AVALOQ PHILIPPINES OPERATING HEADQUARTERS v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY SECOND DIVISION AVALOQ PHILIPPINES CTA CASE N0.10491 Members: OPERATING HEADQUARTERS, Petitioner, -versus- RINGPIS-LIBAN, Chairperson, MODESTO-SAN PEDRO, and FERRER-FLORES,]]. COMMISSIONER OF zoy Promulgated: INTERNAL REVENUE, JAN Z 0 Respondent. I . x-----------------------------------------------------------------~--~-------------------x r-~,_,... DECISION RINGPIS-LIBAN, ].: THE CASE The Petition for Review prays that judgment be rendered ordering respondent to refund in favor of petitioner the amount of P4,351,724.28, representing petitioner's unutilized and/or excess input value-added tax 01A1) attributable to its zero-rated sales for the Yd and 4rh quarters of calendar year (CY) 2018 or the period from July 1, 2018 to December 31,2018.1 THE PARTIES Petitioner is a regional operating headquarter (ROHQ) of Avaloq Group AG (Head Office), a company organized and existing under the laws of ,IV' 1 Statement of the Case, Pre-Trial Order dated April19, 2022, Docket- Vol. II, p. 543.

DECISION CTA Case No. 10491 Page 2 of28 Switzerland 2 and licensed to transact business in the Philippines by the Securities and Exchange Commission (SE C).3 It is primarily engaged in general administration and planning, business planning and coordination, sourcing/procurement of raw materials and components, corporate finance advisory services, marketing control and sales promotion, training and personnel management, logistics services, research and development, technical support and maintenance, data processing and communication, and business development.4 Petitioner is also registered with Bureau of Internal Revenue (BIR), Revenue District Office No. 050, under Taxpayer's Identification Number (TIN) 008-637-771-000.5 On the other hand, respondent is the Commissioner of the BIR vested by law to enforce and implement the provisions of the National Internal Revenue Code (NIRC) of 1997, as amended, as well as related statutes and their implementing rules and regulations. Respondent holds office at BIR National Office Building, BIR Road, Dillman, Quezon City.6 ANTECEDENTS (ADMINISTRATIVE LEVEL) For the Yd and 4rh quarters of CY 2018, petitioner flied its amended Quarter!J V A T Returns (BIR Form No. 2550Q) on September 28, 2020.7 On September 30, 2020, petitioner's letter request for the refund and / or issuance of tax credit certificate was received by the BIR.8 On the same date, the BIR received petitioner's Application for Tax Credits/ Refunds (BIR Form No. 1914), applying for the refund or tax credit of input tax for the period from July 1, 2018 to December 31, 2018, amounting to P4,351,724.28.9 On March 18, 2021, petitioner received the letter dated December 14, 2020 from the BIR's Assessment Service, denying its application for the refund /V" 2 Par. 1.a, Stipulation of Facts, Joint Stipulation of Facts and Issues QSFI), D ocket - Vol. I, p. 513; Exhibit "P-1", Docket- Vol. II, pp. 659 to 669; and Exhibit "P-2", BIR Records (Exhibit "R-4"), p. 255. 3 Par. 1.b, Stipulation of Facts, JSFI, D ocket- Vol. I, p. 513. 4 Par. 1.c, Stipulation of Facts, JSFI, Docket- Vol. I, p. 514. 5 Par. 1.d, Stipulation of Facts, JSFI, Docket - Vol. I, p. 514; Exhibit "P-3", D ocket - Vol. II, p. 671. 6 Par. 1.f, Stipulation of Facts, JSFI, D ocket- Vol. I, p. 514. 7 E xhibits "P-4" and "P-5", D ocket - Vol. II, pp . 672 to 675. 8 Refer to par. 1.e.1 , Stipulation of Facts, JSFI, D ocket- Vol. I, p. 514. 9 E xhibit "P-27", Docket- Vol. II, p. 997. Refer also to par. 1.e.2, Stipulation of Facts, JSFI, Docket- Vol. I, p. 514.

DECISION CTA Case No. 10491 Page 3 of28 of its accumulated (excess and unutilized) input VAT for Yd and 4th quarters of CY 2018.10 PROCEEDINGS BEFORE THIS COURT Following the denial of its administrative claim, petltloner flied the present Petition for Review on March 19, 2021. 11 The case was raffled to this Court's Third Division. After being granted an extension of time by the Court,12 respondent flied an Answer (Re: Petition for Review dated 19 March 2021) on October 25, 2021, 13 interposing the following special and affirmative defenses, to wit: (1) petitioner cannot cure its failure to submit documents to the administrative level by filing the said documents before this Court; (2) petitioner failed to substantiate its claim for refund, and hence, must be denied; and (3) tax refunds are strictly construed against the taxpayer and in favor of the government. � Respondent transmitted the BIR Records of the case on December 15, 2021. 14 The Pre-Trial Conference was set and held on March 10, 2022.15 Prior thereto, Respondent's Pre-Trial Briefwas flied on December 16, 2021,16 while the Pre-Trial Brief (of Petitioner Avaloq Philippines Operating Headquarters) was submitted on March 8, 2022.17 On Nlarch 24, 2022, the parties submitted their Joint Stipulation of Facts and Issues,18 which was admitted and approved in the Resolution dated March 30, 2022,19 thereby deeming the termination of the Pre-Trial. The Pre-Trial Order was subsequently issued on April 19, 2022.20 ~ 10 Exhibit "P-28", Docket - Vol. II, pp. 999 to 1007. Refer also to par. 1.e.3, Stipulation of Facts,JSFI, Docket- Vol. I, p. 514. 11 Docket- Vol. I, pp. 8 to 20. 12 M otionfor Extension of Time to File Answer, Docket - Vol. I, pp. 450 to 452; Resolution dated July 29, 2021, Docket- Vol. I, p. 456. 13 Docket- Vol. I, pp. 457 to 466 . 14 Compliance dated December 15, 2021, D ocket- Vol. I, pp . 475 to 477. 15 Notice of Pre-Trial Conference dated November 19, 2021, Docket- Vol. I, pp. 473 to 474; Minutes of the hearing held on, and Order dated, March 10, 2022, Docket - Vol. I, pp. 509, and 511 to 512, respectively. 16 Docket- Vol. I, pp. 491 to 493. 17 Docket - Vol. I, pp. 496 to 507. 18 Docket- Vol. I, pp. 513 to 519. 19 Docket - Vol. I, pp. 540 to 541. 20 Docket- Vol. II, pp. 543 to 550.

DECISION CTA Case No. 10491 Page 4 of28 Trial then ensued, with the parties presenting and offering their respective documentary and testimonial evidence. Petitioner offered the testimonies of the following witnesses, namely: (1) Ms . Mary Lalaine V. Munar,21 petitioner's Accountant; and (2) Ms. Krista V. Bambao,22 the Court-commissioned Independent Certified Public Accountant (ICPA). 23 The Reportofthe ICPA was submitted on June 27,2022. 24 On August 16, 2022, petitioner ftled its Formal Offer ofEvidence with l'viotion with Leave of Court to Allow Correction of Exhibit Markings/Reference, 25 to which respondent ftled his Comment (Re: Formal Offer of Evidence dated 16 August 2022) on August 18, 2022.26 In the Resolution dated October 5, 2022,27 the Court granted petitioner's motion to allow correction of exhibit marking on the Judicial Affidavit of Ms. Mary Lalaine V. Munar and her signature thereon from Exhibit "P-28" to Exhibit "P-33" and Exhibit "P-28-1" to Exhibit "P-33-1 ", respectively, was; and admitted all of petitioner's offered exhibits. For his part, respondent offered the testimony of Revenue Officer Eufemia Mylene N. Mabingnay. 28 On November 10, 2022, respondent filed his Formal Offer oJEvidence,29 to which petitioner submitted its Comment on the Respondent's Formal Offer ofExhibits on November 15, 2022. 30 In the Resolution dated December 13, 2022,31 the Court admitted all of respondent's exhibits. / 21 Exhibit "P-28" (Docket- Vol. I, pp. 110 to 123), which was remarked as Exhibit "P-33" (Refer to the Resolution dated October 5, 2022, Docket- Vol. II, pp. 1015 to 1018); Minutes of the hearing held on, and Order dated, July 28, 2022, Docket- Vol. II, pp. 641 to 643. 22 Exhibit "P-34", Docket- Vol. II, pp. 604 to 640; Minutes of the hearing held on, and Order dated, July 28,2022, Docket- Vol. II, pp. 641 to 643. . 23 Oath of Commission dated May 26, 2022, Docket - Vol. II, p. 559; Minutes of the hearing held on, and Order dated, May 26, 2022, Docket - Vol. II, pp. 558, and 560 to 561 , respectively. 24 Exhibit "P-35", Docket- Vol. II, pp. 563 to 598. 25 Docket- Vol. II, pp . 644 to 656. 26 Docket- Vol. II, pp. 1010 to 1012. 27 Docket- Vol. II, pp. 1015 to 1018. 28 Exhibit "R-5", Docket- Vol. I, pp. 483 to 488; Minutes of the hearing held on, and Order dated, October 25,2022, Docket - Vol. II, pp. 1019 to 1021. 29 Docket- Vol. II, pp. 1025 to 1027. 30 Docket- Vol. II, pp. 1029 to 1030. 31 Docket- Vol. II, pp. 1033 to 1034.

DECISION CTA Case No. 10491 Page 5 o�28 Thereafter, on January 31, 2023, respondent flied a Manifestation/2 stating that he is adopting the arguments he raised in his Answer as his Memorandum, on account that he has already fully discussed all his arguments in the said Answer. On February 1, 2023, petitioner flied its Memorandum with Motion for Leave if Court to Reopen the Case for Presentation ifAdditional Evidence and Allow Conditional Recall if Witness (if Avaloq Philippines Operating Headquarters). 33 Respondent then filed his Comment and Opposition (Re: Petitioner's Memorandum with Motion for Leave if Court to Reopen the Case for Presentation ifAdditional Evidence and Allow Conditional Recall ojWitness dated 01 February 2023) on March 17, 2023.34 In the Resolution dated May 26, 2023, 35 the Court resolved to grant petitioner's motion to present additional evidence, and to recall its witness to testify thereon. Subsequently, the present case was transferred to this Court's Second Division per Resolution dated June 7, 2023.36 Petitioner's Accountant, Ms. Mary Lalaine V. Munar, was recalled to the witness stand on August 15, 2023.37 On August 29, 2023, petitioner filed its Compliance with Submission, with attached Supplemental Formal Offer ojEvidence,38 to which respondent filed his Comment (Re: Supplemental Formal Offer ofEvidence dated 24 August 2023) on August 30, 2023.39 In the Resolution dated November 17, 2023,40 the Court admitted petitioner's additional offered exhibits. Considering respondent's Manifestation that he is adopting the arguments he raised in his Answer as his Memorandum,41 and the submission of petitioner's Supplemental Memorandum (ofAvaloq Philippines Operating Headquarters),42 appended to the Motion with Leave of Court to Admit Attached Supplemental Memorandum (if Avaloq Philippines Operating Headquarters),43 the present case was submitted for decision through the Minute Resolution dated February 8, 2024.44 Hence, this Decision(v/ 32 Docket- Vol. II, pp. 1035 to 1037. 33 Docket- Vol. II, pp. 1039 to 1095. 34 Docket- Vol. II, pp. 1135 to 1145. 35 Docket- Vol. II, pp. 1149 to 1150. 36 Notice, Docket- Vol. II, p. 1150-B. 37 Exhibit "P-285", Docket- Vol. III, pp. 1155 to 1161; Minutes of the hearing held on, and Order dated, August 15,2023, Docket- Vol. III, pp. 1299 to 1301. 38 Docket- Vol. III, pp. 1308 to 1315. 39 Docket- Vol. III, pp. 1442 to 1444. 40 Docket- Vol. III, pp. 1450 to 1453. 41 Docket - Vol. III, pp. 1454 to 1456. 42 Docket- Vol. III, pp. 1462 to 1478. 43 Docket- Vol. III, pp. 1458 to 1461. 44 Docket- Vol. III, p. 1568.

DECISION CTA Case No. 10491 Page 6 of28 THE STIPULATED ISSUE The parties submit the following issue for this Court's resolution, to wit: "Whether the Petitioner is entitled to a tax refund amounting to Pesos: Four Million Three Hundred Fifty-One Thousand Seven Hundred Twenty-Four and 28/100 (P4,351,724.28) representing its excess and / or unutilized input vat credits attributable to its zero-rated sales for the covered period."45 Petitioner's arguments: Petitioner argues that it sufficiently established all the elements or requisites for its entitlement to its claim for the refund of its excess input VAT attributable to its zero-rated sales for the covered period; that it is a VAT- registered entity as required under Section 112(A) of the Tax Code, as amended; that the administrative and judicial claims for refund were flied within the prescriptive period provided under the pertinent provisions of the Tax Code and its implementing rules and regulations; that it was engaged in zero-rated transactions as required under the Tax Code, as amended, as well as its pertinent regulations, and the sales were paid for in acceptable foreign currency exchange via intercompany offsetting agreement and have been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); that its foreign clients are non-resident foreign corporations (NRFCs) doing business outside of the Philippines; that its provision of services to its foreign clients were billed and paid for in acceptable foreign currency in accordance with BSP rules and regulations; that said services to its foreign clients were all rendered in the Philippines; that the input �taxes due from its purchases of goods and services directly attributable to zero-rated sales were duly supported by VAT invoices or official receipts (ORs); and that the claimed input VAT payments were not applied against any output tax in the succeeding periods. Respondent's counter-arguments: Respondent contends that petitioner cannot cure its failure to submit documents to the administrative level by filing the said documents before this Court; that petitioner failed to substantiate its claim for refund, and hence, must be denied; and that tax refunds are strictly construed against the taxpayer and in favor of the governmeny 45 Stipulation of the Issue, JSFI, D ocket - Vol. I, p. 514.

DECISION CTA Case No. 10491 Page 7 of28 THE COURT'S RULING The present Petition for Review must be denied. Requisites for the grant of a refund or issuance of a tax credit certificate under the law. Section 112 (A) and (C) of the NIRC of 1997, as amended by Republic Act (RA) No. 1096346 [otherwise known as the Tax Reform for Acceleration and Inclusion Act (TRAIN law)], provides as follows: "SEC. 112. R iftmds or Tax Credits ojlnpttt Tax . - (A) Zero-Rated or Effective!J 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(B)(1) 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, jitrtber, 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,finai!J, 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. XXX XXX XXX (C) Period within which Refund of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application flied in accordance with Subsections (A) and (B) hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial. ~ 46 AN ACT AME NDING SECTIONS 5, 6, 24, 25, 27, 31, 32, 33, 34, 51, 52, 56, 57, 58, 74, 79, 84, 86, 90, 91, 97, 99, 100, 101, 106, 107, 108, 109, 110, 112, 114, 116, 127, 128, 129, 145, 148, 149, 151, 155, 171, 174, 175, 177, 178, 179, 180, 181, 182, 183, 186, 188, 189, 190, 191, 192, 193, 194, 195, 196, 197, 232, 236, 237, 249, 254, 264, 269, AND 288; CREATING NEW SE CTIONS 51 -A, 148-A, 150-A, 150-13, 237-A, 264-A, 264-B, AND 265-A; AND REPEALING SECTIONS 35, 62, AND 89; ALL UNDER REPUBLIC ACT 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED, AND FOR OTHER PURPOSES.

D ECISION CTA Case No. 10491 Page 8 of28 In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals: ProtJided, however, That failure on the part of any official, agent, or employee of the BIR to act on the application within the ninety (90)-day period shall be punishable under Section 269 of this Code." Based on the provision above, jurisprudence has laid down requisites with which the taxpayer-applicant must comply to successfully obtain a credit or refund of input VAT, to wit: As to the timeliness of the filing of the administrative and judicial claims: 1. The refund claim is flied with the BIR within two (2) years after the close of the taxable quarter when the sales were made .47 ' 2. In case of full or partial denial of the refund claim rendered within a period of ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application, the judicial claim shall be flied with this Court within thirty (30) days from receipt of the decision;48 With reference to the taxpayer's registration with the BIR: 3. The taxpayer is a VAT-registered person;49 In relation to the taxpayer's output VAT: 4. The taxpayer is engaged in zero-rated or effectively zero-rated sales�' 50 5. For zero-rated sales under Section 106(A)(2)(1) and (2); /'�" 47 Intel Technology Philippines, Inc. vs. Commissioner ofInternal Revenue, G .R. No. 166732, April 27, 2007; San Roque Power Corporation vs. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009; and AT&T Communications Services Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 182364, August 3, 2010. 48 Refer to Energy Development Corporation vs. Commissioner ofInternal Revenue, G.R. No. 203367, March 17, 2021; Commissioner of Internal RetJemte vs. CE Cam�nan Water And Energy Compaf!Y, Inc., G.R. No. 212727, February 1, 2023; and Commissioner of Internal Revenue vs. Vestas Services Philippines, Inc., G.R. No. 255085, March 29, 2023. 49 Intel TedJnology Pbilippims, Im�. IJJ. ColllllliJSiomr of Intemal Reve111te, supra; Scm Roqtte Power Corporation vs. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc. vs. Commissioner ofInternal RetJenue, supra. 50 Ibid.

DECISION CTA Case No. 10491 Page 9 of28 106(B); 51 and 108(B)(1) and (2), the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the BSP rules and regulations;52 As regards the taxpayer's input VAT being refunded: 6. The input taxes are not transitional input taxes;53 7. The input taxes are due or paid;54 8. The input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be proportionately allocated on the basis of sales volume;55 and ~ 51 Section 106(B) cited in Section 112(A) of NIRC of 1997 (RA No. 8424) was later amended by RA No. 9337 to pertain to Section 106(A)(2)(b). Accordingly, Section 112(A), as amended by RA No. 9337, reads as follows : "SEC. 112. Refunds or Tax Credits ofInput Tax.- (A) Zero-Rated or EJ!ectivejy 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(B)(1) 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, fmally, 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." (Empbasis supplied) However, in view of the amendments introduced by RA No. 10963, Section 106(A)(2)(b) is now deleted. 52 Intel Tecbnology Pbilippines, Inc. ?JS. Commissioner of Internal Revenue, supra; San Roque Power Corporation vs. Commissioner of Internal Revenue, supra; and AT&T Communications Services Pbilippines, Inc. vs. Commissioner ofInternal Revenue, supra. 53 Ibid. 54 Ibid. 55 Intel Tecbnology Pbilzppines, Inc. vs. Commissioner of Internal Revenue, supra; and San Roque Power Corporation vs. Commzssioner ofInternal Revenue, supra.

D ECISION CTA Case N o. 10491 9. The input taxes have not been applied against output taxes during and in the succeeding quarters.56 In addition, in claims for VAT refund / credit, applicants must satisfy the substantiation and invoicing requirements under the NIRC and other implementing rules and regulations.57 Thus, petitioner's compliance with all the VAT invoicing requirements is required to be able to flle a claim for input taxes attributable to zero-rated sales. 58 T he invoicing and substantiation requirements should be followed because it is the only way to determine the veracity of the taxpayer's claims. 59 Moreover, it must be pointed out that compliance with all the VAT invoicing requirements provided by tax laws and regulations is mandatory.60 Strict compliance with s11bstantiation and invoicing requirements is necessary considering the nature of VAT and its system of tax credit method, where tax payments are based on output and input taxes and where the seller's output tax becomes the buyer's input tax that is available as tax credit or refund in the same transaction. It ensures the proper collection of taxes at all stages of distribution, facilitates computation of tax credits, and provides accurate audit trail or evidence for BIR monitoring purposes .61 Furthermore, it must be emphasized that in cases flied before this Court, which are litigated de novo, party-litigants must prove every minute aspect of their case.62 Thus, petitioner must show compliance with each of the foregoing requisites and invoicing requirements. As a corollary, the absence of arry of the said requisites is a valid ground to derry the refund claim~ 56 Intel Technology Philippines, Inc. vs. Commissioner of Internal Revenue, supra; San Roque Power Corporation vs. Commissioner of Internal Revenue, supra; and AT&T Communications Services Philippines, Inc. vs. Commissioner ofInternal Revenue, supra. 57 Team Energy Corporation vs. Commissioner of Internal Revenue, et seq., G .R. Nos. 197663 and 197770, March 14, 201 8. 58 JRA Philippines, Inc. vs. Commzssioner ofInternal Revenue, G .R. N o. 171307, August 28, 2013. 59 Nippon Express (Philippines) Corporation IJS. Commissioner of Internal Revenue, G .R. N o. 191495, July 23 , 201 8. 60 Eastern Telecommunications Philippines, Im�. vs. Commissionerofinternai Revenue, G .R. N o. 183531 , March 25, 2015. 61 Team Energy Corporation vs. Commissioner ofInternal Revenue, et seq. , supra. 62 Edison (Bataan) Cogeneration Corporation IJS. Commissioner if Internal Re1;enue, etseq., G .R. Nos. 201665 and 201668, August 30, 2017; Commissioner of Internal Revenue vs. Philippine National Bank, G .R. N o. 180290, September 29, 2014; Commissioner of Internal Revenue IJS. United Salvage and T01vage (Pbils.), Inc., G. R. No. 19751 5, July 2, 2014; Dizon vs. Comt ofTax A ppeals, eta/., G .R. No. 140944, April 30, 2008; A tlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R. No. 145526, March 16, 2007; and Commzssioner of Internal Re1;enue vs. Manila Mining Corporation, G.R. No. 153204, August 31, 2005 .

DECISION CTA Case No. 10491 Page 11 of28 Petitioner timely filed its administrative and judicial claims for input VAT refund. The first requisite provided in Section 112(A) of the NIRC of 1997, as amended, commands the taxpayer to flie an administrative claim for input VAT refund within two (2) years from the close of the taxable quarter .when the zero-rated or effectively zero-rated sales were made. The present claim covers the 3rd to 4rh quarters of CY 2018. Counting two (2) years from the close of the subject taxable quarters, petitioner had until the following respective dates to ftle its administrative claim, viz Period Close ofTaxable Last Day to File Administrative Covered Quarter Claim for Refund (2018) September 30, 2018 September 30, 2020 3'd Quarter December 31, 2018 December 31, 2020 4'h Quarter Considering that petitioner's administrative claim for the 3rd and 4th quarters of 2018 was flied on September 30, 2020,63 the same was timely made. The second requisite stated in Section 112(C) of the NIRC of 1997, as amended, grants the BIR a period of ninety (90) days from date of submission of the official receipts or invoices and other supporting documents, to decide on the taxpayer's administrative claim for input VAT refund, in turn, the taxpayer may appeal to the Court within thirty (30) days from receipt of the decision denying its claim or after the lapse of the said ninety (90)-day period. Petitioner's administrative claim was flied on September 30, 2020. As a general rule, respondent has ninety (90) days from September 30, 2020, or until December 29, 2020, within which to act on said claim. Because of the Covid-19 pandemic, however, Revenue Regulations No. 27-2020 was issued pursuant to Republic Act No. 11494 or the "Bayanihan to Recover As One Act". Section 4 of Revenue Regulations No. 27-2020 suspended the processing of VAT refund from September 11, 2020 to December 19, 2020, thus: "SECTION 4. Processing of VAT Refunds. - The 90-day processing of VAT refund claims pursuant to Section 112 (C) of the Tax Code of 1997, as amended, is hereby suspended during the effectivity of /V' 63 Refer to pars. l.e.1 and l.e.2, Stipulation of Facts, JSFI, Docket - Vol. I, p. 514; Exhibit "P-27", Docket- Vol. II, pp. 997.

DECISION CTA Case No. 10491 R.A. No. 11494 64 or until the next adjournment of the Eighteenth Congress on December 19, 2020." Therefore, because of the suspension from September 11, 2020 to December 19, 2020, respondent could not act on the claim flied on September 30, 2020. Respondent could only act on the same within 90 days after the period of suspension, or beginning December 20, 2020 until March 20, 2021. Notably, the BIR through Assistant Commissioner Maria Luisa I. Belen, issued the letter of denial dated December 14, 2020 during the period of suspension, which was received by petitioner on March 18, 2021. 65 Thus, respondent is deemed to have acted on petitioner's administrative claim within the ninety (90)-day period, if the Court were to consider either the issuance of the denial on December 14, 2020 or its receipt on March 18, 2021. Counting thirty (30) days from petitioner's receipt of the denial on March 18, 2021, petitioner had until April 17, 2021 to appeal its claim for refund before this Court. Since this judicial claim was also flied on March 19, 2021,66 the same was likewise timely made and the Court is clothed with jurisdiction to take cognizance of the case. Therefore, petitioner has shown compliance with the above-stated fl:st and second requisites. Petitioner is a VAT-registered entity. Petitioner also fulfilled the third requisite given that it is duly registered with the BIR as a VAT taxpayer under TIN 008-637-771-000.67 However, petitioner failed to establish that it was engaged in zero- rated sales or effectively zero-rated sales. The fourth and fifth requisites mandate that the taxpayer be engaged in zero-rated or effectively zero-rated sales; and that for zero-rated sales under Sections 106(A)(2)(a)(1), (2) and (b), and 108(B) (1) and (2) of the NIRC of ,........... 64 Republic Act No. 11494 or the "Bayanihan to Recover As One Act" was signed into law on September 11, 2020. 65 Par. 1.e.3, Stipulation of Facts, JSFI, D ocket- Vol. I, p. 514; Exhibit "P-28", Docket- Vol. II, pp. 999 to 1007; Exhibit "R-3", I3IR Records (Exhibit "R-4"), pp. 399 to 400. M Docket- Vol. I, pp. 8 to 20. 67 Par. l.d, Stipulation of Facts, JSFI, Docket - Vol. I, p. 514; Exhibit "P-3", Docket - Vol. II, p. 671.

DECISION CTA Case No. 10491 Page 13 of28 1997, as amended, the acceptable foreign currency exchange proceeds thereof have been duly accounted for in accordance with BSP rules and regulations. In this case, petitioner claims that it is engaged in zero-rated transactions as required under Section 108(B)(2) of the NIRC of 1997, as amended, which reads as follows: "SEC. 108. Valtte-added Tax on Sale of Services and Use or Lease of Properties. - XXX XXX XXX (B) Transactions Sttf?ject 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 of 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);" (Emphases added) As can be seen from the foregoing provision, certain essential elements must be present for a sale or supply of services to be subject to the VAT rate of 0%, to wit: a. The recipient of the services is a foreign corporation, and the said corporation is doing business outside the Philippines, or is a nonresident person not engaged in business who is outside the Philippines when the services were performed;68 b. The services fall under any of the categories under Section 108(B) (2),69 or simply, the services rendered should be other than ''processing, manufacturing or repacking goods";70 / 68 Site/ Philippines Corporation (Formerjy Clientlogic Phils. Inc.) 1JS. Commissioner of Internal Re1Jenue, G.R. No. 201326, February 8, 2017; Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007; Accenttire, Im�. .vs. CommissionerofinternaiRevenue, G.R. No. 190102,July 11,2012. r.9 Commissiomr of Internal Revenue vs. Ame1ican Express Intemational, Im�. (Philippine Branch), G .R. No. 152609,June 29,2005. 7� Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205,January 22,2007.

DECISION CTA Case No. 10491 c. The services must be performed in the Philippines71 by a VAT- registered person; and, d. The payment for such services should be in acceptable foreign currency accounted for in accordance with BSP rules.72 For the first essential element, in order to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, by both a Certification of Non-Registration of Corporation/ Partnership issued by the Philippine SEC, and proof of incorporation/registration in a foreign country (e.g., Articles/Certificate of Incorporation/ Registration and/ or Tax Residence Certificate). The former establishes that the recipient of the service has no registered business in the Philippines, and that it is not engaged in trade or business within the Philippines; while the latter proves that the said recipient of the service �is indeed foreign. The said documents have been consistently required by this Court, for purposes of the said first essential element. In fact, in Commissioner of Internal Revenue vs. Deutsche Knowledge Services Pte. Ltd., 73 the Supreme Court affirmed the necessity of presenting the said documents in this wise: "For purposes of zero-rating under Section 108(B)(2) of the Tax Code, the claimant must establish the two components of a client's NRFC74 status, viz.: (1) that their client was established under the laws of a country not the Philippines or, simply, is not a domestic corporation; and (2) that it is not engaged in trade or business in the Philippines. To be sure, there must be sufficient proof of both of these components: showing not only that the clients are foreign corporations, but also are not doing business in the Philippines. Such proof must be especially required from ROHQs such as DKS. That the law expressly authorizes ROHQs to render services to local and foreign affiliates alike only stresses the ROHQs burden to distinguish among their clients' nationalities and actual places of business operations and establish that they area seeking refund or credit of input VAT only to the extent of their sales of services to foreign clients doing business outside the Philippines. To recall, the CTA found that the SEC Certification of Non- Registration of Company and Authenticated Articles of Association and / or Certificates of Registration/ Good Standing/Incorporation sufficiently established the NRFC status of 11 of DKS's affiliates clients The Court upholds these fmclings)V' 71 Commissioner of Internal Revenue ?JS. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., supra; Commissioner ofInternal Revenue vs. American Express International, Inc. (Philippine Branch), G.R. No. 152609,June 29,2005. 72 Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor 1\IJ.indanao, Inc., supra; Commissioner ofInternal Reven11e vs. /lmerimn E :press International, Im�. (Philippine Branch), supra. 73 G.R. No. 234445,July 15,2020. 74 That is, "Nonresident foreign corporation".

DECISION CTA Case No. 10491 The Court accords the CTA's factual findings with utmost respect, if not finality, because the Court recognizes that it has necessarily developed an expertise on tax matters . Significantly, both the CTA Division and CTA En Bane gave credence to the aforementioned documents as sufficient proof of NRFC status. The Court shall not disturb its findings without any showing of grave abuse of discretion considering that the members of the tax court are in the best position to analyze the documents presented by the parties. In any case, after a judicious review of the records, the Court still do not find any reason to deviate from the court a quo's findings. To the Court's mind, the SEC Certifications of Non-Registration show that these affiliates are foreign corporations. On the other hand, �the articles of association/certificates of incorporation stating that these affiliates are registered to operate in their respective home countries, outside the Philippines are prima facie evidence that their clients are not engaged in trade or business in the Philippines." (Emphasis added) Based on the documents submitted, the following clients of petitioner can be considered NRFCs doing business outside the Philippines in compliance with the first essential element, to wit: NAME OF PROOF OF FOREIGN SEC COMPANY INCORPORATION/ CERTIFICATION REGISTRATION OF NON- REGISTRATION Avaloq Australia Pty (Exhibit No.) Ltd. "P-14" 75 (Exhibit No.) Avaloq Asia Pacific Pte " P-15" 77 "P-14-1 "76 Ltd. "P-16"79 "P-1 7"81 "P-15-1 "78 Avaloq Licence AG "P-18" 83 "P-16-1 "80 Avaloq Sourcing Asia " P -77" 85 Pacific (Singapore) Pte " P-20" 87 "P-1 7-1 " 82 Ltd. Avaloq Sourcing "P-18-1 " 84 (Switzerland & "P-19-1 "86 Liechtenstein) SA "P-20-1 " 88 Avaloq Sourcing (Europe) AG Avaloq l.Jl~ Limited ~ 75 Docket- Vol. II, pp. 690 to 736. 76 BIR Records (Exhibit "R-4"), p. 224. 77 Docket- Vol. II, pp. 739 to 773. 78 BIR Records (Exhibit "R-4"), p. 225. 79 Docket- Vol. II, pp. 775 to 786. 80 BIR Records (Exhibit "R-4"), p. 226. 81 Docket- Vol. II, pp. 804 to 839. 82 BIR Records (Exhibit "R-4"), p. 220. 83 Docket - Vol. II, pp. 841 to 857. 84 BIR Records (Exhibit "R-4"), p. 219. 85 USB (Exhibit "P-35-1"). 86 BIR Records (Exhibit "R-4"), p. 223

DECISION " P 78"89 "P-79"90 CTA Case No. 10491 [ Avaloq Evolution AG As to the second essential element, petitioner must prove that the services to these clients fall within the scope of ((services other than processingy manufacturing or repacking goods." From the General Framework Services Agreement presented by petitioner, the following are included in the definition of "services", viz.:91 � Preparation of analyses � Making of status quo analyses � Consulting � Preparation of concepts � Documentation � Promotion of products and services � Sub-project management � Training and support in training services � Support in implementation services � Support in parametrization services � Support in maintenance services � Support with and coordination of Global Processing Network projects � Coordination � Audits � Support in acceptance Moreover, E x hibit 1 attached to the Contract Software Research & Development Agreement executed between petitioner and Avaloq Licence AG provides that the R&D Activities shall consist of the following: 92 � Software Development � Software Architecture and Concepts � Testing � Business Analysis � Functionality Deployment � Product customization and parametrization � Integration of third-party software � Cooperation with third parties in specific research projects Clearly, the foregoing services rendered by petitioner to the aforementioned N RFCs cannot be considered processing, manufacturing or repacking goods. Hence, the second essential element was satisfied/v" � 87 D ocket- Vol. II, pp. 868 to 897. 88 BIR Records (Exhibit "R-4"), p. 221. 89 USB (Exhibit "P-35-1"). 90 USB (Exhibit "P-35-1"). 91 Exhibit "P-21", Docket- Vol. II, p. 912. 92 Exhibit "P-22", Docket- Vol. II, p. 937.

DECISION CTA Case No. 10491 Page 17 of28 Moving on to the third essential element, petitioner must show that the subject services were performed in the Philippines by a VAT-registered person. A reading of the above agreements reveals that the same lacks any indication that the services were performed in the Philippines. This observation was also confirmed by the ICPA in her Report as follows: 93 "4. In addition to the above-enumerated documents, the following agreements were evaluated during my review to ascertain xxx, the location where the services were provided xxx: a. General Framework Services Agreement ('GFSA') (Exhibit P-21 as marked by counsel of Petitioner) XXX XXX XXX � Location Where the Not specified Services were Provided b. Contract of Software Research & Development Agreement ('Contract R&D Agreement') (Exhibit P-22 as marked by counsel of Petitioner) XXX XXX XXX � Location where the Not specified" services were provided However, a clarification was made by the petitioner's Accountant, Ms. Mary Lalaine V. Munar, in her SupplementalJudicialA.ffidavit,94 thus: "3. Q: Can you please elaborate your statement that 'Petitioner's provision of seroim to its non-residentforeign affiliates were all rendered in the Philippines? A: As previously mentioned in my Judicial Affidavit, Petitioner is the regional operating headquarter ('ROHQ') of Avaloq Group AG, a multinational company organized and existing under the laws of Switzerland. Further, Avaloq Philippines Operating Headquarters was established to provide general administration and planning, business planning and coordination, training and personnel management, logistic services, technical support and maintenance, data processing and communication, and business development to its foreign affiliates. Being situated in the Philippines, Petitioner's provision of services to its non-resident foreign affiliates were all rendered in the Philippines. 4. Q: Ms. Witness, what proof, if any, would support your statement that 'Petitioner's provision if services to its non-resident foreign affiliates were all ~ 93 Exhibit "P-35", Docket- Vol. II, pp. 569 to 571. 94 Exhibit "P-285", Docket- Vol. III, pp. 1155 to 1161.

DECISION CTA Case No. 10491 Page 18 of28 rendered in the Philippines'? A: I have here our extracted logs in our ProTime monitoring software or our performance time entry, which we use to attribute our presence time in a specific project. This includes the location of the service, the non-resident affiliate to whom it was rendered, the month when the service was rendered and the corresponding time charges. Our services being rendered in the Philippines is established through our extracted ProTime logs for July to December 2018. Column K of the said document indicates the location of service for the covered period. Based on Section 4.2.1 of our ProTime - Employee Booking Guidelines the symbol "AA'' signifies that the location of service is in the Domestic Country of the company rendering the service. However, in practice, the same may be replaced with the letter symbols of the country (e.g., 'PH') Correlating Column C and Column K of ProTime logs for July to December 2018, it is shown that the services rendered for the covered period were rendered in the Philippines. XXX Lastly, as an ROHQ, Petitioner is an entity which is only taxable for its income from sources within the Philippines. Hence, it would not have declared such an amount of income if its services were not rendered here. There is simply no incentive for Petitioner to declare the same if it were not rendered domestically because it would only result in the imposition of income. XXX 7. Q: Considering that the regional operating headquarters is operating here in the Philippines and its clients are based abroad, how does Petitioner render its services to its foreign clients? A: As Petitioner is a software company, which provides services through software maintenance, support, and bug-fixing, it renders its services through phone calls, emails, online meetings, and other electronic means." To bolster its position, petitioner also offered the Extracted ProTime Logs for 2018 95 as well as the corresponding ProTime Employee Guidelines 96 being referred to in the testimony of Ms. Munar. Considering the foregoing explanation of petitioner's witness, coupled with the documentary evidence presented, petitioner was able to prove that the subject services were actually performed in the Philippines. Accordingly, the said third essential element was fulfilled by petitioner/V' 95 Exhibit "P-278", Docket- Vol. III, pp. 1316 to 1345. 96 Exhibit "P-279", Docket- Vol. III, pp . 1346 to 1362.

DECISION CTA Case No. 10491 However, before delving into the fourth essential element, which corresponds to the fifth requisite that requires that for zero-rated sales under Section 108(B)(2) of the NIRC of 1997, as amended, the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with BSP rules and regulations, it is equally important to consider that the VAT zero-rated sales, to which the foreign currency remittances correspond, must be duly supported by VAT zero-rated ORs in accordance with the pertinent invoicing requirements, containing all the required information under Section 113(A) and (B) of the NIRC of 1997, as amended, and as implemented by Section 4.113-1(A) and (B) of Revenue Regulations (RR) No. 16-2005, as amended. Further, the sales invoices (Sis) and ORs must be duly registered with the BIR as prescribed under Section 237, in relation to Section 238 of the Tax Code. In its amended Quarter!J Value-Added Tax Returns (BIR Form No. 2550- Q) for the 3rd and 4th quarters of CY 2018, petitioner reported total zero-rated sales of P172,535,079.34, broken down as follows: CY 2018 Zero-rated Sales Exhibit Reference 3'd Quarter 86,742,918.07 "P-4"' Line 1797 4'h Quarter 85,792,161.27 "P-5"' Line 1798 Total 172,535,079.34 Since these reported sales are in the nature of sales of services under Section 108(B) (2) of the NIRC of 1997, as amended, petitioner is required to issue BIR-registered VAT ORs for the foreign currency proceeds of each sales transaction, the information contained therein must be in compliance with the applicable provisions previously cited, such as the word "zero-rated", and the taxpayer's TIN-VAT number. In this case, petltloner submitted the ORs 99 with attached billing invoices,100 issued to its clients, as well as the Schedule of Sales,101 to support its zero-rated sales for the Yd and 4th quarters of CY 2018. An examination of the foregoing documents shows that petitioner's zero-rated sales in the amount of P177,798,582.34 are duly substantiated with valid ORs, as detailed below: ~ 97 Docket- Vol. II, p. 672. 98 D ocket- Vol. II, p. 674. 99 Exhibits "P-41" to "P-58", USB (Exhibit "P-35-1 "). 100 Exhibits "P-59" to "P-76", USB (Exhibit "P-35-1"). 10 1 Annex 1, ICPA Report (Exhibit "P-35"), USB (Exhibit "P-35-1 ").

DECISION Exhibit OR OR Amount per Amount per CTA Case No. 10491 No. No. Date OR OR in PliP Page 20 o�28 in US$ Client Name "P-41" 037 20 July 2018 78,229.18 4, 172,335.0 5 Avaloq Sourcing (Switzerland & "P-42" 038 20 July 2018 1,391,625.05 74,221,997.00 Liechtenstein) SA "P-43" 039 23 J uly 2018 Avaloq License AG "P-44" 040 23 July 2018 8,398.44 447,929.00 Avaloq Asia Pacific Pte Ltd 14,356.98 76 5,726 .00 Avaloq Australia Pty Ltd Avaloq Sourcing Asia Pacific "P-45" 041 23 July 2018 10,353.79 552,217.00 (Singapore) Pte Ltd 95,706 .11 5,000,275.78 1 August 67,433.26 3,596,537.00 Avaloq Sourcing (Europe) AG 55,989.31 2,986,177 .00 "P-46" 042 2018 Avaloq Sourcing (Europe) AG 4,921.43 263,226 .62 1 August 1,727,013.55 92,006,420.45 Avaloq Sourcing (Europe) AG "P-47'' 043 2018 6,275.59 339,610.76 Avaloq Evolution AG 21,045.07 1'138,878.00 "P-48" 044 1 August 20 ,031.67 1,084,037.00 Avaloq Asia Pacific Pte Ltd 2018 14,209.01 30 252,755.25 768,937.00 Avaloq Australia Pty Ltd 102,362.70 13,678,141.00 Avaloq Sourcing Asia Pacific September 1,026, 156.72 (Singapore) Pte Ltd 79,953 .97 5,539,475.13 "P-49" 045 2018 62,543.84 55,53 1,650.00 Avaloq UK Limited 1,585,333.82 4,326,801.00 Avaloq Sourcing Asia Pacific Sub-total 3'd Q uarter TOTAL 3,384,632.00 (Singapore) P te Ltd p 85,792,161.89 Avaloq Sourcing (Switzerland & 16 October P177 ,798,582.34 Liechtenstein) SA "P-50" 046 2018 Avaloq Licence AG 16 O ctober Avaloq Sourcing (Europe) AG "P-51" 047 2018 Avaloq Sourcing (Europe) AG 16 October "P-52" 048 2018 16 O ctober "P-53" 049 2018 16 O ctober "P-54" 050 20 18 16 October "P-55" 051 2018 16 October "P-56" 052 20 18 1 December "P-57'' 053 2018 1 December "P-5 8" 054 18 Sub-total 41h Quarter Notwithstanding the foregoing conclusion, petitioner still fel/ short in proving that the corresponding payments thereof were inwardly remitted thru the Philippine banking system and duly accounted for in accordance with the BSP rules and regulations, as enunciated in the above-stated fourth essential element and fifth requisite.tv"

DECISION CTA Case No. 10491 Page 21 of28 According to petitioner, the supply of services to its non-resident foreign clients were paid for in acceptable foreign currency via intercompany offsetting arrangement. 102 Notably, offsetting arrangements are recognized by the BIR as an alternative to proof of foreign currency inward remittances. In Revenue Memorandum Circular (RMC) No. 42-2003 dated July 15, 2003, 103 the documents required in an offsetting arrangement were enumerated, viz. " Q -8 With the full liberalization of the BSP rules on foreign exchange and trade transactions (CB Circular No. 1389 dated April 13, 1993 enunciated in RMC No. 57-97), the BIR requirement for full documentation of proofs of inward remittances of export proceeds should no longer be enforced. Accordingly, what should be the acceptable documentary requirements in the processip.g of claims for TCC/refund, specifically on offsetting arrangements? A-8: In the case of offsetting arrangements, the following documents should be required: a. Import documents which created liability accounts in favor of the foreign parent or affiliated company; b. Other contracts with the foreign or affiliated company that brought about the liabilities which were offset against receivables from export sales; c. Evidence of proceeds of loans, in case the claimant has received loans or advances from the foreign company; d. Documents or correspondence regarding offsetting arrangements; e. Conftrmation of the offsetting arrangements by the heads of the business organizations involved; f. Documents to prove actual export of goods; g. Documents to prove that the sales are zero-rated sales." As can be seen from the provision of RMC No. 42-2003, the submission of proof of inward remittances of foreign currency payments for export sal.es was relaxed where there are offsetting arrangements as these do not entail inward remittances. In such cases, the above-enumerated documents are acceptable pieces of documentary evidence proving the payment in foreign currency accounted for in accordance with BSP rules and regulations. In the Judicial Affidavit of petitioner's witness, Nls. Mary Lalaine V. Munar,104 she explained the process by which said offsetting arrangement was being implemented, thus/./" 102 Par. 49, Discussions / Arguments, Memorandum with Motion with Leave of Court to Reopen the Case for Presentation ofAdditional E1Jidence and Allow Conditional Recall of Witness, Docket - Vol. II, p . 1058. 103 SUBJECT: Clarifying Certain Issues Rais ed Relative to the Processing of Claims for Value-Added Tax (VAT) Credit/Refund, Including Those Filed with the Tax and Revenue Group, One-Stop Shop In ter-Agency Tax Credit and Duty Drawback Center, Department of Finance (OSS) by Direct Exporters. 104 Exhibit "P-28" (Docket - Vol. I, at pp. 118 to 120), which was remarked as Exhibit "P- 33" (Refer to the Resolution dated October 5, 2022, Docket- Vol. II, pp. 1015 to 1018).'

DECISION CTA Case No. 10491 Page 22 of28 "28. Q: Ms. Munar, do you know how Petitioner bills its foreign affiliates for the services rendered? A: Yes. The 'General Framework Services Agreement' that shows the guidelines for the provision of services between the affiliates of Avaloq Group AG, and the 'Short Term Credit Facility Agreement' would explain how Avaloq PH bills its foreign affiliates. The invoices billed by Petitioner are collected/ offset against the loan payable to Avaloq Group AG. Based on the General Framework Services Agreement, the offsetting process of the receivables and payables of the Petitioner are as follows: a. Avaloq PH maintains a current account, in which the funding of Avaloq Group AG is being remitted pursuant to a Short-Term Credit Facility Agreement; b. For the collection of intercompany invoices billed by Avaloq PH to its affiliates, these are collected/ offset through this account. To illustrate, whenever we obtain a 'loan' from our head office - Avaloq Group AG, which is basically the funding we receive monthly, the funding/ cash remitted is credited to Avaloq Group AG current account. The amount receivable from the invoices billed for the services rendered to the affiliates of Avaloq PH will be debited or offset against this same account. XXX 31. Q: Ms. Munar, how did Petitioner collect/ offset the intercompany services billed against the loan payable to Avaloq Group AG pursuant to the Short-Term Credit Facility? A: Under the Short-Term Credit Facility, Petitioner is entitled to request for a loan in the form of advance and / or overdraft from Avaloq Group AG. The loan amount, which varies depending on the fmancial necessity of the Petitioner to support its operations, are remitted by Avaloq Group AG in foreign currency denominated. The remitted amount forms part of the loan payable of Petitioner which are then offset against the intercompany invoices billed to the foreign affiliates of Avaloq PH. 32. Q: What proof, if any, do you have to support your statement that the funds were in foreign currency? A: The Bank Statements issued by the Bank of the Philippine Islands showing the credit of foreign currency to our current account: 33. Q: Ms. Munar, in your Answer to Question No. 28, what proof do you have to show that the intercompany services billed by Petitioner to its foreign affiliates are collected/ offset against the loan payable to Avaloq Group AG? A: The transactions that can be identified in the Avaloq Group AG Current Account, Schedule of Offsetting of Receivables." In essence, petitioner receives foreign currency funding from its parent company which is recorded and treated in its books as loan payable to Avaloq .;V

DECISION CTA Case No. 10491 Group AG. From this loan, petitioner offsets all of the receivables it earns and becomes entitled to, for the services rendered to the affiliates of Avaloq Group AG. To support its assertion, petitioner presented documentary proof, such as Short-Term Credit Facifiry Agreement,105 Bank Statements issued by the Bank of the Philippine Islands, 106 Avafoq Group AG Current Account, 107 and Schedufe of Offsetting ofReceivables.108 . While an examination of the Short-Term Credit Facility Agreement 109 executed by and between Avaloq Group AG and its various affiliates, including petitioner, validates petitioner's claim of having loan transactions in US Dollars with Avaloq Group AG, the same agreement failed to show that such advances from Avaloq Group AG can be the subject of set-off as payment for the receivables earned by petitioner from its sale of services to other affiliates. Suffice it to say, petitioner should have presented additional corroborating documentary evidence on this matter. First, the Short-Term Credit Facifiry Agreement is an undertaking between Avaloq Group AG, as the primary party and lender, and each affiliate, as a borrower. Thus, it does not include loan agreement between one affiliate and another affiliate. Second, the said agreement does not provide for an offsetting arrangement between Avaloq Group AG's advances to petitioner and the latter's receivables from Avaloq Group AG's affiliates. It would be erroneous to construe paragraph "12. Set Off Balances" 11 0 of the agreement 111 as authorizing offsetting arrangement between affiliates given that such prov1s1on contemplates a set-off of credits between the lender-parent company and borrower-affiliate. Third, Avaloq Group AG is a distinct legal entity from its affiliates so that the right of offset between petitioner and other affiliates cannot presumed. If there is indeed an offsetting arrangement among Avaloq Group AG qffiliates, the same should have been covered by a separate agreement executed between and among them. Unfortunately, petitioner failed to submit evidence of this separate agreemen~ 105 Exhibit "P-23", Docket- Vol. II, pp. 952 to 967. 106 Exhibit "P-24", BIR Records (Exhibit "R-4"), pp. 33 to 53. 107 Exhibit "P-25", Docket- Vol. II, pp. 989 to 990. 108 Exhibit "P-25-1", Docket- Vol. II, pp. 991. 109 Exhibit "P-23", Docket- Vol. II, pp. 952 to 967. 11 0 "12. Set-Off Balances - Both parties authorize each other to set-off any credit balance in any currency to which it is entided on any account in satisfaction of any sum due and payable under this Agreement but unpaid. xxx." 111 Exhibit "P-23", Docket- Vol. II, p. 961.

D ECISION CTA Case No. 10491 For these reasons, petitioner was not able to establish before this Court that there exists a valid offsetting arrangement in the present case that may serve as an alternative to actual inward remittance of foreign currency in consideration for the services it rendered to the aforementioned N RFCs. Consequently, petitioner failed to prove that is engaged in zero-rated sales of services under Section 108 (B) (2) of the N IRC of 1997, as amended. But even granting that the subj ect agreement adduced by petitioner is sufficient to prove that a valid offsetting arrangement between petitioner and Avaloq G roup AG's affiliates was authorized in this case, petitioner must still es tablish the actual details of offsetting that occurred between petitioner's receivables from its sales of service to Avaloq G roup AG 's affiliates and the advances made by Avaloq Group AG. Petitioner avers that it accomplished this by o ffering in evidence the Schedule of Offsetting of Receivables, 112 pertinent details of which are excerpted below: Exh ib it O .R. O .R. D ate N ature of Name of Amo un t Withdrawal Inte res t G ro up Bank D a te N o. N o. T ransacti Custom er (W i t h h o l Account Collectible by from G roup Ba la.nce BP I 3 J uly on ding BP I 2018 Avaloq PH I Account and T ax) 15 7, 072 .43 BP I 4 Sept D epos it to BP I 2018 Receivab le by 235, 30 1. 61 4 Sept Group Account Avaloq PH' s 20 18 BPI-FCDU 1,626,926. 66 (in FC) P ass b oo k 1,635,3 25.10 12 Savings ;t'Y"" Avaloq Sou rcing " P-41" 37 20 July 2018 Sale of (Switzerland & 78,229. 18 " P -42" 1,391,625. 05 " P-43" Services Liechtenstein) 8,398.44 Si\ 38 20 July 2018 Sale of Avaloq License Se rvices AG 39 23 J uly 2018 Sale of i\ valoq Asia Services Pacific Pte Ltd. HP- 44 " 40 23 July 2018 Sale of i\valoq Australia 14,3 56.98 1,649,682.08 " P -45" Services Pty Ltd. 10,353.79 1,660,035.87 " P-46" 95,706. 11 1,7 55,741.98 Avaloq Sourcing 41 23 July 2018 Sale of Asia Pacific Se rvices (Singapore) Pte Ltd. 42 1 August Sale of i\ valoq Sourcing 2018 Se rvices (Europe) AG " P-47" 43 1 Augus t Sale of Avaloq Sourcing 67,433 .26 1,823,1 75.24 2018 Services (Europe) 1\ G " P -48" 44 1 August Sale of t\ valoq Sourcing 55,989.3 1 1,879,164. 55 2018 Services (Europe) AG 1,479, 164 .55 1,079, 164.55 Withdrawal fro m G roup t\ ccount and D eposit to Avaloq Pl-l's BP I- 400,000.00 400,000.00 679, 164.55 FC D U Passbook Savings 400,000.00 Withdrawal from Group Account and Deposit to i\valog PHs BP I- FCDU Passbook Savings Withdrawal from G roup Account and Deposit to Avaloq Pl-l's BPI- FCD U Passbook Savings Manageme nt "P-49" 45 30 September Rech arged Avaloq 4,92 1.43 684,085. 98 20 18 at cost Evolution i\G (No Mark- up) In te rest 10,158.42 (i9 4,24 4.40 94,244.40 Withdrawal from G roup Account and Deposit to i\valoq Pl-l's BPI- 600,000.00 -- ---- - 112 E xhibit "P-25-1 " , D ocket- Vol. II, pp. 99 1.

D ECISION CTA Case No. 1049 1 E xhibit O .R. O.R. Date N ature of N am e of Am ount W ithdrawa l Inte res t Group Bank D a te N o. N o. Transacti Custom er Collectible by from Group (Wi t h h o l Account Account and Ba lance Octobe on Avaloq PH I D ep osit to ding r 2018 Avaloq PH 's T ax) Receivable by BPI-FCDU 23 Nov 20 18 Group Account Passbook 12 (in F C) Savings De cem -ber " P-41" 37 20 J uly 2018 Sale of Avaloq Sourcing 78,229. 18 157,072.43 20 18 Services (Switzerland & 1,39 1,625. 0 5 235,30 1. 61 "P-42" 38 20 July 2018 Liechtenstein) 1,626, 92 6.6 6 Sale of SA 8,398.44 1,635,325.10 " P-43" 39 23 July 2018 Services Avaloq License 14,356.98 1,649,682.08 Sale of AG " P -44" 40 23 J uly 2018 Services 1\ valoq Asia Sale of Pacific Pte Ltd. Services Avaloq Australia Pty Ltd. FCD U Passbook Savings "P-50" 46 16 October Sale of Avaloq Asia 6,275.59 100,51 9.99 20 18 Se rvices Paci fi c P te Ltd. 21,045.07 121,565.06 " P -51" 47 16 October Sale of Avaloq Australia 20,031.67 141 ,596.73 2018 Services Pty Ltd. 14,209.01 155,805.74 Avaloq Sourcing 252,755. 25 408;560.99 "P-52" 48 16 October Sale of Asia Pacific 2018 Servi c es (Singapore) P te Ltd. " P- 53" 49 16 October Sale of Avaloq UK 2018 Se rvices Limited Avaloq Sourcing " P-54" so 16 O ctober Sale of Asia Pacific 20 18 Se rvices (Singapore) Pte Ltd. Avaloq Sourcing "P-55" 51 16 O ctober Sale o f (Swi tzerland & 102,362.70 5 10,923 .69 20 18 Services Liech tenstein) SA "P-5 6 52 16 October Sale of Avaloq Sourcing 1,026, 156. 72 1,537,080.4 1 2018 Services (Europe) AG 79 ,953.97 Withdrawal from Group Account and Deposit to Avaloq Pl-l's BPI - 62, 543.84 400,000.00 1,137,080.4 1 BPI I'CDU Passbook Savings " P-5 7" 53 1 December Sale of Avaloq Sourcing 1,21 7,034.38 20 18 Se rvices (Europe) AG " P-5 8" 54 1 December Sale of Avaloq Sourcing 1,279,578.22 2018 Se rv ices (Europe) AG Withdrawal from G ro up Accoum and Deposit to Avaloq PH's BPI- 300,000.00 979, 578. 22 BPI FCD U Passbook Savings 3,312,347.37 2,500,000.00 T otal An examination of the above Schedule of Offsetting ofReceivables reveals that there were five (5) withdrawals from Avaloq Group Account which were alleged to have been subsequently deposited to petitioner's BPI-FCD U P assbook Savings in the total amount of US$2,500,000.00. H owever, these amounts indicated in the schedule as withdrawals could not be traced from the BPI Bank Statements. 113 Moreover, the schedule, standing alone, is self-serving, and thus, lacks probative value to prove that indeed such withdrawals were meant as payment for services rendered by petitioner. Needless to state, one can simply prepare a Schedule of Offsetting of Recei?;ables to show the supposed o ffsetting, without the actual occurrence o f such even~ 113 Exhibit "P-24", BIR Records (Exhibit "R-4"), pp. 33 to 53.

DECISION CTA Case No. 10491 Page 26 of28 Also, despite providing documentation, such as Drawdown Requests114 and Apostilled English-translated debit advice115 issued by Credit Suisse (Schweiz) AG to demonstrate the transfer of funds from the Avaloq Group Account to the account of petitioner, the latter was unable to prove that these sums were in payment for the services it provided to its clients. Verily, since the supposed offsetting arrangement was not convincingly established, it cannot be said that petitioner has shown compliance with the said fourth essential element and fifth requisite that requires that for zero-rated sales under Section 108(B)(2) of the NIRC of 1997, as amended. Petitioner has fallen short in establishing that its sales of services qualify for VAT zero-rating under said provision. To be sure, it is only when the sales of a VAT-registered person are zero-rated or effectively zero-rated that such person may have the option of applying for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. 116 Considering petitioner's failure to establish its zero-rated or effectively zero-rated sales for the Yd and 4rh quarters of CY 2018, the present Petition for Review must necessarily fail. Correspondingly, it becomes unnecessary to look into petitioner's compliance with the remaining requisites. As final note, it is the taxpayer-claimant that has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. 117 Tax refunds are in the nature of tax exemptions. As such, they are regarded as in derogation of sovereign authority and to be construed strictissimijuris against the person or entity claiming the refund. 118 Thus, 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. 119 Strict adherence to the conditions prescribed by law is required of the taxpayer~ 114 Exhibit "P-81 to P-86". 115 Exhibit "P-87 to P-92". 116 Coca-Cola Bottlers Philippines, Inc. vs Commissioner ofInternal Revenue, G .R. No. 222428, July 19, 2018. 117 Citibank NA. vs. Court ofAppeals and Commissioner of Internal Ret;enue, G.R. No. 107434, October 10, 1997. 118 Commissionerofinternal Revenue v. S.C. Johnson and Son, Inc., et aL, G.R. No. 127105, June 25, 1999. 11 9 Eastern Telecommunications Philippines, Inc. vs. Commissioner of Internal Revemte, G.R. No. 183531, Match 25,2015, dting].R.A. Philippims, Int. vs. CIR, G.R. No. 171307, August 28, 2013. 120 Steag State Power, Inc. (Former!J State Power Development Corporation) vs. Commissioner of Internal Revenue, G .R. No. 205282,January 14,2019.

DECISION CTA Case No. 10491 WHEREFORE, in light of the foregoing disquisition, the present Petition for Review is DENIED for lack of merit. SO ORDERED. ~. ~ 'i''--- MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR: c o .t.-RRRE~s Justi~~ Associate .L ....... / 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. {}N, ~ 7 '-- MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson

DECISION CTA Case No. 10491 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. Presiding Justice