BIR Ruling [DA-456-04]

August 27, 2004 BIR RULING [DA-456-04] 108 (B) (2) VAT 004-2003 Lighthouse Partners Solutions, Inc . 9/F Pacific Center, 33 San Miguel Avenue Pasig City Attention: Ms . Elena H. Vallesteros Accountant Gentlemen : This refers to your letter dated April 19, 2004 requesting for the confirmation of your following opinions: 1. That sale of services to companies in the United States of America of Lighthouse Partners Solutions, Inc. (LPSI) is entitled to the benefit of the zero percent value-added tax (VAT); and 2. LPSI can use its VAT invoice in billing the said clients by stamping the invoice "Zero-Rated" It is represented that LPSI is duly registered with the Securities and Exchange Commission (SEC) under Company Registration No. CS200253062; that as stated in its Articles of Incorporation, its primary purpose among other things, is to provide computer assisted administrative services to all sorts of business, persons, corporation, partnerships, enterprises and associations; that in February 2003, LPSI entered into Outsourcing Agreement with RevCare Inc., a California corporation, with office address at 5400 Orange Ave., Cypress, California, 90630 USA; that per said Agreement LPSI shall provide RevCare process outsourcing services, specifically in its collection businesses which include among other things i) account segmentation, ii) account review and analysis, iii) account summary and recommendation; that such services will be billed by Lighthouse and paid for by RevCare in US dollars and will be remitted through the domestic banking system; that LPSI plans to engage in receivables managements and other business process outsourcing services for other U.S.A. corporations; and that all services done by Lighthouse will be paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas. In reply, please be informed that pursuant to Section 108(B)(2) of the Tax Code of 1997, as implemented by Section 3(b) of Revenue Regulations No. 7-95, as amended by Section 4.102.2(b) of Revenue Regulations No. 5-96 which reads 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) Services other than those mentioned in the preceding paragraph, 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; xxx xxx xxx" Our VAT law is basically a consumption type VAT system and follows the Destination Principle or Cross-Border Doctrine, under which goods, property or services destined to be used or consumed in the Philippines are subject to the 10% VAT while those destined to be used or consumed abroad, are accorded the benefit of zero-rating. (VAT Ruling No. 031-99 dated March 18, 1999). The supply of services is entitled to the benefit of the zero-rating because of the basic principle underlying a Consumption/Destination-Type VAT, adhering to the "Cross Border Doctrine" wherein the "onus" of taxation is in that country where the goods, property or services, supplied by a VAT-registered person, are destined, used or consumed. Considering the foregoing, and since services to be rendered by LPSI to RevCare, Inc., consist of process outsourcing services, specifically in its collection business which include among other things i) account segmentation ii) account review and analysis, and iii) account summary and recommendation and the service fees are to be paid by RevCare, Inc. to LPSI in foreign currency and accounted for in accordance with the rules and regulations of the BSP, the service fees received by LPSI qualify for automatic zero-rated value-added tax (VAT) pursuant to Section 108(B)(1) and (2) of the Tax Code, as amended, as implemented by Section 4.102-2(b)(2) of Revenue Regulations No. 5-96. (VAT Ruling No. 004-2003 dated January 9, 2003) Likewise, LPSI can use its VAT invoice in billing the said client by stamping the invoice "Zero-Rated" pursuant to Sections 4.102-2(b)(2) of Revenue Regulations No. 5-96. DAEIHT This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group