Whether Foreign Exchange Dealers shall be Subject to the Value-Added Tax on the Basis of the Gross Income They Receive from their Sale of Foreign Exchange

April 19, 1995 BIR RULING NO. 076-95 116 000-00 076-95 Association of Authorized Foreign Exchange Buyers of the Central Bank of the Philippines, Inc. Rm. 109 Joncor Building 1362 A. Mabini St., Ermita, Manila Attention: Atty . Felix Labor (MNSA) Gentlemen : This refers to your letter dated October 20, 1994, requesting confirmation of your opinion that foreign exchange dealers shall be subject to the value-added tax on the basis of the gross income they receive from their sale of foreign exchange. You have represented that foreign exchange dealers have limited investments so much so that they have limited foreign exchange operations: that some foreign exchange dealers are usually funded by entities who are foreign exchange users like manufacturers, importers and others who make their foreign exchange orders from the foreign exchange dealers; that under the said arrangements, foreign exchange dealers get a spread or margin of P0.01 to P0.03 per US$1.00; that other foreign exchange dealers buy foreign exchange from other foreign exchange dealers at a much lower rate than the expected selling rate while others provide their own capital and buy foreign exchange from the general public and sell them to the foreign exchange users with a spread or margin of P0.01 to P0.02 per US$1.00. In reply please be informed that your opinion is hereby confirmed. It is noted that the business of a foreign exchange dealer is akin to that of a dealer in securities. Accordingly, since dealers in securities are subject to VAT on the basis of the gross income they receive from their sale or exchange of securities, the implication is that the VAT due from foreign exchange dealers should also be based on their income. It may be stated however, that R.A. No. 7716, otherwise known as the Expanded Value-Added Tax Law (EVAT) which subjects dealers in securities to VAT is still pending implementation by this Office in view of the Temporary Restraining Order (TRC) issued by the Supreme Court. cdll Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue