SONY ERICSSON MOBILE COMMUNICATIONS INTERNATIONAL AB v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY FIRST DIVISION SONY ERICSSON MOBILE CTA Case No. 8579 COMMUNICATIONS, INTERNATIONAL AB, Members: DEL ROSARIO, Chairperson, Petitioner, UY, and MINDARO-GRULLA, JJ. -versus- COMMISSIONER OF INTERNAL Promulgated: REVENUE, DECISION DEL ROSARIO, PJ.: This involves a Petition for Review 1 filed by Sony Ericsson Mobile Communications, International AB assailing the inaction of the Commissioner of Internal Revenue on petitioner's administrative claim for refund or issuance of tax credit certificate (TCC) in the total amount of P3,911, 144.55, representing its unutilized input Value-Added Tax (VAT) for the 2nd to 4th quarters of year 2010, which are attributable to petitioner's zero-rated sales of marketing services to companies located outside the Philippines. THE PARTIES Petitioner Sony Ericsson Mobile Communications, International AB is a branch office duly licensed by the Securities and Exchange Commission (SEC) in accordance with Philippine laws. Its principal office is at the 7~ 1 Dated October 30, 2012. CTA Docket, p. 21.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 Floor Octagon Building, San Miguel Avenue, Ortigas Complex, San Antonio, Pasig City.2 Petitioner is a VAT-registered entity as evidenced by Bureau of Internal Revenue (BIR) Certificate of Registration No. SRCOOOO 172137 VAT and Taxpayer's Identification Number 219-660-821- 000 VAT. Such registration was made on August 8, 2002.3 Respondent is the duly appointed Commissioner of Internal Revenue (CIR), empowered to perform the duties of said office, including, among others, the duty to act on and approve claims for refund or tax credit as provided by law with office address at BIR, National Office Building, BIR Road, Diliman, Quezon City.4 THE FACTS Petitioner is licensed by the SEC in accordance with the Corporation Code of the Philippines to establish a branch office in the Philippines.5 It is primarily engaged in providing marketing services to companies located outside the Philippines by organizing promotional events to launch new products and services under the brand name of "Sony Ericsson" in the local market pursuant to its Sales Promotional and Marketing Services Agreement dated January 1, 2006 executed between petitioner and Sony Ericsson Mobile Communications AB, a corporation organized and existing under the laws of Sweden.6 On the following dates, petitioner filed its Quarterly VAT Returns for the taxable period of April2010 to December 2010, as follows: Exhibit Period Date of Filing L April to June 2010 July 26, 2010 M July to September 2010 October 26, 2010 N July to September 2010 (amended) July 28, 2011 0 October to December 2010 January 25, 2011 On June 29, 2012, petitioner filed with the Revenue District Office No. 43A-Pasig an administrative claim for refund or issuance of TCC of its eft. 2 CTA Docket, pp. 7 & 340. 3 CTA Docket, p. 340. 4 CTA Docket, p. 8 & 339. 5 Exhibit "A" License to Transact Business in the Philippines, CTA Docket, p. 570. 6 Exhibit "D" Sales Promotion and Marketing Services Agreement, CTA Docket, p. 587.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 unutilized input VAT for the 2nd to 4th quarters of 2010. 7 It allegedly has incurred unutilized input VAT from its purchases of non-capital goods, importation of non-capital goods and domestic purchases of service in the total amount ofP3,911,144.55. Due to the alleged inaction of respondent in deciding the administrative claim for refund or issuance of TCC within the 120-day period provided for by Section 112 (C) of the National Internal Revenue Code (NIRC) of 1997, as amended, petitioner filed the subject Petition for Review on November 26, 2012. In her Answer8 filed on January 7, 2013, respondent raised by way of special and affirmative defenses that: (a) petitioner's contention that it is entitled to a refund/tax credit certificate is erroneous; (b) petitioner failed to substantiate and prove that its input taxes have not been applied against output taxes during and in the succeeding quarters and that the same were attributable to zero-rated or effectively zero-rated sales; (c) the burden of proof is on the taxpayer to establish its right to refund and failure to sustain the burden is fatal to the claim for refund; and, (d) refund/tax credit certificate are construed strictly against the taxpayer as they partake the nature of tax exemption. During trial, petitioner presented Patrick Emmanuel S. Larraga, petitioner's resident agent;9 Jocelyn Calma, manager-in-charge of Villaruz, Villaruz & Co.; 10 and, Atty. Clifford Chua, independent Certified Public Accountant (ICPA), 11 as its witnesses. Thereafter, petitioner filed its Formal Offer of Evidence 12 on August 22, 2013, submitting Exhibits "A" to "NNN-1", inclusive of sub-markings; which this Court admitted in the Resolution 13 dated December 17, 2013, ci\ except Exhibits "VV-76 to VV-91", "VV-99", "VV-109" and "YY-16". 7 Exhibit "I" Application for VAT Refund for the 2nd to 41h Quarters of 2010, CTA Docket, p. 657. 8 CTA Docket, pp. 94 to 96. 9 Minutes ofHearing dated May 23,2013 , CTA Docket, pp. 372 to 376. 10 Minutes ofHearing dated March 14, 2013, CTA Docket, pp. 345 to 346. 11 Minutes of Hearing dated June 25, 2013 and July 23, 2013 , CTA Docket, p.393 , and 481 to 484, respectively. 12 CTA Docket, pp. 556 to 569. 13 CTA Docket, pp. 807 to 808.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 On February 4, 2014, respondent presented her witness, Atty. Carmencita G. Villanueva, Revenue Officer II- Assessment Section of RDO 43-A, East Pasig. 14 Respondent filed her Formal Offer ofEvidence 15 on February 5, 2014, submitting Exhibits "R-1" to "R-8-1", inclusive of sub-markings, all of which were admitted in the Resolution 16 dated March 27, 2014. With the filing of petitioner's Memorandum on June 9, 2014 and respondent's Memorandum on May 6, 2014, the case was considered submitted for decision on June 18, 2014. The main issue as stated in the parties' Joint Stipulation of Facts and Issues 17 is as follows: "WHETHER PETITIONER IS ENTITLED TO A REFUND FOR THE UNUTILIZED INPUT TAXES ATTRIBUTABLE TO PETITIONER'S ZERO-RATED SALES/RECEIPTS FOR THE 2N�, 3R0 , AND 4THQUARTERS OF THE TAXABLE YEAR 2010 IN THE AMOUNT OF THREE MILLION NINE HUNDRED ELEVEN THOUSAND ONE HUNDRED FORTY-FOUR AND 55/100 PESOS (P3,911, 144.55)." THE COURT'S RULING Section 112(A) of the NIRC of 1997, as amended, outlines the requirements for refund or tax credit of input tax due or paid which are attributable to the taxpayer's zero-rated sales. The provision reads: "SEC. 112. Refunds or Tax Credits ofInput 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 {11. 14 Minutes ofHearing dated February 4, 2014, CTA Docket, pp. 825 to 826. 15 CTA Docket, pp. 830 to 837. 16 CTA Docket, pp. 860 to 861. 17 CTA Docket, pp. 325 to 330.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 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)(l) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): 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 or 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(B)(6), the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales." Thus, in order to be entitled to a refund or tax credit of unutilized input VAT attributable to zero-rated sales, the following requisites are to be complied with: 1. There must be zero-rated or effectively zero-rated sales; 2. Input taxes were incurred or paid; 3. Such input taxes are attributable to zero-rated or effectively zero-rated sales; 4. Such input taxes were not applied against any output VAT liability; and 5. The claim for refund was filed within the two-year prescriptive period. Timelin ess of the filin g of th e administrative and judicial cl aim s At the onset, it is appropriate to ascertain the timeliness of the filing of petitioner's administrative and judicial claims as the same will determine whether it is still necessary for the Court to resolve petitioner's compliance with the other requisites for input VAT refund. Pursuant to the above quoted provision of Section 112(A) of the NIRC of 1997, as amended, a taxpayer must file an administrative claim for refund or issuance of TCC of unutilized or excess creditable input VAT attributable to its zero-rated sales within two (2) years after the close of the taxable quarter when the sales were made. The present claim covers the 2nd to 4th taxable quarters of year 2010 which closed on June 30, 2010, September 30, 2010 and December 31, rfl

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 2010. Records show that petitioner's administrative claim for refund was timely filed, viz.: Period/Quarter Close of Taxable Last Day for Filing Date of Filing of Covered Quarter of Administrative Administrative Claim for Refund Claim for Refund 2110 Quarter of 2010 June 30,2010 June 30, 2012 3ro Quarter of2010 September 30, 2010 September 30, 2012 June 29, 2012 4111 Quarter of2010 December 31,2010 December 31, 2012 As to the timeliness of petitioner's judicial claim, Section 112(C) of the NIRC of 1997, as amended, provides that the CIR has 120 days from the date of submission of the complete documents in support of the application for tax refund/credit 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 this Court within thirty (30) days from receipt of the decision of the CIR. 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 this Court within thirty (30) days. In her Memorandum, respondent argues that this Court has no jurisdiction to entertain the Petition for Review for petitioner's failure to submit the required documents, despite notice, in support of its administrative claim for refund. Respondent alleges that when the Letter of Authority No. 43A-2012-00000836 18was served and received by petitioner, a copy of the Checklist of Requirements was also attached informing petitioner to submit the documents specified therein to enable the assigned Revenue Officer to properly determine whether petitioner is entitled to refund or issuance ofTCC. On December 7, 2012, respondent sent to petitiOner the Second Request for Presentation of Books and Other Accounting Records. 19 On December 17, 2012, petitioner received the Final Notice for Presentation of Books of Accounts and other Accounting Records. 20 In all these instances, respondent claimed that petitioner did not submit the required documents. Records, however, show that when petitioner filed the administrative claim on June 29, 2012, petitioner simultaneously submitted the document{il 18 CTA Docket, p. 819. 19 Exhibit "R-4", CTA Docket, p. 821. 20 Exhibit "R-5 ", CTA Docket, p. 822.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 in support thereof. This 1s evident from petitioner's letter claim which stated: 21 "For your immediate reference, we attached the following documents: 1. Application for Tax Refund/ Credit (BIR Form No. 1914); 2. Authorization Letter issued by the Company in favor of Du-Baladad & Associates; 3. SEMCI' s Certification showing amount of zero-rated sales; 4. BIR Certificate of Registration of SEMCI (BIR Form No . 2303); 5. SEC License to Transact Business in the Philippines of SEMCI; 6. Sales Promotion and Marketing Services Agreement dated January1 , 2006; 7. Duly filed quarterly VAT returns (BIR Form No. 2550-Q) for 2010 8. (D2nudly' 3frdile' d& q4utha)r�'terly VAT returns (BIR Form No. 2550-Q) for 2011 (S1usmt ' m2nadry' 3rd i' m&po4rtht)a.'tions 9. of made during the period; 10. Summary list of purchases/input tax schedule; 11. Summary of Sales transactions; 12. Invoices, official receipts, and other documents evidencing payment of input VAT or input taxes incurred on local purchases and importations; (3 binders); and, 13 . Import entry documents (1 binder)." In other words, in filing the administrative claim for refund, petitioner already attached all the supporting documents it perceived to be sufficient and necessary in resolving the claim. In the case of Commissioner of Internal Revenue vs. First Express Pawnshop Company, Inc., 22the Supreme Court explained the tenn "relevant supporting documents" in the following manner: "The term ' relevant supporting documents ' should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by th e taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit." (Emphasis supplied) Though the afore-quoted jurisprudence pertains to an administrative protest on a tax assessment, the Court finds it proper to apply said doctrine in administrative claim for refund. The relevant supporting documents that ~ 21 Exhibit "1" , CTA Docket, pp. 657 to 663. 22 G.R. Nos. 172045-46, June 16, 2009.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 taxpayer must submit in support of its administrative claim pertain to documents that the taxpayer deems necessary to sufficiently prove its claim. The CIR or her authorized representative is allowed to request the submission of additional documents from the taxpayer; however, the CIR cannot dictate upon the taxpayer what documents to submit. In essence, petitioner has a choice to either: (1) elevate the administrative claim for refund to the CTA after the lapse of the 120-day period from the submission of what it considered as complete supporting documents; or, (2) comply with the CIR's request for additional documents. If the taxpayer chooses the second option and submits additional documents prior to the filing of judicial claim, the counting of the 120-day period shall be reckoned from the time of submission of additional documents. In the present case, petitioner opted to take the first option and thus, the 120-day period is reckoned from June 29, 2012, the date when petitioner filed its administrative claim together with the supporting documents. Applying Section 112(C) of the NIRC of 1997, as amended, the following are the pertinent dates of petitioner's claim for refund: Year 2010 Date of Filing End of 120 days End of the 30 days Date of Judicial Administrative within which to from the Claim 2110 Quarter decide the claim 3ro Quarter Claim with expiration of the November 26, 2012 4111 Quarter Supporting 120 days Documents June 29, 2012 October 27, 2012 November 26, 2012 Indubitably, petitioner's judicial claim for refund for the 2nd to 4 th quarters of 2010 was timely filed within the "120-30" day period required under Section 112(C) of the NIRC of 1997, as amended. The Court will now proceed to determine petitioner's compliance with the other requisites. In its Quarterly VAT Returns 23 for the second, third and fourth quarters of 2010, petitioner reported VAT zero-rated sales/receipts in th~f 23 Exhibits "L", "N' and " 0 ", CTA Docket, pp.666, 678 and 679.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 amount ofP58,434,716.32 and input VAT ofP3,911,144.55, broken down as follows: Exhibit Year 2010 Zero-rated Input VAT L 2nd Quarter Sales/Receipts p 1,863,122.44 N 3rd Quarter p 24,880,118.85 0 4th Quarter 1,508,557.35 19,549,975.85 539,464.76 Total 14,004,621.62 p 58,434,716.32 p 3,911,144.55 Existence of zero-rated sales Anent the first requisite, petitioner submits that its sale of services to its affiliate abroad is zero-rated pursuant to Section 108(B)(l) and (2) of the NIRC of 1997, which is hereunder quoted for easy reference: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease ofProperties.- 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 ofthe 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);" In the case of Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., 24 the Supreme Court held that in order for the supply of services to be considered VAT zero-rated under Section 108(B)(2) of the NIRC of 1997, as amended [then Section <11 24 G.R. No. 153205, January 22, 2007.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 102(b)(2) of the NIRC of 1977, as amended}, the following requisites must be met: 1) the services must be other than processing, manufacturing or repacking of goods; 2) payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations; and, 3) the recipient of such services is doing business outside the Philippines. Petitioner complied with the first and third requisites. Petitioner is primarily engaged in providing marketing services to its affiliate company, Sony Ericsson Mobile Communications AB, which is located outside the Philippines, by organizing promotional events to launch new products and services under the brand name of "Sony Ericsson" in the local market. 25 Such marketing services are not of the same category as "processing, manufacturing or repacking of goods" . For the period April 1 to December 31, 2010, petitioner rendered services to its affiliate company, Sony Ericsson Mobile Communications AB, a non-resident foreign corporation engaged in business conducted outside the Philippines 26 as indicated in the Certification of Non- Registration27 of Sony Ericsson Mobile Communications AB issued by the Philippines SEC, as well as the Certificate of Registration of Sony Ericsson Mobile Communications AB.28 Likewise, the second requisite was met. For services rendered for the second to fourth quarters of 2010, petitioner received foreign currency payments which were accounted for in accordance with the BSP rules and regulations as evidenced by official receipts 29 issued by petitioner, Bank Statements30 and Bank Certification.31 cj\ 25 Paragraph Nos. 6 and 7, Summary of Admitted Facts, JSFI, CTA Docket, pp. 326-327; Sales Promotions and Marketing Services Agreement, Exhibit "MM"; Judicial Affidavit ofPatrick Emmanuel S. Larraga, No. 13 , Exhibit "KK", CTA Docket, p. 196. 26 Paragraph No. 8, Summary of Admitted Facts, JSFI, CTA Docket, p. 327. 27 Exhibit "E", CTA Docket, p. 597. 28 Exhibit "F", CTA Docket, pp. 598-603 . 29 Exhibits "NN-5 " to "NN-23 ". 30 Exhibits " BBB" , "CCC", "DDD", "EEE", "FFF", " GGG" , " HHH" , " III" , "JJJ" and "KKK", CTA Docket, pp. 788-797.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 A scrutiny of Summary of Sales 32 and supporting VAT official receipts33 shows that petitioner's sales of services in the aggregate amount of P58,434,716.32 to Sony Ericsson Mobile Communications AB, its sole non- resident foreign client/affiliate, which are properly supported by valid VAT zero-rated official receipts, 34 qualify for VAT zero-rating under Section 108(B)(2) of the NIRC of 1997, as amended. Input VAT paid or incurred which are attributable to zero-rated sales Anent the second requisite for the entitlement to a refund of input taxes, petitioner reported input VAT for the second to fourth quarters of 2010 in the aggregate amount of P3 ,911,144.55, details of which are as follows: Exhibit Year 2010 Purchases Importation Purchase Input L 2nd Quarter of Goods of Goods of VAT N 3rd Quarter Other than Other than p 1,863 ,122.44 0 4th Quarter Capital Goods Services 1,508,557.3 5 p 62,391.93 Capital Goods p 1,735 ,727.51 539,464.76 p 65,003 .00 p 3,911,144.55 3,582.52 1,372,152.83 132 ,822 .00 518 ,450.94 952 .82 20 ,061.00 Total The Court-commissioned ICPA, Mr. Clifford E. Chua, summarized the results of his verification on petitioner's claimed input VAT in the amount ofP3,911 ,144.55, as follows: 35 2nd Quarter Exhibit Total amount of input VAT p 1,805 ,385.41 Purchases and importation with appropriate supporting A documents p 1,197,642.09 VV to VV-75 (No exceptions noted) B Exceptions Noted Summary of input VAT . .. 1 from local purchases and importation p 345 ,050.62 VV-76 to without proper supporting documents VV-98 31 Exhibit "LLL", CTA Docket, p. 798 . 32 Annex A, Exhibit "MMM", CTA Docket, p.431. 33 Exhibits "NN-5 " to "NN-23". 34 Exhibits "NN-5" to "NN-23 ". 35 Exhibit "MMM", CTA Docket, pp. 426-428.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 2 from local purchases where Input VAT Ill the 7,373 .65 VV-99 to supporting documents are not separately shown. 3,298.18 VV-100 51,847.29 from local purchases where the TIN of the customer 111 ,592.83 VV-101 to 3 lS not indicated Ill the supporting documents 87 ,767.24 VV-102 or the TIN indicated is incorrect. 813 .50 VV-103 to VV-106 4 where there are noted alterations VV-107 to in the supporting documents. VV-110 where the amount indicated Ill the schedule of VV-111 to 5 purchases lS different from the amount VV-1 26 in the supporting documents. VV-1 27 to VV-1 30 6 outside the period of claim 7 where the amount in words is not indicated. 3rd Quarter p 1,259,062.70 Total amount of input VAT WWtoWW- Purchases and importation with proper supporting A documents p 1,078,810.06 66 and YY to (No exceptions noted) YY-10 B Exceptions Noted Summary of input VAT ... WW-67 to 1 from local purchases and importation p 20,653 .28 WW-89 without proper supporting documents and YY-1 6 to YY-17 2 from local purchases where Input VAT Ill the 20 , 132.55 WW-90 to supporting documents are not separately shown. WW-92 from local purchases where the TIN of the customer 6,171.47 WW-93 to 3 lS not indicated Ill the supporting documents WW-10 5 or the TIN indicated is incorrect. 4 outside the period of claim 5,589.07 WW- 106 to 127,706.27 WW-107 5 where the amount in words is not indicated. WW-108 to WW-154 4th Quarter Total amount of input VAT p 587,598 .87 Purchases and importation with proper supporting XX to XX-32 and YY-11 36 A documents p 361 ,237.22 (No exceptions noted) B Exceptions Noted Summary of input VAT. .. I from local purchases without proper supporting p 19,61 2. 65 XX-3 3 to documents XX-64 36 No supporting documents submitted/offered.

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 2 from local purchases where Input VAT In the 2 ,786 .61 XX-65 to supporting documents are not separately shown. 69,707.61 XX-67 from local purchases where the TIN of the customer XX-68 to 3 IS not indicated In the supporting documents XX-96 or the TIN indicated is incorrect. where the amount indicated in the schedule of 2,970.44 XX-97 4 purchases IS different from the amount in the supporting documents. 5 outside the period of claim 131 ,284.35 XX-98 to XX-125 It should be noted that the ICPA findings under "Exceptions Noted37" are disallowed for failure to meet the substantiation requirements under Sections llO(A) and 113(A) and (B) of the NIRC of 1997, as amended, and as implemented by Sections 4.110-1, 4.110-8 and 4.113-1 of Revenue Regulations No. 16-2005. Hence, the amount of input VAT without exceptions 38 per ICPA's findings amounted to P2,637,689.37, detailed as follows: Year 2010 Amount 2nd Quarter p 1,197,642.09 3rd Quarter 4th Quarter 1,078,810.06 361,237.22 p 2,637,689.37 The Court notes, however, that the amount of P361,237.22 for the fourth quarter of 2010 examined by the ICPA as without exceptions should be deducted as the supporting documents cannot be found in the records of this case. In addition, the ICPA noted that the amount of input VAT in the summary list of purchase of services is greater by P64,747.14 as compared to the input vat on services in the VAT return. Accordingly, the ICPA reduced the input vat that may be allowed by P64,747.14.39 Further evaluation of the official receipts, invoices and Import Entry & Internal Revenue Declaration (IEIRDs) 40 revealed that the following additional input taxes in the amount of P72,254.0 1 should be disallowed for the reasons stated hereunder:o'J 37 Letter B of second, third and fourth quarters. 38 Letter A of second, third and fourth quarters. 39 Exhibit "MMM", CTA Docket, p. 428 . 40 Exhibits "VV" to "VV-75", "WW" to " WW-66" and "YY" to "YY-10".

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 Invoice/ Exhibit OR No. Supplier Input Tax 1. Input VAT on purchase ofgoods dated outside the period ofclaim. VV-4 14990 Sommelier Selection, Inc. (02/26/20 10) p 3,267.86 2. Input VAT on purchase of services supported by non-vat official acknowledgement receipt. 7676 DHL Global Forwarding p 1,092.00 VV-30 3. Input VAT on purchase of services wherein the VAT amount was not separately shown in the official receipts. VV-34 151357 Good Deal Food Corporation p 180.54 4. Input VAT on purchase of services supported by document which pertains to other transaction. VV-56 1139 Barcino Retail Corporation (03/26/20 10) p 203 .04 5. Input VAT on purchase of services not payable to Sony Ericsson Mobile Communications, International AB(either payable to the name Sony Ericsson only or payable to an individual/others) VV-5 5217 Cable Access Technology, Inc. p 12 ,375.00 VV-42 116040 Medicard 13 ,570.18 VV-47 142 PM Productions, Inc. 21 ,528.00 WW-56 28845 Pier One Entertainment & Restaurant Corp. 18 ,032 .00 WW-59 240067854 Philippine Airlines 2,005. 39 Total p 72,254.01 In sum, petitioner's substantiated input taxes for the second, third and fourth quarters of year 2010 amounted to P2,139,451.00, 41 computed as follows: Amount of Input VAT without Exceptions P2 ,637 ,689 .37 per !CPA's findings 498,238.3742 Less: Disallowed Input VAT p 2,139,451.00 Substantiated Input VAT for the second, third and fourth quarters of year 20 10 41 P2,637,689.37 less P361 ,237.22 less P64,747.14 less P72,254.01. 42 P361 ,237.22 + P64,747.14 + P72,254.01 = P498 ,238.37

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 Input VAT was not applied against any output VAT liability in the succeeding quarters Although the claimed input VAT was carried-over by petitioner in its succeeding Quarterly VAT Retums43, the same remained unutilized until it was deducted as "Any VAT Refund/TCC Claimed"44 in its Quarterly VAT Return for the fourth quarter of 2011. Thus, the excess input VAT of P8,524,640.8845 as of the end of the fourth quarter of 2011 which was to be carried-over to the succeeding first quarter of 201246 no longer included the subject claim. In fine, petitioner has sufficiently proven its entitlement to a refund or issuance of a TCC in the amount of P2,139,451.00, representing its unutilized input VAT incurred for the second, third and fourth quarters of 2010 attributable to its zero-rated receipts for the same period. WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent COMMISSIONER OF INTERNAL REVENUE is ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner SONY ERICSSON MOBILE COMMUNICATIONS, INTERNATIONAL AB in the reduced amount of TWO MILLION ONE HUNDRED THIRTY NINE THOUSAND FOUR HUNDRED FIFTY ONE PESOS (P2,139,451.00), representing petitioner's unutilized input VAT attributable to its zero-rated sales of marketing services to its affiliate company, Sony Ericsson Mobile Communications AB , for the second, third and fourth quarters of2010. SO ORDERED. Presiding Justice 43 Exhibits "P" to " Y", CTA Docket, pp. 680-689. 44 Exhibit "Y", line 23D, CTA Docket, p. 689. 45 Exhibit "Y", line 29, CTA Docket, p. 689. 46 Exhibit "CC", line 20A, CTA Docket, p. 703 .

DECISION Sony Ericsson Mobile Communications, International AB vs. Commissioner ofInternal Revenue CTA Case No. 8579 Page16of16 WE CONCUR: ~ N .M~-6~ E~P.UY CIELITO N. MINDARO-GRULLA Associate Justice Associate Justice CERTIFICATION Pursuant to Section 13 of Article VIII of the Constitution, 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. ROMAN G. DEL ROSARIO Presiding Justice