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G.R. No. 125355 | March 30, 2000 | PARDO | Spence

Commonwealth Management and Services Corporation (COMASERCO) is a corporation affiliate of Philippine American Life Insurance Co.
(Philamlife), organized by the latter to perform collection, consultative and other technical services, including functioning as an internal auditor of
Philamlife and its other affiliates.

The BIR issued an assessment to COMASERCO for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988.
COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its operations in the amount of P6,077.00.

COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of deficiency VAT, but the CIR still sent a collection letter to
COMASERCO demanding payment of the deficiency VAT.

COMASERCO filed with the CTA a petition for review contesting the Commissioner's assessment, asserting that the services it rendered to
Philamlife and its affiliates, relating to collections, consultative and other technical assistance, including functioning as an internal auditor, were on
a "no-profit, reimbursement-of-cost-only" basis. It averred that it was not engaged id the business of providing services to Philamlife and its
affiliates. It was established to ensure operational orderliness and administrative efficiency of Philamlife and its affiliates, and not in the sale of
services. It stressed that it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but suffered a net loss in taxable
year 1988. It averred that since it was not engaged in business, it was not liable to pay VAT.

CTA rendered decision in favor of the CIR. Court of Appeals reversed, hence this petition for review on certiorari.

ISSUE: COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon. YES to both.


Re: “In the Course of Trade or Business”

Petitioner: to "engage in business" and to "engage in the sale of services" are two different things; the services rendered by COMASERCO to
Philamlife and its affiliates, for a fee or consideration, are subject to VAT. VAT is a tax on the value added by the performance of the service. It is
immaterial whether profit is derived from rendering the service. J

COMASERCO: the term "in the course of trade or business" requires that the "business" is carried on with a view to profit or livelihood; the
activities of the entity must be profit- oriented. COMASERCO submits that it is not motivated by profit, as defined by its primary purpose in the
articles of incorporation, stating that it is operating "only on reimbursement-of-cost basis, without any profit." Private respondent argues that profit
motive is material in ascertaining who to tax for purposes of determining liability for VAT.

SC: We agree with the Commissioner. Sec. 99 of the NIRC of 1986, as amended by E.O. No. 273 in 1988, provides that: “Any person who, in the
course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code."

On May 28, 1994, Congress enacted R.A. No. 7716, the Expanded VAT Law (EVAT), amending among other sections, Section 99 of the Tax Code.
On January 1, 1998, Republic Act 8424, the National Internal Revenue Code of 1997, took effect. The amended law provides that: “Any person
who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections 106 and 108 of this Code. . . . The phrase "in the course of trade or business"
means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of
whether or not the person engaged therein is a nonstock, nonprofit organization (irrespective of the disposition of its net income and whether or not
it sells exclusively to members of their guests), or government entity.”

Contrary to COMASERCO's contention the above provision clarifies that even a non-stock, non-profit, organization or government entity,
is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the
sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term
"in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether
or not the entity is profit-oriented.

The definition of the term "in the course of trade or business" incorporated in the present law applies to all transactions even to those
made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or
exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization
or government entity is liable to pay VAT for the sale of goods and services.

Re: “Sale of Services”

Sec. 108 of the NIRC of 1997 defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or
consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking or project."

The CIR issued BIR Ruling No. 010-98 emphasizing that a domestic corporation that provided technical, research, management and technical
assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject
to VAT on services rendered. In fact, even if such corporation was organized without any intention of realizing profit, any income or profit
generated by the entity in the conduct of its activities was subject to income tax.

Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its
affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services
rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT.

At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee
and liberally in favor of the government. Otherwise stated, any exemption from the payment of a tax must be clearly stated in the language of the
law; it cannot be merely implied therefrom. In the case of VAT, Sec. 109, R.A. 8424 clearly enumerates the transactions exempted from VAT. The
services rendered by COMASERCO do not fall within the exemptions.

Both the CIR and the CTA correctly ruled that the services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. The
performance of all kinds of services for others for a fee, remuneration or consideration is considered as sale of services subject to VAT. As the
government agency charged with the enforcement of the law, the opinion of the CIR, in the absence of any showing that it is plainly wrong, is
entitled to great weight. Also, it has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial agencies,
such as the CTA.

Value Added Tax, Zero Rated


A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The foreign entity then subcontracted the actual
O&M to Burmeister. NPC paid the foreign consortium a mixture of currencies while the consortium, in turn, paid Burmeister foreign currency
inwardly remitted into the Philippines. BIR did not want to grant refund since the services are “not destined for consumption abroad” (or the
destination principle). 


Are the receipts of Burmeister entitled to VAT zero-rated status?


PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior to the filing of CIR’s Answer in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by Burmeister, was deemed doing business within the
Philippines since its 15-year O&M with NPC can not be interpreted as an isolated transaction.

In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other than those in (1)’ of Sec. 102 both require (i)
payment in foreign currency; (ii) inward remittance; (iii) accounted for by the BSP; AND (iv) that the service recipient is doing business outside the
Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency.

The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating of its sales to foreign consortium. However,
the ruling is only valid until the time that CIR filed its Answer in the CTA which is deemed revocation of the previously-issued ruling. The Court
said the revocation can not retroact since none of the instances in Section 246 (bad faith, omission of facts, etc.) are present.

GR No. 153866 CIR vs. Seagate

FACTS: Respondent is a resident foreign corporation duly registered with the Securities and Exchange Commission to do business in the
Philippines and is registered with the Philippine Export Zone Authority (PEZA). The respondent is Value Added Tax-registered entity and filed for
the VAT returns. An administrative claim for refund of VAT input taxes in the amount of P28,369,226.38 with supporting documents (inclusive of
the P12,267,981.04 VAT input taxes subject of this Petition for Review), was filed on 4 October 1999, but no final action has been received by the
respondent from the petitioner on the claim for VAT refund. CIR asserts that by virtue of the PEZA registration alone of respondent, the latter is not
subject to the VAT. Consequently, the capital goods and services respondent has purchased are not considered used in the VAT business, and no VAT
refund or credit is due.

ISSUE: Whether or not Seagate, a VAT-Registered PEZA Enterprise is entitled to tax refund or credit.

HELD: Yes, Seagate is entitled to refund or credit. As a PEZA-registered enterprise within a special economic zone, respondent is entitled to the
fiscal incentives and benefit provided for in either PD 66 or EO 226. It shall, moreover, enjoy all privileges, benefits, advantages or exemptions
under both Republic Act Nos. (RA) 7227 and 7844.

Respondent, which as an entity is exempt, is different from its transactions which are not exempt. The end result, however, is that it is not subject to
the VAT. The non-taxability of transactions that are otherwise taxable is merely a necessary incident to the tax exemption conferred by law upon it
as an entity, not upon the transactions themselves.

The petitioner’s assertion that the capital goods and services respondent has purchased are not considered used in the VAT business, and thus no
VAT refund or credit is due is non sequitur. On this matter, the SC held that by the VAT’s very nature as a tax on consumption, the capital goods and
services respondent has purchased are subject to the VAT, although at zero rate.

Seagate has complied with all the requisites for VAT refund or credit. First, respondent is a VAT-registered entity. Second, the input taxes paid on
the capital goods of respondent are duly supported by VAT invoices and have not been offset against any output taxes.

To summarize, special laws expressly grant preferential tax treatment to business establishments registered and operating within an ecozone, which
by law is considered as a separate customs territory. As such, respondent is exempt from all internal revenue taxes, including the VAT, and
regulations pertaining thereto. Its sales transactions intended for export may not be exempt, but like its purchase transactions, they are zero-rated.
No prior application for the effective zero rating of its transactions is necessary. Being VAT-registered and having satisfactorily complied with all
the requisites for claiming a tax refund of or credit for the input VAT paid on capital goods purchased, respondent is entitled to such VAT refund or

Having determined that respondent’s purchase transactions are subject to a zero VAT rate, the SC has determined that tax refund or credit is in order.


5 SCRA 338 – Taxation Law – Income Taxation – Corporate Taxpayers – PAGCOR is not exempt from income taxation

Political Law – Equal Protection Clause

The Philippine Amusement and Gaming Corporation (PAGCOR) was created by P.D. No. 1067-A in 1977. Obviously, it is a government owned and
controlled corporation (GOCC).

In 1998, R.A. 8424 or the National Internal Revenue Code of 1997 (NIRC) became effective. Section 27 thereof provides that GOCC’s are NOT
EXEMPT from paying income taxation but it exempted the following GOCCs:


2. SSS



But in May 2005, R.A. 9337, a law amending certain provisions of R.A. 8424, was passed. Section 1 thereof excluded PAGCOR from the exempt
GOCCs hence PAGCOR was subjected to pay income taxation. In September 2005, the Bureau of Internal Revenue issued the implementing rules
and regulations (IRR) for R.A. 9337. In the said IRR, it identified PAGCOR as subject to a 10% value added tax (VAT) upon items covered by
Section 108 of the NIRC (Sale of Services and Use or Lease of Properties).

PAGCOR questions the constitutionality of Section 1 of R.A. 9337 as well as the IRR. PAGCOR avers that the said provision violates the equal
protection clause. PAGCOR argues that it is similarly situated with SSS, GSIS, PCSO, and PHILHEALTH, hence it should not be excluded from
the exemption.

ISSUE: Whether or not PAGCOR should be subjected to income taxation.

HELD: Yes. Section 1 of R.A. 9337 is constitutional. It was the express intent of Congress to exclude PAGCOR from the exempt GOCCs hence
PAGCOR is now subject to income taxation.

PAGCOR’s contention that the law violated the constitution is not tenable. The equal protection clause provides that all persons or things similarly
situated should be treated alike, both as to rights conferred and responsibilities imposed.

The general rule is, ALL GOCC’s are subject to income taxation. However, certain classes of GOCC’s may be exempt from income taxation based
on the following requisites for a valid classification under the principle of equal protection:

1) It must be based on substantial distinctions.

2) It must be germane to the purposes of the law.

3) It must not be limited to existing conditions only.

4) It must apply equally to all members of the class.

When the Supreme Court looked into the records of the deliberations of the lawmakers when R.A. 8424 was being drafted, the SC found out that
PAGCOR’s exemption was not really based on substantial distinctions. In fact, the lawmakers merely exempted PAGCOR from income
taxation upon the request of PAGCOR itself. This was changed however when R.A. 9337 was passed and now PAGCOR is already subject to
income taxation.

Anent the issue of the imposition of the 10% VAT against PAGCOR, the BIR had overstepped its authority. Nowhere in R.A. 9337 does it state that
PAGCOR is subject to VAT. Therefore, that portion of the IRR issued by the BIR is void. In fact, Section 109 of R.A. 9337 expressly exempts
PAGCOR from VAT. Further, PAGCOR’s charter exempts it from VAT.

To recapitulate, PAGCOR is subject to income taxation but not to VAT.