Commissioner of Internal Revenue vs. American Express International, Inc.

GR No. 152609
June 28, 2005

FACTS:

Respondent] is a Philippine branch of American Express International, Inc., a corporation duly organized and existing
under and by virtue of the laws of the State of Delaware, U.S.A. It is a servicing unit of American Express International,
Inc. – Hongkong Branch (Amex-HK) and is engaged primarily to facilitate the collections of Amex-HK receivables from
card members situated in the Philippines and payment to service establishments in the Philippines.

Amex Philippines registered itself with the Bureau of Internal Revenue (BIR), Revenue District Office no. 47 (East
Makati) as a value-added tax (VAT) taxpayer effective March 1988 and was issued VAT Registration Certificate No.
088445 bearing VAT Registration No. 32A-3-004868. For the period January 1, 1997 to December 31, 1997, the
respondent filed with the BIR its quarterly VAT returns. On March 23, 1999, however, the respondent amended and
declared the returns.

On April 13, 1999, respondent filed with the BIR a letter-request for the refund of its 1997 excess input taxes citing as
basis therefor, Section 110 (B) of the 1997 Tax Code to wit:

Section 110. Tax Credits. –

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“(B) Excess Output or Input Tax. – If at the end of any taxable quarter the output tax exceeds the input tax,
the excess shall be paid by the VAT-registered person. If the input tax exceeds the output tax, the excess
shall be carried over to the succeeding quarter or quarters. 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.”

There being no immediate action on the part of the petitioner, respondent’s petition was filed on April 15, 1999. Further
arguments were being raised by respondent in support of its Petition for Review. In addition, respondent relied on VAT
Ruling No. 080-089, dated April 3, 1989 which states that a VAT registered entity with a service paid in acceptable
foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the rules and
regulations of the Central Bank of the Philippines, automatically the service income is zero-rated effective January 1,
1998. [Section 102(a)(2) of the Tax Code as amended]. For this, there is no need to file an application for zero-rate.

On May 6, 1999, the petitioner filed his answer and claimed by way of Special and Affirmative Defenses that:
 The claim refund is subject to investigation by the BIR;
 Taxes paid and collected are presumed to have been made in accordance with laws and regulations, hence,
not refundable;
 Respondent must prove that it has complied with the governing rules with reference to tax recovery or refund,
which are found in Sections 204(c) and 229 of the Tax Code, as amended.

ISSUE:

Whether or not respondent American Express is entitled for 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.
AT & T Communications Services Philippines, Inc. vs. Commissioner of Internal Revenue
GR No. 182364
August 3, 2010

FACTS:

AT&T Communications Services Philippines, Inc. (petitioner) is a domestic corporation primarily engaged in the business
of providing information, promotional, supportive and liaison services to foreign and registered with the Philippine
Economic Zone Authority (PEZA). Remuneration is paid in US dollars and inwardly remitted in accordance with the BSP
rules and regulations.

Petitioner incurred input VAT when it generated zero-rated sales in connection with its Service Agreement. It further
incurred input VAT from purchases of capital goods and other taxable goods. Petitioner then filed with the CIR an
application for tax refund or tax credit of its unutilized input VAT from zero rated sales, with sales invoices as a support
thereof.

The CTA held that since petitioner is engaged in sale of services, VAT Official Receipts should have been presented in
order to substantiate its claim of zero-rated sales, not VAT invoices which pertain to sale of goods or properties.

ISSUE:

Whether or not VAT official receipts or invoices are sufficient to substantiate a claim for tax refund.

HELD:

Yes. Section 113 of the Tax Code does not create a distinction between a sales invoice and an official receipt. It
provides that a VAT registered person, shall for every sale, issue an invoice or receipt.

Section 110 of the same Code states that “any input tax evidenced by a VAT invoice or official receipt issued in
accordance with Section 113 hereof on the certain transactions shall be creditable against the output tax.”

To determine the validity of petitioner’s claim as to unutilized input VAT, an invoice would suffice provided that the
requirements under Section 113 and 127 of the Tax Code are met. Sales invoices are proofs that a business transaction
has been concluded, hence, should not be considered bereft of probative value. Only the preponderance of evidence
threshold as applied in ordinarily civil cases is needed to substantiate a claim for tax refund.

A taxpayer engaged in zero-rated transactions may apply for tax refund or issuance of tax credit certificate for unutilized
input VAT, subject to the following requirements:

(1) The taxpayer is engaged in sales which are zero-rated (i.e., export sales) or effectively zero-rated;
(2) The taxpayer is VAT-registered;
(3) The claim must be filed within two years after the close of the taxable quarter when such sales were made;
(4) The creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to
the extent that such input tax has not been applied against the output tax; and
(5) In case of zero-rated sales, the acceptable foreign currency exchange proceeds thereof have been duly
accounted for in accordance with BSP rules and regulations.
Commissioner of Internal Revenue vs. SM Prime Holdings, Inc. and First Asia Realty Development
Corporation
GR No. 183505
February 26, 2010
Topic: VAT on cinemas

FACTS:

Respondents SM Prime and First Asia are domestic corporations duly organized and existing under the laws of the
Republic of Philippines. Both are engaged in the business of operating cinema houses. The Bureau of Internal Revenue
(BIR) sent both respondents a Preliminary Assessment Notice (PAN) for value added tax (VAT) deficiency on cinema
ticket sales. Both respondents filed for a petition for review before the CTA.

CTA First Division held that the House of Representatives resolved that there should only be one business tax applicable
to theaters and movie houses, which is the 30% amusement tax imposed by cities and provinces under the LGC of
1991. Further, it held that consistent with the States policy to have a viable, sustainable and competitive theater and
film industry, the national government should be precluded from imposing its own business tax in addition to that
already imposed and collected by local government units. The CTA First Division likewise found that Revenue
Memorandum Circular (RMC) No. 28-2001, which imposes VAT on gross receipts from admission to cinema houses,
cannot be given force and effect because it failed to comply with the procedural due process for tax issuances under
RMC No. 20-86. The CTA rendered a decision, ordering the PAN issued by the petitioner, cancelled and set aside.
Hence this appeal to the CTA en banc.

Petitioner argues that the enumeration of services subject to VAT in Section 108 of the NIRC is not exhaustive because
it covers all sales of services unless exempted by law. He claims that the CTA erred in applying the rules on statutory
construction and in using extrinsic aids in interpreting Section 108 because the provision is clear and unambiguous.
Thus, he maintains that the exhibition of movies by cinema operators or proprietors to the paying public, being a sale
of service, is subject to VAT.

On the other hand, respondents argue that a plain reading of Section 108 of the NIRC of 1997 shows that the gross
receipts of proprietors or operators of cinemas/theaters derived from public admission are not among the services
subject to VAT. Respondents insist that gross receipts from cinema/theater admission tickets were never intended to
be subject to any tax imposed by the national government. According to them, the absence of gross receipts from
cinema/theater admission tickets from the list of services which are subject to the national amusement tax under
Section 125 of the NIRC of 1997 reinforces this legislative intent. Respondents also highlight the fact that RMC No. 28-
2001 on which the deficiency assessments were based is an unpublished administrative ruling.

ISSUE:

Whether or not the gross receipts derived by operators or proprietors of cinema/ theater houses from admission tickets
subject to VAT.

HELD:

No. While the enumeration under Section 108 on the VAT-taxable services is not exhaustive and the said list includes
“the lease of motion picture films, tapes and discs”, the said activity however is not in the enumeration, the CIR must
show that it falls under the phrase “similar services”.

The repeal of the Local Tax Code by the LGC of 1991 is not a legal basis for the imposition of cinema/theater operators
or proprietors derives from admission tickets. The removal of the prohibition (on the national government to tax certain
activities) under the Local Tax Code did not grant nor restore to the national government the power to impose
amusement tax on cinema/theater operators or proprietors. Neither did it expand the coverage of VAT.

In this case, considering that there is no provision of law imposing VAT on the gross receipts of cinema/theater
operators or proprietors derived from admission tickets, RMC No. 28-2001 which imposes VAT on the gross receipts
from admission to cinema houses must be struck down. We cannot overemphasize that RMCs must not override,
supplant, or modify the law, but must remain consistent and in harmony with, the law they seek to apply and
implement.
WHEREFORE, the Petition is hereby DENIED. The assailed April 30, 2008 Decision of the Court of Tax Appeals En
Banc holding that gross receipts derived by respondents from admission tickets in showing motion pictures, films or
movies are not subject to value-added tax under Section 108 of the National Internal Revenue Code of 1997, as
amended, and its June 24, 2008 Resolution denying the motion for reconsideration are AFFIRMED.