American Express International, Inc. Philippine Branch v. CIR CTA Case No. 60 April 1 , !00!

Tax Case No. 1 "AT #ero$rate% transactions

&ACT'( Petitioner is a Philippine branch of American Express International, Inc., is a servicing unit of American Express International, Inc. - Hongkong branch, en)a)e% primaril* to +acilitate the collection o+ Amex ,on)-on).s receiva/les +rom Amex car%hol%ers resi%in) or sit0ate% in the Philippines , as well as the payment of Amex Hongkong to American Express accre ite service establishments an merchants in the Philippines. Petitioner is a !alue A e "ax #!A"$ entity since %arch &'((.
)"he *ureau of Internal +evenue #*I+$ issue "AT R0lin) No. 010$1 a resse to the petitioner stating that as a "AT re)istere% entit* 2hose service is pai% +or in accepta/le +orei)n c0rrenc* 2hich is remitte% in2ar%l* to the Philippines an% acco0nte% +or in accor%ance 2ith the r0les an% re)0lations o+ the Central Ban- o+ the Philippines, their service income is a0tomaticall* #ero rate% effective ,anuary &, &'((.-

.or the taxable year &''(, petitioner allege ly generate an recor e revenues in the total amount of P(&,/01,23(.22 which were pai for in Hongkong in foreign currency inwar ly remitte to the Philippines an accounte for in accor ance with the rules an regulations of the Bangko Sentral ng Pilipinas, an likewise asserts that sai revenues 4ualify as 5ero-rate pursuant to 6ection & (#*$#0$ of the "ax 7o e as confirme in !A" +uling 8o. 9(9-('. .or the same perio , petitioner allege ly pai input !A" amounting to P2,':0,01'.01 on its omestic purchases of taxalle goo s;services. Petitioner nonetheless claims that its output !A" liability for the perio amounte only to P1,/((.&( thereby leaving an unutili5e input !A" of P2,'/:,3/&.9/ averre to be irectly attributable to its 5ero-rate sales. Petitioner conten s that the input !A" payments in &''( were pai in the course of its tra e or business. .urther, the unapplie input !A" payments sub<ect of this case ha not been carrie over to the succee ing first 4uarter of &'''. Accor ingly, on April &(, 0999, petitioner file a claim for refun with the +evenue =istrict >ffice 8o. 1: #East-%akati$ in the amount of P2,'/:,3/&.9/ covering the perio ,anuary & to =ecember 2&, &''(. Petitioner?s a ministrative claim for refun to ate remains unresolve an is still un er investigation by the *I+. It is the argument of the respon ent that !A" +uling 8o. 9(9-(' which states that petitioner?s service income is automatically 5ero-rate effective ,anuary &, &'(( is no longer applicable to the transactions involve in this petition because sai ruling was issue prior to the amen ment intro uce by +evenue +egulations 8o. 3-'/. "herefore, petitioner is not entitle to a refun of its excess &''( input !A" payments as a 5ero-rate taxpayer. 7onsi erably, respon ent posits that since the services ren ere by the petitioner consist of facilitating collection of A%E@ Hongkong receivables from car members situate in the Philippines an payment to service establishments in the Philippines, such services, although ren ere to a non-resi ent foreign client, are nevertheless performe in the Philippines an are not estine to be consume abroa . Hence, the onus of taxation of the revenue arising therefrom, for !A" purposes, is also within the Philippines. +espon ent further argues that besi es the fact that petitioner?s services are not estine to be consume abroa , they are neither of the same class nor of the same nature as Apro<ect stu ies,

information services, engineering an architectural esigns an other similar servicesA, mentione in 6ection 1.&90-#b$#0$ of +evenue +egulations 8o. 3-'/, which are estine to be consume abroa . As such, they cannot legally 4ualify for 5ero-rate !A" but rather are sub<ect to the regular !A" rate of &9B. I''3E( &. Chether !A" +uling 8o. 9(9-(' #April &2, &'('$ is applicable to the transactions involve in this petition, an assuming that !A" +uling 8o. 9(9-(' is not applicable, whether A%E@, base on the services it ren ers an the matter by which it is compensate for such services as escribe in the petition an as woul be proven uring the trial, nevertheless 4ualifies as a 5erorate !A" entity pursuant to 6ection &9(#*$#0$ of the 8ational Internal +evenue 7o e. ,E45( .irst, it is very clear that !A" +uling 8o. 919-'( not only expan s the language of 6ection #&9($#*$#0$ but also of +evenue +egulations 8o. 3-'/ which interprets the sai statute. "he same cannot be countenance . 6econ , it is a settle rule of legal hermeneutics that the implementing rules an regulations cannot amen the act of 7ongress for a ministrative rules an regulations are inten e to carry out, not supplant or mo ify, the law. Dikewise, it is axiomatic that a rule or regulation must bear upon, an be consistent with, the provisions of the enabling statute if such rule or regulations is to be vali . Th0s, in case o+ %iscrepanc* /et2een the /asic la2 an% a r0le or re)0lation iss0e% to implement sai% la2, the /asic la2 prevails. In other 2or%s, even ass0min) that "AT R0lin) No. 010$1 is no lon)er applica/le, petitioner still 60ali+ies as a #ero$rate% "AT entit* p0rs0ant to 'ection 1 017B87!8 o+ the Tax Co%e, as amen%e%. As we hel in the recent case of American Express International, Inc.$ Philippine Branch vs. Commissioner o+ Internal Reven0e #7"A 7ase 8o. 3(&2, ,anuary 0, 099&$E A"he provisions of 6ection &9(#*$#0$ of the "ax +eform Act of &'': an 6ection 1.& 90-0#b $#0$ are to clear to a mit of interpretation a vance by +espon ent. "he former merely provi es that services other than those en0merate% in the prece%in) para)raph shall /e s0/9ect to #ero percent 70:8 rate +or as lon) as the consi%eration is pai% +or in accepta/le +orei)n c0rrenc* an% acco0nte% +or in accor%ance 2ith the r0les an% re)0lations o+ the Ban)-o 'entral n) Pilipinas.A
N;TE<1("he governing law in the case at bar is 6ection &&0#A$Fthen 6ection &9/#a$G in relation to 6ection &9(#*$ #0$ of the "ax 7o e, as amen e , to be entitle to a refw& or tax cre it of input !A" payments irectly attributable to 5ero-rate or effectively 5ero-rate sales, the following re4uisites must be complie withE &$ there must be 5ero-rate or effectively 5ero-rate salesH 0$ that input taxes were incurre or pai H 2$ that such input !A" payments are irectly attributable to 5ero-rate sales or effectively 5ero-rate salesH 1$ that the input !A" payments were not applie against any output !A" liabilityH an 3$ that the claim for refun was file within the two-year prescriptive perio . N;TE<!( All the above re4uisites were complie with by the petitioner except with the thir re4uisite, the 67 foun that not all of the substantiate input !A" payments of P2,':0,903.&3 were irectly attributable to petitioner?s 5ero-rate sales. "hus, petiticner?s claim for refun was PA+"IADDI J+A8"E=. +espon ent 7ommissioner of Internal +evenue was >+=E+E= to +E.K8= to petitioner the sum of P2,'/:,22/.': representing unutili5e input !A" payments for the perio ,anuary & to =ecember 2&, &''(.