BIR Ruling [UN-239-95]

June 30, 1995 BIR RULING [UN-239-95] Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated June 21, 1995 representing that your client, Mindanao I Geothermal Partnership (Partnership) is a partnership organized and existing under the laws of the Philippines, and has entered into a Design and Erection Contract (Contract) with Mitsubishi Corporation (Mitsubishi), a corporation organized and existing under the laws of Japan; that under the contract, Mitsubishi shall perform all work and services in connection with the design and engineering, procurement, construction, start up, demonstration of performance, and plant personal training for the operation and maintenance of a geothermal facility to be located on the Mt. Apo Geothermal Reservation in Mindanao; that Mitsubishi will provide guarantees in respect of the performance and timely completion of the facility and will pay liquidated damages to the Partnership in the event that it fails to meet such guarantees; that as full consideration to Mitsubishi for the full and complete performance of its obligations (including the supply of certain equipment and related services from foreign sources) under the contract, Mitsubishi shall be paid the total contract price of US$41,300,000 which shall be inwardly remitted through the banking system in accordance with Bangko Sentral ng Pilipinas rules and regulations and deposited with a foreign currency deposit unit account of the Partnership in a bank in the Philippines; that the payment to Mitsubishi will come from the general operating account of the partnership in Citibank-New York; and that Mitsubishi shall withdraw or cause the withdrawal from the depository bank by remitting abroad all or a portion of the dollars deposited. You now request for a ruling as to whether or not gross receipts of Mitsubishi Corporation under its contract with Mindanao I Geothermal Partnership is VAT-zero rated pursuant to Section 102 of the Tax Code, as amended. In reply, please be informed that based on the foregoing facts, Mitsubishi Corporation is engaged in the sale of services. Section 102 of the Tax Code, as amended, provides that services, the consideration for which is paid for in acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, shall be subject to VAT of zero percent (0%). (VAT Ruling No. 042-94 dated February 8, 1994). 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, and/or any of the requirements imposed in this letter are not complied with, then this ruling shall be considered null and void. liblex Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)