G.R. No. 261171, October 04, 2023
COMMISSIONER OF INTERNAL REVENUE, PETITIONER, VS. BW SHIPPING PHILIPPINES, INC., RESPONDENT.

FACTS

Respondent BW Shipping Philippines, Inc. is a corporation engaged in shipping, manning, and crewing of vessels. For taxable year 2014, it rendered manning services to shipping companies located and doing business outside the Philippines, receiving payment in foreign currency, and treated these sales as zero-rated VAT. It filed an administrative claim for refund or issuance of a Tax Credit Certificate (TCC) for its unutilized input VAT amounting to PHP 7,346,268.45. The Bureau of Internal Revenue (BIR) denied the claim. Respondent then filed a Petition for Review before the Court of Tax Appeals (CTA). The CTA First Division partially granted the petition, ordering a refund or TCC for PHP 5,503,628.95, after finding respondent complied with substantiation requirements for most, but not all, of its claimed input VAT and zero-rated sales. The CIR appealed to the CTA En Banc, arguing that respondent’s foreign principals were doing business in the Philippines based on the Consularized Manning Agreements appointing respondent as a local agent, thus disqualifying the sales from zero-rating. The CTA En Banc affirmed the Division’s ruling, finding the foreign shipping companies were not doing business in the Philippines. The CIR’s motion for reconsideration was denied.

ISSUE

Whether the CTA En Banc correctly affirmed the CTA Division’s order to refund or issue a TCC for respondent’s excess/unutilized input VAT for the four quarters of taxable year 2014.

RULING

Yes, the CTA En Banc correctly affirmed the order. The Petition is without merit. For a claim for refund or issuance of a TCC of unutilized input VAT attributable to zero-rated sales under Section 112(A) of the National Internal Revenue Code (NIRC), the taxpayer must prove: (1) it is a VAT-registered entity; (2) it made zero-rated or effectively zero-rated sales; (3) the input taxes were incurred or paid for purchases of goods or services related to such zero-rated sales; (4) the input taxes were not applied against any output tax liability; and (5) the administrative and judicial claims were filed within the prescribed periods. Respondent proved these requisites. The foreign shipping companies, as recipients of respondent’s manning services, were not doing business in the Philippines. The evidence—Certificates of Non-Registration from the SEC, foreign Certificates/Articles of Incorporation, online registration screenshots, and the Consularized Manning Agreements—sufficiently established the companies were non-resident foreign corporations organized and doing business outside the Philippines. The appointment of respondent as an agent for manning and crewing services, which involves screening and recruiting seafarers, does not equate to the foreign principals doing business in the Philippines. Such recruitment can be outsourced without establishing a business presence. The CIR’s reliance on jurisprudence describing foreign shipping corporations as “doing business through its agent” for liability under seafarers’ money claims is a self-imposed characterization for a specific statutory purpose and does not apply for VAT purposes. The CIR failed to present sufficient evidence to overturn the factual findings of the CTA.