BIR Ruling No. 413-12

June 15, 2012 BIR RULING NO. 413-12 Sec. 108 (B) (2) SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty. Fidela I. Reyes Gentlemen : This refers to your letter dated January 18, 2011 stating that Elite Group Management Services, Inc. (Elite) is a corporation organized and existing under the laws of the Philippines with principal office address at 2F Aurora Building IV, 30 Aguirre Avenue corner Lirag Street, BF Homes, Paraaque City; that it is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS200341194; that it is registered as a value-added tax (VAT) taxpayer and is engaged primarily in managerial, administrative, and financial services and consultancy to offshore business, including the management thereof, directly or supervisory manner, to import and export documents needed for the business operations, to assist in the operations of the enterprises, to conduct feasibility and other studies, and in general, to carry the above-said enterprises through all states of development; that on the other hand, International Mailings Ltd.-Gibraltar (IML) is a non-resident foreign corporation and not licensed to do business in the Philippines as evidenced by a negative certification issued by the SEC; that on July 9, 2004, Elite entered into a Contract with IML to perform the following services: 1) Complete all accounting work involved in the business including reconciliations of all accounts, Bank reconciliations, using requested layout for producing regular monthly financial statements, maintaining MYOB general ledger with IML's own chart of accounts and posting all payments, receipts and adjusting journal entries to the General Ledger; 2) Producing and maintaining budgets for IML; 3) Paying creditors on IML's behalf in a timely manner from funds that the company has sent for that purpose; 4) At each month end, obtain and make sure all prepayments and accruals are properly recorded including material stocks on hand, list and postage mailing costs, amounts owed to suppliers and any other items that will properly result in accurate monthly financial figures; 5) Properly account and reconcile bank accounts against computer response processing records obtained from Data Tech Processing Services, Inc. to make sure that all monies are properly received and banked; and ITADaE 6) Supply consulting services when required. that in consideration for the above services, IML will pay Elite a monthly fee of US$4,500.00; that this fee was subject to increase every three (3) months upon review of the volume of services rendered; that currently, Elite receives a monthly service fee of US$19,000.00; and that IML's payments to Elite are inwardly remitted directly to Elite's bank account in the Philippines. In support of your request, you have submitted the following documents, to wit: 1. Copy of Elite's Amended Articles of Incorporation and SEC Registration; 2. Copy of Elite's BIR Certificate of Registration; 3. Service Agreement between Elite and IML dated January 5, 2004 and the Fee Adjustment Letter dated July 1, 2010; 4. Copy of SEC Certificate of Non-Registration of Corporation of IML; and 5. Copies of Inward Remittance to Elite from IML. Based on the foregoing representations, you now request for confirmation of your opinion that payments received by Elite from IML for administrative and accounting services are subject to VAT at zero percent (0%) rate pursuant to Section 108 (B) (2) of the Tax Code of 1997. In reply thereto, please be informed that 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, 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: "(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); EIcSTD (2) Services other than those mentioned in the preceding paragraph 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" Applying the afore-quoted provisions of law cited above to the case under consideration, this Office holds that services rendered by Elite to IML and paid for in acceptable 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, that the same is remitted inwardly and accounted for in accordance with the rules and regulations of the BSP. 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. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue