BIR Ruling [DA-537-04]

October 29, 2004 BIR RULING [DA-537-04] E.O. 273; VAT Ruling No. 086-2001; DA-158-98; 014-96 Embassy of the United States of America Manila, Philippines Attention: Stephen B. Hogard First Secretary and Supervisory General Services Officer Gentlemen : This refers to your letter dated August 16, 2004, requesting for a ruling that the transactions between Stevens Express Leasing and local contractors are considered VAT zero-rated transactions. It is represented that the United States Government is constantly improving the security measures involving embassy operations worldwide in view of the current global situation. To pursue this objective, the US Embassy in Manila executed a contract with a United States firm, Stevens Express Leasing (SEL) to provide goods and services necessary to complete the scope of work. Accordingly, authorized personnel of SEL are in the Philippines to assist the U.S. Mission in implementing the required security measures. In reply, please be informed that our VAT law which was adopted and promulgated under E.O. No. 273, effective January 1, 1988 is basically a Consumption Type VAT System and, in general follows the destination principle or Cross Border Doctrine. The onus of taxation under our VAT is in that country where the goods, property or services are destined to be used or consumed. This is the reason why under out VAT Law, goods, property or services destined to be used or consumed in the Philippines are subject to the 10% VAT whereas those destined to be used or consumed abroad are subject to zero (0%) VAT. (VAT Ruling No. 086-2001 dated December 27, 2001) cITCAa For taxation purposes, embassies are considered extensions of their respective country's territory. As such, any sale within the embassy is considered foreign sale or transaction outside the Philippine territory. Since the sale of goods or services by local suppliers to SEL is a transaction outside the Philippine territory, the same qualifies for VAT zero-rating. Moreover, the sale of goods or services by local suppliers may be effectively zero-rated provided that the seller, who must be a VAT registered person, applies and secures prior approval for effective zero-rating on his sale of goods or services to the non-resident foreign corporation. Although the sale of goods or services is a taxable transaction for VAT purposes, the same shall not result in any output tax on the part of the seller but input tax on his purchases of goods, property or services related to such effectively zero-rated sale of goods or services shall be available as tax credit or refund. (BIR Ruling No. DA-158-98 dated November 20, 1998; BIR Ruling No. 014-96 dated February 20, 1996) 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group