Court of Tax Appeals

The Court of Tax Appeals (CTA) has denied the petition filed by Procter & Gamble International Operations-Regional Operating Headquarters (ROHQ) which challenged the denial of the firm’s 2014 tax refund involving more than P47 million.

With its decision, the CTA as a full court affirmed the ruling of its third division which dismissed the two cases filed by Procter & Gamble against the order of the Bureau of Internal Revenue (BIR) that denied the pleas for refund. 

Case records showed that Procter & Gamble ROHQ filed with the BIR on June 1, 2016 an application for tax credits/refunds in the amount of P23,841,096.68 covering the period July 1 to Sept. 30, 2014. Another application was filed on Aug. 30, 2016 for a P23,841,096.68 refund for the period from Oct. 1, 2014 to Dec. 31, 2014.

In seeking the refunds, Procter & Gamble said its clients were foreign corporations. Under Section 108(B)(2) of the National Internal Revenue Code (NIRC) of 1997, in order for one to be entitled to the value-added tax (VAT) rate of zero percent, the recipient of the services must be a foreign corporation doing business outside the Philippines or a non-resident person not engaged in business who is outside the Philippines when the services were performed.

However, both claims were denied by the BIR because they were not properly documented.

Petitions for review were filed by Procter & Gamble before the CTA on Oct. 20, 2016 and Jan. 20, 2017 with respect to the two refunds which were denied by the BIR. After consolidating the petition, the CTA’s third division denied the consolidated petition for lack of merit.

Procter & Gamble challenged the division’s ruling before the CTA as a full court.  It argued that had sufficiently presented evidence to establish that the recipients of its services are non-resident foreign entities engaged in business conducted outside the Philippines so it is entitled to a refund.

It also claimed that the CTA’s third division failed to consider the nature of its business as an ROHQ, and the mere fact that the service agreements failed to indicate where the services are to be performed did not mean that the same were not performed within the Philippines.

But the CTA as full court disagreed.  It said that in order to prove that one is a non-resident foreign corporation (NRFC) doing business outside the Philippines, at least two documents must be presented -- a Securities and Exchange (SEC) Certification of Non-Registration of Corporation and proof of registration in a foreign country.

It said that while Procter & Gamble was able to provide its sales to foreign clients, the CTA said that it is not enough to reverse the earlier findings of the court in division because other essential documents were lacking.

"The other documents such as the Service Agreement, which purportedly contain the address of its NRFC clients, and the affidavit from a responsible officer of the foreign affiliate, which petitioner has presented, were either incomplete, self-serving, or unauthenticated in accordance with the Rules on Evidence," the court said.

“Wherefore, premises considered, the instant Petition for Review is denied for lack of merit. Accordingly, the Decision dated Jan. 3, 2022, and the Resolution dated May 11, 2022, of the Court's Third Division in CTA Case Nos. 9485 & 9526 are affirmed. So ordered.”

The 28-page decision was written by Associate Justice Lanee S. Cui-David with the concurrence of Presiding Justice Roman G. Del Rosario and Associate Justices Ma. Belen M. Ringpis-Liban, Catherine T. Manahan, Jean Marie A. Bacorro-Villena, Maria Rowena Modesto-San Pedro, and Corazon G. Ferrer-Flores.