BIR Ruling No. 145-96

December 27, 1996 BIR RULING NO. 145-96 102 (b) (2) 000-00 145-96 Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue, Makati Metro Manila Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated August 21, 1996 requesting confirmation of your opinion regarding the tax implications of the payment of the contract price by Metropolitan Waterworks and Sewerage System (MWSS) to the consortium of Grandi Lavori Fincosit (GLF), Societa Esecuzione Lavori Indraulici Spa (SELI) and J.V. Angeles Construction Corporation (JVACC) in Philippine and foreign currency under Revenue Regulations No. 5-96. LLphil It is represented that JVACC is a domestic corporations engaged in construction work while GLF and SELI are corporations organized and existing under the laws of Italy, and all are duly licensed to do business in the Philippines; that JVACC, GLF and SELI entered into a consortium agreement for the purpose of participating in the bidding of contract No. UAT-004 and for the construction of the Umiray-Angat Transbasin Tunnel and Ancillary Facilities for the MWSS; that on June 20, 1995, MWSS awarded the Umiray Contract to the Consortium; and that the contract between the Consortium and MWSS provided for the payment of the contract price in peso and foreign currency portion. You now request confirmation that since MWSS, being the payor or the buyer of the services in the Philippines by the Consortium shall now be subject instead to the 10% VAT even if paid for in acceptable foreign currency under the present Expanded VAT Law and not zero-rated. In reply, please be informed that Section 102 (b) (2) of the Tax Code, as amended by R.A. 7716, and implemented by Revenue Regulations No. 5-96 amending Revenue Regulation No. 7-95 provides, among others, that for zero-rating to apply on sale of services in the Philippines which were paid for in acceptable foreign currency, the payor or the buyer of the service should be a non-resident. Considering the foregoing, your opinion that MWSS, being the payor or the buyer of the service, is a resident, such sale of services in the Philippines by the Consortium shall be subject to the 10% VAT even if paid for in acceptable foreign currency under the present Expanded VAT Law and not zero-rated, is hereby confirmed. casia Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue