Southfield Agencies, Inc.

October 28, 2009 BIR RULING [DA-(VAT-094) 629-09] RR #16-2005; DA (VAT-020) 34-2006 dtd. 10/24/08 Southfield Agencies, Inc. 6th Floor, VIP Building 1140 Roxas Boulevard, Ermita Manila Attention: Merrely M. Cabasi Accounting Manager Gentlemen : This refers to your letter dated October 14, 2009, requesting zero-rated VAT on your services rendered to foreign principals in providing general business of deployment of Filipino seafarers, pursuant to Section 4.108-5 (b) (2) of Revenue Regulations (RR) No. 16-2005. aSTECA It is represented that SOUTHFIELD AGENCIES, INC. (SFAI, for short) with TIN: 002-839-141-000, is a duly registered domestic corporation engaged in the general business of providing or furnishing any and all forms of types of services and facilities relating to placement or employment and to engage in the business of contracting, enlisting, recruiting, for Filipino professionals, and skilled and unskilled workers for overseas work; that all expenses incurred related to recruitment of seamen and billed-in for foreign principals in turn remits to SFAI in acceptable foreign currency duly accounted for in accordance with the rules and regulations of the BSP; that as a local agent, it merely act as conduit of the foreign principal for whose accounts the expenses are incurred; and that per contract with foreign principals, it is paid with agency fees as compensation for the fulfillment of the term of the contract in acceptable foreign currency duly accounted for in accordance with the rules and regulations of the BSP. In reply, please be informed that Section 4.108-5 (b) (2) of Revenue Regulations (RR) No. 16-2005 states that: "(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: "(2) Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a non-resident 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 BSP;" Based on the foregoing, the manning and crewing services that SSAI renders to its foreign principal, be qualified for VAT zero-rating, they must meet two requisites under RR 16-2005, namely: 1. The services must be rendered to persons engaged in business conducted outside the Philippines or to a non-resident clients not engaged in business who are outside the Philippines when the services are performed; and 2. The fees paid to SSAI are in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Thus, the manning and crewing services that SFAI renders to its clients may automatically qualify as VAT zero-rated transactions if said services are paid for in foreign currency and accounted for through our local banking system. Failing that the sale of said services will be regarded as subject to 12% VAT pursuant to Section 108 (A) of the Tax Code of 1997, as amended by RA 9337. In addition to qualify SFAI's sale of services to its foreign clients as VAT zero-rated sales, SSAI must be a VAT-registered taxpayer in accordance with Section 4.108-5 (b) of RR 16-2005. aESTAI 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