BIR Ruling [DA-475-06]

August 4, 2006 BIR RULING [DA-475-06] VAT 033-00 Pacific Consultants International Philippines, Inc. 14th Floor, 88 Corporate Center 141 Salcedo cor. Valero Streets Salcedo Village, Makati City Attention: Tsuneo Sakano President & CEO Gentlemen : This refers to your letter dated November 25, 2005 stating that Pacific Consultants International Philippines, Inc. (PCIP) is a domestic corporation wholly owned by Pacific Consultants International of Tokyo, Japan; that on June 25, 2005, a Consulting Service Agreement was entered into by Pacific Consultants International Asia Inc. (PCIA) and Pacific Consultants International Philippines, Inc. whereby the Louis Berger Group (LBG), as lead firm and in association with PCIA has entered into a contract for consulting services with the Asian Development Bank (ADB) for the ADB Intermodal Transport Development Project TA 4344-PHI (Project); that PCIA desires to engage and assign to PCIP the Local Consulting Engineering Services for the Project; that PCIP agreed to render the Local Consulting Engineering Services assigned to it by the PCIA for the Project; and that PCIA agrees to employ PCIP for the provision of the services required for the Project with the contract amount of P9,197,124, exclusive of reimbursable domestic travel expenses. In connection therewith, you now request for an opinion that the sale of services, relative to the Consulting Service Agreement for the ADB Intermodal Transport Development Project, is effectively zero-rated pursuant to Section 4.108-6 of Revenue Regulations No. 16-2005, implementing Republic Act (R.A.) No. 9337. ASaTCE In reply thereto, please be informed that Section 4.108-5(b)(3) of Revenue Relations No. 16-2005, implementing R.A. No. 9337, provides that "(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 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; xxx xxx xxx" Thus, in BIR VAT Ruling No. 033-00 dated September 8, 2000, this Office ruled that ". . . direct sale of good and services to Asian Development Bank remain effectively zero-rated under Sections 106(A)(2)(c) and 108(B)(3) of the Tax Code of 1997. . . . "This certification shall be deemed as sufficient compliance of your local suppliers with the requirement of prior approval for effective zero-rating as prescribed under Section 4.107-1(d) of Revenue Regulations No. 7-95 and the individual filing for an application therefore by your supplier is hereby dispensed with. For proper documentation purposes, kindly require your suppliers to clearly stamp their VAT invoice with the notation "zero-rated sale" . . . ." SUCH BEING THE CASE, this Office is of the opinion that the sale of services to ADB, under the Consulting Engineering Services for the Intermodal Transport Development Project by PCIP, is effectively zero-rated pursuant to Section 4.108-5(b)(3) of Revenue Regulations No. 16-2005, implementing R.A. No. 9337. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service