BIR Ruling [DA-491-06]

August 10, 2006 BIR RULING [DA-491-06] RMC 74-99; VAT Ruling No. 031-2002 J . J . Sotayco Construction 231 Casmor Phase 1, Mabiga, Mabalacat Pampanga Attention: Mr . Joselito J . Sotayco Proprietor Gentlemen : This refers to your letter dated May 30, 2005 requesting for a ruling for VAT zero-rating on your sale of services to Trust International Paper Corporation and Yokohama Tire Philippines, Inc. It is represented. that J.J. Sotayco Construction is a VAT registered entity; that you are engaged in construction activities; that some of your major clients are located in the Economic Zone in which you are not charging the 10% VAT; and that you now request that your services be classified as VAT zero-rated (0%). In reply, please be informed that Sections 4.108-5(b)(3) and 4.108-6 of Revenue Regulations No. 16-2005 dated November 1, 2005 provide that "SEC. 4.108-5. Zero Rated Sale of Services . (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 (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;" "SEC. 4.108-6. Effectively Zero-Rated Sale of Services . The term "effectively zero-rated sales of services" shall refer to the local sale of services by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement. Under these Regulations, effectively zero-rated sale of services shall be limited to sale to persons or entities that enjoy exemption from indirect taxes under subparagraph (b) nos. (3), (4) and (5) of this Section. The concerned taxpayer must seek prior approval or prior confirmation from the appropriate offices of the BIR so that a transaction is qualified for effective zero-rating. Without an approval application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt. The foregoing rule notwithstanding, the Commissioner may prescribe such rules to effectively implement the processing of applications for effective zero-rating." This Office opined in VAT Ruling No. 006-2004 dated April 2, 2004, that a zero-rated sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 16-2005. Thus, services rendered by J.J. Sotayco Construction, a VAT registered entity, to entities located at the Ecozone. is subject to zero-rated VAT. Accordingly, your sale of services to Ecozone locators is subject to 0% VAT. It is understood, however, that your corporation should use and issue only a duly registered VAT sales invoice/official receipt on which the word "zero-rated" is imprinted thereon, to cover the aforesaid zero-rated sales, pursuant to the provisions of Sec. 4-108-1 of Revenue Regulations No. 7-95, as amended by Section 4.113-1(B)(2)(c) of Revenue Regulations No. 16-2005 otherwise known as the Consolidated Value-Added Tax Regulations of 2005. 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