BIR Ruling [DA-119-06]

March 16, 2006 BIR RULING [DA-119-06] 106 (A) (2); 112; VAT Ruling Nos. 55-98; 30-2004; DA-346-99; DA-146-2003 Mendoza Querido & Co . Certified Public Accountants 22nd Floor, Multinational Bancorporation 6805 Ayala Avenue, Salcedo Village Makati City Attention: Mr. Richard S. Querido Partner Gentlemen : This refers to your letter dated October 3, 2005 requesting on behalf of your client, FILGIFTS.COM, INC. ("Filgifts" for brevity), for confirmation of your opinion as follows: 1. That the sales of Filgifts to its nonresident clients for delivery to a resident of the Philippines, which are paid through credit card charging in US Currency, can be considered as "foreign currency denominated sales" and therefore, subject to value-added tax ("VAT") at zero percent (0%) rate; and 2. That the unutilized excess input VAT of Filgifts from its local purchases which are directly attributable or ratably apportioned to its zero-rated sales can be claimed for refund or tax credit. It is represented that Filgifts is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines with registered office address at 2nd floor, Filipino Building, 135 Dela Rosa Street, Legaspi Village, Makati City; that Filgifts provides online shopping mall wherein clients can purchase gifts, flowers and other similar items online while they are situated outside the Philippines, and deliver the same to their relatives here in the Philippines; and that the clients are billed in US Currency and that all payments are made through credit card charging and the collections received by Filgifts are also in US Currency. SECATH In reply, please be informed that Section 106(A)(2)(b) of the Tax Code of 1997, as amended by Republic Act No. 9337, provides, viz: "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax . xxx xxx xxx (2) [ Zero-rated Sales .] The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (b) Foreign Currency Denominated Sale . The phrase 'foreign currency denominated sale' means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." The above-quoted provision of law is implemented by Section 4.106-5 of Revenue Regulations No. 16-2005, as follows: "SEC. 4.106-5. Zero-rated sales . A zero-rated sales by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales (b) "Foreign currency denominated sale" means the sale to a non-resident of goods, except those mentioned in Secs. 149 and 150 of the Tax Code, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." TEaADS In VAT Ruling No. 030-2004 dated October 29, 2004, this Office had occasioned to rule, as follows: "Therefore, when your non-resident client avails of your online shopping mall services and pays through credit card charging, said sale is a foreign currency denominated sale subject to value-added tax at zero percent (0%) rate." The premises being considered and since the sales of Filgifts to its nonresident clients for delivery to a resident of the Philippines are being paid for in US Currency through credit card charging, such sales are considered foreign currency denominated sale, and thus subject to value-added tax at zero percent (0%) rate. Furthermore, the unutilized excess input VAT of Filgifts from its local purchases which are directly attributable or ratably apportioned to its zero-rated sales can be claimed for refund or tax credit pursuant to Section 112 of the Tax Code of 1997 ( VAT Ruling No. 055-98 dated December 2, 1998 ), as amended and subject to compliance of the invoicing requirements under Revenue Regulations (RR) No. 7-95, as amended by RR No. 14-2005. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall 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