BIR Ruling [UN-327-95]

1995 BIR RULING [UN-327-95] The Revenue District Officer Revenue District No. 28 Gulod, Novaliches Metro Manila Attention: Mrs . E . V . Ulgado Group Supervisor Gentlemen : This refers to your letter dated August 3. 1995, requesting for a clarification as to whether or not Tristate Industrial Co., Inc. (Tristate), a BOI-registered producer-exporter performing services, i.e., converting or processing clothing materials to garments, for another BOI-registered producer/exporter, is exempt from VAT under SEC. 3 of Revenue Regulations No. 2-88. It appears that Tristate, the sub-contractor, is registered with the Board of Investments as a producer-exporter, while the contractor is also a BOI-registered producer exporting its finished products to a foreign buyer; that in this particular transaction, the latter has a contract with a foreign buyer to supply finished garments; and that Tristate entered into a sub-contract agreement with said contractor to convert the latter's clothing materials into finished garments which are eventually exported. In reply, please be informed that under Sec. 3, Revenue Regulations No. 2-88, as amplified under VAT Ruling No. 35-92, sub-contractors and/or contractors performing services such as processing, converting or manufacturing goods for a BOI-registered exporter who exports 70% of its total production shall be exempt from VAT. The exemption applies even if the sub-contractor is registered with the BOI as a producer/exported because vis-a-vis its service contract with the actual exporter it is a mere sub-contractor (VAT Ruling No. 103(u)/245-90/035-92). aisadc Very truly yours, ALICIA P. CLEMENO Assistant Commissioner Legal Service