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Commissioner of Internal Revenue vs. American Express International, Inc.

(Philippine Branch)
G.R. No. 152609 | June 29, 2005 | J. Panganiban | digest by MCAC Baldemor

Facts:
The respondent is a Philippine Branch of American Express International, a corporation duly organized and
existing under and by virtue of the laws of the State of Delaware, U.S.A. It is a servicing unit of the American
Express International HK Branch and is engaged primarily to facilitate the collections of AMEX-HK
receivables from card members situated in the Philippines and payment to service establishments in the
Philippines. The respondent corporation is a registered VAT taxpayer.
The controversy in this case arose when the respondent requested from the BIR a refund of its 1997 excess
input taxes, which was arrived at after deducting from its total input VAT paid its applied output liabilities. There
being no action on the part of the BIR, the respondent filed a petition before the Court of Tax Appeals.
According to the respondent, Section 102 provides that export sales by a VAT registered person, the
consideration of which is paid for in acceptable foreign currency inwardly remitted to the Philippines and
accounted for in accordance with existing regulations of the BSP, are subject to VAT at zero percent.
Moreover, Section 106 provides that input taxes on domestic purchases of taxable goods and services related
to zero-related revenues are available as tax refund. Being a VAT-registered entity, the respondent argued
that it is subject to the said VAT rate and that it can avail of the refunds or tax credits of input tax.
The Court of Tax Appeals granted the petition of the respondent to be given the refund of its excess input
taxes, and such ruling of the CTA was affirmed by the CA. According to the CA, the CIR was mistaken in
requiring that the respondents services be consumed abroad in order to be zero-rated. By doing so, it went
beyond the sphere of interpretation and into that of legislation.
Issue: W/N the respondent company can avail of tax credits
Ruling:
Yes, it can. The law is very clear in saying that VAT-registered person in the Philippines (other than the
processing, manufacturing or repacking of goods for persons doing business outside the Philippines), when
paid in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP,
are zero-rated. The respondent in this case is a VAT registered person that facilitates the collection and
payment of receivables belonging to its resident foreign client, for which it gets paid in acceptable foreign
currency inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the
service it renders in the Philippines is not in the same category as processing, manufacturing or repacking of
goods and should, hence, be zero-rated.
For facilitating in the Philippines the collection and payment of receivables belonging to its Hong Kong-based
foreign client, and getting paid for it in duly accounted acceptable foreign currency, the respondent renders
service falling under the category of zero-rating. With this, the Court upholds the respondents entitlement to
the refund.
It is also important to note that the law neither makes a qualification nor adds a condition in determining the tax
situs of the zero-rated service. Under this criterion, the place where the service is rendered determines the
jurisdiction to impose VAT. Performed in the Philippines, such service is necessarily subject to its jurisdiction
in order to enforce a zero rate. The place of payment is immaterial, much less is the place where the output of
service will be further or ultimately used.