VALUE-ADDED TAX (Characteristic/Elements of VAT Taxable transaction)
CIR VS. SONY PHILIPPINES
G.R. No. 178697 November 17, 2010
NATURE OF THE CASE: Petition for review on
certiorari seeks to set aside the Decision and the Resolution of the Court of Tax Appeals En Banc, affirming the Decision of the CTA-First Division which partially granted the petition for review of respondent Sony Philippines, Inc. FACTS: On November 24, 1998, the CIR issued Letter of Authority to examine Sonys books of accounts and other accounting records regarding revenue taxes for the period 1997 and unverified prior years. On December 6, 1999, a preliminary assessment and demand letter for 1997 VAT, EWT, FWT1 deficiencies and penalties was issued by the CIR. The VAT deficiency resulted from its disallowance of the input VAT tax credit from Sonys advertising expense. Sony sought a re-evaluation of these tax deficiency assessments by filing a protest. Acting on the protest, the CIR issued final assessment notices with formal letter of demand. Thereafter, Sony filed a petition for review before the Court of Tax Appeals First Division. 1 Value-Added Tax (VAT); Extended Withholding Tax (EWT);Final Withholding Tax (FWT) Reported by: Clavel A. Tuason, Taxation Law Review
Before the CTA First Division, CIR argued that since
Sonys advertising expense was reimbursed by Sony Singapore, the former never incurred any advertising expense. As a result, Sony is not entitled to a tax credit. At most, the CIR continues, the said advertising expense should be for the account of Sony Singapore, and not Sony Philippines. The CTA-First Division partly granted Sonys petition by cancelling the deficiency VAT assessment but upheld a modified deficiency EWT assessment as well as the penalties. This finding was later affirmed by the CTA-EB. Unfazed, the CIR filed the instant petition for review. ISSUES: 1.) Whether or not the LOA2, although it states the period 1997 and unverified prior years, should be understood to mean the fiscal year ending in March 31, 1998; and 2.) Whether or not the advertising expense, which amount was reimbursed by Sony-Singapore, is an income of Sony and thus, VAT-taxable transaction under the NIRC? HELD ON ISSUE No. 1: NO, the period 1997 and unverified prior years should not be understood to mean the fiscal year ending March 31, 1998?
2 Letter Of Authority Page 1
VALUE-ADDED TAX (Characteristic/Elements of VAT Taxable transaction)
As earlier stated, the LOA covered the period 1997 and unverified prior years. For said reason, the CIR acting through its revenue officers went beyond the scope of their authority because the deficiency VAT assessment they arrived at was based on records from January to March 1998 or using the fiscal year which ended in March 31, 1998. In the absence of such an authority, the assessment or examination is a nullity. On this point alone, the deficiency assessment should have been disallowed.
VAT
HELD ISSUE No. 2: NO, the reimbursement for
the advertising expense incurred by Sony Phils., by Sony Singapore was not an income and was not VAT taxable. As aptly founded by the CTA-First Division and later affirmed by the CTA-EB, Sonys deficiency VAT assessment stemmed from the CIRs disallowance of the input VAT credits that should have been realized from the advertising expense of the latter. The Court does not agree that the same subsidy should be subject to the 10% VAT. To begin with, the said subsidy termed by the CIR as reimbursement was not even exclusively earmarked for Sonys advertising expense for it was but an assistance or aid in view of Sonys dire or adverse economic conditions, and was only equivalent to Sonys advertising expenses.
Reported by: Clavel A. Tuason, Taxation Law Review
Section 106 of the Tax Code explains when VAT may
be imposed or exacted. Thus: SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor. Thus, there must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale, barter or exchange in the subsidy given by Sony Singapore to Sony. It was but a dole out by Sony Singapore and not in payment for goods or properties sold, bartered or exchanged by Sony. In the present case, the services rendered by the advertising companies, paid for by Sony using Sony Singapore dole-out, were for Sony Phils. Sony Singapore just gave assistance to Sony Phils. in the amount equivalent to the latters advertising expense but never received any goods, properties or service in return. In view of the foregoing, the Court finds no reason to disturb the findings of the CTA-EB. Page 2
VALUE-ADDED TAX (Characteristic/Elements of VAT Taxable transaction)
RULING: WHEREFORE, the petition is DENIED.
Reported by: Clavel A. Tuason, Taxation Law Review