Brinell Int'l. Partners, Inc.

July 3, 2007 BIR RULING [DA-356-07] Section 108 (B) (2) BIR Ruling No. DA-508-06 Brinell Int'l. Partners, Inc. Unit 12, Bldg. 1, Salem International Commercial Center Domestic Road, Pasay City Attention: Mr. Amador T. Sendin President Gentlemen : This refers to your letter dated March 15, 2007 requesting for a change in status to zero-rated VAT taxpayer. As represented, Brinell International Partners, Inc. ("Brinell"), formerly, Brinell-APQ Int'l. Partners, Inc. is a corporation duly organized and existing under the laws of the Philippines. It is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A200014272 issued on March 30, 2001. Brinell is duly licensed by the Philippine Overseas Employment Administration to recruit, process and deploy landbased workers under Certificate of License No. POEA-022-LB-013007-R valid for the period January 4, 2007 to January 3, 2011. It was organized primarily to engage in the business of contracting, enlisting, recruiting professionals and workers both skilled and unskilled for local/overseas work and to act as agents of individuals or firms in the supply of manpower. Currently, it deals only with principals overseas. As such, all its revenues are in foreign currency (U.S. dollar) and are remitted from abroad via the banking system as evidenced by Credit Memos and Certificates issued by its bank. HIAcCD In reply, please be informed that Section 108 (B) (2) of the Tax Code of 1997, as amended by Republic Act (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." This provision of the Code is implemented by Section 4.108-5 (b) (2) of Revenue Regulations (RR) No. 16-05, as amended by RR No. 4-2007, which provides as follows: "(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; aIcSED xxx xxx xxx." Under RR No. 16-2005, as amended, implementing Section 108 (B) of the Tax Code of 1997, as amended, two (2) requisites must be complied with in order that the services may qualify for VAT zero-rating: (1) The services must be rendered to persons engaged in business conducted outside the Philippines or to non-resident foreign clients not engaged in business who are outside the Philippines when the services are performed; and (2) The fees to be paid are in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Clearly, Brinell is within the ambit of Section 108 (B) (2) of the Tax Code of 1997, as amended. Accordingly, its income for services performed in the Philippines, to foreign clients outside the Philippines at the time the services are rendered for which it is paid commissions in foreign currency (U.S. dollars) inwardly remitted to the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas is subject to VAT at zero percent (0%). 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. HIDCTA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service