BIR Ruling [DA-364-04]

June 28, 2004 BIR RULING [DA-364-04] 109 (p); RA 8756 047-01 Chiyoda Corporation Regional Headquarters 12-1 Tsurumichuo Tsurumi-ku, Yokohama Japan Attention: Tsukasa Ishii Regional Manager Gentlemen : This refers to your letter dated May 7, 2004 stating that Chiyoda Corporation is a multinational company organized and existing under the laws of Japan; that is engaged in the business of engineering, procurement and construction as an integrated global engineering contractor, in the field of hydrocarbon processing industry, metals, environment preservation and others; that it has established a Regional Headquarter (RHQ) in the Philippines under SEC Registration No. FS200405879 dated April 29, 2004; that the activities of the said RHQ shall be limited to acting as supervisory, communications and coordinating center for its affiliates subsidiaries or branches in the region, and that the RHQ will not derive any income from sources within the Philippines and will not participate in any manner in the management of any subsidiary or branch office the foreign entity might have in the Philippines. In connection therewith, you now request a ruling that the RHQ established by Chiyoda Corporation shall not be subject to VAT since it does not derive any income except for the annual inward remittance by the Head Office considering that Section 64 of the Omnibus Investment Code, as amended by R.A. No. 8756 and Section 109(p) of the Tax Code of 1997 exempt an RHQ. In addition, sale or lease of goods and property and the rendition of services to the RHQ shall be subject to zero percent (0%) VAT pursuant to Article 65 of the law and Section 14 of Implementing Regulations. In reply thereto, please be informed that Section 109(p) of the Tax Code of 1997 provides that services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines shall be exempt from value-added tax. In relation therewith, Section 14 of R.A. No 8756 provides that regional or area headquarters shall be exempted from the value-added tax. 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 National Internal Revenue Code, as amended. Thus, in BIR Ruling No. 047-01 dated September 28, 2001, this Office had the occasion to rule on the matter, when it said that ". . . the activities of the proposed RHQ to be established by CAL shall be exempt from VAT pursuant to Section 109(p) of the Tax Code of 1997. On the other hand, sale or lease of goods and property and the rendition of services to the RHQ shall be subject to zero percent (0%) pursuant to Section 14 of R.A. No. 8756." Considering that the foregoing facts are in all forms, similar to the above-cited ruling, this Office holds that the RHQ established by Chiyoda Corporation shall be exempt from VAT under Section 109(p) of the Tax Code of 1997. However, the sale of goods and properties by its suppliers shall be subject to the 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. IcTCHD Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group