275,116.9952 , only the amount of P1 ,937,639,451.92, pertaining to sales to APMM and ML, validly represent petitioner's zero-rated sales for taxable year 2015. Petitioner incurred unutilized input VAT attributable to its zero-rated sales. In its Quarterly VAT Return for CY 2015, petitioner declared input VAT of P53,793,814.15 on its current purchases of goods and services, of which the amount of P48,087,076.37 is the subject of the present claim, as shown below: 1st Quarter 2nd 3rd 4th Quarter Total "P-15" Quarter Quarter "P-18" "P-16" "P-17" Input VAT on Cap Goods 51,648.00 1,628,754.27 not Exceeding 1M 8,599,036.59 51,648.00 Input VAT on Cap Goods 1,315,537.93 10,227,790.86 2,209,450.49 10,227,790.86 Exceeding 1M 8,268,922.07 14,156,633.85 9,584,460.00 17,733,270.27 12,936,848.02 6,163,254.37 Input VAT on Goods 1,269,063.00 9,321.42 1 ,055,986.61 37,994,451.78 17,723,948.85 13,953,333.07 7,195,528.44 53,793,814.15 Input VAT on Services 8,043,252.90 1 ,016,485.05 8,251,515.05 151,101.41 13,953,332.99 99,265.71 53,642,712.74 Sub-Total 17,581,237.97 8,152,249.34 13,610,323.33 Less: Output VAT 42,514.28 343,009.66 Total (A) 17,538,723.69 Less: Amortization Input VAT on Cap. Goods Deferred to the Succeeding Periods 13,61 0,323.33 11,928,802.09 52,429,306.43 Input VAT Deferred on Cap. Goods from Previous Quarter 6,373,165.64 12,936,848.02 46,873,670.06 1,008,045.93 5,555,636.37 Amortization 7,237,157.69 Input VAT Claimed 10,301,566.00 17,380,939.19 11,244,275.91 9,160,295.27 48,087,076.37 52 0. 97 rounding off difference.JI."'

DECISION CTA Case No. 9537 Page 19 of25 In support of its input VAT claim, petitioner submitted in evidence various sales invoices (SI), ORs, and other related documents,53 which were examined by the ICPA. Upon verification, the Court agrees with the findings of the ICPA that the input VAT amounting to P41,340, 185.36 were noted as "No Exceptions", while input VAT in the total amount of P6,897,992.85, shall be disallowed for failure to meet the substantiation requirements under Sections 110(A), 113(A) and (B), 237 and 238 of the NIRC of 1997, as amended, in relation to Sections 4.110-1, 4.110,3, 4.110-8, and 4.113-1 of RR No. 16-2005, as amended, the details of which are provided below: Description Annex Amount Reference No Exceptions Noted: ("P-30-B") ("P-30-D") Input VAT on purchases properly supported with sales invoices or F 35,716,744.71 official receipts G 299,654.66 Input VAT on purchases of capital goods with no exceptions noted H 473,665.58 Input VAT on purchases not within 230,755.82 the quarter but within the year of claim s 2,037,035.91 Excess of input VAT per document over input vat claimed per SLP z 2,102,986.51 Input VAT per summary list of "P-1533" to 479,342.17 purchases is higher than the amount "P-1542" per document 41,340,185.36 Input VAT on purchases of capital goods exceeding 1 million E 151,101.42 from periods prior to 2015 From Supplemental Report Total "No Exceptions" Noted Less: Output VAT 53 Exhibits "P-42" to "P-1532" /(:;

DECISION 41,189,083.94 CTA Case No. 9537 Page 20 of25 J 627,152.63 Total Excess Input with K 1,549,228. 71 "No Exceptions" Noted L 218,577.48 Exceptions: M 270,067.33 Official receipts and sales invoices that are dated out of period N 341,991.24 Not within 2015) 0 167,938.74 Official receipts and sales invoices which do not indicate the TIN p 3,204.26 of the company Q 374,917.20 Official receipts and sales invoices which indicate the incorrect TIN R 214,398.52 of the company With alterations on the TIN, name and address of the company but were not countersigned by the authorized signatory Official receipts and sales invoices which indicate the name of a different company Official receipts and sales invoices which indicate an incorrect address of the company Official receipts and sales invoices which do not indicate the address of the company Purchases of goods and services supported by documents other than sales invoices and official receipts, respectively Improper presentation of amounts (i.e. vat amount is presented as either vatable, zero-rated, or exempt sales) Input VAT per summary list of purchases is higher than the amount per document (this pertains to the difference of the amount per ""

DECISION CTA Case No. 9537 Page 21 of25 summary list and per document) s 211,321.93 Official receipts which do not u 106,954.72 show the VAT amount separately T 185,273.99 Purchases where only photocopies of supporting documents were examined v 797,099.15 Input VAT amounts that were claimed w 561,419.32 twice in the vat returns X 449,915.45 Input VAT on purchases properly y 1,297,587.21 supported with sales invoices or official receipts with no exceptions "P-1533" to 287.14 noted but photocopies of "P-1542" documents not provided (479,342.17) Input vat on purchases properly supported 6,897,992.85 with sales invoices or official receipts with exceptions noted and no photocopies of documents provided No documents examined Unaccounted Difference From Supplemental Report Total "With Exceptions Noted" Upon the Court's further examination, in addition to the above disallowances, input VAT in the amount of P1 ,835,095.07 shall further be disallowed for non-compliance with the substantiation requirements under the aforementioned VAT law and regulations, to wit: Customer Amount Exhibit Reason Advance Paper Corp 511.07 ""P-115"" Without Supporting Invoice Adventure International Tours 7,203.24 ""P-128"" Date of the OR not clear Adventure International Tours ""P-147"" Incorrect VAT amount Adventure International Tours 809.52 "P-177" Date of the OR not clear Biotech Environmental Services 664.08 ""P-214"" Incorrect VAT amount Daja Food Services 16,792.75 "P-260" VAT not separately indicated DHL Express 2,250.00 OR with alteration/erasure without 15,634.82 authorized counter signature Flash Media VAT not separately indicated 3,489.83 "P-300" /'If

DECISION CTA Case No. 9537 Page 22 of25 Globe Telecom 2,562.76 "P-321" Incorrect VAT amount Globe Telecom 9,751.76 "P-331" Incorrect VAT amount Globe Telecom 4,103.39 "P-338" Incorrect VAT amount Herbon Beverages 2,035.71 "P-366" Supported by Non-VAT Invoice Icon Interiors 6,042.86 "P-384" Document Without Customer's Name Integrated Computer Systems 1,296.43 "P-390" Invoice without Authorized Signature Integrated Computer Systems 9,531.43 "P-392" Invoice without Authorized Signature Integrated Computer Systems 31,055.90 "P-397" VAT not separately indicated Integrated Computer Systems 32,128.93 "P-412" VAT not separately indicated Integrated Computer Systems 20,310.00 "P-416" VAT not separately indicated Jeon Software Info. Solutions 4,200.00 "P-439" OR with alteration/erasure without authorized counter signature JR Lims Trading 3,522.32 "P-457" OR without authorized signature JR Lims Trading 3,522.32 "P-458" OR without authorized signature Kishus Plastics 3,653.57 "P-459" Supported by OR with pre-printed "This Documents is not Valid for Newton Integrated Solutions 1,200.00 "P-503" Claiming Input Tax" Ortigas and Company 2,965.68 "P-522" OR Not Readable Soliman Security Services 7,259.21 "P-705" OR Not Readable Soliman Security Services 6,241.91 "P-706" Incorrect VAT amount Soliman Security Services 8,736.65 "P-707" Incorrect VAT amount Soliman Security Services 8,347.61 "P-708" Incorrect VAT amount Soliman Security Services 4,025.32 "P-713" Incorrect VAT amount DHL Express 13,497.98 "P-830" Incorrect VAT amount Punta De Fabian 41,062.50 "P-864" Incorrect VAT amount Ragojos Heritage Construction 1,491,428.57 "P-1026" Incorrect VAT amount Ragojos Heritage Construction 41,625.00 "P-1 027" Incorrect VAT amount Schneider Electric IT Phils. 18,000.00 "P-1 028" Incorrect VAT amount Discovery Suites 9,631.95 "P-1117" Incorrect VAT amount Incorrect VAT amount Total 1 ,835,095.07 In sum, out of the claimed input VAT of P48,087,076.37 only the amount of P39,353,988.45 represents petitioner's valid input VAT, computed as follows: Input VAT per Claim 6,897,992.85 48,087,076.37 Less: Disallowances 1,835,095.07 8,733,087.92 Per ICPA 39,353,988.45 Per Court Excess Valid Input VAT Consequently, only the excess valid input VAT of P39,353,988.45 can be attributed to the total zero-rated sales declared by petitioner in the amount of P2, 151,275,117.96, and only the input VAT of P35,445,880.43 is attributable to the valid zero-rated sales of P1 ,937,639,451.92, computed below as follows: ,/'({

DECISION CTA Case No. 9537 Page 23 of25 Excess Valid Input VAT 39,353,988.45 Divided by Declared Zero-Rated Sales 2,151,275,117.96 Multiply by Valid Zero-Rated Sales 1,937,639,451.92 Excess Input VAT Attributable 35,445,880.43 To valid Zero-rated Sales Petitioner's excess input taxes were not applied against any output VAT liability Anent the requirement that excess input taxes were carried over to the succeeding quarter, the Court finds that petitioner has complied with this requisite. Records show that the excess input taxes amounting to P35,445,880.43 is more than enough to cover its output VAT liability of P151, 101.41. Notably, although a portion of the claimed input VAT was carried over by petitioner to its quarterly VAT return for the succeeding first quarter of taxable year 2016, only the input VAT amounting to P47,087,551.3754 remained unutilized since it was only the said amount that was deducted as "VAT Refund/TCC claimed"55 in the same quarter. Therefore, the difference of P999,525.00 (P48,087,076.37 less P47,087,551.37) require a downward adjustment to petitioner's claim, to wit: Excess Input VAT Attributable p 35,445,880.43 To valid Zero-rated Sales 999,525.00 Less: p 34,446,355.43 Input VAT carried-over the succeeding period Unutilized Input VAT 54 Exhibit "P-40.1 ",Line 23D, USB. 55 Exhibit "P-40", Line 23D, USB.I"f7

DECISION CTA Case No. 9537 Page 24 of25 WHEREFORE, in light of the foregoing considerations, the instant Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the total amount of P34,446,355.43, representing its excess and unutilized input VAT attributable to its zero-rated sales for the four quarters of taxable year 2015. SO ORDERED. ER~P.UY Associate Justice WE CONCUR: ~.~~, MA. BELEN RINGPIS-LIBAN Associate Justice 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. ER~P.UY Associate Justice Chairperson, 3'd Division

DECISION CTA Case No. 9537 Page 25 of25 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's Division. Presiding Justice