The Court of Tax Appeals has overturned a P212.48-million deficiency tax assessment issued by the Bureau of Internal Revenue against San Roque Power Corp.
The ruling cancels assessments for deficiency value-added tax, final withholding tax, and final withholding VAT for the fiscal year ended March 31, 2020, including interest and penalties.
The court also prohibited the tax bureau from enforcing collection of the disputed amounts.
The assessment originated from findings that San Roque Power owed deficiency VAT on P1.15 billion in ancillary service revenues from the National Grid Corp. of the Philippines.
It also covered withholding taxes on payments to Japan-based Kansai Electric Power Co. under an offshore consulting agreement.
The tax court determined the ancillary services qualified for the zero-percent VAT rate because they involved power generated from renewable energy sources.
The court stated that the sale of power includes the sale of generating capacity, which may be purchased without actual energy delivery.
Excluding renewable-source capacity from zero-rating would unduly restrict the statutory policy to expand renewable energy use, the decision noted.
The court further canceled the withholding tax assessment on KEPCO payments, finding the consulting services were rendered entirely outside the Philippines.
Because the income was foreign-sourced, it fell outside the scope of Philippine income tax under established jurisprudence on personal services.
The final withholding VAT assessment was also voided, with the court clarifying that VAT applies only to services performed within the Philippines.
Separately, the court struck down P85,000 in compromise penalties, ruling such penalties cannot be imposed without the taxpayer's consent.
