COMMISSIONER OF

INTERNAL REVENUE vs.

SONY PHILIPPINES, INC.
 Facts
Sony Philippines was ordered examined for “the period 1997
and unverified prior years” as indicated in the Letter of
Authority. The audit yielded assessments against Sony
Philippines for deficiency VAT and FWT, viz: (1) late remittance
of Final Withholding Tax on royalties for the period January to
March 1998 and (2) deficiency VAT on reimbursable received
by Sony Philippines from its offshore affiliate, Sony
International Singapore (SIS).
Facts
Facts
Facts
 Issue
(1) Is Petitioner liable for deficiency Value Added Tax?

(2) Was the investigation of its 1998 Final Withholding Tax

return valid?
 Held
(1) NO. Sony Philippines did in fact incur expenses supported by valid VAT invoices
when it paid for certain advertising costs. This is sufficient to accord it the benefit of
input VAT credits and where the money came from to satisfy said advertising
billings is another matter but does not alter the VAT effect. In the same way, Sony
Philippines can not be deemed to have received the reimbursable as a fee for a
VAT-taxable activity. The reimbursable was couched as an aid for Sony Philippines
by SIS in view of the company’s “dire or adverse economic conditions”. More
importantly, the absence of a sale, barter or exchange of goods or properties
supports the non-VAT nature of the reimbursement. This was distinguished from the
COMASERCO case where even if there was similarly a reimbursement-on-cost
arrangement between affiliates, there was in fact an underlying service. Here, the
advertising services were rendered in favor of Sony Philippines not SIS.
 Held
(2) NO. A Letter of Authority should cover a taxable period not exceeding one year
and to indicate that it covers ‘unverified prior years’ should be enough to invalidate
it. In addition, even if the Final Withholding Tax was covered by Sony Philippines’
fiscal year ending March 1998, the same fell outside of ‘the period 1997’ and was
thus not validly covered by the Letter of Authority.