BIR Ruling [DA-540-06]

September 7, 2006 BIR RULING [DA-540-06] Part I, RMC 8-2006 Bureau of Customs Manila Attention: Mr. Bernardo V. Sales Officer-in-Charge Internal Administration Group Gentlemen : This refers to your letter dated May 2, 2006 relative to the request of Unisys Corporation (Unisys) for adjustment in the applicable VAT rate from 10% to 12% for its unbilled projects. It is represented that the Bureau of Customs contracted Unisys Corporation as consultant for the ASYCUDA World (E-Customs) Project; that when Unisys submitted its proposal for the project and when the contract was awarded in December 2004, the effective VAT rate that was used in the contract price was 10%; that with the increase in VAT rate, Unisys is therefore requesting a corresponding adjustment in the VAT rate for the unbilled project milestones and on the recoupment fee retained for the billed milestones (except for the advance payment). In reply, Part I of Revenue Memorandum Circular No. 8-2006 is hereunder quoted viz: "I. Tax Treatment of Services Rendered Prior to Feb. 1, 2006 Payment of which was Received on or after Feb. 1, 2006 Amounts due on sale of services rendered on or before January 31, 2006, payments of which are received on or after February 1, 2006, shall be considered as accrued as of January 31, 2006 subject to the following conditions: 1. Taxpayer files an Information Return on or before February 28, 2006 showing the name(s) of the contractor(s), client(s), customer(s) and the amount(s) of the contract price earned and outstanding as of Jan. 31, 2006, and containing a declaration of the obligation to pay the applicable rate of value-added tax due, if any; 2. The seller billed the unpaid amount not later than January 31, 2006, and a copy of such billing is attached to the information return required in (I) hereof; 3. The seller has recorded in his books of accounts the amount receivable as of January 31, 2006. Failure to comply with the above-stated conditions shall automatically subject the gross receipts received on or after February 1, 2006, to the 12% VAT." As stated above, Part I of RMC 8-2006 considers transactions as consummated when the services are rendered to and accepted by the buyers and the corresponding official receipts are issued to them for such services, regardless of whether or not installment payments on such sales are still subsequently payable. Applied to the present issue, it can be seen that any consummated sale by Unisys to its clients before February 1, 2006 is subject to 10% VAT upon compliance with the above-stated conditions as provided for under RMC 8-2006, in addition, the 10% VAT rate should also apply to any subsequent payments on or after February 1, 2006 by Unisys' clients who purchased its services under installment basis, which were rendered on or before January 31, 2006, as long as the said sales have been booked as consummated sales before February 1, 2006. However, non-compliance with the above-stated conditions shall automatically subject the gross receipts received by Unisys on or after February 1, 2006 to the 12% 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. acCTSE Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner