Case Summary (G.R. No. 126881)
Parties
Petitioner: Commissioner of Internal Revenue (CIR)
Respondent: Placer Dome Technical Services (Philippines), Inc.
Key Dates
• 24 March 1996 – Marcopper tailings leak begins.
• 15 November 1996 – Implementation Agreement executed (retroactive effect).
• August 1998 – Respondent amends VAT returns for 1996–1997.
• 11 September 1998 – Administrative refund claim filed.
• 19 March 2002 – CTA decision granting partial refund.
• 20 June 2002 – CTA resolution denying CIR’s motion for reconsideration.
• 30 June 2004 – Court of Appeals decision affirming CTA.
• 8 June 2007 – Supreme Court decision denying CIR’s petition.
Applicable Law
• 1987 Philippine Constitution (operative).
• National Internal Revenue Code of 1986, as amended (1986 NIRC), Section 102(b)(2).
• Revenue Regulation No. 5-96, Section 4.102-2(b)(2).
• VAT Ruling No. 040-98 (23 November 1998).
• Precedent: CIR v. American Express International, Inc. (G.R. No. 152609, 29 June 2005).
Factual Background
Respondent provided emergency river-cleanup services under an Implementation Agreement with PDTSL, to be paid “in U.S. funds equal to all Costs incurred” plus a 1% fee. Respondent, a VAT-registered corporation, declared and paid input VAT for services rendered and sought refund of P43 million as zero-rated transactions.
Procedural History
After the CIR failed to act on the refund claim, respondent petitioned the Court of Tax Appeals (CTA) for refund of P42.8 million excess input VAT. The CTA granted a partial refund of P17.18 million, finding only U.S.$14.75 million of payments were inwardly remitted and properly supported. The CTA denied the CIR’s motion for reconsideration. The Court of Appeals affirmed, and CIR elevated the case to the Supreme Court.
Legal Issue
Whether services performed in the Philippines by a VAT-registered domestic corporation, paid in foreign currency and inwardly remitted, qualify as zero-rated under Section 102(b)(2) of the 1986 NIRC despite not being “consumed abroad.”
Statutory Framework
Section 102(b)(2) of the 1986 NIRC provides that “services other than processing, manufacturing or repacking of goods for persons doing business outside the Philippines” are zero-rated if paid in acceptable foreign currency and accounted for under Bangko Sentral rules. No requirement exists that services be exported or consumed outside the Philippines.
Revenue Regulation Interpretation
Revenue Regulation No. 5-96, § 4.102-2(b)(2) enumerates illustrative zero-rated services (e.g., project studies, information services, engineering designs) but does not limit zero-rating only to those examples. Illustrations are not exhaustive and cannot override the broad statutory language.
Administrative Ruling
VAT Ruling No. 040-98 held that zero-rating under Section 108(B)(2) (1997 NIRC) applies only if services are destined for consumption abroad, excluding services rendered within the Philippines (e.g., tour packages). The Supreme Court found this interpretation ultra vires, as it adds a consumption-abroad condition absent in the statute.
Petitioner’s Arguments
The CIR contended that (1) respondent’s services were not linked to exported goods, and (2) under RR 5-96 § 4.102-2(b)(2) and VAT Ruling No. 040-98, only services “destined for consumption abroad” qualify for zero-rating.
Supreme Court Precedent
In CIR v. American Express, the Court held Section 102(b)(2) clear: all services performed in the Philippines by VAT-registered pers
...continue readingCase Syllabus (G.R. No. 126881)
Facts
- On 24 March 1996, a tailings leak from Marcopper Mining Corporation’s Taipan Pit in Marinduque contaminated the Makulapnit Tunnel and Boac Rivers, halting operations and threatening environmental damage.
- Placer Dome, Inc. (PDI), owning 39.9% of Marcopper, undertook clean-up and rehabilitation via its Canadian affiliate Placer Dome Technical Services Limited (PDTSL).
- PDTSL engaged Placer Dome Technical Services (Philippines), Inc. (respondent), a domestic VAT-registered corporation, through an Implementation Agreement dated 15 November 1996—retroactive to services begun earlier.
- Under the Agreement, PDTSL would pay respondent in U.S. dollars all costs incurred plus a 1% fee, subject to inward remittance and BSP accounting rules.
Procedural History
- August 1998: Respondent amended its VAT returns for late 1996 and all of 1997, declaring total input VAT of ₱43,015,461.98 and excess input VAT of ₱42,837,933.60.
- 11 September 1998: Respondent filed for administrative refund of input VAT related to the PDTSL project (₱43,015,461.98), invoking Section 102(b)(2) zero-rating.
- CIR’s inaction compelled respondent to petition the Court of Tax Appeals (CTA) for refund of ₱42,837,933.60.
- 19 March 2002: CTA ruled respondent’s sales to PDTSL were zero-rated but found only US$14,750,473.00 inwardly remitted; it allowed a refund of ₱17,178,373.12.
- 20 June 2002: CTA denied CIR’s motion for reconsideration, rejecting reliance on Revenue Regulation No. 5-96 and VAT Ruling No. 040-98.
- 30 June 2004: The Court of Appeals affirmed the CTA decision.
- 8 June 2007: CIR petitioned the Supreme Court for review.
Issue
- Whether services performed in the Philippines by a VAT-registered entity, paid in acceptable foreign currency and duly remitted under BSP rules, qualify as zero-rated under Section 102(b)(2) of the 1986 NIRC, despite Revenue Regulation No. 5-96 and VAT Ruling No. 040-98.
Applicable Law
- Section 102(b)(2), National Internal Revenue Code of 1986, as amended: zero-rates “servic