Case Summary (G.R. No. 159788)
Petitioner
Commissioner of Internal Revenue
Respondent
Deutsche Knowledge Services Pte. Ltd.
Key Dates
• First quarter 2010 – DKS incurred input VAT on purchases.
• October 21, 2011 – Administrative claim for refund filed with BIR.
• March 19, 2012 – Judicial petition filed with CTA.
• July 7, 2014 – CTA Second Division decision partially granting refund.
• March 30, 2017 – CTA En Banc decision affirming and modifying refund.
• September 18, 2017 – CTA En Banc resolution denying motions for reconsideration.
• July 15, 2020 – Supreme Court decision under review.
Applicable Law
• 1987 Philippine Constitution
• National Internal Revenue Code of 1997 (Tax Code), especially Sections 108(B)(2) (zero-rating of services) and 112 (refund/credit of input VAT)
• Revenue Regulations No. 16-05 (VAT rules)
• Revenue Memorandum Circular No. 49-03 and Revenue Memorandum Order No. 53-98 (documentary requirements)
Antecedents – ROHQ Operations and VAT Refund Claim
DKS operates in the Philippines as a tax-registered ROHQ providing “qualifying services” (e.g., business planning, data processing, technical support) to its 34 foreign affiliates. It treated service revenues as zero-rated for VAT purposes and claimed P33,868,101.19 in unutilized input VAT for the first quarter of 2010. After no action by the BIR, DKS filed a judicial claim with the CTA. The CIR opposed, alleging documentary deficiencies, lack of proof of services rendered to nonresident foreign corporations (NRFCs), and premature filing.
CTA Division Ruling – Partial Grant of Refund
The CTA Second Division held both administrative and judicial claims timely. It then:
- Disallowed P12,790,712.55 input VAT for lack of proper invoices or substantiation, leaving valid excess input VAT of P20,364,346.86.
- Examined evidence (SEC non‐registration certificates, articles of incorporation, service agreements) and recognized only 15 of 34 affiliates as NRFCs, representing 73.0798% of declared zero-rated sales.
- Awarded a refund/credit of P14,882,227.02 (73.0798% of valid excess input VAT).
CTA En Banc Ruling – Further Adjustment
The CTA En Banc affirmed the Division’s approach to timeliness and evidentiary standards but found that only 11 affiliates qualified as NRFCs. It rejected self-serving printouts from DKS’s internal database as insufficient. Applying a 71.3368% ratio to valid excess input VAT (P20,364,346.86) yielded a reduced refund entitlement of P14,527,282.57. Motions for reconsideration were denied.
Issue – Entitlement to P14,527,282.57 Tax Credit
Whether DKS is entitled to a refund or credit of P14,527,282.57 for excess input VAT attributable to zero-rated services.
Supreme Court’s Analysis on Timeliness
Under Tax Code Section 112(C), the CIR has 120 days from “date of completion” of supporting documents to act on a refund claim; thereafter, the taxpayer has 30 days to appeal to the CTA. RMO 53-98 does not apply to refund applications, and RMC 49-03 permits claimants to declare completeness or submit additional documents within 30 days of filing. The BIR failed to notify DKS of deficiencies during the administrative phase, rendering the 120-day period to run from October 21, 2011, and making the March 19, 2012 petition timely.
Supreme Court’s Analysis on Zero-Rated Sales Requirements
To qualify for zero-rating under Section 108(B)(2) and refund of excess input VAT under Section 112, DKS had to prove:
- VAT registration (u
Case Syllabus (G.R. No. 159788)
Antecedents and Facts
- Deutsche Knowledge Services Pte. Ltd. (DKS) is the Philippine branch of a Singapore‐incorporated multinational, licensed as a Regional Operating Headquarters (ROHQ) under EO 226 (Omnibus Investments Code) and RA 8756.
- DKS rendered “qualifying services” (e.g., general administration, business planning, sourcing, logistics, technical support, data processing) to 34 foreign affiliates pursuant to intra‐group service agreements.
- It is VAT‐registered and treated its service revenues as zero‐rated sales for VAT purposes.
- For the first quarter of 2010, DKS claimed a refund of unutilized input VAT amounting to ₱33,868,101.19 by filing an administrative claim (BIR Form 1914) on October 21, 2011.
- With no action by the Commissioner of Internal Revenue (CIR) within the prescribed period, DKS filed a judicial claim before the Court of Tax Appeals (CTA) on March 19, 2012.
CTA Second Division Ruling (July 7, 2014)
- Timeliness
- Both the administrative claim and the appeal to the CTA were found to be timely filed under Section 112(C) of the Tax Code.
- Computation of Valid Excess Input VAT
- Claimed input VAT: ₱33,868,101.19
- Disallowances (missing docs, capital goods, non‐capital goods purchases): ₱12,790,712.55
- Valid input VAT after disallowances: ₱21,077,388.64
- Less output VAT: ₱713,041.78 → Excess input VAT: ₱20,364,346.86
- Establishment of Zero-Rated Sales
- Reported zero‐rated sales: ₱858,315,870.09
- Only 15 out of 34 affiliates proven as non‐resident foreign corporations (NRFCs) doing business outside the Philippines, representing 73.0798% of total zero‐rated sales.
- Refundable portion of excess input VAT: 73.0798% of ₱20,364,346.86 = ₱14,882,227.02
- Post‐decision Motions
- CIR’s motion for reconsideration denied