John Holland Construction & Engineering Pty. Ltd. and John Holland Construction (Phils.), Inc. subject to 10% VAT on Gross Receipts from Contracts Pursuant to the Main Line South Revitalization Project Stage II, Including Foreign Currency Payments Thereunder Pursuant to Revenue Regulations No. 5-96

April 1, 1997 BIR RULING NO. 030-97 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City, Metro Manila Attention: Atty . F . G . Tagao Tax Division Gentlemen : This refers to your letter dated September 5, 1996, stating that your client, John Holland Construction & Engineering Pty. Ltd. ("JHCE"), is the Philippine branch of an Australian company; that it entered into a construction contract with the Philippine National Railways ("PNR") involving a project referred to a the "Main Line South Revitalization Projection Stage II" ("Project"); that the contract price shall be paid partly in pesos and partly in foreign currency; that the foreign currency portion shall be paid for by funds coming from the Export Finance and Insurance Corporation ("EPIC") of Australia and AUSAID, being the proceeds of a loan granted by the former to PNR; that the loan is guaranteed by the Philippine government; that JHCE secured the services of a resident corporation, John Holland Construction (Philippines), Inc. ("JHCP") to act as its sub-contractor and for which it will be paid in foreign currency. Based on the foregoing representations, you are requesting in effect for a ruling confirming your following opinions: 1) JHCE and JHCP are subject to the 10% VAT on their gross receipts from the contract pursuant to the Main Line South Revitalization Project Stage II, including the foreign currency payments thereunder pursuant to Revenue Regulations No. 5-96 which took effect on April 19, 1996; and 2) PNR as the payor should withhold and remit to the BIR the 6% creditable VAT both on the foreign currency payments and the Philippines peso payments to JHCE. In reply, please be informed that pursuant to Revenue Regulations No. 5-96, amending Section 4,102-2 (b) (2) of Revenue Regulations No. 7-95, which were promulgated to implement the expanded VAT law, the requirements to qualify transactions as zero-rated are as follows: "Section 4.102-2 (b) (2) Services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported, as well as services by a resident to a non-resident foreign client such as project studies, information services, engineering and architectural designs and other similar services, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP ." (emphasis supplied) Furtherance, Article 2 of the Civil Code of the Philippines, as amended by Executive Order No. 200 provides that: "Article 2. Laws shall take effect after 15 days following the completion of their publication either in the Official Gazette or in a newspaper of general circulation in the Philippines, unless it is otherwise provided." This statutory provision also applied to administrative rules and regulations if their purpose is to enforce or implement the existing law pursuant to a valid delegation, as pronounced by the Supreme Court in the case of Taada vs. Tuvera, et al. (GR No. 63915, December 29, 1986). Considering the above, Revenue Regulations No. 5-96, which was published in the Philippine Star, a newspaper of general circulation, on April 4, 1996, the additional requirement that the services must be rendered to a non-resident, for a transaction to be considered as zero-rated, as abovecited, took effect on April 19, 1996. Hence, on said date of effectivity, the transactions between PNR, on one hand and JHCE on the other hand, and the latter with JHCP can no longer be considered as zero-rated. In view of thereof, your opinion that: 1) JHCE and JHCP shall be subject to 10% VAT on their gross receipts from the contracts pursuant to the Main Line South Revitalization Project Stage II, including the foreign currency payments thereunder pursuant to Revenue Regulations No. 5-96 which took effect on April 19, 1996; and 2) PNR as the payor should withhold and remit to the BIR the 6% creditable VAT both on foreign currency payments and the Philippine peso payments to JHCE. are hereby confirmed. 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, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue