CIR v.
CA and COMASERCO
G.R. No. 125355, March 30, 2000
FACTS: Commonwealth Management and Services Corp. (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.
On January 24, 1992, the BIR issued an assessment to Commonwealth Management and Services Corp.
(COMASERCO) for deficiency value-added tax (VAT) amounting to P351,851.01, for taxable year 1988
On February 10, 1992, COMASERCO filed with the BIR, a letter-protest objecting to the latter's finding of
deficiency VAT. On August 20, 1992, the Commissioner of Internal Revenue sent a collection letter to
COMASERCO demanding payment of the deficiency VAT.
On September 29,1992, COMASERCO filed with the CTA a petition for review contesting the
Commissioner's assessment. Its arguments are as follows:
The services it rendered to Philamlife and its affiliates, relating to collections, consultative and other
technical assistance, including functioning as an internal auditor, were on a "no-profit, reimbursement-
of-cost-only" basis;
That it was not engaged in the business of providing services to Philamlife and its affiliates and that it
was established to ensure operational orderliness and administrative efficiency of Philamlife and its
affiliates, and not in the sale of services; and
That it was not profit-motivated, thus not engaged in business. In fact, it did not generate profit but
suffered a net loss in taxable year 1988. Since it was not engaged in business, it was not liable to pay VAT.
CTA: Denied COMASERCO's petition. Affirmed the Commissioner's deficiency VAT assessment for the
year 1988.
CA: Reversed CTA ruling. Cancelled the assessment for deficiency VAT for the year 1988. The basis for the
CA's ruling was a prior ruling it made in another case involving COMASERCO, where it was held that
COMASERCO was not liable to pay fixed and contractor's tax for services rendered to Philamlife and its
affiliates and as such was not engaged in business of providing services to Philamlife and its affiliates.
Hence, the instant petition for review on certiorari by the Commissioner.
ISSUE: W/N COMASERCO was engaged in the sale of services, and thus liable to pay VAT thereon?
HELD: Yes. Petition granted. Reversed CA ruling. Reinstated CTA ruling. COMASERCO ordered to pay
deficiency VAT as per the assessment issued by the Commissioner for the taxable year 1988.
1. Who are the persons liable for VAT?
"Section 99, NIRC. Persons liable. - Any person who, in the course of trade or business, sells, barters or
exchanges goods, renders services, or engages in similar transactions and any person who imports goods
shall be subject to the value-added tax (VAT) imposed in Sections 100 to 102 of this Code.""
2. What does "in the course of trade or business" mean?
SC: Under Sec. 105 (Persons Liable) of R.A. No. 7716, or the Expanded VAT Law (EVAT), 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.
This definition applies to all transactions even to those made prior to the enactment of the EVAT Law,
which merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay
VAT for the sale of goods and services.
3. Are non-stock, nonprofit organizations or government entities (such as COMASERCO) liable to pay VAT
for the sale of goods and services?
SC: Yes, even a non-stock, non-profit, organization or government entity, is liable to pay VAT on the sale
of goods or services.
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.
