Proposal for a Reciprocal Agreement for the Refund by the Swiss Government of Swiss VAT to Taxable Philippine Enterprises in Switzerland; and for the Philippine Government to Refund Philippine VAT to Taxable Swiss Enterprises in the Philippines

June 6, 1997 BIR RULING NO. 069-97 106 (b) (f) 000-00 069-97 Schweizerische Botschaft Ambassade de Suisee Embassy of Switzerland Attention: Mr . Jose Eisele The Charge d'affaires A . I . of Switzerland Gentlemen : This refers to your letter dated August 13, 1996, proposing a reciprocal agreement for the refund by the Swiss Government of Swiss VAT to taxable Philippine enterprises in Switzerland; and for the Philippine Government to refund Philippine VAT to taxable Swiss enterprises in the Philippines. It appears that on January 1, 1995, Switzerland introduced the VAT System; that under Article 81 paragraph (c) of your issuance on the Value-Added Tax (VAT) dated June 22, 1994 enterprises established outside Switzerland are entitled to refund for VAT paid in Switzerland under certain conditions; that such a procedure has also been introduced by the European Union in the Eight and Thirteenth Council Directive on the harmonization of the laws of the member states relating to turnover taxes (procedures to refund VAT to taxable persons not established within the border of a given member state, respectively not established on the territory of the European Union); that the conditions and the procedure for this VAT refund are regulated in the implementing ordinance on the refund of Swiss Value-Added Tax to customers with private or business domicile on foreign territory, which also entered into force on January 1, 1995; and that, according to Article 1 paragraph 2 of this ordinance VAT refund depends, besides other requirements, on the claimants country of residences granting full reciprocity to Swiss taxable enterprises. Based on the foregoing facts, you suggested a reciprocal agreement that VAT paid by the Philippine enterprises in Switzerland shall be refunded by Swiss authorities. In turn, Philippine VAT paid by Swiss enterprises located in the Philippines shall be refunded by the Philippine government. In reply, please be informed that, our existing tax treaties with other countries cover only income tax. We have not yet entered into a reciprocal agreement similar to your proposed scheme to refund the VAT paid by the enterprises operating in our respective countries. Such an arrangement will radically depart from our existing practice of similarly subjecting to business tax, such as VAT, foreign enterprises operating in our jurisdiction under the same terms and conditions. Under the present features of our VAT System, however, VAT payments by enterprises engaged in the manufacture of goods which are eventually exported are allowed to claim as refund or tax credit the VAT elements in the costs of goods or services that go into the production of the products exported. Otherwise, if the manufactured products are domestically sold, the VAT elements on the purchase of goods and services that go into the production of finished products are claimed as input tax credits which means that the manufacturer may reduce his VAT payable to the extent of the amount of his input tax credit. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue