BIR Ruling [DA-490-99]

August 30, 1999 BIR RULING [DA-490-99] Bengzon Narciso Cudala Jimenez Gonzales & Liwanag SOL Building 112 Amorsolo St., Legaspi Village Makati City Attention: Atty . Juris B . M . Tomboc Gentlemen : This refers to your request for a confirmation of your opinion that services rendered by your client, Wartsila NSD Philippines , Inc . (WNP) , billed and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) are zero-rated pursuant to Section 108 of the Tax Code of 1997. It is represented that WNP is a domestic corporation engaged in trade or business in the Philippines; that it is duly registered with the Securities and Exchange Commission (SEC) on October 29, 1997 under SEC Registration No. AS093-217; that WNP was issued Value-Added Tax Registration No. 320-002-352-796-V on July 8, 1993 by RDO No. 32-East Makati; that WNP is a local subsidiary of the Wartsila Diesel Group (WDG), which is mainly a European-based manufacturing group (with companies and representatives in over fifty countries) producing propulsion systems for ships and heavy vehicles, and generating systems for both marine and land-based electricity generation and cogeneration; that WDG is the leading manufacturer of medium speed diesel engines in the output range of over 300kw; that WDG's continuous growing engine base now attains the level of 30,000 megawatts on ships and land-based power plants the world over; that WNP provides its affiliate companies high engine and trained service engineers readily available to respond in the event of breakdown who are essential for its affiliates operations; that WNP is billed to and paid for by its customers in acceptable foreign currency accounted for in accordance with the rules and regulations of the BSP; that in most instances, foreign currency payments due from WNP to its foreign affiliates for purchases of diesel engines exceed WNP's foreign currency invoices for services that it rendered; and that in this event, WNP is instructed by its mother company to net its foreign currency invoices against the foreign currency payments remitted to its affiliates. In reply thereto, please be informed that Section 108 (B) of the Tax Code of 1997 provides, viz: "Sec. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties . xxx xxx xxx "(B) Transaction 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 of goods for other person 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); cdll "(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 (BSP); xxx xxx xxx" Based on the foregoing, this Office is of the opinion as it hereby holds that WNP's gross receipts for services rendered in the Philippines for its affiliates billed in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP are subject to zero percent (0%)VAT. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)