CIR vs Sony (2010)

FACTS:
Sony Philippines was ordered examined for the period 1997 and unverified prior
years as indicated in the Letter of Authority. The audit yielded assessments against
Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of Final
Withholding Tax on royalties for the period January to March 1998 and (2) deficiency
VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony
International Singapore (SIS).
ISSUES:
(1) Is Petitioner liable for deficiency Value Added Tax? (
2) Was the investigation of its 1998 Final Withholding Tax return valid?

HELD:
(1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices
when it paid for certain advertising costs. This is sufficient to accord it the benefit of
input VAT credits and where the money came from to satisfy said advertising billings
is another matter but does not alter the VAT effect. In the same way, Sony
Philippines can not be deemed to have received the reimbursable as a fee for a VAT-
taxable activity. The reimbursable was couched as an aid for Sony Philippines by SIS
in view of the companys dire or adverse economic conditions. More importantly,
the absence of a sale, barter or exchange of goods or properties supports the non-
VAT nature of the reimbursement. This was distinguished from the COMASERCO case
where even if there was similarly a reimbursement-on-cost arrangement between
affiliates, there was in fact an underlying service. Here, the advertising services were
rendered in favor of Sony Philippines not SIS.

(2) NO. A Letter of Authority should cover a taxable period not exceeding one year
and to indicate that it covers unverified prior years should be enough to invalidate
it. In addition, even if the Final Withholding Tax was covered by Sony Philippines
fiscal year ending March 1998, the same fell outside of the period 1997 and was
thus not validly covered by the Letter of Authority.