Myline Cordial

Commissioner of Internal Revenue vs. Sony Philippines, Inc.
G.R. No. 178697, November 17, 2010
635 SCRA 234

FACTS:
Petitioner CIR examined the books of accounts and other accounting records of respondent Sony Philippines, Inc. CIR found Sony liable for deficiency VAT on advertising expense it paid for evidenced by a VAT invoice receipt. Due to adverse economic conditions, Sony Philippines received a subsidy from its affiliate Sony Singapore. The amount of said subsidy is equivalent to its advertising expense.

ISSUE:
Is the subsidy subject to VAT?

RULING:
No. The subsidy for the services rendered by the advertising companies, paid for by the taxpayer evidenced by a VAT invoice, using its affiliate’s dole out or assistance in view of the taxpayer’s dire or adverse economic conditions, in the amount equivalent to the latter’s advertising expense but the affiliate never received any good, properties, or service from the taxpayer, is not subject to VAT. The dole-out is not subject to VAT since there is no sale, barter or exchange in the subsidy given. The reimbursement by the affiliate may be considered as income of the taxpayer, and, therefore, subject to income tax, but the same cannot be subject to VAT.

Full text: CIR vs. Sony Philippines, Inc. G.R. No. 178697, November 17, 2010