SIEMENS AKTIENGESELLSCHAFT v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SPECIAL SECOND DIVISION SIEMENS CTA CASE NO. 10797 AKTIENG ESELLSCHAFT, Members: Petitioner, BACORRO-VILLENA, Acting Chairperson, and -versus- CUI-DAVID,JJ COMMISSIONER OF INTERNAL REVENUE Promulgated: Respond' ent. APR Z4 2024 / \ - ! ~ ~~ J X - - - - - - - - ________________________ _f - -�-4 ------X DECISION BACORRO-VILLENA, L: Before the Court is a Petition for Review1 filed by petitioner Siemens Aktiengesellschaft (petitioner/Siemens AG) pursuant to t Section 3(a)(2)\ Rule 4 of the Revised Rules of the Court of Tax App~als ;v;s;on Docket, Volume I, pp. 7-735, w;th exh;b;ts. SEC. 3 . Cases within the jurisdiction of the Court in Division. - The Court in Division shall exercise: (a) Exclusive original over or appellate jurisdiction to review by appeal the following: (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes , fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code or other applicable law provides a specific period for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue Code shall be deemed a denial for purposes of allowing the taxpayer

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X----------------------------------- - ---------X (RRCTA) . It seeks the refund or tax credit in the total amount of P41,456,894�68, allegedly representing the amount which petitioner erroneously paid to the Bureau oflnternal Revenue (BIR) on the ground that its sale of shares in Siemens Power Operations, Inc. (SPO) is exempt from capital gains tax (CGT) under the Agreement between the Republic of the Philippines and the Federal Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital (RP-Germany Tax Treaty). PARTIES TO THE CASE Petitioner is a corporation organized and existing under the laws of Germany with its registered seat in Berlin and Munich, Germany. It may be served with notices and other court processes through its counsel, Platon Martinez Flores San Pedro and Leafio Law Offices with address at 6/F Tuscan Building, 114 V.A. Rufino Street, Legaspi Village, Makati City, Metro Manila.3 Respondent, on the other hand, is the duly appointed Commissioner oflnternal Revenue (respondent/CIR), who is tasked to assess and collect all national internal revenue taxes, fees and charges, and enforce all forfeitures, penalties, and fines connected therewith, with authority, among others, to decide, approve and grant tax credits and/or refunds of erroneously paid CGT. He or she may be served with summonses, legal processes, orders and resolutions at Room 703 City.4t Litigation Division, BIR National Office Building, BIR Road, Diliman, Quezon to appeal his case to the Court and does not necessari ly consti tute a form al dec ision of the Commissioner of Inte rnal Revenue on the tax case; Provided, jitrther, that should the taxpayer opt to await the fina l decis ion of the Commi ssioner of Internal Revenue on the di sputed assessments beyond th e one hundred eighty day-period abovementioned, the taxpaye r may appeal such fi nal decision to the Court under Section 3 (a), Rule 8 ofthe se Rules; and Provided, still fu rther, that in the case of claims for refund of taxes erroneously or illegally collected, the ta xpayer must file a petition for review with the Court prior to the expiration of the two-year period under Section 229 of the National Internal Revenue Code. (Emph as is supplied) Paragraph I , I. Admitted Facts, Jo int Stipu lation of Facts and Issues (JS FI), id ., Vo lum e II, p. 789. Par. 2, id.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION x---------------------------------------------x FACTS OF THE CASE SPO is a corporation organized and existing under Philippine laws, with a principal office address at Sta. Rita and San Lorenzo Power Station, Sta. Rita, Batangas City. s Petitioner was the legal and beneficial owner of 1oo% of the total shareholdings of SPO, equivalent to 5,254 common shares (5,249 of which are registered under petitioner's name, and five [5] were held in trust by the nominal shareholders) out ofSPO's authorized capital stock of 2o,ooo common shares.6 By virtue of the notarized Share Transfer Agreement dated 03 February 20207, petitioner transferred its 5,254 common shares in SPO to Siemens Gas and Power GmbH & Co. KG (Siemens GmbH), for a fair market value (FMV) consideration of P419,872,946.83, in exchange for the latter's original issuance of its shares of stock ("transaction"). Thereafter, on 02 March 2020, petitioner filed its CGT Return (BIR Form No. 1707) and paid the CGT in the amount of f->41,456,894�68 on the subject transaction.8 On even date, petitioner also filed its Documentary Stamp Tax (DST) Return (BIR Form No. 2ooo-OT) and paid the DST amounting to P39t405.oo.9 The BIR then issued to petitioner a Certificate Authorizing Registration (CAR) No. eCP2m3oo185079 (eCAR No: C-2o2o-o39- 059717-M) dated 17 June 2o2o10, thereby validating the payment of CGT and DST on the subject transaction and legalizing the transfer of SPO shares from petitioner to Siemens GmbH, ensuring compliance with tax laws and facilitating the proper documentation and registration of such transfer. On 29 December 2021, petitioner filed a Tax Treaty Relief t Application (TTRA) for exemption from CGT11, along with supporting Exhibits "P-3" and " P-5", id., pp. 956-966 and 967-978, respectively. 6 Exhibits " P-4" and "P-24", id ., pp. 95 3 and 1533, respective ly. Exhibit "P-6", id., pp. 991-998. Exhibits " P-9" and "P-10", id., pp. 1010-1011 and 1012, respectively. Exhibits " P-7" and " P-8", id., pp. 1007-1008 and 1009, respectively. 10 Exhibit "P-11 ", id., p. 955. II Exhibit "P-1 2", id., pp. 1013-101 8.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION Page 4 of23 x-- - ------------- - -------- - -------------------x documents, including BIR Form No. 0901-(12 , with the BIR's Litigation Division (albeit addressed to the Chief of the International Tax Affairs Division [ITAD]), requesting official confirmation that the sale or transfer of its shares in SPO to Siemens GmbH is exempt from CGT, pursuant to the RP-Germany Tax Treaty. On 27 January 2022, petitioner filed with the BIR an Application for Tax Credits/Refund (BIR Form No. 1914)13 to recover the alleged erroneously paid CGT amounting to P41,456,894.68 on the subject transaction. 14 Subsequently, on n February 2022, petitioner filed with the BIR1s a Supplemental TTRA16 of even date, including a copy of SPO's Interim Financial Statements (FS) as of 31 January 2020. On the same day, petitioner also filed a Supplemental Application17 (related to its administrative claim for refund) with the BIR's Revenue District Office (RDO) No. 39-South Quezon City. Petitioner therein requested the said RDO's confirmation that the sale or transfer of petitioner's shares in SPOto Siemens GmbH is exempt from CGT under the RP-Germany Tax Treaty, and that it is entitled to a refund of the CGT paid therefor. PROCEEDINGS BEFORE THE COURT With respondent's inaction on its administrative claim for refund18 and to toll the two (2) -year prescriptive period under Section 22919 of the National Internal Revenue Code (NIRC) of 1997, as amended, petitioner elevated the matter to this Court by filing the instant Petition for Review20 on 02 March 2022. The same was raffled to the Second Division and docketed as CTA Case No. ID797�"t 12 Id ., pp. 1025- 1026. 13 Exhibit "P-1 3", id., p. 1137. 14 BIR Form No . 1914 was attached to petitioner' s Letter-Application for Admin istrative Refund filed with the BIR on 27 January 2022 , id. , pp. 113 1- 1136 . 15 The specific office of the B1R where th e said Letter dated II Febru ary 2022 was fi led is not identifi able. 16 Exhibit "P-14", Division Docket, Volum e II, pp . 13 16-1 356, w ith attac hed exhibit. 17 Letter to RDO No . 39-South Quezon City (Supp lemental Application for Refund) dated I I February 2022 , Exhib it " P-1 5", id ., pp. 1357-1 399 . 18 Supra at note 14. 19 SEC. 229. Recovery of Tax Erroneously or Illegally Collected. 20 Supra at note I. 21 The Second Division is composed of Associate Justice Juanita C. Castaneda, Jr. (Ret.), as Chairperson , Assoc iate Justice Jean Marie A. Bacorro-Vi llena and Associate Ju stice Lanee S. cu�i- Dav id , as Members .

CTA Case No. 10797 Siemens Aktiengesellschaft v. Comm issioner of Internal Revenue DECISION x-- - - ------- -- --------------- - ----------------x On 07 March 2022, the Court issued Summons22 ordering respondent to file an Answer within thirty (3o) days from service. Respondent received the said Summons on 10 March 2o22.23 After the Second Division granted an extension of time to r e s p o n d e n t 24 the Answer2 s was filed on 10 May 2022. There, respondent , cited the following special and affirmative defenses: (1) taxes collected are presumed to be in accordance with laws and regulations; (2) petitioner's alleged refund claim is subject to the BIR's routine administrative investigation and is not ipso facto granted, as respondent must still investigate and ascertain the claim's validity; (3) before a taxpayer can credit excess payment to the succeeding taxable year and/or be granted a tax refund/credit, as the case may be, there is a need of investigation as a matter of procedure to enable the CIR to determine and/or ascertain the correctness of the corporate returns and the amount to be credited, if any; (4) since the administrative refund claim (for the alleged CGT erroneously paid on 02 March 2020) was filed only on n February 2022, petitioner's claim is still subject to administrative investigation by the BIR to determine the propriety of issuing a tax credit certificate (TCC); (s) taxation cannot easily be surrendered, and since statutes granting tax exemptions are considered a derogation of sovereign authority and refunds are in the nature of such exemptions leading to government revenue loss, there must be a categorical and express legal provision allowing tax refunds, or else they should not be permitted; (6) since tax refunds are regarded as tax exemptions, therefore, these are to be construed strictissimi juris against the person or entity claiming the exemption; and, (7) petitioner bears the burden of proving that the right to such a tax refund indubitably exists, and any well-founded doubt is fatal to the claim. On 18 May 2022, respondent forwarded to the Second Division the t entire BIR Records of the present case consisting of 129 pages in one (1) folder. 26 The Second Division noted the same in the Minute Resolution dated 24 May 2022.'' 22 Di vision Docket, Vo lum e II, p. 736 . 23 !d . 24 See Order dated 30 March 2022 , id., p. 742 . 25 Id. , pp. 743-746. 26 See Compl iance dated 17 March 2022, id., pp. 748 -75 0. 27 Id., p. 753.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION x---- - - - ----- - - ----- -------- - - -- --------------x On 19 May 2022, the Second Division issued a Notice of Pre-Trial Conference8 and set the case for pre-trial on o8 August 2022. In compliance with the Court's order, respondent filed his or her Pre-Trial Brief9 on 02 August 2022, while petitioner filed its Pre-Trial BrieP0 on 04 August 2022. During the o8 August 2022 Pre-Trial Conference, the Second Division granted both parties 30 days, or until 07 September 2022, within which to file their Joint Stipulation of Facts and Issues (JSFI).31 On 07 September 2022, the parties submitted their JSFIY In the Resolution dated 21 September 202233, the Second Division admitted and approved the parties' JSFI, deemed terminated the pre-trial and set the initial presentation of petitioner's evidence on 17 November 2022. On 17 October 2022, the Second Division issued a Pre-Trial Order34 approving the parties' JSFI and terminating the pre-trial. In the trial that ensued, petitioner presented its testimonial and documentary evidence. It offered the testimonies of the following witnesses: (1) Alicia C. Argente (Argente) , SPO's Finance & Accounting Manager; and, (2) Atty. Francis H. Tuliao (Atty. Tuliao), legal counsel of Siemens, Inc. During the 17 November 2022 hearing, Argente identified her Judicial Affidavit dated 01 March 202235 where she declared essentially that: (1) she is SPO's Finance & Accounting Manager and has been employed with SPO since 24 February 1999; (2) as the Finance & Accounting Manager, her responsibilities include overseeing the preparation of SPO's financial statements to ensure their accuracy and timely presentation, certifying financial information and data relatet IU ,, J-'J-' � /JJ- /J�, 29 !d., pp. 757-759. 30 !d., pp. 760-779. 31 See Minutes of the Hearing and Order, both dated 08 August 2022, id., pp. 785 and 786-788, respectively. 32 !d., pp. 789-792 . 33 !d., p. 796 . 34 !d., pp. 803-807. 35 Exhibit "P-20", id., pp. 1519-1525.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X------------- - -------------------------------X SPO's assets and liabilities, and maintaining custody of SPO's financial records; (3) SPO is a corporation organized and existing under Philippine laws; (4) SPO's Audited Financial Statements (AFS) as of 30 September 2019 shows that its Property and Equipment amount to 1,o32,)50 while its total assets amount to 360,634,626; (5) SPO's Interim FS as of 30 January 2020 shows that its Property and Equipment amount to 904,070 while its total assets amount to 374,648,)71; and, (6) SPO's real property interest in the Philippines does not comprise more than so% of its total assets. Respondent did not conduct any cross-examination.36 Next to testify during the 17 November 2022 hearing was Atty. Tuliao, who identified his Judicial Affidavit dated 01 March 202237 where he declared that: (1) he is the legal counsel of Siemens, Inc. since 10 August 2015; (2) as legal counsel, his functions include the management of potential legal risk across the business, ensuring compliance with legal requirements of company transactions, supervision over corporate filings with government agencies, and coordination with external legal counsel; (3) he is testifying as petitioner's attorney-in-fact tasked to, among others, file and process its application for administrative and judicial claims for refund and for tax treaty relief under the RP-Germany Tax Treaty; (4) petitioner is an entity incorporated and residing in Germany, it is not registered either as a corporation or a partnership nor has it been issued a license to do business in the Philippines; (5) petitioner previously held 1oo% ofSPO's total outstanding capital stock, equivalent to 5,254 common shares; (6) SPO is a corporation organized and existing under Philippine laws, with principal office address at Sta. Rita and San Lorenzo Power Station, Sta. Rita, Batangas City, Philippines; (7) SPO is principally engaged in the business of operating, maintaining, testing, commissioning, servicing (including user-training) and repairing power plants and all other infrastructures for or related to the generation of electric power; (8) as evidenced by the Share Transfer Agreement dated 03 February 2o2o38, petitioner sold and transferred to Siemens GmbH all its right, title, and interests in and to the 5,254 common shares in SPO, for a purchase price of P419,872,946.83; (g) petitioner is a corporat 36 TSN dated 17 November 2022, p. 7. 37 Exhibit " P-16", Division Docket, Volum e II , pp . 820-864, with attached copies of the exhibits witness Atty . Francis H. Tuliao identified . 38 Exhibit " P-6" , supra at note 7.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION x--------- ------------------------------------x organized and existing under the laws of Germany with its registered seat in Berlin and Munich, Germany and principal place of business in Witte[l]sbacherplatz 2 803125 Munich, Germany; (10) on 02 March 2020, petitioner filed its DST return and paid DST in the amount of P39,405.oo; (n) on 02 March 2020, petitioner timely filed its CGT and paid CGT amounting to P41A56,894.68; (12) on 17 June 2020, petitioner secured the CAR39 and tax clearance on the subject transaction; (13) on 29 December 2021, petitioner filed a TTRA40 with the BIR's ITAD to request confirmation that the subject transaction is exempt from CGT under the RP-Germany Tax Treaty, and on 11 February 2022, a Supplemental TTRA41; (14) on 27 January 2022, petitioner filed with the BIR an Application for Tax Credits/Refund (BIR Form No. 1914)42 to recover the erroneously paid CGT amounting to P41,456,894�68, and on 11 February 2022, a Supplemental Application43; and, (15) since respondent failed to act on petitioner's administrative claim, petitioner was constrained to file the present Petition for Review44 to toll the two (2)-year prescriptive period under Section 22945 of the NIRC of 1997, as amended. During cross-examination, Atty. Tuliao confirmed that the CGT Return, filed on 02 March 2020, and the Security Bank BTR-BIR Deposit Slip of even date are the proofs of payment46 of the CGT on the subject transaction. He also answered affirmatively when asked whether petitioner filed the TTRA only on n February 2022 (as mentioned in Question No. 33 of his Judicial Affidavit), and whether petitioner filed the Application for Tax Credits/Refund (BIR Form No. 1914) earlier on 27 January 2022 (as mentioned in Question No. 28 of his Judicial Affidavit).47 Petitioner did not conduct any redirect examination.48 On 19 December 2022, after completing the presentation of its testimonial evidence, petitioner filed its "Formal Offer of Evidence ~ith te 10. ~u 40 Exhibit " P-12", supra at note II . 41 Exhibit "P-14", supra at note 16. 42 Exhibit " P-13", supra at note 13 . 43 Exhibit "P-15", supra at note 17. 44 Supra at note I. 45 Supra at note 19. 46 Exhibits "P-9" and "P-10", supra at note 8. 47 TSN dated 17 November 2022, pp. 9-11 . 48 Id., p. II.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION x------------------------------------------- -- x Urgent Motion to Set Case for a Commissioner's Hearing"49 (FOE with Urgent Motion) consisting of Exhibits "P-1" to "P-25", inclusive of sub-markings. Petitioner requested a Commissioner's Hearing to compare the originals of Exhibits "P-4", "P-n", "P-18" and "P-21" and to transfer the marking of Exhibit "P-13" from BIR Form No. 19145o to the Cover Letter dated 27 January 2022, which was addressed to and stamped as received by RDO No. 39-South Quezon City. Respondent filed his or her Comment/Opposition51 thereto on 03 January 2023. In the Resolution dated n January 2023s2, the Second Division cancelled the hearing on the Motion to Commission an ICPA previously set on 25 January 2023, as well as the presentation of the ICPA and the ICPA Report previously set on 13 April2023, and submitted petitioner's FOE with Urgent Motion for resolution. On 23 January 2023, petitioner filed its "Manifestation (Re: Comparison of Pre-Marked Evidence with the Originals)"53 (Manifestation), asking the Second Division to hold in abeyance the resolution of its FOE with Urgent Motion until the completion of the additional Commissioner's Hearing for the comparison of Exhibits "P-4", "P-n", "P-18" and "P-21". In the Resolution dated 31 January 202354, the Second Division granted petitioner's Manifestation. It also considered moot petitioner's Urgent Motion to Set Case for a Commissioner's Hearing, as the same had already been granted in the Resolution dated 15 December 2022. However, the Second Division granted petitioner's prayer for the setting of a Commissioner's Hearing to transfer the marking of Exhibit "P-13". Accordingly, the Second Division gave petitioner a period of five (5) days to submit the original hard copies of the duly marked exhibits. As such, the resolution of petitioner's FOE was held in abeyance pending the submission of the duly marked exhibits or the expiration of the given period.t' 49 Division Docket, Volume II , pp . 879-893 . 50 Exhibit " P-13", supra at note 13. 51 Id., pp. 895-897 . 52 Id ., p. 899 . 53 Id ., pp . 900-903 . 54 Id ., pp . 906-909 .

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X------------- ----------- ---------------------X On 20 February 2023, petitioner filed its Manifestation and Compliance55, submitting the original hard copies of the exhibits as offered and the alleged original copy of the Cover Letter dated 27 January 2022, for the purpose of transferring the marking of Exhibit "P-13" from BIR Form No. 191456 to the original Cover Letter dated 27 January 2022. In the Resolution dated 07 March 202357, the Second Division admitted all the exhibits in petitioner's FOE, and noted its Manifestation and Compliance. However, the Second Division denied petitioner's prayer to transfer the marking of Exhibit "P-13" from BIR Form No. 1914 to the original Cover Letter dated 27 January 2022 addressed to and stamped as received by RDO No. 39-South Quezon City, for its failure to transfer the said marking during the scheduled Commissioner's Hearing, and to submit the original copy of the Cover Letter dated 27 January 2022 in its Manifestation and Compliance. Accordingly, the document described as Application for Tax Credits/Refund (BIR Form No. 1914) remained marked as Exhibit "P-13", in accordance with the document offered in the FOE and identified in the Judicial Affidavit of Atty. Tuliao.58 In the same Resolution, the Second Division gave the parties a period of 30 days within which to submit their respective memoranda. On n April2023, petitioner filed its Memorandum59. Respondent, on the other hand, filed his or her Memorandum60 on 12 April 2023. Accordingly, on 25 April 2023, the Second Division considered the case submitted for decision. 61 ISSUE t As the parties so stipulated6\ the sole issue for this Court's determination is - 55 Id ., pp. 913-917 . 56 Exhibit " P-13 ", supra at note 13 . 57 Division Docket, Volume II, pp. 1536-1539. 58 Exhibit "P-16", supra at note 37, p. 827 (Q/A No. 28). 59 Division Docket, Volume II, pp. 1546-1571. 60 Id. , pp. 1540-1545. 61 See Resolution dated 25 April 2023 , id. , p. 1575. 62 II. Issue, JSFI, supra at note 32, p. 791.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X---------------------------------------------X WHETHER PETITIONER SIEMENS AKTIENGESELLSCHAFT IS ENTITLED TO THE REFUND OF ITS ALLEGED ERRONEOUSLY PAID CAPITAL GAINS TAX (CGT) AMOUNTING TO P41,456,894�68. ARGUMENTS Petitioner contends that the gains it realized from the sale or transfer of its shares in SPO are exempt from CGT in the Philippines under the RP-Germany Tax Treaty. This claim is anchored on the fact that petitioner is a nonresident foreign corporation (NRFC), established under German laws, without a permanent establishment or fixed base in the Philippines. Additionally, petitioner argues that SPO's shares of stock subject of the Share Transfer Agreement63 between itself and Siemens GmbH are intangible personal properties. Pursuant to the RP-Germany Tax Treaty, these should only be taxable in the Contracting State where the alienator (which, in this case, is petitioner) is a resident. Furthermore, petitioner claims that SPO's assets are not primarily composed of real property interests located in the Philippines. This fact allegedly supports petitioner's claim for CGT exemption on the gains from the sale or transfer of its shares in SPOto Siemens GmbH. Petitioner also maintains that it has filed a written claim with respondent, therein stating a categorical demand for a refund, and that it timely filed its administrative and judicial claims for the refund of alleged erroneously paid and collected CGT. Essentially, petitioner argues that the CGT it paid for the subject transaction was not due under the provisions of the RP-Germany Tax Treaty, and therefore, a refund is warranted. Respondent, on the other hand, counter-argues that petitioner's refund claim is still undergoing an administrative investigation or examination. Consequently, until this investigation is concluded, a refund cannot be granted based solely on the filed claim. Furthermore, ~ e7.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X----------------------------- - ------ -- -------X respondent argues that before petitioner can seek recourse through the courts, all available administrative remedies must first be exhausted. Moreover, respondent emphasizes that claims for refunds are construed strictly against the taxpayer and liberally in favor of the taxing authority. The general rule is that the taxpayer-claimant bears the burden of proving the factual basis of its claim. Since taxes are considered the lifeblood of the nation, statutes that allow exemptions are interpreted strictly against the grantee and liberally in favor of the government. Lastly, respondent points out that BIR Ruling [DA-(C-196) 504-09]64 and BIR Ruling No. 621-201965 cited by petitioner are peculiar to the requesting party; thus, these are binding and applicable only between the BIR and the requesting party. On this note, respondent asserts that a BIR ruling is not equivalent to a law. Instead, it is an opinion issued at the taxpayer's request and can be revoked if the facts presented at the time of application later prove to be inaccurate or misleading. This underscores the provisional nature of BIR rulings and their dependence on the veracity and consistency of the facts provided by the taxpayer. RULING OF THE COURT Before the Court proceeds to resolve the merits of the case, the Court finds it propitious to first determine the timeliness of petitioner's administrative and judicial appeals as this is determinative of the Court's jurisdiction. PETITIONER'S ADMINISTRATIVE AND JUDICIAL CLAIMS FOR REFUND WERE TIMELY FILED; THUS THIS COURT HAS JURISDICTION OVER THE INSTANT PETITION. Sections 204 and 229 of the NIRC of1997, as amended, provide for the refund of erroneously or illegally collected taxes. Section 204 64 SyCip Salazar Hernandez & Gatmaitan, 08 September 2009. 1f 65 R.G. Manabat & Co., 16 October 2019.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X------------------------ -- --- -- --------------X applies to administrative claims for refund, while Section 229 to judicial claims for refund.66 Thus: SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. - The Commissioner may - (c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof ofdestruction. No credit or refund oftaxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, that a return filed showing an overpayment shall be considered as a written claim for credit or refund. 67 Relative thereto, Section 229 of the NIRC of 1997, as amended, provides: SEC. 229. Recovery ofTax Erroneously or Illegally Collected. - No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged tb have been erroneously or illegally assessed or collected, or ofany penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress . In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment ~.ppears clearly to have been erroneously paid''t 66 CBK Power Company Limited v. Commissioner of Internal Revenue, G.R. Nos . 193383-84, 14 January 2015 . 67 Italics in the original text, emphasis and underscoring supplied . 68 Emphasis supplied.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X---------------------------------------------X From the foregoing, it is clear that in cases of recovery of erroneously paid or illegally collected tax, both the claim for refund and the filing of the suit should be made before the expiration of two (2) years from the date ofpayment regardless of any supervening cause that may arise after payment. In this case, the CGT subject of petitioner's refund claim was paid on 02 March 2020, as shown in the machine validation portion of the Security Bank BTR-BIR Deposit Slip.69 Counting two (2) years therefrom, petitioner's last day to file its administrative and judicial claims was on 02 March 2022. Thus, petitioner seasonably filed its claims for refund when it filed the Application for Tax Credits/Refund (BIR Form No. 1914)70 on 27 January 2o2271 and the Supplemental TTRA dated n February 202272 and received by respondent on the same date. Likewise, petitioner timely filed its judicial claim on 02 March 2022J3 RESPONDENT'S DECISION ON THE ADMINISTRATIVE CLAIM IS NOT A CONDITION SINE QUA NON FOR FILING A JUDICIAL CLAIM FOR REFUND UNDER SECTION 229 OF THE NATIONAL INTERNAL REVENUE CODE (NIRC) OF 1997, AS AMENDED. Respondent contends that all administrative remedies must first be exhausted before a taxpayer can file a case before this Court. It further asserts that taxpayers often file their administrative and judicial claims toward the end of the two (2)-year prescriptive period. This timing effectively deprives respondent of the opportunity to act on the administrative claim. Respondent's argument has no legal leg to stand on. The issue ofexhaustion ofadministrative remedies under Sections 204 and 229 of the NIRC of1997, as amended, is not novel. The Supreme t Court En Bane has extensively passed upon the same in the cas~ of70 toS, p. 1012. Exhibit "P-13", supra at note 13, p. 1137. 71 BIR Records, p. 118. 72 Exhibit " P-14", supra at note 16. 73 Petition for Review, supra at note I .

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION x------------------------------------ - - - ------x Commissioner of Internal Revenue v. Carrier Air Conditioning Philippines, IncJ4, to wit: A closer reading of Sections 204 and 229 of the 1997 National Internal Revenue Code, in conjunction with Section 7 of Republic Act No. 9282, reveals a problem of what is considered a "reasonable period" for the Commissioner of Internal Revenue to act on a claim for refund of taxes. Section 229, which requires a prior administrative claim before a judicial claim is filed, recognizes the Commissioner of Internal Revenue's primary jurisdiction to decide refunds of internal revenue taxes. It gives the Commissioner "an opportunity to consider [their] mistake, if mistake has been committed," or to investigate and ascertain the veracity of the claim, before they are sued . This Court in CBK Power Company, citing P.]. Kiener, held that the primary purpose of filing an administrative claim is to serve as a notice or warning to the Commissioner that court action would follow unless the tax or penalty is refunded. This necessarily implies that the Commissioner has sufficient time to examine, evaluate, and act on the matter within their jurisdiction. On the other hand, Section 7 of Republic Act No. 9282 grants the Court of Tax Appeals exclusive appellate jurisdiction over a decision or "inaction deemed denial" of the Commissioner in a claim for refund. Under its clear wording, the Court of Tax Appeals can take cognizance of appeals in cases of the Commissioner's "inaction" only where the 1997 National Internal Revenue Code specifically provides a period for the Commissioner to act on a claim for refund. However, unlike in claims for refund of input value- added tax, the 1997 National Internal Revenue Code does not prescribe a specific period within which the Commissioner must resolve the claim for refund or credit of erroneously paid taxes. Sections 204 and 229 fixed the same period of two years for filing an administrative claim for refund before the Bureau of Internal Revenue and to sue before the Court of Tax Appeals. CBK Power Company explained that as long as these two acts fall within the two- year period, there is no legal impediment to the judicial claim for refund. Consequently, from the plain language of the law, it does not matter how far apart the administrative and judicial claims . were filed, or whether the Commissioner of Internal Revenuet 74 G.R. No . 226592, 27 July 2021 ; Citations omitted, italics in the original text and emphasis supplied .

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X--------- - -----------------------------------X was actually able to rule on the administrative claim, so long as both claims were filed within the two-year prescriptive period. Clearly, from the foregoing, the law only stipulates that both the administrative and judicial claims must be filed within the two (2)-year reglementary period, regardless of how far apart or close together these filings occur. The silence or insufficiency in the law on the reasonable period for the CIR's action is one that can be addressed not by judicial pronouncement, but by appropriate legislation.75 PETITIONER IS ENTITLED TO A TAX REFUND . The Court shall now determine whether petitioner is entitled to a tax refund in the amount of P41,456,894�68 arising from the sale of its shares in SPO to Siemens GmbH (that is allegedly exempt from CGT under the RP-Germany Tax Treaty). It is well-settled in our jurisprudence that the following requirements must be complied with in order to prove a claim for refund of taxes erroneously paid or illegally collected under Sections 204 and 229 of the NIRC of1997, as amended: (1) The taxpayer should file a written claim for refund or tax credit with the BIR Commissioner within two (2) years from the date of payment of the tax or penalty, non-compliance with which the latter is precluded from exercising his authority thereon;76 (2) If the administrative claim for refund is denied or not acted upon within said two (2)-year period, the judicial claim for refund must be filed with the CTA within 30 days from receipt of the denial AND within the said two (2)-year period from the date of payment . of the tax or penalty regardless of any superveningt 75 !d . 76 See Commissioner of In ternal Revenue v. Victorias Milling Co., Inc., et at. , G.R. No . L-24 108, 03 January 1968.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Comm issioner of Internal Revenue DECISION x- -- - - - - ------- - -- -- ---- -- - ------ - - --- - -- -----x cause, otherwise, the claim for refund shall have prescribed;77 and, (3) The claim for refund must be a categorical demand for reimbursement.78 As previously stated, petitioner has faithfully complied with the first and second requisites. Anent the third and last requisite, a claimant must first file a written claim for refund, categorically demanding recovery of erroneously or illegally paid taxes with the CIR. With the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government, and as tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision of law from which his or her right arises. It cannot be allowed to exist upon a mere vague implication or inference nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund.79 Here, petitioner asserts that the sale or transfer of its SPO shares to Siemens GmbH should have been exempted from CGT under Article 13(2) of the RP-Germany Tax Treaty. Respondent, on the other hand, invokes the well-settled rule that tax refunds are regarded as tax exemptions and, therefore, strictissimi juris against the person or entity claiming the exemption. The Court finds for petitioner. t Section 28(B)(s)(c) of the NIRC of 1997, as amended (prior to the effectivity of Republic Act [RAJ No. 11534, otherwise known as "Corporate Recovery and Tax Incentives for Enterprises 77 See Allison J Gibbs, et al. v. Collector ofInternal Revenue, et al. , G.R. No. L- 13453, 29 February 1960 . 78 Commissioner of Internal Revenue v. Rosemarie Acosta, as represented by Virgilio A. Abogado, G.R. No. 154068, 03 August 2007 . 79 !d .

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X----- -- --- - ----- - ----- -- ---- -- ---------------X [CREATE]), capital gains realized during the taxable year from the sale or other disposition of shares of stock in a domestic corporation made outside the stock exchange and any gain derived from such dealings in property derived by a foreign corporation are subject to income tax as follows: SEC. 28. Rates ofIncome Tax on Foreign Corporations. - (B) Tax on Nonresident Foreign Corporation. - (s) Tax on Certain Incomes Received by a Nonresident Foreign Corporation.- (c) Capital Gains from Sale ofShares ofStock not Traded in the Stock Exchange. -A final tax at the rates prescribed below is hereby imposed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange: Not over Pwo,ooo - s% On any amount in excess of Pwo ,ooo - w % However, under Section 32(B)(5) of the NIRC of1997, as amended, such gains are exempt or partially exempt to the extent required by any treaty obligation of the Philippines, to wit: SEC. 32. Gross Income. - (B) Exclusions from Gross Income . - The following items shall not be included in gross income and shall be exempt from taxation under this Title: t' Income Exempt under Treaty. - Income of any kind, to the extent required by any treaty obligation binding upon the ~overnment of the Philippines.80 80 Italics in the original text, emphasis and underscoring supplied.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION X------------------------------- - -------------X Clearly from the foregoing, an income may be exempted from taxation to the extent required by any treaty obligation binding upon the Government of the Philippines. A treaty obligation may be embodied in bilateral treaties for the avoidance of double taxation. The purpose of these international agreements is to reconcile the national fiscal legislations of the contracting parties in order to help the taxpayer avoid simultaneous taxation in two different jurisdictions. More precisely, the tax conventions are drafted with a view towards the elimination of international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical periods. 81 One such bilateral agreement is the RP-Germany Tax Treaty. Paragraph 2, Article 13 thereof provides that gains from the alienation of shares and similar rights in a company, the assets of which consist, directly, indirectly, or principally of immovable property situated in a Contracting State, may be taxed in that State, as follows: ARTICLE 13 Capital Gains (1) Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State. (2) Gains from the alienation of shares and similar rights in a company, the assets of which consist - directly or indirectly - principally of immovable property situated in a Contracting State, may be taxed in that State. (s) Gains from the alienation of any property other than that referred to in paragraphs 1 to 4, shall be taxable only in the ~ontracting State of which the alienator is a resident''t 81 Comm issioner ofInternal Revenue v. S.C. Johnson and Son, Inc., eta!., G.R. No. 127105, 25 June 1999 . 82 Italics in the original text, emphasis and underscoring supplied.

CTA Case No . 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION x--- - ---- -- ------------------------- ----------x As can be gleaned from the foregoing tax treaty provisions, capital gains earned by an alienator of shares in a company, whose assets principally consist of immovable property situated in the Philippines, are subject to Philippine tax, such as CGT. Conversely, the subject capital gains may be exempt from Philippine tax if the interest being disposed of is in a corporation whose assets do not principally consist of immovable property located in the Philippines. Corollarily, the term "resident", for purposes of the RP-Germany Tax Treaty, means "any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature, and also includes that State, a Land and any political subdivision or local authority thereof." Simply put, in order for petitioner to c1aim exemption from CGT under the RP-Germany Tax Treaty, petitioner has to establish the following: (1) It is a resident of Germany; (2) There is an alienation of shares of a domestic corporation; and, (3) The assets of the domestic corporation do not principally consist of immovable property in the Philippines. Petitioner presented in evidence a certified true copy of its Consularized Articles of Association (AOI)83 and the corresponding English version thereof to show that it is a stock corporation duly organized and existing under the laws of Germany and that its registered offices are located in Berlin and Munich. Petitioner also proffered a Certificate84 issued by the Tax Office of Munich, showing that it is a tax resident in Germany. In addition, petitioner submitted the Philippine Securities and Exchange Commission (SEC)-issued Certificate of 84t Non-Registration85 as of 25 June 2021 to prove that it is not registered okot, Vol,me II, pp . 919-949. Exhibit "P-22", id. , p. 1506. 85 Exhibit "P-17", id. , p. 1411.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Comm issioner of Internal Revenue DECISION X--------------- - ------------------ - ----------X either as a corporation or as a partnership in the Philippines. Thus, the first condition was satisfied. Likewise, the second condition was satisfied when petitioner presented in evidence the Share Transfer Agreement86 executed between petitioner and Siemens GmbH and the BIR-issued CAR87 to show that petitioner transferred its 5,254 common shares in SPO to Siemens GmbH on 03 February 2020. As to the third and last condition, the term "principally" as generally used in tax treaties means more than fifty (so%) percent of the entire assets in terms ofvalue.88 To prove the same, petitioner proffered SPO's Comparative AFS as of the fiscal years (FYs) ended 30 September 2018 and 30 September 201989 and Interim FS as of 31 January 2o2o.9� An evaluation ofSPO's Statement of Financial Position for the FYs ended 30 September 2018 and 30 September 2019, including the unaudited Interim FS as of 31 January 2020 would show the following real property interest: SPO's Assets As of3o As of3o As of 31 January September 20189' September 201992 Property and 202093 1,239>459 994,221 879 ,866 equipment, Net 292,913,367 360,634,626 374,648,371 Book Value94 0-42% 0.28% 0.23% Total Assets Percentage Exhibit " P-11 ", supra at note I0. 88 Section 4 of Revenue Regulations (RR) No . 4-86 provides : SEC. 4. Basis. - The va lue of a ll the assets of the subj ect corporation both real and personal as appearing in its fin ancial statement on the date of sale of the share or interest in such corporat ion, as verifi ed by the BIR, shall be used as th e basis for determini ng th e compos ition of its assets. In case the fin ancial statement as of the date of the sale is not avai labl e, the most recent fi nancia l statement may be used, after the necessary adj ustments are made to refl ect transactions made during th e period from the date of such fin ancial statement to the date of the sale. 89 Exhibit " P-18", Division Docket, Volume II, pp. 14 12-1466. 90 Exhibit " P-2 1", id ., pp . 1467-1 505 . 91 Divis ion Docket, Vo lum e II, p. 1444 . 92 Id. 93 Supra at note 90. 94 Exc luding Transportation Equ ipm ent, which is, by nature, a movable property.

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION x---------------------------------------------x As computed, SPO's real property interest (at the time of sale or transfer of shares) did not exceed so%; hence, it could not be deemed to have possessed assets consisting principally of immovable property in the Philippines. Resultantly, petitioner satisfied the third and last condition. As such, petitioner's capital gains derived from the sale of its shares of stock in SPO should be exempt from CGT in the Philippines pursuant to the RP-Germany Tax Treaty. Taking all the above circumstances together, petitioner proved sufficiently that there was indeed an erroneous payment of CGT on the sale of its shares of stock in SPO to Siemens GmbH, by virtue of its exemption pursuant to the RP-Germany Tax Treaty. WHEREFORE, premises considered, the instant Petition for Review filed by petitioner Siemens Aktiengesellschaft on 02 March 2022, is hereby GRANTED. Accordingly, respondent Commissioner of Internal Revenue is ORDERED to refund or issue a tax credit certificate in favor of petitioner Siemens Aktiengesellschaft in the total amount of P41,456,894�68, representing the erroneously paid CGT. SO ORDERED. ._ I CONCUR: Joun~t0 LANEE S. CUI-DAVID Associate Justice

CTA Case No. 10797 Siemens Aktiengesellschaft v. Commissioner of Internal Revenue DECISION x---------------------------------------------x 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. .._ JEANMA ociate Justice Special 2 nd Division Acting Chairperson CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Special 2nd Division Acting 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