The Court of Tax Appeals (CTA) has ruled that services sold to exporters, all 100 percent of the sales of whom are exported and who are registered as such with the Board of Investments (BOI), are not subject to the value-added tax (VAT).
In the case of Nickel Asia Corp. v. Commissioner of Internal Revenue, the CTA granted the petition to cancel a P7-million VAT deficiency assessment against Nickel Asia for its income on management fees from the sale of services to BOI-registered exporters all the sales of whom are from exports.
The CTA ruling exempting the sale of services to BOI-registered exporters was made amid the argument of the Bureau of Internal Revenue, in which the chief tax collector interpreted the regulations governing the VAT exemption as having erroneously included the sale of services to BOI-registered exporters among those transactions that are exempt from VAT.
The legal basis of Nickel Asia in asserting the VAT-exemption on the management services that it rendered to BOI-registered exporters is Revenue Regulations (RR) 16-2005, which provided in Section 4-106.5(a)(5) that such a transaction is exempt from the VAT.
But the nickel or processor argued that the provisions in the RR 16-2005 inadvertently included the sale of services to BOI-registered exporters as among the transactions exempt from VAT, and that such provision is actually in conflict with the law that it implements, which is Section 108 of the Tax Code.
But the CTA upheld the efficacy of the subject provision as a valid mandate under a subsisting law that is not open to interpretation because of its clear, explicit and unequivocal language.
“While it is true that the respondent has clarified that any reference to sale of services under the aforementioned section is erroneous and unmistakably in conflict with the governing law, specifically Section 108 of the Tax Code, this pronouncement was made only in her memorandum, rather than in a ruling, and has not at all changed the text of RR 16-2005, which can only be changed by the secretary of finance,” the decision said.
David Cagahastian