BIR Ruling [DA-508-04]

September 29, 2004 BIR RULING [DA-508-04] RR 5-96 VAT 003-2002 Fluor Daniel, Inc. Phils. Asian Star Building 2404 Filinvest Corporate City Alabang, Muntinlupa City Attention: Ms. Medy P. Camba Controller Gentlemen : This refers to your letter dated June 24, 2003 requesting for an automatic VAT zero rating treatment on the sales made by domestic suppliers on the ground that Fluor Daniel, Inc. Phils. (Fluor Daniel for brevity), is a BOI-registered enterprise. It is represented that Fluor Daniel is a domestic corporation engaged in engineering services. It is a wholly-owned subsidiary of Fluor Corporation of U.S.A. Fluor Daniel is registered with the Board of Investment under Certificate of Registration No. SE 2000-102 issued on August 28, 2000 and enjoying an Income Tax Holiday for six (6) years and other incentives as mentioned under the specific terms and conditions of said registration. The Company has been able to export its services equivalent to 100% based on its actual operations for the year 2002. All these export activities were 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). SEDaAH As of May 2003, Fluor Daniel has already accumulated P22.785 Million excess input VAT and the amount would continue to increase considering that its revenues are also subject to zero percent (0%) VAT. Based on these representations, you now request that the sales of goods, properties and services made to Fluor Daniel by VAT-registered suppliers be considered as zero-rated sales as provided in Revenue Regulations No. 7-95. In reply, please be informed that Revenue Regulations No. 5-96 amending Sections 4.102-2(b)(2) of Revenue Regulations No. 7-95 provides, viz : "SECS. 4.102-2. Zero-rating. (a) . . . (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%) . . . (2) Services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported, as well as services by a resident to a non-resident foreign client such as project studies, information services, engineering and architectural designs and other similar services, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP." Accordingly, services by a resident to a non-resident foreign client, such as engineering services shall be accorded automatic VAT zero rating without necessity of applying for and securing prior approval of zero-rating. (VAT Ruling No. 003-2002 dated February 6, 2002) 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group