BIR Ruling [DA-127-06]

March 16, 2006 BIR RULING [DA-127-06] Miascor Catering Services Corporation 4/F IPT Bldg., Ninoy Aquino International Airport Pasay City Attention: Mr. Fernando V. Detauhan V/P Group Controller Gentlemen : This refers to your letter dated April 25, 2003 requesting for a confirmatory ruling that your catering services are subject to value-added tax (VAT) at zero percent (0%). It is represented that Miascor Catering Services Corporation (MCSC) is a domestic corporation registered with the Board of Investments (BOI) under Certificate of Registration No. 97-338 dated December 29, 1997. MCSC operates as a New Service Exporter in Airline Catering which caters to international carriers such as Northwest Airlines, Thai Airways, Cebu Pacific Airways, China Southern Airlines, Malaysian Airlines, Gulf Air, Royal Brunei Airways, Continental Micronesia Airlines, Kuwait Airways and Asiana Airlines. For services rendered, your clients are billed in US Dollars and are paid to your account in several banks which are either in USD draft or via electronic fund transfer. In reply, please be informed that our VAT law which was first adopted and promulgated under EO No. 273, effective January 1, 1988 is basically a Consumption Type VAT System and, in general follows the destination principle or Cross Border Doctrine, thus: ". . . zero rating should be used when the authorities really wish to ensure that a product is to be free of VAT. Using an exemption from VAT means that the tax is borne by the trader, and if that trader sells to the public, he must pass on the tax on input to the public in his price or cut payments to his factors of production (capital and labor). This suggests that countries that generally wish to pass on to the customer the benefits of VAT-free goods and services should be allowed to use the zero rate" (Value Added Tax International Practice and Projects and Problems, Allan A. Trait, International Monetary Fund, Washington D.C, 1988, p. 51) TcEaAS "When considering a VAT, important decisions to be made by a country concerns what regime to adopt for international trade; the origin principle (export taxable, imports exempt), or the destination principle (exports exempt, imports taxable)". (Value Added Tax by Antonio Carlos Rodriguez, Harvard Law School, 1995, citing Shoup (1996) on destination principle, viz: "the country taxes all value added, at home and abroad, or goods that have as their destination, the customers of that country. Export are exempt, imports are taxable. This is comparable with the consumption type of VAT".) The onus of taxation under our VAT System is in that country where goods, property or services are destined, used or consumed. This is the reason why under our VAT Law, goods, properly or services destined to, used or consumed in the Philippines are subject to the 10% VAT whereas those destined, used or consumed abroad are subject to zero percent (0%) VAT. Accordingly, the catering services rendered by MCSC to international carriers are subject to 0% VAT provided under Section 108(B) of the Tax Code of 1997, as amended by R.A. No. 9337, for the same are directly connected to the international flights of the aforesaid international air carriers. (VAT Ruling No. 086-2001 dated December 27, 2001) 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. HSTCcD Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service