4. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs .
COURT OF
APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents.
G.R. No. 125355. March 30, 2000.
DOCTRINE(S):
VAT is a tax on the value added by the performance of the service. It is
immaterial whether profit is derived from rendering the service.
FACTS:
Commonwealth Management and Services Corporation (COMASERCO),
is an affiliate of Philippine American Life Insurance Co. (Philamlife),
organized by the latter to perform collection, consultative and other
technical services, including functioning as an internal auditor, of
Philamlife and its other affiliates.
On January 24, 1992, the Bureau of Internal Revenue (BIR) issued an
assessment to private respondent COMASERCO for deficiency value-
added tax (VAT) amounting to P351,851.01, for taxable year 1988.
On September 29, 1992, COMASERCO filed with the Court of Tax
Appeals a petition for review contesting the Commissioner's
assessment. COMASERCO asserted that the services it rendered to
Philamlife and its affiliates, relating to collections, consultative and other
technical assistance, including functioning as an internal auditor, were
on a "no-profit, reimbursement-of-cost-only" basis. It averred that it
was not engaged in the business of providing services to Philamlife and
its affiliates. In fact, it did not generate profit but suffered a net loss in
taxable year 1988. COMASERCO averred that since it was not engaged
in business, it was not liable to pay VAT.
The Court of Tax Appeals rendered decision in favor of the Commissioner
of Internal Revenue.
COMASERCO appealed to the Court of Appeals which rendered decision
reversing that of the Court of Tax Appeals. The CA reasoned that
COMASERCO was not engaged in business of providing services to
Philamlife and its affiliates. In the same manner, the Court of Appeals
held that COMASERCO was not liable to pay VAT for it was not engaged
in the business of selling services.
Hence, this petition.
ISSUE:
Whether or not COMASERCO was engaged in the sale of services and
thus liable to pay VAT thereon?
ARGUMENTS:
CIR (PETITIONER) COMASERCO (RESPONDENTS)
To "engage in business" and to The services COMASERCO
"engage in the sale of services" rendered to Philamlife and its affiliates
are two different things. were on a "no-profit, reimbursement-
The services rendered by of-cost-only" basis. It averred that it
COMASERCO to Philamlife and its was not engaged in the business of
affiliates, for a fee or providing services to Philamlife and its
consideration, are subject to VAT. affiliates.
VAT is a tax on the value added Since it was not engaged in
by the performance of the business, it was not liable to pay VAT.
service. It is immaterial whether
profit is derived from rendering
the service.
RULING: YES.
VAT is a tax on transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable
thereto. The term "in the course of trade or business" requires the
regular conduct or pursuit of a commercial or an economic activity,
regardless of whether or not the entity is profit-oriented.
The definition of the term "in the course of trade or business"
incorporated in the present law applies to all transactions even to those
made prior to its enactment.
Executive Order No. 273 stated that any person who, in the course of
trade or business, sells, barters or exchanges goods and services, was
already liable to pay VAT. The present law merely stresses that even a
nonstock, nonprofit organization or government entity is liable to pay
VAT for the sale of goods and services.
Section 108 of the National Internal Revenue Code of 1997 10 de nes
the phrase "sale of services" as the "performance of all kinds of services
for others for a fee, remuneration or consideration." It includes "the
supply of technical advice, assistance or services rendered in connection
with technical management or administration of any scientific, industrial
or commercial undertaking or project."
Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates
on a reimbursement-on-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered. As long
as the entity provides service for a fee, remuneration or consideration,
then the service rendered is subject to VAT.
Section 109, Republic Act 8424 clearly enumerates the transactions
exempted from VAT. The services rendered by COMASERCO do not fall
within the exemptions.
FALLO:
WHEREFORE, the Court GRANTS the petition and REVERSES the decision
of the Court of Appeals in CA-G.R. SP No. 37930. The Court hereby
REINSTATES the decision of the Court of Tax Appeals in C.T.A. Case No.
4853.
