Meco Manning and Crewing Services, Inc.

February 15, 2007 BIR RULING [DA-094-07] Revenue Regulations No. 16-2005; DA-376-2006 dtd. 06/15/06 Meco Manning and Crewing Services, Inc. Unit 310 & 311, Vareb Mansion 1679 A. Mabini St., Malate, Manila Attention: Capt. Igmedio G. Sorrera President Gentlemen : This refers to your letter dated May 18, 2006, requesting confirmatory ruling on the tax consequences applicable to the operation of Meco Manning & Crewing Services, Inc. (MECO, for short). It is represented that MECO is a domestic corporation duly organized and existing under and by virtue of Philippine laws, with office address at Suite 310 & 311, Vareb Mansion, Malate, Manila; that it is engaged in the business of providing or furnishing any and all forms or types of manning and crewing placement or employment, both local and overseas; that MECO is duly licensed by the Philippine Overseas Employment Agency (POEA), to engage and/or act as manning and crewing agent to foreign principals; that currently MECO is providing its service to International Crew Service, Ltd. and Holy House Shipping, A.B., corporations duly organized under the laws of Hongkong and Sweden respectively; that the agency fees are paid for in U.S. Dollars inwardly remitted in accordance with Bangko Sentral ng Pilipinas rules and regulations; and that based on the foregoing, you now request a ruling on the following: 1. Whether the revenues of MECO from its foreign principals which are paid for in U.S. Dollars inwardly remitted in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas are subject to the value-added tax (VAT) at zero percent (0%) rate; 2. If subject to zero percent (0%) VAT, whether there is a need to secure prior approval from this Bureau (BIR) for the zero-rating before such can be applied to MECO; and 3. Whether the unutilized excess input VAT of MECO from its local purchase which are directly attributable or ratably apportioned to its zero-rated sales or revenues can be claimed for refund or tax credit. In reply, please be informed that Section 4.108-5 (b) (2) of Revenue Regulations (RR) No. 16-2005 states 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: "(2) Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a nonresident 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; In view of the foregoing, in order that the manning and crewing services of MECO be qualified for VAT zero-rating, they must meet two (2) requisites under RR 16-2005, namely: (1) The services must be rendered to persons engaged in business conducted outside the Philippines or to non-resident foreign clients not engaged in business who are outside the Philippines when the services are performed; and (2) The fees to be paid to MECO are in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Thus, the manning and crewing services that MECO renders to International Crew Services, Ltd. and Holy House Shipping, AB may automatically qualify as VAT zero-rated transactions if said services are paid for in foreign currency and accounted for through our local banking system. Failing that, the sale of said services will be regarded as subject to 10% (now 12%, starting February 1, 2006) VAT pursuant to Section 108 (A) of the Tax Code of 1997, as amended by RA 9337. In addition, to qualify MECO's sale of services to its foreign clients as VAT zero-rated sales, MECO must be a VAT-registered taxpayer in accordance with Section 4.108-5 (b) of RR 16-2005. SCETHa 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service