BIR Ruling [UN-002-95]

January 26, 1995 BIR RULING [UN-002-95] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . Jose A . Osana Tax Division Gentlemen : This refers to your letter dated November 9, 1994 requesting confirmation of your opinion that the construction services rendered by your client, Ormat Inc.-Manila Branch ("Ormat"), is zero-rated pursuant to Section 102 (a) (2) of the National Internal Revenue Code. It is represented that Ormat is the Philippine branch of Ormat Inc., a corporation organized and existing under the laws of Delaware, U.S.A.; that Ormat entered into a Construction Contract with CE Cebu Geothermal Power Corporation (CE), a Philippine corporation, whereby Ormat shall provide construction services for the construction of a 118.5-MW geothermal power plant in Upper Mahiao, Leyte; that pursuant to the Construction Contract, payments to Ormat are made in U.S. dollars which are inwardly remitted through the banking system in accordance with the Bangko Sentral ng Pilipinas (BSP) rules and regulations; that the inwardly remitted dollars are kept or maintained by Ormat in its foreign currency deposit unit (FCDU) account subject to the BSP rules and regulations; and that if the need for pesos arise, Ormat subsequently sells its dollars to the banking system for pesos. In reply, please be informed that pursuant to Section 102 (a) (2) of the Tax Code, as amended, the pertinent portion of which reads: "(b) Transaction subject to zero-rate . The following services performed in the Philippines by VAT- registered persons shall be subject to 0%: (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); (2) Services other than those mentioned in the preceding subparagraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines ; . . .," the construction services rendered by Ormat which are paid for in dollars inwardly remitted through the banking system and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas is subject to the value-added tax at 0%. This finds support in BIR Ruling No. 016-88 dated February 1, 1988 wherein we held that services rendered in the Philippines which are paid for in foreign currency remitted inwardly and maintained in an FCDU account are zero-rated. cdtech Very truly yours, ALICIA P. CLEMENO Assistant Commissioner Legal Service