Platon Martinez Flores

June 11, 2008 BIR RULING [DA-352-08] DA617-06 Platon Martinez Flores San Pedro Leao 6th Floor Tuscan Building 114 V.A. Rufino Street Legaspi Village Makati City Attention: Atty. Carlos G. Platon Gentlemen : This refers to your letter dated March 4, 2008 stating that your client, Dole Philippines, Inc. (DPI), is a corporation organized and existing under the laws of the Philippines with office address at the 5th Floor, 6750 Building, Ayala Avenue, Makati City; that on the other hand, Dole Fresh Fruit International, Ltd. (DFFI) is a non-resident foreign corporation organized and existing under the laws of Bermuda; that DFFI acquires the products of DPI; that the products are transported from different ports in the Philippines to Manila by local Philippine shipping companies under a bill of lading indicating DPI as the shipper by order of DFFI; that the local Philippine shipping companies then charge and bill DFFI directly; and that DFFI then remunerates the local Philippine shipping companies in acceptable foreign currency. Based on the foregoing representations, you now request for confirmation of your opinion that the shipping services performed in the Philippines by the value-added tax (VAT) registered local Philippine shipping companies in favor of DFFI, a non-resident foreign company, which are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) are automatically subject to zero percent (0%) VAT. In reply thereto, please be informed that Section 108 (B) (2) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337, as implemented by Section 4.108-5 (b) (2) of Revenue Regulations No. 16-2005, as amended, provides that "(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 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." In stressing the rationale of the above-mentioned provisions, this Office elucidated the matter in BIR Ruling No. DA617-06 dated October 17, 2006 as follows ". . . considering that it regularly renders in the Philippines services other than "processing, manufacturing or repacking of goods" for which services it is being paid by its foreign clients in foreign currency inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. Hence, narraSoft's income for services performed in the Philippines to its foreign clients and paid in foreign currency inwardly remitted is subject to VAT at zero percent (0%) rate. Finally, narraSoft may avail of the zero-rating treatment without prior approval or prior confirmation from the Bureau. The above transaction of narraSoft is entitled to the automatic zero-rating pursuant to Section 4.108-5 of Revenue RegulationsNo.16-2005." SUCH BEING THE CASE, this Office hereby confirms your opinion that the shipping services performed in the Philippines by the VAT-registered local Philippine shipping companies in favor of DFFI and paid for in acceptable foreign currency are automatically subject to zero percent (0%) VAT. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service