CIR vs. SEAGATE TECHNOLOGY Facts: Seagate Technology (Seagate) s !eg ste!e" # th the $h l %% ne e&%o!t 'one A(tho!

ty ($E'A) an" has )een ss(e" a $E'A ce!t * cate It s also a +AT !eg ste!e" ent ty An a", n st!at ve cla , *o! !e*(n" o* +AT n%(t ta&es n the a,o(nt o* $H$ -./012... #as * le" on Octo)e! 3/ 4222 No * nal act on as )een !ece ve" )y Seagate *!o, the CIR on ts cla , *o! +AT !e*(n" Seagate th(s elevate" the case to the CTA )y #ay o* %et t on *o! !ev e# n o!"e! to toll the !(nn ng o* the t#o yea! %!esc! %t ve %e! o" ISS5E: 67N Segeate s ent tle" to the !e*(n" o! ss(ance o* Ta& C!e" t Ce!t * cate 8 YES R5LING: Seagate s a $E'A !eg ste!e" ente!%! se As a $E'A !eg ste!e" ente!%! se # th n a s%ec al econo, c 9one/ Seagate s ent tle" n the * scal ncent ves an" )ene* ts/ %!ov "e" *o! n e the! $:11 o! EO --1. It shall ,o!eove! en;oy all %! v leges/ )ene* ts/ a"vantages/ o! e&e,%t ons (n"e! )oth RA <--< an" RA <.33 Seagate en;oys %!e*e!ent al ta& t!eat,ent. It s not s();ect to nte!nal !even(e la#s an" !eg(lat ons an" s even ent tle" to ta& c!e" ts. The +AT on ca% tal goo"s s nte!nal !even(e *!o, #h ch Seagate as an ent ty s e&e,%t. Altho(gh the t!ansact ons nvolv ng s(ch ta& a!e not e&e,%t/ Seagate as a +AT !eg ste!e" %e!son ho#eve! s ent tle" to the ! c!e" ts +AT s a (n *o!, ta& !ang ng at %!esent *!o, =>4=? lev e" on eve!y ,%o!tat on o* goo"s/ #hethe! o! not n the co(!se o* t!a"e o! )(s ness/ o! ,%ose" on each sale/ )a!te!/ e&change o! lease o* goo"s o! %!o%e!t es/ o! on each !en" t on o* se!v ces n the co(!se o* t!a"e o! )(s ness as they %ass along the %!o"(ct on an" " st! )(t on cha n/ the ta& )e ng l , te" only to the val(e a""e" to s(ch goo"s/ %!o%e!t es o! se!v ces )y the selle!/ t!ans*e!o! o! lesso! It s an n" !ect ta& that ,ay )e sh *te" o! %asse" on to the )(ye!/ t!ans*e!ee o! lessee o* the goo"s/ %!o%e!t es/ o! se!v ces

The la# that o! g nally ,%ose the +AT n the co(nt!y/ as #ell as s()se@(ently a,en",ents o* that la#/ has )een "!a#n *!o, the ta& c!e" t ,etho". 5n"e! the %!esent ,etho" that !el e" on nvo ces/ an" ent ty can c!e" t aga nst o! s()t!act *!o, the +AT cha!ge" on ts sales o! o(t%(ts the +at %a " on ts %(!chases/ n%(ts an" ,%o!ts. I* at the en" o* a ta&a)le @(a!te! the o(t%(t ta&es cha!ge" )y a selle! a!e e@(al to the n%(t ta&es %asse" on )y the s(%%l e!s/ no %ay,ent s !e@( !e". It s #hen the o(t%(t ta&es e&cee" the n%(t ta&es tha the e&cess has to )e %a ". I*/ ho#eve!/ the n%(t ta&es e&cee" the o(t%(t ta&es/ the e&cess shall )e ca!! e" ove! to the s(ccee" ng @(a!te! o! @(a!te!s. Sho(l" the n%(t ta&es !es(lt *!o, 9e!o !ate" o! e**ect vely 9e!o !ate" t!ansact ons o! *!o, the ac@( s t on o* ca% tal goo"s/ any e&cess ove! the o(t%(t ta&es shall nstea" )e !e*(n"e" to the ta&%aye! o! c!e" te" aga nst othe! nte!nal !even(e ta&es 'e!o Rate" an" E**ect vely 'e!o Rate" T!ansact ons Altho(gh )oth a!e ta&a)le an" s , la! n e**ect/ 9e!o !ate" t!ansact ons " **e! *!o, e**ect vely 9e!o !ate" t!ansact ons as to the ! so(!ce 'e!o !ate" t!ansact ons gene!ally !e*e! to the e&%o!t sale o* goo"s an" s(%%ly o* se!v ces. The ta& !ate s set at 9e!o. 6hen a%%l e" to the ta& )ase/ s(ch !ate o)v o(sly !es(lts n no ta& cha!gea)le aga nst the %(!chase!. The selle! o* s(ch t!ansact ons cha!ges no o(t%(t ta&/ )(t can cla , a !e*(n" o* o! a ta& c!e" t ce!t * cate *o! the +AT %!ev o(sly cha!ge" )y s(%%l e!s. E**ect vely 9e!o !ate" t!ansact ons/ ho#eve!/ !e*e! to the sale o* goo"s o! s(%%ly o* se!v ces to %e!sons o! ent t es #hose e&e,%t on (n"e! s%ec al la#s o! nte!nat onal ag!ee,ents to #h ch the $h l %% nes s a s gnato!y e**ect vely s();ects s(ch t!ansact on to a 9e!o !ate. Aga n/ as a%%l e" to the ta& )ase/ s(ch !ate "oes not y el" any ta& cha!gea)le aga nst the %(!chase!. The selle! #ho cha!es 9e!o o(t%(t ta& on s(ch t!ansact ons can also cla , a !e*(n" o* o! a ta& c!e" t ce!t * cate * ! the +AT %!ev o(sly cha!ge" )y s(%%l e!s. 'e!o Rat ng an" E&e,%t on In te!,s o* the +AT co,%(tat on/ 9e! !at ng an" e&e,%t on a!e the sa,e/ )(t the e&ten" o* !el e* that !es(lts *!o, e the! one o* the, s not

A%%ly ng the "est nat on %! nc %le to the e&%o!tat on o* goo"s/ a(to,at c 9e!o !at ng s %! ,a! ly nten"e" to )e en;oys )y the selle! #ho s " !ectly an" legally l a)le *o! the +AT/ ,aA ng s(ch selle! nte!nat onally co,%et t ve )y allo# ng the !e*(n" o! c!e" t o* n%(t ta&es that a!e att! )(ta)le to e&%o!t sales. E**ect ve 9e!o !at ng on the cont!a!y s nten"e" to )ene* t the %(!chase! #ho not )e ng " !ectly an" legally l a)le *o! the %ay,ent o* the +AT/ # ll (lt ,ately )ea! the )(!"en o* the ta& sh *te" )y the s(%%l e!s. In )oth nstances o* 9e!o !at ng/ the!e s a TOTAL !el e* *o! the %(!chase! *!o, the )(!"en o* the ta&. B(t n an e&e,%t on the!e s only %a!t al !el e* )eca(se the %(!chase! s not allo#e" any ta& !e*(n" o* o! c!e" t *o! n%(t ta&es %a ". E&e,%t T!ansact on an" E&e,%t $a!ty the o);ect o* e&e,%t on *!o, the +AT ,ay e the! )e the t!ansact on tsel* o! any o* the %a!t es to the t!ansact on An e&e,%t t!ansact on on the one han"./ nvolve" goo"s o! se!v ces #h ch/ )y the ! nat(!e a!e s%ec * cally l ste" n an" e&%!essly e&e,%te" *!o, the +AT (n"e! the Ta& Co"e/ # tho(t !ega!" to the ta& stat(s 8 +AT e&e,%t o! not 8 o* the %a!ty to the t!ansact on. S(ch t!ansact on s not s();ect to the +AT/ )(t the selle! s not allo#e" any ta& !e*(n" o* o! c!e" t *o! any n%(t ta&es %a ". An e&e,%t %a!ty/ on the othe! han" s a %e!son o! ent ty g!ante" +AT e&e,%t on (n"e! the TAC Co"e/ a s%ec al la# o! an nte!nat onal ag!ee,ent to #h ch the $h l %% nes s a s gnato!y/ an" )y v !t(e o* #h ch/ ts ta&a)le t!ansact ons )eco,e e&e,%t *!o, the +AT. S(ch %a!ty s also not s();ect to the +AT )(t ,ay )e allo#e" a ta& !e*(n" o* o! c!e" t *o! n%(t ta&es %a "/ "e%en" ng on ts !eg st!at on as a +AT ! non>+AT ta&%aye!. S%ec al la#s ,ay ce!ta nly e&e,%t t!ansact ons *!o, the +AT. Ho#eve!/ the Ta& Co"e %!ov "es that those *all ng (n"e! $: 11 a!e not. $: 11 s the %!ec(!so! o* RA <241 8 the s%ec al la# (n"e! #h ch Seagate #as !eg ste!e". The %(!chase t!ansact ons t ente!e" nto a!e the!e*o!e not +AT e&e,%t. These a!e s();ect to the +at. Seagate s !e@( !e" to !eg ste!. Its sales t!ansact ons ho#eve! # ll e the! )e 9e!o !ate" o! ta&e" at the stan"a!" !ate o* 4= %e!cent. :e%en" ng aga n on the a%%l cat on o* the "est nat on %! nc %le

I* Seagate ente!s nto s(ch sales t!ansact ons # th a %(!chase! >>> (s(ally n a *o!e gn co(nt!y 8 *o! (se o! cons(,%t on o(ts "e the $h l %% nes/ these shall )e s();ect to a = %e!cent. I* ente!e" nto #h ch a %(!chase *o! (se o! cons(,%t on n the $h l %% ne/ then these shall )e s();ect to 4= %e!cent/ (nless the %(!chase! s e&e,%t *!o, the n" !ect )(!"en o* the +AT/ n #h ch case t shall also )e 9e!o !ate". S nce the %(!chases o* Seagate a!e not e&e,%t *!o, the +AT/ the !ate to )e a%%l e" s 9e!o. Its e&e,%t on (n"e! )oth $: 11 an" RA <241 e**ect vely s();ects s(ch t!ansact ons to a 9e!o !ate )eca(se the eco9one # th n #h ch t s !eg ste!e" s ,anage" an" o%e!ate" )y the $E'A as a se%a!ate c(sto,s te!! to!y. Th s ,eans that s(ch 9one has c!eate" the legal * ct on o* a *o!e gn te!! to!y. 5n"e! the c!oss )o!"e! %! nc %le o* the +AT syste, )e ng en*o!ce" )y the BIR/ no +AT shall )e ,%ose" to *o!, %a!t o* the cost o* goo"s "est ne" *o! cons(,%t on o(ts "e o* the te!! to! al )o!"e! o* the ta& ng a(tho! ty. I* e&%o!ts o* goo"s an" se!v ces *!o, the $h l %% nes to a *o!e gn co(nt!y a!e *!ee o* the +AT/ then the sa,e !(le hol"s *o! s(ch e&%o!ts *!o, the nat onal te!! to!y 8 e&ce%t s%ec * cally "ecla!e" a!eas >>> to an eco9one. Sales ,a"e )y a +AT !eg ste!e" %e!son n the c(sto,s te!! to!y to a $E'A !eg ste!e" ent ty a!e cons "e!e" e&%o!ts to a *o!e gn co(nt!y/ conve!sely/ sales )y a $E'A !eg ste!e" ent ty to a +AT !eg ste!e" %e!son n the c(sto,s te!! to!y a!e "ee,e" ,%o!ts *!o, a *o!e gn co(nt!y. Th s legal * ct on s necessa!y to g ve ,ean ng*(l e**ect to the %ol c es o* the s%ec al la# c!eat ng the 9one. I* Seagate s locate" n an e&%o!t %!ocess ng 9one # th n that eco9one/ sales to the e&%o!t %!ocess ng 9one / even # tho(t )e ng act(ally e&%o!te"/ shall n *act )e v e#e" as const!(ct vely e&%o!te" (n"e! EO --1. Cons "e!e" as e&%o!t sales/ s(ch %(!chase t!ansact ons )y Seagate #o(l" n"ee" )e s();ect to a 9e!o !ate The E&e,%t ons B!oa" an" E&%!ess A%%ly ng the s%ec al la#s #e have ea!l e! " sc(sse"/ Seagate as an ent ty s e&e,%t *!o, nte!nal !even(e la#s an" !eg(lat ons. Th s e&e,%t on cove!s )oth " !ect an" n" !ect ta&es/ ste,, ng *!o, the ve!y nat(!e o* the +AT as a ta& on cons(,%t on/ *o! #h ch the " !ect l a) l ty s ,%ose" on one %e!son )(t the n" !ectly ,a"e to )ea!/ as a""e" cost to s(ch sales/ the e@( valent +AT n ts %(!chases. F !st/ RA <241 states that Dno ta&es/ local/ an" nat onal/ shall )e ,%ose" on the )(s ness esta)l sh,ents o%e!at ng # th n the eco9oneE

S nce th s la# "oes not e&cl("e the +AT *!o, the %!oh ) t on/ t s "ee,e" ncl("e" Secon"/ #hen RA .<3. #as enacte" to a,en" RA <241/ the sa,e %!oh ) t on a%%l e"/ e&ce%t *o! !eal %!o%e!ty ta&es that %!esently a!e ,%ose" on lan" o#ne" )y "evelo%e!s Th !"/ *o!e gn an" "o,est c ,e!chan" se/ !a# ,ate! als/ e@( %,ent an" the l Ae Dshall not )e s();ect to nte!nal !even(e la#s an" !eg(lat onsE (n"e! $: 11 8 the o! g nal cha!te! %!ov s ons on the latte! la# ,o" *y s(ch e&e,%t on Fo(!th/ even the !(les ,%le,ent ng the $E'A la# clea!ly !e te!ate that ,e!chan" se 8 e&ce%t those %!oh ) te" )y la# 8 shall not )e s();ect to nte!nal !even(e la#s an" !eg(lat onsE * )!o(ght to the eco9oneFs !est! cte" a!ea *o! ,an(*act(! ng )y !eg ste!e" e&%o!t ente!%! ses o* #h ch Seagate s one. These !(les also a%%ly to all ente!%! ses !eg ste!e" # th the $E'A %! o! to the e**ect v ty o* s(ch !(le" Ta& Re*(n" as Ta& E&e,%t on To )e s(!e/ stat(tes that g!ant ta& e&e,%t ons a!e const!(e" st! ct ss , ;(! s aga nst the ta&%aye! an" l )e!ally n *avo! o* the ta& ng a(tho! ty Ta& !e*(n"s a!e n the nat(!e o* s(ch e&e,%t ons. Acco!" ngly/ the cla ,ants o* those !e*(n"s )ea! the )(!"en o* %!ov ng the *act(al )as s o* the, cla ,s an" o* sho# ng )y #o!"s to %la n to )e , staAen/ that the leg slat(!e nten"e" to e&e,%t the,. In the %!esent case/ all the c te" legal %!ov s ons # th !es%ect to the g!ant o* the ta& e&e,%t ons a!e too v v " to %ass (nnot ce". Seagate #h ch as an ent ty s e&e,%t/ s " **e!ent *!o, ts t!ansact ons #h ch a!e not e&e,%t. The en" !es(lt/ ho#eve!/ s that t s not s();ect to the +AT. The non ta&a) l ty o* t!ansact ons that a!e othe!# se ta&a)le s ,e!ely a necessa!y nc "ent to the ta& e&e,%t on con*e!!e" )y la# (%on t as an ent ty/ not (%on the t!ansact ons the,selves. Nonetheless/ ts e&e,%t on as an ent ty an" the non e&e,%t on o* ts t!ansact ons lea" to the sa,e !es(lt. +AT !eg st!at on/ not a%%l cat on *o! e**ect ve 9one !at ng n" s%ensa)le to +at !e*(n" Reg st!at on s an n" s%ensa)le !e@( !e,ent (n"e! o(! +at la#

By the +ATFs ve!y nat(!e as a ta& on cons(,%t on/ the ca% tal goo"s an" se!v ces Seagate has %(!chase" a!e s();ect to +AT/ altho(gh at 9e!o !ate. Reg st!at on "oes not "ete!, ne ta&a) l ty (n"e! the +AT la#. The BIR !eg(lat ons a"" t onally !e@( ! ng an a%%!ove" %! o! a%%l cat on *o! e**ect ve 9e!o !at ng cannot %!eva l ove! the clea! +AT nat(!e o* SeagateFs t!ansact ons. The sco%e o* s(ch !eg(lat ons s not D# th n the stat(to!y a(tho! ty g!ante" )y the leg slat(!e. Othe! than the gene!al !eg st!at on o* a ta&%aye!/ the +AT stat(s o* #h ch s a%tly "ete!, ne"/ no %!ov s on (n"e! o(! +AT la# !e@( !es an a"" t onal a%%l cat on to )e ,a"e *o! s(ch ta&%aye!Fs t!ansact ons to )e cons "e!e" e**ect vely 9e!o !ate". An e**ect vely 9e!o !ate" t!ansact on "oes not an" cannot )eco,e e&e,%t s ,%ly )eca(se an a%%l cat on the!e*o!e #as not ,a"e o! * ,a"e/ #as "en e". To allo# the a"" t onal !e@( !e,ent s to g ve (n*ette!e" " sc!et on to those o** c als o! agents #ho # tho(t *l( " cons "e!at on/ a!e )ent on "eny ng a val " a%%l cat on Ta& Re*(n" o! c!e" t n o!"e! Hav ng "ete!, ne" that SeagateFs %(!chase t!ansact ons a!e s();ect to a 9e!o +AT !ate/ the ta& !e*(n" o! c!e" t s n o!"e!. As co!!ectly hel" )y the lo#e! co(!ts/ Seagate ha" chosen the * scal ncent ves n EO --1 ove! those n RA <241 an" $: 11. It o%te" *o! the nco,e ta& hol "ay !eg ,e nstea" o* the G %e!cent %!e*e!ent al ta& !eg ,e/ These t#o !eg ,es a!e nco,%at )le an" cannot )e ava le" o* s ,(ltaneo(sly )y the sa,e ent ty. 6h le EO --1 ,e!ely e&e,%ts t *!o, nco,e ta&es/ the $E'A la# e&e,%ts t *!o, all ta&es. The!e*o!e Seagate can )e cons "e!e" e&e,%t not *!o, the +AT )(t only *!o, the %ay,ent o* nco,e ta& *o! ce!ta n n(,)e! o* yea!s "e%en" ng on ts !eg st!at on.

CIR vs. HANTEC TRA:ING CO./ INC. G.R. No. 4012<GH Ia!ch 04/ -==G Facts: Hante& T!a" ng Co s a co,%any o!gan 9e" (n"e! the

$h l %% nes. It s engage" n the sale o* %last c %!o"(cts/ t ,%o!ts synthet c !es n an" othe! che, cals *o! the ,an(*act(!e o* ts %!o"(cts. Fo! th s %(!%ose/ t s !e@( !e" to * le an I,%o!t Ent!y an" Inte!nal Reven(e :ecla!at on (Cons(,%t on Ent!y) # th the B(!ea( o* C(sto,s (n"e! Sect on 40=4 o* the Ta! ** an" C(sto,s Co"e. So,et ,e n Octo)e! 42.2/ Lt. + cente A,oto/ Act ng Ch e* o* Co(nte!>Intell gence : v s on o* the Econo, c Intell gence an" Invest gat on B(!ea( (EIIB)/ !ece ve" con* "ent al n*o!,at on that the !es%on"ent ha" ,%o!te" synthet c !es n a,o(nt ng to $44G/G22/=4..== )(t only "ecla!e" $3G/G0./123.G<. Th(s/ Hente& !ece ve a s()%oena to %!esent ts )ooAs o* acco(nt #h ch t *a le" to "o. The )(!ea( cannot * n" any o! g nal co% es o* the %!o"(cts Hente& ,%o!te" s nce the o! g nals #e!e eaten )y te!, tes. Th(s/ the B(!ea( !el e" on the ce!t * e" co% es o* the !es%on"entFs $!o* t an" Loss State,ent *o! 42.< an" 42.. on * le # th the SEC/ the ,ach ne co% es o* the Cons(,%t on Ent! es/ Se! es o* 42.</ s(), tte" )y the n*o!,e!/ as #ell as e&ce!%ts *!o, the ent! es ce!t * e" )y To,as an" :anganan. The case #as s(), tte" to the CTA #h ch !(le" that Hente& have ta& "e* c ency an" s o!"e!e" to %ay/ %e! nvest gat on o* the B(!ea(. The CA !(le" that the nco,e an" sales ta& "e* c ency assess,ents ss(e" )y the %et t one! #e!e (nla#*(l an" )aseless s nce the co% es o* the ,%o!t ent! es !el e" (%on n co,%(t ng the "e* c ency ta& o* the !es%on"ent #e!e not "(ly a(thent cate" )y the %()l c o** ce! cha!ge" # th the ! c(sto"y/ no! ve! * e" (n"e! oath )y the EIIB an" the BIR nvest gato!s. Iss(e: 6hethe! o! not the * nal assess,ent o* the %et t one! aga nst the !es%on"ent *o! "e* c ency nco,e ta& an" sales ta& *o! the latte!Fs 42.< ,%o!tat on o* !es ns an" calc (, ) ca!)onate s )ase" on co,%etent ev "ence an" the la#. Hel": Cent!al to the secon" ss(e s Sect on 41 o* the NIRC o* 42<</ as a,en"e" #h ch %!ov "es that the Co,, ss one! o* Inte!nal Reven(e has the %o#e! to ,aAe assess,ents an" %!esc! )e a"" t onal !e@( !e,ents *o! ta& a", n st!at on an" en*o!ce,ent. A,ong s(ch %o#e!s a!e those %!ov "e" n %a!ag!a%h ())/ #h ch %!ov "es that DFa l(!e to s(), t !e@( !e" !et(!ns/ state,ents/ !e%o!ts an" othe! "oc(,ents. 8 6hen a !e%o!t !e@( !e" )y la# as a )as s *o! the assess,ent o* any nat onal nte!nal !even(e ta& shall not )e

*o!thco, ng # th n the t ,e * &e" )y la# o! !eg(lat on o! #hen the!e s !eason to )el eve that any s(ch !e%o!t s *alse/ nco,%lete o! e!!oneo(s/ the Co,, ss one! shall assess the %!o%e! ta& on the )est ev "ence o)ta na)le.E Th s %!ov s on a%%l es #hen the Co,, ss one! o* Inte!nal Reven(e (n"e!taAes to %e!*o!, he! a", n st!at ve "(ty o* assess ng the %!o%e! ta& aga nst a ta&%aye!/ to ,aAe a !et(!n n case o* a ta&%aye!Fs *a l(!e to * le one/ o! to a,en" a !et(!n al!ea"y * le" n the BIR. The D)est ev "enceE env sage" n Sect on 41 o* the 42<< NIRC/ as a,en"e"/ ncl("es the co!%o!ate an" acco(nt ng !eco!"s o* the ta&%aye! #ho s the s();ect o* the assess,ent %!ocess/ the acco(nt ng !eco!"s o* othe! ta&%aye!s engage" n the sa,e l ne o* )(s ness/ ncl(" ng the ! g!oss %!o* t an" net %!o* t sales. S(ch ev "ence also ncl("es "ata/ !eco!"/ %a%e!/ "oc(,ent o! any ev "ence gathe!e" )y nte!nal !even(e o** ce!s *!o, othe! ta&%aye!s #ho ha" %e!sonal t!ansact ons o! *!o, #ho, the s();ect ta&%aye! !ece ve" any nco,eH an" !eco!"/ "ata/ "oc(,ent an" n*o!,at on sec(!e" *!o, gove!n,ent o** ces o! agenc es/ s(ch as the SEC/ the Cent!al BanA o* the $h l %% nes/ the B(!ea( o* C(sto,s/ an" the Ta! ** an" C(sto,s Co,, ss on. Ho#eve!/ the )est ev "ence o)ta na)le (n"e! Sect on 41 o* the 42<< NIRC/ as a,en"e"/ "oes not ncl("e ,e!e %hotoco% es o* !eco!"s7"oc(,ents. The %et t one!/ n ,aA ng a %!el , na!y an" * nal ta& "e* c ency assess,ent aga nst a ta&%aye!/ cannot ancho! the sa " assess,ent on ,e!e ,ach ne co% es o* !eco!"s7"oc(,ents. Ie!e %hotoco% es o* the Cons(,%t on Ent! es have no %!o)at ve #e ght * o**e!e" as %!oo* o* the contents the!eo*. The !eason *o! th s s that s(ch co% es a!e ,e!e sc!a%s o* %a%e! an" a!e o* no %!o)at ve val(e as )as s *o! any "e* c ency nco,e o! )(s ness ta&es aga nst a ta&%aye!. CIR v. BENG5ET COR$. G.R. Nos. 403G.< J 403G../ A(g(st =./ -==G 6HAT IS IN$5T +ATKL > It !e%!esents the act(al %ay,ents/ costs an" e&%enses nc(!!e" )y a +AT>!eg ste!e" ta&%aye! n connect on # th h s %(!chase o* goo"s an" se!v ces. > It s the +AT %a " )y a +AT>!eg ste!e" %e!son n the co(!se o* h s t!a"e o! )(s ness on the ,%o!tat on o* goo"s o! local %(!chase o* goo"s o! se!v ces *!o, a +AT>!eg ste!e" %e!son.

6HAT IS O5T$5T +ATL > 6hen the selle! sells h s %!o"(cts o! se!v ces/ the +AT>!eg ste!e" ta&%aye! gene!ally )eco,es l a)le *o! 4-? o* the sell ng %! ce as o(t%(t +AT. > Hence/ t s the +AT on the sale o* ta&a)le goo"s o! se!v ces )y any %e!son !eg ste!e" o! !e@( !e" to !eg ste! (n"e! the NIRC. ECAI$LE: Iang Nats s n the )(s ness o* ,aA ng leathe! goo"s (e.g. leathe! )o(n" co"als). He ,%o!ts Ital an leathe! *!o, Ch na. Iang Nats # ll have to %ay an IN$5T +AT on h s ,%o!tat on. No# Ate $ea!l #ants to )(y a co"al to "eco!ate he! c() cle. She )(ys *!o, Iang Nats the La)o! Co"e )eca(se )l(e s he! *avo! te colo!. 6hen Iang Nats sol" the co"al to Ate $ea!l/ the %! ce al!ea"y ncl("e" the O5T$5T +AT. Re,e,)e! that +AT s an n" !ect ta& that ,ay )e sh *te" to the )(ye!. Iang Nats s l a)le *o! the O5T$5T +AT )(t he sh *te" the )(!"en to Ate %ea!l. FACTS: Beng(et Co!%. (DBeng(etE) s a "o,est c co!%o!at on engage" n , n ng. It s a +AT>!eg ste!e" ente!%! se. In Man(a!y 42../ Beng(et * le" an a%%l cat on *o! 9e!o>!at ng o* ts sales o* , ne %!o"(cts. The a%%l cat on #as a%%!ove". 4ST +AT R5LING (A5G. 42..): The CIR ss(e" +AT R(l ng No. 0<.>.. #h ch "ecla!e" that the sale o* gol" to the Cent!al BanA (DCBE) s cons "e!e" an e&%o!t sale an" the!e*o! s();ect to =? +AT. F!o, 42.. to 422=/ the CIR (,o!e than G t ,es) !e te!ate" an" con* !,e" ts %os t on that the sale o* gol" )y a +AT>!eg ste!e" ta&%aye! to the CB s s();ect to =? +AT. In !el ance to the CIRFs %os t on/ Beng(et (*!o, Man(a!y 42.. to M(ly 42.2) sol" gol" to the CB an" t!eate" these sales as =? +AT !ate". In th s sa,e %e! o"/ Beng(et nc(!!e" n%(t ta&es att! )(ta)le to ts sale o* gol" to the CB. Conse@(ently/ Beng(et * le" # th the CIR a%%l cat ons *o! the ss(ance o* Ta& C!e" t Ce!t * cates *o! n%(t +AT C!e" ts att! )(ta)le to ts e&%o!t sales ( ncl(s ve o* " !ect e&%o!t sales an" sale o* gol" to the CB).

-N: +AT R5LING (MAN. 422-): The CIR ss(e" +AT R(l ng No. ==.>2- "ecla! ng that the sales o* gol" to the CB a!e cons "e!e" "o,est c sales s();ect to 4=? +AT ( nstea" o* =? *!o, 422.>422= n the 4ST +AT R5LING). 0R: +AT R5LING (A5G. 422-): The CIR ss(e" +AT R(l ng No. G2>2-. It state" the !et!oact ve a%%l cat on o* the -N: +AT R5LING to all s(ch sales sta!t ng Man(a!y 4/ 42... It also sa " that , n ng co,%an es # ll not )e (n"(ly %!e;(" ce" )y the !et!oact ve a%%l cat on o* the -N: +AT R5LING )eca(se the ! cla , *o! !e*(n" o* n%(t ta&es a!e not lost )eca(se they a!e allo#a)le on ts: (4) O(t%(t ta&es on the sales o* gol" to CB (-) O(t%(t ta&es on othe! sales (0) As a "e"(ct on to nco,e ta& The CIR t!eate" Beng(etFs sales to CB as "o,est c sales s();ect to 4=? +AT )(t allo#e" Beng(et a total ta& c!e" t o* only a!o(n" $.4I #h ch co!!es%on"e" to +AT n%(t ta&es att! )(ta)le only to ts " !ect EC$ORT SALES. :es% te th s/ Beng(et #as not !e*(n"e" the sa " a,o(nts o* ta& c!e" t cla ,e". Hence/ Beng(et %!aye" *o! the ss(ance o* Ta& C!e" t Ce!t * cates # th the CTA. Beng(etFs co,%(tat on o* ta& c!e" t a,o(nte" to $404I #h ch ncl("e" n%(t ta& to BOTH EC$ORT SALES an" SALES OF GOL: TO THE CB. CTA: :en e" Beng(etFs cla , *o! ta& c!e" t. The allege" %!e;(" ce to Beng(et o* the !et!oact ve a%%l cat on s ,e!ely s%ec(lat ve an" not act(al an" ,, nent so as to %!oh ) t ts !et!oact v ty. The!e #onFt )e any %!e;(" ce )eca(se the 0R: +AT R5LING %!ov "es *o! the !e,e" es *o! the !ecove!y o* the n%(t +AT. CA: A** !,e" the CTA. On IR/ the CA !eve!se" tsel*. E!go/ the $404I ta& c!e" t cla , #as a%%!ove"L Acco!" ng to the CA/ the $404I ncl("es: (4) $.4I ( n%(t +AT c!e" ts att! )(ta)le to " !ect EC$ORT SALES) (-) $G=I ( n%(t +AT c!e" ts att! )(ta)le to SALES OF GOL: TO CB #h ch #e!e s();ect to =? #hen the sa " sales #e!e ,a"e) ISS5ES: 67N the -N: +AT R5LING (s();ect ng sales o* gol" to the CB to 4=? +AT) #o(l" )e %!e;(" c al to Beng(et.

NOTE: Gene!al !(le: BIR !(les #o(l" have no !et!oact ve a%%l cat on * to so a%%ly the, #o(l" )e %!e;(" c al to the ta&%aye!s. E&ce%t on: (4) Ta&%aye! "el )e!ately , sstates o! o, ts ,ate! al *acts *!o, h s !et(!n (-) The *acts s()se@(ently gathe!e" )y the BIR a!e ,ate! ally " **e!ent *!o, the *acts on #h ch the !(l ng s )ase" (0) Ta&%aye! acte" n )a" *a th CIRFS $OSITION: The CA e!!e" n !e;ect ng the !et!oact ve a%%l cat on o* the -N: +AT R5LING )eca(se ts !et!oact ve a%%l cat on # ll not %!e;(" ce Beng(et. It ,ay: (4) 5se sa " n%(t ta&es n %ay ng ts o(t%(t ta&es n connect on # th ts othe! sales t!ansact ons #h ch a!e s();ect to the 4=? +AT (-) I* the!e a!e no othe! sales t!ansact on s();ect to the 4=? +AT/ t!eat the n%(t +AT as cost an" "e"(ct the sa,e *!o, nco,e *o! nco,e ta& %(!%oses. HEL:: The %!e;(" ce to Beng(et s o)v o(sL No !et!oact ve e**ectL Beng(et ,ay cla , the $G=I n%(t +AT c!e" tL. The +AT syste, allo#s a +AT>!eg ste!e" ta&%aye! to !ecove! ts n%(t +AT e the! )y: (4) $ass ng on the 4=? o(t%(t +AT (no# 4-?) on the g!oss sell ng %! ce o! g!oss !ece %ts to ts )(ye!s. (-) I* the n%(t ta& s att! )(ta)le to the %(!chase o* ca% tal goo"s o! to 9e!o>!ate" sales/ )y * l ng a cla , *o! a !e*(n" o! ta& c!e" t # th the BIR. Beng(etFs cla ,e" ta& c!e" t o* n%(t ta& a,o(nt ng to $G=I !e%!esents the costs o! e&%enses nc(!!e" )y Beng(et n connect on # th ts gol" %!o"(ct on. Rely ng on the 4ST +AT R5LING (sales o* gol" to the CB a!e cons "e!e" e&%o!t sales s();ect to =?)/ Beng(et sol" gol" to the CB # tho(t %ass ng on CB ts n%(t +AT costs/ o)v o(sly nten" ng to o)ta n a !e*(n" o! c!e" t the!eo* *!o, the BIR at the en" o* the ta&a)le %e! o".

Ho#eve!/ )y the t ,e Beng(et a%%l e" *o! c!e" t o* ts n%(t +AT costs/ the -N: +AT R5LING t!eate" sales o* gol" to the CB as "o,est c sales s();ect to 4=? +AT. An" the 0R: +AT R5LING !et!oact vely a%%l e" the -N: +AT R5LING to s(ch sales ,a"e *!o, Man(a!y 4/ 42.. on#a!"s. By !eason o* the "en al o* ts cla , *o! c!e" t/ Beng(et has )een %!ecl("e" *!o, !ecove! ng ts n%(t +AT costs. The CIRFS !e,e" es (set o** # th othe! t!ansact ons o! nco,e "e"(ct on) cannot )e a%%l e". (4) Beng(et has clea!ly sho#n that t has no Dothe! t!ansact onsE s();ect to 4=? +AT an" CIR has *a le" to %!ove the e& stence o* s(ch Dothe! t!ansact onsE aga nst #h ch to set o** Beng(etFs n%(t +AT. (-) T!eat ng the n%(t +AT as an nco,e ta& "e"(ct on # ll y el" only to a %a!t al )ene* t. The (se o* n%(t +AT as a ta& "e"(ct ons !es(lts n a loss o* 1G? o* the n%(t +AT #h ch co(l" have othe!# se *(lly (t l 9e" as a ta& c!e" t. The!e s s()stant al " **e!ence )et#een a ta& c!e" t an" a ta& "e"(ct on. A ta& c!e" t !e"(ces ta& l a) l ty/ #h le a ta& "e"(ct on only !e"(ces ta&a)le nco,e. $!e;(" ce s all the ,o!e h ghl ghte" )y the *act that t has )een ss(e" assess,ents *o! "e* c ency o(t%(t +AT n the a,o(nts o* $-G-I (*o! 42..) an" $-33I (*o! 42.2). Beng(et !el e" on the *o!,al ass(!ances o* the BIRFs 4ST +AT R5LING. To !et!oact a late! !(l ng !evoA ng the g!ant o* =? !at ng stat(s an" a%%ly ng a ne# an" cont!a!y %os t on that s(ch sales a!e no# s();ect to 4=? s ncons stent # th ;(st ce an" *a ! %lay.