BIR Ruling No. 277-11

August 12, 2011 BIR RULING NO. 277-11 Sec. 108 (B) (2) of the Tax Code of 1997; Revenue Regulations No. 15-2005; BIR Ruling No. 216-88; BIR Ruling No. DA(VAT-020)341-08 P.F. Tatunay & Co. 3B-20 Francesca Tower Condominium Sct. Borromeo cor. EDSA South Triangle, Quezon City Attention: Mr. Prudencio F. Tatunay Managing Partner Gentlemen : This refers to your letter dated November 26, 2010 stating that your client, HRD Employment Consultant and Multi-Services, Inc. (HRD),is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. ASO95-010024 with TIN 200-874-584-000; that it is primarily organized to "engage in the business of employment consultant, contracting, enlisting, recruiting professionals and workers, both skilled and unskilled for local/overseas work and to act as agents of individual or firm in the supply of manpower." and that its compensation for services rendered is paid for in foreign currency. In support of its request, you have submitted the following documents, to wit: 1. Certified true copy of its SEC Registration; 2. Certified true copy of its Articles of Incorporations and By-Laws; 3. BIR Certificate of Registration; 4. Copy of the Crewing (Contract) Agreement with its clients; and 5. Certification of regular remittance from its depository bank. Based on the foregoing representations, you now request for a ruling that services rendered by HRD in recruiting professionals and workers both skilled and unskilled, for overseas work for its foreign principals and paid for in foreign currency shall be subject to VAT at zero percent (0%) pursuant to Section 108 (B) (2) of the Tax Code of 1997, as implemented by Revenue Regulations No. 16-2005. In reply thereto, please be informed that Section 4.108-5 (b) (2) of Revenue Regulations No. 16-2005, as amended, states that "(B) Transactions subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx "(2) Services other than processing, manufacturing or repacking rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; xxx xxx xxx" In stressing the rationale of the above-cited provisions, this Office has elucidated the matter in BIR Ruling No. DA(VAT-020) 341-08 dated October 24, 2008 ,as follows: ". . . in order that the manning and crewing services of Imperial Scanship, Inc. be qualified for VAT zero-rating, they must meet two (2) requisites under RR 16-2005, namely: 1. The services must be rendered to persons engaged in business conducted outside the Philippines or to a non-resident foreign clients not engaged in business who are outside the Philippines when the services are performed; and 2. The fees must be paid to Imperial Scanship, Inc. are in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP. Thus, the manning and crewing services that Imperial Scanship, Inc. renders to its clients may automatically qualify as VAT zero-rated transactions if said services are paid for in foreign currency and accounted for through our local banking system. Failing that the sale of said services will be regarded as subject to 12% VAT pursuant to Section 108 (A) of the Tax Code of 1997, as amended by R.A. 9337. In addition, to qualify Imperial Scanship Inc.'s sale of services to its foreign clients as VAT zero-rated sales, Imperial Scanship, Inc. must be a VAT-registered taxpayer in accordance with Section 4.108-5 (b) of RR 16-2005." The view, expressed above, was a reiteration of BIR Ruling No. 021-88 dated February 2, 1988 ,where it was invariably held as follows: ". . . manning contract with the owners/managers of the vessels wherein you undertake to provide/supply the crew and personnel management requirements of a foreign-owned, but Philippine-flag vessels engaged in worldwide trade, you are deemed to have performed all of such services within the Philippines; hence, you are taxable under Section 102(a) of the Tax Code, as amended by Executive Order No. 273. If you are VAT-registered and the consideration paid to you is in acceptable foreign currency remitted inwardly and accounted for in accordance with the rules and regulations of the Central Bank, you are subject to the value-added tax of 0% pursuant to Section 102(a)(2) of the Tax Code, as amended by Executive Order No. 273. However, if you are not VAT-registered, or if the consideration for your services is not in acceptable foreign currency, you are subject to the value-added tax of 10% of your gross receipts pursuant to Section 102(a) of the same Code." Applying the afore-quoted provisions of law and the jurisprudential authorities cited above to the case under consideration, this Office holds that services rendered by HRD to its foreign principals and paid for in foreign currency will qualify for VAT zero rating pursuant to Section 108 (B) (2) of the Tax Code of 1997, as implemented by Section 4.108-5 (b) (2) of Revenue Regulations No. 16-2005, as amended. Provided, the same is remitted inwardly and accounted for in accordance with the rules and regulations of the BSP. Provided further, that it can be shown that the services are rendered to, and paid for by said foreign principals. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. AaCTID Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue