COMMISSIONER OF INTERNAL REVENUE v. ACCENTURE, INC.

.. REPUBLIC O F THE PHILIPPINES COURT OFTAX APPEALS QUEZON CITY ENBANC COMMISSIONER OF INTERNAL REVENUE, Peti lioner, C.T.A. EB NO. 410 (C.T.A. Case No. 7387) -versus- Present: Acosta, P.]. Castaneda, Jr. Bautista, Uy, Casanova, and Palanca-Enriquez, Jj . ACCENTURE, INC., Respondent. Promulgated: ~ -~' . MAR 18 2009 ''/'/' ~.?;~ X---------------------------------------------------------------------------------------------X DECISION BAUTISTA,[.: The Case Before the Court En Bane is a Petition for Review�1 filed by the Commissioner of Internal Revenue pursuant to paragraph 2, Section 18 of Republic Act No. 1125, as amended by Republic Act No. 9282 and Rule 8, 1 Rollo. pp. 7 -� 51 w ith Annexes.

DECISION E.B. No. 410 (C .TA Case No. 7387) , Page 2 of, 22 Section 3(b) of the Revised Rules of the Court of Tax Appeals, praying for the reversal of: 1. the Decision dated June 3, 2008 rendered by the Second Division of the Court ("Court in Division") in CTA Case No. 7387, which partially granted herein respondent's claim for tax refund or issuance of a tax credit certificate in the amount of ~57,760,131.74, representing its unutilized input value-added tax ("VAT") on domestic purchases of its goods and services for the period commencing from September 1, 2003 until August 31, 2004; and 2. the Resolution of the Court in Division promulgated on July 15, 2008, which denied herein petitioner's Motion for Partial Reconsideration. Antecedent Facts Antecedent facts to set us on a proper perspective are those lucidly set out by the Court in Division: "Petitioner2 is a domestic corporation duly registered with the Securities and Exchange Connnission, and existing under and by virtue of the Philippine laws, with principal office address at MSE Building, Ayala Avenue, Makati City. It is a value-added tax taxpayer duly registered as such with the Bureau of Internal Revenue (BIR), in accordance with Section 236 of the N IRC of 1997, as amended, with VAT RegistTation Certificate No. 000-845-543-000. As stated in its Articles of Incorporation, petitioner is primarily engaged in the business of providing management consulting and management information consulting services, including, but not limited to business integration, stTategic services, change management services, systems integration, systems management, the development, sale and/ or 2 Herein respondent. I (i;

DECIS ION E.B. No . 410 (C.TA Case No . 7387) Page 3 or p licensing of software, and the sale of hardware and rela ted products, either as principal or agent. Resp ondent,3 on the other hand, is the duly appointed Commission er of Internal Revenue vested with authority to ac t as su ch, includin g, inter nlin, the p ower to d ecide, approve and grant claims for refunds or tax credits of overpaid internal revenue taxes as p rovided by law, with office address a t the BIR Na tional Office Building, Agh am Road, Diliman, Q uezon City, w here she may be served w ith summons and oth er cou rt processes. XXX XXX XXX During the period from September 1, 2003 to Au gu st 31, 2004, p e titioner fi led the fo llowing Monthly and Quarterly VAT Re turns on these d a tes: Month Date File d Exhibits Se pte mber 2003 October 24, 2003 "D" October 2003 November 20, 2003 "�" _Nove mbe r 2003 (1 '' Quarte_r) December 22, 2003 "F" December 2003 janua ry 23, 2004 "G" january 2004 February 23, 2004 "H" _.!:_e_bruary ~Q4j2_':~Q':!_d_':_i_l!.!l__ . ___ -M-a-rc-h 23, 2004 "/" --- March 2001 April 26, 2004 "]" April 26, 2004 "K" (Amend ed) A pril 2004 May 25,2004 " L" May 200-1 (3"' Q uarte r) June 25, 2004 "M" July 27, 20~ (Amended) "N" --- July 23, 200-l june 2004 "0" july 29, 2004 (A mend ed) " P" july 20()!1 Au gust 25, 2004 "Q" --~ L~g.:_~t 2004 S4"' QL~Mte �) _ Sept e mbe~-2_~ 200,1_-------~- __ ..:_'!:.:__ ______ - Du ring the four (4) quar ters of the p eriod, the Quarterly VAT Re turns of pe titioner showed the following: 1st Qua rter 2nd Quarter Ending Fcbrua 9: 29,2004 Ending Nove mber 301 2003 Domesti c Amo unt Input VAT Amount Input VAT Purcha ses Cc1pit rll 23,263,529. 00 2,326,352.90 52,224,35 1.50 5,222;135. 15 Goods Goods olher thctn 167, 134,485.50 16,713,448.55 1 23,380,097 .40 12,338,009.74 58,699,932. 10 74,485,137.70 7,448,5 13.77 - - Cepil,tl Goods - - - 5,869,993.2 1 25,008,958.66 Services 24,909,794.66 Total lnptII VAT Zero-Ra ted 824, 103, 109.50 755,277,064 .27 Sales � - - - - ---� --~ 14 ,601 , 1 99 . 66 826,136,102A4 �- c=--- ------L----~3r~d~Q~u~ar~tc.~r_______L___~4~th~Q~u~a~rt~cr_____~l 3 Herein petit ioner. i

DECISION E.B. No. 410 (C .T.A . Case No . 7387) Page 4 of,22 -- - �- ----~-- -- --- - -- D o m e s t ic Ending Ma y 31, 2004 Ending August31, 2004 Pu rchases Ccl pilrl l A m ount Inpu t VAT Amou nt Input VAT Goo ds Goo ds o ther 145,4H 7,6 25.30 1�1,54H,762.53 250,360,383.90 25,036,038.39 than C ctpi trl l 36,414,585.90 -3,-64-1,-45-8.�5-9 - 92,483,964.20 0.00 - Good-s 143,242,393. I 0 9,248,396.42 14,324,239.31 34,284.434.81 Se rvices Tota l Inpu t 32,514,460.43 VAT Zero-Ra ted 927,429,478.44 1,362,639,542.45 Sa les 93 7,802,579. 94 1,373,736, 100 .95 -- Tota l S.11es Thus, p etitioner had a total zero-ra ted sales of P3,869,449,194.66 and p aid a total input VAT of P116,717,648.56, broken d own as follows: Period Zero-rated Sales Input VAT 824,103, 109.5 0 24,909,794.66 1s t Quarter 755,277,064 .27 25,008,958.66 2nd Quarter 927,429 ,4 78.4 4 32,514,460.43 3rd. Qua rte r 34,284,434.81 4th Quarter 1,362,1139,542.45 Total Input 116,717,648.56 3,869,449,1 94.66 - - VAT ' - - - -- - On November 18, 2005, pe titioner filed an adminis b�a tive claim for refund or issu ance of tax credit certificate of its unutilized input VAT credit on its d om es tic purchases of taxable good s, w hich are directly attTibuted to its zero-rated sales of services for the p eriod in the total am ount of P110,982,729.25, computed as follows: Period Input VAT 1s t Quarter 22,4 18, 81 5. 1 9 2nd Qua rter 22,758,152.38 3rd Quarter 31,864,171. 22 -!th Qu a rt~--- -- 33,94 1,590.46 Total ln_p~_t:_~-~T ---- 110,982,729.25 (Exhzbzt "C") For failure of respond ent to ac t on p etition er's claim for refund, on December 20, 2005, p etitioner elevated its case to this Court by way of a Petition for Review. On february 10, 2006, resp ondent filed her Answer alleging tha t the amount of P110,982,729.25 being claim ed by p etition er, as a lleged unuti lized input VAT on d om estic purchases of good s and services for the p eriod commencin.g from 1 September 2003 until 31 Au gu st 2004 was no t prop erly d ocumented; p etitioner must show that it has complied w ith the provision s of Section 204(C) nnd 229 of the 1997 Tax Code on the prescriptive p eriod for claiming tax refund / credit; and claims for refund are consh�u ed s b�ictly against the claimant for the same p artake the nature 1@/

DECISION E.B. No . 410 (C.T .A. Ca se No . 7387) of exemption from ta xa tion, and as su ch, they are looked upon with disfavor. Petitioner presented Emmanuel Y. Mendoza, the Court- commissioned Independent CPA; Loida S. Samson, its CounlTy Conh�oller; and Leonardo M. Jose, its Tax and Statutory Specialist, as w ih1esses; and d ocumentary evidence, marked as Exhibits "A" to "EEE", inclusive of their submarkings. Except for Exhibits "SS-1353", "TT-936", "TT-938", "TT-940", "TT-943 Lo "TT-95111, "TT-953 II to "TT-956 11, "TT-95811 Lo "TT-1325 11, "TT-1328 11, "TT-13 32 11, "Tf -133411 to IITT-134411, IITT-1346 11, "TT-1347", "TT-1349", "TT-135111, "TT-1352 11, "TT-1 355 11 to "TT-1 361 11, "UU-2419 11, "UU-2423 11, "UU-2428 11, "UU-2429 11, "UU-2434 11, "UU-2436", "UU-243911, "UU-2448 11, "UU-245411, IIUU-2456 11, "UU-2458 11 to "UU- 246011, "UU-2463", "UU-2465" to "UU-2471", "UU-2506 11, "VV-851", "VV- 857", "VV-861" and "VV-862, 11 the Court admitted all the other exhibits in a Resolution dated January 2, 2008. Up on manifestation of counsel for respondent that he will not present an y eviden ce, both parties were granted thirty (30) d ays from January 14, 2008 to file their simultaneou s m emoranda . Pe titioner was granted an extension of thirty (30) days from February 13, 2008 to file its m em orandum. Both parties having filed their respec tive m emoranda, the case was d eem ed submitted for d ecision on March 17, 2008.114 The Ruling of the Court in Division On June 3, 2008, the Court in Division rendered its Decision which partially granted herein respondent's claim for tax refund or issuance of a tax credit certificate in the amount of ~57,760, 131. 74, representing its unutilized input VAT on domestic purchases of its goods and services for the period commencing from September 1, 2003 until August 31, 2004. The Court in Division found that respondent's sales of services are zero- rated pursuant to Section 108 (B)(2) of the NIRC of 1997 since it renders managem ent consultin g and managem ent information consulting services 4 Rollo. pp. 28- 32. Deci sion. C.T.A. Case No. 7387. pr . 2-6.

D ~C I SION E.B. No. 410 (C .TA Case No . 7387) and related products, either as principal or agent, as well as other related business activities to its various foreign clients, the considerations for which are paid for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (" BSP" ). However, according to the Court in Division, only zero-rated sales in the amount of ~3,869,449,194.66 were substantiated. Hence, the Court in Division ruled that only the allowable input tax attributable to such zero-rated sales can be the proper subject of a claim for refund. The Court in Division then found that only the input VAT of ~62,282,420.88 was properly substantiated, in accordance with the invoicing requirements prescribed under Sections llO (A) and 113(A) of the NIR C of 1997, as amended, and as implemented by Sections 4.104-1, 4.104-5 and 4.108-1 of Revenue Regulations No. 7-95. The Court in Division also held that respondent still had to pay output tax in the amount of ~1,795,389.91 since respondent's input tax allocated to taxable sales amounting to ~351,576.09 would not entirely cover its output tax liability of ~2,146,966.00. However, such output tax could not be offset against its respondent's input tax carried-over from the previous quarter in the amount of ~161,820,406.23 because petitioner did not present VAT invoices or official receipts to prove the existence of that amount. Consequently, respondent's output tax payable was applied against its substantiated claimed ;I e

QECISION E.B. No . 410 (C .T.A . Case No. 7387) input tax allocated to zero-rated sales, resulting to a refundable input tax of ~57,760,131.74 only. Lastly, the Court m Division ruled that the subject claim no longer formed part of the excess input VAT of ~241,671,616.93 as of the first quarter of 2006, which was to be carried over/ applied to the succeeding second quarter of 2006 and that both the administrative and judicial claims for refund or tax credit certificate were filed within the two-year prescriptive period. The Jallo of the Decision reads as follows: "WHEREFORE, premises considered, the instant Petition for Review is hereby PARTIALLY GRANTED. Accordingly, respondent Commissioner of Internal Revenue is hereby ORDERED to REFUND or to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of FIFTY SEVEN MILLION SEVEN HUNDRED SIXTY THOUSAND ONE HUNDRED THIRTY ONE AND 74/100 PESOS (P57,760,131.74), representing unutilized input VAT on domestic purchase of its goods and services for the period commencing from September 1, 2003 until Au gust 31, 2004. SO ORDERED." Aggrieved, herein petitioner filed a Motion for Partial Reconsideration of the aforementioned Decision which was denied for lack of merit by the Court in Division in its Resolution dated July 15, 2008. Thus, petitioner initiated this recourse to the Court En Bane. The Issue The solitary issue raised by petitioner is whether or not respondent is entitled to a tax refund or credit of its unutilized VAT input taxes on its

DECISION E.B. No. 410 (C .T .A. Case No . 7387) Page 8 of ,22 purchases of goods and services in the amount of :j]57,760,131.74 for the period commencing from September 1, 2003 to August 31, 2004. Petitioner's Arguments Petitioner contends that respondent failed to show that its purchases of goods and services were made in the course of its trade and business. It also alleges that respondent failed to show that the said purchases were properly supported by VAT invoices and/ or official receipts and other documents such as entries made in its subsidiary purchase journal showing that it actually paid VAT in accordance with Sections 110 (A) (2) and 113 of the 1997 NIRC, as amended and pursuant to Section 4.104-5(a) & (b) of Revenue Regulations ("RR") 7-95. Petitioner also asserts that respondent failed to prove that the input taxes amounting to ~57,760,131.74 allegedly paid on its domestic purchases of goods and services were attributable to its zero-rated sales and that such have not been applied against any output tax nor carried over in the succeeding taxable quarters. Lastly, petitioner insists that the 120-day period in Section 112(D) of the NIRC applies to the instant case and not the 2-year period in Section 229 of the same Code since the case involves a claim for refund of unutilized VAT. Consequently, respondent can appeal to the Court only after the expiration of the said 120-day p eriod or within thirty (30) days from the decision of petitioner denying its claim for refund. Considering that the 120-day period

DECISION E.B. No . 410 (C .T.A. Case No . 7387) Page 9 ol22 has not expired when respondent lodged its judicial claim on December 20, 2005, the Court in Division obtained no jurisdiction over such claim. Responden~s Counter-arguments Respondent points out that its unutilized creditable input taxes for the period covering September 2003 up to August 2004 were duly substantiated by documentary evidence in the form of schedules, invoices, official receipts, statement of accounts, bank statements and other relevant documents. Respondent also maintains that its adn"linistrative and judicial claims for refund were properly filed within the 2-year prescriptive period required under Sections 229 and 112(A) of the NIRC, in relation to Sections 4.106-1 and 4.106-2 of RR 7-95, as amended. The earliest quarter covered by its claim is the quarter ending November 30, 2003, for which it filed its VAT return on December 22, 2003. Counting from this date, it had until December 22, 2005 within which to file its administrative and judicial claims for refund. It filed its administrative claim for refund on November 18, 2005 and its Petition for Review on December 20,2005. The Ruling of the Court En Bane The Petition for Review has merit. The administrative and judicial claims for refund were filed within the period provided by law I

DECISION E.B. No . 410 (C .TA Case No . 7387) Page 10 l>f 22 At the outset, the Court En Bane shall discuss petitioner's arguments on the Court's jurisdiction and the applicable prescriptive period. Contrary to the assertion of petitioner, the Court in Division had jurisdiction over this case and it correctly ruled that respondent's administrative and judicial claims for refund were filed within the prescriptive period of two (2) years. Section 112(A) of the 1997 NIRC outlines the procedure for Refunds or Tax Credits of Input Tax, viz: "SEC. 112. Refunds or Tax Credits of Input Tax. - (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales where made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except h�ar1.sitional 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)(l), (2) and (B) and Section 108(B)(l) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko SenlTal 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 cmmot be directly and entirely attributed to any one of the tTansactions, it shall be allocated proportionately on the basis of the volume of sales." (Emphrzs�s supplied) It is well-settled that a taxpayer must comply with the following requisites to be entitled to a refund or tax credit of input VAT payments directly attributable to zero-rated or effectively zero-rated sales: 1. There must be zero-rated or effectively zero-rated sales; 2. Input VAT payments were incurred or made;

DECIS ION E.B. No . 41 0 (C .TA Case No . 7387) Page 11,of 22 3. The claimed input VAT p ay m ents are directly attributable to zero-rated sales; 4. The claimed input VAT payments were not applied against any output tax during the p eriod covered by the claim and in the succeeding periods; 5. Both administrative and judicial claims for a tax credit or refund were filed within tw o (2) years from the filing of the quarterly VAT return(s) covered by the claims as provided under Section 4.106-2(c) of RR 7-95, in relation to Section 112(D) of the NIRC; and 6. Th e claimed input VAT p aym ents are duly supported by VAT invoices or official receipts6, in accordance w ith Section 4.104-5 of RR 7-95, in rela tion to Section 113 and 237 of the NIRC. The Court En Bane has ruled that the 2-year prescriptive p eriod in claiming a refund of unutilized or excess input VAT in the administrative and judicial levels is reckoned from the d ate of filing of the quarterly VAT return.? 5 Atl as Co nso li dated M ining and Developm e nt Corporat ion v. Commi ss io ne r of Intern a l Revenu e, Reso lution, C.T.A . Case No. 5296 , .Jul y 20. 1998; Taga nito Min ing Cor porati o n v. Commi ssioner of Intern al Revenu e, C.T.A. Case No . 5983 , October 11 , 200 1; A ir Li quide Phili pp ines, Inc. v. Commiss io ner of Intern al Revenu e and Comm issio ner of C ustom s, C .T.A. Case No. 5748, Ja nuary 23 , 2002 . 6 S ilico n Phi lippines, Inc. (former ly In te l Phil ippi nes Ma nu fact uring, Inc .) v. Co m m iss ioner o f Interna l Revenu e, C.T.A . EB Case No. 2 19, (C.T.A. Case No. 6493), Fe bruary 18, 2008 citing Intel Technology Philippines, Inc. v. Commissioner of Internal Revenue G.R. No. 166 732, April 27, 2007, 522 SCRA 657. 7 Com m iss ioner o f Intern a l Revenue v. Matsushi ta Bus iness Machine Corporation o f the Ph ili ppines. C. T.A. EB o . 290 (C.T .A. Case o. 6495). .J anuary 17, 2008. Ke pco Ph il ippines Corp. v. Comm issio ner of In terna l Reve nu e. C.T .A . E B Case No. 107 (C.T.A . Case No. 64 13), J un e 29. 2007 ; Co mmi ss io ner o r Interna l Re venu e v. Mi rant Pag bi lao Co rpo rati on (fo rm e rl y So uthern Ene rgy Q uezon , Inc.). C.T .A . E B Case No . 25 1 (C.T.A . Case Nos. 6628 & 6732), May 30, 2007. I (!i

DECISION E.B. No . 410 (C .T.A. Case No . 7387) Page 12, of 22 Thus, a taxpayer has two (2) years from the date of filing of the quarterly VAT return to file both its administrative and judicial claims for refund. The Court En Bane finds no merit in petitioner's contention that respondent's judicial claim was prematurely filed since the 120 days given to the Commissioner of Internal Revenue to decide on the claim under Section 112 (D) of the 1997 NIRC had yet to lapse when the Petition for Review was filed with the Court on December 20, 2005. Section 112(D) [now Section 112 (C)] provides: "SEC. 112. Refunds or Tax Credits of Input Tax. - XXX XXX XXX (D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsections (A) and (B) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals." (E111phrzsis supplied) The use of the word "may" in the afore-quoted provision indicates that judicial recourse within thirty days after the lapse of the 120-day period is directory and permissive and not mandatory nor jurisdictional as long as the said period is within the 2-year prescriptive period. It is a settled doctrine in statutory construction that the word "may" when used in a statute, is I6

DECISION E.B. No. 410 (C.T.A. Case No . 7387) Page, q of22 permissive and operates to con�er discretion; it cannot be construed as having a mandatory effect.S Corollary thereto, the Honorable Court of Appeals has ruled that when the 2-year prescrip tive period is about to prescribe and the claim for refund with the Commissioner of Internal Revenue has not been acted upon by him, for the protec tion of the interest of the taxpayer, the latter should file a Petition for Review with the Court of Tax Appeals within the said 2-year period; otherwise, if the decision of the Commissioner is adverse to the taxpayer and it was made after the 2-year period, he can no longer appeal the same to the Court of Tax Appeals. The Court of Appeals ratiocinated in this wise:9 "It appears therefore, that it is not necessary for the Commissioner of Internal Revenue to first act unfavorably on the claim for refund before the Court of Tax Appeals could validly take cognizance of the case. This is so because of the positive mandate of Section 230 of the Tax Cod e and also by virtue of the doch�ine tha t the delay of the Commissioner in rendering his decision does not ex tend the reglem entary period prescribed by statute. Incidentally, the taxpayer could not be faulted for taking advantage of the full two-year period se t by law for filin g his claim for refund. Indeed, no provision in the tax code requires that the claim for refund be filed a t the earliest instance in order to give the Commissioner an opportunity to rule on it and the court to review the ruling of the Commissioner of Internal Revenue on appeal. The law fixed the same period - two years - for filing a claim for refund with the Commissioner (Sec. 204, par. 3), and for filing of suit in court (Sec. 230), unlike in protests of assessment under Sec. 229 which fixed the period (thirty days from receipt of the decision) before an appeal could be made in court. Indeed, only the la tter case presupposes the existence of a 8 Republic Pl anters Bank v. l-Ion. Enrique A. Agana, Sr. et. al. , G.R. No. 51765 , March 3, 1997. 269 SCRA I. 9 Commiss ioner of Internal Revenue v. Hitachi Computer Products (Asia) Corporation, CA-G .R. SP No. 63340, February 7, 2002 citing Gibbs v. Collector of Internal Revenue and Court of Tax Appeals, 10 7 Phil 232, Johnson Lumber Co. vs. CTA, /01 Phil/5 1.

DE CISION E.B. No. 410 (C .T.A. Case No. 7387) Pag" 14 of 22 prior decision of the Commissioner which could be subjected to review by the court. In fact, the Court of Tax Appeals itself acknowledges that the claim for refund with the Commissioner could be pending simultaneously with a suit for refund filed before the former (Commissioner of Internal Revenue vs. Bank of the Philippine Islands as Liquidator of Pam mount Acceptance Corpora tion and the Court of Tax Appeals, CA-G.R. SP No. 34102, September 19, 1994)." (Emphasis supplied) It is well to note that the Bureau of Internal Revenu e has cited the foregoing disquisition of the Court of Appeals as basis w hen it made the following ruling: "In reply, please be informed that a taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review. Neither is it required that the Commissioner should first act on the claim of a particular taxpayer before the CTA may acquire jurisdiction, particularly if the claim is about to prescribe. The Tax Code fixed the period of two (2) years for filing a claim for refund with the Commissioner [Sec. 112(A) in relation to Sec. 204(c)] and for filing a case in court [Section 229]. Hence, a decision of the Commissioner is not a condition or requisite before the taxpayer can resort to the judicial remedy afforded by law."IO (Emphasis supplied) A review of the records of this case reveals that the earliest quarter covered by respondent's claim for refund is the quarter ending November 30, 2003. Respondent filed its Quarterly VAT Return on December 22, 2003.11 Thus, respondent had until December 22, 2005 to file both its administrative and judicial claims for refund. It is clear therefore that respondent timely filed its administrative claim for refund12 for the period beginning September 1, 2003 up to August 31, 2004 with the BIR on November 18, 2005, pursuant to Section 112(A) of the NIRC, in relation to Section 4.106-2(c) of RR 7-95. Respondent's 10BIR Rulin g [DA-489-03] dated December 10. 2003. s igned by Deputy Co mmi ssioner (Lega l and Enfo rcement Group) Jose Mari o C. Buiiag. 11 Records. pp. 29-30. 12 !d , pp. 54-63 . I

DECISION E.B. No . 410 (C .T.A. Case No . 7387) Pag ~ 15 of 22 judicial claim for refund for unutilized input VAT covering the same period was likewise seasonably filed on December 20, 2005.13 Respondent failed to prove that it is entitled to a refund Nevertheless, after a careful review of the records of this case and in line with the decision of the Supreme Court in Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.l4, a reversal of the assailed Decision and Resolution becomes necessary. As previously mentioned, the following are the requisites for the granting of a claim for refund or tax credit: 1. There must be zero-rated or effectively zero-rated sales; 2. Input taxes were incurred or paid; 3. Such input VAT payments are directly attributable to zero- rated sales or effectively zero-rated sales; 4. Such input VAT paym ents were not applied against any output VAT liability during and in the succeeding quarters; 5. Such input VAT paym ents are duly supported by VAT invoices or official receipts; and 6. The claim for refund was filed within the two-year prescriptive period. With regard to the first requisite, the Court in Division found that respondent's sales of services are zero-rated pursuant to Section 108(B)(2) of the 1997 NIRC since respondent renders management consulting and 13 Records, pp. 1-63, w ith Annexes. 14 G. R. No . 153205 , Jan uary 22, 2007, 512 SCRA 124.

DECISION E.B. No . 410 (C .T .A . Ca se No . 738 7) Pagf!16 of 22 management information consulting services, including, but not limited to, business strategic services, change management services, systems integration, systems management, the development, sale and/ or licensing of software, and the sale of hardware and related products, either as principal or agent, and other related business activities, to its various foreign clients, the considerations for which are paid for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. Said Section 108(B)(2) of the 1997 NIRC imposes a VAT at zero percent (0 %) on revenues derived from sale of services aside from processing, manufacturing or repacking of goods for other person doing business outside the Philippines which goods are subsequently exported, provided that the transaction is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. It reads as follows: " SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. - XXX XXX XXX (B) Transactions Subject to Zero Percent (O<Yt,) Rate. - The following services p erformed in the Philippines by VAT-registered persons shall be subject to zero percent (0 %) rate: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral n g Pilipinas (BSP). (2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable I

DECISION E.B. No. 410 (C .T.A. Case No . 7387) foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) ." (Emphasis supplied) Thus, a taxpayer must comply with the following requirements for its services to qualify for zero-rating: 1. The recipient of its business IS doing business outside the Philippines; 2. The payment of its service fees was m acceptable foreign currency; and 3. The accounting of such remittance was m accordance with rules of the BSP. Relative thereto, the Supreme Court declared m the case of Commissioner of Internal Revenue v. Bunneister and Wain Scandinavian Contractor Mindanao, Inc.1s that another essential condition for qualification to zero-rating under Section 108(B)(2) [then Section 102(b)(2)] is that the recipient of such services is doing business outside the Philippines, to wit: "Th e Tax Cod e not only requires tha t the services be other than 'processin g, manufacturing, or repacking of goods' and that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules. Ano ther essential condition for qualification to zero-rating under Section 102(b)(2) is that the recipient of such services is doing business outside the Philippines. While this requirement is not expressly stated in the second paragraph of Section 102(b), this is clearly provided in the first parar;raph of Sec tion 102(b) where the listed services must be 'for other persons doing business outside the Philippines.' The phrase 'for other persons doing business outside the Philippines' not only refers to the services enumerated in the first paragraph of Section 102(b), but also pertains to the general term 'services' appearing in the second paragraph of Section 102(b). In short, services other than processing, manufacturing, or repacking of 15 Supra, note 14 . I

.. DECISION E.B . No . 410 (C T A Ca se No . 7387) goods must likewise be performed for persons doing business outside the Philippines. This can only be the logical interpretation of Section 102(b)(2). If the provider and recipient of the 'other services' are both doing business in the Philippines, the payment of foreign currency is irrelevant. Otherwise, those subject to the regular VAT under Section 102(a) can avoid paying the VAT by simply stipulating payment in foreign currency inwardly remitted by the recipient of services. To interpret Section 102(b)(2) to apply to a payer-recipient of services doing business in the Philippines is to make the payment of the regular VAT under Section 102(a) dependent on the generosity of the taxpayer. The provider of services can choose to pay the regular VAT or avoid it by stipulating payment in foreign currency inwardly remitted by the payer-recipient. Such interpretation removes Section 102(a) as a tax measure in the Tax Code, an interpretation this Court cannot sanction. A tax is a mandatory exaction, not a voluntary conh�ibution." (Emphasis supplied) In v1ew of the foregoing discussion and jurisprudential pronouncement, it becomes essential to re-examme and re-evaluate respondent's evidence. Respondent formally offered as evidence its Schedule of Zero-Rated Sales - Local (Annex D of Exhibit "]]"), Schedule of Billings and Remittances (Annex C of Exhibit "]]"),Intercompany Payment Requests (Exhibits "WW-1" to "WW-11"), Official Receipts (Exhibits "XX-1" to "XX-11"), Billing Statements (Exhibits "YY-1" to "Y-11"), Memo Invoices-Receivable (Exhibits "ZZ-1" to "ZZ-90), Memo Invoices-Payable (Exhibits "AAA-1" to "AAA-73"), Bank Statements (Exhibits "BBB-1" to "BBB -11"), and presented the testimony of its Country Controller, Ms. Loida S. Samson (Exhibit "II") in order to buttress its claim that the bulk of its sales are zero-rated or effectively zero-rated. I

DECISION E.B. No. 410 (C.T.A. Case No . 7387) However, the Court En Bane finds that no evidence was presented to prove that the foreign clients to whom respondent renders services are clients doing business outside the Philippines. The documents submitted by respondent merely establish that sales transactions exist, that the payments of its service fees were in acceptable foreign currency, and that the proceeds of such sales transactions were inwardly remitted to the Philippines and accounted for in accordance with the rules of the BSP. Even the Judicial Affidavit of Ms. Loida S. Samson, respondent's Country Controller16, contains no proof that the "foreign clients" of respondent are doing business outside the Philippines. Page Nineteen (19) of her Affidavit contains the following: "Q: What is the general business of Accenture, Inc.? A: As stated in its Article of Incorporation marked as Exhibit "A", Accenlure primarily provides management consulting and management information consulting services, including but not limited to, business integration, strategic services, systems integration and systems management. Q: Who are the clients of Accenture? A: Accenture serves foreign clients in providing consulting and management information consulting services." (Emphasis supplied) In the same vein, the Judicial Affidavit17 and Reportsls prepared by Mr. Emmanuel Y. Mendoza, the Independent CPA, are bereft of any statement or finding that respondent's foreign clients are doing business outside the 16Records, pp. 12 1- 141 , Exhibit " II ", identifi ed during th e June 7, 2006 hearing. 17 Records, pp. 18 2- 192, Ex hibit " FFF"', identified durin g the .Jul y 2, 2007 hearin g. 18 Record~. C PA Report dated September 15. 2006 (Three Binders) a nd C PA Report dated October I0. 2006 (Three Binders).

DECISION E.B . No . 410 (C .TA Case No . 7387) Pa�-e 20 of 22 Philippines. Respondent's allegation that its clients were "foreign clients" is insufficient to meet the requirement of the law and jurisprudence that the recipient of its service is doing business outside the Philippines. Furthermore, the Court En Bane agrees with the disquisition of the Second Division of the Court on this matter in the case of Accenture, Inc. v. Commissioner of Internal Revenue dated August 7, 200819 which was also adopted by the First Division of the Court in the recent case of Accenture, Inc. v. Commissioner of Internal Revenue dated November 13, 200820, viz: "The phrase 'foreign clients' is couched in its generality that the Court cannot just simply assume that they are engaged in doing business outside the Philippines. A 'foreign client' may also be engaged in doing business in the Philippines and in that case, when petitioner and recipient of its services are both doing business in the Philippines, their h�ansaction falls squarely under Section 108(A) of NIRC of 1997 governing domestic sale or exchange of services subject to 12% VAT. Even if there is an allegation that these foreign clients are doing business outside the Philippines, still the Court cannot give weight to such allegation. Mere allegations are not sufficient but must be accompanied by supporting evidence. " 21 (E mplznsis supplied) Since respondent's said allegation has no supporting evidence, it failed to prove that its sales of services to its "foreign clients" qualify for zero percent (0 %). It bears stressing that the Supreme Court has consistently ruled that "actions for tax refund, as in the instant case, are in the nature of a claim for exemption and the law is not only construed in strictissimi juris against the I 19 C.T.A. Case Nos. 7 158, 7285 & 7313. �2 C.T.A . Case No. 7046. 21 Supra, note 19.

DECISION E.B. No . 4 10 (C .T.A. Case No . 7387) Page.21 of 22 taxpayer, but also the pieces of evidence presented entitling a taxpayer to an exemption is strictissimi scrutinized and must be duly proven." 22 Consequently, this Court applies such rule in its decisions and "believes that in claims for refund, the law mandates the court to observe a higher standard of caution in appreciating and evaluating evidence. If indeed a claim for refund is wanting in pertinent and supporting evidence, then the granting thereof could prove to be improper, if not di��icult." 23 In fine, respondent herein has the burden of proof to establish the factual basis of its claim. Since it failed to do so, its claim must be denied. With such conclusion, the Court En Bane shall no longer discuss the other requisites. WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly, the assailed Decision promulgated on June 3, 2008 and the Resolution dated July 15, 2008 are hereby REVERSED and SET ASIDE. Respondent's claim for refund or issuance of tax credit certificate is hereby D ENIED for insufficiency of evidence. SO ORDERED . 22 Atlas Con solidated Mining and Development Corporati on v. Commi ssioner o f Intern al Revenue, G.R. No. 159490, February 18, 2008 , 546 SCRA 163. 23 Accenture, Inc. v. Co mmi ss ioner of Internal Revenue, supra, note 19 and 20, both citing EC W Joint Ve nture Inc. v. Commissioner of Internal Revenue, C TA Case No. 6398. May 26, 2003

DE CISION E.B. No . 410 (C .T A Case No. 7387) Page �22 of 22 WE CONCUR: ~ ........ a~ (With Dissenting Opinion) ERNESTO D. ACOSTA Presiding Justice Qu~~ a..c.:r--~/ ~' ER~.UY )tJANITO c. CASTANEDK, JR. i:~~ Associate Justice (~w�if~sj'c~.t~o. � ) CAES~NOVA 1 epara e oncurntyt'Opini~ Associate Justice OLGA PALANCA-ENRIQUEZ Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the above Decision has been reached in consultation with the members of the Court En Bane before the case was assigned to the writer of the opinion of this Court. ~""'.~ ERNESTO D. ACOSTA Presiding Justice

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC C.T.A. EB No. 410 ******* (CTA Case No. 7387) COMMISSIONER OF INTERNAL REVENUE, Present: Petitioner, -ver su s- Acosta, PJ. Castaneda, Jr., Bauti sta, Uy, Casanova, and Palanca-Enriquez, JJ ACCENTURE , INC., Respondent. X- - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - --- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- X DISSENTING OPINION A COSTA, P.J : Raised before the Court En Bane is the issue of whether respondent is entitled to a refund or credit o f its unutilized VAT input taxes on its purchases of goods and services for the period from September 1, 2003 to August 31, 2004. T he m ajority, in reversing the Second Division, found that respondent failed to comply with the requiremen t of proving that the recipient of its services was doing business outside the Philippines. T his requirem ent was said to be anoth er essential condition for qualification to zero-rating under Section 108(B)(2) o f the National In ternal Revenue Code (N IRC), in the case Commissioner of Inte rn al Revenue vs. Burmeister and Wain Sc andidavian Contracto r Mindanao, lnc .1 1 G. R. No. 153205 , January 22, 2007.

Dissenting Opinion CIAEBNo. 410 Page 2 oj4 After a re-evaluation of the facts and the issues presented, the undersigned is of the opinion that the findings of the Second Division should be upheld. Despite the above-mentioned decision, Section 108(B)(2) of the NIRC, prior to the amendment introduced by Republic Act No. 9337 (R.A. 9337), was correctly applied by the Second Division. It states: SEC. 108. Value-added Tax on Sale of Services and U se or Lease o f Properties.- xxx (B) Transactions Subject to Zero-Percent (0%) Rate.- The following services performed in the Philippines by VAT-registered persons shall be subject to zero-percent (0%) rate: (1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). (2) Services other than those mentioned in the preceding paragraph, the consideration of which is paid for in acceptable foreign currency and accounted for in accordance w ith the rules and regulations o f the Bangko Sentral ng Pilipinas (BSP). As found by the Second Division, "petitioner's sale of services are zero-rated pursuant to the above provision because it rendered management consulting and management information consulting services, xxx". The Second Division also found that only a portion of the claim was substantiated as they were supported by "zero-rated official receipts, billing statements, and memo invoices to its various foreign clients, the consideration for which was are paid for in accordance with the rules and regulations of the BSP". Under the Section 108(B)(2), the only requirement for zero-rating under Section 108(B)(2) is that the services were paid for in acceptable foreign currency and accountable for in accordance with BSP regulations. In fact the Supreme Court, in Commissioner of Internal Revenue vs. American Express International, Inc.2 held that "[I]nterpellations on the subject in the halls of the Senate xxx reveal a clear intent on 2 G.R. No. 152609, June 29,2005.

Dissenting Opinion CTAEBNo. 410 Page 3 oj4 the part of the legislators not to impose the condition of being 'consumed abroad' in order for the services performed in the Philippines by a VAT- registered person to be zero-rated.". Section 102(B)(2) of the NIRC is very clear. No statutory construction or interpretation is needed. Neither can conditions or limitations be introduced when none is provided for. Rewriting of the law is a forbidden ground that only Congress may tread upon.3 In this case, the documents submitted by petitioner established that its sales transactions existed, the payments of such service fees were in foreign currency, and that the proceeds of such sales transactions were inwardly remitted to the Philippines and accounted for in accordance with the rules of the Bangko Sentral ng Pilipinas. Since these are the only requirements of the law applicable at that time and because respondent was able to show compliance with these requirements4, albeit not as to the entire amount of its claim, the partial grant of the claim was correctly made by the Second Division. Diametrically opposed to the above Section 108(B)(2) is the Section 108(B)(2) as amended by RA 9337. As amended, added as requirement to be entitled to VAT zero- rating under par. (B)(2) of Section 108 is that the recipient of the services should be doing business outside of the Philippines. As amended by R.A. 9337, Section 108(B)(2) now reads: SEC. 108. Value-added T ax o n Sale of Services and Use o r Lease of Pro p erties.- xxx (B) T ransaction s Subject to Z ero-P ercent (0%) Rate.- The following services performed in the Philippines by VAT-registered persons shall be subject to zero-percent (0%) rate: (1)Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable 3 Supra. 4 Schedule of Zero-Rated Sales-Local (Annex D of Exhibit "JJ"), Schedule of Billings and Remittances (Annex C of Exhibit "JJ"), Intercompany Payment Requests (Exhibits "WW-1 to WW-1 1"), Official Receipts (Exhibits " XX-I to XX-II "), Billing Statements (Exhibits "YY-I to YY-II " ), Memo Invoices-Receivable (Exhibits "ZZ-1 to ZZ-90"), Memo Invoices-Payable (Exhibits " AAA-1 to AAA- 73" ), Bank Statements (Exhibits "BBB-1 to BBB-11 "), and the testimony of its Country Controller, Ms. Loida S. Samson (Exhibit " II ")

Dissenting Opinion CTA EB No. 410 Page 4 oj4 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 eng aged in business conduc te d outside the Philippines or to a nonreside nt pe rson not engaged in business w ho is outside the Philippines w hen the services are pe rforme d, the consideration of 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). As stated above, the requirement that the services were 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 was rendered, was introduced by R.A 9337. Before such amendment, the law only requires that services were paid for in acceptable foreign currency and accountable for in accordance with BSP regulations. Since R.A. 9337 became effective only on November 1, 2005, the amendment should not prejudice respondent whose claim is for the period September 2004 to August 2005. In view of the above, I vote for the denial of the Petition for Review and the in toto upholding of the Second Division Decision. ERNESTO D . ACOSTA Presiding Justice

REPUBLIC OF THE PHILIPPINES Court ofTax Appeals QUEZON CITY ENBANC COMMISSIONER OF INTERNAL C.T.A. EB NO. 410 REVENUE, (C.T.A. CASE NO. 7387) Petitioner, Present: -versus- ACOSTA, Presiding Justice, CASTANEDA, JR., BAUTISTA, UY, CASANOVA, and PALANCA-ENRIQUEZ, JJ. ACCENTURE, INC., Promulgated: Respondent. _MA_ R _ 1 8_20_ 09 ~I'Jd/1-/r~~.-r~'- _ _ /, -..5 p ~� ;no._, X ------------------------------------------------------------------------------------ X SEPARATE CONCURRING OPINION PALANCA-ENRIQUEZ, J.: In view of the decision of the Supreme Court in the case of Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., 512 SCRA 124, which clarified Section 102(b)(2) of the NIRC of 1977, as amended, (now Section 108(B)(2) ofthe 1997 Tax Code, as amended), to wit~

C.T.A. EB NO. 410 2 (C.T.A. CASE NO. 7387) Separate Concurring Opinion "The Tax Code not only requires that the services be other than 'processing, manufacturing or repacking of goods' and that payment for such services be in acceptable foreign currency accounted for in accordance with BSP rules. Another essential condition for qualification to zero- rating under Section 102(b)(2) is that the recipient of such service is doing business outside the Philippines. While this requirement is not expressly stated in the second paragraph of Section 102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services must be ' for other persons doing business outside the Philippines. ' The phrase ' for other persons doing business outside the Philippines' not only refers to the services enumerated in the first paragraph of Section 102(b), but also pertains to the general term ' services' appearing in the second paragraph of Section 102(b). In short, services other than processing, manufacturing, or repacking of goods must likewise be performed for persons doing business outside the Philippines ." I have no alternative, but to reverse my previous stand in C.T.A. Case No. 7387, partially granting the claim for refund or issuance of tax credit certificate to respondent Accenture, Inc. Accordingly, I vote to GRANT the instant Petition for Review in C.T.A. EB No. 410. ~~~CA~~RIQUEZ Associate Justice