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FIRST DIVISION
KEPCO PHILIPPINES
CORPORATION, CTA Case No. 8761
Petitioner, For: Assessment
Members:
-versus-
DEL ROSARIO, P.J., Chairperson
UY, and
MINDARO-GRULLA, JJ.
THE COMMISSIONER OF
INTERNAL REVENUE, Promulgated:
Respondent.
x- - - - - - - -- - - - - - - - - - - - - -
DECISION
MINDARO-GRULLA, J.:
The case involves the Petition for Review filed on January 29,
2014 by KEPCO Philippines Corporation (KEPHILCO) as petitioner,
against the Commissioner of Internal Revenue as respondent, before
the Court in Division, pursuant to Section 7(a)(1) 1 of Republic Act (RA)
No. 11252, as amended, as well as Section 3(a)(1) 3 of Rule 4 and
Section 4(a) 4 of Rule 8 of the Revised Rules of the Court of Tax
Appeals, as amended.
1
Sec. 7. Jurisdiction. - The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue; xxx.
2 Act Creating the Court of Tax Appeals.
3 Sec. 3. Cases w1thin the jurisdiction of the Court in Division. - The Court in Division shall exercise:
(a) Exclusive original over or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments,
refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other
matters arising under the National Internal Revenue Code or other laws administered by the
Bureau of Internal Revenue.
4
Sec. 4. Where to appeal,· mode of appeal. -
(a) An appeal from a decision or ruling or the inaction of the Commissioner of Internal Revenue
on disputed assessments or claim for refund of internal revenue taxes erroneously or illegally
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KEPCO PHILS. CORP. vs. CIR
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collected, the decision or ruling of the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade & Industry, the Secretary of Agriculture, and the Regional Trial Court in the
exercise of their original jurisdiction, shall be taken to the Court by filing before it a petition for
review as provided in Rule 42 of the Rules of Court. The Court in Division shall act on the appeal.
5 Par. I, Pre-Trial Order, Docket, vol. II, p. 823
6
Exhibit "P-10", Docket, vol. II, p, 967
7
Exhibit "P-11", Docket, vol. II, p. 968
8
Exhibit "P-15", Docket, vol. II, pp. 1013 to 1015
9
Exhibit "P-17", Docket, vol. II, p. 1018
10
Exhibit "P-18", Docket, vol. II, pp. 1019 to 1033
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KEPCO PHILS. CORP. vs. CIR
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On April 14, 2010, petitioner filed its Annual Income Tax Return
for TY 2009. 13 Thereafter, petitioner filed an Application for Relief
from Double Taxation on April 28, 2010. 14
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27
BIR records, pp. 953 to 960
28
Exhibit "P-22", Docket, vol. II, pp. 1051 to 1058
29
Exhibit "P-23", Docket, vol. II, pp. 1059 to 1069
30
Exhibit "P-1", Docket, vol. II, pp. 911 to 913; Exhibit "R-13", BIR records, pp. 977 to 979
31
Exhibits "R-13-a" to "R-13-c", BIR records, pp. 974 to 976
32
Exhibit "P-3", Docket, vol. II, p. 917; Exhibit "P-2", Docket, vol. II, pp. 917 to 922
33
Par. 2, JSFI, Docket, vol. II, p. 630; Exhibit "P-4", Docket, vol. II, pp. 923 to 929; Exhibit "R-
15", BIR records, pp. 1116 to 1122
34
Exhibits "R-15-a" to "R-15-c", BIR records, pp. 1111 to 1115
35
Docket, vol. I, pp. 156 to 170
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XXX
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Exhibit: Description:
36
Docket, vol. I, pp. 238 to 245
37
Docket, vol. I, pp. 266 to 271
38
Resolution, Docket, vol. II, pp. 609 to 614
39
Docket, vol. II, pp. 630 to 635
40
Resolution, Docket, vol. II, p. 637
41
Docket, vol. II, pp. 823 to 833
42
Resolution dated March 3, 2015, Docket, vol. II, pp. 1129 to 1130 and Resolution dated
September 28, 2015, Docket, vol. II, pp. 1185 to 1186
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43
Resolution dated March 16, 2016, Docket, vol. II, pp. 1220 to 1221
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Exhibit: Description:
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On April 21, 2016, the case was deemed submitted for decision
after respondent manifested that he would adopt the Answer dated
April 11, 2014 as his Memorandum44 and after petitioner filed its
Memorandum 45 on April 18, 2016.
44
Manifestation filed on April 7, 2016, Docket, val. II, pp. 1222 to 1224
45
Docket, val. II, pp. 1228 to 1250
46
Par. II, JSFI, Docket, val. II, p. 631
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(30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and demandable."
Considering that this Petition for Review was filed on January 29,
2014, the same was timely filed.
WITHHOLDING VAT
Payment of Technical and Advisory Services p 231 413 322.24
VAT Rate 12%
Withholding VAT p 27 769 S98.67
Add: Surcharge p 6 942 399.67
Interest up to 11/30/2012 18 S34 686.S8
Compromise Penalty so 000.00 2S S27 086.2S
Total Deficiency Withholding VAT p 53,296,684.92
VALUE-ADDED TAX
Taxable Sales per VAT Return P3 390 184 266.11
Add: Income Not Subjected to VAT
Interest Income from Advances to
Affiliates 291 967 S26.60
Total Income Subject to VAT P3 682,1S1 792.71
47
Exhibits "R-10" to "R-10-d", BIR records, pp. 946 to 952
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50.000.00
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Since the Project Agreement and TSA have existed for several
years, respondent posits that the services rendered by KEPCO to
petitioner exceeded the 183-day period provided in the tax treaty.
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As cited in the BIR Ruling No. ITAD 134-11 dated April25, 2011 50
and DA ITAD BIR Ruling No. 037-07 51 , generally, business profits (or
industrial and commercial profits) include payments for the supply of
goods and services, and for the lease of personal properties. In this
case, the compensation for project management and administrative
advisory services, technical services, training services, compensation
for the supply of tools, equipment and materials, and compensation
for the rental of tools and materials (but not of equipment), being in
the nature of business profits, are taxed under Article 7, in relation to
Article 5 of the RP-Korea Tax Treaty, to wit:
"ARTICLE 7
Business profits
"ARTICLE 5
Permanent Establishment
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a) a place of management;
b) a branch;
c) an office;
d) a factory;
e) a workshop;
f) a mine, an oil or gas well, a quarry or any other place of
extraction of natural resources;
g) premises used as a sales outlet; and
h) a warehouse, in relation to a person providing storage
facilities for others.
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Name of
Travel
Dispatched Position/ No. of Service
Personnel Designation Service Rendered Itinerary from to Duration Day Area
Calibration of over/under
Lim IckHun General Manager excitation limitation settings etc. 9-Apr-09 15-Apr-09 7 7 Malaya
Confirm the reliability and
capability of K2 Generator AVR
Ryu Ho Sun General Manager components etc. 3-May-09 6-May-09 4 4 Malaya
Kim Byeong-Rae General Manager Close examination of Generator,
Exciter, PT and Current
Lee YoungJun General Manager Transformer etc. 23-Sep-09 30-Sep-09 8 8 Malaya
Bae Chun Hee General Manager Visual inspection of Generator,
Chang Jung Chel General Manager Boiler WW SH RH Tube etc. 8-0ct-09 16-0ct-09 9 9 Malaya
Close examination of Generator
Lim IckHun General Manager AVR K1 and K2 12-0ct-09 18-0ct-09 7 7 Malaya
35
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54
Exhibit "P-19", Docket, val. II, pp. 1034 to 1048
55
G.R. No. 188550, August 19, 2013
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56
G.R. No. 153205, January 22, 2007
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"ARTICLE 2
Taxes Covered
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57
G.R. No. 151135, July 2, 2004
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58
CTA EB No. 367, January 29, 2009
59
CTA EB No. 587, June 2, 2011
60
CTA Case No. 8024, April 24, 2013
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61
Exhibit"P-11", Docket, val. II, p. 968
62
"Q-12: Is interest income on loan subject to VAT?
A-12: If the taxpayer qualifies as a lending investor, dealer in securities, financial institution as
defined in Revenue Regulations No. 12-2003, or another entity performing similar financing
activities, interest income is subject to VAT."
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63
erA EB No. 1155 (erA Case No. 8319), November 3, 2014
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64
BIR records, p. 354
65
Exhibit "R-10-d", BIR records, p. 947
66
Exhibit "R-13", BIR records, p. 979
67
Exhibit"R-15", BIR records, pp. 1116 to 1118
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68
Commissioner of Internal Revenue vs. Lianga Bay Logging Co., Inc., eta!., G.R. No. L-35266,
January 21, 1991
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SO ORDERED.
69
In accordance with the Court's En bane Decision in the case of Takenaka Corporation Philippine
Branch vs. Commissioner of Internal Revenue CTA EB Case No. 745, September 4, 2012.
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WE CONCUR:
ER~.UY
(See- Concurring..t)pinion)
ROMAN G. DEL ROSARIO
Presiding Justice Associate Justice
CERTIFICATION
CB
Presiding Justice
Chairperson, 1st Division
REPUBLIC OF THE PHILIPPINES
Court of Tax Appeals
QUEZON CITY
FIRST DIVISION
CONCURRING OPINION
(j\
Concurring Opinion
Kepco Philippines Corporation v. The Commissioner of Internal Revenue
CTA Case No. 8761
Page 2 of6
oiL.
Concurring Opinion
Kepco Philippines Corporation v. The Commissioner of Internal Revenue
CTA Case No. 8761
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Concurring Opinion
Kepco Philippines Corporation v. The Commissioner of Internal Revenue
CTA Case No. 8761
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'Section 249.1nterest-
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Concurring Opinion
Kepco Philippines Corporation v. The Commissioner of Internal Revenue
CTA Case No. 8761
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the "hen that lays the golden egg." 6 Indeed, the imposition of 20%
deficiency interest per annum on a tax not clearly within the
context of the law, in addition to 20°/o delinquency interest per
annum and a surcharge of 25% on the amount due under Section
248 of the NIRC of 1997, as amended, is too burdensome for a
taxpayer to survive and continue its business affairs.
Presiding Justice