COMMISSIONER OF INTERNAL REVENUE vs.

BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR

MINDANAO, INC. - Value Added Tax, Zero Rated

FACTS:

A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The
foreign entity then subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a
mixture of currencies while the consortium, in turn, paid Burmeister foreign currency inwardly remitted
into the Philippines. BIR did not want to grant refund since the services are “not destined for
consumption abroad” (or the destination principle).

ISSUE:

Are the receipts of Burmeister entitled to VAT zero-rated status?

HELD:

PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior
to the filing of CIR’s Answer in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by
Burmeister, was deemed doing business within the Philippines since its 15-year O&M with NPC can
not be interpreted as an isolated transaction.

In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other than
those in (1)’ of Sec. 102 both require (i) payment in foreign currency; (ii) inward remittance; (iii)
accounted for by the BSP; AND (iv) that the service recipient is doing business outside the
Philippines. The Court ruled that if this is not the case, taxpayers can circumvent just by stipulating
payment in foreign currency.

The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating
of its sales to foreign consortium. However, the ruling is only valid until the time that CIR filed its
Answer in the CTA which is deemed revocation of the previously-issued ruling. The Court said the
revocation can not retroact since none of the instances in Section 246 (bad faith, omission of facts,
etc.) are present.

Facts:
BURMEISTER AND WAIN SCANDINAVIAN CONTRACTOR MINDANAO, INC
The CTA... ordered the Commissioner of Internal Revenue (petitioner) to issue a tax credit certificate... in
favor of Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (respondent).
[Respondent]... a domestic corporation... a foreign consortium composed of Burmeister and Wain
Scandinavian Contractor A/S (BWSC-Denmark), Mitsui Engineering and Shipbuilding, Ltd., and Mitsui and
Co., Ltd. entered into a contract with the National Power Corporation (NAPOCOR) for the... operation and
maintenance of [NAPOCOR's] two power barges. The Consortium appointed BWSC-Denmark as its
coordination manager.
NAPOCOR paid capacity and energy fees to the Consortium in a mixture of currencies (Mark, Yen, and
Peso)... the Consortium pays [respondent] in foreign currency inwardly remitted to the Philippines
BIR Ruling No. 023-9
5... declaring therein that if [respondent] chooses to register as a VAT person... consideration... for its
services is paid for in acceptable foreign currency... accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas... the aforesaid services shall be subject to VAT at zero-
rate.
[Respondent] chose to register as a VAT taxpayer.
[respondent] seasonably filed its quarterly Value-Added Tax Returns... respondent] availed of the
Voluntary Assessment Program (VAP) of the BIR
In [conformity] with
Revenue Regulations
[respondent] subjected its sale of services to the Consortium to the 10% VAT... filed a claim for the
issuance of a tax credit certificate
[Respondent] believed that it erroneously paid the output VAT for 1996 due to its availment of the
Voluntary Assessment Program (VAP) of the BIR... respondent filed a petition for review with the CTA
CTA ordered petitioner to issue a tax credit certificate... in favor of respondent... in acceptable foreign
currency... inwardly remitted to the Philippines... accounted for in accordance with the rules and
regulations of Bangko Sentral ng Pilipinas
Clearly, [respondent's] sale of services to the Consortium is subject to VAT at 0%
Since it is apparent that the payments for the services rendered by [respondent] were indeed subject to
VAT at zero percent, it follows that it mistakenly availed of the Voluntary Assessment Program by paying
output tax for its sale of services.
Petitioner filed a petition for review with the Court of Appeals... affirmed the CTA... petitioner's view that
since respondent's services are not destined for consumption abroad, they are not of the same nature as
project studies, information services, engineering and architectural designs, and other similar... services
mentioned in Section 4.102-2(b)(2) of Revenue Regulations No. 5-96[7] as subject to 0% VAT
Thus, according to petitioner, respondent's services cannot legally qualify for 0% VAT but are subject to
the regular 10% VAT.
petitioner's contention that under VAT Ruling No. 040-98, respondent's services should be destined for
consumption abroad to enjoy zero-rating.
Section 108(b)(2) of the Tax Code does not provide that services must be "destined for consumption
abroad" in order to be VAT zero-rated.
Issues:
whether respondent is entitled to the refund... whether respondent is entitled to the refund of
P6,994,659.67 as erroneously paid output VAT for the year 1996.
of P6,994,659.67 as erroneously paid output VAT for the year 1996
Ruling:
We deny the petition.
Principles:
there are two kinds of transactions or... services subject to zero percent VAT under VAT Ruling No. 040-
98. These are (a) services other than repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported; and (b) services by a resident to a non-resident
foreign... client, such as project studies, information services, engineering and architectural designs and
other similar services, the consideration for which is paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP).[9]... for services which were performed in the Philippines to enjoy zero-rating,
these must comply only with two requisites, to wit: (1) payment in acceptable foreign currency... and (2)
accounted for in accordance with the rules of the BSP