Aranas Consunji & Barleta Law Offices

December 9, 2009 BIR RULING [DA-(VAT-110) 761-09] 106 (A) (2); 112; 55-98; 30-2004; DA-146-2003 Aranas Consunji & Barleta Law Offices Unit 106 G/F Le Metropole Building 326 Tordesillas cor. De la Costa Streets Salcedo Village, Makati City Attention: Atty. Jesus Clint O. Aranas Gentlemen : This refers to your letter dated September 15, 2009 requesting on behalf of your clients, Hopetech Sdn. Bhd. ("Hopetech"), PCS Vision Sdn. Bhd. (PCS), and Hopetech PCS, Inc. (the "JV" Company), for confirmation of your opinion that the sale of goods by Philippine suppliers, to a non-resident, for delivery to the JV Company, which is a resident of the Philippines, is considered as a foreign currency denominated sale subject to value-added tax ("VAT") at zero percent (0%). It is represented that Hopetech and PCS are non-resident corporations organized and existing under the laws of Malaysia, while the JV Company is a domestic corporation organized and existing under the laws of the Philippines; that Hopetech and PCS formed the JV Company to undertake the development and installation of the toll collection system of the South Luzon Expressway ("SLEX"); that on March 27, 2009, the JV Company entered into a Systems Development Agreement with Hopetech and PCS, respectively; that under the agreement, the JV Company subcontracted portions of the necessary works for its SLEX project to Hopetech and PCS; that to fulfill their obligations under the Agreement, Hopetech and PCS purchased some of the system's hardware components from suppliers who are Philippine residents; that among these local suppliers are Compucare Corp., American Technologies Inc., Ujjent Construction Inc., P2RO Inc., Icom Metal Industries Corp., and Hi-R Technology & Service Corp; that the supplied hardware components are intended to be delivered by Hopetech and PCS to the JV Company as part of their Agreement; that these hardware components were paid for in acceptable foreign currency, and accounted for in accordance with the rules and regulations of the Banko Sentral ng Pilipinas ("BSP"). SACTIH In reply, please be informed that Section 106 (A) (2) (b) of the Tax Code of 1997, as amended by Republic Act No. 9337, provides, viz. : "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. xxx xxx xxx (2) [Zero-rated Sales.] The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (b) Foreign Currency Denominated Sale. The phrase 'foreign currency denominated sale' means sale to a nonresident of goods, except those mentioned in Sections 149 and 150, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." The above-quoted provision of law is implemented by Section 4.106-5 of Revenue Regulations No. 16-2005, as follows: "SEC. 4.106-5. Zero-rated sales. A zero-rated sales by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his 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. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales (b) "Foreign currency denominated sale" means the sale to a non-resident of goods, except those mentioned in Secs. 149 and 150 of the Tax Code, assembled or manufactured in the Philippines for delivery to a resident in the Philippines, paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." ScCDET On the foregoing basis, the sale of Compucare Corp., American Technologies Inc., Ujjent Construction Inc., P2RO Inc., Icom Metal Industries Corp., Hi-R Technology & Service Corp., and other Philippine-resident suppliers to Hopetech and PCS, which are non-resident foreign corporations, intended for delivery to the JV Company, a resident of the Philippines, is considered as a foreign currency denominated sale, and thus subject to value-added tax at zero percent (0%) rate. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall 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