VAT in General - CIR Vs CA &CMS, GR No. 125355

COMMISSIONER OF INTERNAL REVENUE,
petitioner,
vs.
COURT OF APPEALS and COMMONWEALTH MANAGEMENT AND SERVICES
CORPORATION, respondents.
G.R. No. 125355 2000
PARDO, J. / Mary Rose C. Reyes
Subject Matter:
VAT in General
Summary:
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
Doctrines:
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
Petitioner/s: Commissioner of Internal Revenue

Parties Respondent/s: Court of Appeals and Commonwealth Management and Services
Corporation
Facts:
Commonwealth Management and Services Corporation (COMASERCO) is a corporation duly
organized and existing under the laws of the Philippines. It 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.
January 24, 1992 – BIR issued an assessment to COMASERCO for deficiency of Value-Added Tax
amounting to 351, 851, table for year 1988.
COMASERCO's annual corporate income tax return ending December 31, 1988 indicated a net loss in its
operations in the amount of P6,077.00.
February 10, 1992 - COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding
of deficiency VAT.
August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to COMASERCO
demanding payment of the deficiency VAT.
September 29, 1992 - COMASERCO filed with the Court of Tax Appeals4 a petition for review
contesting the Commissioner's assessment contending that was established to ensure operational
orderliness and administrative efficiency of Philamlife and its affiliates. Also, it rendered services on a no-
profit, reimbursement-of-cost-only basis and not in a sale of service and that it 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.
June 22, 1995 - Court of Tax Appeals rendered decision in favor of the herein petitioner
Commissioner of Internal Revenue
A petition for review was decided in favour of the respondents.
The Court of Appeals anchored its decision on the ratiocination in another tax case involving the
same parties,7 where it was held that COMASERCO was not liable to pay fixed and contractor's tax
for services rendered to Philamlife and its affiliates. The Court of Appeals, in that case, 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.
Issue:
WON COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon?
Ratio:
Yes. The court agreed with the petitioner’s contention. Based on Sec. 105 of RA 8424, the
National Internal Revenue Code of 1997 the court held that even a non-stock, non-profit, organization or
government entity, is liable to pay VAT on the sale of goods or services. 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" 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.
Sec. 108 of the National Internal Revenue Code of 1997 10 defines 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."
BIR Ruling No. 010-98 12 emphasizes that a domestic corporation that provided technical,
research, management and technical assistance to its affiliated companies and received payments on a
reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services
rendered. In fact, even if such corporation was organized without any intention realizing profit, any income
or profit generated by the entity in the conduct of its activities was subject to income tax.
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.
CIR and CTA correctly ruled that the services rendered by COMASERCO to Philamlife and its
affiliates are subject to VAT. As pointed out by the Commissioner, the performance of all kinds of services
for others for a fee, remuneration or consideration is considered as sale of services subject to VAT. As
the government agency charged with the enforcement of the law, the opinion of the Commissioner of
Internal Revenue, in the absence of any showing that it is plainly wrong, is entitled to great weight.
Dispositive: 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.
Others/Notes:
At any rate, it is a rule that because taxes are the lifeblood of the nation, statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of the government. Otherwise
stated, any exemption from the payment of a tax must be clearly stated in the language of the law; it
cannot be merely implied therefrom. 13 In the case of VAT, Section 109, Republic Act 8424 clearly
enumerates the transactions exempted from VAT. The services rendered by COMASERCO do not fall
within the exemptions.

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COMMISSIONER OF INTERNAL REVENUE,

G.R. No. 125355 2000

PARDO, J. / Mary Rose C. Reyes

Petitioner/s: Commissioner of Internal Revenue

A petition for review was decided in favour of the respondents.

Hence, it is immaterial whether the primary purpose of a corporation indicates that it

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