BIR Ruling [DA-012-05]

January 17, 2005 BIR RULING [DA-012-05] 108 (B) (2); VAT Ruling No. 010-01 Alba Romeo & Co 7/F Multinational Bancorporation Centre 6805 Ayala Avenue Makati City Attention: Mr. Alba Romeo Gentlemen : This refers to your letter dated December 6, 2004 stating that your client, Axalto Philippines, Inc. (Axalto) is a domestic corporation duly registered with the Securities and Exchange Commission (SEC);that on the other hand, Schlumberger Measurement & Systems International Ltd. (SMSI) is a foreign corporation; that Axalto and SMSI have entered into a work contract wherein Axalto shall perform agency activities and services, such as but not limited to the following: (a) use its best efforts to promote the Products of the Principal and its affiliates and devote the necessary time and attention to these activities; (b) provide technical and after-sale support to the Principal's customers and assists the Principal in the solution of any commercial design, engineering or other technical problems with the Principal's customers; (c) maintain its own office space, facilities and personnel, and obtain all permits, licenses and other authorizations from governmental or regulatory agencies necessary for the conduct of its business in the Philippines; HCTEDa (d) furnish the Principal such information which the Principal may reasonably request; (e) abide by the business policy rules and regulations of the Principal and adhere precisely to all of the Principal's terms of sales and guidelines for the provision of services; (f) make no guarantee, warranty or other representation which will result in increased liability or responsibility of the Principal to any third parties except as expressly authorized by the Principal; and (g) the company shall have the right to engage in any other activities and to represent other parties as their agent in the Philippines. The Principal shall have the right to oppose any competitive acts and any activities which jeopardize the interest of the Principal. and that the payment for the said services shall be based on the compensation agreed upon by both companies. Based on the foregoing representations, you now request confirmation of your opinion that the payment for services rendered by Axalto to its foreign client, SMSI, which is invoiced in US dollars is considered a zero-rated transaction under Section 108(B)(2) of the Tax Code of 1997. In reply thereto, please be informed that Section 108(B)(2) of the Tax Code of 1997, as implemented by Section 4.102-2(b) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96, provides: AScTaD "(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); "Services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported, as well as services by a resident to a non-resident foreign client such as project studies, information services, engineering and architectural designs and other similar services, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP." In VAT Ruling No. 025-01 dated May 17, 2001, this Office ruled that ". . . the services rendered by Momentum for its mother company, Momentum Internet Ltd., a non-resident foreign client, the consideration for which is paid for in foreign currency accounted in accordance with the rules and regulations of the BSP, are subject to zero percent (0%) VAT pursuant to Section 108(B)(2) of the Tax Code of 1997. ( BIR Ruling No. 010-99 dated January 21, 1999 )" SUCH BEING THE CASE, your client's sale of services to SMSI which are paid for in foreign currency and accounted for according to the rules and regulations of the BSP fall squarely within the purview of the above-quoted law and regulations. Accordingly, your opinion is hereby confirmed that the same is entitled to the benefit of the zero percent VAT under Section 108(B)(2) of the Tax Code of 1997. CDaTAI This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group