BIR Ruling [DA-203-06]

April 3, 2006 BIR RULING [DA-203-06] DA 418-03 Siemens, Inc. 17/F Salcedo Tower 169 H. V. dela Costa Street Salcedo Village Makati City Attention: Mr. Alfredo Abogado Manager, Financial Services Gentlemen : This refers to your follow-up letter dated March 20, 2006 relative to your letter dated January 4, 2006 stating that Siemens, Inc., is a value-added tax (VAT)-registered company in the Philippines; that it intends to enter into a transaction with NEWCO, a VAT-registered company, for the supply of goods; that Siemens, Inc. will acquire the goods from its accredited suppliers abroad to fill the requirements of NEWCO; that NEWCO specifies in its order to Siemens, Inc. that the goods shall be directly delivered to its end customer located outside the Philippines; that there is no actual landing of goods in the country; that Siemens, Inc. shall bill NEWCO and the latter will correspondingly pay the former based on the issued invoices. In connection therewith, you now request for an opinion as to whether or not the aforesaid transaction is subject to VAT. In reply thereto, please be informed that this Office had already occasion to rule on this matter, when it said in BIR Ruling VAT Ruling No. 011-01 dated March 8, 2001, and was later reiterated in BIR Ruling No. DA418-03 dated November 18, 2003 , that "Moreover, since the sale of cell phone units to LDMPI was consummated outside the territorial jurisdiction of the Philippines, the same is not subject to VAT. The proceeds, however, shall be subject to ordinary corporate income tax under Section 27(A) of the Tax Code of 1997." VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines. This should be understood to mean that the sale of goods and/or services takes place in the Philippines. Like any other business tax, VAT is subject to the inherent limitation of taxation, among others, the principle of territoriality that is, taxation may be exercised only within the territorial jurisdiction of that taxing authority. ( Jose C. Vitug Tax Law and Jurisprudence, 1993, 3rd Revised Edition, p. 9 citing 51 Am. Jur. 88 ) Accordingly, since the sale of the imported goods by Siemens, Inc. took place outside the Philippines, the same shall not be subject to VAT. However, Siemens, Inc. shall declare whatever income derived from the aforesaid sale as corporate income tax under Section 27(A) of the Tax Code of 1997, as amended. 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. HcTIDC Very truly yours, (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service