Whether an Agreement for Consultancy is Subject to the Withholding of Creditable Value Added Tax

August 29, 1994 BIR RULING NO. 129-94 102 (a) 000-00 129-94 PNOC Petrochemical Development Corporation Petron Building 7901 Makati Avenue Makati, Metro Manila Attention: Mr . Victorio Mario A . Dimagiba Manager, Legal Contracts & Administration Gentlemen : This refers to your letter dated August 3, 1993 stating that under an Agreement for Consultancy entered into on July 26, 1993 by and between the Philippine National Oil Company jointly with its wholly-owned subsidiary, the PNOC Petrochemical Development Corporation and the Chem Systems, Inc., a New York Corporation, the latter will conduct for the former a feasibility study for a polypropylene plant in the Philippines; that the contract price for the feasibility study is US $270,000.00; that the project is to be completed in four months; that all Chem Systems team members will spend all their time outside the Philippines, except for Messrs. Stephen N. Rothman, Robert J. Bauman and Don F. Bari, who will be in the Philippines for 6 days, 9 days and 5 days, respectively; that a portion of the study on market data gathering and research will be undertaken by Chem Systems, Inc. jointly with Andersen Consulting, a Philippine consultancy firm, in Manila for approximately two to three weeks; that all other services will be performed outside the Philippines; and that under your contract, the initial payment of US $65,000.00 is due thirty (30) days from July 26, 1993. Based on the foregoing representations, you request a ruling as to whether the above-described transaction is subject to the withholding of creditable value added tax. In reply, please be informed that the remunerations received by a non-resident foreign corporation from a domestic corporation for undertaking a technical feasibility study for the installation of a polypropylene plant in the Philippines is subject to 10% value-added tax pursuant to Section 102(a) of the Tax Code, as amended. Accordingly, since you are a government-owned and controlled corporation, your payment to Chem Systems, Inc., shall be subject to 6% withholding (VAT) tax, based on gross payments, exclusive of value-added tax, pursuant to Revenue Regulations No. 10-93 implementing Republic Act No. 7649. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue