Whether VAT Ruling No. 083-91 (inward remittance) Applies Even with More Vigor and Rationale in the Case of the Technical Service Fees Paid to Del Monte Fresh Produce (Philippines) Inc., where such Fees are in Fact actually Inwardly Remitted in Foreign Currency, and Should also be Zero Rated under the Value Added Tax Provisions of the Tax Code, as amended

February 8, 1994 BIR RULING NO. 048-94 102 (a) (2) 085-91 048-94 Meer, Meer & Meer 9th Floor, PLDT Building Legaspi St., Makati Metro Manila Attention: Atty . Antonio M . Meer Gentlemen : This refers to your letter dated September 6, 1993 requesting for confirmation of your opinion that VAT Ruling No. 083-91 (inward remittance) applies even with more vigor and rationale in the case of the technical service fees paid to Del Monte Fresh Produce (Philippines) Inc., where such fees are in fact actually inwardly remitted in foreign currency, and should also be zero rated under the Value Added Tax provisions of the Tax Code, as amended. It is represented that your client, the Del Monte Fresh Products (Philippines) Inc., (formerly the PPI Del Monte Tropical Fruit Company (Philippines), Inc.) is a corporation duly organized and existing under the laws of the Republic of the Philippines; that it is an affiliate of the Del Monte Fresh Produce International Inc., a corporation duly organized under the laws of the Republic of Liberia with principal office at 80 Broad Street, Monrovia, Liberia and has a branch office at Rm. 936-937 New World Office Bldg., 24 Salisbury Road, Tsimshatsui, Kowloon, Hongkong; that the latter is primarily engaged, among others, in the purchase of banana products from growers in the Philippines for export to the international overseas market; that to maintain the quality control of the banana products grown by the Filipino growers, the purchaser, Del Monte Fresh Produce International Inc. has engaged the services of its affiliate, the Del Monte Fresh Produce (Philippines) Inc., to provide the growers with the agricultural know-how and technical advice, assistance and services required in the development and operation of their respective banana production projects and plantations in the Philippines; that the contractual agreements for the said purpose are basically identical except for the following nuance, i.e., in the case of the purchaser, Del Monte Fresh Produce International Inc.'s contracts with two growers, Farmingtown Agro-Developers Inc. and Evergreen Farms, Inc., the growers are obligated to pay the purchaser for the technical services required and the purchaser deducts the amount payable therefor from the dollar proceeds payable to the growers in the Philippines; that the purchaser, in turn, with the consent of the growers, nominates and engages the services of its affiliate, Del Monte Fresh Produce (Philippines) Inc. to render the required technical advice and services to the Philippine growers; that as a necessary consequence, the value of the technical service fee is deducted from the dollar sales proceeds of the Philippine growers, and is eventually paid from Hongkong by the purchaser, Del Monte Fresh Produce International Inc., via an inward dollar remittance of such value and amount agreed upon to the Del Monte Fresh Produce (Philippines) in payment of the technical services it renders to such Filipino growers; that in the case of the banana purchase contracts with Farmingtown Agro-Developers, Inc., the grower in the Philippines, does not pay Del Monte Fresh Produce (Philippines), Inc. for the technical service rendered by the latter and that it is Del Monte Fresh Produce (International), Inc., the purchaser which actually deducts the amount equivalent to the technical service fees from the gross dollar value of the shipments and remits the same via an inward remittance to its affiliate, the Del Monte Fresh Produce (Philippines), Inc. in payment of the technical service rendered by the latter; and that in the other type of agreement as regards the rendition of technical advice and services to all the other Filipino growers, such Filipino growers are not obligated to pay for such services and the purchaser, Del Monte Fresh Produce (International), Inc. assumes the obligation, for its own account, to engage the services of its affiliate, Del Monte Fresh Produce (Philippines), Inc. and pays the latter for the value of such technical advice and services, likewise, via an inward dollar remittance thereof in favor of the latter. In reply, please be informed that under Section 102(a) (2) of the Tax Code, as amended, services other than the processing, manufacturing or repacking of goods for other persons doing business outside the Philippines, the consideration for which is paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines (now the Central Monetary Authority), shall be subject to the Value-Added Tax at zero percent. Under Revenue Memorandum Circular No. 47-88 dated September 12, 1988, portion of freight collection being used to pay for services rendered to foreign vessels while docked in the Philippine ports are deemed inwardly remitted provided that prior Central Bank approval is secured to deduct said fund from its remittable freight collections. In substance, the sale of services is zero-rated provided that it is paid for in acceptable foreign currency which is "inwardly remitted" and the remittable peso collections which are saved from being actually remitted abroad are likewise considered "inwardly remitted". Records show that under the technical service agreement between the purchaser Del Monte Fresh Produce (International), Inc. and its affiliate, Del Monte Fresh Produce (Philippines), Inc., payment of the latter's technical service fees are made by inward dollar remittances by the purchaser to its affiliate providing the services in the Philippines. Accordingly, the service fees derived by Del Monte Fresh Produce (Philippines), Inc. pursuant to the contract entered into with Del Monte Fresh Produce (International), Inc. shall be subject to VAT at zero percent, under Section 102(a)(2) of the Tax Code, as amended. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue