BIR Ruling [UN-422-95]

December 1, 1995 BIR RULING [UN-422-95] Melquiades P. De Leon and Helen C. De Leon Law Office 18 Drexel Tech, University Hills Caloocan City Attention: Atty . Helen de Leon-Manzano Gentlemen : This refers to your letter dated October 9, 1995 stating that your client, East Asia Power Corporation (EAPC) is registered with the Board of Investments (BOI) as a New Operator of a bunker C-fire diesel power generating plant via two (2) power barges on a preferred pioneer status; that it has been granted a six (6) year tax holiday in accordance with the provision of the Omnibus Investments Code of 1987; that EAPC is a VAT registered taxpayer; that it entered into a Power Purchase Agreement (PPA) with the National Power Corporation (NAPOCOR), and that the payment to be made by the latter shall be in US dollars. cdtech Based on the foregoing representations, you now request confirmation of your opinion that the proceeds of the said PPA in US dollars are subject to 0% VAT and that EAPC need not file an application for zero-rating. In reply, please be informed that Section 102(a)(2) of the Tax Code, as amended, reads: "Sec. 102. Value-added tax on sales of services . "(a) Rate and base of tax . . . . Provided , That the following services performed in the Philippines by VAT-registered persons shall be subject to 0%: xxx xxx xxx "(2) Services other than those mentioned in the preceding subparagraph, 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 Central Bank of the Philippines. xxx xxx xxx" Accordingly, the proceeds of the said PPA in US dollars and to be accounted for in accordance with the rules and regulations of BSP are subject to 0% VAT pursuant to the aforecited provision. Further, under BSP Circular No. 1389 issued on April 13, 1993 pertinent portions of which are quoted hereunder as follows: "Circular No. 1389 "CONSOLIDATED FOREIGN EXCHANGE RULES AND REGULATIONS "Pursuant to Monetary Board Resolution No. 246 dated March 26, 1993 the foreign exchange rules and regulations on current accounts, capital accounts, foreign currency deposit units, offshore banking units and representative offices of foreign banks are hereby consolidated as follows: "PART ONE. CURRENT ACCOUNTS "CHAPTER I "NON-TRADE FOREIGN EXCHANGE RECEIPTS AND DISBURSEMENTS, TRANSFERS OF LOCAL CURRENCIES AND GOLD TRANSACTIONS "Section 1. Disposition of Foreign Exchange Receipts . Foreign exchange receipts, acquisitions or earnings of residents from non-trade sources may, at the option of said residents, be sold for pesos to Authorized Agent Banks (AABs) or outside the banking system, retained, or deposited in foreign currency accounts, whether in the Philippines or abroad. All categories of banks [except Offshore Banking Units (OBUs)], duly licensed by the Central Bank shall be considered as AAB's. xxx xxx xxx "Section 20. Disposition of Export Proceeds . Foreign exchange receipts, acquisitions or earnings of residents from exports may, at the option of said exporter, be sold for pesos to AABs or outside the banking system, retained, or deposited in foreign currency accounts, whether in the Philippines or abroad and may be used freely for any purpose. xxx xxx xxx" the exporters are given the option to sell their foreign currency earnings to the Authorized Agent Banks (AABs) or to deposit the same in foreign currency accounts in banks located within or outside the Philippines. Accordingly, export sales paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP qualify as zero-rated sales even if the proceeds thereof are not converted to Philippine pesos. (BIR Ruling No. 176-94 dated December 13, 1994) In this regard, there is no need to file an application to effect such conditions. (VAT Ruling No. 102(a) (2)-000-00-429-88) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)