BIR Ruling [DA-254-05]

June 10, 2005 BIR RULING [DA-254-05] BIRGMA Asia, Inc. (RHQ) 15 Floor One Executive Building Col. Martinez cor. West Avenue Quezon City Attention: Ms. Debbie Caw Senior Chief Accountant Gentlemen : This refers to your letter dated February 22, 2005 stating that Birgma Asia, Inc. (Birgma) is a Regional or Area Headquarter in the Philippines of a multi national company organized and existing under the laws of Samoa; that Birgma is duly registered with the Securities and Exchange Commission (SEC); that the Certificate of Registration granted by the SEC is limited to its existence as juridical person and does not authorize to undertake business activities requiring a Secondary License such as but not limited to acting as: broker or dealer in securities, government securities eligible dealer (GSED), investment adviser of an investment company, closed-end or open-end investment company, investment house, transfer agent, commodity/financial futures exchange/broker/merchant, financing company, pre-need plan issuer, general agent in pre-need plans and time shares/club shares/membership certificates issuers or selling agents thereof; and that said Certificate of Registration with the SEC does not constitute a permit to undertake activities for which other government agencies require a license or permit. In connection therewith, you now request a ruling that the sale or lease of goods and property and the rendition of services to regional or area headquarter shall be subject to zero percent (0%) VAT pursuant to Article 65 of Republic Act (R.A.) No. 8756. In reply thereto, please be informed that Section 108(B) of the Tax Code of 1997 provides, viz : "Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties . "(A) . . . "(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) . . . "(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate; "xxx xxx xxx." Section 108(B)(3) requires that to be eligible for zero-rating, (1) the exemption of the person or entity with whom a Vat-registered person enters into a transaction must be provided under a special law or international agreement; and (2) the exemption effectively subjects such transaction to zero rate. On the other hand, Section 65 of Executive Order No. 226, as amended by R.A. No. 8756, provides as follows, viz: "Article 65. Value-Added Tax . The regional or area headquarters established in the Philippines by multinational companies shall be exempted from value-added tax. In addition, the sale or lease of goods and property and the rendition of services to regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the Tax Code, as amended. "Regional operating headquarters shall be subject to the ten percent (10%) value-added tax as provided for under the Tax Code, as amended." In this case, it is clear from Article 65 of E.O. No. 226, as amended, that RHQs are exempt from VAT and that services rendered thereto are subject to the zero-percent (0%) VAT rate. Such being the case and since the said EO/R.A. is a special law, the supply of services to the RHQ of Birgma shall be effectively subject to the zero-percent (0%) VAT rate. ( VAT Ruling No. 035-01 dated June 13, 2001 ) aDIHCT Please be reminded, however, that for the vat-registered entity to avail of the zero-percent rate, it is required to obtain an approved application for effective zero-rating, pursuant to Section 4.107.1(d) of Revenue Regulations No. 7-95, 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. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group