BW SHIPPING PHILIPPINES, INC. v. COMMISSIONER OF INTERNAL REVENUE

REPUBLIC OF THE PHILIPPINES COURT OF TAX APPEALS QUEZON CITY ENBANC BW SHIPPING PHILIPPINES, CTA EB NO. 2677 INC., (CTA Case No. 9888) Petitioner, -versus- COMMISSIONER OF INTERNAL CTA EB NO. 2682 REVENUE, (CTA Case No. 9888) Respondent Present: X------------------------------------------------X COMMISSIONER OF INTERNAL Del Rosario, P.J, REVENUE, Ringpis-Liban, Petitioner, :rvranahan, Bacorro-Villena, -versus- Iviodesto-San Pedro, Reyes-Fajardo, Cui-David, and Ferrer-Flores, JL BW SHIPPING PHILIPPINES, Promulgated: INC., Respondent. X-----------------------------------------------------------------------------------------------X RESOLUTION RINGPIS-LIBAN,L For resolution of the Court En Bant are the following: tV

RESOLUTION CTA E8 Nos. 2677 & 2682 (CTA case No. 9888) 1. BW Shipping Philippines, Inc.'s (BWSPI) Motion for Reconsideration (Re: Detision dated May 14, 2024) filed on l\Iay 30, 2024; and 2. Commissioner of Internal Revenue's (CIR) Motion for Reconsideration filed on June 4, 2024 with BWSPI's Comment (To Petitioner's Motion for Rerom"ideration dated }11ne 3, 2024) filed on June 21, 2024. The CIR failed to file comment on B\'VSPI's i\1otion for Reconsideration (Re: Duision dated May 14, 2024) as per the Records Verification Report dated July 4, 2024 submitted by this Court's Judicial Records Division. Both iVIotiom seek reconsideration of the Decision of the Court En Banr promulgated on l\Iay 14, 2024,1 ("Assailed Decision") affirming the judgment of the Second Division ("Court in Division") of this Court in CTA Case No. 9888. BWSPI's Motion In its Afotion, BWSPI insists the non-submission of updated SEC Certificates of Non-registration of Company was due to mistake and excusable negligence and that its non-compliance with the invoicing and substantiation requirements was a result of the mistake and excusable negligence of BWSPI's cashier. By and large, the arguments raised by BWSPI in its Motion are mere rehash of those that were exhaustively ruled upon by this Court En Bane in the Assailed Decision. ,\ccordingly, it is sufficient for this Court En Bane to state that it maintains its position on the matter as enunciated in the Assailed Decision. In this regard, the Supreme Court's ruling in Social Justice Society Officers v. Lim,2 is edifying: "The grounds relied on being mere reiterations of the issues already passed upon by the Court, there is no need to 'cut and paste' pertinent portions of the Decision or re-write the ponenda in accordance with the outline of the instant motion. "\s succinctly put by then Chief Justice Andres R. Narvasa in Ort~ga.r and Co. Ltd. Partnenhip v. Judge Ve!a.rco on the effect and disposition of a motion for reconsideration: The filing of a motion for reconsideration, authorized by Rule 52 of the Rules of Court, docs not impose on the Court the obligation to deal indiYidually and specifically with the ~ 1 CTA EB No. 2677's Docket, pp. 138-152. 2 G.R. Nos. 187836 & 187916 (Resolution), March 10, 2015, 755 Phil 323.

RESOLUTION CTA EB Nos. 2677 & 2682 (CTA Case No. 9888) grounds relied upon therefor. in much the same way that the Court docs in its judgment or final order as regards the issues raised and submitted for decision. This would be a useless formality or ritual im�ariably involving merely a reiteration of the reasons already set forth in the judgment or final order for rejecting the arguments advanced by the movant; and it would be a needless act, too, with respect to issues raised for the first time, these being, as above stated, deemed waived because not asserted at the first opportunity. It suffices for the Court to deal generally and summarily with the motion for reconsideration, and merely state a legal ground for its denial (Sec. 14, }~.rt. VIII, Constitution); i.e., the motion contains merely a reiteration or rehash of arguments already submitted to and pronounced without merit by the Court in its judgment, or the basic issues ha,�c already been passed upon, or the motion discloses no substantial argument or cogent reason to warrant reconsideration or modification of the judgment or final order; or the arguments in the motion arc too unsubstantial to require consideration, etc." (Undemvring .rtrpp!ied and dtationJ omitted) CIR's Motion In his Motion, the CIR maintains that BWSPI failed to prove that it is engaged in zero-rated or effectively zero-rated sales of services and that its foreign principals are nonresident foreign corporations doing business outside the Philippines. The CIR also asserts that BWSPI is the local agent and/ or representative of its foreign principals. The CIR emphatically points out that based on the provisions of the J\Ianning/Crew Agency Agreements presented, B\X'SPI renders services and performs functions which do not only pertain to the screening of competent and qualified Filipino seamen for employment on board the vessels of its foreign principals but also extends to control, supervisory, and human resource management functions which arc essential to the operations of the foreign principals. Without the personnel screened by BWSPI, the latter's shipping business -.viii be dead on the water. Moreover, the CIR claims that the exhibits presented by BWSPI should not be given any probative value for being hearsay and that the amount of BWSPI's tax liability should be computed and deducted from any refundable amount. The CIR's position is untenable. ~

RESOLUTION CTA EB Nos. 2677 & 2682 (CTA case No. 9888) It bears stressing that the arguments raised by the CIR above were already laid to rest by the Supreme Court in a similar case entitled Commissioner ofInternal Revenm 1'. BW Sbipping Pbilippines, Inc3 The Supreme Court held as follows: "The CIR's contention is anchored on the third requisite alleging that although respondent was able to establish that that the shipping companies are foreign entities, an examination of its Manning A.greements/Purchasing & Infrastructure Support 1\greements would re\Tal that said recipients are performing acts that imply a continuity of business dealings or arrangements in the Philippines. This is further exemplified by the provision in said agreements that designates respondent as the agent and the shipping companies as the principal. },ccording to the CIR, while the manning services arc not directly related to the main business of these companies, which is the shipping of goods, said services are incidental to and in progressi\�e prosecution of commercial gain or for the purpose and object of the shipping companies; it would not be able to operate without said services. .Accordingly, these shipping companies may be considered as doing business in the Philippines. The Court is not convinced. In Commir.rioner of' Internal Revenue IJ. Deut.rdJe Knowledge Seroice.r Pte. Ltd., the Court, through Associate Justice Henri Jean Paul B. Inting, held that in order for sales to a non-resident foreign corporation to qualify for zero-rating under Section 108(B)(2) of the NIRC, the claimant must be able to prove '(1) that their client was established under the laws of a country not the Philippines or, simply, is not a domestic corporation; and (2) that it is not engaged in trade or business in the Philippines. To be sure, there must be sufficient proof of both of these components: showing not only that the clients arc foreign corporations, but also are not doing business in the Philippines.' ,-\ccordingly, the Court likewise ruled that 'the SEC Certifications ofNon-Registration show that [clients] are foreign corporations. On the other hand, the articles of association/ certificates of incorporation stating that these [clients] are registered to operate in their respective home countries, outside the Philippines arc prima fcuie evidence that their clients are not engaged in trade or business in the Philippines.' Here, it is notable that the CIH. does not dispute that the shipping compames arc foreign corporations. .tvioreover, based on the consularized Certificates( \rticles of Foreign Incorporation, there is primafacie evidence that the shipping companies are not engaged in trade or business in the Philippines. This notwithstanding, the CIR claims that the Manning I\greements/Purchasing & Infrastructure Support "-\greements between respondent and the shipping companies show that the latter arc doing business in the Philippines. The foregoing begs this question: 'are the foregoing agreements sufficient to overcome the prima / fcnie evidence in favor of the shipping companies?' . 3 G.R. No. 261171, October 4, 2023.

RESOLUTION CTA EB Nos. 2677 & 2682 (CTA Case No. 9888) In Site/ Philippine.r Cotp. 7J. CommZ:r.rioner of'Jnterna/1\tvenue, the Court, through ,\ssociate Justice Benjamin S. Caguioa, held that '[t]here is no specific criterion as to what constitutes 'doing' or 'engaging in' or 'transacting' business. Each case must be judged in the light of its peculiar enYironmcntal circutnstances. The tenn itnplies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions 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 cotporation may be regarded aJ doing buJineJJ within a Stale, there mu.rt be mntinuity of' conduit and intention to eJtabfi.rh a continuou.r bu.rine.r.r, .rueh a.r the appointment of' a !oea! agent, and not one of' a temporat_y d;arader.' Rclatedly, under Rule I, Section 1 (j) of the Implementing Rules and Regulation of Rc\ 11647, amending R.r\ 7042, otherwise known as the 'l-'oreign Investment ,-\ct of 1991,' the term 'doing bttJineJJ' includes 'soliciting orders, setTice contracts, opening offices, whether liaison offices or branches; appointing representatiYes or distributors, operating under full control of the foreign corporation, domiciled in the Philippines or who in any calendar vear stay in the country for a period or periods totaling one hundred eighty (180) days or more; participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to and in progressive prosecution of commercial gain or of the purpose and object of the business organization.' Likewise, under said proYision, the following acts shall not be considered as doing business in the Philippines: 1) J\lere inYestment as a shareholder by a foreign entity in domestic corporations duly registered to do business, or the exercise of rights as such im�estor; 2) Having a nominee director or officer to represent its interests in such corporation; 3) c\ppointing a representative or distributor domiciled in the Philippines which transacts business in the representative's or distributor's O\Vn name and account; 4) The publication of a general advertisement through any print or broadcast media; 5) J\laintaining a stock of goods in the Philippines solely for the purpose of hm�ing the same processed by another entity in the Philippines; 6) Consignment by a foreign entity of equipment with a local company to be used in the processing of products for export; 7) Collecting information in the Philippines; and/

RESOLUTION erA EB Nos. 2677 & 2682 (erA Case No. 9888) 8) Performing services auxiliary to an existing .isolated contract of sale which are not on a continuing basis, such as installing in the Philippines machinery it has manufactured or exported to the Philippines, serdc.ing the same, training domestic workers to operate it, and similar incidental services. In / Wlmt Tedmologie.r Singapore v. Integrated Silicon Technology Pbi!. Corp., the Court held, through ,\ssoc.iate Justice Consuela Ynares- Santiago, that to constitute 'doing business,' the activity to be undertaken .in the Philippines is one that .is by and large for profit-making. Based on the foregoing, the Court holds that the CIR failed to establish that the shipping companies are doing business in the Philippines. Fir.rt, there was no showing that respondent, as representative/agent of the shipping companies, the principal, are operating under the full control of the latter. On the contrary, it appears that beyond prm�iding recruitment instructions with respect to the number of complements and categories or rating of seaman for a particular vessel, scale of remuneration and approving the dismissal or transfer of a seafarer, the shipping companies have no command over respondent on the operation of the latter's business even in the conduct of its recruitment process. The recruitment .instructions and the approval of the dismissal or transfer of crew members, as held by the CT,-\ En Bmu; arc merely necessary consequences of outsourcing manpower recrUitment. l\Iorem�er, the designation of shipping companies as 'Principal' in the Manning .\grecments/Purchasing & Infrastructure Support ,\greements was specifically provided in the Omnibus Rules and Regulations Implementing the l\Iigrant Workers and Overseas Filipinos "\ct of 1995, as Amended by Republic Act No. 10022 (Omnibus Rules). l'nder Rule II, Section 1 (oo) of the Omnibus Rules, a principal refers to 'an employer or foreign placement agency hiring or engaging Filipino workers for overseas emplovment through a licensed private recruitment/manning agency.' This was likewise reiterated under Part I, Rule II (39) of the 2016 Revised POEA Rules and Regulations Governing the Recruitment and Employment of Seafarers (POEA Rules), which defined it as referring to 'the employer or to a person, partnership or corporation engaging and employing seafarers through a licensed manning agency.' A manning agency, on the other hand, which is designated in the agreements as the ',\gent' is defined under Rule II, Section 1 (y) of the Omnibus Rules as referring to 'any person, partnership or corporation duly licensed by the Secretary of Labor and Employment to engage in the recruitment and placement of seafarers for ships plving international waters and for related maritime activities.' Licensed Manning .-\gency is likewise defined under Part 1, Rule II (24) of the POEA Rules as 'a person, partnership or corporation duly licensed by the Secretary or his/her duly authorized representative to engage in the recruitment and placement of Filipino seafarers for a ship plying international waters and for related maritime activities.' Said /""'

RESOLUTION CTA EB Nos. 2677 & 2682 (CTA Case No. 9888) Page 7 ofS designations, as shown above, do not necessarily imply control or the conduct of business in the Philippines by the shipping companies. Saond, the hiring of the crew members in the Manning ,\greements/Purchasing and Infrastructure Support Agreements engaged by the shipping companies are not considered a continuity of its commercial dealings nor arc these in pursuit of commercial gain. The shipping companies in this case own vessels that transport goods such as gas, coal, and iron ore. /1.lthough crew members or engineers and the purchase of pro,�isions are essential in the operation of these vessels, these recruitments do not necessarily bring in profit; the shipping companies earn profit bv providing transport sen�ices. As pointed out by the CL\ En Bam; nothing limits corporations to employ their workforce through direct hiring. Recruitment activities may be outsourced, as specifically acknowledged by the POE,\ Rules and Omnibus Rules. ,-\s noted b,, the CL\ F.n Bane, there are cases on money claims by seafarers which would identify foreign shipping companies as 'doing business through its agent'; however, a study of these cases shows that said characterization hm�e no basis and that the same has never been raised nor resolved as an issue therein, thus mav not be used as a source for a definitive pronouncement." (Citation.r omitted) The other arguments raised by the CIH. with respect to the probative value of B\VSPI's exhibits as well as the deductibility of B\VSPI's tax liability from its refundable amount are matters that were already passed upon and brushed aside by the Court En Bant in the Assailed Decision and there is no compelling reason to reserve or even modifY such ruling. WHEREFORE, premises considered, B\VSPI's "f',Iotion for Reromideration (R.e: DeciJion dated May 14, 2024) flled on J\Iay 30, 2024 and the CIR's Motion for Retonsideration flled on June 4, 2024 are both DENIED for lack of merit. SO ORDERED. ~-~ ~'-- MA. BELEN M. RINGPIS-LIBAN Associate Justice WE CONCUR- (W'itb Due Resped, I reiterate my Dissentzng Opinion.) ROMAN G. DEL ROSARIO Presiding Justice

RESOLUTION CTA EB Nos. 2677 & 2682 (CTA Case No. 9888) ~ � - ~:.<...<..��-"""~''".'. ------.... / CATHERINE T. MANAHAN 1\ssociatc Justice ""- . JEAN MARI~~LI.ENA Biate Jusnce MARIARO ~ ~ f.~ -rat�~ MARIAN rvy(f. REYEg-FAJA'R.DO Associate Justice /twnif~ LANEE S. ~~;-rlAVID Associate J m;tice HENRY f.t;:NGELES Associate Justice