The Court of Tax Appeals (CTA) has denied a P10-million claim for refund of unused input value-added tax (VAT) filed by the regional operating headquarters in Manila of the Hong Kong-based Emerson Electric (Asia) Ltd. for its failure to issue VAT zero-rated official receipts to its foreign clients.
The CTA denied the claim for refund representing unused input VAT refund arising from domestic purchases of goods and services and purchases/importations of capital goods attributable to zero-rated transactions of Emerson Electric (Asia) Ltd.-ROHQ covering the period July to December 2007.
As the regional operating headquarters of Emerson Electric (Asia) Ltd., the petitioner is licensed by the Securities and Exchange Commission to provide certain services like business planning, coordination services, corporate finance, marketing control and sales promotion, training and personnel management, and business development to its affiliates both in the Philippines and abroad.
The petitioner’s claim for refund is based on Section 108 of the National Internal Revenue Code (NIRC), which provides that services, except processing, manufacturing or repacking of goods, rendered to an entity outside of the Philippines and paid for in acceptable foreign currency are zero-rated transactions.
But the CTA denied the claim on the ground that, at the time that Emerson Electric received payments from its foreign clients and issued receipts therefor, it still did not have the authority to print (ATP) official receipts and sales invoices from the Bureau of Internal Revenue (BIR).
The petitioner presented evidence of its various service agreements with its affiliates abroad, and proof of the remittances of payment for its services rendered to these affiliates. But the CTA said it failed to comply with another requirement for the sale of services to be considered as zero-rated transactions.
“While the said remittances may correspond to the invoices issued by petitioner to its alleged nonresident clients, it bears stressing that the law previously quoted clearly requires a VAT-registered seller of services to issue an official receipt for every sale of service, which the petitioner failed to prove before this Court,” the CTA decision said.
The CTA pointed out that the alleged zero-rated transactions were during the period of July to December 2007, while the ATP issued by the BIR to the petitioner was dated July 22, 2008.
“Respondent correctly argued that the absence of an ATP is fatal to petitioner’s claim for refund/tax credit of input tax attributable to zero-rated sales. Petitioner may have secured an ATP from respondent, but the same was issued after the period when the alleged zero-rated transactions occurred. It is clear that the law requires VAT-registered taxpayers to issue a VAT invoice or official receipt in accordance with Section 113 of the NIRC, and that the invoices and official receipts should be duly registered. In other words, securing the required ATP after the subject transactions took place is fatal to petitioner’s refund claim,” the CTA said.