DEUTSCHE KNOWLEDGE SERVICES, PTE LTD. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY EN BANC ********* DEUTSCHE KNOWLEDGE CTA EB No. 1374 SERVICES, PTE. LTD., (CTA Case No. 8300) Petitioner, -versus- COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - X COMMISSIONER OF INTERNAL CTA EB No. 1383 REVENUE, (CTA Case No. 8300) Petitioner, Present: - versus - DEL ROSARIO, P.J. , CASTANEDA, JR., BAUTISTA, UY, CASANOVA, FASON-VICTORINO, MINDARO-GRULLA, RINGPIS-LIBAN, and MANAHAN, JJ. DEUTSCHE KNOWLEDGE Promulgated: SERVICES, PTE. LTD., _D_E_C_1-=--5~2=0-1U-...f---r-~~~ Respondent. X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - X DECISION UY, J.: Before the Court En Bane are two (2) consolidated Petitions for Review filed as follows: by Deutsche Knowledge Services, Pte. Ltd .,

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) as petitioner in CTA EB No, 1374 against the Commissioner of Internal Revenue as responde~t; and by the Commissioner of Internal Revenue, as petitioner in CTA EB No. 1383, against Deutsche Knowledge Pte. Ltd., as re$pondent. Both petitions assail the Decision dated July 10, 2015 1 rendered by the Third Division of this ' Court (Court in Division) in CtrA Case No. 8300 entitled "Deutsche Knowledge Services, Pte. Lltd., Petitioner, vs. Commissioner of Internal Revenue", the dispositive portion of which reads: "WHEREFORE, th~ Petition for Review dated June 27, 2011 filed by petitioner Deutsche Knowledge Services, Pte Ltd. is PARTIALLY GRANTED. Accordingly, respdndent Commissioner of Internal Revenue is ORDERED i TO REFUND or TO ISSUE A TAX CREDIT CERTIFIQATE in favor of petitioner in the reduced amount of NIN~TEEN MILLION SIX HUNDRED SIXTY TWO THOUSAMD SEVEN HUNDRED THIRTY ONE PESOS AND 51/100 (P19,662,731.51 ), representing petitioner's unutilized excess input VAT for the 2nd quarter of 2009 attributable to its zero-rated sales. SO ORDERED." Additionally, in CTA ~B No. 1374, Deutsche Knowledge Services Pte. Ltd. prays for ~he reversal and setting aside of the Resolution dated October 13, 20152 rendered by the Court in Division in the same case, the dispositive portion of which states: "WHEREFORE, petitioner's Motion For Partial Reconsideration (Re: Decision dated July 10, 2015) (With Motion to Re-Open T~ial) dated July 30, 2015, and respondent's Motion For Reconsideration (of the Decision dated July 10, 2015) dlated July 30, 2015, are hereby DENIED, for lack of merit SO ORDERED." 1 Penned by Associate Justice Esperanza R. Fabon-Victorino, concurred by Associate Justice Lovell R. Bautista and Assoqiate Justice Ma. Belen Ringpis-Liban, EB Docket (CTAEB No. 1374), pp. 47 to 67; EB Docket (CTAEB No. 1383), pp. 15 to 35. 2 Id., EB Docket (CTA EB No. 1374), pp. 69 to 76; EB Docket (CTA EB No. 1383), pp. 52 to 59.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 3 of44 THIE FACTS Deutsche Knowledge Services, Pte Ltd. (hereinafter referred to as "Deutsche Knowledge") is the Philippine branch of a multinational company organized and exist~ng under the laws of Singapore, with registered office address at Orhe Raffles Quay, #17-10 South Tower, Singapore 048583. It is licerJ!sed by the Securities and Exchange Commission (SEC) on April .25, 2005, as a Regional Operating Headquarters (ROHQ) in th$ Philippines, to engage in general administration and planning; :business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; mcjlrketing control and sales promotion; training and personnel management; logistic services, research and development services and prpduct development; technical support and maintenance; data proceslsing and communication and business development. Deutsche Knowledge ac~s as a shared services center, which handles regional, as well as glbbal accounting and related controlling processes, such as accountin~ production work in the global general ledger in SAP, developing ~nd operating inter-company clearing house, accounting, and heald office reporting for non-regulated entities and product control. I~ is a value-added tax (VAT) registered taxpayer as of June 16, 2005 with Taxpayer Identification No. (TIN) 238-763-115-000. The Commissioner of ln~ernal Revenue (hereinafter referred to as "CIR") has authority to grant and approve claims for refund or tax credit as provided by law. On July 17, 2009, Deutscphe Knowledge filed with the Bureau of Internal Revenue (SIR) its ori~inal Quarterly VAT Return for the 2nd quarter of taxable year 2009. On January 28, 2011, D~utsche Knowledge filed with the SIR- 44 Revenue District Office No. an Application for Tax Credit/Refund (SIR Form No. 1914) of its all~ged excess and unutilized input VAT for the 2nd quarter of taxable year 2009 in the total amount of P53,739,763.31. The CIR failed to act on! Deutsche Knowledge's administrative claim, hence, a Petition for Reyiew was filed by Deutsche Knowledge on June 27, 2011. The case was docketed as CTA Case No. 8300.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 4 of44 In his Answer in said ca$e, the CIR essentially states that it is incumbent upon Deutsche Krjowledge to substantiate its claim for refund and to prove compliance with the pertinent laws, rules and regulations. In support of its Petition in CTA Case No. 8300, Deutsche Knowledge presented its Legc:H Entity Controller since August 2010, Rachel Concepcion, whose 'duties allegedly include the handling and preparation of all the company's financial and statutory reporting. She testified that on Jal'luary 28, 2011, Deutsche Knowledge filed a claim for refund of exce$s and unutilized input VAT attributable to zero-rated sales for the 2nd ~uarter of the year 2009; that the VAT credits were incurred as petiti~ner purchased goods and services in the course of rendering sei"Vices in the Philippines as a shared services center to clients enga1ged in business conducted outside the country. She also said that 'these foreign clients paid Deutsche Knowledge for such servicesj. To prove that petitioner rendered services to entities engaged iri business outside the Philippines, she presented the Service Agr~ements with foreign clients, their respective SEC Certifications t>f Non-Registration in the country, and relevant consularized certifications and documents relating to these clients. She further added that Deutsche Knowledge and its non- resident clients are all iaffiliates of the Deutsche Bank Aktiengeseellschaft Group, . as evidenced by a document denominated as Deutsche Bank List of Shareholdings 2008 prepared pursuant to the laws of Germany, which, according to her, shows that Deutsche Knowledge's clients are engaged in business conducted outside the Philippines. Moreover, according to her, the subject input taxes for the 2nd quarter of 2009 remain u~utilized as indicated in Deutsche Knowled~e's Quarterly VAT Aeturns from the 3rd quarter of 2009 up to the 2n quarter of 2011, all ~ndicating that the input VAT subject of the claim for refund has been carried over. These Quarterly VAT Returns were allegedly filed through the SIR's e-Filing facility and given their respective Filing Reference Numbers. Having been employed tl>y Deutsche Knowledge only in August of 2010, she said she has no personal knowledge about the returns filed pertaining to the subject dlaim for the 2nd quarter of 2009. In any

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) event, as Legal Entity Controlller, she validated the returns filed for this period as part of her dutie$ and in the process acquired personal knowledge on the matter. She also identified the bl!Jsiness registration documents of each of Deutsche Knowledge's cli~nts as electronically stored in and retrievable from Deutsche Knlowledge's global database known as AMINET. AMINET is the Data,Maintenance Platform for legal entities and other reportable vehicles! within the Deutsche Bank Group of which Deutsche Knowledge i$ a part. Allegedly, these documents further show that Deutsche Knowledge's clients are doing business outside the Philippines. As the second witness of Deutsche Knowledge, the Court in Division commissioned Independent Certified Public Accountant (ICPA), Romeo A. De Jesus, ~r., who submitted his ICPA Report on April 11, 2012. In said ICPA Rleport, he stated the following: that the input VAT of P53,739,762.99 was properly recorded in the books and declared in the input VAT Retulrns of Deutsche Knowledge; that out of the P53, 739,762.99, P549, .~ 59.52 was applied to Deutsche Knowledge's output VAT as !Of June 30, 2009; and that with few exceptions, the total input VAt paid per schedule of local purchases attributable to zero-rated sal~s are supported by original supplier's invoices and/or official receipts that are within the period covered, with all required particulars indicated therein. He further stated that his audit revealed that Deutsche Knowledge's service invoice~, official receipts, and fund transfer credit advices on file support the zero-rated sales for the 2nd quarter of year 2009; and that Deut$che Knowledge's zero-rated sales to non-resident entities were paid in Euro, an acceptable foreign currency, which were inwardiiY remitted and duly accounted for in accordance with the regulations of the Bangko Sentral ng Pilipinas (BSP). He also found that Deutsche Knowledge's domestic purchases and sales of good~ and services are supported by both invoices and official receipts. The ICPA identified as s~pporting evidence to his ICPA Report, Deutsche Knowledge's offidial receipts and proofs of inward remittances for the 2nd quarter! of year 2009 pertinent to its claim. The official receip~s allegeldy provt Deutsche Knowledge's collections for its zero-rated sales for the 2n quarter of the year 2009. As regards the proofs of inward remittances, these pertain to Deutsche Knowledge's fund transfer crtedit advice and bank statements for

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 6 of44 collection/receipts made for invoices issued during the 2nd quarter of year 2009, which tend to prove the amounts in Euro inwardly remitted to Deutsche Knowledge and ~uly accounted for in accordance with the regulations of the BSP, f<l>r its zero-rated sales to non-resident entities; and that the sales amount as reflected in Deutsche Knowledge's service invoices were properly collected and reported in its books. After Deutsche Knowleqge rested its case in CTA Case No. 8300, the CIR waived his right to present any counter-evidence. On July 10, 2015, the Qourt in Division rendered the assailed Decision3 which partially granted Deutsche Knowledge's judicial claim for refund of excess and unutililzed input VAT for the 2nd quarter of CY 2009, in the reduced amount of P19,662, 731.51. Consequently, Deutsche! Knowledge filed its Motion for Partial Reconsideration (Re: Decision dated July 10, 2015) (With Motion to Re-open Trial) on July 30, 20115;4 while the CIR filed his Motion for Reconsideration (of the Decision dated July 10, 2015) on July 30, 2015. 5 In the assailed Resolutie)n dated October 13, 2015,6 the Court in Division denied Deutsche Knowledge's Motion For Partial Reconsideration (Re: Decision dated July 10, 2015) (With Motion to Re-Open Trial), and the CIR'Is Motion For Reconsideration (of the Decision dated 10 July 2015), for lack of merit. Thus, on October 30, 2015, Deutsche Knowledge filed before the Court En Bane a Motion for Extension of Time to File Petition For Review, 7 praying for an additional fifteen (15) days or until November 14, 2015 to file its Petition for Review. The Court En Bane granted Deutsche Knowledge a final and non-extendible period of fifteen (15) days or until November 14, 2�)15, within which to file its Petition for Review. 8 3 EB Docket (CTA EB No. 1374), pp. 47 to 67; EB Docket (CTA EB No. 1383), pp. 15 to 35. 4 Division Docket-Val. 2 (CTA Case No. 8300), pp. 1150 to 1172. 5 Division Docket-Val. 2 (CTA Case Nro. 8300), pp. 1175 to 1178. 6 EB Docket (CTA EB No. 1374), pp. 69 to 76; EB Docket (CTA EB No. 1383), pp. 52 to 59; Division Docket-Val. 2 (CTA Cqtse No. 8300), pp. 1197 to 1204. 7 EB Docket, (CTA EB Case No. 1374)1 pp. 1 to 4. 8 Minute Resolution dated November 3, 2015, EB Docket, (CTA EB Case No. 1374), p. 6.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Likewise, the CIR filed a Motion for Extension of Time to File Petition For Review on October 30, 2015,9 praying for an extension of fifteen (15) days from October 30, 2015 or until November 14, 2015, within which to file her Petition for Review. The Court En Bane also granted the CIR an extension! of fifteen (15) days from October 30, 2015, or until November 14, 2015, within which to file a Petition for Review. 10 On November 13, 2015, Deutsche Knowledge filed its Petition for Review before the Court En Bane. 11 The case was docketed as CTA EB No. 1374. On the same date, the CIR filed his Petition for Review before the Court En Bane. 12 The case was docketed as CTA EB No. 1383. Since both Petitions involve an appeal from the Court in Division's Decision dated J~~Jiy 10, 2015 and Resolution dated October 13, 2015 in CTA �ase No. 8300, the Court En Bane consolidated CTA EB No. 138$ with CTA EB No. 1374.13 Subsequently, on Sept�mber 15, 2016, the Court En Bane issued a Resolution, 14 giving dlue course to the consolidated Petitions for Review, and ordered the parties to submit their respective memoranda within thirty (30) days from receipt of the resolution. Deutsche Knowledge, h�>wever, filed a Motion for Extension of Time to File Memoranda on October 28, 2016, 15 praying that it be granted an additional period o~ 20 days from October 28, 2016 or until November 17, 2016, within wHich to file its Memorandum. The Court En Bane then granted Deljltsche Knowledge a final and non- extendible period of twenty (20) days or until November 16, 2016 to file its Memorandum. 16 9 EB Docket (CTA EB No. 1383), pp. l to 3. 10 Minute Resolution dated November 13, 2015, EB Docket (CTA EB No. 1383), p. 5. 11 EB Docket, (CTAEB Case No. 1374), pp. 7 to 40. 12 EB Docket (CTA EB No. 1383), pp. 6 to 12. 13 Minute Resolution dated January 7, l016, EB Docket, (CTA EB Case No. 1374), p. 85. 14 EB Docket, (CTAEB Case No. 1374!'), p. 143 to 145 15 EB Docket, (CTA EB Case No. 1374), pp. 146 to 147. 16 Minute Resolution dated November 11, 2016, EB Docket, (CTA EB Case No. 1374), p. 152.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Deutsche Knowledge filed its Memorandum on November 17, 2016. 17 The CIR, however, failled to file his Memorandum. Thus, the instant consolidated cases wdre deemed submitted for decision on December 16, 2015. 18 Hence, this Decision. ASSIGNMENT OF ERjRORS AND ISSUES RAISED In CTA EB No. 1374, Deutsche Knowledge assigned the following errors supposedly corlnmitted by the Court in Division, to wit: "A. The CTA-Division ~rred in not finding that [Deutsche Knowledge] has duly proven by preponderant evidence that its sales for the 2nd quarter of CY 2009 were zero- rated and made to nion-resident corporations doing business outside the Philippines. B. The CTA-Divisioni erroneously concluded that [Deutsche Knowledge] faliled to sufficiently substantiate its input VAT in the amount of Php3,616,902.33 on its purchases of capital gooctis exceeding Php1 Million for the 2nd quarter of CY 2009. C. The CTA-Division, failed to consider that the amounts of input VAT claimed by [Deutsche Knowledge] are readily obtainable frolm the documents disregarded by the CTA-Division for failure to meet substantiation requirements under the Tax Code and RR No. 16-2015. D. The CTA-Division erred in denying [Deutsche Knowledge] Motion to Re-Open Trial as it is contrary to the interest of substantial! justice."19 Deutsche Knowledge's arguments: In support of the foregoing assignment of errors, Deutsche Knowledge raises the following grounds for the reversal of the assailed Decision and Resolution, viz: 17 EB Docket, (CTAEB Case No. 1374), pp. 153 to 186. 18 EB Docket, (CTAEB Case No. 1374), pp. 192 to 193. 19 EB Docket, (CTAEB Case No. 1374), pp. 15 to 16, and also pp. 161 to 162.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 9 of44 1. Deutsche Knowledge p~sented preponderant evidence to prove that all of its zero-rated sales for the 2nd quarter of calendar year (CY) 2009 were made to non-resident foreign corporations doing business outside the Philippines; 2. Deutsche Knowledge s~fficiently substantiated its input VAT in the amount o( P226,647.86 on purchases of capital goods exceeding �P1 million for the 2nd quarter of CY 2009; 3. The amounts of inpu1t VAT claimed by Deutsche Knowledge are readily pbtainable from the documents disregarded by the Court in Division for failure to meet substantiation requirem$nts under the Tax Code and Revenue Regulations (RR) No. 16-05; and 4. The higher interest of s~bstantial justice dictates that the Court in Division should have allowed the re-opening of trial for the admission of: additional documents that would have enabled Deutsche: Knowledge to comply with the Court in Division's strict ~ocumentary requirements, which have no legal basis in th$ first place. On the other hand, in CtA EB No. 1383, the following issues were raised by the CIR, to wit: "14) Whether the Honolrable Third Division of the CTA erred in partially granting [Deutsche Knowledge's] petition for review filed on 27 June 2011. 15) Whether the Honorable Third Division of the CTA erred in denying [the Clf~.'s] Motion for Reconsideration." The CIR's arguments: The CIR argues that Qeutsche Knowledge's output VAT is more than the amount of inp~t VAT attributable to zero-rated sales subject of the present claim. Allegedly, the rest of Q>eutsche Knowledge's declared zero- rated sales in the amount of P237,405,916.01 (P1,079,861,908.12 I less P842,455,922.11) was d~nied for VAT zero-rating for failure to prove that the entities to whom it rendered services are non-resident

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) foreign corporations doing bu~iness outside the Philippines; that for not being qualified as aero-rated sales, the amount of P237,405,916.01 should be supject to VAT at 12�/o instead of 0% VAT; that after applying the 12�/o VAT, the corresponding output VAT of Deutsche Knowledge is :P28,488,709.92; hence, Deutsche Knowledge is still liable fCDr output VAT in the amount of P28,488,709.92. Moreover, the CIR point$ out that considering that the Court in Division has ruled that Deutsche Knowledge is entitled to a refund or issuance of a tax credit certifi�ate in the amount of P19,662,731.51, representing its unutilized ex�ess input VAT for the 2nd quarter of 2009 attributable to its zero-rated receipts for the same period, this amount is far lower than the output VAT liability of P28,488, 709.92; and consequently, there is nd more excess input VAT that may be refunded to Deutsche Knowledge. Lastly, the CIR contends that since the instant case involves a claim for refund, Deutsche Kmowledge, therefore has to prove with the required quantum of evidence its entitlement to the refund claimed, and the court will ren~er its decision on the basis of the facts proven and the evidence presented applying the law and jurisprudence applicable to the issue under consideration, even if no controverting evidence was ever presented by the Cl R. Deutsche Knowledge's counter-arguments: Deutsche Knowledge points out that by the CIR's argument, the CIR seeks to assess and coll~ct from Deutsche Knowledge alleged deficiency output VAT in contravention of established legal principles and in gross violation of its right to due process of law. According to Deutsche Knowledge, the CIR's argument lacks factual and legal basis based dln the following: 1. Only non-compliance wilth the requirements for claiming the refund of unutilizeql input VAT can bar Deutsche Knowledge's claim for refund; 2. Siding with the CIR's argument would lead to a gross violation of Deutsche Knowledge's right to due process; 3. Assuming the CIR's <f:lrgument has merit, Deutsche

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Knowledge's claim for refund can and should proceed independently of the CIIR's assessment for deficiency VAT against Deutsche Krnowledge; 4. Even assuming arguemdo that the CIR's argument deserves consideration, the CIR does not have basis to invoke this Court's jurisdiction over Deutsche Knowledge's alleged deticiency VAT liability for the 2nd quarter of CY 2009; and 5. Further assuming arguendo that the CIR may invoke this Court's jurisdiction, the C)IR's claim should nonetheless be denied as the CIR's right to assess Deutsche Knowledge for deficiency VAT for the 2nd quarter of CY 2009 has already prescribed. THE COURT 1EN BANC'S RULING Deutsche Knowledge's Petition for Review in CTA EB No. 1374 is partially meritorious, while tHe CIR's Petition for Review in CTA EB No. 1383 lacks merit. Not all of Deutsche Knowledge's sales for the 2nd quarter of 2009 qualify for VAT zero rating IJ/nder the law. Deutsche Knowledge sulbmits that the Court in Division erred in not favorably finding that the following clients are also non-resident corporations doing business outside the Philippines, considering that the following documents pre$ented by Deutsche Knowledge such fact: (a) SEC Certificates of Non-registration of Corporation/ Partnership of its clients; and (b) IntraGroup Service Agreements with its foreign clients which indicate the client's locations and addresses, as summarized below: Deutsche Bank ibit 0-44 Uraniastrasse 9, CH- Aktiengesellschaft, Filiale 8001 Zurich, Zwitzerland Dubai (DIFC) Exhibit P-31 Deutsche Bank Aktiengesellschaft, Filiale Zurich

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Deutsche Bank Bxhibit 0-32 One Raffles way, #12-00 Aktiengesellschaft, Asia South Tower 048583 Pacific Head Office Elxhibit 0-21 Singapore (Exhibit P) Deutsche Bank Sxhibit 0-16 Jungmannova 34/750, Aktiengesellschaft, Filiale Prague, Czech Republic Prag .(Exhibit P-21) Deutsche Bank (China) Lujiazui Ring Road, Azia Co. Ltd, Shanghai Branch Center, 181h Floor Deutsche Group Services Pty Limited 126 Pjillip St. Sydney NSW 2000 Australia (Exhibit P-5) We are not convinced. Section 108 of the National Internal Revenue Code (NIRC) of 1997, as amended by RepubliiC Act (RA) No. 9337,20 which provides as follows: "SEC. 108. Value+added Tax on Sale of Services and Use or Lease of Properties.- (A) Rate and Bas~ of Tax. -There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of grQss receipts derived from the sale or exchange of service~, including the use or lease of properties: Provided, That the President, upon the recommendation of th� Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been sati$fied: (i) Value-added t$x collection as a percentage of Gross Domestic Product (GOP) of the previous year exceeds two and four-fifth percent (2 4/5�/o); or (ii) National goverlhment deficit as a percentage of GOP of the previous year exceeds one and one-half percent (1 Y:z0/o). 21 20 AN ACT AMENDING SECTIONS 27, 28, 34, 106, 107, 108, 109, 110, 111, 112, 113, 114, 116, 117, 119, 121, 148, 1)1, 236, 237 AND 288 OF THE NATIONAL INTERNAL REVENUE CODE Of 1997, AS AMENDED, AND FOR OTHER PURPOSES. 21 Effective February 1, 2006, the VAT rate is increased to 12%. Refer to Revenue Memorandum Circular No. 7-2006 dated January 31, 2006.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) The phrase 'sale or exchange of service' means the performance of all kinds 10f services in the Philippines for others for a fee, remuner4:ttion or consideration, xxx. XXX XXX XXX (B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (Oo/o) 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 1for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); (2) Services oth�r than those mentioned in the preceding paragraph re~dered to a person engaged in business conducted o � tside the Phili ines or to a nonresident person no. engaged in business who is outside the Philippinjes when the services are performed, the considetration for which is paid for in acceptable foreign cunrency and accounted for in accordance with the rulels and regulations of the Bangko Sentral ng Pilipinas (BSP);" (Emphases and underscoring supplied) Based on the foregoing provisions, in order for a sale of service transaction to be subject to th$ 0% VAT rate, it is required, inter alia, that the services were "rendered to a person engaged in business outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed" and the consideratilon therefor was "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sen~ral ng Pilipinas (BSP)". Services covered by Sec~ion 108(B)(1) and (2) are in the nature of export sales since the payer~recipient of services is doing business outside the Philippines. Und~r BSP rules, the proceeds of export sales must be reported to th~ Bangko Sentral ng PJ1ipinas. Thus, there is reason to require th~ provider of services under Section 108(B)(1) and (2) to account f<Pr the foreign currency proceeds to the BSP. The same rationale doe$ not apply if the provider and recipient

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) of the services are both doing !business in the Philippines since their transaction is not in the natur$ of an export sale even if payment is denominated in foreign curremcy. Further, when the provider and recipient of services are both doing business in the Philippines, their transaction falls squarely und~r Section 108(A) governing domestic sale or exchange of services. Indeed, this is a purely local sale or exchange of services subject tb the regular VAT, unless of course the transaction falls under the otheir provision of Section 108(8). 22 The Supreme Court, ih the case of Accenture, Inc. vs. Commissioner of Internal Revf]nue, 23 ruled that it is not enough that the recipient of the service b~ shown to be a foreign corporation, it must likewise be established that the said recipient is a "nonresident foreign corporation". In the said case, the High Court declared: "The evidence pre$ented by Accenture may have established that its clielnts are foreign. This fact does not automatically mea~, however, that these clients were doing business o(Jtside the Philippines. After all, the Tax Code itself !has provisions for a foreign corporation engaged in business within the Philippines and vice versa, to wit: SEC. 22. Definitions- When used in this Title: XXX XXX XXX (H) The term 'resident foreign corporation' applies to a forei~n corporation engaged in trade or business within the Philippines. (I) The term ~nonresident foreign corporation' applies to a foreign corporation not. engaged in trade or business within the Philippines. (Emphasis in the original) Consequently, to! come within the purview of Section 108(8)(2), it isi not enough that the recipient of the service be proven to be a foreign corporation; rather it must be ' ecificall roven to be a nonresident forei nco oration. 22 Refer to Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No. 153205, January 22, 2007. 23 G.R. No. 190102, July 11,2012.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) There is no specifiC criterion as to what constitutes 'doing' or 'engaging in' or' 'transacting' business. We ruled thus in Commissioner of Internal Revenue v. British Overseas Airways Corporation: 24 x x x. There is no specific criterion as to what constitutes 'doing' or 'engaging in' or 'transacting' busin$ss. Each case must be judged in the light qf its peculiar environmental circumstances. The term implies a continuity of commercial de~lings and arrangements, and contemplate$, to that extent, the performance of acts or works or the exercise of some of the fun~tions normally incident to, and in progressive: prosecution of commercial gain or for the purpose and object of the business organization. 'In order that a foreign corporation may be regarded as doing a business within State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a lqcal agent, and not one of a temporary charaqter. "' (Emphases and underscoring supp~ied) In addition to the above jurisprudential pronouncement, it is noteworthy that the Suprem� Court, in Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, lnc., 25 declared that the service-recipient must also be not doing business in the Philippines. Otherwise, the transaction will be subject to the VAT at th$ then rate of 10�/o, 26 and not at the 0% VAT rate. Thus: "In this case, the i payer-recipient of respondent's services is the Consorti~m which is a joint-venture doing business in the PhilipQines. While the Consortium's rinci al members are 'on-resident forei n cor orations the Consortium itsel is doin business in the Philippines. This is shown clearly in BIR Ruling No. 023- 95 which states that the contract between the Consortium and NAPOCOR is for a 15-year term, thus: 24 233 Phil. 406 (1987). 25 G.R. No. 153205, January 22, 2007. 26 Now the VAT rate is 12%. Refer to Revenue Memorandum Circular No. 7-2006 dated January 31, 2006.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) This refers to your letter dated January 14,1994 requesting! for a clarification of the tax implications of a contract between a consortium compo~ed of Burmeister & Wain Scandinavian Contractor A/S ('BWSC'), Mitsui Engineering & Shi~building, Ltd. (MES), and Mitsui & Co., Ltd. ('MITSUI'), all referred to hereinafter as the 'Consortium', and the National Power Corporation ('NAPOCOR') for the operation and maintenance of two 1CO- Megawatt power !barges ('Power Barges') acquired by NAP�'COR for a 15-year term. (Emphasis supplied!) Considering this leng~h of time, the Consortium's operation and maintenance of NAPOCOR's power barges cannot be classified as a single or isolated transaction. The Consortium does npt fall under Section 102(b)(2)27 which requires that the r�cipient of the services must be a person doing business ovtside the Philippines. Therefore, respondent's services ~o the Consortium, not being supplied to a person1 doing business outside the Philippines, cannot l$gally qualify for 0% VAT." (Underscoring supplied) In CTA Case No. 8300, We agree with the ruling of the Court in Division that to be considered as a non-resident foreign corporation doing business outside the Philippines, each entity must be supported, at the very least, py both a certificate of non-registration of corporation I partnership i~sued by the Philippine Securities and Exchange Commission (SEQ) and certificate I articles of foreign incorporation I association. F1>arenthetically, it must be emphasized that notwithstanding the pres~ntation of the said documents, there must not be any indication that the recipient of the services is doing business in the Philippines, cohsistent with the above-quoted ruling in the case of Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. The said basic documents are necessary because the Philippine SEC's negative certification establishes that the recipient of the service has no registered business in the Philippines; while the said certificate I articles of inqorporation I association will prove that the said recipient of the servi~e is indeed foreign. Furthermore, the 27 Now Section 102(B)(2) of the NIRC of 1997, as amended by RA No. 9337.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) former document will tend to satisfy the requirement that the service- recipient is not engaged in trade or business within the Philippines; while the latter document wiljl indicate whether the same service- recipient is engaged in busine~s at all (i.e., a showing of a continuity of conduct and intention to establish a continuous business). In this connection, it must be remetnbered that the aforequoted Section 108(8)(2) of the NIRC of 1997, as amended by RA No. 9337, requires, inter alia, that the service-recipient is "a person engaged in business conducted outside the Philippines", for the transaction to be treated as subject to the 0�/o VAT rate. Correspondingly, the IntraGroup Service Agreements28 cannot be a substitute to either of the 1said two (2) required documents, since the said Agreements do not establish that such service recipients are non-resident foreign corpor~tions doing business outside the Philippines, because the said! Agreements only show the names of Deutsche Knowledge's custo1mers to whom it rendered services. Specifically, these IntraGroup $ervice Agreements do not, in any way, establish that the service-recipients are engaged in business outside the Philippines; nor do they shbw that the same service-recipients are not engaged in business in the Philippines. Moreover, there can be no merit in Deutsche Knowledge's insistence that foreign busine$s registration print-outs retrieved from the AMINET database, which lis a database maintained by Deutsche Knowledge's Head Office in ~ermany, are sufficient to establish the fact that the service recipient$ are non-resident foreign corporations doing business outside the Phlilippines. This is so because the said print-outs are self-serving, anld lack credibility, which can be easily manipulated to favor Deutsch~ Knowledge in view of its affinity with the entity that maintains or keeps the said database. Apropos, actions for tax refund, as in the instant case, are in the nature of claim for exemption and the law is not only construed in strictissimi juris against the ta*payer, but also the pieces of evidence presented entitling a taxpa~er to an exemption is strictissimi scrutinized and must be duly proven. 29 In any event, the pivotal question here is not whether Deutsche 28 Exhibits "P"' "P-3" to "P-12"' "P-14" to "P-15"' "P-18" to "P-22"' "P-23 .1" to "P- 23.6", "P-24", "P-27", and "P-29" to "P-34", Division Docket (CTA Case No. 8300) - Vol. 1, pp. 373 to 559. 29 Atlas Consolidated Mining and Development Corporation vs. Commissioner of Internal Revenue, G.R. No. 159490, February 2008.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Knowledge has presented preponderant evidence to prove that all of its zero-rated sales were mad~ to non-resident foreign corporations. Rather, it is whether the evidence presented by Deutsche Knowledge is sufficient to prove that indeed such sales are subject to the 0% VAT rate under the law. In this case, the following table shows whether Deutsche Knowledge presented and offered in evidence the said SEC certificate and certificate I articles of incorporation I association for each of the recipients of ~he services rendered by Deutsche Knowledge, viz: Name of the Service-Recipient$ SEC's negative Certificate I Deutsche Bank Aktiengesellsqhaft certification Articles of lnlandsbank Exhibit "0-12" Incorporation I Deutsche Bank Aktiengesellsohaft Exhibit "0-14" Association lnlandsbank Filiale London Exhibit "0-18" Exhibit "0" Deutsche Bank Aktiengesellschaft, Exhibit "0-19" Exhibit "0-63" Filiale Hongkong_ Exhibit "0-20" Exhibit "0-5" Deutsche Bank Aktiengesellschaft, Exhibit "0-25" Exhibit "0-6" Filiale Jakarta Exhibit "0-26" Exhibit "0-7" Deutsche Bank Aktiengesellschaft, Exhibit "0-32" Exhibit "0-62" Filiale Singapore Exhibit "0-40" Exhibit "0-52" Deutsche Bank Aktiengesellschaft, Exhibit "0-42" Filiale Bangkok Exhibit "0-43" (none) Deutsche Bank Aktiengesellschaft, Exhibit "0-44" Exhibit "0-50" Filiale Mumbai (none) Exhibit "0-49" Deutsche Bank Aktiengesells< haft Exhibit "0-21" Filiale Prag Exhibit "0-22" (none) Deutsche Bank Aktiengesellschaft, Exhibit "0-23" (none) Filiale Wien Exhibit "0-30" Exhibit "0-9" Deutsche Bank Aktiengesellschaft, Exhibit "0-33" (none) Filiale Riad Exhibit "0-8" Deutsche Bank Aktiengesellschaft, Exhibit "0-58" Filiale Dubai (DIFC) (none) Deutsche Bank Aktiengesellschaft, Exhibit "0-59" Filiale Zurich Deutsche Bank Aktiengesellschaft, Asia Pacific Head Office Deutsche Bank (China) Co., Ltd. Shanghai Branch Deutsche Asset Management u~sia) Limited Deutsche Bank Real Estate (Japan) Y.K. DB Finance Inc Deutsche Bank PBC Spolka Akcyjn~

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Deutsche Bank Luxembourg S.A. Exhibit "0-34" Jnonej Deutsche Bank (China) Co. Ltd., Be 'ing Exhibit "0-36" (none) Branch DWS Holding & Service GMBH Exhibit "0-39" Exhibit "0-64" Deutsche Bank (China) Co., I td., Exhibit "0-41" (none) Guang_zhou Branch Deutsche Bank AG, New York Branch (none) Exhibit "0-1" Deutsche Asia Pacific Holdings Pte. Ltd Exhibit "0-15" Exhibit "0-3" Deutsche Group Services Pty Limited Exhibit "0-16" Deutsche Securities Inc Exhibit "0-17" (none) Deutsche Bank (Suisse) SA Exhibit "0-45" Exhibit "0-4" DB Consortium S. Cons. A.R.L in Exhibit "0-46" Exhibit "0-55" Liquidazione Global Markets Centre Private Limit ~d Exhibit "0-47'' (none) Exhibit "0-65" Correspondingly, only the sales of service by Deutsche Knowledge to entities whiclh have the said two (2) required documents will be treated as ~ubject to the 0�/o VAT rate, pursuant to Section 108(8)(2) of the NIRC of 1997, as amended by RA No. 9337. In view of the foregoitJg discussions, only the amount of 13,099,918.30 (or its Pe~o equivalent, P838,069,167.02), of Deutsche Knowledge's sales <j>f services for the 2nd quarter of 2009, would qualify for VAT zero-rati~g under Section 108(8)(2) of the NIRC of 1997, as amended by RA N<P. 9337, computed as follows: Company Name OR Inward Amount Peso Equivalent Deutsche Bank Exh Remit- Collected in Aktiengesellschaft (DB AG), OR# No., tance lnlandsbank Exhibit Euro DB AG Filiale Riad DB AG Filiale Riad No. DB AG Filiale Wien DB AG Filiale Singapore 383 N-1l7 N-138 956,893.16 p 60,920,985.79 DB AG Filiale Singapore 439 N-2~7 N-278 6,735.00 429,690.94 DB AG Filiale Singapore DB AG Filiale Singapore 390 N-5' N-58 43,562.52 2, 706,674.41 DB AG Filiale Bangkok 925.00 61,741.35 DB AG Filiale Mumbai 431 N-2S8 N-289 DB AG Filiale Hongkong 25,200.02 1,676,101.34 DB AG Filiale Hon_gkong_ 435 N-H9 N-160 12,500.00 802,576.25 DB AG Filiale Jakarta 136,137.52 DB AG Filiale London 401 N-9~ N-97 72,792.83 8,740,859.22 DB AG Filiale London 18,500.00 4,522,844.08 DB AG Filiale London 402 N-163 N-164 23,124.53 1,240,314.00 DB AG Filiale London 1,484,735.89 DB AG Filiale London 387 N-2~1 N-252 1,076.00 DB AG Filiale London 705,238.23 68,239.06 434 N-2S2 N-293 45,663,822.77 16,650.04 403 N-1~0 N-101 67,726.08 1,057,054.43 45,238.47 4,531,504.60 394 N-255 N-256 120,005.87 3,026,874.36 4,701,873.80 7,899,098.38 377 N-1_Ei 8 N-169 72,502.05 301,542,921.48 70,088.22 4, 707,855.36 399 N-1~ 2 N-173 4,551,115.49 426 N-2~ 6 N-237 427 N-2~ 9 N-240 424 N-2~ 2 N-243 418 N-1 6 N-177 417 N-2i 1 N-272 416 N-2,4 N-275

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 20 of44 DB AG Filiale London 409 N-10 N-107 4,154,005.85 263,941,377.70 N-25 N-259 79,624.00 5,059,229.34 DB AG Filiale London 408 N-26 N-265 71,800.11 4,562,107.19 N-28 N-282 DB AG Filiale London 407 559,285.00 35,980,873.40 N-29~ N-297 DB AG Filiale London 379 N-28~ N-286 N-194 Deutsche Asset Management N-19 ~ N-268 N-26 7 N-262 (Asia) Limited 436 N-26 N-114 110,138.97 7,427,763.15 N-11 N-88 17,216.00 1'149, 123.24 Deutsche Securities Inc. 432 N-871 N-305 59,068,403.16 N-30~ N-128 931,396.22 Deutsche Securities Inc. 391 N-1217 12,051.20 764,277.46 N-309 6,025.60 390,154.59 Deutsche Securities Inc. 393 N-30~ 278.00 N-216 278.00 18,811.90 Deutsche Securities Inc. 376 N-21J; 18,500.00 18,811.90 N-228 12,950.01 1,240,314.00 DB AG Suisse SA 441 N-22~ 821,279.27 DB AG Suisse SA 396 DWS Holding Service GMBH 433 DB Real Estate Japan Y.K. 392 Deustche Asia Pacific Holdings Pte Ltd 438 27,750.00 1,870,419.38 Deutsche Bank PBC Spolka Akcyjna 400 462.50 29,561.24 Global Markets Centre Private Limited 430 1,387.50 91,650.90 TOTAL 13,099,918.30 p 838,069,167.02 Thus, the findings of thle Court in Division, as stated in the assailed Decision, as regards1the amount of Deutsche Knowledge's sales for the 2nd quarter of 2009 which qualify to the 0% VAT rate have to be reduced from 1 ~. 167,067.56 (or its Peso equivalent, P842,455,992.11) to 13,0~9,918.30 (or its Peso equivalent, P838,069, 167.02). Particulari!Y, the said reduction is brought about � I by the exclus1on of the sales: to Deutsche Bank Luxembourg S.A., Deutsche Bank (China) Co. Ltd., Beijing Branch, Deutsche Bank (China) Co., Ltd., Guangzhou Branch, DB Finance Inc., DB Consortium S. Cons. A. R. L. irh Liquidazione, since the above-stated two (2) documents for tlilese entities were not submitted. Parenthetically, the sale of service to Deutsche Bank (Suisse) SA in the amount of 278.00 (or itsJPeso equivalent, P18,811.90), 30 which were not considered by the Cdurt in Division in the assailed Decision, is included in the said am�unt of 13,099,918.30 (or its Peso equivalent, P838,069, 167.02). The total amortized amount of input VAT on its purchases at capital goods for the 2nd quarter qf 2009 is only P180,065.44. Deutsche Knowledge avers that it is entitled to the amount of I P226,647.86, representing th$ amount of amortization of input VAT on its purchase of capital gqods exceeding P1 ,000,000.00 for the 30 Refer to Exhibits "N-87" and "N-88'~.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) second quarter of 2009. It cqmtends that the Court a quo erred in finding that the estimated useful life of the said goods is sixty (60) months; and that the estimat�d useful life should have been only forty-eight (48) months, as shdwn in its Quarterly VAT Return for the second quarter of 2009 (pointing to Exhibit "T-8"). We partly agree with DEeutsche Knowledge's contentions, but only insofar as the number of the estimated useful life of the subject capital goods are concerned. Section 110 of the NIRC of 1997, as amended by RA No. 9337, states that: "SEC. 110. Tax Credits.- XXX XXX XXX xxx, That the input tax on goods purchased or imported in a calendar month for use in trade or business for which deduction for depreciation is allowed under this Code, shall be spread evenly over the month of acquisition and the fifty-rnine (59) succeeding months if the aggregate acquisition cost for such goods, excluding the VAT component the~eof, exceeds One Million pesos (P1 ,000,000): Provi�/ed, however, That if the estimated useful life of the capital goods is less than five (5) years, as used ~or depreciation purposes, then the input VAT shall be spread over such a shorter period: xxx." (EmphasiS supplied) In relation thereto, Section 4.11 0-3(b) of the Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007, provides as follows: "SEC. 4.110-3. ClaVm for Input Tax on Depreciable Goods.- Where a VAT~-registered person purchases or imports capital goods, Which are depreciable assets for income tax purposes, tine aggregate acquisition cost of which (exclusive of VAl) in a calendar month exceeds One Million pesos (Pt,OOO,OOO.OO), regardless of the acquisition cost of each icapital good, shall be claimed as credit against output tax lin the following manner: XXX XXX XXX

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) (b) If the estimate~ useful life of a capital good is less than five 5 ears - The input tax shall be spread evenly on a onthly basis by dividing the input tax by the actual lnumber of months comprising the estimated useful lif~ of a capital good. The claim for in ut tax credit sha I commence in the month that the ca ital oods we e (Emphasis and underscoring supplied) Based on the foregoing provisions, if the estimated useful life of the subject capital goods is l~ss than five (5) years, the input VAT shall be spread evenly on a nnonthly basis, the amount of which is computed by dividing the inpu~ VAT by the actual number of months comprising the said estimalted useful life. Furthermore, the commencement of the claim ~or input VAT shall be in the month of acquisition of the said capital gpods. Upon perusal of the records, it shows that Deutsche Knowledge formally offered, inter alia, its Quarterly VAT Return for the second quarter of 2009, 31 as Exhibits "T-1" to "T-8". These documents were admitted by the Court in Division in the Resolution dated September 14, 2012. 32 Indeed, in the ~aid Quarterly VAT Return, Deutsche Knowledge had indicated that 1the useful life of the purchased capital goods exceeding P1 ,OOO,OOO.dlO is forty-eight (48) months. Nevertheless, We do n<:~>t subscribe to Deutsche Knowledge's stance that the amount of P226,647.86 must be refunded, as would represent the amount of amortization of input VAT on its purchase of capital goods exceeding P1 ,opo,ooo.oo for the 2nd quarter of 2009. This must be so because whil� the estimated useful life of the subject capital goods is indeed 48 mqnths, and therefore, the corresponding input VAT thereto must be spr$ad evenly during the period of the said estimated useful life, the am<Prtization of the input VAT claim must commence only from the mon~h of acquisition, and not for the whole 2nd quarter of 2009, as Deutsche Knowledge would have it. Hence, only the amount: of P180,056.40, as determined below, represents the total amortized input VAT on Deutsche Knowledge's purchase of capital goods exceeding P1 ,000,000.00 for the 2nd quarter of 2009, viz: 31 Division Docket-Vol. 1 (CTA Case No. 8300), pp. 187 to 203, at p. 199. 32 Division Docket-Vol. 2 (CTA Case No. 8300), pp. 674 to 680.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Registered Exhibit Input VAT Estimated Date of No. of Amortized Name of No. Reported Useful Purchase Months Input VAT Supplier Life (Invoice Date) Amortized (in Pesos) per Accent Micro Quarterly Feb. 10,2009 3 303.35 Technologies Inc. VAT Return Feb. 12,2009 3 147.32 Accent Micro (in Pesos) Mar. 13, 2009 3 Technologies Inc. Mar. 13, 2009 3 80.34 Accent Micro M-18 4,853.57 48 Feb. 13,2009 3 267.86 Technologies Inc. Mar. 25, 2009 3 134.21 Accent Micro M-19 2,357.14 48 Mar. 25, 2009 3 Technologies Inc. Mar. 26,2009 3 43.65 Accent Micro M-20 1,285.50 48 Feb. 10,2009 3 87.29 Technologies Inc. Mar. 31, 2009 3 18,048.12 Accent Micro M-21 4,285.71 48 Mar. 19, 2009 3 252.46 Technologies Inc. Mar. 30, 2009 3 12,522.32 Accent Micro M-22 2,147.36 48 Mar. 23, 2009 3 532.37 Technologies Inc. Apr. 3, 2009 3 36.83 Accent Micro M-23 698.36 48 Apr. 13, 2009 3 143.97 Technologies Inc. Apr. 14, 2009 3 67,484.28 Accent Micro M-24 1,396.71 48 Apr. 2, 2009 3 13,732.27 Technologies Inc. Apr. 27, 2009 3 847.71 Accent Micro M-25 288,769.93 48 May 5, 2009 2 3,274.71 Technologies Inc. May6, 2009 2 281.88 Accent Micro M-26 4,039.29 48 May 11, 2009 2 37,142.51 Technologies Inc. Apr. 2, 2009 3 727.71 Accent Micro M-27 200,357.14 48 May 8, 2009 2 44.79 Technologies Inc. Apr. 27,2009 3 1,112.01 Accent Micro M-28 8,517.86 48 May 18, 2009 2 267.86 Technologies Inc. Apr. 22, 2009 3 234.96 Accent Micro M-29 589.29 48 May 18, 2009 2 4,553.57 Technologies Inc. May 25, 2009 2 1,189.96 Accent Micro M-30 2,303.57 48 May 25,2009 2 151.79 Technologies Inc. May 29, 2009 2 75.89 Accent Micro M-31 1,079,748.43 48 May 25,2009 2 20.13 Technologies Inc. 5,374.71 Accent Micro M-32 219,716.25 48 17.85 Technologies Inc. Accent Micro M-33 13,563.32 48 Technologies Inc. Accent Micro M-34 52,395.43 48 Technologies Inc. Accent Micro M-35 4,510.07 48 Technologies Inc. Accent Micro M-36 891,420.21 48 Technologies Inc. Accent Micro M-37 17,465.14 48 Technologies Inc. Accent Micro M-38 1,074.86 48 Technologies Inc. Accent Micro M-39 17,792.14 48 Technologies Inc. Accent Micro M-40 6,428.57 48 Technologies Inc. Accent Micro M-41 3,759.43 48 Technologies Inc. Accent Micro M-42 109,285.71 48 Technologies Inc. Accent Micro M-43 19,039.29 48 Technologies Inc. Accent Micro M-44 3,642.86 48 Technologies Inc. Accent Micro M-45 1,821.43 48 Technologies Inc. Accent Micro M-46 483.00 48 Technologies Inc. M-47 128,993.04 48 M-48 428.36 48

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Accent Micro M-49 182,142.86 48 June 3, 2009 1 3,794.64 Technologies Inc. M-50 1,664.36 48 June 8, 2009 1 34.67 Accent Micro M-51 6,589.29 48 June 4, 2009 1 Technologies Inc. M-52 4,017.86 48 June 10, 2009 1 137.28 Accent Micro M-53 1,607.14 48 June 4, 2009 1 83.71 Technologies Inc. M-54 48 June 4, 2009 1 33.48 Accent Micro M-55 319,774.71 48 June 8, 2009 1 Technologies Inc. M-56 1,664.36 48 June 8, 2009 1 6,661.97 Accent Micro M-57 3,880.07 48 May 25, 2009 2 34.67 Technologies Inc. M-58 943.71 48 June 8, 2009 1 80.83 Accent Micro TOTAL 1,449.00 TOTAL 39.32 Technologies Inc. I 30.19 Accent Micro 3,616,902.33 Technologies Inc. 180,065.44 Accent Micro Technologies Inc. Accent Micro Technologies Inc. Accent Micro Technologies Inc. Correspondingly, We partly reduce the finding of the Court in Division as regards the amount of the unamortized input VAT from the amount of P3,444,742.24 �to the amount of P3,436,836.89 (P3,616,902.33 less P180,065j44). A determination whether t~e Court in Division erred in disallot)ring the total amount of P24,414,629.~9. Deutsche Knowledge cotltends that its entitlement to the refund of its excess and unutilized irlput VAT for the 2nd quarter of 2009 is more paramount compared to1 the apparent failure of the documents presented by Deutsche !Knowledge to comply with strict substantiation requirements. For easy reference, the composition of the said amount of P24,414,629.89 is as follows: Findings of the Court in Division Disallowed Input VAT 1. Domestic purchases of service~. supported by VAT Official Receipts (ORs) wherein the input VAT were not separately P9,300,096.83 indicated. 2. Domestic purchases of good$ other than capital goods 96,883.29 supported by VAT invoices wherein the input VAT were not 2,437,168.27 separately indicated. 3. Domestic purchases of servic~s without supporting valid 136,459.07 VATORs. 4. Domestic purchases of good$ other than capital goods without supporting valid VAT invoi~es. 5. Input VAT on services support~d by documents imprinted

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) with the statement "This document is not a valid source of 1,042.90 input tax." 6,009,296.27 6. Domestic purchases of servicl$s supported by VAT ORs dated outside the period of claim. � 1,363,030.99 7. Domestic purchases of capital ~oods not exceeding P1 M supported by VAT invoices dated o~tside the _2_eriod of claim. 188,316.98 8. Over-claimed input VAT on! domestic purchases of 4,882,335.29 services supported by VAT ORs. P24,414,629.89 9. Without supporting documents. TOTAL Deutsche Knowledge, hcj>wever, failed to specifically refute the findings of the Court in Division regarding the amounts of ~1 ,042.90, ~188,316.98, and ~4,882,335i29. If Deutsche Knowledge was truly convinced that the Court in Di\Aision erred in the said findings, it could have easily pinpointed which of the said findings is not consistent with evidence, the law and/or jurisprudence. A general and perfunctory statement that its entitlement t~ the subject refund is more paramount than its failure to comply with ~he substantiation requirements will not suffice. Thus, the same findings of the Court in Division stand. As for the other findings peing specifically assailed by Deutsche Knowledge, We shall address them as follows: The out-of- eriod claims in t e amount of P7 372 327.26 should not b allowed since it is contra to law an revenue regulations. Deutsche Knowledge insists that the disallowance of out-of- period claims in the amo~nt of ~7,372,327.26 is untenable, considering that the said claims are specifically allowed under Revenue Memorandum Circiular (RMC) No. 42-03. For easy reference, it is hereby noted t~at the composition of the said amount is broken down as follows: Findings of the Court i~ Division Disallowed Input VAT 1. Domestic purchases of se tvices supported by p 6,009,296.27 1,363,030.99 VAT ORs dated outside the period of claim 2. Domestic purchases of !capital goods not p 7,372,327.26 exceeding P1 M supported by VAT invoices dated outside the period of claim TOTAL The reasoning of Deutsche Knowledge is specious.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) It is true that RMCs (such as RMC No. 42-03), as administrative issuances, have the force anp effect of law, and benefit from the same presumption of validity and constitutionality enjoyed by statutes.33 However, it must Qe remembered that BIR circulars and rulings cannot prevail over the clear and plain language of the Tax Code. 34 Furthermore, while We ~ecognize that the CIR is vested with the power to interpret the proyisions of the NIRC of 1997, it is still subject to the review powers of the Secretary of Finance, in accordance with the first paraglraph of Section 4 of the NIRC of 1997, viz: "SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax' Cases.- The power to interpret the provisions of this CC!>de and other tax laws shall be under the exclusive alnd original jurisdiction of the Commissioner, subject to review by the Secretary of Finance." In this connection, RMC$ are considered administrative rulings which are issued from time to time by the CIR. 35 In any event, the Secretqry of Finance, in turn, is empowered to promulgate rules and regulatjons, usually in the form of Revenue Regulations (RRs), upon the r�commendation of the CIR, pursuant to Section 244 of the NIRC of 1997, to wit: "SEC. 244. Authority of Secretary of Finance to Promulgate Rules and FRegulations. - The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code." Thus, RRs should alwe1lys prevail over RMCs; 36 the former being promulgations by a superior; while the latter, being issuances 33 Chevron Phils., Inc. vs. Bases Conversion and Development Authority, et al. , G.R. No. 173863, September 15,2010. 34 Security Bank Corporation (formerly Security Bank and Trust Company) vs. The Commissioner ofInternal Revenue, GR. No. 130838, August 22, 2006. 35 Asia International Auctioneers, In�., et al. vs. Parayno, et al., G.R. No. 163445, December 18,2007. 36 Refer to Bank of the Philippine Isl&nds vs. Commissioner of Internal Revenue, G.R. No. 144653, August 28, 2001.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) by a subordinate official. As a corollary then, a RMC cannot supplant provisions of RRs. In this case, one of the :pertinent provisions applicable to the refund claim of Deutsche K~owledge in CTA Case No. 8300 is Section 110(2) of the NIRC o~ 1997, as amended by RA No. 9337, which lays down the rules as to when the input VAT is creditable against the output VAT, to wit: "SEC. 110. Tax Credits.- XXX XXX XXX (2) The input t~x on domestic purchases or importation of goods or' properties by a VAT-registered person shall be credita~le: (a) To the purchas~r upon consummation of sale and on importation of gloods or properties; and (b) To the import~r upon payment of the value- added tax prior to the irelease of the goods from the custody of the Bureau cj>f Customs. xxx, That in case cpf purchase of services, lease or use of properties, the input tax shall be creditable to the purchaser, lessee or li�ensee upon payment of the compensation, rental, noyalty or fee." (Emphases and underscoring supplied) � The law is clear. Thuls, as to the purchaser of goods or properties, the input VAT is creditable against the output VAT, upon consummation of the sale; 13s to the importer, upon payment of the VAT; and as to the pu~chaser of services, lease or use of properties, the input VAT ther~for is creditable upon payment of the compensation, rental, royalty or fee. With the use of the word "upon", it can be easily discerned from the said provisions that the creditability of the pertinent input VAT against the output VAT must be made as it happens, and mot to be made at any other time. Nevertheless, the aforequoted I provisions of Section 11 0(2) should be correlated with Section 114(A) of the NIRC of 1997, as amended by RA No. 9337, which provides ~s follows, to wit: "SEC. 114. Return and Payment of Value-added Tax - (A) In General. -� Every person liable to pay the

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) value-added tax impos~d under this Title shall file a quarterly return of the i amount of his gross sales or receipts within twenty-fiv$ (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a ~monthly basis." Correspondingly, since the filing of the Quarterly VAT Return, which reports the gross sales qr receipts, and the payment of the VAT would come at a later date th~n the actual crediting of the input VAT, such crediting can be made, only upon such filing and payment. However, considering that the ~aid Section 11 0(2) is clear as to when should the pertinent input VAt shall be creditable, it should not go beyond the month or quarter dGring which the input VAT was incurred or paid, as the case may be. this has been clarified by the following provisions of RRs No. 16-2009, which implemented the said Sections 110(2) and 114(A), to wit: "SEC. 4.110-2. Pe~sons Who Can Avail of the Input Tax Credit. -The input tax credit on importation of goods or local purchases of gqods, properties or services by a VAT-registered person sHall be creditable: (a) To the importer !Upon payment of VAT prior to the release of goods from cu~toms custody; (b) To the purch~ser of the domestic goods or properties upon consummation of the sale; or (c) To the purcha$er of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee. XXX XXX XXX SEC. 4.110-4. Apnortionment of Input Tax on Mixed Transactions. - A VA~-registered person who is also engaged in transactionp not subject to VAT shall be allowed to recognize input tax credit on transactions subject to VAT as follows: 1. All the input ta~es that can be directly attributed to transactions subject 'to VAT may be recognized for input tax credit; xxx

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) 2. If any input ta>q cannot be directly attributed to either a VAT taxable or ~T exempt transaction, the input tax shall be pro-rated to the VAT taxable and VAT-exempt transactions and only t~e ratable portion pertaining to transactions subject to \{AT may be recognized for input tax credit. XXX XXX XXX SEC. 4.110-5. Determination of Input Tax Creditable during a Tax~ble Month or Quarter. - The amount of input taxes i creditable during a month or quarter shall be deter~ined in the manner illustrated above by adding all freditable input taxes arising from the transactiops enumerated under the preceding subsections fof Sec. 4.110 during the month or quarter plus any amo!unt of input tax carried over from the preceding month or quarter, reduced by the amount of claim for VAT refund or t~x credit certificate (whether filed with the BIR, the Depa~ment of Finance, the Board of Investments or the BOC) and other adjustments, such as purchase returns or allowances, input tax attributable to exempt sales and input t~x attributable to sales subject to final VAT withholding. ' SEC. 4.11 0-6. De~ermination of the Output Tax and VAT Payable and Comp~tation of VAT Payable or Excess Tax Credits. - In a sale ~f goods or properties, the output tax is computed by multliplying the gross selling price as defined in these Regula~ions by the regular rate of VAT. For sellers of services,� the output tax is computed by multiplying the gross �receipts as defined in these Regulations by the regul~r rate of VAT. XXX XXX XXX There shall be al~owed as a deduction from the output tax the amou?t of input tax deductible as determined under Se . 4-110-1 to 4.110-5 of these Re ulations to arrive t VAT a able on the monthl VAT declaration and th uarterl VAT returns, subject to the limitations set forth in Section 4.110-7. XXX XXX XXX SEC. 4.114-1. Filitt1g of Return and Payment of VAT

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 30 of44 (A) Filing of Retum. - Every person liable to pay VAT shall file a quarterly return of the amount of his quarterly gross sales on receipts within twenty five (25) days following the close pf taxable quarter using the latest version of Quarterly VAT :Return. xxx. Amounts reflected! in the monthly VAT declarations for the first two (2) months of the quarter shall still be included in the quarterly VAT return which reflects the cumulative figures for t~e taxable quarter. Payments in the monthly VAT declar*ions shall, however, be credited in the quarterly VAT r~turn to arrive at the net VAT payable or excess input tax/over-payment as of the end of a quarter. XXX XXX XXX The monthly VAT Qeclarations (BIR Form 2550M) of taxpayers whether larg~ or non-large shall be filed and the taxes paid not later t~an the 20th day following the end of each month." (Emphases and underscoring supplied) Based on the foregoing provisions, to arrive at the VAT payable on the Monthly VAT Declaratipn and the Quarterly VAT Return, the input VAT allowed to be deduqted or credited from the output VAT are those that are creditable durin~ the corresponding month and quarter. Thus, even when RMC NJo. 42-03 allows out-of-period claims of input VAT, the same cannot ~e adhered to, because it contravenes the above-quoted Section 11 Q(2) in relation to Section 114(A) of the NIRC of 1997, as amended ~Y RA No. 9337, and clearly supplants Sections 4.110-2,4.110-4, 4.1'10-5, 4.110-6, and 4-114-1 of RRs No. 16-2005. Deutsche Knowledge's VAiT official receipts or invoices. whicQ do not se aratel indicate the i ut VAT com anent of the transact"on were correctly disallowed by the � Court in Division. Deutsche Knowledge argues that the amount of P9,396,980.12 must not be disallowed baseq on the following grounds: (i) the input

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) VAT claimed from these supporting documents may be readily computed; and (ii) these supporting documents were issued by Deutsche Knowledge's clients 1over which it had no participation and control whatsoever. Obviously, Deutsche Knowledge is referring to the following disallowances made by the Court in Division, to wit: Findings of the Court in Division Disallowed input VAT 1. Domestic purchases of servic~s supported by VAT ORs wherein the input VAT were not separately p 9,300,096.83 indicated. 96,883.29 2. Domestic purchases of good$ other than capital goods supported by VAT invoioes wherein the input p 9,396,980.12 VAT were not separately indicatE~d TOTAL We, however, find the grounds relied upon by Deutsche Knowledge as untenable. Statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the VAT are in the nature of such exemptions. 37 Thus, the taxp~yer claiming the tax credit or refund has the burden of proving that1he is entitled to the refund or credit, in this case input VAT, by submitting evidence that he has complied with the requirements laid down in the tax code and the SIR's revenue regulations under which such privilege of credit or refund is accorded. 38 In other words, am 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. 39 As a refund claimant for input VAT, Deutsche Knowledge must show that the VAT invoices or official receipts issued to it by its suppliers, as the case may be~ complied with Section 113(8)(2)(a) of the NIRC of 1997, as amend~d by RA No. 9337, which provides as follows: "SEC. 113. Invoicing and Accounting Requirements for VAT-registered Persons. - 37 Panasonic Communication Imaging Corporation of the Philippines vs. Commissioner ofInternal Revenue, G.R. No. 178090i, February 8, 2010. 38 Microsoft Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 180173, April 6, 2011. 39 Eastern Telecommunications Philippines, Inc. vs. Commissioner of Internal Revenue, G.R. No. 183531, March 25,2015.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) XXX XXX XXX (B) Information Comtained in the VAT Invoice or VAT Official Receipt. - The !following information shall be indicated in the VAT in'Joice or VAT official receipt: XXX XXX XXX (2) The total amoulht which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the vaiU!e-added tax: Provided, That: (a) The amount df the tax shall be shown as a separate item in the invloice or receipt; XXX XXX xxx." (Emphases and underscoring supplied) Based on the foregoing, the VAT invoice or VAT official receipt, as the case may be, must stat~, inter alia, the amount of the tax as a separate item therein. Strict ~dherence to this requirement must be shown. This is so because compliance with all the VAT invoicing requirements provided by tax laws and regulations is mandatory. 40 Hence, if it is shown that the $aid VAT invoice or VAT official receipt does not indicate the said requirements, it must not be included as part of the taxpayer-claimant's 'refundable amount. Correspondingly, Deutsche Knowledge's allegation that the input VAT claimed from the supporting documents (i.e., the VAT invoices and official receipts) rjnay be readily computed has no leg to stand on, since the indication, of the input VAT in the VAT invoice or VAT official receipt, as the cas$ may be, is a legal requirement. Furthermore, the reasoning of Deutsche Knowledge that the subject VAT invoices or offi~ial receipts were issued without its participation and control whatspever is untenable. While it may be true that the said VAT invoices or official receipts were issued without :its participation and control, Deutsche Knowledge, to whom the burden of proof rests claiming tax refunds, must be vigilant to require its $uppliers of goods and services to issue 40 Eastern Telecommunications Philippines, Inc. vs. Commissioner of Internal Revenue, Supra.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) pertinent VAT invoice or offici~l receipt, as the case may be, which bear all the information requir~d by law and revenue regulations. In other words, having been cha~ged with the burden to prove its claim for refund, 41 Deutsche Kno~ledge must have been watchful in ensuring that its every purcha~e of goods or services is supported by a legally compliant VAT officiallreceipt or invoice, as the case may be. On the remaining items being i raised by Deutsche Knowledge. Deutsche Knowledge further contends that the Court in Division erred in finding that the Exhi~its "M-1131", "M-1133", and "M-1044" do not constitute valid VAT oMicial and/or invoices. It avers that the said official receipts and � invoices are compliant with the substantiation requirements under Sections 11 O(A) and 113(A) and (B) of the Tax Code, as implejmented by Sections 4.110-2, 4.110-8, and 113-1, RR No. 16-05. We are partly persuaded. The said Exhibits are included in the following findings of the Court in Division, to wit: Findings of the Cour1t in Division Disallowed input VAT 1. Domestic purchases of services without supporting valid VATORs p 2,437,168.27 2. Domestic purchases of good$ other than capital goods 136,459.07 without supporting valid VAT in~oices TOTAL p 2,573,627.34 Specifically, Exhibits "M-1131" and "M-1133" are included in the total amount of P2,437, 168.27;42 while Exhibit "M-1044" is encompassed in the total amount of P136,459.07. 43 Thus, the other amounts not affected by these Exhibits, reRresenting the above-stated findings by the Court in Division, are alrea~y sustained. 41 Refer to Commissioner of Internal Revenue vs. Eastern Telecommunications Philippines, Inc., G.R. No. 163835, Nly 7, 2010. 42 Refer to Annex of the assailed Decision, Division Docket-Vol. 2 (CTA Case No. 8300), p. 1134, and EB Docket (CTA~EB No. 1383), p. 37. 43 Refer to Annex of the assailed De~ision, Division Docket-Vol. 2 (CTA Case No. 8300), pp. 1134 to 1135, and EB Docket (CTA EB No. 1383), pp. 37 to 38.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Be that as it may, there i$ partial merit in Deutsche Knowledge's contentions. A VAT-registered taxpay~r is required to comply with all the VAT invoicing requirements to be able to file for a claim for input taxes on domestic purchases for good$ or services attributable to zero-rated sales. 44 Put in another way, ,compliance with all the VAT invoicing requirements provided by tax l~ws and regulations is mandatory. 45 Section 113(8) of the NIIRC of 1997, as amended by RA No. 9337, reads as follows: "SEC. 113. lnvoici~g and Accounting Requirements for VAT-registered Persons.- XXX XXX XXX (B) Information Contained in the VAT Invoice or VAT Official Receipt. - The !following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement t~at the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN); (2) The total amount which the purchaser pays or is obligated to pay the seller with the indication that such amount includes the vaiLje-added tax: Provided, That: (a) The amount qf the tax shall be shown as a separate item in the involice or receipt; (b) If the sale is e~empt from value-added tax, the term 'VAT-exempt sal$' shall be written or printed prominently on the invoiqe or receipt; (c) If the sale is s~bject to zero percent (Oo/o) value- added tax, the term 'zeiro-rated sale' shall be written or printed prominently on tHe invoice or receipt; XXX XXX XXX 44 Microsoft Philippines, Inc. vs. Commissioner ofInternal Revenue, supra. 45 Eastern Telecommunications Philippines, Inc. vs. Commissioner of Internal Revenue, supra.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) (3) The date of tr~nsaction, quantity, unit cost and description of the goods or properties or nature of the service; and (4) In the case of sales in the amount of One thousand pesos (P1,00P) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, adtJress and Taxpayer Identification Number (TIN) of the purchaser, customer or client." (Emphases supplied) Thus, the pertinent VAT official receipts or VAT invoices, as the case may be, must contain th~ foregoing information. Otherwise, the said documents will not be rendered as compliant with the invoicing requirements under the law. A careful examination of:Exhibits "M-1131" and "M-1133" would reveal that these documents ~re not compliant with the above-stated invoicing requirements. Sp~cifically, it is noteworthy that these supposed "Official Receipts" a1re both dated as "6-31-09". While this "date" may be construed as "June 31, 2009", such date is non- existent. Hence, said docume~ts do not have a "date of transaction". Furthermore, it is glaring th~t the said Exhibits do not state the "nature of the service" perfCl>rmed by the concerned supplier of Deutsche Knowledge. As for Exhibit "M-1044",, contrary to the finding of the Court in Division as falling under "Domestic purchases of goods other capital goods without supporting val* VAT invoices", We find the same as valid, since the legally requir~d information are present, pursuant to the aforequoted Section 113(S). Thus, the input VAT indicated in the said Exhibit "M-1044", i.e., the1 amount of P63,750.00, must form part I of the valid input VAT proved b~ Deutsche Knowledge. Hence, in view of the for~going findings, anent the total amount of valid input VAT for the 2nd quarter of 2009 that was established by Deutsche Knowledge, We paltly modify the findings of the Court in Division from P25,752,891.118 to P25,824,546.53, computed as follows: Input VAT claimed by_ Deutsche Knowledge p 53,739,763.31 Less: Disallowances: P3,436,836.89 Unamortized input VAT on calpital goods \ exceeding_ P1 M

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Input VAT on capital goods !exceeding 127,500.00 P1 M without supporting docurtlents Input VAT on purchases of se!rvices and 24,350,879.89 27,915,216.78 goods other than capital good~ p 25,824,546.53 (P24,414,629.891ess P63,75d.OO) Valid Input Tax Deutsche Knowledge h~s not shown any valid justification! why its Motion to Re-Open Trial ; should have been granted by the Cpourt in Division. Deutsche Knowledge avers that the Court in Division gravely erred in denying its motion to re-open trial as it violates the principle that the ascertainment of tn,lth takes precedence over the strict application of procedural rules !for cases falling the Court in Division's jurisdiction. According to Deut~che Knowledge, the re-opening of trial would have allowed it to comply with the very strict documentary requirements imposed by th~ Court in Division for proving the existence of non-resident forelign clients doing business outside the Philippines, which documentary requirements are not actually supported by law. We are not persuaded. In Cabar/es vs. Maceda, ,et a/.,46 the Supreme Court said: "A motion to reopen a case to receive further proofs was not in the old rules but it was nonetheless a recognized procedural recourse, deriving validity and acceptance from long, e~tablished usage. xxx. XXX XXX XXX Generally, after tttle parties have produced their respective direct proo~s. they are allowed to offer rebutting evidence only. However, the court, for good reasons, in the further~nce of justice, may allow new evidence upon their otiginal case, and its ruling will not be disturbed in ~he appellate court where no abuse of discretion apwears. A motion to reopen may thus properly be pre~ented only after either or both 46 GR. No. 161330, February 20, 2007.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 37 of44 parties had formally offered and closed their evidence, but before judgment is . rendered, and even after promulgation but befo~e finality of judgment and the onl controllin uid line overnin a motion to reo en is the aram unt interest of �ustice. This remedy of reopening a! case was meant to prevent a miscarriage of justice." (Emphases and underscoring supplied Based on the foregoing, ithe Court in Division is empowered to allow new evidence, for goo~ reasons, and in the furtherance of justice. In this case, however, D$utsche Knowledge has not shown that it will be introducing "new evidence", and has not established any good reason why a decree r~opening the case a quo should have been granted by the Court � in Division. Neither did Deutsche Knowledge show that the p~ramount interest of justice would be served in granting its motion toi reopen the case. It is noteworthy that Deu~sche Knowledge has been given every I opportunity to present its ca$e a quo. During trial, the Court in Division permitted Deutsche ~nowledge to present its evidence and after which, Deutsche Knowle~ge was able to offer the same via its Formal Offer of Evidence47 fil~d on August 2, 2012. The Court in Division acted thereon and ~uled on the admissibility of the said evidence per its Resolution da~ed September 14, 2012.48 In addition, the Court in Division even allowed Deutsche Knowledge to present supplemental evidence in the Resolution dated February 4, 2013,49 and to i offer, for their admission, the said supplemental evidence50 all fo~ the purpose of proving that Deutsche Knowledge's clients are non-resident foreign corporations "actually doing business outside the Philippines." In the subject Motion to f{e-Open Trial filed before the Court in Division,51 Deutsche Knowledlge averred that it intends to offer in 47 Division Docket-Vol. 1 (CTA Case No. 8300), pp. 187 to 204. 48 Division Docket-Vol. 2 (CTA Case No. 8300), pp. 674 to 680. 49 Division Docket-Vol. 2 (CTA Case No. 8300), pp. 776 to 779. 50 Deutsche Knowledge's Supplementl,tl Formal Offer of Evidence, Division Docket- Vel. 2 (CTA Case No. 8300), pp. 798 ~o 802. 51 Division Docket-Vol. 2 (CTA Case No. 8300), pp. 1167 to 1170.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 38 of44 evidence "the AM/net Company Profile Fact Sheets and the electronically-maintained copi~s of the Articles of Incorporation and business registration docum~nts" of its clients, which were not considered by the Court in Dlivision as doing business outside the Philippines. In other words, lin the said Motion to Re-Open Trial, Deutsche Knowledge was se~king, once again, to present evidence having the same purpose as that previously allowed by the Court in Division. We agree, therefore, With the Court in Division in denying Deutsche Knowledge's Motiory to Re-Open Trial. This must be so because the evidence to ~e presented could not already be considered as "new evidenc~". Moreover, Deutsche Knowledge failed to show any good rea$on why a re-opening of the case is warranted and that the paramount of interest of justice would be served, especially so, that it hlas already been given by the Court in Division an opportunity to pr~sent supplemental evidence to prove the same fact as that what were intended to be presented in the event that the case is re-opened. While it may be true that thf/tre were disallowed zero-rated s~les of Deutsche Knowledge, th~ same does not necessarily transla,e into a reduction of the amount i to be refunded as decreed by the Court in Division. The CIR assails the decilsion of the Court in Division in partially granting the refund of petitioner. The contention of respondent is that petitioner's output VAT is more than the amount of input tax attributable to zero-rated salesi subject of the present claim. According to the CIR, the rest of Deutsche Knowledge's declared zero-rated sales iln the amount of P237,405,916.01 (P1 ,079,861,908.12 less P8421,455,922.11) was denied for VAT zero- rating for failure to prove ttiat the entities to whom it rendered services are non-resident foreign corporations doing business outside the Philippines. Furthermor~, the CIR avers that for not being qualified as zero-rated sales, ~he amount of P237,405,916.01 should be subject to VAT at 12% ins~ead of 0% VAT; that after applying the 12% VAT, the corresponding output VAT of Deutsche Knowledge is P28,488, 709.92; and that, he~ce, Deutsche Knowledge is still liable for output VAT in the amount df P28,488,709.92.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 39 of44 The reasoning of the CIA is erroneous. In SMI-ED Philippines Technology, Inc. vs, Commissioner of Internal Revenue, 2 the Supreme Court held: 5 "The Court of Tax f!\ppeals' jurisdiction is not limited to cases when the BIR makes an assessment or a decision unfavorable to the taxpayer. Because Republic Act No. 1125 also vest~ the Court of Tax Appeals with jurisdiction over the BIR'$ inaction on a taxpayer's refund claim, there may be in$tances when the Court of Tax Appeals has to take ~ognizance of cases that have nothing to do with the $1R's assessments or decisions. When the BIR fails to! act on a claim for refund of voluntarily but mistakenly paid taxes, for example, there is no decision or assessment involved. XXX XXX XXX Since there is no ~IR assessment yet, the Court of Tax Appeals may not de~ermine the amount of taxes due from the taxpayer. THere is also no decision yet to review. However, there! was inaction on the part of the BIR. That inaction is within the Court of Tax Appeals' jurisdiction. In other words, the Court of Tax Appeals may acquire jurisdiction o~er cases even if they do not involve BIR assessmenits or decisions. In this case, ~he Court of Tax Appeals' jurisdiction was acqui~ed because petitioner brought the case on appeal before the Court of Tax Appeals after the BIR had failedi to act on petitioner's claim for refund of erroneously !Paid taxes. The Court of Tax Appeals did not acquire jurisdiction as a result of a disputed assessment o~ a BIR decision. Petitioner argued t~at the Court of Tax Appeals had no jurisdiction to subject lit to 6�/o capital gains tax or other taxes at the first instance. The Court of Tax Appeals has no power to make an assessment. 52 G.R. No. 175410, November 12,2014.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) As earlier establislhed, the Court of Tax Appeals has no assessment po~ers. In stating that petitioner's transactions are subject to capital gains tax, however, the Court of Tax Appeals w~s not making an assessment. It was merely determining: the proper category of tax that petitioner should have paid, in view of its claim that it erroneously imposed upcpn itself and paid the S0lo final tax imposed upon PEZA-registered enterprises. The determination of the proper category of tax that petitioner should have~ paid is an incidental matter necessary for the resolu~ion of the principal issue, which is whether petitioner was: entitled to a refund. The issue of petitioner's claim for tax refund is intertwined with the is~ue of the proper taxes that are due from petitioner. A :claim for tax refund carries the assumption that the ta~ returns filed were correct. If the tax return filed wa~ not proper, the correctness of the amount paid and, ~herefore, the claim for refund become questionable. In that case, the court must determine if ta claimin refund of more ro erl liable for In South African Airways v. Commissioner of Internal Revenue, 53 So~th African Airways claimed for refund of its erroneouslly paid 2%0lo taxes on its gross Philippine billings. This! court did not immediately grant South African's claim for refund. This is because although this court foun<jl that South African Airways was not subject to the 2%0lo tbx on its gross Philippine billings, this court also found that it was subject to 32�lo tax on its taxable income. In this case, petitjoner's claim that it erroneously paid the S0lo final tax is aln admission that the quarterly tax return it filed in 2000 wa~ improper. Hence, to determine if petitioner was entitled, to the refund being claimed, the Court of Tax Appeals has the duty to determine if petitioner was indeed n<l>t liable for the S0lo final tax and, instead, liable for taxes cpther than the S0lo final tax. As in South African Airways, ~etitioner's request for refund can 53 G.R. No. 180356, February 16, 2010.

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 41 of44 neither be granted nor denied outright without such determination. If the taxpayer is' found liable for taxes other than the erroneously oaid 5% final tax. the amount of the taxpayer's liabilitu should be computed and deducted from the refundable amount. An liabilit in ex ess of the refundable amount however rna not be collected in a case involvin solei the issue of t e tax a er's entitlement to refund. The question f tax deficiency is distinct and unrelated to the questiqn of petitioner's entitlement to refund. Tax deficierilcies should be subject to assessment procedure' and the rules of prescription. The court cannot be ~xpected to perform the BIR's duties whenever it falils to do so either through neglect or oversight. ~either can court processes be used as a tool to ci~cumvent laws protecting the rights of taxpayers." (Emphases and underscoring supplied) Based on the foregoing J doctrinal pronouncements, it is clear that unlike the BIR, this Cotllrt is not endowed with assessment powers. However, when deciding a refund case, this Court's determination of whether the refund claimant is entitled to the tax refund being claimed includes the resolution of the issue of whether such refund claimant is still lia~le for taxes other than that paid. If this Court finds that such a tax liability exists on the part of the refund claimant, the same must be computed and deducted from the refundable amount, if any; but any excess of such tax liability over such refundable amount may1 not be collected in a case involving solely the issue of the concerned taxpayer's entitlement to the refund being claimed. In this case, it is true tlhat portion of the sales of Deutsche Knowledge were disallowed a$ subject to the Oo/o VAT rate, because of its failure to establish that spme of the service-recipients are non- resident foreign corporations; and thus, such portion must accordingly I be subject to the 12% VAT rate. Nevertheless, it was erroir for the CIR to simply charge the 12�/o VAT on the said disallowed ~ales of Deutsche Knowledge to the refundable amount. This is so !because Deutsche Knowledge has still

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) available input VAT credits as, declared in its Quarterly VAT Return for the for the 2nd quarter of ~009, 54 and the said input VAT credits were not questioned, nor refu,ed, by the CIR. Thus, the 12% VAT imposed on the same disallow$d sales may still be charged off to the said undisputed input VAT credits, as shown below: Total Output Tax Due per Quarterly ~AT Return55 p 549,152.52 29,015,128.93 Disallowed Sales previously subj1ected to the 0% VAT rate p 29,564,288.45 (P1,079,861,908.1256 - 1'838,069,1rl 7.0257) X 12% 240,314,041.37 Total Output Tax Due P210,749,752.92 Less: Input VAT credits: P260,250,670.00 Total Allowable Input Tax5l:l 19,936,628.63 Less: Total Deductions from Input Tax59 Excess Input Tax In other words, the input VAT credits of Deutsche Knowledge, as declared in its Quarterly V~T Return for the 2nd quarter of 2009, are still sufficient to cover the 112�/o VAT on its disallowed zero-rated sales for the said period. Correspondingly, with all the foregoing discussions, the Court En Bane finds that Deutsche ~nowledge is entitled to the amount of P19,957,573.84, representing i the representing its unutilized input VAT attributable to its zero-ra1ed sales for the 2nd quarter of 2009, determined as follows: � Valid Zero-Rated Sales/Receipts P 838,069,167.02 Divided by Total Sales/Receiptsou p~r Quarterly VAT Returrfl P1 ,084,438,237.45 54 Exhibits "T-5" to "T-8". 55 Box 19B, Exhibit "T-5". 56 Box 17, Exhibit "T-5". . 57 The amount of sale of services for 2nd quarter that qualifies for zero rating. Refer to pp. 19-20. 58 Box 20F, Exhibit "T-5". 59 Box 23F, Exhibit "T-5". 60 This is pursuant to Section 112(A) of1the NIRC of 1997, as amended by RA No. 9337, which provides as follows: "SEC. 112. Refunds or Tax CreditS, ofInput Tax.- (A) Zero-Rated or Effectively Zero-Rated Sales. - xxx where the taxpayer is engaged in zero-rated or effectively 2\ero-rated sales and also in taxable or exempt sale of goods or properties or services~ and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one ofthe transactions, it shall be allocated proportionately on the basis of the volume of sales: xxx." (Emphasis supplied) 61 Box 19A, Exhibit "T-5".

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 43 of44 Multiplied by Valid Excess Input VAll p 25,824,546.53 Excess Input VAT attributable to the Valid Zero-Rated p 19,957,573.84 Sales/Receipts WHEREFORE, in light of the foregoing considerations, the Petition for Review in CTA EB No. 1374 filed by Deutsche Knowledge is PARTIALLY GRANTED. the assailed Decision dated July 10, 2015, and the Resolution d$ted October 13, 2015, are partially modified as follows: respond~nt Commissioner of Internal Revenue is ORDERED TO REFUNQ or TO ISSUE A TAX CREDIT CERTIFICATE in favor of Retitioner in the reduced amount of NINETEEN MILLION NINE H~NDRED FIFTY SEVEN THOUSAND FIVE HUNDRED SEVENTY THREE PESOS AND EIGHTY FOUR CENTAVOS (P19,957,573.84~, representing petitioner's unutilized excess input VAT for the 2nd quarter of 2009 attributable to its zero- rated sales. On the other hand, the Petition for Review in CTA EB No. 1383 filed by the CIR is DENIED for lack of merit. SO ORDERED. ER~.' UY WE CONCUR: Associate Justice ( With Separare Cone ing Opinion) ROMAN ~. DEL ROSARIO Pres/ding Justice (On Leavo} Concurn:~ ( With and Dissenting Opinion ) JUANITO C. CASTANEDA, JR.� LOVEI:.L R. BAUTISTA Associate Justice Associate Justice CAES~ANOVA Associate Justice ' . FASON-VICTORINO

DECISION CTA EB No. 1374 and 1383 (CTA Case No. 8300) Page 44 of44 ~Jnlf: \\ M~~- 6~; O'WI. ~_/~I ciEL.iro N.' MINDARO-GRULLA (Concur with Justice Bautista's Concurring and Dissenting Opinion ) Associate Justice MA. BELEN M. RINGPIS-LIBAN Associate Justice ~r 1~ (Concur w#h Justice Bautista's Concurring and Dissenting Opinion ) CATHERI~E T. MANAHAN Assopiate Justice CERtiFICATION Pursuant to Article VIII,: Section 13 of the Constitution, it is hereby certified that the con�1usions in the above Decision were reached in consultation before :the case was assigned to the writer of the opinion of the Court. Presiding Justice

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QUEZON CITY EN BANG DEUTSCHE KNOWLEDGE CTA EB NO. 1374 SERVICES, PTE. LTD., (CTA Case No. 8300) Petitioner, -versus- COMMISSIONER OF INTERNAL REVENUE, Respondent. X- - - - - - - - - - - - - - - - - - - - - - X COMMISSIONER OF CTA EB NO. 1383 INTERNAL REVENUE, (CTA Case No. 8300) Petitioner, Present: -versus- Del Rosario, P.J. , Castaneda, Jr., DEUTSCHE KNOWLEDGE Bautista, SERVICES, PTE. LTD., Uy , Casanova, Respondent. Fabon-Victorino, Mindaro-Grulla, Ringpis-Liban, and Manahan , JJ. Promulgated: EC 1 5 2017 X- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -X SEPARATE CONCURRING OPINION DEL ROSARIO, P.J.: I concur in the result and in most of the views so ably expressed in the ponencia of my esteemed colleague, the Honorable Associate Justice Erlinda P. Uy.

Separate Concurring Opinion Deutsche Knowledge Services, Pte. Lt vs. CIR, CTA EB No. 1374 CIR vs. Deutsche Knowledge Services, Pte. Ltd., CTA EB No. 1383 Page 2 of9 The ponencia states th t in order for sale of services to be considered as subject to VAT a 0�/o, it is required, among others, that the services were rendered to person engaged in business outside the Philippines or to a nonresi ent person not engaged in business who is outside the Philippines hen the services are performed. 1 The ponencia further states that to e considered as a nonresident foreign corporation doing business ou side the Philippines, each entity must be supported, at the very I ast, by both a certificate of non- registration of corporation/partnership issued by the Philippine Securities and Exchange Co mission (SEC) and certificate/articles of foreign incorporation/associ tion; 2 and that the IntraGroup Service Agreements cannot be a su stitute to either of the said two (2) required documents since said greements do not establish that such service recipients are nonr sident foreign corporations doing business outside the Philippine 3 In cases previously deci ed by the Court involving the same parties, albeit concerning differ nt taxable periods, 4 I took the position that the Intra-Group Service A reements should be given probative value in lieu of th certificate/articles of foreign incorporation/association/regist ation required by the Court as the Intra-Group Service Agreeme ts do not only show the names of Deutsche's customers to who it rendered services. I was of the opinion that said Agreements are sufficient to establish that the entities mentioned therein are oing business outside the Philippines as they specify the nature o services that Deutsche renders in support of its customers' busin ss process. In the meantime, or subs quent to the aformentioned position I have previously taken, the upreme Court made the following pronouncement in Site/ P ilippines Corporation (formerly Clientlogic Phils., Inc.) vs. ommissioner of Internal Revenue, 5 viz.: "In the same vein, itel fell short of proving that the recipients of its call servic s were foreign corporations doing business outside the Philippi es. As correctly pointed out by the 1 Ponencia, p. 13. 2 Ponencia, p. 16. 3 Ponencia, p. 17. 4 CIR vs. Deutsche Knowledge Servi es Pte. Ltd.; Deutsche Knowledge Services Pte. Ltd. vs. CIR, CTA EB Nos. 129 & 1302, May 18, 2017; CIR vs. Deutsche Knowledge Services Pte. Ltd.; Deut che Knowledge Services Pte. Ltd. vs. CIR, CTA EB Nos. 1244 & 1345, March 3 , 2017; Deutsche Knowledge Services Pte. Ltd. v. Commissioner of Internal Rev nue, CTA EB No. 1290, August 16, 2016. 5 G.R. No. 201326, February 8, 2017

Separate Concurring Opinion Deutsche Knowledge Services, Pte. Lt . vs. CIR, CTA EB No. 1374 CIR vs. Deutsche Knowledge Services, Pte. Ltd., CTA EB No. 1383 Page 3 of9 CTA Division, while Sitel's d cumentary evidence, which includes Certifications issued by the Securities and Exchange Commission and Agreem nts between Sitel and its foreign clients, may have establis ed that Sitel rendered services to foreign corporations in 20 4 and received payments therefor through inward remittances, aid documents failed to specifically prove that such foreign cl ents were doing business outside the Philippines or have a continuity of commercial dealings outside the Philippines." (B ldfacing supplied) It is by virtue of this doctrine that I am constrained to modify my earlier position and concur wi h the ponencia that the Intra-Group Service Agreements are not sufficient to prove that Deutsche's foreign clients are doing busine s outside the Philippines. I, however, note that t e ponencia imposed 12�/o VAT on Deutsche's sale of services w ich did not qualify for zero-rating (on account of Deutsche's failur to prove that the recipients are nonresident foreign corpora ions doing business outside the Philippines). 6 With due respect to my stemeed colleague, I submit that the imposition of 12�/o VAT on the ale of services which were disallowed zero-rating as this is tantamo nt to effectively assessing Deutsche on said sale of services. In the consolidated cases of Commissione of Internal Revenue vs. Tole o Power Company; Toledo Power Company vs. Commissione of Internal Revenue, 7 the Supreme Court made the following decla ation: "All told, we find no err ron the part of the CTA En Bane, in considering TPC's sales of electricity to CEBECO, ACMDC, and AFC for taxable year 2002 as invalid zero-rated sales, and in consequently denying TPC's laim for refund or credit of unutilized input VAT attributable to the s id sales of electricity. TPC is not liable for deficie cy VAT. As a rule, taxes ca not be subject to compensation because the government an the taxpayer are not creditors and debtors of each other. How ver, we are aware that in several cases, we have allowed the etermination of a taxpayer's liability in a refund case, thereby allo ing the offsetting of taxes. 6 Ponencia, pages 41 to 42. 7 G.R. Nos. 196415 & 196451, Dece

Separate Concurring Opinion Deutsche Knowledge Services, Pte. Ltd vs. CIR, CTA EB No. 1374 CIR vs. Deutsche Knowledge Services, Pte. Ltd., CTA EB No. 1383 Page 4 of9 In Commissioner of nternal Revenue v. Court of Tax Appeals, we allowed offsett ng of taxes in a tax refund case because there was an existin~ deficiency income and business tax assessment against the taxpflyer. We said that "[t]o award such refund despite the existence of that deficiency assessment is an absurdity and a polarity in cc nceptual effects" and that "to grant the refund without determinatipn of the proper assessment and the tax due would inevitably result in multiplicity of proceedings or suits. "60 Similarly, in South At ican Airways v. Commissioner of Internal Revenue, we permit ed offsetting of taxes because the correctness of the return filed by the taxpayer was put in issue. In the recent case of ~ MI-ED Philippines Technology, Inc. v. Commissioner of Internal ,~evenue, we also allowed offsetting because there was a need fo the court to determine if a taxpayer claiming refund of erroneous!~ paid taxes is more properly liable for taxes other than that paid. We explained that the determination of the proper category of tax hat should have been paid is not an assessment but is an incide ~tal issue that must be resolved in order to determine whether th ~re should be a refund. However, we clarified that while offsetting may be allowed, the BIR can no longer assess the taxpayer for deficiency taxes in excess of the amount claimed for refund if p escription has already set in. But in all these cases. we allowed offsettina of taxes onlv because the determin ltion of the taxoaver's liabilitv is intertwined with the resolu1ion of the claim for tax refund of erroneously or illeaally collected taxes under Section 229 of the NIRC. A situation that is not oresent in the instant case. In this case, TPC file~ a claim for tax refund or credit under Section 112 of the NIF C where the issue to be resolved is whether TPC is entitled to a refund or credit of its unutilized input VAT for the taxable year 2002. And since it is not a claim for refund under Section 229 of the NIRC, the correctness of TPC's VAT rE turns is not an issue. Thus there is no need for the court to determine whether TPC is liable for deficiency VAT. Besides, it would be urfair to allow the CIR to use a claim for refund under Section 112 pf the NIRC as a means to assess a taxpayer for any deficiency Vf. T, especially if the period to assess had already prescribed. As l(ve have said, the courts have no assessment powers, and thE refore, cannot issue assessments against taxpayers. The court~ can only review the assessments issued by the CIR, who under the law is vested with the powers to assess and collect taxes and the duty to issue tax assessments within the prescribed period. (Boldfacing with underline supplied) Applying the foregoing pr pnouncement, since the present case involves a claim for refund undE~r Section 112 of the National Internal

Separate Concurring Opinion Deutsche Knowledge Services, Pte. Lt . vs. CIR, CTA EB No. 1374 CIR vs. Deutsche Knowledge Services, Pte. Ltd., CTA EB No. 1383 Page 5 of9 Revenue Code (NIRC) of 1997, as amended, and not under 229 of same Code, it would be erron ous for the Court to subject the sales of Deutsche which were disall wed zero-rating to 12�/o VAT. Finally, by way of obiter, I wish to reiterate my view that in order for sale of services to qualify f r zero-rating under Section 108(8)(2) of the NIRC of 1997, as am nded, the recipient of services may either be a "person engaged in business conducted outside the Philippines," or a "non-resid nt person not engaged in business who is outside the Philippines when the services are performed." Thus, the posit on I have taken in my Concurring Opinion in the consolidated ases of Commissioner of Internal Revenue vs. Chevron Hoi ings, Inc. [formerly Caltex (Asia) Limited], and Chevron Ho ding, Inc. [formerly Caltex (Asia) Limited] vs. Commissioner o Internal Revenue8 reads in part: "The ponencia, howev r, made a pronouncement that to be considered as zero-rated sale of services under Section 108 (B) (2) of the National Internal evenue Code (NIRC) of 1997, as amended by Republic Ac (RA) No. 9337, the claimant is required to establish that the recipient of services is doing business outside of the Phi ippines. Section 108 (B) (2) of he NIRC of 1997, as amended by RA No. 9337, provides: 'SEC. 108. Value-Added Tax on Sale of Services and Use or L ase of Properties. - (A) Rate and Base of Tax.- xxx xxx xxx. (B) Transacti ns Subject to Zero Percent (0%) Rate. - The foil wing services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) ra e: (1) (2) Services other than those mentioned in the preceding par graph rendered to a person engaged in busine s conducted outside the Philippines or to a no resident person not engaged in business who is ou side the Philippines when the services are perform d, the consideration for which is paid for in acceptable oreign currency and accounted for in accordance with he rules and regulations of the Bangko Sentral ng Pilip nas (BSP);' XXX XX XXX. (Emphases supplied) i Marc~ 8 CTA EB Nos. 1143 and 1349, 15, 2017.

ur. Separate Concurring Opinion vs. CIR, CTA EB No. 1374 Deutsche Knowledge Services, Pte. CIR vs. Deutsche Knowledge Services Pte. Ltd., CTA EB No. 1383 Page 6 of9 1 I I I submit that the requirement that the recipient of services is doing business outside the Philippines applies only to the first situation in Se tion 108 (B) (2) of the NIRC of 1997, as amended by RA 9337, relating to services rendered to 'person engaged in b siness conducted outside the Philippines,' and not to he second situation pertaining to services rendered to 'no -resident person not engaged in business who is outside t e Philippines when the services are performed.' I elaborated o this point in pages 5 to 8 of the assailed August 11, 2015 A ended Decision, viz.: 'In Our Decision, e cited the case of Commissioner of Internal Revenue v. urmeister and Wain Scandinavian Contractor Mindanao, In . to determine whether petitioner's client is doing business outside the Philippines to comply with one of the pres ribed requisites for zero-rating. Petitioner contends, how ver, that a correct interpretation of Section 108(8)(2) of the NIRC of 1997, as amended, will show that said section e umerates two kinds of zero-rated customers, to wit: thos who are engaged in business abroad and those who ar not engaged in business abroad. Indeed, a plain r ading of Section 108(8)(2) of the NIRC of 1997, as ame ded by RA 9337, reveals that it contemplates two (2) ituations wherein sales can be regarded as zero-rated fo VAT purposes, viz.: 1) Service were rendered to a erson en a ed in busin ss conducted outside the Philippines, and the consideration for which is paid for in foreign curr ncy and accounted for in accordance with the rules and regulations of the 8angko Sentral ng Pili inas (8SP); or 2) to a non- resident erson not en a ed in business who is outside the Phili nes when the services are performed, and the c nsideration for which is paid for in foreign currency a d accounted for in accordance with the rules and reg lations of the 8SP. True, in Burmeist r case and in the latter case of Accenture, Inc. v. Com issioner of Internal Revenue, the Supreme Court ruled tha in order for the supply of services to be VAT zero-rated, the claimant must be able to establish, among others, that the cipient of such services is doing business outside the Phili pines. The Court notes, however, that the provision that was interpreted by the Supre e Court in Burmeister is Section 102(b)(2) of the NIRC w ich, prior to its amendment by RA No. 9337, provides as foil ws:

Separate Concurring Opinion Deutsche Knowledge Services, Pte. Lt . vs. CIR, CTA EB No. 1374 CIR vs. Deutsche Knowledge Services, Pte. Ltd., CTA EB No. 1383 Page 7 of9 '(b) Transac ion subject to zero-rate. -The following services p rformed in the Philippines by VAT-registered perso s shall be subject to 0%: (1) manufacturing or repacking goods for other persons doing business outside th Philippines which goods are subsequently exporte , where the services are paid for in acceptable fore gn currency and accounted for in accordance with t e rules and regulations of the Bangko Sentral ng Pili inas (BSP); (2) Service other than those mentioned in the preceding su paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Ban ko Sentral ng Pilipinas (BSP); (3) Services rendered to persons or entitles whose exemptions un er special laws or international agreements to which the Philippines is a signatory effectively subjects t e supply of such services to zero rate; (4) Services rendered to vessels, engaged exclusively in internati nal shipping; and, (5) Services performed by subcontractors and/or contractors i processing, converting, or manufacturing goods or an enterprise whose export sales exceed seventy percent (70%) of total annual production.' Notably, Section 102(b)(2) of the NIRC, as then worded, did not contem late the second situation stated in Section 108(8)(2) oft e NIRC of 1997, as amended by RA No. 9337, to wit, 's rvices to a non-resident person not engaged in busines who is outside the Philippines when the services a e performed.' In interpreting Section 102(b)(2) of th NIRC, both in Burmeister and Accenture, the Suprem Court did not pass upon the issue of the applicabilit of the essential condition that the recipient of such se ices is doing business outside the Philippines to the second situation provided in Section 108(8)(2) of th NIRC of 1997, as amended by RA No. 9337. Needless to say, this is not an issue in both Burmeister and Ac enture. Any interpretation xtending the ruling of the Supreme Court in Burmeister and ccenture to the second situation provided in Section 10 (8)(2) of the NIRC of 1997, as amended by RA No. 933 , and consequently prescribing the essential condition that he recipient of services is doing business outside the Phili pines(,) clearly violate(s) the well- settled rule in statutory onstruction as well as the maxim

ur. Separate Concurring Opinion vs. CIR, CTA EB No. 1374 Deutsche Knowledge Services, Pte. CIR vs. Deutsche Knowledge Services, Pte. Ltd., CTA EB No. 1383 P~e8~9 I verba legis non est rec �dendum or 'from the words of a statute there should b no departure.' As clearly and succinctly worded, to qua ify for zero-rating under the second situation, only the followi g requirements must be met: (a) services were rendered o a non-resident person; (b) said non-resident person is ot engaged in business; (c) said non-resident person is ou side the Philippines when services were performed; and, (d) the consideration for said services were paid for in foreign urrency and accounted for under the rules and regulations f the BSP. In fine, the Court olds that the doctrine laid down in Burmeister and Accentu e that in order for the supply of services to be VAT zero- ated, the claimant must be able to establish, among other , the existence of the essential condition that the reci ient of such services is doing business outside the Phi ippines, applies only to the first situation provided in Section 108(8)(2) of the NIRC of 1997, as amended by R No. 9337. resident ersons who are not en a ed in business and who are outside the Ph li ines when the services were performed." (Additiona boldfacing with underscoring supplied) It is settled that the Philippine VAT system follows the "destination principle" or the " ross-border doctrine" such that actual export of services or pe ormance of services by a VAT- registered person outside of the Philippines is not subject to 12�/o VAT. The cross-border doctrine of the VAT System basically means that no VAT shall be impos d to form part of the cost of goods destined for consumption outsi e of the territorial border of the taxing authority. Hence, actual exp rt of goods and services from the Philippines to a foreign countr must be free of the VAT while those destined for use or consum tion within the Philippines shall be imposed with the 12�/o VAT.9 The exception to this rule refers to services enumerated in Sectio 108(8) which are performed in the Philippines but are nonethe ess subject to 0% VAT. In my view, the requirement that a nonres dent person who is the recipient of services should be doing usiness outside the Philippines is immaterial as what is signifi ant is that the ultimate recipient be I 9 Section 2, Revenue Memorandum Circular No. 74-99 dated October 15, 1999; cited in Commissioner of Internal R venue vs. Seagate Technology (Philippines), G. R. No. 153866, February 11, 200 and Commissioner of Internal Revenue vs. Toshiba Information Equipment (Phis.), Inc., G.R. No. 150154. August 9, 2005.

Separate Concurring Opinion Deutsche Knowledge Services, Pte. Lt(f. vs. CIR, CTA EB No. 1374 CIR vs. Deutsche Knowledge Services,! Pte. Ltd., CTA EB No. 1383 Page 9 of9 I I situated outside the Philipp nes and that the services rendered were not intended to benefit the recipient's business in the Philippines. I note, however, that the onencia does not include an order for the payment of the 12% VAT n said sale of services as it applied or offsett Deutsche's available input VAT credits as declared in its Quarterly VAT Return for the s cond quarter of 2009 against the 12% VAT due. Thus, I subscribe to the ponencia's ultimate disposition of the case. All told, I VOTE to: (i) PARTIALLY GRANT the Petition for Review of Deutsche Knowled e Services, Pte. Ltd.; (ii) DENY the Petition for Review of the Co missioner of Internal Revenue; and, (iii) MODIFY in part the assai ed Decision dated July 10, 2015 and the Resolution dated October 3, 2015 by refunding or issuing a tax credit certificate in favor of De tsche Knowledge Services, Pte. Ltd. in the amount of P19,957,5 3.84 (instead of the amount of P19,662, 731.51 adjudged by he Court in Division), representing its unutilized excess input VA for the second quarter of 2009 attributable to its zero-rated sal s. Presiding Justice

REPUBLIC OF THE PHILIPPINES Court of Tax Appeals QU~ZONCITY En Bane DEUTSCHE KNOWLEDGE CTA EB NO. 1374 SERVICES PTE. LTD., (CTA Case No. 8300) Petitioner, -versus- COMMISSIONER OF INTERNAL CTA EB NO. 1383 REVENUE, (CTA Case No. 8300) Respondent. Members: X------------------------------------------------X DEL ROSARIO, P.J., COMMISSIONER OF INTERNAL CASTANEDA, REVENUE, BAUTISTA, UY, Petitioner, CASANOVA, FABON-VICTORINO, -versus- MINDARO-GRULLA, RINGPIS-LIBAN, and MANAHAN,JI DEUTSCHE KNOWLEDGE Promulgated: SERVICES PTE. LTD., Respondent. __D,~E=-C=- - - -.1!. ~""'"-=-'~--+....=::..rt"4=f"'-.-_ X----------------------------------------------------------------------------------------X CONCURRING AND DISSENTING OPINION BAUTISTA, J. : The present case involves the refund of petitioner's unutilized input value-added tax ("VAT") attributable to its zero-rated sales for

CONCURRING AND DISSENTING OPINION CTA EB NOS. 1374 & 1383 (CTA Case No. ~300) Page 2 of 4 I I the second quarter of calendar lyear ("CY") 2009. i I concur with the findin s reached by my respected colleague, especially as regards the evide ce required to prove the non-resident foreign corporation status of n entity (i.e., present at least both a Securities and Exchange Co mission negative certification and an incorporation document), tha the amortization of input VAT on capital goods shall commenc on the month that the capital goods were acquired, and that Exhibi "M-1044" amounting to Php63,750.00 as valid since the legally requi ed information are present. However, I am reluctant to adhere to the computation made by my respected colleague as reg rds the disallowed zero-rated sales of petitioner, insofar as she subj cted the same to 12% VAT, and the computation of petitioner's ref ndable amount. I humbly submit that disallowed zero-rated sales re not taken into consideration in computing a taxpayer's refun able amount, which is arrived at using the following formula: Valid zero-rated sales x Va id input VAT = Refundable amount Total zero-rated sales In the Decision, the ponen ia holds that the disallowed zero-rated sales must be subject to 12% AT. Further, in computing the refund amount petitioner is entitled o, the ponencia used as denominator petitioner's total sales using th following formula: Valid zero-rated sales I Total sales X Vatid input VAT = Refundable amount I beg to differ and h mbly submit that the Court is not empowered to subject the disa lowed zero-rated sales to 12% VAT. In Commissioner of Internal Reven e ('CIR") v. Toledo Power Company1, which involves similar facts, th Supreme Court categorically held that a taxpayer whose zero-rated s les are disallowed cannot be subjected to 12% VAT, as the same wo ld be tantamount to the exercise of assessment powers - a power hich a court does not have. According to the Supreme Court, TPC is not liable for defici ncy VAT. 1 G.R. Nos. 196415 & 196451, December 2, 2 15,775 SCRA 709. I

CONCURRING AND DISSENTING OPINION CTA EB NOS. 1374 & 1383 (CTA Case No. 8300) But while TPC's sale. of electricity to CEBECO, ACMDC, and AFC are not zero-r ted, we cannot hold it liable for deficiency VAT by imp sing 10% VAT on said sales of electricity as what the CIR ants us to do. As a rule taxes cannot be subiect to com_pensation because the government and the taxpayer are not creditors and debtors of each other. However, we are aware that in several cases we have allowed he determination of a taxpayer's liability_ in a refund case thereby allowing the offsetting of taxes. XXX XXX XXX But in all these cases, we allowed offsetting of taxes only because the determinati n of the tax a er's liabilit 1s intertwined with the resol tion of the claim for tax refund of NIRC. A situation that is n t present in the instant case. In this case, TPC fil d a claim for tax refund or credit under Section 112 of the N RC, where the issue to be resolved is whether TPC is entitled t a refund or credit of its unutilized input VAT for the taxable ear 2002. And since it is not a claim for refund under Section 29 of the NIRC, the correctness of TPC's VAT returns is not n issue. Thus, there is no need for the court to determine w ether TPC is liable for deficiency VAT. Besides, it would be unfair to allow the CIR to use a claim for refund under Section 11 2 of the NIRC as a means to assess a taxpayer for any deficien~Y VAT, especially if the period to assess had already prescribE d. As we have said, the courts have no assessment powers, and therefore cannot issue assessments against tax12ayers. The cour ts can only review the assessments issued bv the CIR who und "r the law is vested with the powers to assess and collect taxes ar d the dutv to issue tax assessments within the prescribed perio f.2 Jurisprudence clearly pr DVides that the power to assessand collect taxes rests on the CIR, w ~ile the power to review the same rests with the courts. Considering he present case is primarily a VAT refund case falling under Sec ion 112 of the 1997 National Internal 2 Undersconng ours.

CONCURRING AND DISSENTING OPINION CTA EB NOS. 1374 & 1383 (CTA Case No. 8300) Page 4 of 4 I I Revenue Code, as amended ('199f NIRC")3, it would be improper for the Court En Bane to rule that p~titioner's disallowed zero-rated sales should be subject to 12% VAT.l 1 I Moreover, in computin the refundable amount petitioner is entitled to, I humbly submit hat the proper formula to use is the following, which already excludes disallowed zero-rated sales: fI Valid zero-rated sales x Va id input VAT = Refundable amount Total zero-rated sales I In using the foregoing formula, any item disallowed from zero- rated sales are automatically Excluded and are no longer taken into consideration in computing the final refund amount a taxpayer is entitled to. In view of the foregoin ~' I vote to modify the July 10, 2015 Decision and October 13, 201~ Resolution of the Court in Division, insofar as finding that petitioner is entitled to a refund of its unutilized input VAT in for the second quarter of CY 2009 in the amount of Php20,042,151.72, computed as follows: Valid Zero-Rated SalesjReceilDts Ph.e_ 838,069,167.02 Divided by total Zero-Rated ~alesjRecei}:>_ts 1,079,861,908.12 Multiplied by Valid Excess Input VAT 25,824,546.53 Excess Input VAT attributab e to the Php 20,042,151.72 Valid Zero-Rated Sales/Receipts LOVELt. BAUTISTA Associate Justice 3 Republic Act No. 8424, as amended (1997).