BIR Ruling [DA-203-96]

June 20, 1996 BIR RULING [DA-203-96] Castro Tan & Carag Law Offices Suite 6B, Eisenhower Condominium No. 7 Eisenhower Street Greenhills, San Juan, Metro Manila Attention: Atty . Othelo C . Carag Gentlemen : This refers to your letter dated May 8, 1996 stating that your client, Wings Aviation Systems Corporation (Wings) is a corporation duly organized and existing under and by virtue of the laws of the Philippines; that it is engaged in the business of maintaining a ground organization and ground facilities at various airports in the Philippines for the purpose of providing ground handling services such as aircraft cleaning, baggage handling and ramp service to domestic and international airlines; that at present, it has existing contracts with Air Philippines Corporation and Cebu Pacific Air, under which Wings charges and is paid for in United States dollars; and the Wings is a VAT registered taxpayer. Based on the foregoing, you now request for a confirmation of your opinion that: "a) The sale or performance of ground handling services by Wings for domestic and international airlines, for which Wings is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas is a zero-rated sale. "b) Its sales being zero-rated, Wings' gross receipts in U.S. dollars shall not result in any output tax and that the input taxes paid by Wings on its purchases of goods, properties or services related to its zero-rated sales shall be available to Wings as tax credit or may be refunded by Wings from the BIR. "c) Finally, Wings need not file an application for zero-rating." In reply, please be informed that your opinion is hereby confirmed. Under Section 102(b)(2) of the Tax Code, as amended by Republic Act No. 7716, reading: "SEC. 102. Value-added tax on sale of services and use or lease of properties . xxx xxx xxx "(b) Transactions subject to zero rate . The following services performed in the Philippines by VAT-registered persons shall be subject to 0%: xxx xxx xxx "(2) Services other than those mentioned in the preceding sub-paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). xxx xxx xxx" the sale or performance of ground handling services by Wings for domestic and international airlines, for which Wings is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of Bangko Sentral ng Pilipinas (BSP), is subject to 0% VAT, (BIR Ruling No. 176-94 dated December 13, 1994) Furthermore, Wings sales being zero-rated, its gross receipts in U.S. dollars shall not result in any output tax and that the input taxes paid by Wings on its purchases of goods properties or services related to its zero-rated sales shall be available to Wings, a VAT registered taxpayer, as tax credit or may be refunded by Wings from the BIR. (Sec. 4.102-2. (a) and (b), Revenue regulations No. 7-95) Moreover, there is no need to file an application for zero-rating. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)