EEI Corporation

January 15, 2009 BIR RULING [DA-(VAT-008) 019-09] 106; 108; DA-367-07 July 6, 2007 EEI Corporation No. 12 Manggahan St. Bagumbayan, Quezon City Attention: Mr. Manuel R. de Jesus Vice President & Controller Gentlemen : This refers to your letter dated May 15, 2008 requesting confirmation of your opinions, viz. : IaDcTC 1. The Contract Price which EEI Corporation (EEI) will receive from JGC Philippines, Inc. (JGC) is subject to zero percent (0%) VAT; 2. The Contract Price will not form part of the gross receipts of EEI subject to 12% output VAT; 3. EEI is required to issue VAT zero-rated invoices and receipts for the transaction. It is represented that EEI is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines; that it is a construction company with business address at 12 Manggahan St., Bagumbayan, Quezon City; that JGC is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines with address at JGC Phil. Building, 2109 Prime St., Madrigal Business Park, Ayala Alabang, Muntinlupa City; that JGC is a PEZA registered enterprise with PEZA Certificate of Registration No. 07-14-IT dated February 27, 2007; that per certification issued by the PEZA Deputy Director General for Operations last March 22, 2007, JGC is a qualified enterprise for the purpose of the VAT zero-rating of its transactions with its local suppliers of goods, properties and services; that EEI and JGC entered into an Agreement for Mechanical Works, Contract No. SC-4275-3150-00 dated November 24, 2006, wherein EEI undertook to construct the Plant for Coral Bay Nickel Corporation; that under the Contract, the Contract Price is exclusive of VAT, which shall be for the account of JGC; that JGC informed EEI that the Contract Price should be subject to zero percent (0%) VAT since it is a PEZA-registered enterprise; that JGC provided EEI with copies of its PEZA certificate of registration and a PEZA certification on its qualification for zero-rating; and that in view of the foregoing, EEI wish to formally request for confirmation of its aforementioned opinions pursuant to the provisions of Republic Act No. 7916, known as the Special Economic Zone Act of 1995. In reply, please be informed that Sections 106 (A) (2) (a) (5) and 108 (B) (3) of the Tax Code, as amended, provide as follows: "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. . . . (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) . . . (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws;" "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (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: 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;" The foregoing provisions are amplified under the implementing regulations, Revenue Regulations No. 16-2005, as amended by Revenue Regulations No. 4-2007, pertinent portions of which state as follows: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. . . . The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. . . . (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. . . . . Provided, further, That pursuant to E.O. 226 and other special laws, even without actual exportation, the following shall be considered constructively exported: (1) . . .; (2) sales to export processing zones pursuant to Republic Act (R.A.) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones; (3) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to R.A. 7227; . . . ." "SEC. 4.108-6. Zero-Rated Sale of Services. (a) In general. A zero-rated sale of services (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these Regulations. (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;" (Emphasis supplied) In view of the foregoing, this Office hereby confirms your opinion that the sales of goods and/or services by EEI, a VAT-registered entity, to its various PEZA-registered customers are subject to value-added tax (VAT) at zero percent (0%) rate. Provided, however, that in the case of sale of services, the service should be performed within the ecozone. Sale of services within the customs territory, hence, rendered outside the ecozone, is not qualified for VAT zero rating. Further, the input tax on purchases of goods or services related to such zero-rated sale incurred by EEI shall be available as tax credit or refund in accordance with the afore-cited provisions of Revenue Regulations No. 4-2007. EDACSa 2. * Section 4.108-4 of Revenue Regulations No. 4-2007 defined gross receipts as follows: " SEC. 4.108-4. Definition of Gross Receipts. 'Gross receipts' refers to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding the VAT, except those amounts earmarked for payment to unrelated third (3rd) party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor. Clearly therefore, as a VAT-registered entity, the contract price which EEI will receive from JGC shall form part of its gross receipts. Hence, EEI is not liable for the payment of the 12% output VAT. 3. Revenue Memorandum Circular No. 62-2005 provides, viz. : xxx xxx xxx "A VAT registered person may issue separate invoices/receipts for the taxable, exempt, and zero-rated component of its sales provided that if the sale is exempt from value-added tax, the term "VAT-EXEMPT SALE" shall be written or printed prominently on the invoice or receipt and if the sale is subject to zero percent (0%) VAT, the term "ZERO-RATED SALE" shall be written or printed prominently on the invoice or receipt." On the basis of the foregoing and considering that EEI is a VAT-registered entity, EEI shall issue receipts/invoices for the subject transaction wherein the term "ZERO-RATED" shall be written or printed prominently on the invoice or receipt. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service