Title
Aegis PeopleSupport, Inc. vs. Commissioner of Internal Revenue
Case
G.R. No. 216601
Decision Date
Oct 7, 2019
Aegis PeopleSupport, Inc. sought a tax refund for excess income tax paid in 2007, claiming forex gains from hedging were integral to its PEZA-registered BPO operations. The Supreme Court ruled in favor, affirming hedging as essential to its activities and qualifying for tax incentives.
Font Size:

Case Digest (G.R. No. 216601)

Facts:

    Background and Corporate Registration

    • Petitioner Aegis PeopleSupport, Inc.—formerly PeopleSupport (Philippines), Inc.—is a domestic corporation organized and existing under Philippine laws.
    • It is registered with various government agencies:
    • The Board of Investments (BOI) under its former name with Certificate of Registration No. 2003-059 (dated April 22, 2003) as a pioneer IT export service firm in the field of Customer Contact Center.
    • The Philippine Economic Zone Authority (PEZA) as a new Ecozone IT (Export) Enterprise, engaged in establishing a contact center to provide outsourced customer care and business process outsourcing (BPO) services.
    • The Bureau of Internal Revenue (BIR) as an income taxpayer with OCN No. 9RC0000247326 (dated March 9, 2000).

    Tax Filing and Claim for Refund

    • On April 15, 2008, the petitioner filed its Annual Income Tax Return for the taxable year 2007 via the electronic filing and payment system (eFPS).
    • An amended Annual ITR was filed on April 29, 2008, along with corresponding submission of Audited Financial Statements with the BIR Revenue District Office (RDO) No. 47.
    • On December 3, 2008, petitioner amended its Articles of Incorporation, changing its corporate name to Aegis PeopleSupport, Inc.
    • On April 8, 2010, petitioner submitted an administrative claim for refund or issuance of a tax credit certificate (TCC) for an excess income tax payment of P66,177,830.95 for CY 2007.
    • Respondent’s inaction on this claim led petitioner to file a Petition for Review on April 15, 2010.

    Respondent’s Position and Procedural History

    • The Commissioner of Internal Revenue, as respondent, answered the petition via registered mail on June 7, 2010, raising several special and affirmative defenses, including:
    • The claim for refund was still subject to BIR investigation.
    • Petitioner failed to demonstrate that the tax was erroneously or illegally collected.
    • Taxes paid or collected are presumed proper, hence non-refundable.
    • The burden was on the petitioner to prove compliance with specific provisions (Section 204(C) in relation to Section 299 of the 1997 Tax Code).
    • Refund claims are construed strictly against the claimant.
    • The issues were joined, and the case was set for pre-trial on July 9, 2010.
    • A Consolidated Joint Stipulation of Facts and Issues was filed and approved on July 28, 2010.
    • During trial, petitioner presented two witnesses while respondent’s counsel opted not to present evidence, arguing the issues were purely legal.
    • Petitioner submitted its Memorandum on January 21, 2012, and respondent failed to file its memorandum by February 1, 2012.
    • The case was then submitted for decision on February 3, 2012.

    Decisions at the Court of Tax Appeals (CTA)

    • The CTA-Division rendered a Decision on July 9, 2012, denying the refund claim on the ground of insufficiency of evidence regarding the attribution of forex gains to the activities with income tax incentive.
    • The petitioner’s Motion for Reconsideration was denied in a Resolution dated March 4, 2013.
    • Petitioner appealed to the CTA En Banc via a Petition for Review, which was denied on August 4, 2014, by affirming that the foreign exchange gains were derived from hedging contracts with Citibank and not from the registered contact center activity.
    • A subsequent Resolution dated January 7, 2015, reaffirmed the denial.
    • Petitioner then elevated the case to the Supreme Court through a Petition for Review on Certiorari.

    Hedging Contract and Forex Gains

    • To manage its foreign currency earnings (USD-denominated revenues from its PEZA-registered customer support services), petitioner entered into a hedging contract with Citibank.
    • The contract involved a predetermined forward exchange rate of PhP49.04 to USD1.00, while the prevailing market rate at the time was PhP45.61 to USD1.00.
    • The transaction involved the sale of USD55,000,000.00, resulting in the realization of forex gains of approximately PhP189,079,517.00.

    Contentions of the Parties

    • Petitioner argued that its forex gains, although derived from a foreign exchange hedging transaction, should be covered by the Income Tax Holiday (ITH) because they were incurred as part of financing its registered contact center activities.
    • Petitioner cited Revenue Regulation No. 20-2002, PEZA Memorandum Circular No. 32-2005, and various BIR rulings to assert that the preferential tax regime should extend to ancillary transactions integral to the registered activity.
    • Respondent contended that the hedging activity was separate from the core registered contact center operations; thus, the forex gains were not eligible for income tax incentive and must be subjected to the normal corporate income tax.

Issue:

  • Whether the forex gains realized from the hedging contract with Citibank are attributable to petitioner’s registered contact center activities and hence covered by the Income Tax Holiday (ITH).
  • Whether the hedging activity, undertaken to manage and convert foreign currency earnings into Philippine Pesos for operational expenses, is integral to the petitioner’s PEZA-registered business, thereby qualifying for the ITH incentive.
  • Whether the administrative and evidentiary requirements for refunding erroneously paid income tax on such forex gains have been met by the petitioner.
  • Whether the denial of the refund or issuance of a tax credit certificate, based on the origin of Forex gains from an activity outside the registered operations, violates the preferential treatment provided by the law.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
Unlock Full Case Digest

Analyze Cases Smarter, Faster
Jur is an AI-powered legal research tool in the Philippines with case digests and full jurisprudence. AI summaries highlight key points but might skip important details or context. Always check the full text for accuracy.

About Privacy Terms