THE Court of Tax Appeals (CTA) has ruled on the documentary evidence required to prove that the client/affiliates of regional operating headquarters (ROHQs) of multinationals in the Philippines are indeed “persons doing business outside the Philippines,” the services rendered for whom are zero-rated under the value- added tax (VAT) system.
In the case of Deutsche Knowledge Services Pte Ltd. v Commissioner of Internal Revenue, the CTA partially granted the petitioner’s claim for VAT refund on services rendered to its affiliates in the Asia-Pacific region.
But most of the petitioner’s claims for VAT refund on supposedly zero-rated sales of services to its clients/affiliates were denied because these clients/affiliates were not proven to be “persons doing business outside the Philippines,” the services rendered for whom are considered as VAT zero-rated and thus the input VAT paid for the rendering of these services may be refunded.
The CTA said to prove that the clients/affiliates of ROHQs are “persons doing business outside the Philippines,” the following minimum documentary evidence must be present the Securities and Exchange Commission’s (SEC) Certificate of Non-Registration of Corporation/Partnership, and Certificate/Articles of Foreign Incorporation/Association/Registration.
In this case, the petitioner presented only the SEC Certificate of Non-Registration of Corporation/Partnership for many of its clients/affiliates.
“While the SEC Certificates of Non-Registration show that the named entities therein are not registered corporations/partnerships in the Philippines, the same do not prove that such entities are nonresident foreign corporations doing business outside the Philippines. Also, the Articles of Association and the Certificates of Registration/Incorporation of Foreign Company [by itself] only prove that the named entities therein were incorporated or organized abroad but do not establish that such entities are not doing business in the Philippines,” the CTA decision said.
Thus, the CTA only partially granted the petitioner’s claim for VAT refund in the amount of P12 million, instead of its original demand for refund in the amount of P42 million.