STBN (Systematic Tempo-Staffing for Business Network) Manpower Agency and Allied Services Corp.

September 3, 2009 BIR RULING [DA-(VAT-078) 489-09] 108; RR 16-2005; RR 4-2007; DA-119-06; VAT Ruling No. 080-99; DA(VAT-014)286-2008 STBN (Systematic Tempo-Staffing for Business Network) Manpower Agency and Allied Services Corp. Rm. 303 Jovan Condominium Shaw Boulevard cor. Samat St. Mandaluyong City Attention: Mr. Rolando Jose N. Esteban President Gentlemen : This refers to your letter dated February 27, 2009 requesting for confirmation of your opinion that the sale of manpower and personnel services by STBN Manpower and Allied Services Corporation to Regent Asia Group Ltd., a non-resident foreign corporation not engaged in business in the Philippines, is subject to value-added tax at zero (0%) rate. AEDHST Background STBN Manpower and Allied Services Corporation ("STBN" for brevity) is a corporation duly organized and existing under the Philippine laws, with principal office at Rm. 303 Jovan Condominium, Shaw Boulevard cor. Samat St., Mandaluyong City. STBN is a duly licensed independent service provider recognized by the government. Regent Asia Group Ltd. ("REGENT" for brevity), on the other hand, is a corporation duly organized and existing under the laws of British Virgin Islands (BVI), with correspondence address at 11th Floor, Dah Sing Life Building, 99 Des Voeux Road, Central Hong Kong. REGENT is one of the concessionaires in the Duty-Free Shop (DFS) engaged in the selling of merchandise such as perfumes, clothes, cosmetics, and the like. As such, REGENT is in need of personnel and manpower to attend their shops in the said DFS. Furthermore, DFP stores was established pursuant to Executive Order No. 46 issued by then President Corazon C. Aquino, which authorized the Ministry of Tourism, now Department of Tourism, to establish a tax and duty free merchandising system in the country in order to augment the service facilities for tourists and to generate foreign exchange and revenue for the government. All DFP stores are located within the vicinity of international airports and seaports, and as provided in Section 1.3.1 of Customs Administrative Code (CAO) No. 3-87, all stores are considered as extensions of the main bonded warehouse. As a consequence thereof, STBN and REGENT will enter into a Service Agreement whereby the REGENT, as Client, desires to engage the services of STBN, as the Agency, for the supply of necessary manpower and personnel services in accordance with the Client's specifications which shall include, but not limited to, the following: a) The number of personnel required; b) The qualifications of the personnel required; c) The work site in which the personnel shall be assigned; d) The nature, extent and duration of the service to be rendered by the personnel; and e) The policies and guidelines of the Client to be observed and complied with by the personnel while assigned to work in the Client's work premises. EcIDaA Pursuant to the proposed Service Agreement between STBN and REGENT, the billing for the services rendered by the former in favor of the latter shall be payable in foreign currency. In reply, please be informed that Section 108 (B) (2) of the Tax Code of 1997, as amended, provides that: "Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. xxx xxx xxx (B) Transactions Subject to Zero Percent (0%) Rate. xxx xxx xxx (2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident 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 Bangko Sentral ng Pilipinas (BSP);" Implementing the above provision is Section 4.108-5 (b) (2) of Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007, wherein the sale of services made by VAT-registered supplier to nonresident persons not engaged in business who is outside the Philippines when the services are performed (such as STBN) is considered subject to VAT at zero percent (0%) rate, to wit: "SECTION 4.108-5. Zero-Rated Sale of Services. xxx xxx xxx (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 (2) Services other than those mentioned in the preceding paragraph rendered to a person engaged in business conducted outside the Philippines or to a nonresident 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 Bangko Sentral ng Pilipinas (BSP);" Moreover, pursuant to Section 1.3.1 of CAO No. 3-87, for tax purposes, DFP stores are considered as extensions of the main bonded warehouse. Thus, since the customs bonded warehouse is considered as outside the Philippines or customs territory, DFP is likewise considered as outside the Customs Territory. Please note that while customs bonded warehouse are located and definitely within the Philippines, articles/goods remaining therein are considered not to have entered yet into the customs territory if the same have been shipped from abroad. Only when the said articles/goods are withdrawn from customs bonded warehouse and brought into the customs territory that importation deemed to have been made. SDITAC Conversely, and in accordance with E.O. 226 and other special laws, i.e. , CAO No. 3-87, even without actual exportation, sales to bonded warehouse are considered constructive export. Considering however, that the operations of DFP, in pursuance with E.O. 46 and CAO No. 3-87, is unique (with people manning a duty free store inside the customs bonded warehouse) with no express provision for "exportation of services", DFP or its concessionaires, are still considered rendered within the Philippines and should not be considered outside the Philippines. Moreover, in cases where the concessionaire is a non-resident, its goods and merchandise shipped from abroad and remains inside the DFP before sale to customers/travelers entering/arriving into the customs territory, are still not considered imported goods/articles. Furthermore, mere presence of goods/articles belonging to said concessionaire inside the bonded warehouse or DFP, does not necessarily mean that said non-resident is doing business in the Philippines. Hence, the sale of manpower services by STBN to REGENT (a non-resident foreign corporation not engaged in business in the Philippines), which is for the latter's concessionaire business inside the DFP stores, falls within the VAT zero-rated sale of services contemplated by Section 108 (B) (2) of the Tax Code of 1997 as implemented by Section 4.108-5 (b) (2) of RR No. 16-2005. (BIR Ruling No. DA(VAT-014)286-2008 dated October 13, 2008) 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