CTA Upholds Denial of Avaloq Philippines VAT Refund
The Court of Tax Appeals (CTA) en banc has firmly upheld the denial of a P3.8-million input value-added tax (VAT) refund requested by Avaloq Philippines. The case highlights the firm’s appeal following a rejection by the CTA’s third division.
Avaloq Philippines, an affiliate of a Swiss-based company, sought the refund due to alleged excess and unutilized input VAT from zero-rated sales in the first half of 2018. The key issue revolved around whether the company qualified for VAT zero-rating under Section 108(B)(2) of the National Internal Revenue Code (NIRC) of 1997, as amended.
Full Court Rejects Arguments for VAT Refund
In a detailed 19-page decision released on June 3, Associate Justice Lanee S. Cui-David wrote for the full court that no grounds existed to alter or overturn the earlier ruling. “After a judicious review of petitioner’s arguments and the records of the case, the Court En Banc finds no reason to modify, much less reverse, the assailed Decision and Resolution of the Court in Division,” the decision stated.
The CTA emphasized that Avaloq Philippines’ claims had already been thoroughly examined and dismissed by the Court in Division. The company argued it had demonstrated the presence of an offsetting arrangement serving as an alternative to actual foreign currency remittance for services rendered to non-resident foreign corporations (NRFCs). However, the court found this unproven.
Examining the Offsetting Arrangement Claim
Avaloq Philippines asserted it received foreign currency funding from its Swiss head office, recorded as a loan payable to Avaloq Group AG. It claimed to offset receivables earned from services rendered to Avaloq Group AG affiliates using this loan. To support its claim, the firm presented the Short-Term Credit Facility Agreement (STCFA) between Avaloq Group AG and its affiliates.
Despite this, the CTA en banc noted that the STCFA did not contain a loan agreement between affiliates nor an offsetting arrangement between Avaloq Group AG’s advances and Avaloq Philippines’ receivables. The court said, “If an offsetting arrangement exists among Avaloq Group AG affiliates, it should have been covered by a separate agreement executed between and among them,” but Avaloq Philippines failed to submit such documentation.
Furthermore, even if such an offsetting arrangement were valid, the court ruled the petition still lacked sufficient details on how the offsets applied to the case. This absence of concrete evidence led to the denial of the refund claim.
Background on Avaloq Philippines
Avaloq Philippines describes itself as a provider of wealth management technology and services catering to financial institutions worldwide, including private banks, investment managers, and neobanks. The tax refund petition stemmed from its Regional Operating Headquarters (ROHQ) seeking reimbursement for VAT related to zero-rated sales of services.
The CTA’s decision underscores the importance of clearly establishing the legal basis and supporting evidence when claiming tax refunds, especially in cases involving complex international arrangements.
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