G.R. No. 210528 - Commissioner of Internal Revenue vs. J.P. Morgan Chase Bank, N.A.-Philippine Customer Care Center

The petitioner is the Commissioner of Internal Revenue, while the respondent is J.P. Morgan Chase Bank, N.A. a Philippine Customer Care Center – the Philippine branch of an American corporation.
PeopleSupport (Philippines), Inc. is a Philippine Economic Zone Authority (PEZA)‑registered Export Enterprise engaged primarily in outsourced customer care and business process outsourcing services.
PeopleSupport is registered with PEZA and enjoys fiscal incentives—including an income tax holiday—only for income derived from its registered activities.

On May 1, 2007, J.P. Morgan-Philippines (respondent) entered into Task Order #2 under a Master Service Provider Agreement with PeopleSupport, Inc.
Under the Agreement, PeopleSupport was to provide a comprehensive package that included:

Lease of physical plant space located at 6780 Ayala Avenue, Makati City.
Provision of voice and data infrastructure, workstation support, and the necessary transmission facilities.
Platform support for inbound telemarketing activities performed by J.P. Morgan’s personnel.

The Agreement explicitly detailed the responsibilities and interaction mechanisms between the two parties, including the designation of an account manager and a point of contact.

From May to July 2007, J.P. Morgan-Philippines paid PeopleSupport an aggregate fee of P56,913,080.40.
The respondent withheld tax amounting to P2,845,654.02 on these payments despite PeopleSupport’s entitlement to an income tax holiday for its registered activities.
On August 16, 2007, upon realizing the error, the respondent reimbursed PeopleSupport the withheld tax amount, as acknowledged by PeopleSupport via an official receipt and subsequent correspondence.

On August 7, 2008, J.P. Morgan-Philippines filed an application for refund of the P2,845,654.02 withheld tax, which led to inaction by the Bureau of Internal Revenue.
The respondent subsequently filed a Petition for Review with the Court of Tax Appeals (CTA) on August 10, 2009.
The CTA’s Second Division initially ruled against the refund claim, then, on reconsideration (via the December 21, 2011 Resolution), reversed itself by granting the refund on the basis that the lease of transmission facilities was an incidental part of PeopleSupport’s service package.
The Commissioner of Internal Revenue argued that:

The respondent, as merely a withholding agent, was not in proper standing to claim the refund.
The lease of physical facilities was not within PeopleSupport’s registered activities under PEZA.

The CTA En Banc, in its July 15, 2013 Decision (with a subsequent December 18, 2013 Resolution upholding its position), found that the scope of PeopleSupport’s services must remain confined to its PEZA‑registered activity—outsourced customer care and business process outsourcing—and thus the lease of facilities lay outside that scope, rendering the income subject to the regular corporate income tax.

The Agreement was essentially a lease of physical facilities, with ancillary IT support services.
The transmission facilities “leased” were separate from PeopleSupport’s core, registered customer care activities, and would require a separate PEZA registration if to be covered by the income tax holiday.

The services provided, though delivered as a lease of facilities, were integrally linked to PeopleSupport’s registered business of IT‑enabled outsourcing.
The arrangement should be interpreted as a contract for business process outsourcing, which falls within the ambit of the fiscal incentives granted by PEZA.

The dispute centrally involved whether the income derived from such lease arrangements was categorically exempt from regular income tax and withholding tax under the existing PEZA registration and corresponding legal interpretations.

Does the Petition for Review on Certiorari present a question of law or a question of fact regarding the application of tax incentives under PEZA?
Whether the interpretation of contractual terms requires factual reassessment or solely legal clarification.

Whether the lease of physical plant space, infrastructure, and transmission facilities falls under PeopleSupport’s registered activities as an outsourced customer care and business process outsourcing service provider.
Whether such leased services, even if ancillary to a broader service package, are eligible for the income tax holiday and corresponding tax exemptions.

Whether J.P. Morgan-Philippines, as the withholding agent, is the proper party to seek a refund for withheld taxes versus PeopleSupport needing to assert its rights under the tax incentive scheme.