Sales of Services by Customs Territory Service Contractors to SBMA and SBF Registered Enterprises Zero-rated

November 25, 1994 BIR RULING NO. 162-94 Sec. 102 (a) (3) 000-00 162-94 Subic Bay Metropolitan Authority SBMA Centre Bldg., 229 Waterfront Road Subic Bay Freeport Zone Olongapo City Attention: Atty . Rodolfo O . Reyes Deputy Administrator For Administration Gentlemen : This refers to your letter dated August 20, 1994, requesting for a ruling on whether or not the contracting of services by the Subic Bay Metropolitan Authority (SBMA) or any SBF Registered Enterprise located within the Subic Bay Freeport Zone (SBFZ) from Customs Territory service contractors/enterprises is a zero-rated transaction under the Expanded Value-Added Tax Law. In reply, please be informed that under Section 12(c) of Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, registered enterprises within the Subic Special Economic Zone as defined in Executive Order No. 97-A dated June 19, 1993, shall, in lieu of local and national taxes, be liable to the payment of a total of 5% preferential tax rate based on gross income earned distributed as follows: (1) three percent (3%) to be remitted to the National Government; (2) one percent (1%) to the local government units affected by the declaration of the zone; and (3) one percent (1%) to the Special Development Fund to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic and other municipalities contiguous to the base area. Section 102(b)(3) of the Tax Code, as amended by Republic Act No. 7716 and as implemented by Section 11(c)(3) of Revenue Regulations No. 10-94 as amended by Revenue Regulations No. 14-94 which are, however, pending implementation because of the Temporary Restraining Order (TRO) issued by the Supreme Court, provides that services rendered to persons or entities whose exemption under special laws, e.g., R.A. No. 7227 [duly registered and accredited enterprises with (SBMA)] or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero-rate. Such being the case, since R.A. No. 7227 is a special law which grants exemption from national taxes to SBMA registered enterprises located within the Zone, except the total preferential tax rate of 5% on gross income earned, the sales of services by Customs Territory service contractors to SBMA and SBF registered enterprises shall be effectively zero-rated. The domestic contractors of services shall not impute or shift any VAT as part of cost to be paid by the said enterprises. It shall be understood, however, that VAT registered service contractors from the Customs Territory shall apply with the Revenue District Officer concerned having jurisdiction over their principal place of business for the effective zero-rating of their sales of services to SBMA and to SBF enterprises within the Zone, pursuant to Revenue Regulations No. 5-87, as amended by Revenue Regulations No. 10-94 as amended. Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be concerned exempt. cdtech Very truly yours, RENE G. BAEZ Acting Commissioner