G.R. No. 164365 ; June 8, 2007
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PLACER DOME TECHNICAL SERVICES (PHILS.), INC., respondent.

FACTS

Respondent Placer Dome Technical Services (Phils.), Inc., a VAT-registered domestic corporation, was engaged by its foreign affiliate, Placer Dome Technical Services Limited (PDTSL) of Canada, to implement an environmental clean-up and rehabilitation project in Marinduque following a mining tailings leak. The services were rendered in the Philippines and paid to respondent in U.S. dollars, which were inwardly remitted and accounted for under Bangko Sentral ng Pilipinas (BSP) rules. Respondent subsequently filed an administrative claim for refund of input VAT amounting to P43,015,461.98, arguing its revenues constituted zero-rated sales under the Tax Code. The Commissioner of Internal Revenue (CIR) did not act on the claim, prompting respondent to file a petition with the Court of Tax Appeals (CTA).
The CTA partially granted the refund, finding that while respondent’s services qualified as zero-rated, only a portion of the foreign currency payments were properly accounted for with the BSP and only some input VAT was substantiated by official receipts. The CTA thus allowed a refund of P17,178,373.12. The CIR appealed, invoking a VAT Ruling which required that the recipient of the service be doing business outside the Philippines. Both the Court of Appeals and the CTA rejected this argument, leading to this petition before the Supreme Court.

ISSUE

Whether the sale of services by a VAT-registered domestic corporation to a non-resident foreign entity, paid in acceptable foreign currency inwardly remitted, qualifies for zero-rated VAT under Section 102(b)(2) of the National Internal Revenue Code of 1986, as amended.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ rulings, holding that the services rendered by respondent are zero-rated for VAT purposes. The legal logic rests on a strict interpretation of Section 102(b)(2) of the 1986 NIRC, which subjects to a 0% rate “services performed in the Philippines by VAT-registered persons” other than processing, manufacturing, or repacking of goods, provided the consideration is paid for in acceptable foreign currency and accounted for in accordance with BSP rules. The provision does not require that the recipient of the service be a foreign corporation or be doing business outside the Philippines; the only conditions are the performance of the service in the Philippines by a VAT-registered entity and payment in duly accounted foreign currency.
The Court explicitly followed its precedent in Commissioner of Internal Revenue v. American Express International, Inc., which definitively ruled that the law does not impose a “doing business abroad” requirement on the service recipient. The CIR’s reliance on a contrary VAT Ruling and Revenue Regulation was unavailing, as administrative issuances cannot amend, supplant, or modify the statute. The legislative intent is to exempt such transactions from output VAT to remain competitive and to grant refunds of input VAT, consistent with the VAT system as a tax on consumption. Since respondent’s services met the statutory conditions, they were correctly classified as zero-rated, entitling respondent to a refund of the corresponding input VAT, as duly substantiated.