BIR Ruling [DA-498-06]

August 15, 2006 BIR RULING [DA-498-06] DA-456-2004; Sec 4. 108-5 (b) (2), RR 16-2005 Akribis Transcription Services, Inc. 4/F Fabricare Bldg., Dr. A. Santos Avenue Paraaque City Attention: Mr. Emerito A. Dumaraos President Gentlemen : This refers to your letter dated May 31, 2006 requesting for a ruling as to whether or not the sale of services to your foreign clients can be considered as a zero-rated VAT transaction. It is represented that Akribis Transcription Services, Inc. (Akribis) is a corporation duly organized under Philippine laws engaged in medical transcription activities; that it was registered with the Bureau of Internal Revenue on February 3, 2006 as a VAT taxpayer; that medical transcription is an outsourcing activity that deals with physician dictated reports and other documents which become permanent part of the patient's record which in turn functions as an important document for future healthcare delivery for medico legal, billing purposes, etc.; that transcribed reports are then sent electronically through internet; that revenues derived from above-cited transactions are received by way of inward telegraphic transfer in foreign currency; and that all business transactions of Akribis are purely export-related and zero-rated. In reply, please be informed that Section 4. 108-5 (b) (2) of Revenue Regulations (RR) No. 16-2005 states that: "(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: CaTSEA "(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; From the foregoing, it can be seen that for its transcription services to qualify for VAT zero-rating, Akribis must meet two requisites under RR-16-2005, namely: (1) The services must be rendered to persons engaged in business conducted outside the Philippines or to non-resident foreign clients not engaged in business who are outside the Philippines when the services are performed; and (2) The fees to be paid to Akribis are in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Thus, the transcription services that Akribis renders to its foreign clients may automatically qualify as VAT zero-rated transactions if said services are paid for in foreign currency and are accounted for through our local banking system. Failing that, the sale of said services will be regarded as subject to 10% (now 12%, starting February 1, 2006) VAT pursuant to Section 108(A) of the Tax Code of 1997, as amended by RA 9337. In addition, to qualify Akribis sale of services to its foreign clients as VAT zero-rated sales, Akribis must be a VAT-registered taxpayer in accordance with Section 4. 108-5 (b) of RR 16-2005. 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