Giovanni L.

Pamonag LlB-3B Taxation II

Accenture Inc. vs. Commissioner of the Internal Revenue

GR 190102, July 11, 2012

Facts:

Accenture, Inc. is a corporation engaged in the business of providing management

consulting, business strategies development, and selling and/or licensing of software. It is duly
registered with the Bureau of Internal Revenue as a Value Added Tax (VAT) taxpayer or
enterprise in accordance with Section 236 of the National Internal Revenue Code.

This case involves Accentures claim of a refund or for the issuance of a Tax Credit
Certificate (TCC), brought about by its excess VAT that was not applied to any output VAT that
the company is liable for.

With its application for the said refund or TCC not being acted upon by the Department
of Finance, Accenture filed a Petition for Review with the First Division of the Court for Tax
Appeals.

In his Answer to the companys claim, the Commissioner of the Internal Revenue (CIR)
posted the following contentions:

1. Accentures sale of goods and services to its clients are not zero-rated transactions.
2. It failed to prove to its entitlement to a refund.

Consequently, the Division denied Accentures petition for the latters failure to prove
that its sale of services to alleged foreign clients qualified for zero percent VAT. Its Motion for
Reconsideration was also denied, thus, Accenture filed an appeal before the Court of Tax
Appeals En Banc (CTA). However, the latter ruled that the former failed to prove that its clients
were doing business outside of the Philippines. Accentures subsequent Petition for Review with
the CTA En Banc was also denied with the latter affirming the Divisions Decision and
Resolution, the formers ensuing MR also suffered the same fate.

Issues:

1. Should the recipient of the services be doing business outside the Philippines for the
transaction to be zero-rated under Section 108(B)(2) of the 1997 Tax Code?

2. Has Accenture successfully proven that its clients are entities doing business outside
the Philippines?

Law/s:
The law involved in this case and anchored on by the petitioner relative to its claim is
Section 112(A), Refunds or Tax Credits of Input Tax, of the 1997 Tax Code, which provides:

(A) Zero-Rated or Effectively Zero-Rated Sales. - Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable

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quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of
creditable input tax due or paid attributable to such sales, except transitional input tax, to the
extent that such input tax has not been applied against output tax: Provided, however, That in the
case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and
(2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also
in taxable or exempt sale of goods of properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales.

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed
in the Philippines by VAT- registered persons shall be subject to zero percent (0%) rate.

(1) Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas (BSP);
(2) Services other than those mentioned in the preceding paragraph, the consideration for which
is paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP); x x x.

The foregoing provision was amended by Section 6 of RA 9337. It reads:

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT- registered persons shall be subject to zero percent (0%) rate:

(1) Processing, manufacturing or repacking goods for other persons doing business
outside the Philippines which goods are subsequently exported, where the services are paid for in
acceptable foreign currency and accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP);

(2) Services other than those mentioned in the preceding paragraph rendered to a person
engaged in business conducted outside the Philippines or to a nonresident person not engaged
in business who is outside the Philippines when the services are performed, the consideration
for which is paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP); x x x.

Arguments:

Accenture contends that, Section 108 (B), prior to its amendment, does not state that
services, to be zero-rated, should be rendered to clients doing business outside of the Philippines,
the only requirement being that the consideration therefor be in foreign currency and in
accordance with the rules set by the Bangko Sentral ng Pilipinas (BSP), and since the same has
been complied with by, it is entitled to a refund.

Meanwhile, the CTAs contention is that the provision relied on by it is a mere

reproduction of the provision relied on by the petitioner Accenture, thus, decisions interpreting

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the latter may be used to interpret the former. And it was ruled therein that the recipient of the
services must be doing business outside the Philippines as expressly provided for by law.

Conclusion: Petition denied.

The Court ruled in favor of the CTA. It found tenable the latters argument that the
provisions relied on by the CTA and its subsequent interpretation by this Court can be applied to
the instant case for the provision relied on by the petitioner is a mere reproduction of the same
provision, thus, interpretation of the prior provision can be duly applied to the later provision.
Hence, it is mandatory that the recipient of services rendered must be doing business outside the
Philippines for the transaction to qualify for zero-rating.

Petitioners reliance on a case decided by this Court is also misplaced, for the issue in the
instant case was never put in question in the said case. What is controlling the place of business
of the recipient, even though the service was performed and consumed in the Philippines. A
different interpretation would result to the tax measure being voluntary instead of it being
mandatory.

Moreover, the Petitioners failure to provide proof that its clients are doing business
outside the Philippines was fatal to its cause. What it provided as proof, on the other hand, were
just documents to prove that its clients are foreign entities.

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