CIR v Bursmeiters & Wain Scandinavian

GR 153205; January 22, 2007

Facts: A foreign consortium, parent company of Burmeister, entered into an O&M contract with NPC. The
foreign entity then subcontracted the actual O&M to Burmeister. NPC paid the foreign consortium a
mixture of currencies while the consortium, in turn, paid Burmeister foreign currency inwardly remitted into
the Philippines. BIR did not want to grant refund since the services are “not destined for consumption
abroad” (or the destination principle).

Issue: Are the receipts of Burmeister entitled to VAT zero-rated status?

Held: PARTIALLY. Respondent is entitled to the refund prayed for BUT ONLY for the period covered
prior to the filing of CIR’s Answer in the CTA.

The claim has no merit since the consortium, which was the recipient of services rendered by Burmeister,
was deemed doing business within the Philippines since its 15-year O&M with NPC can not be
interpreted as an isolated transaction.

In addition, the services referring to ‘processing, manufacturing, repacking’ and ‘services other than those
in (1)’ of Sec. 102 both require (i) payment in foreign currency; (ii) inward remittance; (iii) accounted for by
the BSP; AND (iv) that the service recipient is doing business outside the Philippines. The Court ruled
that if this is not the case, taxpayers can circumvent just by stipulating payment in foreign currency.
The refund was partially allowed since Burmeister secured a ruling from the BIR allowing zero-rating of its
sales to foreign consortium. However, the ruling is only valid until the time that CIR filed its Answer in the
CTA which is deemed revocation of the previously-issued ruling. The Court said the revocation can not
retroact since none of the instances in Section 246 (bad faith, omission of facts, etc.) are present.

b. Could it obtain a refund of the VAT it paid through the VAP ? Explain.
SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund of the 10% output VAT it paid the based on the
non-retroactivity of the prejudicial revocation of the BIR Rulings which held that it’s services are subject to 0%
VAT and which BWSCMI invoked in applying for refund of the output VAT. (Commissioner of Internal Revenue v.
Burmeister and Wain Scandinavian Contractor Mindanao, Inc., supra)
NOTES AND COMMENTS:
a. Do not confuse the BWSCMI case with the American Express case. American Express
International, Inc. (Philippine Branch)] is a VAT-registered person that facilitates the collection and payment of
receivables belonging to its non-resident foreign client [American Express International, Inc. (Hongkong
Branch)], for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in
accordance with BSP rules and regulations. (Commissioner of Internal Revenue v. Burmeister and Wain
Scandinavian Contractor Mindanao, Inc., G. R. No. 153205, January 22, 2007)