Proof of doing business outside the Philippines

For the supply of services to a foreign corporation to qualify for zero-percent VAT under Section 108(B) of the Tax Code, the VAT-registered taxpayer that performed the service/s must prove that:

(a) the service is other than processing, manufacturing or repacking of goods; (b) payment for such services is in acceptable foreign currency accounted for in accordance with the Bangko Sentral ng Pilipinas (BSP) rules and regulations; and (c) recipient of such services is doing business outside the Philippines.

In order to establish that the foreign corporation is doing business outside the Philippines, the taxpayer-refund claimant presented the official receipts issued to its foreign clients, intercompany payment request, billing statements, memo invoices-receivable, memo-invoices payable, and bank statements. According to the Court of Tax Appeals (CTA), the evidence presented by the taxpayer merely substantiated the existence of sales, receipts of foreign currency payments, and inward remittance proceeds of the sales duly accounted for in accordance with the BSP rules. The documents failed to prove the fact that the foreign clients to whom the taxpayers rendered its services were clients doing business outside the Philippines.

For failure to establish that its clients are doing business outside the Philippines, the taxpayer cannot claim its sale of service as VAT zero-rated; hence, its claim for refund of its excess input VAT was denied.

(Accenture, Inc. v. Commissioner of Internal Revenue, GR 190102, July 11, 2012)

Tax Brief – September 2012

Punongbayan and Araullo