Bernaldo Mirador & Directo Law Offices

July 6, 2007 BIR RULING [DA-367-07] RR No. 16-05; 4-2007 Bernaldo Mirador & Directo Law Offices Unit 1807 Cityland Condominium 10 Tower 1 6815 Ayala Avenue cor. H.V. dela Costa St. Makati City Attention: Atty. Pepito G. Po Partner Gentlemen : This refers to your letter dated February 8, 2007 requesting in behalf of your client, Johnson Controls, IFM Phils., Inc. ("Johnson" for brevity), confirmation of your opinion that its sales to its various PEZA-registered customers are subject to value-added tax (VAT) at zero percent (0%) rate pursuant to Sections 106 (A) (2) (a) (5) and 108 (B) (3) of the Tax Code, as amended by Republic Act (R.A.) No. 9337, otherwise known as the New EVAT Law, and as implemented by Revenue Regulations No. 16-2005, as amended. It is represented that Johnson is a domestic corporation duly organized and existing under the laws of the Philippines, with principal address located at Suite 4-A Silvercord Tower 803, S. Laurel Sheet corner Shaw Boulevard, Mandaluyong, Metro Manila. It is engaged in the business of providing integrated facilities management services to customers and clients and in pursuance thereof, to manufacture, produce, process, assemble, sell, market and distribute integrated facilities products involving electrical and mechanical equipments and others. Johnson renders integrated facilities management services to its PEZA registered clients, namely: Cypress Manufacturing Limited, Intel Technology Phils., Inc., IBM Business Services, Inc. and T.I. (Philippines), Inc. Johnson is a VAT-registered entity. In reply, please be informed that Sections 106 (A) (2) (a) (5) and 108 (B) (3) of the Tax Code, as amended, provides as follows: ITDHcA "SEC. 106. Value-added Tax on Sale of Goods or Properties . (A) Rate and Base of Tax. . . . (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) . . . (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws;" "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . (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: xxx xxx xxx (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;" The foregoing provisions are amplified under the implementing regulations, Revenue Regulations No. 16-2005, as amended by Revenue Regulations No. 4-2007, pertinent portions of which state as follows: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties . . . . The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. . . . (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. . . . . Provided, further, That pursuant to EO 226 and other special laws , even without actual exportation, the following shall be considered constructively exported: (1) . . .; (2) sales to export processing zones pursuant to Republic Act (RA) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones ; (3) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to RA 7227 ; . . . ." "SEC. 4.108-6. Zero-Rated Sale of Services . (a) In general. A zero-rated sale of services (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 (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;" (Emphasis supplied) In view of the foregoing, this Office hereby confirms your opinion that the sales of goods and/or services by Johnson, a VAT-registered entity, to its various PEZA-registered customers are subject to value-added tax (VAT) at zero percent (0%) rate. Provided, however, that in the case of sale of services, the service should be performed within the ecozone. Sale of services within the customs territory, hence, rendered outside the ecozone, is not qualified for VAT zero rating. Further, the input tax on purchases of goods or services related to such zero-rated sale incurred by Johnson shall be available as tax credit or refund in accordance with the afore-cited provisions of Revenue Regulations No. 4-2007. caIEAD 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. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service