REGUS SERVICE CENTRE, PHILIPPINES B.V. - ROHQ v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL THIRD DIVISION REGUS SERVICE CENTRE, CTA CASE NO. 9962 PHILIPPINES B .V. - ROHQ, Members: P etitioner, -versus - RINGPIS-LIBAN, Chaiperson, MODESTO-SAN PEDRO, and FERRER-FLORES, Jl. COMMISSIONER OF INTERNAL Promulgated: Respondent. MAY 0 6 2025 REVENUE, x --------------------------------------------------------------�_(;:__":":________~__}_!l~_jf?_~-~-!--------------x RESOLUTION RINGPIS-LIBAN, ]: Submitted before this Court is petitioner's Motion for Reconsideration flied on July 27, 2023, wid1 respondent's Comment/Opposition (To Petitioner's Motion for Reconsideration dated 27 July 2023) filed through an accredited licensed courier service on February 18, 2025, and received by the Court on February 20, 2025. On June 29, 2023, the Court promulgated a Decision denying petitioner's claim fo r refund o f unutilized input value-add ed tax 01AT) for the second (2,d) to fourth (4rh) quarters of calendar year 2016, in the amount of !>7,834,310.94, for failing to sufficiendy establish that it was engaged in zero- rated sales or effectively zero-rated sales, the dispositive portion of which states as follows: "WHEREFORE, in light of the foregoing considerations, the present Petitionfor Review is DENIED for lack of merit. SO ORDERED." In its Motion, petitioner primarily insists that it was able to sufficiendy show that the services for the covered period of claim were rendered in the Philippines. Petitioner asserts dut the Service Agreement indicates that d1e party involved is Regus Service Centre, Philippines B.V., which is a forei~

RESOLUTION CT.-\ Case lo. 9962 corporation duly licensed to operate as a regional operating headquarters (ROHQ) in the Philippines as a provider o f services. As a foreign corporation, petitioner continues that it has to strictly comply with provisions in its Certificate of Registration and License issued by the Securities and Exchange Commission, which includes the rendition of services here in the Philippines as an ROHQ and no t elsewhere. Thus, petitioner avers that as a resident foreign corporation, it is only taxed on its income derived from sources within the Philippines pursuant to Section 23(F) of the National Internal Revenue Code (NIRC) of 1997, as amended. Petitioner also reiterates the testimony o f the Independent Certified Public Accountant (ICPA) that the record ed sales subject to zero percent (0%) VAT pertain to the fees collected from petitioner's sole client, Franchise International S.A.R.L. , for services rendered in the Philippines. Petitioner furtl1er points out that the testimony of tl1e ICPA stating that petitioner's services were performed in tl1e Philippines was unrebutted by respondent and that respondent never presented controverting evidence to prove o thetwise. Lastly, petitioner submits that tax cases are civil in nature and require only preponderance of evidence to prove entitlement to the claimed refu nd. Petitioner likewise invokes the principle of solutio indebiti arguing that tax refund s are based on quasi-contracts. On the other hand, in his Comment, respondent emphasizes that petitioner is not entitled to its claim for refund. H e reiterates the Court's finding that the Setv ice Agreement between petitionercs Head Office and Franchise International S.A.R.L. does not bear any indication that the subject setvices were to be performed by petitioner in the Philippines. Respondent further assails petitioner's reliance on tl1e tes timony of the ICPA, insisting that the ICPA has no personal knowledge of the Setvice Agreement since it is not privy to the said agreement. Lastly, respondent stresses that actions for tax refunds are in the nature of a claim for exemption and the law is construed in strit"tissimi jllris against the claimant. Being such, the taxpayer claimant has the burden to prove tl1at it strictly complied with the conditions for the grant of said tax refund. After consideration, the Cour finds petitioner's Motion for Reconsideration bereft of merit. At the outset, the issue as to whetl1er or not petitioner performed setvices in the Philippines is a question of fact which must be proven by specific evidence. In proving a fact in issue, petitioner cannot merely rely on the definition stated in Republic Act (RA) No. 8756,1 tl1at ROHQs are license~ ' "AN ACT PRO VIDI lG FOR THE TERMS, CONDITIO S .\ D LICE SING REQUIRE~IENTS OF REGION.-\L OR AREA H EAD QUA RTERS, REGIONAL OPER.-\TING HEAD QU.-\RTERS, AND REGION�.-\L W.\REHOUSES OF MULTINATIONAL COl\IPANIES, Al\!ENDING FOR THE PURPOSE CERT.\ IN PROVISIONS OF EXECUTIVE ORDER NO. 226, OTHERWISE K1 0\XIN ,�\S THE OMN IBUS INVESTMENTS CODE OF 1987", approved on November 23, 1999.

RESOLUTION CTA Case lo. 9962 Page 3 o f5 to do business in the Philippines, without o ffering any evidence to corroborate that the said services were indeed performed in the Philippines. In the assailed Decision, the Court noted that the Service Agreement between petitioner and Franchise International S.A.R.L. does not bear any indication that the subject services were to be performed by petitioner in the Philippines. Without any corroborating evidence offered to support the testimony o f petitioner's witness, Ms. Krista V. Bambao, the court- commissioned ICPA, the statements proffered therein remains short to be considered as established facts. Similarly, the Court tules time and again that petitioner cannot merely rely on the ICPA's findings to validate its claim, since the ultimate determination rests upon the Court based on the evidence submitted by the parties. Perforce, the Court is not bound by the findings o f the ICPA, since the ICPA Report is but a tool or guide to aid the Court in the resolution of the case, it is only persuasive in nature and not conclusive up on the Court.2 The Court will still examine, verify, and evaluate the documents audited by the ICPA, to which the Court, in its sound discretion, may render judgment without considering the ICPA report. Thus, petitioner cannot insist that the subject sales pertain to fees collected for services rendered in the Philippines - as found by the ICPA in her report- is already sufficient for the Court to conclude the same without being examined and verified by the Court. To stress, the burden is on the taxpayer to show that it has strictly complied with the conditions for the grant of the tax refund since actions for tax refund, as in tl1e present case, are in the nature of tax exemptions. They are regarded as derogation of sovereign authority and to be consuued stridisJimi juris against the person or entity claiming the re fund. 3 The pieces of evidence presented entitling a taxpayer to an exemption are also strictissimi scrutinized and must be duly proven. 4 H ence, an applicant for a claim for tax refund or tax credit must not only prove entitlement to the claim but also compliance with all the documentary and evidentiary requirements.5 Lastly, as for petitioner's argument that its claim for VAT refund should be granted considering that tax cases are civil in nature and require only preponderance o f evidence, following the principle of solutio indebiti, the Court find s petitioner's argument misplaced. ~ 2 Secrjon 3, Rule 13 of the Revjsed Rules of the Court of Tax A.ppeals. 3 Commi.rsioner ofIntemal Revenue v. S.C. .Johnson and Son, lnt'., G.R. lo. 127105, June 25, 1999. 4 Kept'o Pbilippiue.r Corporation u. Commissioner ~f Jntemal Reuenne, G.R.. lo . 179961,]anuary 31, 2011, citing Atla.r Co1uolidated lvlinint, and Development Co,poration v. CommiHioner rj Internal Re11en11e, G.R. No. 159490, February 18, 2008. Easfem Te/ewmmunimtioiiJ Philippines, Im: u. Commi.r.rioner ~f Intemal Reuenue, G .R. r o. 183531, i'>Iarch 25, 2015, citing]. RA. Philippines, Im�. v. Commissioner ofIntemal Reumue, G.R. o. 171307, August 28, 2013.

RESO LUTIO N CTA Case No. 9962 In the case of Commissioner of Internal Revenue v. Manila Electric Co. (MERALC0),6 the Supreme Court had the occasion to discuss the grounds for the application of solutio indebitz~ to wit: "There is solutio indebiti where: (1) pqyment i.r made when there exi.rt.r no binding relation between thepqyor, u;ho ha.r no dttfY to pqy. and the pen�on who m �eived the ,Pqyment; and (2) the payment is made through mistake, and not through liberalit-y or some other cause. Here, there is a binding relation benveen petitioner as the taxing authority in this jurisdiction and respondent MERALCO which is bound under the law to act as a withholding agent of NORD / LB Singapore Branch, the taxpayer. Hence, the first element of .rolutio indebiti is lacking." Herein, the first elemen t is likewise not present. There exists a binding relationship between the respondent, as the taxing authority, and petitioner, the taxpayer, arising from the legal obligation of the taxpayer to pay the VAT. As for the second element, the payment of the input taxes was no t a mistake, since the taxpayer was legally obligated to pay for such liability. The entitlement to a refund o f excess input tax is solely based on the nature of the VAT system, which in tlus case, the amount paid as input tax was correct and proper. Correspondingly, solutio indebiti does not apply. Moreover, insofar as tax refunds are concerned, the N IRC of 1997, as amended, is a special law, which prevails over a general law, which is tl1e New Civil Code. The power of taxation is an inherent attribute of sovereignty; hence, the dictum tlut "taxes are the lifeblood of the government." For tl1is reason, the right of taxation cannot easily be surrendered; statutes granting tax exemptions are considered as a derogation of the sovereign authority and are strictly construed against the person or entity claiming the exemption. The taxpayer is charged with the heavy burden of proving that he has complied with and satisfied all the statutory and administrative requirements to be entitled to the tax refund.7 In view of the foregoing disquisitions, tl1ere being no new matter or substantial issue raised in petitioner's Motion for Reconsideration, the Court find s no compelling reason to reverse or modify the Decision promulgated on June 29, 2023. SO ORDERED. ~- ~ --r-- MA. BELEN M. RINGPIS-LIBAN Associate Justice 1� G.lt lo. 181459,.Junc 9,2014. 7 ComiiJiJsiomr oflntemal Rrue/1/te JJ. Ea.rtem Telerollllllllllimtion.r Pbilippims, lnc., (; .R. N o. 163835,July 7, 201 0.

RESOLUTION CT,-\ Case No. 9962 We Concur: (On leave) MARIA ROWENA MODESTO-SAN PEDRO Associate Justice