Maersk Global Services Centres (Philippines) Ltd. v. Commissioner of Internal Revenue

THIRD DIVISION [C.T.A. CASE NO. 9895. January 28, 2021.] MAERSK GLOBAL SERVICES CENTRES (PHILIPPINES) LTD. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION MODESTO-SAN PEDRO , J p : This is a Petition for Review ("Petition"), 1 filed by petitioner against respondent praying that he be ordered to refund petitioner's alleged excess and unutilized input Value Added Taxes ("VAT") for calendar year ("CY") 2016 in the total amount of Php38,676,213.08 2 broken down, as follows: 3 HTcADC Taxable Quarter Amount of Claim 1st Php14,975,834.13 2nd Php8,282,506.30 3rd Php6,886,745.08 4th Php8,531,127.57 Total Php38,676,213.08 THE PARTIES Petitioner is a foreign corporation, duly organized and existing under the laws of Hong Kong and licensed to do business in the Philippines as a regional operating headquarters, with principal office at Levels 5-8, North Wing, Estancia Office, Capitol Commons, Meralco Avenue, Brgy. Oranbo, Pasig City. It is registered with the Bureau of Internal Revenue ("BIR") for VAT purposes. Respondent is vested with the authority to carry out the functions, duties, and responsibilities of said office, including inter alia ,the power to decide disputed assessments, refunds of internal revenue taxes, fees, or other charges, penalties imposed in relation thereto, or other matters arising under the Tax Code or other laws or portions thereof administered by the BIR. He holds office at 5th Floor BIR National Office Building, BIR Road, Diliman, Quezon City. ANTECEDENT FACTS Petitioner's main business in the Philippines is to render corporate and administrative services for the ocean transportation business of its affiliate, Maersk Line A/S, a non-resident foreign corporation with address at Denmark, Esplanaden 50, 1098 Copenhagen. 4 These services include, among others, the processing of import and export documentation, procurement, finance and accounting services, and information technology-related services. 5 During CY 2016, petitioner received the total amount of Php2,011,153,601.06 from Maersk Line A/S for these services. This amount is broken down as follows: Taxable Quarter Amount Received during CY 2016 (USD) Amount Received during CY 2016 (PHP) VAT Official Receipts 6 Exhibits 1st USD10,506,790.40 Php494,626,027.85 "P-47","P-51","P-53","P-54","P-55","P-56","P-58","P-90",and "P-91" 7 2nd USD11,084,749.83 Php518,938,180.42 "P-60","P-61","P-62","P-64","P-66",and "P-68" 8 3rd USD9,532,863.10 Php448,575,131.78 "P-69","P-70","P-71","P-72","P-73",and "P-74" 9 4th USD11,111,713.15 Php549,014,261.01 "P-77","P-78","P-79","P-80","P-81","P-85","P-86","P-87",and "P-88" 10 Total USD42,236,116.48 Php2,011,153,601.06 For the period covering the 1st, 2nd, 3rd and 4th quarters of CY 2016, petitioner filed its quarterly VAT returns with respondent, as follows: Taxable Quarter Date Filed Exhibit 1st 20 October 2017 amended "P-8" 11 2nd 20 October 2017 amended "P-9" 12 3rd 20 October 2017 amended "P-10" 13 4th 20 October 2017 amended "P-11" 14 Aside from petitioner's alleged zero-rated sales to Maersk Line A/S, it also had VATable sales during this period in the total amount of Php4,235,615.94. These pertain to the sale of its used or depreciated assets. For these sales, petitioner declared an output VAT in the total amount of Php508,273.91. 15 During the course of its operations for CY 2016, petitioner incurred input VAT from its local purchases of goods and services. 16 After offsetting the output VAT from its sale of used or depreciated assets, petitioner supposedly incurred excess and unutilized input VAT in the total amount of Php38,676,213.08, as follows: 17 CAIHTE Taxable Quarter Excess and Unutilized Input VAT per VAT Returns 1st Php14,975,834.13 18 2nd Php8,282,506.30 19 3rd Php6,886,745.08 20 4th Php8,531,127.57 21 Total Php38,676,213.08 On 27 March 2018, petitioner filed an administrative claim for excess and unutilized input VAT attributable to its zero-rated sales for CY 2016 with the BIR VAT Credit Audit Division. 22 On 13 June 2018, the BIR issued a Denial Letter rejecting petitioner's claim for input VAT refund based on lack of legal and factual basis. This Denial Letter was received by petitioner on 26 July 2018. 23 Thus, on 27 July 2018, petitioner filed the instant Petition. On 22 August 2018, Summons was issued against respondent ordering him to respond to the Petition. 24 Following the filing of respondent's Answer 25 on 7-September 2018, a Notice of Pre-Trial Conference was issued scheduling the Pre-Trial Conference on 4 December 2018. 26 On 19 September 2018, respondent filed his Pre-Trial Brief, 27 followed by the Judicial Affidavit of his witness, Kristine Albano. 28 For its part, petitioner filed its Pre-Trial Brief on 29 November 2018 29 as well as the Judicial Affidavit of its witness Rochelle V. Duclay. 30 On 4 December 2018, the Pre-Trial Conference ensued 31 and following the filing and approval of the parties' Joint Stipulation of Facts, 32 the Pre-Trial Order was issued on 21 February 2019. 33 Meanwhile, on 4 April 2019, the Court granted petitioner's Motion to Commission ICPA Atty. Myla S. Maralit who submitted her ICPA Report together with its corresponding annexes and soft copies on 20 May 2019. 34 She took the witness stand on 4 July 2019 with no cross examination conducted. 35 On 15 July 2019, petitioner filed a Motion for Extension of Time (To File Formal Offer of Evidence), 36 which was granted in a Resolution, dated 30 July 2019. 37 Thereafter, petitioner filed its Formal Offer of Evidence on 17 July 2019. 38 On 23 July 2019, respondent filed a Comment (Re: Petitioner's Formal Offer of Evidence) interposing no objection to petitioner's Formal Offer of Evidence. 39 On 5 September 2019, this Court issued a Resolution admitting all of petitioner's evidence except for Exhibit "P-500",which cannot be found in the records, and noted that Exhibits "P-567 to P-572","P-573 to P-578","P-750","P-752","P-770","P-947 to P-949","P-1229 to P-1234","P-1374",and "P-1401" were unreadable. 40 On 27 September 2019, petitioner filed through registered mail a Submission (Re: Resolution dated 5 September 2019 on Petitioner's Formal Offer of Evidence) submitting clearer copies of Exhibits "P-567 to P-572","P-573 to P-578","P-750","P-752","P-770","P-947 to P-949","P-1229 to P-1234","P-1374",and "P-1401". 41 On 3 October 2019, respondent presented his lone witness, Revenue Officer Kristine Albano. She underwent cross-examination. 42 On 7 October 2019, respondent filed his Formal Offer of Evidence. 43 Petitioner failed to file an opposition thereto. 44 Hence, on 20 November 2019, this Court issued a Resolution admitting all of respondent's evidence. On 16 December 2019, respondent filed his Memorandum, 45 which was noted by this Court in a Resolution, dated 18 December 2019. 46 On 23 December 2019, petitioner filed a Motion for Extension of Time (to File Memorandum), 47 which was granted in a Resolution, dated 9 January 2020, 48 and on 23 January 2020, petitioner filed its Memorandum. 49 On 30 January 2020, this Court issued a Resolution submitting the instant case for Decision. 50 Hence, this Decision. THE ISSUES The parties stipulated a sole issue 51 for this Court's resolution: "Whether or not petitioner is entitled to a refund in the total amount of Php38,676,213.08, representing unutilized and excess input VAT attributable to zero-rated sales for year 2016." ARGUMENTS OF THE PARTIES Petitioner's Arguments 52 Petitioner argues that it is entitled to a refund in the total amount of Php38,676,213.08 representing the duly substantiated unutilized and excess creditable input VAT attributable to export zero-rated sales for CY 2016. It insists that its sales of services to Maersk Line A/S during CY 2016 are subject to zero-rating under Section 108 (B) (2) and (4) of the Tax Code .Further, petitioner alleges that it has complied with all the requirements and has duly established its claim for input VAT refund. Specifically, petitioner alleges the following: a) Its corporate and administrative services for the ocean transportation business of Maersk Line A/S during CY 2016 are VAT zero-rated. Since Maersk Line A/S is engaged in international shipping that transports container cargoes, including shipments of cargoes to and from the Philippines, services rendered to it are subject to VAT zero-rating under Section 108 (B) (4) of the Tax Code .This matter has already been the subject of a final and executory decision by this Court, wherein it was ruled that A.P. Moller-Maersk A/S is a non-resident foreign corporation engaged in international shipping of container cargoes, and as such, petitioner's sales of services to it are subject to VAT zero-rating under Section 108 (B) (4) of the Tax Code . 53 Since A.P. Moller-Maersk A/S entered into a Novation Agreement with Maersk Line A/S whereby the former transferred to the latter all of its international shipping business, the latter simply stepped into the shoes of the former wherein the final and executory decision by this Court is equally applicable to the latter. It is contemptuous on the part of respondent to disregard this ruling on the basis of an unfounded new theory that petitioner's services to Maersk Line A/S were actually rendered to its ultimate parent, A.P. Moller-Maersk Line A/S; b) Petitioner is a VAT-registered taxpayer, as shown by its BIR Certificate of Registration; c) As shown by the voluminous pieces of evidence adduced and by the ICPA Report, the payment for petitioner's services was made in acceptable foreign currency accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas ("BSP"); d) Also, as shown by the voluminous pieces of evidence adduced and by the ICPA Report, petitioner's zero-rated sales of services for CY 2016 are properly supported by VAT official receipts and billing invoices in compliance with the invoicing requirements provided under the Tax Code and relevant Revenue Regulations; e) Petitioner's zero-rated sales of services for CY 2016 were properly reported in petitioner's VAT returns; f) As shown in the various pieces of evidence offered and as confirmed in the ICPA Report, the input VAT incurred by petitioner in the course of its business: i) are duly paid; ii) are attributable to zero-rated or effectively zero-rated sales; iii) have not been applied against output taxes during and in the succeeding quarters; aScITE g) Petitioner filed its administrative claim for input VAT refund within two (2) years from the close of the quarter when the zero-rated transactions were made; h) Petitioner timely filed with this Court the instant Petition; i) Respondent's denial of petitioner's claim for input VAT refund is plain error. In the Denial Letter, respondent's main ground for denying the claim for input VAT refund is the case of Institutional Shareholder Services, Inc.-Philippine ROHQ v. Commissioner of Internal Revenue . 54 In said case, the Court ruled that services rendered by a Regional Operating Headquarters ("ROHQ") to its mother company are not services rendered to another person doing business outside the Philippines considering that the mother company and the ROHQ are one and the same person. Considering this, an ROHQ's sale of services to its mother company is not subject to VAT zero-rating as contemplated under Section 108 (B) (1) and (2) of the Tax Code .Applying this, respondent posits that since the services rendered by petitioner to Maersk Line A/S are sales of services to petitioner's parent, A.P. Moller-Maersk A/S, the same is not subject to VAT zero-rating. This is erroneous. A.P. Moller-Maersk A/S, Maersk Line A/S and petitioner have different legal personalities. While A.P. Moller-Maersk A/S is the ultimate parent company by both Maersk Line A/S, which is an immediate subsidiary, and petitioner, which is the Philippine based ROHQ of Maersk Global Service Centres (Philippines) Ltd.,a Hong Kong company and owned by A.P. Moller-Maersk A/S through various corporate layering, these three are still separate juridical persons incorporated in different jurisdictions. Hence, the cited case does not apply. The only way that said case can govern is if petitioner rendered service in favor of its mother company, Maersk Global Service Centres (Philippines) Ltd.,as these two are one and the same person. Respondent's Counter-Arguments: 55 Respondent counter-argues that petitioner is not entitled to an input VAT refund following the case of Institutional Shareholder Services, Inc.-Philippine ROHQ v. Commissioner of Internal Revenue . 56 Under said case, the Court ruled that an ROHQ's sale of services in favor of its mother company is not subject to VAT zero-rating considering that the mother company and the ROHQ are one and the same person. The phrase "other persons doing business outside the Philippines" contemplated in Section 108 (B) (1) and (2) is deemed to pertain only to "affiliates, subsidiaries or branches" of the ROHQ as enumerated under Republic Act ("R.A.") No. 8756 .As such, rendering services to an ROHQ's mother company is not one of those contemplated for VAT zero-rating. In fact, services rendered by an ROHQ in favor of its mother company is considered as doing business in the Philippines by the mother company through its ROHQ. Moreover, since respondent issued a decision on the administrative claim for input VAT refund, this Court's jurisdiction is simply appellate in nature. Consequently, this Court should confine itself to whether the findings of respondent are consistent with law. Petitioner can no longer present new and additional evidence during the judicial proceedings which were not submitted at the administrative level. Hence, there should be no trial de novo for the instant case, and only an inquiry as to whether the findings of the administrative body are in accord with the law. Finally, respondent maintains that a claim for input VAT refund must be construed strictissimi juris against the taxpayer-claimant. THE COURT'S RULING We partially grant the Petition. Requisites for claiming input VAT refund. Sections 112 (A) and (C) of the Tax Code govern claims for refund or tax credit of unutilized or excess input VAT: " SEC. 112. Refunds or Tax Credits of Input Tax . (A) Zero-rated or Effectively Zero-rated Sales . Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (b) and Section 108 (B)(1) and (2),the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. Provided, finally, That for a person making sales that are zero-rated under Section 108(B) (6),the input taxes shall be allocated ratably between his zero-rated and non-zero-rated sales. xxx xxx xxx (C) Period within which Refund or Tax Credit of Input Taxes shall be Made . In proper cases, the Commissioner shall grant a refund for creditable input taxes within ninety (90) days from the date of submission of the official receipts or invoices and other documents in support of the application filed in accordance with Subsections (A) and (B) hereof: Provided, That should the Commissioner find that the grant of refund is not proper, the Commissioner must state in writing the legal and factual basis for the denial. In case of full or partial denial of the claim for tax refund, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim, appeal the decision with the Court of Tax Appeals: Provided, however, That failure on the part of any official, agent, or employee of the BIR to act on the application within ninety (90) days period shall be punishable under Section 269 of this Code." Following this, for a taxpayer-claimant to successfully claim refund or tax credit for unutilized or excess input VAT, the following requisites must be complied with: 57 a) The taxpayer-claimant must be VAT-registered; b) There must be zero-rated or effectively zero-rated sales; c) That input taxes have been paid or incurred; d) The said input taxes are attributable to the zero-rated or effectively zero-rated sales; e) The said input taxes were not applied against any output VAT liability; and f) That the administrative claim and judicial claim have been timely filed. Petitioner timely filed both its administrative claim and judicial claim. For the sixth requisite above, this Court finds that petitioner timely filed both its administrative and judicial claims. As provided in the afore-quoted provisions, the administrative claim for input VAT refund should be made "within two (2) years after the close of the taxable quarter when the sales were made." The present case concerns the 1st, 2nd, 3rd and 4th taxable quarters of CY 2016. Consequently, the deadline to file the administrative claims for input VAT refund for these periods are as follows: Quarter Deadline to File Administrative Claim 1st Quarter of CY 2016 31 March 2018 2nd Quarter of CY 2016 30 June 2018 3rd Quarter of CY 2016 30 September 2018 4th Quarter of CY 2016 31 December 2018 In the case at bar, petitioner filed its administrative claim for input VAT refund on 27 March 2018 for all taxable quarters of CY 2016. 58 Thus, petitioner timely filed its administrative claim for input VAT refund before respondent. On the other hand, the above quoted provisions require that the judicial claim must be made "within thirty (30) days from the receipt of the decision [partially or wholly] denying the claim." Considering that petitioner received the Denial Letter on 26 July 2018, 59 it had until 25 August 2018 within which to file the instant Petition. As it actually filed the Petition on 27 July 2018, petitioner timely filed its judicial claim. DETACa Petitioner is VAT-registered. For the first requisite, it is undeniable that petitioner is VAT-registered as shown by its BIR Certificate of Registration. 60 Petitioner's sale of services to Maersk Line A/S is subject to VAT zero-rating. There is also compliance with the second requisite for claiming input VAT refund. Respondent contends that petitioner's sale of services to Maersk Line A/S is not subject to VAT zero-rating. This argument is based on this Court's ruling in Institutional Shareholder Services, Inc.-Philippine ROHQ v. Commissioner of Internal Revenue , 61 which provides that services rendered by an ROHQ to its mother company are not subject to VAT zero-rating on the ground that both the mother company and the ROHQ are one single entity, and that said sale, in fact, constitutes doing business by the mother company in the Philippines through its ROHQ. Respondent is of the position that this case is in all fours with the present case as the services rendered by petitioner to Maersk Line A/S are akin to sale of services to its ultimate parent company, A.P. Moller-Maersk A/S. Consequently, petitioner's sale of services to Maersk Line A/S is not subject to zero-rating. We disagree. The receipt of the proceeds for petitioner's sale of services to Maersk Line A/S was made during CY 2016 which is prior to the effectivity of the Tax Reform for Acceleration and Inclusion Act ("TRAIN Law") . 62 Thus, to determine if petitioner's sale of services qualify for VAT zero-rating, an examination of the version of the Tax Code which was effective at the time of receipt of the proceeds of the sale of services is necessary. We find that petitioner is still subject to VAT zero-rating under Section 108 (B) (4) of the Tax Code ,as it was prior to the amendments introduced by the TRAIN Law which provide, as follows: " SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate. xxx xxx xxx (4) Services rendered to persons engaged in international shipping or international air transport operations, including leases of property for use thereof." (Emphasis, Ours) This provision is implemented by Section 4.108-5 (b) (4) of Revenue Regulations No. 16-2005 ("RR 16-05") ,to wit: " SEC. 4.108-5. Zero Rated Sale of Services. xxx xxx xxx (b) Transactions Subject to Zero Percent (0%) VAT Rate. The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate: xxx xxx xxx (4) Services rendered to persons engaged in international shipping or air transport operations, including leases of property for use thereof; Provided, however , That the services referred to herein shall not pertain to those made to common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines, the same being subject to twelve percent (12%) VAT under Sec. 108 of the Tax Code starting Feb. 1, 2006;" Consequently, to qualify for VAT zero-rating under the then Section 108 (B) (4) of the Tax Code ,what should only be proven is that export services were rendered by a VAT-registered person to an entity engaged in international shipping. No other qualification is required from the recipient of such services, and neither is there any prohibition for it to engage in other trade or business. 63 Under the current version of Section 108 (B) (4) of the Tax Code ,as it was amended by the TRAIN Law ,however, another requisite has been inserted to qualify for VAT zero-rating under said provision, which is proof that the services rendered were exclusively provided for international shipping or air transport operations. 64 As shown by the evidence adduced by petitioner, Maersk Line A/S is engaged in the international ocean transportation business. 65 Considering the foregoing, the services rendered by petitioner, a VAT-registered person, to Maersk Line A/S are subject to VAT zero-rating as these are sales of services made by a VAT-registered person to an entity engaged in international shipping. An examination, however, of the voluminous documentary evidence presented and offered by petitioner, and as disclosed in Annex "D" of the ICPA Report, 66 would show that not all of the VAT Official Receipts ("ORs") issued by petitioner to Maersk Line A/S are valid, to wit: HEITAD Exhibit No. Amount Particulars "P-56" 67 Php11,926,336.78 As represented, the customer's name was altered from "A.P. Moller A/S" to "Maersk Line A/S." The countersignature is not the same signature appearing in the space provided for the authorized signature in the VAT ORs. "P-61" 68 Php73,092,505.74 As represented, the customer's name was altered from "A.P. Moller A/S" to "Maersk Line A/S." The countersignature is not the same signature appearing in the space provided for the authorized signature in the VAT ORs. "P-64" 69 Php44,636,505.47 As represented, the customer's name was altered from "A.P. Moller A/S" to "Maersk Line A/S." The countersignature is not the same signature appearing in the space provided for the authorized signature in the VAT ORs. Total Php129,655,347.99 The alterations made in these VAT ORs resulted in the same being invalidated for VAT zero-rating purposes. These VAT ORs are considered tampered since no proof was adduced showing that the signatories beside the alterations were authorized to perform such. Consequently, petitioner cannot claim the total amount of USD42,236,116.47 (or the equivalent of Php2,011,153,601.06) as VAT zero-rated sales. The amount pertaining to the tampered VAT ORs should be deducted. As such, only the amount of Php1,881,498,253.07 70 qualifies as petitioner's VAT zero-rated sales to Maersk Line A/S. Petitioner incurred and paid input VAT from its local purchases of goods and services. Likewise, the third requisite has been complied with in the case at bar. As found in the ICPA Report, and as confirmed by this Court, petitioner incurred and paid input VAT arising from its local purchases of goods and services. Since petitioner did not have enough output VAT from which its input VAT can be offset, it incurred excess or unutilized input VAT during CY 2016, which allegedly amounted to Php38,676,213.08, summarized as follows: 71 Output Tax Due 1st Quarter 72 2nd Quarter 73 3rd Quarter 74 4th Quarter 75 Vatable Sales/Receipt Private 226,022.39 57,935.49 15,589.28 207,945.71 Sale to Government Total Output Tax Due 226,022.39 57,935.49 15,589.28 207,945.71 Less: Allowable Input Tax Input Tax Carried Over from Previous Period 47,087,551.37 14,975,834.13 23,258,340.44 30,145,085.51 Input Tax Deferred on Capital Goods Exceeding P1 Million from Previous Quarter 11,928,802.11 11,115,505.56 10,123,167.51 10,880,068.53 Transitional Input Tax Presumptive Input Tax Others Total 59,016,353.48 26,091,339.69 33,381,507.95 41,025,154.04 Current Transactions Purchase of Capital Goods not exceeding P1Million 18,787.88 45,391.52 51,593.89 76,008.69 Purchase of Capital Goods exceeding P1Million 194,041.55 - 1,794,358.38 444,910.19 Domestic Purchases of Goods Other than Capital Goods 391,485.68 297,733.09 542,215.11 388,052.37 Importation of Goods Other than Capital Goods Domestic Purchase of Services 13,784,244.86 7,004,979.14 5,271,068.00 7,143,400.60 Services Rendered by Non-residents Others Total Available Input Tax 73,404,913.45 33,439,443.44 41,040,743.33 49,077,525.89 Less; Deductions from Input Tax Input Tax on Purchases of Capital Goods exceeding P1 Million deferred for the succeeding period 11,115,505.56 10,123,167.52 10,880,068.54 10,193,367.10 Input Tax on Sale to Gov't. closed to expense Input tax allocable to Exempt Sales Vat Refund/TCC claimed 47,087,551.37 - - - Others Total 58,203,056.93 10,123,167.52 10,880,068.54 10,193,367.10 Total Allowable Input Tax 15,201,856.52 23,316,275.92 30,160,674.79 38,884,158.79 Net VAT Payable (14,975,834.13) (23,258,340.43) (30,145,085.51) (38,676,213.08) But not all of these can be refunded by petitioner. This Court agrees with the following findings in the ICPA Report: 1. Not all of the VAT invoices representing the input VAT arising from local purchases of goods other than capital goods complied with the VAT-invoicing requirements under Section 113 of the Tax Code . 76 These are the following: 77 Particulars 1st Quarter 78 2nd Quarter 79 3rd Quarter 80 4th Quarter 81 Total Petitioner's TIN is incorrect, incomplete or not indicated Computer generated sales invoice 1,739.14 385.71 41,052.86 8,660.16 51,837.87 Petitioner's TIN is incorrect, incomplete or not indicated and with manual alteration Computer-generated sales invoice 4,922.46 4,922.46 Petitioner's address is incorrect or incomplete and the invoice is dated in 2015 Computer-generated sales invoice 14,142.69 14,142.69 Petitioner's address is incorrect Computer-generated sales invoice 3,477.00 642.86 2,357.14 6,477.00 Petitioner's TIN and address are not indicated Computer-generated sales invoice 2,946.43 2,946.43 Petitioner's TIN is not indicated and the sales invoice is dated in 2015 Computer-generated sales invoice 110,432.47 110,432.47 Computer-generated sales invoice with manual alteration 5,229.97 642.86 5,872.83 No proof that the person who countersigned the correction is an authorized person 37,965.35 37,965.35 The alteration is not countersigned 555.84 555.84 Supported with document other than VAT invoice 2,035.71 10,972.50 37,746.43 5,720.90 56,475.54 Supported with document other than VAT invoice and the address indicated is incorrect 2,314.29 2,314.29 The amount of input VAT is not separately indicated 622.29 622.29 The registered name of petitioner is incorrect 1,119.64 1,119.64 Petitioner's TIN is either incorrect or not indicated 1,543.97 11,806.59 13,350.56 Out-of-period claim 1,040.82 1,443.70 2,484.52 Out-of-period claim and petitioner's address indicated is incomplete 499.29 499.29 No supporting documents 48,221.55 49,758.99 9,855.39 225,465.79 333,301.72 Overclaimed input VAT 1,756.04 519.47 0.08 0.08 2,275.67 Total 193,552.58 71,592.12 142,604.83 239,846.93 647,596.46 2. Only the following input VAT is allowed for local purchases of goods other than capital goods: 82 aDSIHc Particulars Amount 1st Quarter 83 Php190,530.85 2nd Quarter 84 Php229,357.17 3rd Quarter 85 Php381,499.21 4th Quarter 86 Php135,875.80 Total Php937,263.03 3. Not all of the VAT ORs representing the input VAT arising from local purchases of services complied with the VAT-invoicing requirements under Section 113 of the Tax Code .These are the following: 87 Particulars 1st Quarter 88 2nd Quarter 89 3rd Quarter 90 4th Quarter 91 Total Computer-generated OR with manual alteration 894.96 127.03 1,021.99 Petitioner's address of the ROHQ indicated is incorrect Computer-generated OR 5,931.36 2,965.68 8,897.04 Petitioner's TIN is not indicated and the address indicated is incorrect Computer-generated OR 64,602.00 8,926.80 73,528.80 Petitioner's TIN is not indicated Computer-generated OR 12,615.15 9,770.29 22,385.44 With manual alteration and petitioner's TIN is not indicated Computer-generated OR 1,119.27 1,119.27 The name of petitioner indicated is incorrect Computer-generated OR 7,845.43 7,845.43 With manual alteration and the name of the petitioner indicated is incorrect Computer-generated 139,353.23 139,353.23 The OR is not dated 204.00 204.00 Improperly accomplished VAT breakdown 25,715.82 12,948.04 18,328.48 18,432.69 75,425.03 The address of petitioner indicated is incorrect and the VAT breakdown is improperly accomplished 1,615.62 1,615.62 The address of petitioner is incorrect or not indicated 7,066.71 3,045.23 10,111.94 The TIN and address of petitioner are incorrect 108.64 108.64 The TIN of petitioner is incorrect and the address is not indicated 611.63 611.63 The TIN and address of petitioner are not indicated 3,214.29 3,214.29 The TIN of petitioner indicated is incorrect 9,296.76 5,400.00 14,696.76 The registered name of petitioner is incomplete and the address is not indicated 7,020.81 7,020.81 The registered name and address of petitioner is incorrect and the TIN is not indicated 1,411.74 1,411.74 The registered name, address and TIN of petitioner is incorrect 1,201.61 1,201.61 The TIN and address of petitioner are not indicated and the alteration is not countersigned 3,193.19 3,193.19 The registered name, TIN and VAT breakdown are incorrect 15,836.85 15,836.85 The TIN and address are incorrect and the ATP is invalid 1,084.25 1,084.25 Invalid ATP 2,296.46 45,094.41 47,390.87 No proof that the person who countersigned the correction is an authorized person or the correction is not countersigned 11,627.07 12,954.86 117,621.61 108,747.60 250,951.14 VAT-exempt transaction 5,677.88 5,677.88 Supported with document other than VAT OR 5,499.64 3,817.53 12,149.94 21,467.11 No supporting documents 913,747.24 190,878.55 167,326.27 363,657.28 1,635,609.34 Overclaimed input VAT 48,116.24 380,277.08 34,394.10 36,122.97 498,910.39 Total 1,077,858.71 774,371.78 370,696.93 626,966.87 2,849,894.29 4. Only the following input VAT is allowed for local purchases of services: 92 Particulars Amount 1st Quarter 93 Php12,713,788.66 2nd Quarter 94 Php6,227,390.28 3rd Quarter 95 Php4,918,482.14 4th Quarter 96 Php6,528,763.36 Total Php30,388,424.44 5. Some input VAT arising from the purchase of capital goods not exceeding Php1,000,000.00 should be disallowed, to wit: 97 Particulars 1st Quarter 98 2nd Quarter 99 3rd Quarter 4th Quarter 100 Total Incorrect address 4,850.07 4,850.07 No supporting documents 45,391.52 76,008.69 121,400.21 Total 4,850.07 45,391.52 76,008.69 126,250.28 6. Only the following input VAT is allowed for local purchases of capital goods not exceeding Php1,000,000.00: 101 Particulars Amount 1st Quarter 102 Php13,937.81 2nd Quarter 3rd Quarter 103 Php51,593.89 4th Quarter Total Php65,531.70 7. Certain input VAT arising from the purchase of capital goods exceeding Php1,000,000,00 should be disallowed: 104 Particulars Total 105 Computer-generated invoice with manual alteration 117,642.86 Petitioner's TIN is incorrect or not indicated 605,402.82 Petitioner's TIN is incorrect and the address is incorrect 127,440.00 No supporting documents 194,041.55 Overclaimed input VAT 87,640.85 Total 1,132,168.08 8. Only input VAT in the amount of Php3,881,345.54 is allowed for local purchases of capital goods exceeding Php1,000,000.00. 106 Given the foregoing, petitioner has a total valid input VAT in the amount of Php35,272,560.71 which it incurred or paid during CY 2016, broken down as follows: 107 Particulars Amount Total input VAT from local purchases of goods other than capital goods Php937,263.03 Total input VAT from local purchases of services Php30,388,424.44 Total input VAT from local purchases of capital goods not exceeding Php1,000,000.00 Php65,531.70 Total input VAT from local purchases of capital goods exceeding Php1,000,000.00 Php3,881,345.54 Total Php35,272,560.71 The valid input VAT should be allocated between petitioner's zero-rated sales and VATable sales. To comply with the fourth requisite, an allocation of the valid input VAT should be made based on the ratio of the VATable sales or zero-rated sales over the total sales reported in petitioner's CY 2016 VAT returns. An allocation is prescribed under Section 112 (A) of the Tax Code when the input VAT cannot be specifically attributed to petitioner's VATable sales or zero-rated sales, which is the circumstance in the present case. ATICcS Based on the foregoing, the allocation should be made as follows: 108 Particulars Amount Total zero-rated sales per VAT returns Php2,011,153,601.07 Divided by total sales per VAT returns Php2,015,382,708.08 Allocation factor for zero-rated sales 99.79015861% Particulars Amount Total VATable sales per VAT returns Php4,229,107.26 Divided by total sales per VAT returns Php2,015,382,708.08 Allocation factor for zero-rated sales 0.209841398% Particulars Zero-rated Sales VATable Sales Total valid input VAT Php35,272,560.71 Php35,272,560.71 Allocation factor 99.79015861% 0.209841398% Allocated input VAT Php35,198,544.28 Php74,016.43 As declared, though, in petitioner's VAT returns, there is an output VAT liability in the amount of Php507,492.84. 109 Given this, the allocated input VAT for the VATable sales is deficient by Php433,476.41 110 to cover such tax liability. To fully settle this output VAT liability, the remaining amount of Php433,476.41 should be offset against the allocated input VAT for zero-rated sales. Hence, the total input VAT allocable to zero-rated sales would only be Php34,765,067.87. 111 However, as this Court has found, only Php1,881,498,253.07 out of Php2,011,153,601.07 can be validly claimed as zero-rated sales by petitioner. Hence, the Php34,765,067.87 input VAT allocable to zero-rated sales should further be allocated between the valid zero-rated sales and the invalid zero-rated sales. The allocation should be made based on the ratio of the valid zero-rated sales or invalid zero-rated sales over the total zero-rated sales. The input VAT allocated to the valid zero-rated sales shall then be the only amount of input VAT which can be refunded or the subject of a tax credit. Thus, only the amount of Php32,523,828.33 112 can be refunded or subject of a tax credit in favor of petitioner representing its unutilized or excess input VAT attributable to zero-rated sales. The input VAT to be refunded was not applied against petitioner's output VAT liability. The fifth requisite was similarly complied with. The excess or unutilized input VAT refunded or subjected to tax credit in favor of petitioner has not been applied against any output VAT liability. As the ICPA has noted, the amount being claimed by petitioner for input VAT refund has not been credited by petitioner against its output VAT liabilities in the succeeding years and has in fact declared said amount as subject to "VAT Refund/TCC claimed." 113 WHEREFORE ,in view of the foregoing, the instant Petition for Review is PARTIALLY GRANTED .Accordingly, respondent is ORDERED TO REFUND OR TO ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the amount of Php32,523,828.33, representing excess or unutilized excess input VAT attributable to its zero-rated sales for the four quarters of CY 2016. ETHIDa SO ORDERED. (SGD.) MARIA ROWENA MODESTO-SAN PEDRO Associate Justice Erlinda P. Uy and Ma. Belen M. Ringpis-Liban, JJ. ,concur. Footnotes 1. Records, Vol. 1, pp. 10-38. 2. Petition, p. 8, id. ,p. 17. 3. Ibid . 4. Exhibits "P-2" to "P-6", id. ,pp. 128-152. 5. See Q13 and A13 of the Judicial Affidavit of Ms. Rochelle V. Duclay, Exhibit "P-17", id. ,p. 106. 6. See Annex "D" of the Independent Certified Public Accountant ("ICPA") Report, Exhibit "P-19", id. ,pp. 291-292. 7. Exhibit "P-19-b". 8. Ibid. 9. Ibid. 10. Ibid. 11. Records, Vol. 1, pp. 408-409. 12. Id. ,pp. 410-411. 13. Id. ,pp. 412-413. 14. Id. ,pp. 414-415. 15. See Q54 to Q56 and A54 to A56 of the Judicial Affidavit of Ms. Rochelle V. Duclay, Exhibit "P-17", id. ,pp. 114-115; ICPA Report, p. 7, id. ,p. 267; See Annex "C" of the ICPA Report, Exhibit "P-19", id. ,p. 290. 16. See Q58 to Q59 and A58 to A59 of the Judicial Affidavit of Ms. Rochelle V. Duclay, Exhibit "P-17", id. ,p. 115. 17. See Q56 to Q57 and A56 to A57, and Q63 and A63 of the Judicial Affidavit of Ms. Rochelle V. Duclay, Exhibit "P-17", id. ,pp. 115 and 116, respectively. 18. Exhibit "P-8", id. ,pp. 408-409. 19. Exhibit "P-9", id. ,pp. 410-411. 20. Exhibit "P-10", id. ,pp. 412-413. 21. Exhibit "P-11", id. , pp. 414-415. 22. See Q64 to Q65, and A64 to A65 of the Judicial Affidavit of Ms. Rochelle V. Duclay, Exhibit "P-17", id. ,p. 116; Exhibits "P-13" and "P-14", id. ,p. 163 and BIR Records, p. 71, respectively. 23. See Q72 to Q73, and A72 to A73 of the Judicial Affidavit of Ms. Rochelle V. Duclay, Exhibit "P-17", id. ,pp. 117-118; Exhibit "P-21". 24. Id. ,pp. 39-40. 25. Id. ,pp. 41-58. 26. Id. ,pp. 59-60. 27. Id. ,pp. 65-68. 28. Exhibit "R-4", id. ,pp. 70-82. 29. Id. ,pp. 83-93. 30. Id. ,pp. 101-171. 31. Id. ,pp. 94-99. 32. Id. ,pp. 221-229. 33. Id. ,pp. 237-243. 34. Exhibit "P-19", id. ,pp. 261-359. 35. Id. ,pp. 376-378. 36. Id. ,pp, 384-389. 37. Id. ,pp. 432-433. 38. Id. ,pp. 390-426. 39. Id. ,pp. 428-431. 40. Id. ,pp. 434-436. 41. Id. ,pp. 437-469. 42. Id. ,pp. 470-472. 43. Id. ,pp. 473-476. 44. Id. ,p. 479. 45. Id. ,pp. 483-495. 46. Id. ,Vol. 2, p. 496. 47. Id. ,pp. 497-502. 48. Id. ,pp. 503-504. 49. Id. ,pp. 505-532. 50. Id. ,pp. 533-534. 51. Issue, Pre-Trial Order, id. ,p. 239. 52. See petitioner's Memorandum, id. ,pp. 511-529. 53. Citing Commissioner of Internal Revenue v. Maersk Global Service Centres (Philippines) Ltd. , CTA EB No. 1318, CTA Case No. 8549. 54. CTA EB No. 700, 18 July 2011, CTA Case No. 7662, 3 June 2010. 55. See respondent's Memorandum, Records, Vol. 1, pp. 484-493. 56. CTA EB No. 700, 18 July 2011, CTA Case No. 7662, 3 June 2010. 57. Maersk Global Services Centres (Philippines), Ltd. v. Commissioner of Internal Revenue , CTA Case No. 9015, 17 November 2017. 58. See Q64 to Q65, and A64 to A65 of the Judicial Affidavit of Ms. Rochelle V. Duclay, Exhibit "P-17", Id. ,p. 116; Exhibits "P-13" and "P-14", Id. ,p. 163 and BIR Records, p. 71, respectively. 59. See Q72 to Q73, and A72 to A73 of the Judicial Affidavit of Ms. Rochelle V. Duclay, Exhibit "P-17", Id. ,pp. 117-118; Exhibit "P-21". 60. Exhibit "P-7", id. ,p. 406. 61. CTA EB No. 700, 18 July 2011, CTA Case No. 7662, 3 June 2010. 62. R.A. No. 10963; effectivity date is 1 January 2018. 63. Commissioner of Internal Revenue v. Maersk Global Service Centres (Philippines) Ltd. , CTA EB No. 1318, CTA Case No. 8549, 5 December 2016. 64. Section 33, TRAIN Law. 65. Exhibits "P-2" to "P-6", id. ,pp. 128-152; ICPA Report, p. 10. 66. Exhibit "P-19-b". 67. Exhibit "P-19-b". 68. Ibid. 69. Ibid. 70. Php2,011,153,601.06 Php129,655,347.99. 71. ICPA Report, Exhibit "P-19",pp. 2-4; See Annex "A" of the ICPA Report, Exhibit "P-19-b". 72. Exhibit "P-8",Records, Vol. 1, pp. 408-409. 73. Exhibit "P-9", id. ,pp. 410-411. 74. Exhibit "P-10", id. ,pp. 412-413. 75. Exhibit "P-11", id. ,pp. 414-415. 76. SEC. 113. Invoicing and Accounting Requirements for VAT-Registered Persons . (A) Invoicing Requirements. A VAT-registered person shall issue: (1) A VAT invoice for every sale, barter or exchange of goods or properties; and (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. (B) Information Contained in the VAT Invoice or VAT Official Receipt. The following information shall be indicated in the VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his Taxpayer's Identification Number (TIN);and (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax. Provided, That: (a) The amount of the tax shall be known as a separate item in the invoice or receipt; (b) If the sale is exempt from value-added tax, the term VAT-exempt sale: shall be written or printed prominently on the invoice or receipt; (c) If the sale is subject to zero percent (0%) value-added tax, the term " zero-rated sale " shall be written or printed prominently on the invoice or receipt; (d) If the sale involved goods, properties or services some of which are subject to and some of which are VAT zero-rated or VAT exempt, the invoice or receipt shall clearly indicate the break-down of the sale price between its taxable, exempt and zero-rated components, and the calculation of the value-added tax on each portion of the sale shall be known on the invoice or receipt: Provided, That the seller may issue separate invoices or receipts for the taxable, exempt, and zero-rated components of the sale. (3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and (4) In the case of sales in the amount of One thousand pesos (P1,000) or more where the sale or transfer is made to a VAT-registered person, the name, business style, if any, address and Taxpayer Identification Number (TIN) of the purchaser, customer or client. 77. ICPA Report, Exhibit "P-19",pp. 17-18. 78. See Annex "F" of the ICPA Report, Exhibit "P-19-b". 79. See Annex "K" of the ICPA Report, id . 80. See Annex "P" of the ICPA Report, id . 81. See Annex "U" of the ICPA Report, id . 82. ICPA Report, Exhibit "P-19",pp. 15-16. 83. See Annex "E" of the ICPA Report, Exhibit "P-19-b". 84. See Annex "J" of the ICPA Report, id . 85. See Annex "O" of the ICPA Report, id . 86. See Annex "T" of the ICPA Report, id . 87. ICPA Report, Exhibit "P-19",pp. 18-20. 88. See Annex "I" of the ICPA Report, Exhibit "P-19-b". 89. See Annex "N" of the ICPA Report, id . 90. See Annex "S" of the ICPA Report, id . 91. See Annex "X" of the ICPA Report, id . 92. ICPA Report, Exhibit "P-19",pp. 15-16. 93. See Annexes "G" and "H" of the ICPA Report, Exhibit "P-19-b". 94. See Annexes "L" and "M" of the ICPA Report, id . 95. See Annexes "Q" and "R" of the ICPA Report, id . 96. See Annexes "V" and "W" of the ICPA Report, id . 97. ICPA Report, Exhibit "P-19",p. 22. 98. See Annex "Z" of the ICPA Report, Exhibit "P-19-b". 99. See Annex "AA" of the ICPA Report, id . 100. See Annex "AC" of the ICPA Report, id . 101. ICPA Report, Exhibit "P-19",p. 22. 102. See Annex "Y" of the ICPA Report, Exhibit "P-19-b". 103. See Annex "AB" of the ICPA Report, id . 104. ICPA Report, Exhibit "P-19",p. 24. 105. See Annex "AD" of the ICPA Report, Exhibit "P-19-b". 106. ICPA Report, Exhibit "P-19",p. 24; See Annex "AE" of the ICPA Report, id . 107. ICPA Report, Exhibit "P-19",p. 25. 108. Ibid. 109. Id. ,p. 26; See Annex "A" of the ICPA Report, Exhibit "P-19-b". 110. Php507,492.84 Php74,016.43. 111. Php35,198,544.28 Php433,476.41. 112. 1,881,498,253.07 / 2,011,153,601.07 X 34,765,067.87. 113. ICPA Report, Exhibit "P-19",p. 3.