BIR Ruling [DA-437-06]

July 19, 2006 BIR RULING [DA-437-06] RR 16-2005; 046-95 Owtel (PH), Inc. 26 & 27 Floors, One San Miguel Ave., Bldg. San Miguel Ave. Cor. Shaw Blvd. Mandaluyong City Attention: Ms. Merle Theresa Aspiras Accounting Manager Gentlemen : This refers to your letter dated April 24, 2006 requesting for a ruling relative to your application for VAT zero-rate on sale of services. CSEHIa It is represented that Owtel (PH), Inc. (Owtel) is registered with the Board of Investments (BOI) under Certificate of Investments No. 2005-200 as New ICT Export Service Firm in the field of Operation of a Call Center on a non-pioneer status dated November 29, 2005; and that pursuant to the specific terms and conditions accompanying its (BOI) Certificate of Registration, OWTEL is entitled to income tax holiday, viz: "8. The firm shall be entitled to the following incentives: a. Income Tax Holiday (ITH) for a period of four (4) years from December 2005 or actual start of commercial operations, whichever is earlier, but in no case earlier than the date of registration. The ITH incentives shall be limited only to the revenues generated from this call center activity. In reply, please be informed that pursuant to Section 4.108-5 (a) & (b)(2) of Revenue Regulations No. 16-2005 dated September 1, 2005, which provides, viz: "SEC. 4.108-5. Zero-Rated Sale of Services . (a) In general. A zero-rated sale of service (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 (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;" Thus, the sale of services by OWTEL shall be considered export and effectively subject to zero percent (0%) VAT. The vendor shall not impute or shift any VAT as part of the cost to be paid by OWTEL on its purchases. (BIR Ruling No. 046-95 dated March 3, 1995) HcSETI 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service