COMMISSIONER OF INTERNAL REVENUE v. MACQUARIE OFFSHORE SERVICES PTY. LTD. - PHILIPPINE BRANCH

REPUBLIC OF THE PHILI PPINES COURT OF TAX APPEALS QUEZON CITY EN BANC COMMISSIONER OF INTERNAL CTA EB No. 1936 REVENUE, (CTA Case Nos. 8580 & 8660) Petitioner, -versus- Present: DEL ROSARIO, P.J., MACQUARIE OFFSHORE CASTANEDA, JR., UY, SERVICES PTY. LTD. - FABON -VI CTO RI N0 I MINDARO-GRULLA, RINGPIS-LIBAN, MANAHAN, BACORRO -VILLENA, and MODESTO - SAN PEDRO, JJ PHILIPPINE BRANCH, Respondents. DECISION MINDARO-GRULLA, J.: Submitted for decision on January 11, 2019 is th e Petition for Review for the Court En Bane und er Section 4(b), Rule 81 of the 2005 Revised Rules of the Court of Tax Appeals (RRCTA), as amended, of the Decision, in the case 1 SEC. 4 . Wh ere to appeal; mode of appeal. - XXX XXX XXX (b) An appea l from a dec1 sion or resolution of the Court 1n DIVISion on a motion for reco nsid eration or new trial shall be taken to the Court by petition for review as provided in Rule 43 of the Rul es of Cou rt. Th e Cou rt en bane sha ll act on the appea l. XXX XXX XXX

Commissioner of Internal Revenue vs. Macquarie Page 2 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION entitled Macquarie Offshore Services Pty. Ltd - Philippine Branch vs. Commissioner of Internal Revenue, docketed as CTA Case Nos. 8580 & 8660, dated May 18, 2018/ and the Resolution dated September 10, 2018/ both rendered by the Former Third Division of this Court, the dispositive portions of which read as follows: CTA Case Nos. 8580 & 8660: Decision dated May 18, 2018: "WHEREFORE, the Petition for Review in CTA Case No. 8660 is DENIED for lack of jurisdiction, while the Petition for Review in CTA Case No. 8580 is PARTIALLY GRANTED. Accordingly, respondent is ORDERED to refund or issue a TCC in favor of petitioner in the amount of P2,361,101.61, representing its unutilized input VAT for the first quarter of FY 2011 attributable to its zero-rated sales of the second, third and fourth quarters of FY 2011. SO ORDERED." CTA Case Nos. 8580 & 8660: Resolution dated September 10, 2018: "WHEREFORE, petitioner's and respondent's Motion for Partial Reconsideration, both dated June 7, 2018, are DENIED. The Decision dated May 18, 2018 is AFFIRMED. SO ORDERED." The facts of the case, as recited by the former Third Division in its Decision, read as follows: "Petitioner Macquarie Offshore Services Pty. Ltd. is a foreign corporation registered with the Securities and Exchange Commission (SEC) on April 10, 2008 to 7 Penned by Associate Justice E:speranza R. Fabon-Victorino, concurred in by Former Associate Justice Lovell R. Bautista and Associate Justice Ma. Belen M. Ringpis-Liban, En Bane Docket, pp. 21-53. 3 Ibid., pp. 55-63. !

Commissioner of Internal Revenue vs. Macquarie Page 3 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION operate as a Regional Operating Headquarters (ROHQ), pursuant to the Omnibus Investments Code of 1987, as amended by Republic Act No. 8756, and its implementing rules and regulations. XXX XXX XXX Respondent, on the other hand, is the Commissioner of Internal Revenue (CIR), with authority to act on claims for refund or tax credit. He holds office at the 5th Floor, BIR National Office Building, BIR Road, Diliman, Quezon City. He is represented by the Legal Division of Revenue Region No. 8 (South Makati), with office address at the 2nd Floor, BIR Regional Office Building, 313 Sen. Gil Puyat Avenue, Makati City, where he may be served with court processes. As an ROHQ, petitioner provides qualifying services to its affiliates and related parties in the Asia- Pacific Region and other foreign markets. These qualifying services include application testing and monitoring, technology infrastructure, application development and support, and financial administration. As an ROHQ with a limited business purpose, petitioner generally does not generate VAT taxable and VAT-exempt sales. Petitioner states that for FY 2011, it only had one non-resident foreign client, namely, Macquarie Financial Holdings Limited (MFHL), to whom it rendered VAT zero-rated sales of service. MFHL is an entity incorporated, registered, and operating under the laws of Australia. It is not registered with the Securities and Exchange Commission (SEC) to do business in the Philippines either as a corporation or partnership. The services rendered by petitioner to MFHL were pursuant to a Services Agreement dated April 1, 2009, duly signed by the representatives of the parties. The services were rendered by petitioner in the Philippines, paid for in Australian Dollars (AUD), inwardly remitted to the Philippines and duly accounted for in accordance with t

Commissioner of Internal Revenue vs. Macquarie Page 4 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). For the 15L Quarter of FY 2011, petitioner rendered services and issued corresponding invoices to MFHL. However, they were allegedly not paid during the said quarter. Thus, petitioner's quarterly VAT return for the 15L quarter of FY 2011 shows zero- entry for its VATable sales/receipts, sales to government, zero-rated sales and exempt sales/receipts. In the course of its operations during the same period, petitioner incurred and paid input VAT arising from its domestic purchases of goods and services. The amounts of its domestic purchases and the corresponding amounts of input VAT were recorded in the quarterly and monthly summaries. Since petitioner did not generate any VATable sales in the 15L quarter, there was no output VAT with which to offset the input VAT it incurred in the same period. Hence, this amount of input VAT was carried over to the succeeding periods and remained unutilized. Petitioner further claims that this same amount of input VAT is wholly attributable to its VAT zero-rated sales in the same period. For the 2nd to 4th quarters of FY 2011, petitioner's quarterly VAT returns show the following VAT zero-rated sales: Quarter VAT Zero-Rated Sales in Pesos 2nd 110,83_2,771. 93 jrd 298,552,653.50 23!L93L_332.30 4th . During these quarters, petitioner also incurred and paid input VAT arising from its domestic purchases of goods and services. The amounts of its domestic purchases and the corresponding amounts of input VAT were recorded in its quarterly and monthly summaries.

Commissioner of Internal Revenue vs. Macquarie Page 5 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION No VATable sales/were generated during the said 2nd to 4th quarters and there was no output VAT with which to offset the input VAT it incurred in the same period. This amount of input VAT was carried over to the succeeding periods and remained unutilized. This same amount of input VAT is also directly attributable to its zero-rated sales for the same period. Petitioner filed its original quarterly VAT returns for the four quarters of FY 2011 on the following dates: Exhibit Quarter Period Date Filed - "P- 3" 1sl April to June 2010 July 26, 2010 "P-4" 2nd " ----~-- "P-5" July to September October 26, 2010 "P-6" 2010 -- - - 3'd October to December January 25, 2010 4th 2010 January to March 2011 6]J_ri1)5L20 11 Petitioner filed its administrative claim for refund with the BIR Revenue District Office (RDO) No. 47 on the following dates: Exhibit Quarter Period -------- - - --- ~------ "P-13" "P- 3 0" 1sl April to June 2010 Date Filed 2nd to 4th July 2010 to March June 29, 2 ------- -- ----- 2011 Septembe 2012 For the 15t quarter, petitioner filed an administrative claim for refund/TCC in the amount of P3,406,989.90, while for the 2nd to 4th quarters, in the amount of P17,188,149.08, or a total of P20,595,138.98. On November 27, 2012, petitioner received from RDO No. 47 a Letter of Authority (LOA) dated October 29, 2012 for the period of July 1, 2010 to March 31, 2011, with attached formal request for the submission and presentation of additional documents. Petitioner complied and transmitted the requested additional document on January 16, 2013. On February 27, 2013, petitioner wrote a letter to the BIR indicating that the documents submitted on t

Commissioner of Internal Revenue vs. Macquarie Page 6 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION September 28, 2012 and January 16, 2013 constitute complete documents for purposes of its claim for refu nd/TCC. However, insofar as petitioner's claim for refund for the 1st quarter of FY 2011, no additional documents were required by the BIR. On November 26, 2012 and June 14, 2013, petitioner filed the instant Petitions for Review, docketed as CTA Case Nos. 8580 and 8660, respectively. XXX XXX XXX At the instance of petitioner, the two Petitions for Review were consolidated. xxx" (Citations omitted.) The former Third Division dismissed the Petition for Review in CTA Case No. 8660 due to lack of jurisdiction while the Petition for Review in CTA Case No. 8580, which covers the claim for the 1st quarter of FY 2011 was ruled to be timely filed both in the administrative and judicial levels. The former Third Division ruled that Macquarie Offshore Services Pty. Ltd. - Philippine Branch (MOSPLPB) was able to prove, through summaries of zero-rated sales, service invoices, official receipts (ORs), schedule of remittances and certifications of inward remittances issued by the Hongkong Shanghai Banking Corporation (HSBC); and that it had zero- rated sales for the 2nd to 4th quarter of FY 2011 since it had sales of services and billed MFHL for the 1st quarter but declared the same only in the subsequent quarters because of MFHL's late payment. Thus, MOSPLPB was entitled to such refund. Further, the former Third Division ruled that MOSPLPB complied with all the requisites to be entitled to the refund in the reduced amount of P2,361, 101.61. Both parties filed their Motions for Partial Reconsideration on June 7, 2018, which were both denied in the assailed Resolution, hence, this Petition for Review4 filed 4 En Bane Docket, pp. 5-19.

Commissioner of Internal Revenue vs. Macquarie Page 7 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION by the Commissioner of Internal Revenue on October 12, 2018. In the assailed Resolution, the CIR raised the admissibility of MOSPLPB's pieces of evidence since the witnesses therein allegedly have no personal knowledge of the facts and contents of the documentary exhibits. However, the former Third Division ruled that the objection of the CIR as to the admissibility of MOSPLPB's pieces of evidence to prove zero-rated sales in the 1st quarter of FY 2011 was made beyond the period to object, thus, considered waived. In his Petition for Review, the CIR reiterates his argument in his Motion for Partial Reconsideration that MOSPLPB failed to present ORs for the 1st quarter of FY 2011 as to its zero-rated sales to MFHL, and that MOSPLPB's presented pieces of evidence are considered as hearsay, inadmissible and have no probative value. The CIR also repeats its argument that hearsay evidence, such as those presented by MOSPLPB in this case, cannot be admitted as evidence even if he failed to object thereto. Lastly, the CIR reiterates that the refund must be construed strictly against MOSPLPB. This Court denies the petition. At the outset, it must be realized that the CIR does not raise any argument not ruled upon thoroughly by the former Third Division. At any rate, based on the records of the case, the service invoices, 5 as well as the summaries, 6 ORs/ schedules,8 Certificates of Inward Remittance9 and the Independent Certified Public Accountant (ICPA) Report 10 that 5 Exhibits "P-22a" to "P-22d", "P-41e" to "P-41hh", "P-55", "P-56", ''P-58", and "P- 59", Dockets, Vol. III, pp. 1622-1625, 1806-1835. 6 Exhibits "P-15", "P-38" to "P-40", Dockets, Vol. III, pp. 1551, 1799-1801. 1 Exhibits "P-22e" to "P-22g", "P-41-a" to "P-41d" and "P-41ii", Dockets, Vol. III, pp. 1626-1628, 1802-1805 and 1836. 8 Exhibit "P-26", supra. 0 Exhibits "P-25a" to "P-25e", supra. 10 Exhibit "P-54", supra.

Commissioner of Internal Revenue vs. Macquarie Page 8 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION were all admitted by the Court clearly show the generation of zero-rated sales for the 1st quarter of FY 2011. In the assailed Decision, these documents per se were scrutinized, and proved zero-rated sales for the 1st quarter of FY 2011. As to the issue on hearsay evidence, on the first note, the general rule is that hearsay evidence is not admissible. However, the lack of objection to hearsay testimony may result in its being admitted as evidence. 11 The lack of objection may make any incompetent evidence admissible. Be that as it may, MOSPLPB denies such allegation and in its Comment, 12 it alleges that its witnesses have sufficient knowledge of the facts and contents of the documentary exhibits being the custodians of such. A review of the Sworn Statements of the witnesses of MOSPLPB, specifically of Mr. Garry Taylor13 and Ms. Ailyn Perocho14 would show that they have personal knowledge of the facts and contents of the documentary exhibits, being the Division Director and the Certified Public Accountant respectively, of MOSPLPB who both safekeep MOSPLPB's various financial and accounting documents, and regularly meet with its personnel in charge of finance and tax matters. 15 As stated in the Sworn Statements, the documentary exhibits were prepared by the financial team of Ms. Ailyn Perocho under the instructions and supervision of Mr. Garry Taylor, and that the documents were signed by Ms. Ailyn Perocho as the Finance Head of the Company. Each service invoice and OR, as well as the returns presented were also signed by Mr. Garry Taylor. Clearly, the actual execution of these documents was made by and under the supervision of MOSPLPB's witnesses. WHEREFORE, premises considered, the Petition for Review filed by the Commissioner of Internal Revenue is hereby DENIED. The assailed Decision and Resolution dated 11 People vs. Parungao, G.R. No. 125812 November 28, 1996. 12 En Bane Docket, pp. 68-74. 13 Exhibit "P-28", Dockets, Vol. III, pp. 1666-1690. 14 Exhibit "P-53", Dockets, Vol. III, pp. 1845-1876, "P-1864", Vol. IV, pp. 1996- 2000. 10 Notes 11 and 12.

Commissioner of Internal Revenue vs. Macquarie Page 9 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION May 18, 2018 and September 10, 2018, respectively, in CTA Case Nos. 8580 & 8660 are hereby AFFIRMED. SO ORDERED. ~~.;It.T-f:Ol'1rt 1\Jl~~. &~ MINDARO-GRULLA Associate Justice WE CONCUR: a...-....~c. a~lk'-~9. ER~P.UY JEJANITO C. CASTANEtJ'A, JR. Associate Justice Associate Justice . .4 '- J . FABON-VICTORINO MA. BELEN M. RINGPIS-LIBAN Associate Justice { ~ -~~-�.....1.. "---- CATHERINE T. MANAHAN Associate Justice � ~ORRO-VILLENA

Commissioner of Internal Revenue vs. Macquarie Page 10 of 10 Offshore Services Pty. Ltd. - Philippine Branch CTA EB No. 1936 (CTA Case Nos. 8580 & 8660) DECISION MARl te Justice CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court En Bane. Presiding Justice