Case Summary (G.R. No. 151895)
Undisputed Facts
- Amex Philippines is a VAT-registered Philippine branch.
- For 1997, it amended quarterly VAT returns to reclassify its Philippine-performed services as zero-rated.
- It filed for refund within two years of the close of the relevant taxable quarter.
- Consideration for its services was paid in acceptable foreign currency, inwardly remitted and accounted for per Bangko Sentral ng Pilipinas regulations.
Petitioner's and Respondent's Arguments
Respondent argued:
A. Section 102(b)(2) mandates zero-rating for services performed in the Philippines paid in acceptable foreign currency.
B. Input taxes on domestic purchases related to zero-rated sales are refundable under Section 112 of the Tax Code and RR 5-87, Sec. 8(a).
CIR contended:
- Refund claims are presumptively invalid absent clear statutory grant.
- Administrative rulings may require “consumption abroad” for zero-rating.
- Procedural compliance under Sections 204(c) and 229 of the Tax Code must be strictly established.
Issue
Whether respondent is entitled to a refund of ₱3,352,406.59 as excess input VAT for 1997 based on zero-rating under Section 102(b) of the Tax Code.
Applicable Law
Section 102(b), NIRC of 1986 as amended:
(1) Processing, manufacturing or repacking of goods for export, zero-rated if paid in acceptable foreign currency and accounted for per BSP rules.
(2) Services other than (1), performed in the Philippines by VAT-registered persons, zero-rated if consideration is paid in acceptable foreign currency and accounted for per BSP rules.
RR 5-87, Sec. 8(a) and RR 7-95, Sec. 4.102-2(b)(2): mirror this provision, confirming zero-rating without additional qualifications. RR 5-96 amended Sec. 4.102-2(b)(2) to illustrate additional services but did not limit scope.
Court’s Analysis
Destination Principle Exception
The VAT system generally taxes services at their place of consumption, but Section 102(b) expressly zero-rates qualifying services performed in the Philippines.Requirements for Zero-Rating
a. Service performed in the Philippines
b. Service falls under Section 102(b)(2) (“other” services)
c. Payment in acceptable foreign currency inwardly remitted and duly accounted for
Respondent’s facilitation service meets all three.
Consumption versus Performance
The Court rejected the CIR’s “consumed abroad” requirement, clarifying that zero-rating depends on statutory criteria, not on where the benefit is used.Administrative Rulings
• VAT Ruling No. 080-89 correctly applied zero-rating to respondent’s services.
• VAT Ruling No. 040-98’s “consumed abroad” requirement is ultra vires, contravenes clear statutory language, and cannot be retroactive to prejudice respondent under Section 246 of the Tax Code.Statutory Interpretation
Section 102(b)(2) is clear and categoric
Case Syllabus (G.R. No. 151895)
Procedural History
- Petition for review under Rule 45 of the Rules of Court assailing the February 28, 2002 Decision of the Court of Appeals in CA-GR SP No. 62727.
- The CA dismissed the petition and affirmed in toto the decision of the Court of Tax Appeals.
- Respondent’s petition to the Supreme Court was deemed submitted for decision on July 23, 2003.
Facts
- Respondent is the Philippine branch of American Express International, Inc., organized under Delaware law, with offices in Makati City, servicing the Hong Kong Branch by facilitating collections and payments of receivables.
- It registered as a VAT taxpayer in March 1988 (BIR Certificate No. 088445).
- For 1997, it originally filed quarterly VAT returns declaring minimal taxable sales and output VAT.
- On March 23, 1999, it amended those returns to declare substantial zero-rated sales and excess input VAT.
- On April 13, 1999, it requested a refund of ₱3,751,067.04 excess input taxes under Section 110(B) of the 1997 Tax Code.
- After no immediate BIR action, respondent filed its petition for refund on April 15, 1999.
Statutory and Regulatory Background on VAT
- The VAT system generally follows the destination principle.
- National Internal Revenue Code (NIRC) Section 102(a) imposes 10% VAT on gross receipts from services; Section 102(b) provides zero-rating for:
- (1) processing/manufacturing/repacking of goods for export paid in foreign currency;
- (2) all other services paid in acceptable foreign currency inwardly remitted and BSP-accounted.
- Section 110(B) (now 112) allows refund or credit of input tax attributable to zero-rated sales.
- Revenue Regulations (RR) No. 5-87 Sec. 8(a) and RR 7-95 Sec. 4.102-2(b) affirm zero-rating for services paid in foreign currency.
- RR 5-96 amended Sec. 4.102-2(b)(2) to enumerate illustrative “services by a resident to a non-resident foreign client” without limiting the general rule.
- VAT Ruling No. 080-89 (April 3, 1989) declared respondent’s foreign-currency-paid ser