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    CIR vs Deutsche Knowedlge 2020

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    CIR vs Deutsche Knowedlge 2020

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    © All Rights Reserved
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    62 views15 pages

    CIR Vs Deutsche Knowedlge 2020

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    Anonymous dtceNuyIFI
    CIR vs Deutsche Knowedlge 2020

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    © All Rights Reserved
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    © ‘Republic of he hilippines ‘Supreme Court Manila SECOND DIVISION COMMISSIONER OF INTERNAL G.R.No.24445 REVENUE, Pettioner, Present: PERLAS-BERNABE, SA, versus Chairperson, HERNANDO, INTING, DELOS SANTOS, and GAERLAN, WU. DEUISCHE KNOWLEDGE. SERVICES PTE. LID, Respondent DECISION INTING, J: Before the Court is a Petition for Review on Certiorari' under Rule 45 of the Rules of Court filed by the Commissioner of Intemal Revenue (CIR) the Decision” dated March 30, 2017 and the Resolution? ated September 18, 2017 of the Court of Tax Appeals (CTA) En Bane in CTA EB Nos. 1254 and 1345. Inthe assailed issuances, the CTA En Bane affirmed the Decision* dated July 7, 2014 of the CTA Second Division (CTA Division) in CTA Case No, 8443 which partially granted Deutsche Knowledge Services Pre. Lud, (DKS)'s application for refund or issuance of tax credit cemtiieate (TCC). 1417; peed by Assia nice min C Case J with Anois ses Decision GR.No, 254445 The Antecedents DKS is the Philippine branch of # multinationat company ‘organized and existing under and by virtue of the laws of Singapore” ‘The branch is licensed to operate as a regional operating headquarters (ROHQY in the Philippines that provides the following services 10 DKS's foreign affliatesrelated parties, its clients (foreign aiiliates- clients): “general administration and planning; business planning and cvordination, sourcing/procurement of raw materials and eomponents; training and personnel management; logistic services; product technical support and maintenance; data processing and and business development” (qualifying services)” By virtue of several Inta-Group Services Agreements (service agreements), DKS rendered qualifying services to its foreign alliates- clients from which it generated service revenues. DKS is a value-added tax (VAT)-registered enterprise” On October 21, 2011, DKS filed with the Bureau of Intemal Revenue (BIR) Large Taxpayers Kegular Audit Division an Application for Tax RefundiCredit (BIR Form No. 1914) and a letter claim for refund, supported by the relevant documents (hereinafter collectively referred 0 188 administrative claim”). DKS declared that is sales of services 1034” Ipsec Cara 147, ar ane by Rapti Act Aaa) #6 es Regal ‘Omran eqns RONG) ma owen sme sty se aloud eae inten ypursrnng afin eso ease nia bhi he Puli Arce Reson nd ita spare: Bok Che. i 5s RONGS wee seme cers an Exchange Cain SEE, ‘pon aonblereinsntn the ea! nests [8 12h 2a at Char I rile) enmerte he gang serves” ROHS fm alowed to eer “Te lw ep pve tae “ROMS ne ele on Tee ‘ling sv tsar th he ses, cher abr sd ‘ese wh ety Cg Con al yt wd e140 accrng w te Cou of Ta Ape Second Dion CTA Dvn), ORS Ales ve raed ses to he bod aan aster se: 1) Date Bek ‘tention (2) Daas Ban Ritnpelicis Fae Anson Dawe Bunk Mitesh Al Paine Mead" Ofce (0) Deg han ‘isegeuticat, Fate sigip () Dasche Rk Atenas) Dessthe Sank” Abtenelitsh” His tie Chest) Dewete Bank ‘Alege, un Seo (0) Octet nk Autengmtict. Fie New York, (1) Basse an Ainge Fl Lan, (12) Dee Bank Angst le Decision 3 No. 234445 foreign affiliates-lients are zero-rated sales for VAT purposes. Thus, it sought to refund an amount of P33,868,101.19, representing unutlized input VAT tbe to aad sales nce ding tei quart of 2010." Alleging that the CIR had not acted upon their administrative claim, DKS filed a petition for review before the CTA on March 19, 2012 (judicial claim). In its Answer, the CIR, represented by the Office of the Solicitor General, refuted DKS’s entitlement to a tax refund of eredit as follows: First, DKS failed to submit the documents necessary t0 suppor its claim. Second, its claim is subject t administrative routine investigation «and examination by the BIR. Tid, it also failed to prove that it rendered services to persons engaged in business conducted outside the Philippines, the payments of which were made in Euro and other acceptable foreign cverency in accordance with the rules and regulations of the Bangko Sersral ng Pilipinas (BSP). Finally, the filing of its judicial claim was premature.” During the proceedings, DKS presented the following evidence to prove that its foreign aifliste-clients are non-resident foreign corporations doing business outside the Philippines (NRFC3): (1) SEC Cenifications of Non-Registration of Company; (2) Authenticated Amicles of Association andior Certificates of Registration/Good Standing/Incorporation; (3) Service Agreements" and foreign business registration printouts retrieved from the AMInet database, Taye TT DARE Bik Akeni Fink Pak (4) Desde Bank ‘Atelier (5) Bose unk Lesenoig (1) Dass Series Ines) aus Buk chee Ca Ld Seite Wiereeanaa is Lied 2 "Bayes Bank POC Spl Ayn 9) Dance faa Tat Compe Aen) D0 Sv Now ce 1 he i ton os onary) Decision 4 GR.No, 234 The CTA Division Ruling In the Decision" dated July 7, 2014, the CTA Division partially granted DKS's claim. AC the onset, the CTA Division resolved that both DKS’s administrative and judicial claims were timely filed.” On the substantive aspect, it reduced DKS's claim to #14,882,227.02 computed 8 follows ut VAT lao for refund 3386810119 Ease: Dillowarses Unamorized. Input VAT on Capital Goods exeeoding PE rilion priog2a72 Input VAT on Capita! Goods exceeding PI millon without Supporting documents 51469821 Input VAL on purchases of serveos and goods oer than ‘pital gods Vat input VAT Loss: tpt VAT 713,081.78 ald Excess Input VAT PHO364 36536 Mulpiy by: Porton pertaining © huly-established zeroed sales" 2307 Excess Input VAY atibutable othe Valid Zero-Rees Sales Revsiis Pe, ‘The CTA Division found as follows: First, DKS initially claimed for refund total input VAT from current transactions amounting to ®33,868,101.19," purportedly from the purchases of capital goods, domestic purchases of services and goods cther than capital goods, and services rendered by non-residents However, it did not properly support its input VAT claims in accordance with prevailing VAT invoieing and substantiation requirements, This resulted in the disallowance of input VAT amounting to os Rotate na rs Deassion 5 GR.No. 23445 £P12,790,712.55," reducing the amount of vali excess input VAT subject to refund to P20,364,346.86. Second, DKS reported zero-rated sales amounting to 'P858,315,876.09 in its VAT return.” However, [to be considered as [an NRFC}, each entity must be supported, at the very least, by both SEC certificate of nearegistration of corporation/parnership and certfeatefacles of foreign ineorporaton/association,”™ Based on the evidence presented, out of 34 entities it claimed to be foreign, DKS established the NRF status of only 15 foreign affiliates-cients. Thus, ‘only sales t0 these 15 entities (P627,255,650.48), which comprised 73.0798%" ofthe total zero-ated sales declared (PB58,315,870.09), was proven to be detived from foreign afliliates-cients. Concomitantly, only ‘input VAT to the extent of P14,882,297.02" may be granted asa refund or credit oF 73.0798% of the above-mentioned validated excess input ‘VAT amounting to 920,364,346.86, From this Decision, the CIR filed a Motion for Reconsideration (MR), On the other hand, DKS filed an Omnibus Motion for, Patil Reconsideration and to Reopen Tril tn Present Supplemental Evidence (omnibus motion). The CTA Division denied the CIR’s MR, but allowed DKS to present additional evidence, despite the CIR’s positon.” Ukkimauely, the CTA Division still denied DKS’s motion for partial reconsideration, Awerieved, the CIR and DKS filed petitions for review on certiorari before the CTA fin Bane dacketed as CTA EB Nos. [244 and 1345, respectively The CTA En Bane Ruling In its assailed Decision, the court «quo partially granted the CIR's petition but denied for lack of merit tht of DKS. it mainly echoed the Decision 6 GR.No, 234445 CTA Division’ rulings on evidentiary matters, viz We agro wit the Cour in Dison that to be onsen as'a sonsesdent foreign corporation doing business sie the Philippines. each entity must be suportds at the very least by both 3 arise of non-segsraton of erporaonpurneship ised by the {SEC} and cenietitcles of foreign incomoration/ssciation Farenheit must he emphasized tha nocwisanding the presentation oF te sad documents, there mist not he any indication that the recipi: ofthe series s dong business in the Pippin, onsistent withthe abovequoted rang in the case of Commoner of Imermal Revenue vx Burmsiser amd Naim Serdar Canractor Mindi, Ie “The said basic documents are necessary because the Philippine SEC's negative venfeaion estblishes that the recipient of the serve hits no repseed business ia the Philippines: wile the aid rifatearicles of incorportoiassciton wil prove tha the ‘recipients indeed freien However, after further evaluation, the CTA En Bane found that DKS established the NRFC status of only 11 foreign afiliaes-elients, as ‘opposed to the CTA Division's findings of 15 entities, The court a quo excluded four" entities because these entities’ NRFC status could not hhave been established by mere prints from DKS's own database, viz Xx s [Tic] foreign busines regisuation printouts setived fiom the AMInetdathase (Exhibits "P-1" to "P33" ih is atts setup Bs Deutsche Bank Global the ea office of Deutsche Knowledge in Germany) x x are seisrving and ean be easily ‘manipulated t favor Deutsche Knowledge in view of aint wih ‘he mi that maintains or gps the sid database” Resultantly, this reduced DKS's claim to #14,527,282.57 because ‘only 71.3368%" (not 73.0798% as found by the CTA Division) of its reported sales were valid zero-rated sales, ve. Vaid Esces Input VAT. as found by the CTA Division 0,364. 34685 5 SSE apa oR les ine a * iv. Dewshe a (Chis Coa, Beck: Ooh: Bak Chin) Co a Stang nck Deuce Bok Alternat Pale Hoar Mi Say nat. 671366 of rgd see als oon PRESS. Decision 1 GR.No.24445 Mutiply by: Postion persning wo dly-estabished ‘e-sesles™ 7133689 Excess Input VA atibuable w the Valid Zero: PTASTION SF ‘ated Sales Recents Both parties moved for reconsideration, but the CTA EB denied them. Hence, the CIR filed the present petition. Issue The sole iste for the Cout’s resolution is whether DKS is ‘emtitled toa tax refindieredit amounting to #14,527,282.57 The Court's Ruling ‘The petition is unmeritorious. ‘The CIR insists that DKS is not entitled to a tax refurdicreit, ‘because: First, its judicial claim was filed prematurely:® And second, it failed to prove that it clients are forsign conporations ding business ‘outside the Philippres. Being « procedural matter, the Court shall First resolve the former then proceed to the substantive matters Timeliness of DKS¥ Judicial Clan Section 112(C) of the National Intemal Revenue Code of 1997 (Tax Code) gives the CIR 120 days from the date of submission of complete documents (date of completion) supporting the application for credit of refund excess input VAT attributable 10 zero-rted sales to resolve the administrative claim. If it remains unresolved alter this Period, the law allows the taxpayer to appeal the unacted claim to the CTA within 30 days from the expiration of the 120-day period (J20 and 30-day periods)" Ses SC oe wad dev 1 (Cd oi Decision * GR.No. 234448 Stated differently, the date of completion comimences the CIR’s 120-day period to resolve the claim. In tur, the expiration of the 120- day period triggers the eunning ofthe 30-day period to appeal an unacted claim, ‘The CIR angues that Revenue Memorandum Order No. (RMO) 53.98 provides a list of documents that the taxpayer mast submit t9 substantiate his claim for tax refund or credit. It points out that, when DKS filed its administrative claim, it failed to submit the complete documents. Thus, the 120 and 30-day periods didnot begin to run, This contention directly contravenes In applicable tax regulations, and jurisprudence. First, the Court pronounced in Commissioner of Internal Revenive Team Sual Corp." that inasmuch as RMO 53-98 enumerates. the documentary requirements during an audit investigation, its provisions do not apply to applications for tax refund or ered.” Second, in Pilipinas Total Gas, Ine. » Commissioner af Internal Revenue,” the Court emphasized that the law accords the claimant sufficient latitude to determine the completeness of his submission for the purpose of ascer-ining the date of completion from whieh the 120- ‘day period shall be reckoned." He “enjoys relative freedom to submit such evidence to pro his claim” because, in the ist place, he bears the burden of proving is entitlement oa tax refund or credit.” This benefit, « component of the claimant's fundamental right to ‘due process."allows him: (a) o declare that he had already submitted ‘complete supporting documents upon filing his claim and that he no longer intends to make additional submissions thereafer; or (b) to further substantiate his application within 30 days after fling, as allowed by Revenue Memorandum Circular No, (RMC) 49-03" "Ase yard ante i oh die ingen or afer he Fa io Revers Manian Car No. MC) 49-43 (Sj: Anning Ane Decision 9 GR.No, 254445 ‘To counterbalance the clainsat’s liberty to do so, he inay be equited by the tex authorities inthe course oftheir evaluation, to submit additional document: for the proper evaluation thereof. In which ease, the CIR shall duly notify the claimant of his request from which the ‘laimant has 30 days 10 comply. Notably, both parties are given the occasion to determine the ‘completeness of documents supporting a claim for tax refund or credit However, the Court must differentiate between these two functions (On the one hand, the clsimant has the prerogative to determine ‘wherher he had completed his submissions upon filing or within 30 days thereat. This procedural determination of completeness is aimed at ‘seertining the date of completion from which the 120-day period shall In contrast, whether the claimant's submissions “are actually complete as required by law — is for the CIR and the courts 9 determine." The CIR and cous” subsequent evaluation of the documents is a substantive determination of completeness. for the purpose of ascertaining the claimant's enilement t0 the tax refund credit sought Clearly, the CIR has no authority to unilaterally determine the ‘completeness of these documents and dictate the running ofthe 120-day Period to resolve the claim, as he aterpts to do Sa in the present case ‘To sanction this would be giving the tax authorities “unbridled power 10 indefinitely delay the administrative claim” and in tum “prevent the filing of judicial cl.im with the CTA." Third, as discussed above, RMC 49.03 explicitly empawers the ‘ax authorities to recuest for additional decuments that will aid them in verifying the claim. IF its supporting documents were incomplete, the BIR was duty-bound to notify DKS of its deficiencies and requite them tormake further submissions, as necessary." 2. ge 1 20) pig we mt «Rin i Cian of ‘Seams ma eee Tm Sl Coppa 3529 Serdar ye Desison 10 GR:No. 234445 ‘The tax authorities had the full opportunity to opine on the isue of documentary completeness while DKS's claim was pending before them. However, there was no action on the claim on the administrative level The first instance the BIR served a formal response to the claimant, alleging documentary deficiencies, was already in the CIR’s Answer filed before the CTA on May 11, 2012. In other words, it took the BIR 203 days to show concem on the matter, only to ask the court to deny the claim based on mere procedural issue that they themselves could hhave addressed on the administrative level, lis belated response to the present claim only brings to light that the BIR had been remiss in their duties to duly notify the claimant to submit additional documentary requirements and to timely resolve their claim. The CIR can.ot now fault DKS for proceeding to court for the appropriate remedial action onthe elim they ignored. Parentheticaly, the Court reiterates that the above analysis involving the determination of the completeness of documents supporting «lant for wx refund or ereait applies only to claims fled Prior to June 11, 2014.% At present, RMC $4-14" requires the taxpayer to attach the following to his claim upon filing thereof. (a) complete supporting documents, as enumerated in the issuance, and (b) statement under oath attesting thatthe documents submitted are in fact complete. The guidelines now ensure that the date of completion coincides with the date of iting of the claim, ‘This new issuance eannot be made to apply to the present case, ‘which involves a claim fled in 2011, due tothe rule on non-retroactivity of rulings. Decision GR. No, 234445 Requisites for the Entitlement to Tax Refund or Credit of Excess input VAT Auribucble 10 Zero- rated Sales Under Section 4.112-1(@) of Revenue Regulations No, (RR) 16 (05, otherwise known as the Consolidated VAT Regulations of 2005, in relation to Section 112” of the Tax Code, a claimants entitlement to 4 ‘ax refund or ered of excess input VAT attributable to zero-rited sales hinges upon the following requisites: (1) the taxpayer must be VAT- reyistered (2) the taxpayer must be engaged in sales which are zero- fated or effectively zero-rated; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made: and (4) the creditabl: input tax eue or paid must oe attributable to such sales, except the transitional input tax, to the exteat that such input tax has not been applied agains the output tax." The second reyuiste for the claimants entitlement toa tax refund ‘or credit of excess incut VAT is at issue in the present cas, i aroraal ay tle sy Vea eo wt ‘pita i pid attunle och tp ana pte a ch ‘por nn ben pd art at av here Tal eco aed i ine Sn ann) Sc ont ae lesan ition te Bae Sal Pigs GSP Pe iba siti erator cc en a aw a le ‘sty an ey cay oe he tonal balled peta ‘oft on aes Prove aly Tha = ee aki ae ‘lune Sect 10,3) (he pt stl halal ly been Mi roe (Peto wii whi etd Tae Ci of pat Te ale Man poe se Supe oe appz ie in accord wih Sitons (AYES ‘ato of th wo nied en dagen spe he deci eh ea hin wt he HG at, ne» Canaan fr Rem 684 2342011 Decision b GR. 234445 Conditions for Zero-rating of Sales of Services Zevorrated sales ae, for all intents and purposes, subject to VAT, only that dhe rate imposed upon them is O¥. Thus, while these sales will ‘ot mathematically yield output VAT, the input VAT arising therefrom"! is nonetheless reditable or refundable, asthe ease may be” Sales of “other services," such as those qualifying services" rendered by DKS to its foreign affliateslients, shall be zero-rated pursuant to Section 108(B\2)" of the Tax Code if the following conditions are met: First, the seller is VAT-registered. Second, the services ate rendered “toa person engaged in business conducted outside the Philippines or toa nonresident person not engaged in business who is ‘outside: the Philippines when the services are performed.” Thin, the services are “paid for in acceptable foreign currency and accounted for in accordance with [BSP] rules and regulations.” With regard to these conditions, itis no longer disputed that DKS is VAfPresistered an that it received payments foe its qualifying services in acceptable foreign currency and accounted for as required by applicable BSP rules. What remains in contention is whether or not DKS's foreign afilistes-clints are NRFCs doing business outside the Philippines. Proof of NRFC Status aie TOT Te Sten 10) Tax Cole cf Sco 1084104 4:10.70 R164, Series ala than as mentnd in Scan TRB} oi Cae. Ve: “Pci ‘maaan repack oa fr er ean ing bess oie Pps heh othr gy pale ap) SECTION 1 Fall a on Soe of Sov ner Le of Peter — avn aris Shel o Zar Pov a “The long svc peed a ‘te Pines by VA. epee peso sl be son eo pe eee ee SIS easel peng zi ans pm meni the Bano Sonal Pipa COS Decision 3 GR No. 234445 For purposes of zero-ating under Section 108(B)2) of the Tax Code, the claimant must establish the two components of a client's [RFC status, vz: (1) that their client was established under the laws of ‘8 country not the Philippines or, simply, is not a domestic corporation; 1nd (2) that i is not engaged in trade or business in the Philippines. To be sure, there must be sufficient proof of hoch of these components showing ot only thatthe clients ere foreign corporations, but also are ‘ot doing business inthe Philippines.” Such proof must be especially required from ROHQs such as DKS. That the law expressly authorizes ROHQs to render services to focal and foreign affiliates alike only stresses the ROHQ's burden to istinguish among their clients’ nationalities and actual places of business operations and establish that the are seeking refund or credit of| input VAT only to the extent of thei sales of services to foreign clients doing business oust the Philippines. To recall, the CTA found that the SEC Certification of Non Registration of Company and Authenticated Articles of Association andior Centfieates of RegicratinniGand — Standing/Incorporation sulfciently established the NRFC status of 11 of DKS's affiliates clients.” ‘The Court upholds these findings ‘The Court accords the CTAYs factual findings with utmost respect, if mot finality, becouse the Court recognizes that it has necessarily developed an expertise on tax matters” Significantly, both the CTA. Division and CTA £n Bane gave credence to the aforementioned documents as sufficient proof of NRFC status. The Court shall not slisturb its findings without any showing of grave abuse of discretion considering that the members ofthe tax caurt are in the best position to analyze the documents presented by the parties" ‘Tun ae Coae f nlReems, 690 Pi 6% 6-8 2}, Set _ Pitino ef ea Ra Ph. 4 SS Bc HB ny at al Desision 4 GR.No. 23445 any case, afer a judicious review of the records, the Court still

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