In its recent decision in the case of Amadeus Marketing Philippines, Inc. vs. CIR,[1] the CTA revisited what is required for a taxpayer to secure a credit or refund of input VAT on zero-rated or effectively zero-rated sales.

The case involved the VAT refund claim of Amadeus Philippines (AP), a wholly-owned subsidiary of Amadeus Spain.

AP was established to market and distribute the Amadeus System to Philippine clients, particularly travel agencies, acting a neutral agent for its parent company, Amadeus Spain. The Amadeus System is an automated, computerized reservation system that incorporates a software package to perform various travel booking and ticketing functions in the Philippines.

In 2015, Amadeus Philippines entered into an agreement with Amadeus Spain for AP to promote the Amadeus System. Pursuant to the agreement, AP rendered services to Amadeus Spain and issued VAT zero-rated official receipts to the latter.

AP claimed to have incurred and paid input VAT from domestic purchases of goods and services attributable to its zero-rated sales. In 2019, AP filed an administrative claim with the Bureau of Internal Revenue for the refund of its excess and unutilized input VAT. AP computed this to be over P21 million for 2017.

The BIR denied AP’s claim for VAT refund, prompting AP to elevate its claim to the Court of Tax Appeals.

In deciding the appeal, the CTA enumerated the 9 requisites for a taxpayer to secure a credit or refund of input VAT on zero-rated or effectively zero-rated sales, grouping these into the following categories:

Timely filing the administrative and judicial claims:

1. The refund claim is filed with the BIR within two (2) years after the close of the taxable quarter when the sales were made;
2. In case of full or partial denial of the refund claim, the judicial claim is filed with this Court, within thirty (30) days from receipt of the decision;

With reference to the taxpaver’s registration with the BIR:

     3 The taxpayer is a VAT-registered person;

In relation to the taxpayer’s output VAT:

     4 The taxpayer is engaged in zero-rated or effectively zero-rated sales;

     5 For zero-rated sales under Section 106(A)(2)(1) and (2); 106(6); and 108(6)(1) and (2), the acceptable          foreign currency exchange proceeds have been duly accounted for in accordance with the Bangko                Sentral ng Pilipinas (BSP) rules and regulations;

As regards the taxpaver’s input VAT being refunded:

     6 The input VAT are not transitional input taxes;

     7 The input VAT are due or paid;

     8 The input VAT claimed are attributable to zero-rated or effectively zero-rated sales. However, where              there are both zero-rated or effectively zero-rated sales and taxable or exempt sales, and the input                taxes cannot be directly and entirely attributable to any of these sales, the input taxes shall be                        proportionately allocated on the basis of sales volume; and,

     9 The input VAT have not been applied against output VAT during and in the succeeding quarters.
        Finally, the CTA emphasized that cases filed before it are litigated de novo, as new. Party-litigants are            thus obliged to prove every minute aspect of their case.

To prove that it merited the refund, AP had to prove compliance with each of the nine requirements.

AP was able to prove the first three.

First, the administrative claim was timely filed. AP filed the refund claim with the BIR on April 1, 2019, within two years from the close of the taxable quarter when the zero-rated or effectively zero-rated sales were made.

Second, AP filed its Petition for Review of the BIR’s denial of its refund claim with the CTA within thirty days of receiving the denial. Third, AP proved that it is a VAT-registered entity as shown by its BIR Certificate of Registration.

However, AP failed to prove the fourth requirement. It failed to establish that it was engaged in zero-rated or effectively zero-rated sales.

The CTA upheld the BIR’s finding that AP’s sale of services to its parent Amadeus Spain cannot be considered zero-rated sales since Amadeus Spain was doing business in the Philippines.

The CTA noted that AP is a wholly-owned subsidiary of Amadeus Spain. Also, the agreement with the parent company tasked AP to promote, make available and facilitate access to the Amadeus System by subscribers in the Philippines and act as an agent of for Amadeus Spain participants and subscribers. The agreement was replete with provisions that governed Amadeus Spain’s control and participation in running the Amadeus System in the Philippines.

The CTA ruled that AP’s agreement with Amadeus Spain paved the way for the latter to further advance its purpose to continually promote, market, and distribute the Amadeus System in the Philippines. The Court concluded that Amadeus Spain was “doing business in the Philippines” as defined under Republic Act No. 7042, as it effectively engaged in activities that included “soliciting orders, service contracts” and “participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines; and any other acts or acts that imply a continuity of commercial dealings or arrangements, and contemplate to that extent the performance of acts or works, or the exercise of some of the functions normally incident to, an in progressive prosecution of, commercial gain or of the purpose and object of the business organization”.

Because Amadeus Spain was doing business in the Philippines, AP’s sales to it could not be considered zero-rated or effectively zero-rated. Thus, the CTA affirmed the denial of the VAT refund and found it unnecessary to delve into whether the remaining five requisites had been met.

The CTA closed its decision by stressing that tax refunds are in the nature of tax exemptions which are strictly construed against the person claiming them. It is the burden of the one who claims exemption to justify such a claim by the clearest grant of law.

This November 2021 case turns out to not be the only refund claim of Amadeus which has been denied by the CTA. In earlier decisions, the Court affirmed BIR rulings against AP’s claims for refund for the years 2011[2] and 2013.[3]

Those refund claims were also with respect to services rendered to Amadeus Spain. They were denied on the ground that Amadeus Spain was doing business in the Philippines.

Amadeus Philippines claimed over P30 million in VAT refunds for 2011. In that earlier case, AP argued that Amadeus Spain was not doing business in the Philippines as it was merely collecting royalties from AP pursuant to a Distribution Agreement.

The CTA rejected AP’s argument because the contracts involving Amadeus Philippines and Amadeus Spain had been existing for several years prior to the taxable year in question. Also, Amadeus Philippines’ act of withholding payments to Amadeus Spain was taken as a sign of continuity of doing business in the Philippines.

Amadeus Philippines’ claim for over P27 million VAT refund attributable to 2013 was similarly rejected. The CTA found that the agreements between Amadeus Philippines and Amadeus Spain, because they had been existent for years, indicated a continuity of commercial dealings and manifested Amadeus Spain’s intention to pursue its business in the Philippines.

The CTA decisions uniformly found that Amadeus Spain actively participated in the operation of Amadeus Philippines’ business.

In his concurring opinion in the second case, CTA Presiding Justice Roman G. Del Rosario articulated a reason for the denial which did not depend solely on the finding that Amadeus Spain was doing business in the Philippines:

“… [T]here is nothing in Section 108 (B)(2) of the NIRC of 1997, as amended, which states that a foreign corporation should not engage in business in the Philippines in order that the sale of services to it by a VAT-registered entity may be regarded as zero-rated sales. What the law specifically requires in order for the sale of services to a foreign corporation to qualify for zero-rating is that the services must be rendered in connection with the foreign corporation’s business outside the Philippines. The services by the VAT- registered entity must be destined for consumption by the foreign corporation outside of the Philippines, that is, in connection with its business conducted outside the Philippine territory.”

This distinction was also raised in the separate opinion of Justice Lovell R. Bautista who, citing the Supreme Court decision in CIR v. American Express, Inc.[4], actually held that Amadeus was entitled to a refund.

But the distinction does not appear in the main decision itself. Neither is it taken up in the CTA’s 2021 denial of Amadeus Philippines’ refund claim, in which the Court considered the argument closed once it determined that Amadeus Spain was doing business in the Philippines.

Atty. Francesco Britanico

[1] Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 10094, November 17, 2021.

[2] Amadeus Marketing Philippines, Inc. v. CIR, CTA EB No. 1483, October 9, 2017.

[3] Amadeus Marketing Philippines, Inc. v. CIR, CTA Case No. 9107, February 6, 2018.

[4] G.R. No. 152609, June 29, 2005, 462 SCRA 197.