Commissioner of Internal Revenue v.

American Express
Int'l-PH Branch
28 February 2002
TOPIC IN SYLLABUS: Value-Added Tax

CA-G.R. SP No. 6727

Guevara-salonga, J.

SUMMARY: AmEx wants a refund of its excess input taxes. It contends that since its services are
other than processing, manufacturing or repacking for other persons doing business outside PH
for goods which are subsequently exported, the consideration of which is paid for in acceptable
foreign currency and accounted for in accordance with the rules an regulations of BSP, it is
zero-rated, hence the input taxes not applied against output taxes can be refunded. CTA
agreed. CA affirmed it.
HOW THE CASE REACHED THE CA: From the CTA via Petition for Review
FACTS:
RESP is PH branch of AmEx Int'l, and a servicing unit of of AmEx-Hongkong and
engaged primarily to facilitate the collections of Amex-HK receivables from card members in PH.
Registered with BIR as VAT taxpayer, it filed a letter-request for refund of its 1997 excess input
taxes (P3,751,067.04) which was arrived at after deducting from its total input VAT
(P3,763,060.43) its applied output VAT liabilities only for the 3rd and 4th Q of '97 (P5,193.66 +
P6,799.43). It cites as basis Sec. 110(B), NIRC. CTA ruled in favor of RESP.
CIR is before CTA, alleging that CTA erred in holding that RESP's services are subject to
zero-rate for VAT purposes, since its services are not similar to the services mentioned in Sec.
102-2 (b) (2) or RR No. 5-96 which are subject to zero-rate.
PETITIONERS ARGUMENT:
Export sales by a VAT-registered person, the consideration for which is paid for in acceptable
foreign currency inwardly remitted to the PH and accounted for in accordance w/ regulations of
BSP, are subject to VAT at 0% (Sec. 108). It also relied on VAT Ruling No. 080-89 which said
that ...your service income is automatically zero-rated.
Input taxes on domestic purchases of taxable goods and services related to zero-rated
revenues are available as tax refund (Sec. 112, NIRC and Regulation no. 5-87).
RESPONDENTS ARGUMENT:

RESP's services were not of the same class or of the same nature as "project studies,
information services, engineering and architectural designs and other similar services"
so it could not qualify for zero-rated VAT but is subject to the regular VAT rate of 10%.
Under VAT Ruling No. 040-98, for services to be zero-rated, it must be consumed
abroad.
ISSUES: WON the services performed by AmEx, a VAT-registered entity in PH, the
consideration for which is paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zero-rated? Yes.
HELD:

RESP's services fall under

Sec. 108 (B)(2) and Sec. 4.102-2 (b)(2) of RR No. 7-95 as amended by RR No. 5-96:
Services other than processing, manufacturing or repacking for other persons doing

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business outside PH for goods which are subsequently exported, the consideration of
which is paid for in acceptable foreign currency and accounted for in accordance with
the rules an regulations of BSP.
RESP is a servicing unit of AMEX whose function is primarily to facilitate the collection
of receivables from card members by receiving bills of service establishments in the PH
and forwarding the same to its Regional Operating Centers which in turn will collect
from the card members. Such service is paid to the RESP in US dollars and accounted
for in accordance with BSP rules and regulations.
CIR's reliance on the 2nd class of services is erroneous as respondent's services fall
under the 1st category of services: services other than processing, manufacturing or
repacking xxx
VAT Ruling No. 040-98 cannot contravene the terms of Section 4.102-2 (b)(2) of RR No.
5-96 as well as Sec. 108 (B)(2). The requirement that the services must be consumed
abroad (imposed by VAT Ruling no. 040-98) is not mandated by them. While such ruling
is entitled to great weight, it is not judicially binding since it is contrary to the NIRC.
Granting that said ruling is valid, the came cannot be given retroactive effect since it
would be harsh and oppressive to the RESP, which relied on VAT ruling No. 080-89
which recognized its services as zero-rated (see above). See also Sec. 246, NIRC-Nonretroactivity of rulings.
The revenues of respondent from the sales of services qualify as zero-rated. RESP is
not liable to pay output tax on such sales of services and therefore could claim a tax
credit/refund of the input VAT it paid on the purchases of services which are directly
attributable to such zero-rated sale.

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