BIR Ruling [DA-028-06]

January 31, 2006 BIR RULING [DA-028-06] DA-456-2004; Sec. 108 (B) (2) Era Cad International 1216 Acacia Ave., Madrigal Business Park Alabang Muntinlupa City Attention: Joselito D. De Rivera Corporate Secretary Gentlemen : This refers to your letter dated January 15, 2006 requesting for a ruling as to whether or not the sale of services to your clients in the United States can be considered as zero-rated VAT transactions. It is represented that ERA CAD INTERNATIONAL (" Era Cad " for brevity) is a VAT-registered firm engaged in the business of selling drafting services to architectural and engineering design companies in the United States of America. It is further represented that Era Cad generates dollars or export receipts for the country as a result of these services. You now pose the question of whether or not the services of Era Cad to such clients are subject to automatic VAT zero-rating. In reply, please be informed that Section 108 (B) (2) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337, provides that: "(B) Transactions subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx "(2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside of the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, 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);'' In addition, Section 4. 108-5 (b) (2) of Revenue Regulations No. 16-2005 states that: "(2) Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; Accordingly, it is the opinion of this Office that the drafting services rendered by Era Cad to its non-resident US clients, paid for by these clients in dollars or other acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP, qualify for automatic zero-rated value-added tax (VAT) pursuant to Section 108 (B) (2) of the Tax Code as amended by RA 9337. cEAaIS 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service