CIR V AMERICAN EXPRESS

INTERNATIONAL, INC.
(Phil. Branch)
Facts:
Respondent, a VAT taxpayer, is the Philippine Branch of AMEX USA and was tasked with servicing a
unit of AMEX-Hongkong Branch and facilitating the collections of AMEX-HK receivables from card
members situated in the Philippines and payment to service establishments in the Philippines.
It filed with BIR a letter-request for the refund of its 1997 excess input taxes, citing as basis Section
110B of the 1997 Tax Code, which held that xxx Any input tax attributable to the purchase of capital
goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited
against other internal revenue taxes, subject to the provisions of Section 112.
In addition, respondent relied on VAT Ruling No. 080-89, which read, In Reply, please be informed
that, as a VAT registered entity whose service is paid for in acceptable foreign currency which is
remitted inwardly to the Philippine and accounted for in accordance with the rules and regulations of
the Central Bank of the Philippines, your service income is automatically zero rated xxx
Petitioner claimed, among others, that the claim for refund should be construed strictly against the
claimant as they partake of the nature of tax exemption.
CTA rendered a decision in favor of respondent, holding that its services are subject to zero-rate. CA
affirmed this decision and further held that respondents services were services other than the
processing, manufacturing or repackaging of goods for persons doing business outside the
Philippines and paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of BSP.
Issue:
W/N AMEX Phils is entitled to refund
Held:
Yes. Section 102 of the Tax Code provides for the VAT on sale of services and use or lease of
properties. Section 102B particularly provides for the services or transactions subject to 0% rate:

(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the BSP;
(2) Services other than those mentioned in the preceding subparagraph, e.g. those rendered by
hotels and other service establishments, the consideration for which is paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP
Under subparagraph 2, services performed by VAT-registered persons in the Philippines (other than
the processing, manufacturing or repackaging of goods for persons doing business outside the
Philippines), when paid in acceptable foreign currency and accounted for in accordance with the
R&R of BSP, are zero-rated. Respondent renders service falling under the category of zero rating.
As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed. Thus,
exports are zero-rated, while imports are taxed.
In the present case, the facilitation of the collection of receivables is different from the utilization of
consumption of the outcome of such service. While the facilitation is done in the Philippines, the
consumption is not. The services rendered by respondent are performed upon its sending to its
foreign client the drafts and bulls it has gathered from service establishments here, and are therefore,
services also consumed in the Philippines. Under the destination principle, such service is subject to
10% VAT.
However, the law clearly provides for an exception to the destination principle; that is 0% VAT rate
for services that are performed in the Philippines, paid for in acceptable foreign currency and
accounted for in accordance with the R&R of BSP. The respondent meets the following
requirements for exemption, and thus should be zero-rated:
(1) Service be performed in the Philippines
(2) The service fall under any of the categories in Section 102B of the Tax Code
(3) It be paid in acceptable foreign currency accounted for in accordance with BSP R&R.

Tsai v. Court of Appeals G.R. No. 120098 October 2, 2001

Facts: Ever Textile Mills, Inc. (EVERTEX) obtained a loan from petitioner Philippine
Bank of Communications (PBCom). As security for the loan, EVERTEX executed
in favor of PBCom, a deed of Real and Chattel Mortgage over the lot where its
factory stands, and the chattels located therein as enumerated in a schedule

attached to the mortgage contract. PBCom granted a second loan to EVERTEX.

The loan was secured by a Chattel Mortgage over personal properties
enumerated in a list attached thereto. The listed properties were similar to
those listed in the first mortgage deed. Due to business reverses, EVERTEX filed
insolvency proceedings docketed. The CFI issued an order on declaring the
corporation insolvent.

All its assets were taken into the custody of the

Insolvency Court, including the collateral, real and personal, securing the two
mortgages as abovementioned.
Upon EVERTEXs failure to meet its obligation to PBCom, the latter commenced
extrajudicial foreclosure proceedings against EVERTEX. PBCom was the highest
bidder.

Thus, PBCom consolidated its ownership over the lot and all the

properties in it and leased the entire factory premises to petitioner Ruby L. Tsai.
PBCom sold the factory, lock, stock and barrel to Tsai, including the contested
machineries. EVERTEX filed a complaint for annulment of sale, reconveyance,
and damages with the Regional Trial Court against PBCom, alleging inter
alia that the extrajudicial foreclosure of subject mortgage was in violation of the
Insolvency Law. EVERTEX claimed that no rights having been transmitted to
PBCom over the assets of insolvent EVERTEX, therefore Tsai acquired no rights
over such assets sold to her, and should reconvey the assets. EVERTEX averred
that PBCom, without any legal or factual basis, appropriated the contested
properties, which were not included in the Real and Chattel Mortgages.
Issue: Whether or not the foreclosure on after acquired properties of EVERTEX is
valid.
Held: Inasmuch as the subject mortgages were intended by the parties to
involve chattels, insofar as equipment and machinery were concerned, the
Chattel Mortgage Law applies, which provides in Section 7 thereof that: a
chattel mortgage shall be deemed to cover only the property described therein
and not like or substituted property thereafter acquired by the mortgagor and
placed in the same depository as the property originally mortgaged, anything in
the mortgage to the contrary notwithstanding. And, since the disputed
machineries were acquired in 1981 and could not have been involved in the
1975 or 1979 chattel mortgages, it was consequently an error on the part of the
Sheriff to include subject machineries with the properties enumerated in said

chattel mortgages. As the auction sale of the subject properties to PBCom is

void, no valid title passed in its favor. Consequently, the sale thereof to Tsai is
also a nullity under the elementary principle of nemo dat quod non habet, one
cannot give what one does not have
Assuming arguendo that the properties in question are immovable by nature, nothing
detracts the parties from treating it as chattels to secure an obligation under the principle of
estoppel. An immovable may be considered a personal property if there is a stipulation as
when it is used as security in the payment of an obligation where a chattel mortgage is
executed over it, as in the case at bar.