GR 152609; (June, 2005) (Digest)
G.R. No. 152609; June 29, 2005
COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH), Respondent.
FACTS
Respondent American Express International, Inc. (Philippine Branch) is a VAT-registered entity acting as a servicing unit for its Hong Kong branch. Its primary function is to facilitate the collection of receivables from Philippine card members and to pay service establishments in the Philippines, with its services paid for in acceptable foreign currency remitted to the country. For the taxable year 1997, the respondent filed amended VAT returns, declaring its sales as zero-rated and claiming a refund for excess input VAT in the amount of P3,751,067.04. The claim was based on Section 102(b) of the Tax Code, which zero-rates services performed in the Philippines and paid for in acceptable foreign currency accounted for under BSP rules.
The Commissioner of Internal Revenue denied the claim. The respondent then appealed to the Court of Tax Appeals (CTA), which granted the refund. The CTA decision was affirmed by the Court of Appeals. The Commissioner elevated the case to the Supreme Court, arguing that the respondent’s services did not qualify for zero-rating, contending that the destination principle should apply and that subsequent revenue regulations imposed additional requirements not found in the law.
ISSUE
Whether the services rendered by the respondent are subject to zero percent (0%) value-added tax under Section 102 of the National Internal Revenue Code.
RULING
Yes, the services are zero-rated. The Supreme Court affirmed the decisions of the lower courts. The legal logic is anchored on a clear application of the statutory text. While the VAT system generally follows the destination principle, Section 102(b) of the Tax Code provides a specific exception for zero-rating. For services to be zero-rated, the law only requires: (1) the service is performed in the Philippines; (2) it falls under the categories in Section 102(b); and (3) it is paid for in acceptable foreign currency inwardly remitted and accounted for under BSP rules. The respondent’s services, as a facilitating unit paid in foreign currency, indisputably meet all three conditions.
The Court emphatically ruled that the Commissioner cannot, through revenue regulations, add substantive requirements not present in the law itself. Such an act constitutes an invalid exercise of legislative power, rendering the challenged regulations ultra vires. The law is clear and unambiguous; thus, it must be applied as written. Since the respondent complied with the statutory criteria for zero-rating, it is entitled to a refund of the excess input VAT attributable to its zero-rated transactions. The petition was denied for lack of merit.