BIR Ruling [DA-307-06]

May 10, 2006 BIR RULING [DA-307-06] RR 16-2005; 013-2003 JX Cyber Tech Corporation Unit 108, Chateau Verde Condominium Gate 2, Valle Verde 1, Barangay Ugong E. Rodriguez Jr. Avenue, Pasig City Attention: Mr. Horacio B. Cuyugan President Gentlemen : This refers to your letter dated May 4, 2006 requesting for a ruling relative to your application for VAT zero-rate on sale of services. It is represented that JX Cyber Tech Corporation (JX Cyber) is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS200600429 dated January 13, 2006; that JX Cyber will be hiring more or less 10 computer programmers; that by way of internet connection, their work will be transmitted in real time and directly to its Liaison Officer in Japan who will check and edit the computer programs prepared before submission to the foreign customers; that the foreign customers will be paying in foreign currencies by way of telegraphic or bank to bank transfer to JX Cyber's foreign account maintained in the Philippines; that it is about to start operation and the initial customers it will service will come from Japan; and that there is no way for the company to do business in the Philippines because most business establishments here requiring computer programs have their own Computer Programmers. In reply, please be informed that Section 4.108-(a) & b(2) of Revenue Regulations No. 16-2005 dated September 1, 2005, provides, viz: "SEC. 4.108-5. Zero-Rated Sales of Services . (a) In general. A zero-rated sale of service (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with these Regulations. (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 of which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP" Since, JX Cyber's sale of services is governed by Section 108(B)(2) of the NIRC of 1997, as implemented by Section 4.108(a) & (b)(2) of Revenue Regulations No. 16-2005, the same is entitled to the benefit of the zero percent (0%) VAT in accordance with the above cited law and regulations. DSATCI Thus, the sale of services by JX Cyber shall be considered export and effectively subject to zero percent (0%) VAT. The vendor shall not impute or shift any VAT as part of the cost to be paid by JX Cyber on its purchases. (BIR Ruling No. 013-2003 dated January 20, 2003) 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. HEDSCc Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service