Bernaldo Mirador & Directo Law Offices

April 4, 2007 BIR RULING [DA-208-07] R.R. No. 16-05; 010-2001 Bernaldo Mirador & Directo Law Offices Unit 1807 Cityland Condominium 10-Tower 1 6815 Ayala Avenue cor. H.V. dela Costa St. Makati City Attention: Atty. Perfecto E. Mirador, Jr. Partner Gentlemen : This refers to your letter dated December 12, 2006 requesting on behalf of your client, ZMG Signium Ward Howell, Inc. ("ZMG"), confirmation of your opinion that the recruitment fees to be billed and collected by ZMG from non-resident foreign companies and to be paid for in foreign currency is subject to VAT at zero percent (0%) rate pursuant to Section 108 (B) (2) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337. As represented, ZMG is a domestic corporation duly organized and existing under the laws of the Philippines, with principal office address at 5th Floor, The Athenaeum Building, 160 Leviste Street, Salcedo Village, Makati City. CIAHaT It was incorporated with the Securities and Exchange Commission (SEC) on May 13, 1994 under SEC Registration No. ASO94004313. It is primarily engaged to act as managers or managing agents of persons, firms, associations, corporations, partnerships and other entities as well as to provide management, investment and technical advice for commercial, industrial, manufacturing and other kinds of enterprises and to undertake, carry on, assist or participate in the promotion, organization, management, liquidation or reorganization of corporations, partnerships and other entities, except the management of funds, securities, portfolio or similar assets of the managed entities or corporations. It was also registered with the Bureau of Internal Revenue on January 1, 1997 as a VAT taxable entity. Presently, it renders recruitment services to its local clients and now intends to render its recruitment services to non-resident foreign clients as well. These non-resident foreign clients, i.e. , the PepsiCo International and Quaker Oats Asia, are looking for qualified personnel ranging from executive and technical positions. As for the recruitment fees to be billed to non-resident foreign companies, the same are to be paid and collected in foreign currency in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). IHDCcT In reply, please be informed that Section 108 (B) (2) of the Tax Code of 1997, as amended by R.A. No. 9337 provides, viz.: "(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: (1) . . . (2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, 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." (Emphasis supplied) This provision of the Code is implemented by Section 4.108-5(b)(2) of RR No. 16-2005, to wit: "(b) Transactions Subject to Zero Percent (0%) VAT Rate. The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate: xxx xxx xxx (2) Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP ; xxx xxx xxx." (Emphasis supplied) In BIR Ruling No. 010-2001 dated March 8, 2001, the Bureau ruled that the sale of information services to foreign clients, paid for in foreign currency that is accounted for in accordance with the rules and regulations of the BSP, falls squarely within the purview of Section 108 (B) (2) of the Tax Code, therefore, entitled to the benefit of the zero percent VAT. Similarly, ZMG performs services other than "processing, manufacturing or repacking of goods," for which it will be paid recruitment fees by its foreign clients in foreign currency inwardly remitted to the Philippines in accordance with the rules and regulations of the BSP. Such being the case, ZMG is within the ambit of Section 108 (B) (2) of the Tax Code of 1997, as amended by R.A. No. 9337, and as implemented by Section 4.108-5 (b) (2) of RR No. 16-2005. Accordingly, this Office confirms your opinion that the recruitment fees to be paid to ZMG for the services it performed to its non-resident clients, who are outside the Philippines at the time the service will be rendered and paid in foreign currency inwardly remitted, are subject to VAT at zero percent (0%) rate. SCHTac 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 as null and void. Very truly yours , (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service