Macquarie Offshore Services Pty. Ltd.-Philippine branch v. Commissioner of Internal Revenue

SECOND DIVISION [C.T.A. CASE NOS. 8221 & 8282. May 2, 2014.] MACQUARIE OFFSHORE SERVICES PTY. LTD.-PHILIPPINE BRANCH , petitioner , vs . COMMISSIONER OF INTERNAL REVENUE , respondent . DECISION CASANOVA , J p : These are two (2) consolidated Petitions for Review, 1 separately filed by Macquarie Offshore Services Pty. Ltd.-Philippine Branch (petitioner), pursuant to Rule 8, Section 4 (a) of the Revised Rules of the Court of Tax Appeals (RRCTA), in relation to Rule 4 thereof, to review by appeal the inaction of the respondent Commissioner of Internal Revenue over petitioner's administrative claim for tax refund or issuance of tax credit certificate of its alleged excess and unutilized input value-added tax (VAT) on purchases of goods and services attributable to its zero-rated sales of services covering the period July 1, 2008 to March 31, 2009, in the aggregate amount of P4,318,178.19, broken down as follows: EDCcaS CTA Case No. Period Covered Amount 8221 July to December 2008 P2,129,229.47 8282 January to March 2009 2,188,948.72 TOTAL P4,318,178.19 =========== Petitioner is the Philippine branch of a multinational company organized and existing under and by virtue of the laws of Australia. It is licensed to do business as a Regional Operating Headquarters (ROHQ) in the Philippines by the Securities and Exchange Commission (SEC) on April 10, 2008, pursuant to the Omnibus Investment Code of 1987, as amended by Republic Act No. 8756 and its implementing rules and regulations, to engage in general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communication and business development. 2 Its principal place of business is at the 30th Floor, Tower I, The Enterprise Center, Ayala Avenue, Makati City. 3 Respondent is the duly appointed Commissioner of Internal Revenue, with the authority to act as such, including the power to decide, approve and grant claims for issuance of tax credit certificate or refund of overpaid internal revenue taxes as provided by law. She holds office at the BIR National Office Building, Agham Road, Diliman, Quezon City. As a Regional Operating Headquarters, petitioner is engaged in the business of providing qualifying services to its affiliates and related parties in the Asia-Pacific Region and in other foreign markets as clearly stated in SEC Certificate of Registration and License. 4 These services were paid in Australian dollars (AUD) an acceptable foreign currency inwardly remitted through its account at Hong Kong and Shanghai Banking Corporation (HSBC) and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). 5 Petitioner purchased goods and services in the course of rendering services in the Philippines as a Regional Operating Headquarters to its foreign client. 6 It is registered with the Bureau of Internal Revenue (BIR) as a VAT-registered taxpayer, with Taxpayer's Identification No. (TIN) 261-474-856-000, as evidenced by its Certificate of Registration OCN 9RC0000266681 dated June 2, 2008. 7 Petitioner filed its original Quarterly VAT Returns for 2nd, 3rd and 4th quarters of fiscal year 2009, on the following dates: 8 Exhibit Fiscal Year 2009 Date Filed D July to September 2008 (2nd Qtr) October 27, 2008 E October to December 2008 (3rd Qtr) January 22, 2009 F January to March 2009 (4th Qtr) April 21, 2009 On September 23, 2010, petitioner filed with the BIR Revenue District Office No. 47 an Application for Tax Credits/Refunds (BIR Form No. 1914) and a letter 9 dated September 23, 2010, requesting for the refund/issuance of Tax Credit Certificate (TCC) in the amount of P2,129,229.47, representing unutilized input value-added tax (VAT) attributable to its zero-rated sales for the period covering July 2008 to December 2008 or for second (2nd) and third (3rd) quarters of fiscal year 2009. On November 25, 2010, 10 petitioner filed before the BIR Revenue District Office No. 47 an Application for Tax Credits/Refunds (BIR Form No. 1914) and a letter 11 dated November 24, 2010, requesting for the refund/issuance of Tax Credit Certificate (TCC) in the amount of P2,188,948.72, representing unutilized input value-added tax (VAT) attributable to its zero-rated sales for the period covering January to March 2009 (4th) quarter of fiscal year 2009. However, due to the inaction of respondent Commissioner of Internal Revenue on petitioner's administrative claims, petitioner filed the two separate Petitions for Review docketed as CTA Case Nos. 8221 and 8282 on January 27, 2011 and April 20, 2011, respectively. At the instance of petitioner, the two (2) separate cases filed were consolidated by the Third Division on August 22, 2011 12 which was confirmed by the CTA Second Division in a Resolution 13 dated August 31, 2011. Respondent interposed the following Special and Affirmative Defenses in her Answers to the Petitions for Review docketed as CTA Case Nos. 8221 14 and 8282: 15 HDTSIE CTA Case No. 8221 "5) Respondent reiterates and repleads the preceding paragraphs of the answer as part of his Special and Affirmative Defenses; 6) Petitioner's claim for refund is still subject to investigation by the Bureau of Internal Revenue; 7) Petitioner failed to demonstrate that the tax, which is the subject of this case, was erroneously or illegally collected; 8) Taxes paid and collected are presumed to be made in accordance with the laws and regulations, hence, not refundable; 9) It is incumbent upon the Petitioner to show that it has complied with the provision of Section 204(C) in relation to Section 229 of the 1997 Tax Code, as amended; 10) Petitioner's claim for refund or issuance of tax credit certificate in the amount of Php2,129,229.47, as alleged unutilized input VAT paid on purchases of goods and services attributable to its zero-rated sales for the 2nd to 3rd Quarters of fiscal year 2009 was not fully substantiated by proper documents, such as sales invoices, official receipts and others. 11) In an action for tax credit or refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to discharge the said burden is fatal to the claim (Emmanuel & Zenaida Aguilar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxation in the Philippines, 1st Edition, p. 206) . 12) Claims for refund are construed strictly against the claimant, the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121) ." CTA Case No. 8282 "1. Respondent reiterates and repleads the preceding paragraphs of the answer as part of her Special and Affirmative Defenses; 2. Petitioner's claim for refund is still subject to investigation by the Bureau of Internal Revenue; 3. Petitioner failed to demonstrate that the tax, which is the subject of this case, was erroneously or illegally collected; 4. Taxes paid and collected are presumed to be made in accordance with the laws and regulations, hence, not refundable; 5. It is incumbent upon the Petitioner to show that it has complied with the provision of Section 204(C) in relation to Section 229 of the 1997 Tax Code, as amended; 6. Petitioner's claim for refund or issuance of tax credit certificate in the amount of Php2,188,948.72, as alleged unutilized input VAT paid on purchases of goods and services attributable to its zero-rated sales for the 4th Quarter of fiscal year 2009 was not fully substantiated by proper documents, such as sales invoices, official receipts and others. 7. In an action for tax credit or refund, the burden is upon the taxpayer to prove that he is entitled thereto, and failure to discharge the said burden is fatal to the claim (Emmanuel & Zenaida Aguilar v. Commissioner, CA-GR No. Sp. 16432, March 30, 1990 cited in Aban, Law of Basic Taxation in the Philippines, 1st Edition, p. 206) . 8. Claims for refund are construed strictly against the claimant, the same partake the nature of exemption from taxation (Commissioner of Internal Revenue vs. Ledesma, 31 SCRA 95) and as such, they are looked upon with disfavor. (Western Minolco Corp. vs. Commissioner of Internal Revenue, 124 SCRA 121) ." On June 23, 2011 and February 2, 2012 this Court, upon Motion 16 of petitioner, appointed Jerome Antonio B. Constantino as Independent Certified Public Accountant (Independent CPA). 17 During trial, petitioner presented as witnesses Garry Taylor, its Division Director and resident agent 18 and Jerome Antonio B. Constantino, the Independent CPA duly commissioned by this Court. 19 Thereafter, on November 16, 2012, petitioner filed its Formal Offer of Documentary Evidence, 20 submitting Exhibits "A" to "NNN," inclusive of sub-marking which was admitted by the Court in the Resolution 21 dated January 7, 2013. cDTACE During the April 10, 2013 hearing, 22 petitioner orally offered Exhibit "OOO" which was duly admitted by the Court on even date. Likewise, respondent manifested that she will not be presenting any evidence in this case. Thus, this Court granted the parties a period of thirty (30) days from said date or until May 10, 2013 to file their Memoranda; afterwhich, the case shall be deemed submitted for decision. In the Resolution 23 dated July 3, 2013, the case was submitted for decision taking into consideration Petitioner's Memorandum, filed through registered mail on May 17, 2013, and received by this Court on May 30, 2013 and respondent's Memorandum, filed through registered mail on June 7, 2013, and received by this Court on June 20, 2013. The following are the parties' jointly stipulated issues in CTA Case Nos. 8221 24 and 8282 25 submitted for this Court's resolution: CTA Case No. 8221 "1. Whether or not petitioner rendered services to persons engaged in business conducted outside the Philippines, the services were paid for in Australian Dollars inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas for the 2nd to 3rd Quarters of Fiscal Year 2009 (or for the period of July to December 2008). 2. Whether or not petitioner's sales of services to persons engaged in business conducted outside of the Philippines is subject to VAT at zero-percent. 3. Whether or not petitioner has accumulated excess input VAT for the 2nd to 3rd quarters of f.y. 2009 amounting to Php2,129,299.47. 4. Whether or not petitioner's input VAT in the amount of Php2,129,229.47 is directly attributable to its alleged zero-rated sales for the 2nd to 3rd quarters of f.y. 2009; 5. Whether or not petitioner input VAT in the amount of P2,129,229.47 remains unutilized; 6. Whether or not petitioner's claim for refund/tax credit of alleged input VAT for the 2nd to 3rd quarters of f.y. 2009 is duly substantiated by documentary evidence. 7. Whether or not petitioner has complied with the invoicing requirements pursuant to Revenue Regulations No. 16-2005. 8. Whether or not petitioner is entitled to claim a refund or tax credit in the amount of Php2,129,229.47 representing alleged excess and unutilized input VAT for the 2nd to 3rd quarters of f.y. 2009." CTA Case No. 8282 "1. Whether or not petitioner rendered services to persons engaged in business conducted outside the Philippines, the services were paid for in Australian Dollars inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas for the 4th Quarter of Fiscal Year 2009 (or for the period of January to March 2009). 2. Whether or not petitioner's sales of services to persons engaged in business conducted outside of the Philippines is subject to VAT at zero-percent. 3. Whether or not petitioner has accumulated excess input VAT for the 4th Quarter of fiscal year 2009 amounting to Php2,188,948.72. 4. Whether or not petitioner's input VAT in the amount of Php2,188,948.72 is directly attributable to its alleged zero-rated sales for the 4th Quarter of fiscal year 2009. HCaIDS 5. Whether or not petitioner input VAT in the amount of Php2,188,948.72 remains unutilized. 6. Whether or not petitioner's claim for refund/tax credit of alleged input VAT for the 4th Quarter of fiscal year 2009 is duly substantiated by documentary evidence. 7. Whether or not petitioner has complied with the invoicing requirements pursuant to Revenue Regulations No. 16-2005. 8. Whether or not petitioner is entitled to claim a refund or tax credit in the amount of Php2,188,948.72 representing alleged excess and unutilized input VAT for the 4th Quarter of fiscal year 2009." The foregoing issues boil down to one issue: "Whether or not petitioner is entitled to a refund of and/or issuance of a TCC in the aggregate amount of P4,318,178.19, representing petitioner's excess and unutilized input VAT paid on purchases of goods and services attributable to its zero-rated sales of services covering the period July 1, 2008 to March 31, 2009. The Court shall first determine the timeliness of the filing of the instant claim, since it will determine the necessity of resolving petitioner's compliance with the other requisites. A. Timeliness of the claim Section 112 (A) of the NIRC of 1997, as amended, plainly provides that a VAT-registered person may apply for the issuance of a tax credit certificate or refund of creditable input tax attributable to zero-rated or effectively zero-rated sales within two years after the close of the taxable quarter when the sales were made. On the other hand, Section 112 (C) of the same Tax Code clearly states that the affected taxpayer may appeal with the CTA within thirty (30) days from receipt of the decision or from inaction of the Commissioner of Internal Revenue after the lapse of the one hundred twenty (120)-day period, to wit: " (C) Period within which Refund or Tax Credit of Input Taxes shall be Made. In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of complete documents in support of the application filed in accordance with Subsection (A) hereof. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals ." (emphasis supplied) Taking into consideration the foregoing provisions, petitioner timely filed its claim for refund or tax credit both in the administrative and judicial levels, as illustrated below: Period Covered (FY 2009) Close of the taxable quarter Last day of the 2-year prescriptive period to file administrative claim Date of Administrative Claim Last day of the 120-day period Last day of the 30-day period to judicially appeal Judicial Claim 2nd Quarter 30-Sep-08 30-Sep-10 23-Sep-10 26 21-Jan-11 20-Feb-11 27-Jan-11 3rd Quarter 31-Dec-08 31-Dec-10 4th Quarter 31-Mar-09 31-Mar-11 25-Nov-10 27 25-Mar-11 24-Apr-11 20-Apr-11 This Court will now proceed to determine petitioner's compliance with the other requisites. Petitioner duly filed with the Bureau of Internal Revenue (BIR) its Quarterly VAT Returns for the second to fourth quarters of Fiscal Year 2009 (or for the period of July 2008 to March 2009) declaring the following: 2nd Qtr 3rd Qtr 4th Qtr Exhibit "D" Exhibit "E" Exhibit "F" VAT Sales Zero-Rated Sales P7,165,419.00 P35,092,061.37 P45,081,987.03 Total Sales 7,165,419.00 35,092,061.37 45,081,987.03 Output VAT - - - Less: Allowable Input VAT Input Tax Carried-Over from Previous Quarter P116,357.14 P933,773.97 P2,245,586.61 Input Tax Deferred on Capital Goods 599,771.29 537,427.57 Exceeding P1M from Previous Qtr Total P116,357.14 P1,533,545.26 P2,783,014.18 Input VAT for the current transactions Purchase of Capital Goods not Exceeding P1M Purchase of Capital Goods Exceeding P1M 662,115.00 Domestic Purchase of Goods other than Capital Goods 150,942.47 406,800.26 417,690.49 Domestic Purchase of Services 604,130.65 842,668.67 1,708,914.51 Services Rendered by Non-residents Total Current Input VAT P1,417,188.12 P1,249,468.93 2,126,605.00 Total Available Input VAT 1,533,545.26 2,783,014.19 4,909,619.18 Less: Deductions from Input VAT Input Tax on Purchase of Capital Goods exceeding P1M deferred for the succeeding period 599,771.29 537,427.57 475,083.86 VAT Refund/TCC Claimed Total P599,771.29 P537,427.57 P475,083.86 Total Allowable Input VAT P933,773.97 P2,245,586.62 P4,434,535.32 Excess/Unutilized Input VAT P933,773.97 P2,245,586.62 P4,434,535.32 ========== =========== ========== Petitioner is claiming a refund or TCC in the aggregate amount of P4,318,178.19 representing excess and unutilized input VAT paid for the second to fourth quarters of fiscal year 2009, broken down as follows: TIESCA 2nd Quarter 3rd Quarter 4th Quarter Total Input Tax Deferred on Capital Goods exceeding P1M from Previous Quarter P599,771.29 P537,427.57 P1,137,198.86 Add: Input Tax on Capital Goods exceeding P1M Purchased this Quarter P662,115.00 662,115.00 Total: Unamortized Input Tax on Capital Goods exceeding P1M P662,115.00 P599,771.29 P537,427.57 P1,799,313.86 Less: Input Tax on Purchases of Capital Goods exceeding P1M deferred for the succeeding period 599,771.29 537,427.57 475,083.86 1,612,282.72 Amortization of Input Tax on Capital Goods exceeding P1M P62,343.71 P62,343.72 P62,343.71 P187,031.14 Add: Input Tax on: - Domestic Purchase of Goods other than Capital Goods P150,942.47 P406,800.26 P417,690.49 P975,433.22 Domestic Purchase of Services 604,130.65 842,668.67 1,708,914.51 3,155,713.83 Total 755,073.12 1,249,468.93 2,126,605.00 4,131,147.05 Total Allowable Input Tax P817,416.83 P1,311,812.65 P2,188,948.71 P4,318,178.19 Less: Output Tax Due Excess Input Tax P817,416.83 P1,311,812.65 P2,188,948.71 P4,318,178.19 =========== =========== =========== =========== Pertinent to the present claim is the provision of Section 112 (A) of the NIRC of 1997, as amended, which reads: " 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 or 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." Based on the foregoing, in order to be entitled to a refund or tax credit of unutilized input VAT, the following must be complied with: 1. there must be zero-rated or effectively zero-rated sales; 2. that input taxes were incurred or paid; 3. that such input taxes are attributable to zero-rated or effectively zero-rated sales; 4. that the input taxes were not applied against any output tax liability; and 5. that the claim for refund was filed within the two-year prescriptive period. The Court shall discuss the validity of petitioner's claim by verifying the compliance with the above-mentioned requirements. B. There must be zero-rated or effectively zero-rated sales In its VAT returns for the 2nd to 4th quarters of FY 2009, petitioner reflected the following zero-rated sales: Exhibit Period covered FY 2009 Amount D 2nd Quarter P7,165,419.00 E 3rd Quarter 35,092,061.37 F 4th Quarter 45,081,987.03 Total P87,339,467.40 ============ Petitioner claims that its sales of services were rendered almost exclusively to Macquarie Financial Holdings Limited (MFHL) during the fiscal year 2009. These services, though rendered in the Philippines, were for the exclusive benefit of MFHL who is domiciled in Australia and the payment of which were in AUD remitted to petitioner's bank account in the Philippines. As such, these sales are VAT zero-rated pursuant to Section 108 (B) (2) of the NIRC of 1997, as amended, which reads as follows: IaESCH " SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. "(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 for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);" In the case of Commissioner of Internal Revenue vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. , 28 the Supreme Court held that in order for the supply of services to be VAT zero-rated under Section 108 (B) (2) of the NIRC of 1997, as amended, the following requisites must be met: 1. the services must be other than processing, manufacturing or repacking of goods; 2. payment for such services must be in acceptable foreign currency accounted for in accordance with the BSP rules and regulations; and 3. the recipient of such services is doing business outside the Philippines. Petitioner complied with the foregoing requirements. Petitioner is a duly licensed Regional Operating Headquarter (ROHQ) 29 engaged in general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communication; and business development. 30 Such qualifying services rendered to its affiliates and related parties in the Asia Pacific Region and in other foreign markets services are not the same category as "processing, manufacturing or repacking of goods". For the 2nd to 4th quarters of FY 2009, petitioner rendered services to Macquarie Financial Holdings Limited (MFHL), 31 an entity registered under the laws of Australia 32 and which is not registered with the Philippine SEC either as a corporation or as a partnership. 33 Petitioner's business transactions with MFHL was governed by a Service Agreement dated April 1, 2009 which was duly signed by its representatives and bears the Common Seal of both parties. 34 Corollary to the second requisite, Sections 113 (A) (2), (B) (1), (2) (c) and (3) of the NIRC of 1997, as amended, and as implemented by Sections 4.113-1 (A) (2), B (1) and (2) (c) of Revenue Regulations (RR) No. 16-05 provides that a VAT taxpayer, like the herein petitioner, shall for every lease of goods or properties and for every sale, barter or exchange of services, issue a VAT official receipt, which must contain the following information: " SEC. 113. Invoicing and Accounting Requirements for VAT-registered Persons. "(A) Invoicing Requirements. A VAT-registered person shall issue: xxx xxx xxx "(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); "(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: xxx xxx xxx "(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; DEICaA xxx xxx xxx "(3) The date of transaction, quantity, unit cost and description of the goods or properties or nature of the service; and . . . (emphasis supplied) SEC. 4.113-1. Invoicing Requirements. (A) A VAT-registered person shall issue: xxx xxx xxx (2) A VAT official receipt for every lease of goods or properties, and for every sale, barter or exchange of services. Only VAT-registered persons are required to print their TIN followed by the word "VAT" in their invoice or official receipts. Said documents shall be considered as a "VAT Invoice" or VAT official receipt. All purchases covered by invoices/receipts other than VAT Invoice/VAT Official Receipt shall not give rise to any input tax. VAT invoice/official receipt shall be prepared at least in duplicate, the original to be given to the buyer and the duplicate to be retained by the seller as part of his accounting records. (B) Information contained in VAT invoice or VAT official receipt. The following information shall be indicated in VAT invoice or VAT official receipt: (1) A statement that the seller is a VAT-registered person, followed by his TIN; (2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the VAT; Provided , That: xxx xxx xxx (c) If the sale is subject to zero percent (0%) VAT, the term " zero-rated sale " shall be written or printed prominently on the invoice or receipt;" (emphasis supplied) Pursuant to the foregoing provisions, the foreign currency remittances referred by Section 108 (B) (2) of the NIRC of 1997, as amended, must, likewise, be supported by VAT zero-rated official receipts. In compliance thereto and to prove that it generated zero-rated sales and that the corresponding foreign currency payments it received were accounted for in accordance with the rules and regulations of the BSP, petitioner offered in evidence its sales invoices 35 and official receipts 36 issued to MFHL, as well as the certificates of inward remittances 37 issued by HSBC. However, a comparison of the amounts of zero-rated sales/receipts declared in the Quarterly VAT Returns against the amounts supported by sales invoices, official receipts and inward remittances disclosed a discrepancy of P2,139,544.97, detailed as follows: IDEHCa Per Invoice/OR/Inward Per VAT Returns Remittances Exhibit Amount Exhibit Amount Discrepancy Macquarie Group Hold 2 Ltd/ Macquarie Financial Holdings Ltd LL-1/MM-1/II P7,165,419.00 Total 2nd Qtr FY 2009 D P7,165,419.00 P7,165,419.00 - Macquarie Group Hold 2 Ltd/ Macquarie Financial Holdings Ltd LL-2/MM-1/II 5,067,371.63 Macquarie Group Hold 2 Ltd/ Macquarie Financial Holdings Ltd LL-3/MM-1/II 2,810,770.86 Macquarie Group Hold 2 Ltd/ Macquarie Financial Holdings Ltd LL-4/MM-2/II 6,791,793.69 Macquarie Group Hold 2 Ltd/ Macquarie Financial Holdings Ltd LL-5/MM-2/II 18,949,421.37 Total 3rd Qtr FY 2009 E 35,092,061.37 33,619,357.55 P1,472,703.82 GGG-1/HHH- Macquarie Financial Holding Limited 1/III 8,747,405.21 GGG-2/HHH- Macquarie Financial Holding Limited 1/III 10,236,869.56 GGG-3/HHH- Macquarie Financial Holding Limited 2/JJJ 10,217,066.75 GGG-4/HHH- Macquarie Financial Holding Limited 2/JJJ 15,213,804.36 Total 4th Qtr FY 2009 F 45,081,987.03 44,415,145.88 666,841.15 Total Zero-Rated Sales P87,339,467.40 P85,199,922.43 P2,139,544.97 ============ ============ ============ Based on records, the discrepancy of P2,139,544.97 is comprised of the following: Year-end adjustment P666,841.15 Sale to Macquarie Services Hongkong Limited 1,472,703.82 Total P2,139,544.97 ============ The amount of P666,841.15, allegedly pertaining to year-end adjustment, is not supported by any pertinent document, thus, shall be disallowed. On the other hand, the alleged zero-rated sale to Macquarie Services Hongkong Limited (MSHL) in the amount of P1,472,703.82 shall, likewise, be disallowed for the same is not duly supported by any other pertinent document such as sales invoice, official receipts or proof of inward remittance. Moreover, no supporting document was presented to prove that MSHL is a corporation registered and conducting business outside the Philippines. Thus, only the amount of P85,199,922.43 representing petitioner's sales to MFHL which are duly supported by documentary evidence qualify for VAT zero rating under Section 108 (B) (2) of the NIRC of 1997, as amended. Consequently, only the portion of the input VAT claim attributable thereto may be considered for refund. The rate to be applied is based on the total declared amount of zero-rated receipts and is computed as follows: Substantiated zero-rated sales P85,199,922.43 Divided by total declared zero-rated sales 87,339,467.40 Rate of substantiated zero-rated sales 0.975503114 C. That input taxes were incurred or paid and were attributable to zero-rated of effectively zero-rated sales After having resolved that petitioner's sales to MFHL in the amount of P85,199,922.43 qualify for VAT zero rating, the Court will now proceed to the determination of whether or not petitioner incurred or paid input taxes in connection therewith. 1. Input VAT on domestic purchases of goods and services other than capital goods In its VAT Returns for the 2nd to 4th quarters of FY 2009, petitioner declared input VAT on its purchases of services and goods other than capital goods in the aggregate amount of P4,131,147.05, broken down as follows: Input VAT on: 2nd Quarter 3rd Quarter 4th Quarter Total Domestic Purchase of Goods other than Capital Goods P150,942.47 P406,800.26 P417,690.49 P975,433.22 Domestic Purchase of Services 604,130.65 842,668.67 1,708,914.51 3,155,713.83 TOTAL P755,073.12 P1,249,468.93 P2,126,605.00 P4,131,147.05 ========== =========== =========== =========== In support thereof, petitioner offered in evidence BIR Form 1600 with bank payment slips, sales invoices and official receipts 38 issued by its various suppliers which were examined by the Independent CPA, Mr. Jerome Antonio B. Constantino of Constantino Guadalquiver & Co. In his Report dated March 5, 2012, 39 the ICPA summarized his findings as follows: DTAHEC 2nd Quarter 3rd Quarter 4th Quarter FY March 2009 FY March 2009 FY March 2009 Consolidated Findings (Annex 2-A) (Annex 2-B) (Annex 2-C) Total PROPERLY SUBSTANTIATED 1 Input VAT on domestic purchases of goods supported by "TIN-VAT" invoices P85,802.14 P114,679.28 P198,566.32 P399,047.74 2 Input VAT on domestic purchases of services supported by "TIN-VAT" official receipts (ORs) 37,061.03 78,753.54 30,720.65 146,535.22 3 Input VAT on domestic purchases of goods supported by "VAT REG TIN" invoices 21,428.57 71,218.21 8,653.97 101,300.75 4 Input VAT on domestic purchase of services supported by "VAT REG TIN" ORs 179,276.80 69,471.64 1,077,560.15 1,326,308.59 5 Input VAT on domestic purchase of goods supported by "VAT REG TIN" invoices with erasures in the amount but with countersignature 18,951.79 18,951.79 6 Input VAT on domestic purchase of service supported by "VAT REG TIN" ORs with erasures in the amount but with countersignature 76,388.40 37,189.19 113,577.59 7 Input VAT on domestic purchase of service supported by "VAT REG TIN" ORs with erasures in the address but with countersignature 182,160.00 191,670.00 373,830.00 8 Input VAT on domestic purchase of goods supported by "TIN VAT" invoices not dated within the VAT-taxable quarter but within the taxable FY March 31, 2009 103,197.86 152,438.65 255,636.51 9 Input VAT on domestic purchase of services supported by "TIN VAT" ORs not dated within the VAT-taxable quarter but within the taxable FY March 31, 2009 900.00 900.00 10 Input VAT on domestic purchase of services supported by "VAT REG TIN" ORs not dated within the VAT-taxable quarter but within the taxable FY March 31, 2009 233,592.99 554,358.48 787,951.47 11 Input VAT on domestic purchase of goods supported by "VAT REG TIN" invoices not dated within the VAT- taxable quarter but within the taxable FY March 31, 2009 39,362.49 39,362.49 12 Input VAT on domestic purchases of services supported by BIR Form 1600 and bank payment slip 21,840.00 21,840.00 subtotal 634,449.93 1,235,041.50 1,715,750.72 3,585,242.15 OTHER FINDINGS 1 Input VAT on domestic purchase of services supported by "VAT REG TIN" ORs dated outside the taxable FY March 31, 2009 278,660.64 278,660.64 2 Input VAT on domestic purchase of services supported by "TIN VAT" ORs dated outside the period the taxable FY March 31, 2009 5,785.70 5,785.70 3 Input VAT on domestic purchase of goods supported by "TIN VAT" invoice dated outside the taxable FY March 31, 2009 45,731.39 45,731.39 4 Input VAT on domestic purchase of services supported by "TIN-VAT" ORs with incomplete petitioner's name (e.g., Macquarie Offshore Services only, Macquarie only) 14,051.80 14,051.80 5 Input VAT on domestic purchase of services supported by "VAT REG TIN" ORs with incomplete petitioner's name (e.g., Macquarie Offshore Services only, Macquarie only) 5,400.00 5,400.00 6 Input VAT on domestic purchase of services supported by documents other than ORs 23,986.21 23,986.21 7 Input VAT on domestic purchase of services supported by "TIN" only ORs 23,241.29 23,241.29 8 Input VAT on domestic purchase of services supported by "VAT REG" only ORs 2,505.50 2,505.50 9 Input VAT on domestic purchase of goods supported by "TIN VAT" invoice without Petitioner's TIN 840.00 8,513.58 9,353.58 10 Input VAT in domestic purchase of services supported by "TIN VAT" ORs with incorrect Petitioner's TIN 128.16 128.16 11 Input VAT on domestic purchase of goods supported by "TIN-VAT" invoices with incomplete petitioner's name and no TIN 283.20 283.20 12 Input VAT on domestic purchase of goods supported by "TIN VAT" invoices without petitioner's name and address 10,080.00 10,080.00 13 Input VAT on domestic purchase of services supported by "TIN-VAT" ORs without Petitioner's address 295.14 295.14 14 Input VAT on domestic purchase of services supported by certified true copy of "VAT REG TIN" ORs 60,000.00 60,000.00 15 Input VAT in domestic purchase of goods supported by certified true copy of "TIN VAT" Invoice 66,402.32 66,402.32 Subtotal 120,623.19 14,427.44 410,854.30 545,904.93 GRAND TOTAL P755,073.12 P1,249,468.95 P2,126,605.02 P4,131,147.08 ========== ========== =========== =========== Based on the above findings, the amount of P545,904.93 under the subtitle "Other Findings" shall be disallowed outright for the reasons stated therein. Likewise, the Court finds that the following input VAT should be disallowed from petitioner's claim for its failure to meet the substantiation requirements under Sections 110 (A) and 113 (A) and (B) of the NIRC of 1997, as amended, and as implemented by Sections 4.110-1, 4.110-8 and 4.113-1 of Revenue Regulations No. 16-2005: aCTcDS Findings Exhibit No. Input VAT Amount 1 Domestic purchases of services supported by VAT ORs wherein the input VAT are not separately indicated King of Travel NN-8 P24.32 King of Travel NN-9 49.28 King of Travel NN-10 24.64 HBO+EMTB Construct, Inc. NN-34 21,533.63 King of Travel PP-9 58.93 King of Travel PP-12 50.14 King of Travel PP-13 50.57 King of Travel PP-14 216.75 Quest Highlands, Inc. PP-24 5,160.00 HBO+EMTB Construct, Inc. MMM-19 24,609.86 subtotal 51,778.12 2 Domestic purchase of goods supported by VAT invoice wherein the input VAT is not separately indicated Cornersteel Systems Corp. PP-7 2,410.71 subtotal 2,410.71 3 Domestic purchase of services supported by document other than VAT OR Business Process Outsourcing MMM-30 966.36 subtotal 966.36 4 Ov er-claimed input VAT on domestic purchases of services supported by VAT ORs Manila Bulletin Publishing Corp. MMM-44 178.39 Manila Bulletin Publishing Corp. MMM-45 178.39 Manila Bulletin Publishing Corp. MMM-46 178.39 Manila Bulletin Publishing Corp. MMM-47 178.39 Ascott Makati, Inc. MMM-56 4,117.66 subtotal 4,831.22 TOTAL P59,986.41 ========= 2. Input VAT on domestic purchases of capital goods and services A comparison of the total amount of input VAT indicated in the petitioner's VAT returns for the 2nd quarter of FY March 2009 covering the period July to September 2008 against the total amount of input VAT indicated in the invoices issued by HBO+EMTB for its Space Planning Interior Consultancy Project Administration and Construct Services disclosed the following: Input VAT on Domestic Purchase of Capital goods 2nd Quarter FY March 2009 (July 2008 to Exceeding P1 Exhibit Sept. 2008): Purchases Million Reference Per Quarterly VAT Return P5,517,625.00 P662,115.00 Exhibit "D" Per Invoices of Capital goods for the period July to December 2008: Invoice No. 08-06-143 5,071,312.50 608,557.50 Exhibit "OO-1" Invoice No. 08-06-144 959,017.86 115,082.14 Exhibit "OO-2" Total 6,030,330.36 723,639.64 Difference - VAT return over (under) P(512,705.36) P(61,524.64) The ICPA stated in his Report that the difference of P512,705.36 in domestic purchases of capital goods exceeding P1 Million is due to the professional fees paid which was included in invoice number 08-06-143 and reported as input tax on domestic purchases of services as indicated in the schedule of HBO+EMTB prepared by the petitioner. CHEDAc For the 3rd and 4th quarters of FY 2009, petitioner does not have any purchases of capital goods. Upon examination of the invoices and official receipts related to the claimed input VAT on domestic purchases of goods exceeding P1 Million, the Court finds the following: a) Of the total Purchases of P6,030,330.36 supported by invoices nos. 08-06-143 and 08-06-144, the amount already included as domestic purchases of services (other than capital goods) is P546,278.67 with the related input VAT of P65,553.44. Hence, only the amount of P5,484,051.69 pertains to capital goods and services, as presented below: Domestic Purchases of Domestic Purchases of Capital Total Purchases Services Goods and Services Exhibit Net of VAT Input VAT Net of VAT Input VAT Net of VAT Input VAT NN-11/OO-1 P1,267,828.13 P152,139.38 P128,176.33 P15,381.16 P1,139,651.80 P136,758.22 NN-34/MMM- 760,696.88 91,283.63 179,446.92 21,533.63 581,249.96 69,750.00 19 1,014,262.50 121,711.50 205,082.17 24,609.86 809,180.33 97,101.64 OO-4 1,521,393.75 182,567.25 1,521,393.75 182,567.25 253,565.63 30,427.88 253,565.63 30,427.88 126,782.81 15,213.94 126,782.81 15,213.94 126,782.81 15,213.94 126,782.81 15,213.94 sub-total 5,071,312.51 608,557.52 512,705.42 61,524.65 4,558,607.09 547,032.87 OO-2 239,754.46 28,770.54 239,754.46 28,770.54 647,337.05 77,680.45 647,337.05 77,680.45 PP-49 47,950.89 5,754.11 33,573.25 4,028.79 14,377.64 1,725.32 23,975.45 2,877.05 23,975.45 2,877.05 sub-total 959,017.85 115,082.15 33,573.25 4,028.79 925,444.60 111,053.36 TOTAL P6,030,330.36 P723,639.67 P546,278.67 P65,553.44 P5,484,051.69 P658,086.23 =========== ========== ========== ========= =========== ========== b) Of the purchases of P5,484,051.69 classified as capital goods and services, only the amount of P2,900,800.01 is duly substantiated by valid official receipts. It bears stressing that the purchases of P5,484,051.69 actually pertain to purchases of services as described in the sales invoice. As such, it must be supported by VAT official receipts in accordance with Sections 110 (A), 113 (A) and (B) of the NIRC of 1997, as amended, and as implemented by Sections 4.110-2, 4.110-8, 4.113-1 of RR No. 16-2005, as shown below: Total Purchases OR Exhibit No. OR No. OR Date Net of VAT Input VAT Remarks NN-11/OO-3 1091 7/24/2008 P1,139,651.80 P136,758.22 supported by valid VAT OR OO-4 1094 11/4/2008 1,521,393.75 182,567.25 supported by valid VAT OR NN-11/OO-3 1091 7/24/2008 239,754.46 28,770.54 supported by valid VAT OR sub-total 2,900,800.01 348,096.01 NN-34/MMM- 581,249.96 69,750.00 input VAT not separately indicated 19/OO-5 1093 9/22/2008 809,180.33 97,101.64 input VAT not separately indicated PP-49 1099 4/27/2009 14,377.64 1,725.32 dated outside the period of claim sub-total 1,404,807.93 168,576.96 TOTAL P4,305,607.94 P516,672.96 =========== ========== c) Pursuant to Section 110 (A) of the NIRC of 1997, as amended, and in relation to Section 4.110-3 of RR No. 16-2005, the input VAT claim on capital goods with acquisition cost exceeding P1 Million, excluding the VAT component thereof, shall be spread evenly over 60 months or the estimated useful life of the capital good, whichever is shorter. Thus, out of the P348,096.01 substantiated input VAT, as shown above, only the amount of P78,234.89 shall be allowable for refund/credit, computed as follows: Estimated useful life Total Amortization (No. of Monthly (2nd to 4th quarters OR Exhibit No. OR Date Input VAT months) Amortization FY 2009) NN-11/OO-3 7/24/2008 P136,758.22 29 P4,715.80 P42,442.20 OO-4 11/4/2008 182,567.25 29 6,295.42 31,477.10 NN-11/OO-3 7/24/2008 28,770.54 60 479.51 4,315.59 TOTAL P348,096.00 P11,490.73 P78,234.89 ========== ========= ========= To recapitulate, petitioner's substantiated input VAT for the 2nd to 4th quarters of FY 2009 amounted to P3,790,521.74, computed as follows: DHACES Claimed Input VAT for refund/TCC P4,318,178.19 Less: Disallowances Per ICPA Report P545,904.93 Per this Court's Findings 59,986.41 605,891.34 Balance P3,712,286.85 Add: Amortization of Input VAT on domestic purchases of services 78,234.89 Substantiated Input VAT P3,790,521.74 =========== However, out of the substantiated input VAT of P3,790,521.74, only the amount of P3,697,665.76 can be attributed to the substantiated zero-rated sales of P85,199,922.43, computed as follows: Substantiated zero-rated sales P85,199,922.43 Divided by total declared zero-rated sales P87,339,467.40 Rate of substantiated zero-rated sales 0.975503114 x Substantiated Input VAT P3,790,521.74 Refundable Input VAT P3,697,665.76 =========== D. The input taxes were not applied against any output VAT liability It was established that petitioner's claimed input taxes were not applied against any output VAT liability during the period of claim and in the succeeding quarters since there is no output VAT for the period July 2008 to December 2010 40 against which the input taxes may be credited or applied. Moreover, in its Quarterly VAT Returns, petitioner deducted the amounts of P2,129,229.47 and P2,188,948.71, the subject claim, as "VAT Refund/TCC Claimed" for the second 41 and third 42 quarters of FY 2011, respectively. In other words, the aggregate input VAT of P23,972,276.02 43 as of the end of third quarter of FY 2011 carried over to the fourth quarter of FY 2011, 44 no longer included the claimed input VAT. In sum, petitioner has sufficiently proven its entitlement to a refund or issuance of a tax credit certificate in the reduced amount of P3,697,665.76, representing unutilized input VAT attributable to its zero-rated sales to Macquarie Financial Holdings Limited (MFHL) for the second, third and fourth quarters of FY March 2009. WHEREFORE , the instant Petition for Review is hereby PARTIALLY GRANTED . Accordingly, respondent is ORDERED TO REFUND or TO ISSUE A TAX CREDIT CERTIFICATE in the amount of P3,697,665.76, representing unutilized input VAT attributable to its zero-rated sales to Macquarie Financial Holdings Limited (MFHL) for the second, third and fourth quarters of FY March 2009. SO ORDERED . (SGD.) CAESAR A. CASANOVA Associate Justice Juanito C. Castaeda, Jr. and Amelia R. Cotangco-Manalastas, JJ., concur. Footnotes 1. Docket (CTA Case No. 8221, Vol. I), pp. 4-15; Docket (CTA Case No. 8282), pp. 1-15. 2. Exhibit "A" SEC Certificate of Registration and License No. FS200805155; Exhibit "BB" Sworn Statement of Mr. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa) dated November 25, 2011; and Exhibit "YY" Sworn Statement of Mr. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa) dated July 13, 2011. 3. Paragraph 1, Parties, Petitions for Review, Docket (CTA Case No. 8221, Vol. 1), p. 4 and Docket of CTA Case No. 8282, p. 1. 4. Paragraph 1, Stipulation of Facts, Joint Stipulation of Facts and Issues (JSFI), Docket (CTA Case No. 8221, Vol. I), p. 340 and Docket (CTA Case No. 8282), p. 335; Exhibit "YY" Sworn Statement of Mr. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa). 5. Exhibit "Z", Schedule of Remittances for the 2nd Quarter of f.y. 2009; Exhibit "AA", Schedule of Remittances for the 3rd Quarter of f.y. 2009; Exhibit "XX", Schedule of Bank Remittances for the 4th Quarter of f.y. 2009; Exhibit "II", HSBC Certification dated September 22, 2010 (re: Inward Remittances on December 9, 2008 and February 3, 2009); Exhibit "III", HSBC Certification dated October 26, 2010 (re: Inward Remittance on March 27, 2009); Exhibit "JJJ", HSBC Certification dated October 27, 2010 (re: Inward Remittance on May 11, 2009); Exhibit "BB" Sworn Statement of Mr. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa) dated November 25, 2011. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa) dated November 25, 2011; Exhibit "YY" Sworn Statement of Mr. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa) dated July 13, 2011. 6. Exhibit "BB" Sworn Statement of Mr. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa) dated November 25, 2011; Exhibit "YY" Sworn Statement of Mr. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa); Exhibits "R" to "Y", "UU" to "VV-2" Quarterly and Monthly Summaries of Purchases for the 2nd to 4th Quarters of f.y. 2009. 7. Par. 2, Stipulation of Facts, JSFI, Docket (CTA Case No. 8221, Vol. I), p. 341 and Docket (CTA Case No. 8282), p. 336; Exhibit "B". 8. Par. 5, Stipulation of Facts, JSFI, Docket, (CTA Case No. 8221, Vol. I), p. 341 and Docket (CTA Case No. 8282), p. 336. 9. Exhibit "C". 10. Exhibit "BB" Sworn Statement of Mr. Garry Taylor (to Questions Propounded by Atty. Lindy Andr P. Ablaa) dated November 25, 2011. 11. Exhibit "ZZ". 12. Docket (CTA Case No. 8282, Vol. I), pp. 435-436. 13. Docket (CTA Case No. 8282, Vol. I), pp. 437-438. 14. Docket (CTA Case No. 8221, Vol. I), pp. 130-133. 15. Docket (CTA Case No. 8282), pp. 116-118. 16. Docket (CTA Case No. 8221, Vol. I), pp. 361-364 and pp. 523-526. 17. Minutes of Hearing, Docket (CTA Case No. 8221, Vol. I), pp. 385 and 541. 18. Minutes of Hearing, Docket (CTA Case No. 8221, Vol. I), pp. 402 and 522. 19. Minutes of Hearing, Docket (CTA Case No. 8221, Vol. I), pp. 433, 570 and 571. 20. Docket (CTA Case No. 8221, Vol. II), pp. 720-739. 21. Docket (CTA Case No. 8221, Vol. II), pp. 714-716. 22. Minutes of Hearing, Docket (CTA Case No. 8221, Vol. II), p. 768. 23. Docket (CTA Case No. 8221, Vol. II), p. 810. 24. Docket (CTA Case No. 8221, Vol. I), pp. 342-343. 25. Docket (CTA Case No. 8282), pp. 337-339. 26. Exhibit "C". 27. Exhibit "ZZ". 28. G.R. No. 153205, January 22, 2007. 29. Exhibits "A" SEC Certificate of Registration and License No. FS200805155 and Exhibit "BB", A8. 30. Exhibit "A-3". 31. Formerly Macquarie Group Holdings No. 2 Ltd, as per Exhibit "GG-1". 32. Exhibits "GG" to "GG-3" and "HH" to "HH-4". 33. Exhibit "FF". 34. Exhibit "DD". 35. Exhibits "LL-1" to "LL-5", "GGG-1" to "GGG-4". 36. Exhibits "MM-1" to "MM-2", "HHH-1" to "HHH-2". 37. Exhibits "II", "III" and "JJJ". 38. Exhibits "NN-1" to "NN-35"; "OO-1" to "OO-7"; "PP-1" to "PP-49" and "MMM-1" to "MMM-85". 39. Exhibit "FFF". 40. Exhibits "D" to "L" and "CCC". 41. Exhibit "L", Line 23D. 42. Exhibit "CCC", Line 23D. 43. Exhibit "CCC", Line 29. 44. Exhibit "DDD", Line 20A.