BIR Ruling [DA-417-99]

July 7, 1999 BIR RULING [DA-417-99] Union Refinery Corporation Rubber Master Road, Bo. Lingunan Valenzuela, Metro Manila Attention: Mr. Joel Flores Accountant Gentlemen : This refers to your letters dated August 17 and 25, 1998 which were referred to this office by the Assistant Regional Director of Revenue Region No. 5, Valenzuela, bearing on your request for a ruling as to whether or not your transaction with Castrol International is subject to VAT. It is represented that Castrol International is a foreign corporation organized under the laws of United Kingdom without a local office in the Philippines; that your business transaction with Castrol International covers the blending of castrol marine oil with imported additives supplied by the latter while the base stocks and drum materials are supplied by your local suppliers; that you billed Castrol International in US Dollar and payment is made through banks which you deposited in your dollar account with the United Coconut Planters Bank (UCPB); and that the finished product is brought out from your plant at Valenzuela by the local distributor of Castrol International and then subsequently exported. In reply, please be informed that under Section 3 of Revenue Regulations, No. 6-97 effective January 1, 1997, implementing R.A. No. 8241, An Act Amending R.A No. 7716 otherwise known as the Expanded Value-Added Tax Law provides, viz: DcITHE "SEC. 3. Zero-rating . Section 4.102(b) of Rev. Regs. No. 7-95 is hereby further amended to read as follows: "(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) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral Ng Pilipinas (BSP); "(2) . . . "(3) . . . "(4) . . . "(5) . . . " From the foregoing provision in relation to Section 108(B)(1) of the Tax Code of 1997, thus Office holds that your sale of services to Castrol International, a foreign corporation doing business outside the Philippines paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with Central Bank rules and regulations qualifies for VAT zero-rating. In other words, although your transaction with Castrol International is taxable for VAT purposes, the same should not result in output tax. aIcTCS 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue