G.R. No. 261171 - Commissioner of Internal Revenue vs. BW Shipping Philippines, Inc.

Case Summary (G.R. No. 261171)

Administrative Denial and Petition to CTA

The BIR denied respondent’s administrative claim by letter dated August 16, 2016 (received August 22, 2016). Respondent then filed a Petition for Review with the Court of Tax Appeals (CTA). The CIR opposed the claim, alleging respondent failed to prove erroneous collection and failed to fully substantiate the refund claim with proper documents.

CTA First Division Findings

In its September 23, 2019 Decision the CTA First Division partially granted respondent’s petition and ordered refund/TCC in the amount of PHP 5,503,628.95. The Division’s material findings included:

Respondent is a registered VAT taxpayer.
The services rendered qualify as services “other than processing, manufacturing or repacking of goods” and thus fall within Section 108(B)(2) when the recipient is doing business outside the Philippines and payment is in acceptable foreign currency accounted for properly.
The recipient shipping companies were established and doing business abroad as evidenced by Certificates of Non-Registration from the SEC, foreign certificates/articles of incorporation, consularized agreements, online registry screenshots, and bank documents evidencing inward remittances. Because respondent failed to provide official receipts for some sales, only PHP 115,630,375.65 of the declared zero-rated sales were deemed qualified for VAT zero-rating.
Of the declared input VAT of PHP 7,346,268.45, only PHP 5,841,616.63 was properly substantiated as valid input VAT.
Respondent had no output VAT liabilities for the four quarters of TY 2014 against which the claimed input VAT could be credited; the claimed input VAT remained unutilized until claimed as VAT Refund/TCC in the 1st quarter of 2016.
All administrative claims and submissions were timely filed within the statutory periods.

Based on the above, the Division attributed PHP 5,841,616.63 of input VAT to declared zero-rated sales and further reduced the refundable portion to PHP 5,503,628.95 attributable to the validated zero-rated sales amount.

CTA En Banc Affirmation

The CTA En Banc, in its October 29, 2021 Decision, affirmed the Division. Key points in the En Banc ruling:

The SEC Certificates of Non-Registration and consularized foreign incorporation documents constitute prima facie evidence that the recipient shipping companies are foreign entities not engaged in business in the Philippines. Online registry evidence and consularized agreements corroborated foreign registration.
The Manning Agreements/Purchasing & Infrastructure Support Agreements and the agency designation (principal-agent) did not, by themselves, establish that the foreign principals were “doing business” in the Philippines. The agreements reflected outsourcing of recruitment functions; the En Banc found no showing that respondent operated under full control of the foreign companies or that the foreign companies were carrying out continuous commercial dealings in the Philippines beyond outsourcing recruitment.
Allegations pointing to corporate affiliation (BW Group) and shared addresses were noted but the CIR failed to submit sufficient evidence to overcome the prima facie showing or to demonstrate that the foreign principals were engaged in business in the Philippines.

The CIR’s motion for reconsideration before the CTA En Banc was denied (Resolution dated May 30, 2022).

Issue Presented to the Court

Whether the CTA En Banc correctly affirmed the refund/TCC award for respondent’s unutilized input VAT for the four quarters of TY 2014, i.e., whether respondent satisfied the statutory requisites for VAT zero-rating under Section 108(B)(2) and for refund under Section 112(A) of the NIRC as amended.

Statutory and Jurisprudential Standards

Section 108(B)(2) requires: (1) services other than processing/manufacturing/repacking; (2) services performed in the Philippines; (3) the service-recipient is a person engaged in business conducted outside the Philippines or a non-resident person not engaged in business who is outside the Philippines when services are performed; and (4) payment is in acceptable foreign currency accounted for under BSP rules.
Section 112(A) permits filing for issuance of TCC or refund of input tax attributable to zero-rated sales within two years after the close of the taxable quarter when the sales were made, subject to BSP accounting requirements for foreign-currency proceeds and proper allocation where the taxpayer has mixed transactions.
Jurisprudence requires sufficient proof both that the client is a foreign corporation and that it is not engaged in trade or business in the Philippines (see Commissioner v. Deutsche Knowledge Services). “Doing business” implies continuity of commercial dealings and arrangements and usually entails some indicia of profit-oriented operations in the jurisdiction (see Sitel Philippines and Agilent Technologies); implementing rules further enumerate acts that are or are not “doing business.”

Court’s Analysis of CIR’s Contentions

The Court accepted the CTA’s finding that the SEC Certificates of Non-Registration and consularized foreign incorporation documents are prima facie evidence that the recipient shipping companies are foreign corporations not engaged in business in the Philippines. The CIR did not dispute the foreign incorporation status.
The CIR’s core contention was that the Manning Agreements and agency designation showed the foreign principals carried on continuous business in the Philippines through respondent, and that the functions performed (recruitment, HR-related oversight) evinced control and continuity sufficient to constitute “doing business.” The Court evaluated this against the statutory/jurisprudential standard.
The Court found the CIR failed to overcome the prima facie evidence. The Manning Agreements and designation of “principal” and “agent” under POEA/Omnibus Rules reflect regulatory terminology for overseas employment relationships and do not automatically equate to the foreign principals doing business in the Philippines. The definitions in the Omnibus Rules and POEA Rules identify princi

Case Syllabus (G.R. No. 261171)

Procedural Posture

Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by the Commissioner of Internal Revenue (CIR) assailing:
- Decision dated October 29, 2021 and Resolution dated May 30, 2022 of the Court of Tax Appeals (CTA) En Banc in CTA EB No. 2254 (CTA Case No. 9448).
- Those CTA En Banc rulings affirmed the CTA First Division Decision dated September 23, 2019 and Resolution dated February 19, 2020, which partially granted the Petition for Review filed by respondent BW Shipping Philippines, Inc.
Supreme Court resolution rendered October 4, 2023 in G.R. No. 261171, denying the Petition and affirming the CTA rulings.
Final disposition ordered the CIR to refund or issue a Tax Credit Certificate (TCC) for PHP 5,503,628.95 in favor of respondent.

Case Title, Citation, and Panel

Case caption as extracted: COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. BW SHIPPING PHILIPPINES, INC., RESPONDENT.
G.R. No. 261171, decision dated October 04, 2023, Second Division.
Decision penned by Justice KHO, JR.; Lazaro-Javier (Acting Chairperson), M. Lopez, and J. Lopez, JJ., concur. Leonen, *SAJ., on leave but left his vote.

Factual Background

Respondent BW Shipping Philippines, Inc. is a Philippine corporation engaged in shipping, including manning and crewing of vessels, and carriage of passengers, freight, mail, livestock, and other lawful merchandise; registered VAT taxpayer with TIN 000-160-779-000 (BIR Certificate of Registration No. 9RC0000426666).
For taxable year (TY) 2014, respondent rendered manning services to shipping companies located and doing business outside the Philippines and received manning fees in foreign currency that were subject to 0% VAT.
Respondent declared aggregate zero-rated receipts for TY 2014 of PHP 129,866,272.96 and claimed input VAT paid attributable to those zero-rated sales totaling PHP 7,346,268.45.
Respondent alleged the input VAT was unutilized (not applied against output taxes) and filed an administrative claim for refund or issuance of TCC for unutilized input VAT on March 30, 2016 in the amount of PHP 7,346,268.45.

Administrative Proceedings and BIR Action

BIR denied respondent’s administrative claim in a letter dated August 16, 2016 (received August 22, 2016).
Respondent filed a Petition for Review before the CTA on August 20, 2016.
CIR, in its Answer, alleged respondent failed to show erroneous collection of tax and that the refund claim was not fully substantiated by proper documents.

Evidence Submitted by Respondent

Certificates of Non-Registration issued by the SEC showing the recipient shipping companies are not registered as corporations or partnerships in the Philippines.
Consularized Certificates/Articles of Foreign Incorporation and foreign government registration documents indicating the shipping companies are organized and doing business outside the Philippines.
Screenshots of foreign registration from foreign regulatory websites.
Consularized Manning Agreements/Purchasing & Infrastructure Support Agreements between respondent and foreign shipping companies.
List of zero-rated sales, summary of examination of inward remittances, list of official receipts and related official receipts, Certificate of Inward Remittances dated October 20, 2017 issued by Bank of the Philippine Islands, and bank credit memos.
Note: Due to respondent’s failure to provide official receipts for certain sales, only declared zero-rated sales of PHP 115,630,375.65 were deemed qualified for VAT zero-rating in the CTA findings.

CTA First Division Findings and Ruling (Sept. 23, 2019)

CTA First Division partially granted respondent’s petition and ordered refund/TCC in the amount of PHP 5,503,628.95 representing unutilized input VAT attributable to zero-rated sales for the four quarters of TY 2014.
Key findings the Division relied upon as meeting requisites under Section 108(B)(2) in relation to Sections 110(B) and 112(A) of the NIRC:
- Respondent is a registered VAT taxpayer (BIR Certificate of Registration No. 9RC0000426666; TIN 000-160-779-000).
- The services rendered (manning services to shipping companies abroad) are services “other than processing, manufacturing or repacking of goods.”
- Recipient shipping companies were established and doing business outside the Philippines as evidenced by SEC Certificates of Non-Registration, foreign registrations, and consularized agreements.
- Respondent showed inward foreign currency remittances accounted for in accordance with BSP rules via the listed bank documents, but certain sales lacked official receipts.
- Of the declared input VAT of PHP 7,346,268.45, only PHP 5,841,616.63 was accepted as valid input VAT due to substantiation issues.
- Respondent had no output tax liability for the four quarters of TY 2014 and carried over claimed input VAT into succeeding returns, which remained unutilized until deducted as “VAT Refund/TCC Claimed” in the 1st Quarter TY 2016.
- Administrative claims and submission of required documents were timely: filed within two years after the close of taxable quarter (March 30, 2016) and CTA petition was timely filed within 30 days after BIR failed to act within 120 days.
Computation by the Division: Only input VAT of PHP 5,503,628.95 was attributable to the qualified zero-rated sales of PHP 115,630,375.65 and thus refundable/TCC-issuable.

CTA En Banc Ruling (Oct. 29, 2021) and Resolution (May 30, 2022)

CTA En Banc affirmed the CTA Division rulings and reiterated the sufficiency of respondent’s proof that recipient shipping companies were foreign entities not doing business in the Philippines:
- Certificates of Non-Registration from SEC and consularized Foreign Incorporation documents were held sufficient to show non-domestic status and non-engagement in trade or business in the Philippines.
- Online foreign registration evidence and Consularized Manning Agreements/Purchasing & Infrastructure Support Agreements collectively supported the finding that recipients were foreign entities.
On CIR’s contention that the Manning Agreements/Support Agreements and designation of respondent as “agent” showed a continuity of business in the Philippines:
- CTA En Banc held that appointment as agent and contractual designation do not necessarily show that the foreign principals are doing business in the Philippines.
- Respondent’s role was characterized as recruiting and supplying seafarers, a service which may permissibly be outsourced; recruitment does not equate to the foreign principal doing business locally.
CTA En Banc not