FACTS:
In 1998, the CIR issued a Letter of Authority authorizing the examination of respondent’s books of accounts and other accounting records regarding revenue taxes for “the period 1997 and unverified prior years.” CIR disallowed Sony’s input VAT credits that should have been realized from the latter’s advertising expense on the ground that said expense was reimbursed by Sony International Singapore (SIS) in a form of a subsidy. The disallowance resulted in a deficiency VAT assessment.
ISSUE(S):
Whether or not there was a sale, barter or exchange between Sony and SIS.
HELD:
NO. There must be a sale, barter or exchange of goods or properties before any VAT may be levied. Certainly, there was no such sale, barter or exchange in the subsidy given by SIS to Sony. It was but a dole out by SIS and not in payment for goods or properties sold, bartered or exchanged by Sony. The services rendered by the advertising companies, paid for by Sony using SIS dole-out, were for Sony and not SIS. SIS just gave assistance to Sony in the amount equivalent to the latter’s advertising expense but never received any goods, properties or service from Sony.
