CIR vs.

CA and COMMONWEALTH corporate income tax return ending December 31, 1988 indicated a net
loss in its operations in the amount of P6,077.
MANAGEMENT AND SERVICES The Bureau of Internal Revenue (BIR) issued an
CORPORATION assessment COMASERCO for deficiency value-added tax (VAT)
amounting to P351,851.01, for taxable year 1988. Despite protest by
March 30, 2000
PARDO, J.
COMASERCO, BIR issued a collection letter demanding payment.
Mica Maurinne M. Adao
COMASERCO filed with the CTA a petition for review contesting the
SUMMARY: Commonwealth Management and Services Corporation
BIR's assessment. COMASERCO asserted that the services it rendered to
was organized by Philamlife to perform collection, consultative and
Philamlife and its affiliates were on a "no-profit, reimbursement-of-
other technical services, including functioning as its internal auditor,
cost-only" basis. It averred that it was not engaged in the business of
and that of its other affiliates. BIR assessed COMASERCO for deficiency
providing services to Philamlife and its affiliates. COMASERCO was
VAT for the year 1988. COMASERCO protested claiming that it is not
established to ensure operational orderliness and administrative
engage in business as it was not rendering service for profit but instead
efficiency of Philamlife and its affiliates, and not in the sale of services.
on reimbursement-of-cost basis only. CTA agreed with the CIR.
COMASERCO stressed that it was not profit-motivated, thus not
However, on appeal, CA sided with COMASERCO and ruled that it was
engaged in business. In fact, it did not generate profit but suffered a net
not liable to pay VAT for it was not engaged in the business of selling
loss in taxable year 1988. COMASERCO averred that since it was not
services. SC reversed the CA ruling and reinstate the CTA ruling
engaged in business, it was not liable to pay VAT.
because profit is not a factor in determining whether one is engaged in
business or not.
CTA rendered decision in favor of the Commissioner of Internal
Revenue (CIR) with slight modification. The compromise penalty of
DOCTRINE: The term "in the course of trade or business" requires the
P16,000 imposed by the respondent in her assessment letter shall not
regular conduct or pursuit of a commercial or an economic activity,
be included in the payment as there was no compromise agreement
regardless of whether or not the entity is profit-oriented. VAT is a tax
entered into between petitioner and respondent with respect to the
on transactions, imposed at every stage of the distribution process on
VAT deficiency
the sale, barter, exchange of goods or property, and on the performance
of services, even in the absence of profit attributable thereto.
Upon a petition for review filed by COMASERCO, CA reversed the
decision of the CTA. It anchored its decision on the ratiocination in
A domestic corporation that provided technical, research, management
another tax case involving the same parties, where it was held that
and technical assistance to its affiliated companies and received
COMASERCO was not liable to pay fixed and contractor's tax for
payments on a reimbursement-of-cost basis, without any intention of
services rendered to Philamlife and its affiliates. CA, in that case,
realizing profit, is subject to VAT on services rendered
reasoned that COMASERCO was not engaged in business of providing
FACTS
services to Philamlife and its affiliates. In the same manner, it held that
Commonwealth Management and Services Corporation (COMASERCO),
COMASERCO was not liable to pay VAT for it was not engaged in the
is a corporation duly organized and existing under the laws of the
business of selling services.
Philippines. It is an affiliate of Philippine American Life Insurance Co.
(Philamlife), organized by the latter to perform collection, consultative
Hence, Commissioner of Internal Revenue filed a petition for review on
and other technical services, including functioning as an internal
certiorari assailing the decision of the Court of Appeals.
auditor, of Philamlife and its other affiliates. COMASERCO's annual

ISSUE: Whether or not COMASERCO was engaged in the sale of
services, and thus liable to pay VAT thereon?
RULING: Yes
RATIO: The services rendered by COMASERCO to Philamlife and its
affiliates, for a fee or consideration, are subject to VAT. 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.
Under Sec 105 of the NIRC, any person who, in the course of trade or
business, sells, barters, exchanges, leases goods or properties, renders
services, and any person who imports goods shall be subject to the
value-added tax (VAT)....The phrase "in the course of trade or business"
means the regular conduct or pursuit of a commercial or an economic
activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock,
nonprofit organization (irrespective of the disposition of its net income
and whether or not it sells exclusively to members of their guests), or
government entity.
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. Contrary to
COMASERCO's contention, the above provision clarifies 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.
Section 108 of the NIRC 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."
On February 5, 1998, the Commissioner of Internal Revenue issued BIR
Ruling No. 010-98[12] emphasizing 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 of 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.
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. 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.
Both the CIR and the CTA correctly ruled that the services rendered by
COMASERCO to Philamlife and its affiliates are subject to VAT. As
pointed out by the CIRr, the performance of all kinds of services for
others for a fee, remuneration or consideration is considered as sale of
services subject to VAT.
There is no merit to respondent's contention that the Court of Appeals'
decision in CA-G. R. No. 34042, declaring the COMASERCO as not
engaged in business and not liable for the payment of fixed and
percentage taxes, binds petitioner. The issue in that case is different
from the present case, which involves COMASERCO's liability for VAT.
WHEREFORE, CA ruling is reversed and CTA ruling is reinstated.