Manulife Data Services, Inc. v. Commissioner of Internal Revenue

SECOND DIVISION [C.T.A. CASE NOS. 8054, 8117 & 8139. July 24, 2013.] MANULIFE DATA SERVICES, INC. , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . RESOLUTION CASTAEDA, JR. , J p : For resolutions are petitioner's " MOTION FOR PARTIAL RECONSIDERATION (Re: Decision of 08 May 2013) " filed on May 24, 2013, without respondent's comment despite notice, and respondent's " MOTION FOR PARTIAL RECONSIDERATION (RE: Decision promulgated on 8 May 2013) " filed on May 29, 2013 with petitioner's " COMMENT/OPPOSITION (Re: Respondent's Motion for Reconsideration dated 27 May 2013) " filed on June 19, 2013. In a Decision promulgated on May 8, 2013, this Court partially granted petitioner's claim for issuance of tax credit certificate in the amount of P8,294,312.44, representing its unutilized input Value-Added Tax (VAT) attributable to its zero-rated sales for the four quarters of 2008. The dispositive portion of the said Decision reads: " WHEREFORE , premises considered, petitioner's claim for issuance of tax credit certificate is hereby PARTIALLY GRANTED . Accordingly, respondent is hereby ORDERED TO ISSUE A TAX CREDIT CERTIFICATE in the amount of P8,294,312.44 in favor of petitioner, representing unutilized input VAT attributable to its zero-rated sales for the four quarters of 2008. SO ORDERED ." Consequently, both parties filed their respective Motions for Reconsideration. We shall first address respondent's motion for reconsideration before resolving petitioner's motion for reconsideration. DSEIcT In her Motion, respondent argues that she has one hundred twenty (120) days from the submission of complete documents within which to decide petitioner's administrative claim for refund under Section 112 (C) of the National Internal Revenue Code (NIRC), as amended. According to respondent, the 120-day period did not commence to run since petitioner failed to submit the required set of documents. Considering that petitioner filed the instant case without waiting for the lapse of the 120-day period, the instant claim for refund must be denied for failure of petitioner to exhaust administrative remedies. Finally, respondent contends that petitioner should comply with the provisions of Revenue Memorandum Circular (RMC) No. 29-2009; otherwise, the claim will be denied. On the other hand, petitioner states that the grounds alleged by respondent are reiterations of the grounds she raised in her Answer that were successfully rebutted. Furthermore, petitioner states that the decision rendered by this Court is correct and that it submitted the complete set of documents in support of its administrative claim for refund. Finally, petitioner states that respondent failed to adduce evidence to rebut petitioner's claim. Respondent's contention is devoid of merit. Records of this case reveal that respondent did not present any evidence in support of her allegation that petitioner indeed failed to submit complete documents and to comply with the provisions of RMC No. 29-2009. Considering that respondent failed to identify and prove to this Court the specific documents which were not submitted and on how petitioner failed to comply with RMC No. 29-2009, respondent's arguments remain to be mere allegations which run contrary to the evidence on record. Respondent is reminded that it is basic in the rule of evidence that bare allegations, unsubstantiated by evidence, are not equivalent to proof. In short mere allegations are not evidence. 1 In view of the foregoing, the reckoning of the 120-day period under Section 112 (C) of the NIRC, as amended, commenced to run simultaneously with the filing of petitioner's administrative claim on December 4, 2009 and February 26, 2010. With respect to petitioner's motion for reconsideration, the bone of its contention is the proper application of Section 108 (B) (1) and (2) of the NIRC, as amended, to this case. Section 108 (B) (1) and (2) provides: DTEcSa "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: (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 Bangko Sentral ng Pilipinas (BSP); (2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." Based on the preceding paragraphs, one of the requirements in order for a VAT registered person to qualify for VAT zero-rating is that its sale of services must be in favor of a person engaged in business outside the Philippines. In the assailed Decision, this Court did not consider petitioner's sale of service to its foreign client, Manufacturer's Life Insurance Company (MLIC), as subject to VAT zero-rating after finding that the latter maintains a branch office in the Philippines. Thus, petitioner contends that while foreign corporations with Philippine branches are considered "as doing business" here in the Philippines, the landmark case of Marubeni Corporation vs. Commissioner of Internal Revenue and Court of Tax Appeals 2 (Marubeni Case) provides that sales made directly to a foreign corporation without the intervention and participation of the Philippine Branch will qualify as zero-rated sales. Considering that the evidence it presented before this Court shows that it directly transacted business with MLIC, a company incorporated under the laws of Canada, without the intervention of its Philippine Branch, petitioner's services to MLIC qualify as zero-rated sales. Consequently, petitioner moves that this Court grants in full the refunded amount prayed for. SAHITC Petitioner's arguments deserve scant consideration. Petitioner's reliance on the Marubeni Case is misplaced for the factual antecedents between the said case and the case on hand are different. A cursory reading of the Marubeni Case shows that it involves a claim for refund on taxes on dividends which were overpaid. On the other hand, this case involves a claim for the issuance of tax credit certificate representing unutilized input VAT attributable to zero-rated sales. Considering that the Marubeni Case is inapplicable, is MLIC a foreign corporation doing business outside the Philippines? While there is no specific criterion as to what constitutes "doing" or "engaging in" or "transacting" business, there must be on the part of the foreign corporation a continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character. As held in the case of the Commissioner of Internal Revenue vs. British Overseas Airways Corporation , 3 the Supreme Court provides: ". . . There is no specific criterion as to what constitutes 'doing' or 'engaging in' or 'transacting' business. Each case must be judged in the light of its peculiar environmental circumstances. The term implies a continuity of commercial dealing and arrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some of the functions normally incident to, and in progressive prosecution of commercial gain or for the purpose and object of the business organization. 'In order that a foreign corporation may be regarded as doing business within the State, there must be continuity of conduct and intention to establish a continuous business, such as the appointment of a local agent, and not one of a temporary character.' " (Emphasis supplied.) The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their claims. This is because tax refunds are in the nature of tax exemptions, the statutes of which are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Taxes are the lifeblood of the nation; therefore, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. 4 In this case, evidence on record reveal that petitioner's client, (MLIC), is a foreign corporation engaged in business in the Philippines through its branch as shown by the Certificate of Filing of Amended General By-Laws of a Foreign Corporation 5 issued by the Securities and Exchange Commission and by the 2008 General Information Sheet of the Manufacturer's Life Insurance Co. (Phils.), Inc. 6 Considering that MLIC is considered as a foreign corporation engaged in business in the Philippines for having a branch as its local agent, the sale of services by petitioner does not qualify for VAT zero-rating. TSIaAc WHEREFORE , premises considered, respondent's " MOTION FOR PARTIAL RECONSIDERATION (RE: Decision promulgated on 8 May 2013) " and petitioner's " MOTION FOR PARTIAL RECONSIDERATION (Re: Decision of 08 May 2013) " are DENIED for lack of merit. SO ORDERED . (SGD.) JUANITO C. CASTAEDA, JR. Associate Justice Caesar A. Casanova and Amelia R. Cotangco-Manalastas, JJ., concur. Footnotes 1. Real vs. Belo , G.R. No. 146224, January 26, 2007. 2. G.R. No. 76573, September 14, 2009. 3. 233 Phil. 406 (1987). 4. Philippine Phosphate Fertilizer Corporation vs. Commissioner of Internal Revenue , G.R. No. 141973, June 28, 2005. 5. Attached to Exhibit "GG". 6. Exhibit "FF".