BIR Ruling [DA-193-06]

March 28, 2006 BIR RULING [DA-193-06] R.R. 16-2005; RMO 7-2006 Bernaldo Mirador & Directo Unit 1807 Cityland Condominium 10 Tower 1, 6815 Ayala Avenue cor. H.V. dela Costa Street Makati City Attention: Atty. Perfecto E. Mirador, Jr. Partner Gentlemen : This refers to your dated March 20, 2006 requesting confirmation of your opinion that the purchases of your client, Flour Daniels, Inc. Philippines (FDIP for brevity), from its various local suppliers are considered effectively zero-rated transactions for value-added tax (VAT) purposes pursuant to Section 106(A)(2)(a)(5), and 108 (B)(5) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337, and as implemented by Revenue Regulations (RR) No. 16-2005. It is represented that FDIP is a domestic corporation duly organized and existing under the laws of the Philippines, with principal address located at 3/F Asian Star Building, Filinvest, Alabang, Muntinlupa City. It is engaged in the business of providing specialty, technical and consultation services to foreign or domestic projects including the performance of any and all kinds of implementation works, such as but not limited to the provision of structural, mechanical, electrical, and other works and design, erection, installation, repairs, project consultancy, and others. FDIP is also registered with the Board of Investment (BOI), enjoying indirect tax exemption by virtue of Executive Order (EO) No. 226, otherwise known as the Omnibus Investment Code of 1987. In order to sustain its business operations, FDIP has to purchase goods from and engage the services of its various local suppliers, such as the IBM Philippines and others. The said local purchases are all attributable to its zero-rated sale. The said local purchases were previously considered as automatically zero-rated by virtue of Revenue Memorandum Circular (RMC) No. 74-99. However, with the passage of RA No. 9337, as implemented by RR No. 16-2005, the said transactions now qualify for effective zero-rating which requires an application for the same. TCIHSa Based on the foregoing, you are requesting confirmation of your opinion that FDIP's purchases of goods and services from its various local suppliers are considered effectively zero-rated transactions for VAT purposes and that in lieu of the BOI endorsement letter or certification, the issuance by this Office of the confirmation letter shall suffice for purposes of applying for effective zero-rating under Revenue Memorandum Order (RMO) No. 7-2006. In reply, please be informed that your opinion that FDIP's purchases of goods and services from its various local suppliers are considered effectively zero-rated transactions for VAT purposes is hereby confirmed. Section 4-106-6 of RR No. 16-2005 considers local sale of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement as an effectively zero-rated sale of goods or properties. Likewise Section 4.108-6 of the same issuance considers the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement as an effectively zero-rated sale of services. On the other hand, your request that this letter of confirmation will be sufficient to support your application for VAT zero-rating so as to dispense with the submission of an endorsement coming from the BOI is hereby granted, provided, however, that FDIP will submit to the BIR, together with the other requirements, its BOI Certificate of Registration. The BOI Certificate of Registration will directly prove the entitlement of FDIP to the effective VAT zero-rating provided for under RR No. 16-2005. 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.) PABLO M. BASTES, JR. OIC, Head Revenue Executive Assistant Legal Service