Revenue v. Deutsche Knowledge Services Pte. Ltd

INTING, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by the Commissioner of Internal Revenue (CIR) the Decision2 dated March 30, 2017 and the Resolution3 dated September 18, 2017 of the Court of Tax Appeals (CTA) En Banc in CTA EB Nos. 12i4 and 1345. In the assailed issuances, the CTA En Banc affirmed the Decision4 dated July 7, 2014 of the CTA Second Division (CTA Division) in CTA Case No. 8443 which partially granted Deutsche Knowledge Services Pte. Ltd. (DKS)'s application for refund or issuance of tax credit certificate (TCC).

The Antecedents DKS is the Philippine branch of a multinational company organized and existing under and by virtue of the laws of Singapore.5 The branch is licensed to operate as a regional operating headquarters (ROHQ)6 in the Philippines that provides the following services to DKS's foreign affiliates/related parties, its clients (foreign affiliates ­clients): "general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; training and personnel management; logistic services; product development; technical support and maintenance; data processing and communication; and business development" (qualifying services).7 By virtue of several Intra-Group Services Agreements (service agreements), DKS rendered qualifying services to its foreign affiliates ­clients,8 from which it generated service revenues. DKS is a value-added tax (VAT)-registered enterprise.9 On October 21, 2011, DKS filed with the Bureau of Internal Revenue (BIR) Large Taxpayers Regular Audit Division an Application for Tax Refund/Credit (BIR Form No. 1914) and a letter claim for refund, supported by the relevant documents (hereinafter collectively referred to as "administrative claim").

DKS declared that its sales of services to 3410 foreign affiliates-clients are zero-rated sales for VAT purposes. Thus, it sought to refund an amount of P33;868,101.19, representing unutilized input VAT attributable to zero-rated sales incurred during the first quarter of 2010.11 Alleging that the CIR had not acted upon their administrative claim, DKS filed a petition for review before the CTA on March 19, 2012 (judicial claim). In its Answer, the CIR, represented by the Office of the Solicitor General, refuted DKS's entitlement to a tax refund or credit as follows: First, DKS failed to submit the documents necessary to support its claim.

Second, its claim is subject to administrative routine investigation and examination by the BIR. Third, it also failed to prove that it rendered services to persons engaged in business conducted outside the Philippines, the payments of which were made in Euro and other acceptable foreign currency in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). Finally, the filing of its judicial claim was premature.12 During the proceedings, DKS presented the following evidence to prove that its foreign affiliates-clients are non-resident foreign corporations doing business outside the Philippines (NRFCs): (1) SEC Certifications of Non-Registration of Company; (2) Authenticated Articles of Association and/or Certificates of Registration/Good Standing/Incorporation; (3) Service Agreements;13 and foreign business registration printouts retrieved from the AMInet database.

The CTA Division Ruling In the Decision14 dated July 7, 2014, the. CTA Division partially granted DKS's claim. At the onset, the CTA Division resolved that both DKS's administrative and judicial claims were timely filed.15 On the substantive aspect, it reduced DKS's claim to P14,882,227.02 computed as follows: Input VAT claimed for refund P33,868,101.19 Less: Disallownaces Unamorized Input VAT on Capital Goods exceeding P1 million P719,723.72 Input VAT on Capital Goods exceeding P1 million without supporting documents 514,698.21 Input VAT on purchases of services and goods other than capital goods 11,556,290.62