Commissioner of Internal Revenue versus

Burmeister and Wain Scandinavian Contractor Mindanao, Inc.

G.R. No. 153205, January 22, 2007
Second Division, Carpio, J.

Facts: Burmeister and Wain Scandinavian Denmark entered into a contract

with National Power Corporation (NAPOCOR) for the operation and
maintenance of NAPOCOR’s two power barges. Burmeister and Wain
Scandinavian Mindanao (Burmeister) was subcontracted to take on the
obligation, because it necessarily had to be done in the Philippines. Burmeister
sought a ruling from the Bureau of Internal Revenue (BIR) to determine the tax
implications of its business with NAPOCOR. Burmeister followed to register as a
VAT person as suggested, and filed its returns for year 1996. For 1997, Burmeister
availed of the Voluntary Assessment Program (VAP) of the BIR and filed its tax
returns subjected to 10% VAT in 103,558,338.11Php representing sales April to
December 1996 in accordance with Revenue Regulations No. 5-96 which only
became effective April 1996. Yr. 1999 Burmeister secured a VAT ruling which
held that services being rendered by them, is subject to VAT at zero percent.
They hence, filed a claim for the issuance of a tax certificate with the BIR,
believing it erroneously paid the output VAT for 1996 due the VAP, later filed a
petition for review with the Court of Tax Appeals (CTA) to toll the 2 yr
prescription under the Tax Code. The CTA ordered the Commission of Internal
Revenue (CIR) to issue a tax credit certificate in favor of Burmeister. Upon
appeal to the Court of Appeals (CA) the CTA decision was affirmed. Now, the
CIR seeks to set aside the CA decision via petition for review to the Supreme
Court.

Issue(s): whether respondent is entitled to the refund of P6,994,659.67 as

erroneously paid output VAT for the year 1996.

Decision: No, but the petition must be denied based on the non-retroactivity
of the prejudicial revocation of BIR-, and VAT ruling which held that Burmeister’s
services are subject to 0% VAT which the latter invoked in applying for Output
VAT refund. Burmeister is not entitled to zero-rated VAT because the Tax code
requires that payment for services be in acceptable foreign currency
accounted in accordance with BSP rules, and that the recipient of such
services is doing and performing business outside PH. When the provider and
recipient of services are both doing business in the Philippines, their transaction
falls squarely under Section 102(a) of the Tax Code, governing domestic sale
or exchange of services subject to the regular VAT, unless of course the
transaction falls under the other provisions of Section 102(b). Here, Burmeister’s
services to the Consortium, not being supplied to a person doing business
outside PH, cannot qualify for 0% VAT. Nevertheless, following the non-
retroactivity of prejudicial revocation, Burmeister’s reliance to the BIR Rulings
binds CIR (Section 246, Tax Code.)

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