The Court of Tax Appeals (CTA), as a full court, has upheld the denial of the P3.8-million input value-added tax (VAT) refund sought from the Bureau of Internal Revenue (BIR) by Avaloq Philippines, an affiliate of a Swiss-based firm.

Appealed by Avaloq Philippines was the ruling of the CTA’s third division which denied the firm’s petition.

In a 19-page decision issued last June 3 and penned by Associate Justice Lanee S. Cui-David, the CTA’s full court said: “After a judicious review of petitioner’s arguments and the records of the case, the Court En Banc finds no reason to modify, much less reverse, the assailed Decision and Resolution of the Court in Division.”

The decision also stated that the arguments raised by Avaloq Philippines “have already been thoroughly discussed and passed upon by the Court in Division.”

Its website states that Avaloq Philippines is “a provider of wealth management technology and services for financial institutions around the world, including private banks and wealth managers, investment managers, as well as retail and neobanks.”

The case stemmed from the petition of Avaloq Philippines’ regional operating headquarters (ROHQ) which sought a tax refund of P3,880,796.01 for “excess and/ or unutilized input VAT arising from its zero-rated sales during the 1st and 2nd quarters of CY (calendar year) 2018.”

“The Court in Division denied petitioner's VAT refund claim on the ground that it failed to establish that it was engaged in zero-rated sales of services under Section 108(B)(2) of the NIRC (National Internal Revenue Code) of 1997, as amended,” the decision stated.

It also said: “Specifically, the Court in Division held that petitioner failed to prove the existence of a valid offsetting arrangement that could serve as an alternative for actual inward remittance of foreign currency in consideration for the services rendered to Non-Resident Foreign Corporations (NRFCs) not doing business in the Philippines.”

It merely noted Avaloq ROHA’s argument that “it has sufficiently proven the existence of an offsetting arrangement with the NRFCs as ‘equivalent of the acceptable foreign currency payment,’ for purposes of VAT zero "rating.”

It pointed out that an official of Avaloq Philippines testified that “petitioner receives foreign currency funding from its head office, which is recorded in its books as a loan payable to Avaloq Group AG.”

“From this ‘loan payable,’ petitioner offsets all receivables earned from services rendered to the affiliates of Avaloq Group AG. To bolster its claim, petitioner presented, among others, the STCFA (Short-Term Credit Facility Agreement) executed between Avaloq Group AG and its various affiliates,” it said.

But the CTA en banc said that the STCFA “does not include a loan agreement between one affiliate and another” and “does not provide for an offsetting arrangement between Avaloq Group AG's advances to petitioner and the latter's receivables from Avaloq Group AG's affiliates”.

If an offsetting arrangement exists among Avaloq Group AG affiliates, “it should have been covered by a separate agreement executed between and among them” but “petitioner failed to submit evidence of this separate agreement,” it also said.

Even if the existence of a valid offsetting arrangement was established, the CTA ruled: “Its Petition for Review must still be denied due to its failure to establish the actual details of offsetting pertinent to this case.”