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 NO. 10248 OPERATING HEADQUARTERS, Petitioner, -versus- Members: RINGPIS-LIBAN, Chairperson, COMMISSIONER OF INTERNAL REVENUE, MODESTO-SAN PEDRO, a11d Respondent. FERRER-FLORES, Jl. Promulgated: DECISION RINGPIS-LIBAN, J. THE CASE The Petition jo1' Re1;iew prays judgment be rendered ordering respondent to refund in favor of petitioner the amount of P3,055,913.90, representing petitioner's unutilized and/ or excess input value-added tax (VAT) attributable to its zero-rated sales for the yt1 to 4rh quarters of calendar year (CY) 2017, or the period from September 1, 2017 to December 31, 2017. 1 THE PARTIES Petitioner Avaloq Philippines Operating Headquarters is a regional operating headquarters (ROHQ) of Avaloq Group AG (Head Office).2 It is licensed to transact business in the Philippines by the Securities and Exchange Commission (SEC);3 and is primarily engaged in general administration and planning, business planning and coordination, sourcing/procurement of ra~ 1 Statement of the C:a~c, Pre-Trial Order datcu J an uary 6, 2021, Docke r - Vol. 1, p. 332. 2 Par. l.a, Stipulatio n of h1cts, ]oi111 Stipll!atio11.r ofFrtd.r a11rl !J.r11e.r (JS I' I), Docket - Vol. 1, p. 276; l�:xhibit " P-1" , Vol. 1, pp. 486 to 498. :1 Par. 1.b, Stipul ation of ! 'act~, J S1' 1, Docket - Vol. I, p. 276; l�:x hi bit " 1'-2", Vol. I, p. 500.

C:T i\ C:a o<t: N o. 10248 Aualoq Pbilippi11es Opemti11g Headq~tmtctJ IJJ. Co)ti))Jis.rio11er ~fl lltcmal Reue1111e ----------------- --------- --- ------- ------------ --- ----------- --- 1 materials and components, corporate finance advisory services, marketing control and sales promotion, training and personnel management, logistics services, research and development services, product development, technical support and maintenance, data processing and communication, and, business development. 4 Petitioner is also registered with the Bureau of Internal Revenue (BIR), Revenue District Office (RDO) No. 050, as a taxpayer with Taxpayer's Identification Number (TIN) 008-637-771-000.5 Respondent Commissioner of Internal Revenue (CIR) is vested by the Tax Code with the authority, among others, to decide, approve and grant application for the refund on the excess or unutilized input VAT.6 THE FACTS OF THE CASE On September 30, 2019, petitioner ftled with the BIR an Applic-ation for Tax Credits/Refunds (BIR Form No . 1914), 7 and its letter of even date, 8 requesting for the refund of its unutilized input VAT attributable to petitioner's zero-rated sale of services, for the 3rd and 4rh quarters of CY 2017 or the period from September 1, 2017 to December 31, 2017, amounting to P3,055,913.90. Subsequently, on December 18, 2019, petitioner received the letter dated December 6, 2019, issued by the BIR, through Ms. Erlinda A. Simple, Assistant Commissioner for the Assessment Service,9 denying petitioner's administrative claim for lack of factual and legal basis. The Petition of Revieu; was flied on January 17, 2020.10 In his A nswer filed on July 1, 2020,11 respondent interposed the following special and affirmative defenses, to wit: (1) the instant judicial claim should be denied for petitioner's failure to prove and substantiate the claim for refund at the administrative level; (2) since a decision has already been rendered and as held by the Supreme Court, the duty of the court is now limited to determining whether the decision is proper; (3) the claim for refund should be denied for failure to comply with the mandatory invoicing requirements pursuant to Section 113 in relation to Section 110 of the Tax Code, as amended; (4) the claimant has the burden of proof to establish the factual basis of his claim f,o.r.,v 4 P a r. 1.c, Stipulatio n of I'acto<, J Sl; I, Doc ket - Vo l. I, p. 27 6; E xhibit " P-2-1 ", Vol. I, p. 500. ; Pa r. 1.a to 1.d, Stipula tio n o f Facto<, .J SL' I, D ocket- Vol. I, p . 27 6; l�:xhibit " P-3", Vol. 2, p. 501. (, Par. 2, T ht: l'artit:o<, Petitio11 for Reuie1u, vi,;-il -vis par. 4, Adm issio ns and Dmials, A 11J11JCI; D ocket - Vol. I, pp. 8 and 83, rt:o<pcc tivd y. 7 l �:x hibit " P-19", Doc kt: t - Vol. 1, p . 562; I'a r. 1. f.2 , Stipula tion of ht cto<, .J S171, D oc ket - Vol. 1, p. 277. 8 l::xhibit " P-18", D oc ke t - Vol. I, pp. 556 to 561 ; Par. 1.f. l , Stipulatio n of I'acts, J S I' I, D oc ke t - Vol. I, p. 277. 9 Ex hibit " P-20", D oc ke t - Vol. I, pp. 65 to 69; l'a r. 1. f.3 , Stipula tio n of l'acts, .J SI' I, Docket- Vol. I, p . 277. to Docke t - Vo l. l, pp. 7 to 18. tt D oc ket- Vol. I, pp. 82 to 91 .

Cl't\ Case No. 10248 AIJ(J/oq Philippims Operating H earlqHatteJ:r u.r. Commissioner ofInlema/ Re1;enm tax credit or refund; and (5) partaking of the nature of exemptions, claims for refund are strictly construed against the claimant and cannot be allowed unless granted in the most explicit and categorical language. Respondent transmitted the BIR Records for this case on September 21, 2020. 12 The Pre-Trial Conference was set and held on November 10, 2020_13 Prior thereto, Respondent's Pre-Trial Brief was filed on November 3, 2020,14 while the Pre-Trial Brief (of Petitioner Avaloq Philippines Operating Headquarters) was submitted on November 6, 2020. 15 On November 26, 2020, the parties filed their Joint Stipulation ofFactJ and Issues,16 which was admitted and approved by the Court in its Resolution dated December 3, 2020, 17 thereby deeming the termination of the Pre-Trial. Thereafter, the Pre-Trial Order was issued on January 6, 2021.18 Trial then ensued, with the parties presenting and offering their respective evidence. Petitioner offered the testimonies of the following individuals, namely: (1) Mary Lalaine V. Munar, 19 petitioner's accountant; and (2) Ms. Krista V. Bambao, 20 the Court-commissioned independent certified public accountant (ICPA). 21 The Amended ICPA Reportwas submitted on February 19,2021.22 On March 24, 2021, petitioner posted its Formal Offer of Evidence, 23 to which respondent filed his Comment [Re: Petitioner's Formal Offer of Evidence] on May 27, 2021. 24 In the Resolution dated October 13, 2021, 25 the Court admitted all of petitioner's offered exhibits> v 1z Doc ket- Vol. I, pp. 100 to 103. l3 Notice of Pre-Trial Conference dated .July 9, 2020, Doc ket - Vol. I, pp. 94 to 95; fv!inutes o f th e hearing hdd on, and O rder dated, November 10, 2020, Doc ket- Vol. I, pp. 270, and 273 to 275, respectivd y. I< Doc ket - Vol. I, pp. 119 to 122. IS Docket- Vol. I, pp. 257 to 268. 1c. Doc ket - Vol. I, pp. 276 to 285. 17 Docket- Vol. I, pp. 287 to 288. IR Docke t - Vol. I, pp. 332 to 339. 19 L�:xhibit " 1'-21", Doc ket- Vol. I, pp. 142 to 155; Minutes of the hea ring hdd on, and O rder dated .J anuary 28, 2021, Docket- Vol. I, pp. 418. and 421 to 422, respectivel y. 20 r.::xhibit " P-22", Docket- Vol. I, pp. 429 to 464; Minute,; of the hearing hdd on, ami O rder dated , February 24, 2021, Doc ket- Vol. I, pp. 467 to 469. 21 Oath oJCommiJJion dated November 10, 2020, Docket- Vol. I, p. 272; Minute,; o f the hea ring hdd on, and O rder dated, November 10, 2020, Doc ket - Vol. I, pp. 270, and 273 to 275, rc,; pec tivd y. 22 l�:xhibit " P-35" , Doc ket- Vol. I, pp. 383 to 4 16. 23 Docket - Vol. I, pp. 470 to 484. 2< Docket - Vol. 2, pp. 61 7 to 619. 2S Doc ket - Vol. 2, pp. 627 to 628.

C:T r\ Case N o. 10248 Avaloq Philippi11e.r Opemti11g H earlqllarters IJJ. Com111i.r.rio11er o{ TIIfemal Revwue Page 4 of24 --- -1 --------- --, -- -- --------- ---------------- ---- ---- ----------- For his part, respondent offered the testimony of Revenue Officer Audrey Pepito-Collado.26 On April 22, 2022, respondent filed his Formal Offer of Evidence. 27 Petitioner, however, failed to ftle its comment thereto. 28 In the Resolution dated July 4, 2022,29 the Court admitted all of respondent's offered evidence. Thereafter, on July 21, 2022, respondent flied a Manifestation, 30 stating that he is adopting the arguments he raised in his Answer dated June 22, 2020 as his Memorandum. On the other hand, petitioner flied its Memorandum on August 18, 2022.31 This case was deemed submitted for decision per the Order dated August 25, 2022.32 However, on February 14, 2023, petitioner filed its Motion for Leave of Court to Reopen the Case for Presentation ofAdditional Evidence and Allow Conditional Rem!! of Witness (of Petitioner Avaloq Philippines Operating Headquarters). 33 Respondent then flied his Comment and Opposition (Re: Petitioner's Motion for Leave ofCourt to Reopen the Case for Presentation ofAdditional Evidence and Allow Conditional Recall of Witness dated 14 February 2023) on February 20, 2023 . 34 In the Resolution dated April 11, 2023, 35 the Court granted petitioner's Motion , thereby vacating the Resolution dated August 25, 2022. Petitioner's Accountant, Ms. Mary Lalaine V. Nlunar, was then recalled to the witness stand on July 20, 2023.36 On July 25, 2023, petitioner flied its Compliam�e with Submission, with attached Supplemental Formal Offer ofEvidence,37 to which respondent filed his Comment (Re: Supplemental Formal Offer ofEvidence dated 25 Ju!J 2023) on August 11, 2023 .38 In the Resolution dated October 9, 2023, 39 the Court admitted petitioner's additional offered exhibits, except Exhibits "P-220" and "P-221 ", for failure of the exhibits to be formally offered and identified to correspond with the documents actually marked// 26 Exhibit " R-7", Doc ket- Vol. I, pp. 113 to 118; Minu tes of the hearing hdd on, and Order dated, r\ pril 20, 2022, Docket -Vol. 2, pp. 631 to 633. 27 Docket - Vol. 2, pp. 634 to 637. 2H Docket - Vol. 2, p. 641. 2? D ocket- Vol. 2, pp. 643 to 644. '" Doc ket- Vol. 2, pp. 645 to 646. 31 Docket - Vol. 2, pp. 649 to 688. 32 Order dated r\ugust 25, 2022, Docket - Vol. 2, p. 689 . 33 Docket- Vol. 2, pp. 690 to 696. 3~ Docket- Vol. 2, pp. 793 to 803. 3' Docket- Vol. 2, pp. 807 to 810. 31� Minutes of th e hea ring held on .July 20, 2023, Doc ket - Vol. 2, p. 972. 37 Docket- Vol. 2, pp. 974 to 980. 3H Docket - Vol. 2, pp. 1088 to 1090. 3? Doc ket- Vol. 2, pp. 1093 to 1094.

CT A Ca~<: No. 10248 AJJaloq Pbilippi11es Opemti11g H earlqnalten� u.r. Co111111i.r.rio11er oflntema/ ReiiCIIIIC On October 25, 2023, petltloner filed a Motion for Reconsideration (Re: Resolution dated 09 Oc-tober 2023 on Petitioner's Supplemental Formal Offer of Evidence dated 25 .fu!J 2023), 40 to which respondent filed his Comment (Re: Motion for Reconsideration dated 25 October 2023) on November 24, 2023.41 In the Resolution dated February 21, 2024,42 the Court denied petitioner's Motion for Reconsideration for lack of merit, and submitted the case anew for decision. Hence, this Decision. THE STIPULATED ISSUE The parties stipulated the following issue for this Court's resolution, viz : "Whether the Petitioner is entitled to a tax refund amounting to Pesos: Three Million Fifty-Five Thousand Nine Hundred Thirteen and 90/100 (P3,055,913.90) representing its alleged excess and/ or unutilized input vat credits attributable to its zero-rated sales for Third and Fourth Quarters of CY 2017 or the period of 01 July to 31 December 2017 ."43 THE ARGUMENTS Petitioner argues that it is a VAT-registered entity as required under Section 112(A) of the Tax Code, as amended; that the administrative and judicial claim for refund was flied within the prescriptive period provided under the pertinent provisions of the Tax Code and its implementing rules and regulations; that petitioner is engaged in zero-rated or effectively zero-rated transactions as required under the Tax Code, as amended, and its pertinent regulations, and the sales were paid for in acceptable foreign currency exchange and the proceeds have been duly accounted for in accordance with the rules and regulations of the Bangk o Sentral ng Pilipinas (BSP); that the input taxes due from the purchases of goods and services directly attributable to zero-rated sales of petitioner were duly supported by VAT invoices or official receipts (ORs). Respondent contends that tl1e instant judicial claim should be denied for petitioner's failure to prove and substantiate the claim for refund at the administrative level; that it is an established fact that a decision has already been rendered and in such case, the Supreme Court has held that the duty of the court is now limited in determining whether the decision is proper; that the claim for refund should be denied for failure to comply with the mandatory / ~0 Docket - Vol. 2, pp. 1095 to 1099. ~ 1 Docket - Vol. 2, pp. 1102 to 1104. ~2 D oc ket - Vol. 2, pp. 1107 to 1109. ~3 Stipulation of i>~ue, .JSI ,. I , Dock<:t - Vol. I, p. 277.

CT ;\ Ca~t: No. 10248 Avaloq Philippille.f Opemti11g H eadq11m1e1:r vs. Co11mtiJ:rio11er q( Tn!cmal Revenue Page 6 of24 ---;------------..-. ----------------------------------------------- invoicing requirements pursuant to Section 113 in relation to Section 110 of the Tax Code, as amended; that the claimant has the burden of proof to establish the factual basis of his claim for tax credit or refund; and that partaking of the nature of exemptions, claims for refund are strictly construed against the claimant and cannot be allowed unless granted in the most explicit and categorical language. THE COURT'S RULING The present Petition for Review must be denied. Requisites under tbe law for tbe refund or issuance of tax credit certificate ofinput VAT. Section 112 of the National Internal Revenue Code (NIRC) of 1997, as amended by Republic Act (RA) No. 109634\ provides, in part, as follows: "SEC. 112. Refunds or Tax Credits ofInput Tax. - (A) Zero-Rated or Effective!J Zero-Rated Sales. - Any VAT- registered person, whose sales are zero-rated or effectively zero- rated may, witlun t\-vo (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 5entral ng Pilipinas (BSP): Provided, fttrther, 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,ftnal!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./ 44 i\N i\CT ,\ MEND IN C SI�:CTI ONS 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, 11 0. 112, 11 4, 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 , r\ N D 288; CRI �:r\TI NC NEW SECTIONS 51-,\ , 148-t\, 150-;\ , 150-H, 237-i\ , 264-,\ , 264-l'l, i\ND 265-t\; i\N D REP EA LI NG SECTIONS 35, 62, AND 89; t\LL UND I-:R RI �:PUBLI C t\CT 8424, OTI IERWISE KNO \XIN r\ S THE NATI ONAl. INTI-:RN r\J. REVr�:NU I�: COD E OF 1997, ,\ S r\ MI�:N DI-:D, r\ N D I'OR OTI 11 �:1~ I' URI'OS I�:S.

C:T :\ C:a>t: No. 10248 A /}{1/oq Pbilippi11e.r Operati11g I-l earlqllmlcn tJ.f. Comllli.r.riollcroj lll!cmal RetJc1111e Page 7 o f24 XXX XX X XXX (C) Period within which Refund of Input Tax es 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. 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: Provided, h01vever, 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 foregoing provision, jurisprudence has laid down certain requisites which the taxpayer-applicant must comply with to successfully obtain a credit/refund of input VAT. Said requisites may be classified into certain categories as follows: As to the timeliness of the filing of the administrative and judicial claims: 1. the refund claim is flled with the BIR within two (2) years after the close of the taxable quarter when the sales were made;45 2. in case of full or partial denial of the refund claim rendered \vithin a period of ninety (90) days from the date of submission of the ORs or invoices and other documents in support of the application, the judicial claim shall be filed with this Court within thirty (30) days from receipt of the decision'.46 With reference to the taxpayer's registration with the BIR: 3. the taxpayer is a VAT -registered person;4~ ( ~ ; l11tel TcdJIIolol)' Pbilippi11e.r, Im�. IIJ. Commi.r.riolll!r of Tillema/ RetJciii!C, C. R. N o. 166732, April 27, 2007; Sa11 Roq11c Potvcr Cotpomtioll u.r. Commi.r.rio11er ~f Inlema/ Reue/11/e, (;. It No. 180345, Nove mber 25, 2009; and A T& T CoJJIIllllllimtiolls Sen;ice.r Pbilippi11e.r, Im: v.r. CoJJJJJJissioller o[I11temal Reuw11e, C .R. No. 182364, 1\ugust 3, 2010. ~1' Refer to E 11et:gy Developmmt Corpomtio11 tJJ. Coiilmissio11er oj llltema/ RetJemte, G .R. No. 203367, l'vfarch 17, 2021 ; Comllli.r.rio11er q( l lltemal Revc1111c v.r. CE C..rtJema/1 117atcr A 11rl E llciJJ' Compatf)', Im:, G. R. No. 21 2727, Feb ruary 1, 2023; and Commi.r.rio11er of l111ema/ Reve1111e liJ. Ve.r/as Seruice.r Pbilippi11e.r, Im:, C. lt No. 255085 , March 29, 2023 . ~7 I11te/ TedJIIolol)' Pbilippi11es, Jm: v.r. CommiHio11er qf l11temal Revcllllc, supra; S011 Roq11e Po1ver Co ,pomtioll u.r. Commi.rsio11er ofI nfert/{/1 RetJCI/IIe, supra; and A T& T Co!Jllllllltimtioll.r Seruit-e.r Pbilippille.f, l m: v.r. Commi.r.rio11erofl11temal RetJCI/IIe, sup ra.

C:'l'r\ C:a~e No. 10248 Aualoq PIJilippine.r Operating Headqttm1n:� u.r. Co111111i.r.rioner ofIntemnl Revenm: --- -7------ - ----- ~ ------- ------ --------- - ---- - ------ -- ------------ In relation to the taxpayer's output VAT: 4. the taxpayer is engaged in zero-rated or effectively zero-rated sales;48 5. for zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and Section 108(B)(l) and (2), 49 the acceptable foreign currency exchange proceeds have been duly accounted for in accordance with the Bangko Sentrai ng Pilipinas (BSP) rules and regulations;50 As regards the taxpayer's input VAT being refunded: 6. the input taxes are not transitional input taxes;51 7. the input taxes are due or paid;52 8. the input taxes claimed are attributable to zero-rated or effectively zero-rated sales. However, where there are both zer9-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;53 and 9. the input taxes have not been applied against output taxes during and in the succeeding quarters. 54 In addition, in claims for VAT refund/ credit, applicants must satisfy the substantiation and invoicing requirements under the NIRC and other implementing tules and regulations. 55 Thus, petitioner's compliance with all the VAT invoicing requirements is required to be able to file a claim for input taxes attributable to zero-rated sales. 56 The invoicing and substantiation requirements should be followed because it is the only way to determine the veracity of the taxpayer's claims. 57 Moreover, it must be pointed out that compliance with all the VAT invoicing requirements provided by tax laws and regulations is mandatory~ ~H Ibid. ~�J Und er R,\ No. 10963, Sectio n 106(r\ )(2)(a)(2) wa~ renumbered to Section 106(t\)(2)(a)(3) while Section 106(!\)(2)(b) wa~ deleted. Howeve r, th ere wa~ no co rre~po nd ing amendment to th e ~ubscctio n ~ cited in Section 11 2(,\ ) of th e N IRC of 1997, m; amended. oo Intel Tedmology PIJilippine.r, Im�. u.r. Co111111i.r.rioner of Intemal RCile/1/te, supra; San Roq11e Po11Jer Corpomtion u.r. Commi.rsiomr ofIntemal RetJCI/IIe, ~upra; and A T & T Comm1111imtion.r Semi.-e.r PIJilippine.r, [//(:., liS. Co111111iSJioner qfIntemal ReiJCIIIIC, supra. " Ibid. oz Ibid. o3 Intel Tedmolo!!J' Pbili.ppines, In.-. 11s. ComllliSJioner of Intemal Re1Jen11e, supra; and Sa11 Roq11e Power Co1pomtion u.r. Commi.r.rioner of l11temal RetJenlle, sup ra. 0~ Intel Tedmology Pbilippine.r, Im: tJJ. Commi.r.riomr qfl11temal RetJen11e, supra; San Roq11e Po1ver Co1pomtion tJ.r. Co111111iJJioner ofl ntcmal RetJenlle, supra; and A T &T CoJIIIJ111niwtioJu Semit:e.r Pbilippinc.r, l m: /J.f. CoJitJiti.r.rioner ofintemal RetJen11c, supra. 00 Tea/11 E nergy CoJpomtion us. c:ommi.r.rioner oflntcmrd Reuei/IIC, e/ .req., c; .R. N os. 197663 and 197770, Ma rch 14, 201 8. 01' J.RA. Pbilippine.r, lm�. /JS. Commi.r.rioner qflntemnl RetJC/IIIe, G. lt No. 171307, i\ugust 28, 2013. 07 Nippo n Expre.r.r (Pbilippine.~ Co1porntio11 uJ. Co11111ti.r.rioner ofIntemnl Reuel/l!e, G .R. No. 191 495,.July 23, 201 8. 08 E a.rtem Teler01111111111imtio11J PbilippineJ, Im: v.r. Com1J1i.r.rio11er of lntcmal Reuen11e, C.R. N o. 183531 , Ma rch 25, 2015.

CT1\ Ca~e No. 10248 A valoq Pbilippi11e.r Opernti11g I-Ieadqllmters uJ. Commi..-siomr ofTl!tema/ Reue/11/e Page 9 of24 -------- -- --- --------- ---- ---- -------- -- --- --- -------------- --- -- Furthermore, it must be emphasized that in cases f.tled before this Court, which are litigated de novo, party-litigants must prove every minute aspect of their case.59 Thus, it behooves petitioner to show compliance with each of the foregoing requisites and invoicing requirements. As a corollary, the absence of arry of the said requisites is already a valid ground to deny the refund claim. Petitioner~s administrative and judicial claims were timely filed. The first requisite pertains to the filing of a claim for tax refund or tax credit of input VAT before the BIR, within two (2) years from the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made. As previously stated, the present claim covers the 3rd to 4rh quarters of CY 2017. Counting two (2) years from the close of the said quarters, the following table indicates the respective last day for filing of the administrative claim, to wit: 2017 Period Close of the Taxable Last Day to File Q uarter Administrative Claim 3'J Quarter July 1, 2017 to September 30, 201 7 4'" Quarter October 1, 2017 to D ecember 31, 2017 September 30, 2017 September 30, 2019 December 31, 2017 December 31, 201 9 Thus, the filing of petitioner's administrative claim covering the said quarters in the amount of P3,055,913.90 was timely filed on September 30, 2019 .60 As regards the second requisite, the same necessitates that the judicial claim must have been filed within thirty (30) days from receipt of respondent's decision or after the expiration of the ninety (90)-day period under Section 112(C) of the NIRC of 1997, as amended. From the filing of petitioner's administrative claim on September 30, 2019, respondent had ninety (90) days or until December 29, 2019, to act on the said claim. In case of inaction within the said ninety (90)-day period, petitioner has thirty (30) days from such expiration to file its judicial claim, or until January 28,2020. V / S'J Edi.ro11 (Batnail} Cogeneratio11 Co!poraliOII IJJ. Co111111i.r.rio11er qf llltema/ Reue1111e, el.req., C .R. No,;. 201665 and 201668, r\ ugu,; t 30, 2017; Co/Jimissio11er of l11tema/ Reuw11e JJJ. Pbilippi11e N atio11al Ba11k , C.R. No. 180290, September 29, 2014; Commis.rio11er qf 111/ml{i/ Revel/lie u.r. U11iterl Sai1Jage n11rl Tol/lage (Pbil.r.), 1m:, C.R. N o. 197515, .July 2, 2014; Dizo/1 u.r. Comt q[Ta:x: Appeal.r, et a!. , G .R. No. 140944, i\ pril 30, 2008; AtlaJ Collsolidated Mi11i11g n11d Deuelopmelll Co!poratioll 11.r. Co!llll1l~rsiomr qf 111/emal Reuell!le, G.R. N o. 145526, Marc h 16, 2007; and Co!llllti.r.rioller if 111tema/ Reuwm VJ. Ma11ila Nli11i11g Co1poration, G .R. No. 153204, 1\ ugu,;t 31 , 2005. 60 I�:xhibit " P-19", Docket - Vol. I, p. 562; Par. 1.f.2, Stipulation of l;aw , JSI'I , Docket- Vol. I, p. 277; Exhibit " P-.18", Docket- Vol. I, pp. 556 to 561; Par. 1.f. 1, Stipu lation of l'act,;, .JSFI , Docket- Vol. I, p. 277.

C'l't\ Case No. 10248 AJJa!oq Pbilippine.r Operating H eadq11arten JJS. Collllllissioner oj!nlemal Reuen11e Page 10 o f24 Petitioner received the BIR's denial letter dated December 6, 2019 on December 18, 2019.61 Subsequently, petitioner filed its judicial claim, via the present Petition for Review,62 on January 17, 2020, which is within the thirty (30)- day reglementary period. Such being the case, the Court finds that petitioner complied with the above-stated first and setond requisites. Petitioner is a VAT-registered person/entity. Anent the third requisite, it is also undisputed that petitioner is a VAT- registered person/entity, with TIN 008-637-77 1-000. 63 Thus, there is no question that petitioner showed compliance with the said requisite. Petitioner fa11ed to establish that it was engaged in zero-rated sales or effectively zero-rated sales. The fourth and fifth requisites respectively 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 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 1OS (B) (2) of the NIRC of 1997, as amended, which reads as follows: "SEC. 108. Value-added Tax on Safe ofServices and Use or Lease ofProperties. - XXX XXX XXX (B) Trammiions Subject to Z ero Pen-ent (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~ 61 l�:x hibit " 1'-20" , Doc ker - Vol. I, p. 65. (,z D oc ket - Vol. I, pp. 7 to 17. 63 �Exhibit " 1'-3", Doc ket- Vol. 2, p. 501.

CT 1\ Ca,;e N o . 10248 A valoq Pbilippi11c.r Opcrati11g Hcadq11mteJ~� JJS. Co111111h rio11er of I11temal Revc1111C 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 discerned 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: 1) 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;64 2) The services fall under any of the categories under Section 108(B) (2),65 or simply, the services rendered should be other than ''processing, manufacturing or repacking goods";66 3) The services must be performed in the Philippines67 by a VAT- registered person; and 4) The payment for such setvices should be in acceptable foreign currency accounted for in accordance with BSP rules. 68 For the first essential element, in order to be considered as a non-resident foreign corporation (NRFC) doing business outside the Philippines, each entity must be supported, at the very least, by both a Certification ofN on-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 tl~ 1'' Site/ Pbilippim.r Corporatio11 (FomlCI[J' Clic11tlogit" Pbil.r. Jm") JJ.r. Co111111i.r.rio11er of I11temal Rcvwm, G. R. No. 201326, l'cbruary 8, 2017; Co111111i.rsiomr ofl11tema/ ReJJCIII!e v.r. B11rmcistcr a11d W'ai11 Sr:a11di11aviall Co11!1mtor M i11danao, Im:, C .IL No. 153205, Jamra ry 22, 2007; A cm J/1/re, Im: v.r. Commi.r.rio11er ofI11temnl ReJJCI/IIe, C .lC No. 1901 02, Jul y 11, 2012. 6'> Commi.rsio11er q( I111emnl ReJJeJJI/e v.r. Ame1imll Exprcs.r I11temntio11n/, Im: (Pbilippi11e Brmu/J), C. R. N o. 152609, J unc 29, 2005. 61� Co111tlll:r.rio11er qf I11temal R eJJemJe JJ.r. BtmllCi.rter n111/ J.l:i"ai11 Smnrli11a1Jia11 Co11trador j\1.illrf(JIIfiO, Im:, G. R. No. 153205, .J an uary 22, 2007. 1�7 Com1t1i.r.rio11er q( I111cmal RcJJCIIIICu.r. Bm'lJtci.rtcr a11d 1./Vaill Sm11rlillri/Jinll Co11trtutor Nlillrlr111no, Im: , supra; Commi.r.rio11er oJ I11tcmal Rcvc1111e v.r. A mcrim11 E xprc.r.r 111/cmaliolla/, Im: {Pbilippi11e Bm11cb), C .R. N o. 152609,.Junc 29, 2005. r.s Com1t1i.r.rio11er oJ I11tcma/ ReJJei/Jte v.r. Bm'liiCiJter a11d I-Wai11 Sm11di11avian Co11tmdor !11illdal/ao, Im: , supra; Co!ll/1/issiomr of I111emal ReJJeJJttc 11.r. Amerim11 E '<j>rcs.r llllematio11a/, Im�. (Pbilippi11e Bm111:b), supra.

C:Tr\ C:a~c.: No. 10248 Aualoq Pbilippines Operating, HearlqnarteJ:r us. Co1111J1i.rsioner ofIntemal Reueuue Page.: 12 of 24 Philippines; while the latter proves that the said ree1p1ent 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 rf Internal Revenue vs. Deutsche Knowledge Services Pte. Ltd., 69 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 NRFC 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 are 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 findings. 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~ w C .R. No. 234445, .July 15, 2020.

C:T r\ C:ase No. 10248 Avaloq Philippines Operating I-l carlqllaltel:l' /JS. Co111missioner qf Inlema/ Rct;enlle Page 13 o f 24 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 pni11a facie evidence that their clients are not engaged in trade or business in the Philippines." (Emphases 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 COMPANY PROOF OF FOREIGN SEC CERTIFICATION OF INCORPORATION/ NON-REGISTRATION Avaloq Evolution AG (Exhibit No.) Avaloq Australia Pty. Ltd. REGISTRATION Avaloq Sourcing Asia Pacific (Exhibit No.) "P-24"71 (Singapore) Pte Ltd. " P -23" 70 Avaloq License AG " P -25" 72 "P-26"73 I Avaloq Sourcing (Europe) AG Avaloq Sourcing Switzerland and "P-27"74 ! Liechtenstein SA "P-29" 76 "P-31"78 "P-28"75 "P-30"77 " P -33"80 "P-32"79 "P-34"81 As to the second essential element, petitioner must prove that the services to these clients fall within the scope of "services other than p rocessinty manufacturing or repacking goods". Per the General Framework Services Agreement presented by petitioner, the definition of "services" means all kinds of services provided by Avaloq Affiliates as specified in Appendix 1, and may include the performance o f work leading to a Work Result.82 Upon an examination o f the records, petitioner did not submit Appendix 1 of the GeneralServim� Framework Agreement. Thus, there is no way of knowing the kind of services were provided. With regard to the third essential element, petitioner must show that the subj ect services were performed in the Philippines by a VAT-registered person. ~ 70 RIR Records, pp. 330 to 337. 71 HIR Records, p. 344. 72 RIR Reco rd s, pp. 323 to 326. 7.l HIR Record s, p. 343 . 7�1 HIR Record s, pp. 31 5 to 322. 1:. HIR Records, p. 345. 7r. BIR Rt:cords, pp. 327 to 328. 77 BIR Reco rds, p. 341. 7~ D ocket- Vol. 2, pp. 563 to 569. 79 BIR Records, p. 342. su Docket - Vol. 2, pp. 570 to 586. HI HIR Rt:cords, p. 346. H2 r�:xhibit " l'-14", Dockt:t- Vol. 2, p. 512 to 524.

CL\ C:a ~c.; No. 10248 AtJo!oq Pbilippine.r Operating I-IeorlqNmtm�tJJ. Co/))/))i.r.rioner oflntemal RetJCtllte Page14of24 A perusal of the above Agreements reveals that the same lacks any indication that the services were performed in the Philippines. This was also confirmed b y the ICPA in her Report as follows: 83 "4. In addition to the above-enumerated documents, the General Framework Se1-vices Agreement ('GFSA') (Exhibit P-14 as marked by counsel of Petitio ner) were evaluated during m y review to ascertain xxx, the location where the services were provided xxx: XXX XXX XXX � Location Where the Not specified Services were Provided XXX XXX XXX No document/agreement were provided for m y review to ascertain the nature o f the services, the location where the services were provided as well as the fees to be paid for the services provided by P etitioner to Avaloq Sourcing (Switzerland & Liechtenstein) Ltd. And Avaloq Sourcing (Europe) AG xxx" In her Supplemental Juditial Affidavit,84 petitioner's Accountant, Ms. Mary Lalaine V. l'v!unar, clarified this seeming uncertainty, thus: "3. Q: Can you please elaborate your statement that 'Petitioner'.rprO?JiJion ofJemice.r to it.r non- re.rident foreign qfjiliate.r were all rendered in the Philippine.r'? 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'J pro?JiJion qfJen;iceJ to it.r non-re.ridentforeign afliliate.r u;ere all rendered in the Pbilippine.r'? 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. T his 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 D ecember 2017 . Column K of the said document indicates the location of service for the covered period/~/ s:1 Exhibit " P-35", Docket- Vol. I, pp. 383 to 417. H~ I�:xhibit " P-222", Docket- Vol. 2, pp. 819 to 824.

C:Tr\ Cast: N o. 10248 Auoloq Pbilippinc.r Operating I-Icarlqllatters 11s. ColllllliJ'Jioner oflntemo/ Reuen11c Page 15 o f 24 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 countxy (e.g., 'PH') Correlating Column C and Column K of ProTime logs for July to December 2017, it is shown that the services rendered for the covered period were rendered in the Philippines. XXX Lasdy, 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 sexvices to its foreign clients? A: As Petitioner is a sofnvare company, which provides services through software maintenance, support, and bug-fL-xing, 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 2017 85 as well as the corresponding ProTime Emplqyee Guidelines 86 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. Before going into the fourth essential element, which corresponds to the fifth requisite that requires that for zero-rated sales under Section 1OS (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. 16-05, 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 NIRC of 1997~ s; Exhibit " 1'-215", Docket - \' ol. 2, pp. 981 to 1004. Hlo li xhibit " 1'-216" , Dockt:t- Vol. 2, pp. 1005 to 1021.

C l',\ Ca~<.: No. 10248 AJJa!oq Pbilippine.r Operating I-!wdq11mten u.r. Commi.r.rioner ofI11tema/ ReJJelltre Page 16 of24 Since petitioner's reported sales are in the nature of sales of services under Section 1OS(B) (2) of the NIRC of 1997, petitioner is required to issue BIR-registered VAT ORs for the foreign currency proceeds of each sales transaction, the infonnation contained therein must be in compliance with the applicable provisions previously mentioned, such as the word "zero-rated", and the taxpayer's TIN-VAT number. Petitioner submitted the ORs with attached invoices, 87 issued to its clients, as well as the Schedule of Sales,88 to support its zero-rated sales for the Jrd and 4rh quarters of CY 2017. Upon examination of the foregoing documents, this Court finds that out of the declared zero-rated sales o f P235,821,048.51, only the zero-rated sales amounting to r148,238,575.00 are duly substantiated with valid supporting documents, as detailed below: OR OR OR AMOUNT Exhibit AMOUNT O.R. DATE CLIENT NAME IN PUP FINDINGS No. 21 July 2017 Avaloq Evolution AG IN US$ 21 July 2017 Avaloq Evolution AG 1,223.24 60,842.40 Without Exception - " P-39 " 15,837.92 "P-40" 21 July 2017 Avaloq A.ustralia Pty Ltd 14,344.65 787,760.48 Without Exception "P-41" 21 July 17 Avaloq Sourcing Asia Pacific "P-42" (Singapore) Pte Ltd 115,928.39 713,486.76 Without Exception 21 July 2017 Avaloq Sourcing Asia Pacific "P-43" (Singapore) Pte Ltd 49,250 .78 5,766,146.99 Without Exception 24 July 17 Avaloq License AG 1'188,627 .36 " P -44" 24 October 1,337,059.56 ----' "P-46" Avaloq License AG 2017 49,628.30 2,449,678.04 Without Exception " P- 47" 24 October 1\valoq Australia Pty Ltd 83,952.5 1 84,496.64 - "P-48" 2017 I\ valoq Sourcing Asia Pacific Sub-total 24 October (Singapore) Pte Ltd 42,581 .05 59'120,983.00 Without Exception "P-49" Avaloq Sourcing Asia Pacific 1,224,905.83 20 17 (Singapore) Pte Ltd 57,233.87 68,213 ,844.00 Without Exception 24 October 80,727.24 34,245 .92 2,531,927.08 \Vithout Exception 2017 72,594.96 4,283,072.92 \Vithout Exception " P -45" 1 February Avaloq Sourcing (Europe) A.G 87,020.16 4,3 10,833.33 \"Xlithout Exception "P-51" 2018 18,295.35 " P-52 " Avaloq License AG 148,238,575.00 "P-53" 1 January ,\valoq Sourcing (Switzerland & - - "P-54" 2018 Liechtenstein) SI\ "P-55" I\valoq .Australia Pty Ltd 2,117,933.38 Out of Period "P-56" 1 January Avaloq Sourcing I\sia Pacific "P-57'' 2018 (Singapore}Pte Ltd 61 ,638,609.89 Out of Period "P-58" Avaloq Sourcing .Asia Pacific 1 January ~Singa12o reL Pte Ltd 2,696,941 .79 Out of Period 2018 ,\valoq Sourcing (Europe) AG 4,062,283.59 Out of Period 1 January Avaloq Sourcing (Europe) AG 2018 1,723,292.40 Out of Period Avaloq Sourcing Asia Pacific 1 Janumy (Singapore) Pte Ltd 3,653,058.31 Out of Period 2018 4,378,950.25 Out of Period 1 February 2018 920,642.15 O ut of Period 1 February 10,9 18.00 Out of Period; Sale 2018 not classified in the 1 January // 20 18 87 Exhibit~ " 1'-39" to " P-60-1", US1:3. ss r\n n<.:x 1, lC I'r\ R<.:port, USH.

C:Tr\ C:a~e No . 10248 Atm!oq Pbilippi11e.r Operati11g I-leadqllattm� v.r. Commi.rJio11er ofT!ltemal Revelllie "P-59" 1 February Avaloq Sourcing (E urope) "-\G 88,491.3 7 OR as zero-rated "P-60" 2018 ,-\valoq Sourcing (Euro pe) AG Sub-total 4,514,635 .42 O ut of Period 1 February 1,865,208.33 Out of Period 20 18 87,582,473.51 235,821,048 .51 GRAND TOTAL However, petltloner still fell 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. A ccording to p e titioner, its total receipts were treated sales subject to VAT at zero percent (0%) since these represent fees collected for services rendered by petitioner in the Philippines to its non-resident foreign affiliates and billed and paid for in acceptable foreign currencies through intercompany offsetting arrangements .89 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, 90 the documents required in an offsetting arrangement were enumerated, viz. "Q-8 With the full liberalization o f the BSP mles 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 renuttances of export proceeds should no longer be enforced. A ccordingly, what should be the acceptable documentary requirements in the processing 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 docwnents 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 o f loans, in case the claimant has received loans or advances from the foreign company; d. Documents or correspondence regarding offsetting arrangements; e. Confirmation of the offsetting arrangements by the heads of the business organizations involved; f. Documents to prove actual export of goods; g. D ocuments to prove that the sales are zero-rated sales./ I R9 Par. 6, Statements of ! ;act~, i\llelllomlldllm, Doc ket - Vol. 2, p. 65 .1. WI SURJ I�:Cl': C larifying Certain ~ ~~ue~ Rai~cd !~dative to the Processing of C laim~ for Va lue-,\ dded Tax (VX I ) C redit/ Refund , Including 'J'ho~c hkd with the T ax and Revenu e c; roup, O ne-Stop Shop lnter-1\ gency T ax Credit and Duty Drawback Center, Department of r:inancc (OSS) by Direct Exporter~.

C:Tt\ Cas<: N o. 10248 A11aloq Philippine.�� Operating I-Ienrlqllad en tJ.r. CoJJ!Illi..:rioner oflnlem n/ Ret;enlle As can be discerned from the aforequoted provision of RMC No. 42- 2003, the submission of proof of inward remittances of foreign currency payments for export sales 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 mles and regulations. In the Judicial Affidavit of petitioner's witness, Tvis. Tviary Lalaine V. Munar, she explained the process by which said offsetting arrangement was being implemented, thus:91 "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 receipts billed by the 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 to 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 financial necessity of the Petitioner to support its operations. The funds remitted by Avaloq Group AG were foreign currency denominated. However, our bank automatically converts these foreign remittances into Peso in order to credit it to our PHP local bank account. The funds remitted by Avaloq Group AG forms part of the loan payable of petitioner which are then offset against the intercompany invoices billed to the /~ 9 1 hxhibit " 1'-21" , Dock<:t- Vol. I, pp. 150 to 151 .

C:Ti\ C:m;c N o. 10248 Avaloq Pbilippim.r Operati11g I-Icadqllat1en v.r. Colllmi.r.rioller o(llltemal Reuc/11/C Page 19 of24 foreign affiliates of Avaloq PH. 32. Q: What proof, if any, do you have to support your statem ent that the funds remitted were in foreign currency? A: T he Foreign E xchange Confirmation issued by Credit Suisse (Schweiz) AG [pre- marked aJ Exhibit P-16] showing the conversion o f foreign currency into peso prior to its credit in our current account. 33. Q: Ms. Munar, in your A nswer 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 Schedule of Offsetting of Receivables rf;re-marked aJ Exhibit P-17J and the Foreign Exchange Confirmation rf;re-marked aJ Exhibit P-16] ." In essence, petitioner receives foreign currency funding from its parent company which is recorded and treated in its books as loan payable to Avaloq 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 adduced documentary proof, such as Short-Term Credit Facility Agreement,92 Bank Statements purportedly issued by the Bank of the Philippine Islands,93 and Schedule ofOffsetting ofReceivables.94 While an examination of the Short-Tenn Credit Facility Agreemenf5 executed by and between Avaloq Group AG and its various affiliates, including petitioner, validates petitioner's claim o f 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 Fatility 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 any loan agreement between one affiliate and another affiliate. Second, the said agreement does not provide for an offsetting arrangement between Avaloq G roup AG's advances to petitioner and the latter's receivables from Avaloq Group AG's affiliates. It would be erroneouy 92 Ex hibit " 1'-15", Docket - Vo l. 2, pp. 525 ro 539. 93 Ex hibits " 1'-65" to " P-68, USH. 94 Ex hibit " 1'-1 7", Dock<.:t - Vol. 2, pp. 551 to 555. 9S Exhibit " 1'-15" , Doc k<.:t- \' o l. 2, pp. 525 to 539.

C:T,\ C:a'c N o. 10248 AMioq Philippi11e.r Operati11g H eadq11al1en tJs. Cottlltli.uiollerofllltemal Reve1111C Page 20 of24 to construe par. "12. Set Off Balances" 96 of the agreement97 as authorizing offsetting arrangement between affiliates given that such prov1s10n 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 be presumed. If there is indeed an offsetting arrangement among Avaloq Group AG affiliates, tl1e same should have been covered by a separate agreement executed between and among them. Unfortunately, petitioner failed to present or offer evidence of this separate agreement. 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 NRFCs. Consequently, petitioner failed to prove that it is engaged in zero-rated sales of services under Section 108 (B) (2) of the NIRC of 1997, as amended. But even granting that the subject agreement adduced by petitioner is sufficient to prove that a valid offsetting arrangement between petitioner and Avaloq Group AG's affiliates was authorized in this case, petitioner must still establish the actual details of offsetting that occurred between petitioner's receivables from its sales of service to Avaloq Group AG's affiliates and the advances made by Avaloq Group AG. Petitioner avers that it accomplished this by offering in evidence the Schedule of Offsetting of Receivables, 98 pertinent details of which are excerpted below: SCHEDULE OF BPI ACCOUNT STATEME NT OFFSETTING OF (Exhibits " 1'-<15" to " J>-(,X") RECEIVABLES INPHP (l:':xhi bit " 1'-1 7") O.R. CLIENT AMOUNT AMOUNT BALANCE IN DATE TEXT DATE AMOUNT PARTICULAR S EXH. NAME OFFSET/ REMITTED/ PHP NO. DEBIT CREDIT 100,617,435.06 100,55<l,S'J2. GG "l'-.)9" i\ vaiOLJ (,O,H42.40 21.July 17 l'r\YM . l�:volu tio n J\G 99,7GH,8.'>2.1 8 21.July 17 21.July 17 r\V ,\1 .0 <~ " 1'-40" 1h aloq 7il7,7 <l0.4 8 97, <l 50,89R.HO I~:VO l oU" ri ON -- 2,1'17,933. 38 E \�c>lu tion t\C 2430000060 .....-v/ O R0000007 i\ valoLJ 1'1\ YM. 1\Vi\LOQ So urcin g EVOLUTI ON 24.'>00000(, 1 (Europe) i\C O ROOOOOOH J> ,\Y M. - -- -- -- ,, Vi\ l.OQ SOU RO NC 1":u 24.>ooooo57 w. " 12. Set-O ff Ralances - !3oth parties authorize eac h other to set-o ff any credit balance in any currency to which it is entitled o n any account in satisfactio n of any sum due and paya ble under this 1\ g reement but unpaid. xxx." ~7 Exhibit " 1'-15", Docket - Vol. 2, p 534. ~H l"�:x hibit " P-1 7", Docket - Vol. 2, pp. 55 1 to 555.

C:Tt\ C:a,;e No. 10248 Avaloq PbilippimJ Opemti11g Hendq11mtet:r tJJ. ComJ1Jir.rio11er ofl11tema/ Reu11mtc Page 21 of24 . 1\vai<KJ T13,4H6.76 %,937,412.04 21 July 17 l ' AYM. A ustralia Pry 5,76(, ,146.99 91 ,171 ,265.05 21 Jul y 17 t\Vi\I..OQ i " 1'-41" Ltu 2,449,678.04 1\USTR1\LI 1\ 2430000062 " 1'-42" 1\Yai O< J OR0000009 (( P-41" Sourcing 1\sia Paci fi c Pt\ Yi'vl. i\St\ P (Singapore) 24:10000056 l'tc Ltd OR0000006 t\ valog HH,721,587.01 21 July 17 l't\ Yi'vl. ASA P Sourcing !\sin 24."\0000063 Pacific O R0000010 (Singapore) Pte Ltd " 1'-44" t\valoq 59,120,983.00 2, 117,9:>:>.3s 90,839,520.39 21 July 17 1'1\Y l'vl. Licence AC 437,002.33 91 ,276,522.72 21July 17 :\VA LOQ 32,155,539. 72 2 1July 17 SOU lt C: INC 20,000,000.00 52, 15 5,539 .72 24 july 17 4 1\ug 17 19,998,850.00 HI' ! 1\CC<J UN T 7,051 ,957.52 1�:u 24.>ooooos 7 ST t\TI �: ,\1 \�:N� r 07/.) 1/211 17- 11 ,979.17 PAYM . 08/.) I/20 17 20,000,000.110 i\ Vi\J.OQ SOURC: INC - 4,227,445 ..) 1 t\Si t\ l' t\ C: IFIC: lili1 ,.)57.36 2032000221 1H4,485.47 l' J\Yi\�1. 21l,OOO,Oll0.00 i\ V1\l .OQ 5, 10Ul8 1\ USTRJ\LI i\ 2430000064 OR0000011 l'UN D TR t\ NSFI\ R (;RO UP 1\/C 26,041.67 59,207,497.24 9 t\ugu~ t Pi\YM. 59,18 1,455 .57 2017 I�:VJ.OLU�l� ION 59,193,4 34 .7 4 1130003777 18 Scp 19,998,850. 0(1 HI'\ ,\ (CO UN T 79,193,434. 74 4 l7 ST t\Tl �: ,\ II �:N� r Septem b e r V IS I O N 07/.11 /201 7 - 01)/.) 1/201 7 20 17 t\P t\R'l'~J JC:N T 11 Dr�: l'OS IT Se p te m b e r Rr�: FUN D 1'1\YM. 2017 Jc:VLO l .UTION 113000.>889 1S 1\ C:l' Sep tember FUND 201 7 TIU\ NS FI-:R CRO U P t\/C 132,271.47 B\420,1>80.05 30 l't\ Y1\l. - 78,976 .47 84,082,237.41 Sep tember r.:V J . O J. U T IO N -- 184,485.47 11 30003912 H.\ 949,%5.94 2017 r�:X l' A l' 25 Oct 19,998,850.00 - 83,870,989.47 30 lnterc,;t Q3 17 HI'\ M:COU N T 83,68(,,504. 00 September s� JA J"J �: ,\ fi�:NT H3,H70,989.47 WHTun 103,870,989.47 2017 intcrc,;t Q3 OY/ .>0/20 17- 103,87(. ,091.35 30 35,66 2,247.35 V IS IO N 10/.1 1/2111 7 . - September t\P t\RTM I�:NT 20 17 Dr�:I'OSlT -- Rl �:TURN " l'-46" 1\\-aloq 68,213,844. 00 10 October 1'1\YM 1601F Licence i\G 2017 WI-lT ON �- F�:X l't\T 15 S1\L1\R IES Nm�c mber 1'1\YM !Gill!' W I I'\' ON 2017 l �:X l ' t\ T Si\ l.t\IU ES 15 NoYc m b er i\VQ G RO UP FUND 21l17 TR t\ NSFER 25 October tWQ (;ROUP 20 17 l'UN D TR t\ NSFIC: R 25 October Pi\ Yivl. Q3 RD 2017 Fl'-:ES OR0000012 24 October 2017 ~

C:Tr\ Case N o. 10248 Avoloq PbilippineJ Operating H eodql!orteJ:r IJJ. ColllJJJiJ�Jiomr ofl11femol RCIJC/11/e Page 22 of24 ------- ------ -- ;:- -- -- ---- ---- --- --- ----- ----- ---- ---- -------- --- -- " P-47" t\ d oq 2,53 1,927.08 33,130,320.27 24 October l' t\ YM. i\ VQ 2S,B4 7, 247 .35 2017 t\ustralia l'ty 24,5.1(,,414.02 t\ US'I'Rt\LI t\ Ltd 25 ,624 ,07.>.45 24 October 45 ,624,07.1.45 2017 IT " I'-4S" thaloq 4,283,072.92 48,(J'.>0,9H1. 23 CONSU LTI NG "1'-49" Sourcing /\sia 24 October I' J,;J,:Q3 Pac ifi c 4,310,83.1.33 20 17 OR0000013 (Singapore) Ptc l .td 24 October Pi\ Ylv!. .1\Si\P i\,-aloq 2017 IT Sou rcing Asia CONSULT IN C; Pacifi c 24 OR0000014 (Sinf,>aporc) Nm�cm b er l ' tc L td I'1\ YJ'v!. i\Si\ I' 2017 IT 1,087,(,59.43 6 CONSULT ING 24 Nm� 19,99 il, 850 .00 HI'! ,\ CCOU K I. 20,000,000.00 FEEQ3 17 NoYembcr OR0000015 ST A I ' J �:~ J J �:r.r l � 3,0M,,907.78 20 17 l't\ YM. AS1\1' 203 10026 1 111/1 1/ 211 17- COR!' 11 /111/ 20 17 FUNCTIONS t\VQ GROUP 1\CCOUNT I'UND 'I'R i\NSI' I.':R 1'1\YM. 113000402(, t\C: J> " P-50" i\valoq 8,244,791.6 7 40 ,44o , 1S9.56 20 Pt\ YM. t\SSL Sourcing Novcn1bcr 243 0000 0073 (Sw it%crland 0 R OOOllill (, & 2017 Liech tenstein) S1\ 5,065,028.03 45,5 11,21 7.59 21 1'1.)000426 1 432 ,85 7.8 1 45,944,075.40 December I�:X Pt\'1' 45,857,501.84 8(,,571.56 201 7 Interes t Q 4 3'1 W I-!'!' on December interest Q4 2017 31 D ecember 2017 (( P-SW ' i\,-alc" l 10,918.00 45,846,585.H4 ! .J anuary I'r\ YM. i\S t\ I' Sourcing Asia 20 18 243 0 0 0 0 0 81 l'aciflc O R0000022 (Sin&>aporc) l'tc Ltd " P-45" t\ ,�a loq 2,11 7,93 3..18 472,203 ..12 46,.)18,789.1 6 1 .J anuary P i\YI'v!. i\ Si\1' " 1'-59" So urc ing 4,514,{1:15.42 44, 200,il55 .78 2018 2430000107 " 1'-60" (Europe) 1\G 1,8 (,5, 208..13 49,82.1.55 39,GH6,220.36 742,549.40 37,8 2 1,012 .03 2 February l'i\ Ylv!. 1\ SEU !h a i<K I 80,301.6 1 40'1 ,508.05 .>7 ,870,8.)5.58 20 1H 24.1il000057 So ur cin g 3S,6B,384.9H O R0000023 (l�:uropc) i\G 39,014,89.1.0.1 2 February .>S,9.H,59 1.42 2018 l' t\Y IVL 1\ SJ�:U th a loq 2430000069 So urcing 2 February OROOU0024 (r�:urope) t\ G 20 18 l' t\ YM. t\ SI�:U 1 March 24.10000070 - 2018 OR0000025 16 March l' t\Yi'vf. 20 18 20320003.1.1 i\Si\1' :11 March 2018 Pt\ YM. 1110004461 31 1'vlarch t\ C:t\ D l..:iv!Y 20 18 Interest Ql WI-lTon interest Q1 D espite providing the above Schedule of Offietting of Receivables and other documentations, such as CoJifirmation ofForeign Currenry Conversion99 and A postilled English-translated debit advic-e 100 issued by Credit Suisse (Schweiz) AG, ~ 99 l..:xhibit " P-16" , Docket - Vol. 2, pp. 540 to 550. 10u Ex hibit "P-61 " to 1'-64"; USH.

C:T r\ Cm: No. 10248 Avaloq Philippine.< Operating J-Icadqaarlm� vs. Co111111hrioncr o(lnlemal Revcnae ----;-----------. ---------- ----- ------ -------- ------------ -------- demonstrate the transfer of funds from the Avaloq Group Account to Avaloq PH's account, petitioner was unable to prove that these sums were for payment for services provided by Avaloq PH to its clients, and not just a mere transfer of funds representing loans. 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. At tlus point, petitioner has already fallen short in establishing that its sales or supply of services qualify for VAT zero-rating under the 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.101 Considering petitioner's failure to establish its zero-rated or effectively zero-rated sales for the 3ru and 4rh quarters of CY 2017, the present Petition for Review must necessarily fail. Correspondingly, it becomes unnecessary to look into petitioner's compliance with the remaining requisites. As a 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.102 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.103 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. 104 Strict adherence to the conditions prescribed by law is required of the taxpayer.105 WHEREFORE, in light of the foregoing disquisition, the present Petition for Review is DENIED for lack of merit. SO ORDERED. -~. ~ _,.___ MA. BELEN M. RINGPIS-LIBAN Associate Justice 101 Com-Colo Bottlers Pbilippi11e.r, lilt". u.r Com111iJJio 11er ofl11tcmal Reue1111C, C.R. No. 222428, .Jul y 19, 2018. 102 Citibcmk NA. v.r. Comt ofAppeal.�� o11rl Com111i.r.rio11er ofl11temal Reue1111e, G. R. No. 107434, October 10. 1997. 1113 ComllliJJiOIIer ofI11temol Reuel/lte tJ. S .C. j ob11.ron and So11, Im: , el aL, C.R. No. 127105, .J une 25, 1999. 10~ EaJtem Tclct"OirJJ111111it"CitioiiJPbilippi11e.r, Im:.11.r. Colllmi.r.riolleroflntemo/RcueiiiiC, C.R. No. 183531, March 25,2015. citi ng ].RJJ. Pbilippi11e.r, lilt". u.r. Com111i.r.rio11er qfl11temol RetJC/1/te, supra. 10' Steog S tate Potvet; Jm: (Fom;er/y State Power Det;c/oplllelll Corpomtio11) v.r. Comll1i.uioner of llltemol ReJJCIIIIC, C .R. No. 205282, .J anuary "14, 2019.

CL \ C:a:;c No. 10248 At;a/oq Pbilippim.r Opcmlittg I-Icarlqllartet:c /JJ�. Commi.r.rio11cr ofl11temal Reveii!IC Page 24 of24 --i--------- -------------------------------- -------------- -------- WE CONCUR: c~~.G/u~ s Associate Justice 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. L. ~ ---~' "--- MA. BELEN M. RINGPIS-LIBAN Associate Justice Chairperson 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 D ecision were reached in consultation before the case was assigned to the writer of the opinion of the Court. ROMAN G. DEL ROSARIO Presiding Justice