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332 SUPREME COURT REPORTS ANNOTATED VOL. 676, JULY 11, 2012 333
Accenture, Inc. vs. Commissioner of Internal Revenue Accenture, Inc. vs. Commissioner of Internal Revenue
and Resolution.28 A subsequent MR was also denied in a For consideration in the present Petition are the
Resolution dated 23 October 2009. following issues:
Hence, the present Petition for Review29 under Rule 1. Should the recipient of the services be “doing
45. business outside the Philippines” for the
In a Joint Stipulation of Facts and Issues, the parties transaction to be zero-rated under Section
and the Division have agreed to submit the following 108(B)(2) of the 1997 Tax Code?
issues for resolution: 2. Has Accenture successfully proven that its
1. Whether or not Petitioner’s sales of goods and services are zero- clients are entities doing business outside the
rated for VAT purposes under Section 108(B)(2)(3) of the
1997 Tax Code. Philippines?
2. Whether or not petitioner’s claim for refund/tax credit in the Recipient of services must be doing
amount of P35,178,884.21 represents unutilized input VAT business outside the Philippines
paid on its domestic purchases of goods and services for the
period commencing from 1 July 2002 until 30 November for the transactions to qualify as
2002. zero-rated.
3. Whether or not Petitioner has carried over to the succeeding Accenture anchors its refund claim on Section 112(A)
taxable quarter(s) or year(s) the alleged unutilized input VAT
paid on its domestic purchases of goods and services for the of the 1997 Tax Code, which allows the refund of
period commencing from 1 July 2002 until 30 November unutilized input VAT earned from zero rated or
2002, and applied the same fully to its output VAT liability effectively zero-rated sales. The provision reads:
for the said period.
4. Whether or not Petitioner is entitled to the refund of the
“SEC. 112. Refunds or Tax Credits of Input Tax.
amount of P35,178,884.21, representing the unutilized input (A) Zero-Rated or Effectively Zero-Rated Sales.—
VAT on domestic purchases of goods and services for the Any VAT-registered person, whose sales are zero-rated or
period commencing from 1 July 2002 until 30 November effectively zero-rated may, within two (2) years after the
2002, from its sales of services to various foreign clients. close of the taxable quarter when the sales were made, apply
5. Whether or not Petitioner’s claim for refund/tax credit in the
amount of P35,178,884.21, as alleged unutilized input VAT for the issuance of a tax credit certificate or refund of
on domestic purchases of goods and services for the period creditable input tax due or paid attributable to such sales,
covering 1 July 2002 until 30 November 2002 are duly except transitional input tax, to the extent that such input
substantiated by proper documents.30 tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section “SECTION 3. Section 102 of the National Internal
106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the Revenue Code, as amended, is hereby further amended to
acceptable foreign currency exchange proceeds thereof had read as follows:
been duly accounted for in accordance with the rules and “SEC. 102. Value-added tax on sale of services and use
regulations of the Bangko Sentral ng Pilipinas or lease of properties. x x x
(BSP): Provided, further, That where the taxpayer is xxx xxx xxx
engaged in zero-rated or effectively zero-rated sale and also “(b) Transactions subject to zero-rate.—The following
in taxable or exempt sale of goods of properties or services, services performed in the Philippines by VAT-
and the amount of creditable input tax due or paid cannot be registered persons shall be subject to 0%:
directly and entirely attributed to any one of the _______________
transactions, it shall be allocated proportionately on the 31 FURTHER AMENDING CERTAIN PROVISIONS OF THE NATIONAL
INTERNAL REVENUE CODE.
basis of the volume of sales.” 32 A DECREE TO CONSOLIDATE AND CODIFY ALL THE INTERNAL REVENUE
LAWS OF THE PHILIPPINES.
334
33 ADOPTING A VALUE-ADDED TAX, AMENDING FOR THIS PURPOSE
334 SUPREME COURT REPORTS ANNOTATED CERTAIN PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE, AND FOR
Accenture, Inc. vs. Commissioner of Internal Revenue OTHER PURPOSES.
34 AN ACT RESTRUCTURING THE VALUE-ADDED TAX (VAT) SYSTEM,
Section 108(B) referred to in the foregoing provision WIDENING ITS TAX BASE AND ENHANCING ITS ADMINISTRATION, AND FOR
was first seen when Presidential Decree No. (P.D.) THESE PURPOSES AMENDING AND REPEALING THE RELEVANT PORTIONS OF
199431amended Title IV of P.D. 1158,32 which is also THE NATIONAL INTERNAL REVENUE CODE, AS AMENDED, AND FOR OTHER
PURPOSES.
known as the National Internal Revenue Code of 1977.
Several Decisions have referred to this as the 1986 Tax 335
Code, even though it merely amended Title IV of the VOL. 676, JULY 11, 2012 335
1977 Tax Code.
Accenture, Inc. vs. Commissioner of Internal Revenue
Two years thereafter, or on 1 January 1988,
“(1) Processing, manufacturing or repacking goods
Executive Order No. (E.O.) 27333 further amended for other persons doing business outside the
provisions of Title IV. E.O. 273 by transferring the old Philippines which goods are subsequently exported,
Title IV provisions to Title VI and filling in the former where the services are paid for in acceptable foreign
title with new provisions that imposed a VAT. currency and accounted for in accordance with the
The VAT system introduced in E.O. 273 was rules and regulations of the Bangko Sentral ng
restructured through Republic Act No. (R.A.) Pilipinas (BSP).
7716.34 This law, which was approved on 5 May 1994, “(2) Services other than those mentioned in the
widened the tax base. Section 3 thereof reads: preceding sub-paragraph, the consideration for which
is paid for in acceptable foreign currency and
accounted for in accordance with the rules and Accenture, Inc. vs. Commissioner of Internal Revenue
regulations of the Bangko Sentral ng Pilipinas (BSP).” “SEC. 6. Section 108 of the same Code, as amended,
Essentially, Section 102(b) of the 1977 Tax Code—as is hereby further amended to read as follows:
amended by P.D. 1994, E.O. 273, and R.A. 7716— “SEC. 108. Value-added Tax on Sale of Services and
provides that if the consideration for the services Use or Lease of Properties.—
provided by a VAT-registered person is in a foreign (B) Transactions Subject to Zero Percent (0%)
currency, then this transaction shall be subjected to Rate.—The following services performed in the
zero percent rate. Philippines by VAT-registered persons shall be
The 1997 Tax Code reproduced Section 102(b) of the subject to zero percent (0%) rate:
1977 Tax Code in its Section 108(B), to wit: (1) Processing, manufacturing or repacking
(B) Transactions Subject to Zero Percent (0%) goods for other persons doing business outside the
Rate.—The following services performed in the Philippines which goods are subsequently
Philippines by VAT-registered persons shall be subject exported, where the services are paid for in
to zero percent (0%) rate. acceptable foreign currency and accounted for in
(1) Processing, manufacturing or repacking goods accordance with the rules and regulations of the
for other persons doing business outside the Bangko Sentral ng Pilipinas (BSP);
Philippines which goods are subsequently “(2) Services other than those mentioned in the
exported, where the services are paid for in preceding paragraph rendered to a person
acceptable foreign currency and accounted for in engaged in business conducted outside the
accordance with the rules and regulations of the Philippines or to a nonresident person not
Bangko Sentral ng Pilipinas (BSP); engaged in business who is outside the Philippines
(2) Services other than those mentioned in the when the services are performed, the
preceding paragraph, the consideration for which consideration for which is paid for in acceptable
is paid for in acceptable foreign currency and foreign currency and accounted for in accordance
accounted for in accordance with the rules and with the rules and regulations of the Bangko
regulations of the Bangko Sentral ng Pilipinas Sentral ng Pilipinas (BSP); x x x.” (Emphasis
(BSP); x x x. supplied)
On 1 November 2005, Section 6 of R.A. 9337, which The meat of Accenture’s argument is that nowhere
amended the foregoing provision, became effective. It does Section 108(B) of the 1997 Tax Code state that
reads:336 services, to be zero-rated, should be rendered to clients
336 SUPREME COURT REPORTS ANNOTATED doing business outside the Philippines, the requirement
introduced by R.A. 9337.35 Required by Section 108(B), In refuting Accenture’s theory, the CTA En
prior to the amendment, is that the consideration for Banc ruled that since Section 108(B) of the 1997 Tax
the services rendered be in foreign currency and in Code was a mere reproduction of Section 102(b) of the
accordance with the rules of the Bangko Sentral ng 1977 Tax Code, this Court’s interpretation of the latter
Pilipinas (BSP). Since Accenture has complied with all may be used in interpreting the former, viz.:
the conditions imposed in Section 108(B), it is entitled “In the Burmeister case, the Supreme Court harmonized
to the refund prayed for. both Sections 102(b)(1) and 102(b)(2) of the 1977 Tax Code,
In support of its claim, Accenture cites Amex, in as amended, pertaining to zero-rated transactions. A parallel
which this Court supposedly ruled that Section 108(B) approach should be accorded to the renumbered provisions of
Sections 108(B)(2) and 108(B)(1) of the 1997 NIRC. This
reveals a clear
_______________ means that Section 108(B)(2) must be read in conjunction
35 Rollo, p. 194. with Section 108(B)(1). Section 108(B)(2) requires as follows:
a) services other than processing, manufacturing or
337 repacking rendered by VAT registered persons in the
VOL. 676, JULY 11, 2012 337 Philippines; and b) the transaction paid for in acceptable
Accenture, Inc. vs. Commissioner of Internal Revenue foreign currency duly accounted for in accordance with BSP
intent on the part of the legislators not to impose the rules and regulations. The same provision made reference to
condition of being “consumed abroad” in order for the Section 108(B)(1) further imposing the requisite c) that the
services performed in the Philippines to be zero-rated.36 recipient of services must be performing business outside of
The Division ruled that this Court, Philippines. Otherwise, if both the provider and
_______________
in Amex and Burmeister, did not declare that the 36 Id., at pp. 192-193.
requirement—that the client must be doing business 37 Id., at p. 182.
outside the Philippines—can be disregarded, because 338
this requirement is expressly provided in Article 108(2)
of the Tax Code.37 338 SUPREME COURT REPORTS ANNOTATED
Accenture questions the Division’s application to this Accenture, Inc. vs. Commissioner of Internal Revenue
case of the pronouncements made in Burmeister. recipient of service are doing business in the Philippines, the
According to petitioner, the provision applied to the sale transaction is subject to regular VAT as explained in
present case was Section 102(b) of the 1977 Tax Code, the Burmeister case x x x.
xxx xxx xxx
and not Section 108(B) of the 1997 Tax Code, which was
Clearly, the Supreme Court’s pronouncements in
the law effective when the subject transactions were
the Burmeister case requiring that the recipient of the
entered into and a refund was applied for. services must be doing business outside the Philippines as
mandated by law govern the instant case.”38
Assuming that the foregoing is true, Accenture still Moreover, even though Accenture’s Petition was filed
argues that the tax appeals courts cannot be allowed to before Burmeister was promulgated, the
apply to Burmeister this Court’s interpretation of pronouncements made in that case may be applied to
Section 102(b) of the 1977 Tax Code, because the the present one without violating the rule against
Petition of Accenture had already been filed before the retroactive application. When this Court decides a case,
case was even promulgated on 22 January 2007,39 to wit: it does not pass a new law, but merely interprets a
“x x x. While the Burmeister case forms part of the legal preexisting one.42 When this Court interpreted Section
system and assumes the same authority as the statute itself, 102(b) of the 1977 Tax Code inBurmeister, this
however, the same cannot be applied retroactively against interpretation became part of the law from the moment
the Petitioner because to do so will be prejudicial to the it became effective. It is elementary that the
latter.”40
interpretation of a law by this Court constitutes part of
The CTA en banc is of the opinion that Accenture that law from the date it was originally passed, since
cannot invoke the non-retroactivity of the rulings of the this Court’s construction merely establishes the
Supreme Court, whose interpretation of the law is part contemporaneous legislative intent that the interpreted
of that law as of the date of its enactment.41 law carried into effect.43
We rule that the recipient of the service must be Accenture questions the CTA’s application
doing business outside the Philippines for the of Burmeister, because the provision interpreted
transaction to qualify for zero-rating under Section therein was Section 102(b) of the 1977 Tax Code. In
108(B) of the Tax Code. support of its position that Section 108 of the 1997 Tax
This Court upholds the position of the CTA en Code does not require that the services be rendered to
bancthat, because Section 108(B) of the 1997 Tax Code an entity doing business outside the Philippines,
is a verbatim Accenture invokes this Court’s pronouncements
_______________ in Amex. However, a reading of that case will readily
38 Id., at pp. 43-45. reveal that the provision applied was Section 102(b) of
39 Id., at p. 196.
40 Id., at p. 21.
the 1977 Tax Code, and not Section 108 of the 1997 Tax
41 Id., at p. 46, citing National Amnesty Commission v. Code. As previously mentioned, an interpretation of
Commission on Audit, 481 Phil. 279; 437 SCRA 655 (2004). Section 102(b) of the 1977 Tax Code is an interpretation
339 of Section 108 of the 1997 Tax Code, the latter being a
VOL. 676, JULY 11, 2012 339 mere reproduction of the former.
Accenture, Inc. vs. Commissioner of Internal Revenue This Court further finds that Accenture’s reliance
on Amex is misplaced.
copy of Section 102(b) of the 1977 Tax Code, any
interpretation of the latter holds true for the former.
We ruled in Amex that Section 102 of the 1977 Tax receivables belonging to its Hong Kong-based foreign
Code does not require that the services be consumed client.
abroad to be zero-rated. However, nowhere in that case The Court explained how the services rendered
did this Court in Amex were considered to have been performed and
_______________ consumed in the Philippines, to wit:
42 Columbia Pictures, Inc. v. Court of Appeals, 329 Phil. 875, 907- “Consumption is “the use of a thing in a way that thereby
908; 261 SCRA 144, 168 (1996).
43 Senarillos v. Hermosisima, 100 Phil. 501 (1956).
exhausts it.” Applied to services, the term means the
performance or “successful completion of a contractual duty,
340 usually resulting in the performer’s release from any past or
340 SUPREME COURT REPORTS ANNOTATED future liability x x x.” The services rendered by respondent
Accenture, Inc. vs. Commissioner of Internal Revenue are performed or successfully completed upon its sending to
discuss the necessary qualification of the recipient of its foreign client the drafts and bills it has gathered from
the service, as this matter was never put in question. In service establishments here. Its services, having been
performed in the Philippines, are therefore also consumed in
fact, the recipient of the service in Amex is a
the Philippines.”44
nonresident foreign client.
The aforementioned case explains how the credit _______________
44 Supra note 23, at p. 605, citing Garner (ed. in chief).
card system works. The issuance of a credit card allows
the holder thereof to obtain, on credit, goods and 341
services from certain establishments. As proof that this VOL. 676, JULY 11, 2012 341
credit is extended by the establishment, a credit card Accenture, Inc. vs. Commissioner of Internal Revenue
draft is issued. Thereafter, the company issuing the The effect of the place of consumption on the zero-
credit card will pay for the purchases of the credit card rating of the transaction was not the issue
holders by redeeming the drafts. The obligation to in Burmeister. Instead, this Court addressed the
collect from the card holders and to bear the loss—in squarely raised issue of whether the recipient of
case they do not pay—rests on the issuer of the credit services should be doing business outside the
card. Philippines for the transaction to qualify for zero-
The service provided by respondent rating. We ruled that it should. Thus, another essential
in Amex consisted of gathering the bills and credit card condition for qualification for zero-rating under Section
drafts from establishments located in the Philippines 102(b)(2) of the 1977 Tax Code is that the recipient of
and forwarding them to its parent company’s regional the business be doing that business outside the
operating centers outside the country. It facilitated in Philippines. In clarifying that there is no conflict
the Philippines the collection and payment of
between this pronouncement and that laid down 342
in Amex, we ruled thus: 342 SUPREME COURT REPORTS ANNOTATED
“x x x. As the Court held in Commissioner of Internal Accenture, Inc. vs. Commissioner of Internal Revenue
Revenue v. American Express International, Inc. (Philippine an entity doing business outside the Philippines as
Branch), the place of payment is immaterial, much less is the required in Burmeister.
place where the output of the service is ultimately used. An That the recipient of the service should be doing
essential condition for entitlement to 0% VAT under Section
business outside the Philippines to qualify for zero-
102 (b) (1) and (2) is that the recipient of the services is a
rating is the only logical interpretation of Section
person doing business outside the Philippines. In this case,
the recipient of the services is the Consortium, which 102(b)(2) of the 1977 Tax Code, as we explained
is doing business not outside, but within the in Burmeister:
Philippines because it has a 15-year contract to “This can only be the logical interpretation of Section 102 (b)
operate and maintain NAPOCOR’s two 100-megawatt (2). If the provider and recipient of the “other services” are
power barges in Mindanao.” (Emphasis in the original)45 both doing business in the Philippines, the payment of
foreign currency is irrelevant. Otherwise, those subject to the
In Amex we ruled that the place of performance regular VAT under Section 102 (a) can avoid paying the VAT
and/or consumption of the service is immaterial. by simply stipulating payment in foreign currency inwardly
In Burmeister, the Court found that, although the place remitted by the recipient of services. To interpret Section 102
of the consumption of the service does not affect the (b) (2) to apply to a payer-recipient of services doing business
entitlement of a transaction to zero-rating, the place in the Philippines is to make the payment of the regular VAT
under Section 102 (a) dependent on the generosity of the
where the recipient conducts its business does.
taxpayer. The provider of services can choose to pay the
Amex does not conflict with Burmeister. In fact, to
regular VAT or avoid it by stipulating payment in foreign
fully understand how Section 102(b)(2) of the 1977 Tax currency inwardly remitted by the payer-recipient. Such
Code—and consequently Section 108(B)(2) of the 1997 interpretation removes Section 102 (a) as a tax measure in
Tax Code—was intended to operate, the two the Tax Code, an interpretation this Court cannot sanction.
aforementioned cases should be taken together. The A tax is a mandatory exaction, not a voluntary contribution.
zero-rating of the services performed by respondent xxx xxx xxx
in Amexwas affirmed by the Court, because although Further, when the provider and recipient of services
the services rendered were both performed and are bothdoing business in the Philippines, their transaction
consume in the Philippines, the recipient of the service falls squarely under Section 102 (a)
was still governing domestic sale or exchange of services. Indeed,
_______________ this is a purely local sale or exchange of services subject to
45 Supra note 17, at p. 139. the regular VAT, unless of course the transaction falls under
the other provisions of Section 102 (b).
Thus, when Section 102 (b) (2) speaks of “[s]ervices other 2. For these services, Accenture bills another
than those mentioned in the preceding corporation, Accenture Participations B.V. (APB),
subparagraph,” the legislative intent is that only the which is likewise a foreign corporation with no
services are different between subparagraphs 1 and 2. The “presence in the Philippines.”
requirements for zero-rating, including the essential
3. Only those not doing business in the Philippines
condition that the recipient of services is doing business
can be required under BSP rules to pay in
outside the Philippines, remain the same under both
subparagraphs.” (Emphasis in the original)46 acceptable currency for their purchase of goods
and services from the Philippines. Thus, in a
_______________ domestic transaction, where the provider and
46 Rollo, pp. 136-137.
recipient of services are both doing business in the
343 Philippines, the BSP cannot require any party to
VOL. 676, JULY 11, 2012 343 make payment in foreign currency.48
Accenture, Inc. vs. Commissioner of Internal Revenue _______________
47 Official Receipts, Intercompany Payment Request, Billing
Lastly, it is worth mentioning that prior to the Statements, Memo Invoices-Receivable, Memo Invoices-Payable, and
promulgation of Burmeister, Congress had already Bank Statements.
clarified the intent behind Sections 102(b)(2) of the 1977 48 Rollo, pp. 23-24.
Tax Code and 108(B)(2) of the 1997 Tax Code amending 344
the earlier provision. R.A. 9337 added the following 344 SUPREME COURT REPORTS ANNOTATED
phrase: “rendered to a person engaged in business
Accenture, Inc. vs. Commissioner of Internal Revenue
conducted outside the Philippines or to a nonresident
Accenture claims that these documentary pieces of
person not engaged in business who is outside the
evidence are supported by the Report of Emmanuel
Philippines when the services are performed.”
Mendoza, the Court-commissioned Independent
Accenture has failed to establish
Certified Public Accountant. He ascertained that
that the recipients of its services do
Accenture’s gross billings pertaining to zero-rated sales
business outside the Philippines.
were all supported by zero-rated Official Receipts and
Accenture argues that based on the documentary
Billing Statements. These documents show that these
evidence it presented,47 it was able to establish the
zero-rated sales were paid in foreign exchange currency
following circumstances:
and duly accounted for in the rules and regulations of
1. VThe records of the Securities and Exchange
the BSP.49
Commission (SEC) show that Accenture’s clients
In the CTA’s opinion, however, the documents
have not established any branch office in which to
presented by Accenture merely substantiate the
do business in the Philippines.
existence of the sales, receipt of foreign currency (I) The term ‘nonresident foreign corporation’ applies to a
payments, and inward remittance of the proceeds of foreign corporation not engaged in trade or business within
these sales duly accounted for in accordance with BSP the Philippines.” (Emphasis in the original)
rules. Petitioner presented no evidence whatsoever that Consequently, to come within the purview of Section
these clients were doing business outside the 108(B)(2), it is not enough that the recipient of the
Philippines.550 service be proven to be a foreign corporation; rather, it
Accenture insists, however, that it was able to must be specifically proven to be a nonresident foreign
establish that it had rendered services to foreign corporation.
corporations doing business outside the Philippines, There is no specific criterion as to what constitutes
unlike in Burmeister, which allegedly involved a foreign “doing” or “engaging in” or “transacting” business. We
corporation doing business in the Philippines.51 ruled thus in Commissioner of Internal Revenue v.
We deny Accenture’s Petition for a tax refund. British Overseas Airways Corporation:52
The evidence presented by Accenture may have “x x x. There is no specific criterion as to what constitutes
established that its clients are foreign. This fact does “doing” or “engaging in” or “transacting” business. Each case
not automatically mean, however, that these clients must be judged in the light of its peculiar environmental
were doing business outside the Philippines. After all, circumstances. The term implies a continuity of commercial
the Tax Code itself has provisions for a foreign dealings and arrangements, and contemplates, to that
corporation engaged in business within the Philippines extent, the performance of acts or works or the exercise of
and vice versa, to wit: some of the functions normally incident to, and in
“SEC. 22. Definitions—When used in this Title: progressive prosecution of commercial gain or for the purpose
xxx xxx xxx and object of the business organization. “In order that a
_______________ foreign corporation may be regarded as doing business
49 Id., at p. 25. within a State, there must be continuity of conduct and
50 Id., at p. 47. intention to establish a continuous business, such as the
51 Id., at p. 138.
appointment of a local agent, and not one of a temporary
345 character.”53
VOL. 676, JULY 11, 2012 345 A taxpayer claiming a tax credit or refund has the
Accenture, Inc. vs. Commissioner of Internal Revenue burden of proof to establish the factual basis of that
(H) The term “resident foreign corporation” applies to a claim. Tax re-
foreign corporation engaged in trade or business within the _______________
Philippines. 52 233 Phil. 406; 149 SCRA 395 (1987).
53 Id., at p. 420 citing The Mentholatum Co., Inc. vs. Anacleto
Mangaliman, 72 Phil. 524 (1941); Section 1, R.A. No. 5455; and Pacific
Micronesian Line, Inc. v. Del Rosario and Pelingon, 96 Phil. 23, 30 Carpio (Chairperson), Brion, Perez and Reyes, JJ.,
(1954), which in turn cited Thompson on Corporations, Vol. 8, 844-847
(3rd ed.); and Fisher, PHILIPPINE LAW OF STOCK CORPORATION, 415.
concur.