COMMISSIONER OF INTERNAL REVENUE vs.

BURMEISTER AND WAIN SCANDINAVIAN

CONTRACTOR MINDANAO, INC. - Value Added Tax, Zero Rated

FACTS:

A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The foreign
entity then subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a mixture of
currencies while the consortium, in turn, paid Burmeister foreign currency inwardly remitted into the
Philippines. BIR did not want to grant refund since the services are “not destined for consumption abroad”
(or the destination principle).

ISSUE:

Are the receipts of Burmeister entitled to VAT zero-rated status?

HELD:

PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered prior to
the filing of CIR’s Answer in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by Burmeister,
was deemed doing business within the Philippines since its 15-year O&M with NPC can not be
interpreted as an isolated transaction.
In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other than those
in (1)’ of Sec. 102 both require (i) payment in foreign currency; (ii) inward remittance; (iii) accounted for by
the BSP; AND (iv) that the service recipient is doing business outside the Philippines. The Court ruled
that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency.

The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating of its
sales to foreign consortium. However, the ruling is only valid until the time that CIR filed its Answer in the
CTA which is deemed revocation of the previously-issued ruling. The Court said the revocation can not
retroact since none of the instances in Section 246 (bad faith, omission of facts, etc.) are present.

Pepsi Cola Bottling Company vs Municipality of Tanauan

69 SCRA 460 – Taxation – Delegation to Local Governments – Double Taxation

Pepsi Cola has a bottling plant in the Municipality of Tanauan, Leyte. In September 1962, the
Municipality approved Ordinance No. 23 which levies and collects “from soft drinks producers
and manufacturers a tai of one-sixteenth (1/16) of a centavo for every bottle of soft drink
corked.”
In December 1962, the Municipality also approved Ordinance No. 27 which levies and collects
“on soft drinks produced or manufactured within the territorial jurisdiction of this municipality a
tax of one centavo P0.01) on each gallon of volume capacity.”
Pepsi Cola assailed the validity of the ordinances as it alleged that they constitute double
taxation in two instances: a) double taxation because Ordinance No. 27 covers the same
subject matter and impose practically the same tax rate as with Ordinance No. 23, b) double
taxation because the two ordinances impose percentage or specific taxes.
Pepsi Cola also questions the constitutionality of Republic Act 2264 which allows for the
delegation of taxing powers to local government units; that allowing local governments to tax
companies like Pepsi Cola is confiscatory and oppressive.
The Municipality assailed the arguments presented by Pepsi Cola. It argued, among others, that
only Ordinance No. 27 is being enforced and that the latter law is an amendment of Ordinance
No. 23, hence there is no double taxation.
ISSUE: Whether or not there is undue delegation of taxing powers. Whether or not there is
double taxation.
HELD: No. There is no undue delegation. The Constitution even allows such delegation.
Legislative powers may be delegated to local governments in respect of matters of local
concern. By necessary implication, the legislative power to create political corporations for
purposes of local self-government carries with it the power to confer on such local governmental
agencies the power to tax. Under the New Constitution, local governments are granted the
autonomous authority to create their own sources of revenue and to levy taxes. Section 5,
Article XI provides: “Each local government unit shall have the power to create its sources of
revenue and to levy taxes, subject to such limitations as may be provided by law.” Withal, it
cannot be said that Section 2 of Republic Act No. 2264 emanated from beyond the sphere of
the legislative power to enact and vest in local governments the power of local taxation.
There is no double taxation. The argument of the Municipality is well taken. Further, Pepsi
Cola’s assertion that the delegation of taxing power in itself constitutes double taxation cannot
be merited. It must be observed that the delegating authority specifies the limitations and
enumerates the taxes over which local taxation may not be exercised. The reason is that the
State has exclusively reserved the same for its own prerogative. Moreover, double taxation, in
general, is not forbidden by our fundamental law unlike in other jurisdictions. Double taxation
becomes obnoxious only where the taxpayer is taxed twice for the benefit of the same
governmental entity or by the same jurisdiction for the same purpose, but not in a case where
one tax is imposed by the State and the other by the city or municipality.