VAT Exemption on the Sale of Services to the U.S. Military Base

August 31, 1988 BIR RULING NO. 426-88 102 (a) (2) 103 (u) 210-88 426-88 Gentlemen : This refers to your letter dated May 12, 1988 stating that you have an engineering consultancy contract with the Officer-in-Charge of Construction (OICC) Subic Naval Base, Olongapo City and Clark Air Base, Pampanga, for various engineering services; that the contract is to be performed within the U.S. Military Base; and is to be paid in dollars. Based on the foregoing facts, you now request for a ruling whether you are liable to pay the value-added tax of 10%. In reply, please be informed that pursuant to the RP-US Military Bases Agreement, your sale of services to the U.S. Military Base is exempt from VAT provided that you do not register as a VAT taxpayer, in accordance with Section 103(u) of the Tax Code, as amended by Executive Order No. 273. However, if you register as a VAT taxpayer, your sale to the U.S. Bases shall be zero-rated provided you apply for zero-rating, pursuant to Section 102(a)(3) of the same Code. Upon approval of your application for zero-rating, your billings to the U.S. Military Base shall not include the VAT as contemplated in Section 8(c)(2) of Revenue Regulations No. 5-87. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner