VAT Ruling No. 001-04

January 16, 2004 VAT RULING NO. 001-04 Sec. 108 (B) VAT Ruling 006-2002 Toimisetti Corporation 231J1 Burgundy Corporate Tower 252 Sen. Gil Puyat Avenue Makati City Attention: Mr. Carlos C. Ubaldo President & General Manager Gentlemen : This refers to your letter dated July 10, 2003 requesting, in effect, for a ruling on whether the services you render are entitled to VAT zero-rating; and whether you can request for a change in status from VAT to Non-VAT taxpayer in respect to your business of trading fuel additives which will not start within 23 years. It is represented that Toimisetti Corporation is a new company registered with SEC under SEC Registration No. CS200304597 dated February 21, 2003; that it is a VAT-registered taxpayer with TIN No. 223-124-679-000; that the company earns its revenue from any, and/or combination of the following activities: 1) Service fees from project coordination and technical consultancy for foreign companies with no office in the Philippines; 2) Sales commissions from indent sales of industrial materials and equipment; 3) Software development for industrial automation; and 4) Trading of fuel additives; and that except for item no. 4 above, all your revenues will be paid in acceptable foreign currency, like Japanese yen and U.S. dollar, and will pass through the banking system. In reply, please be informed that pursuant to Section 4.102-2(b) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96, implementing Section 108(B)(2) of the Tax Code of 1997, which provides as follows: DaCTcA "SEC. 4.102-2. Zero-Rating . (a) In general . A zero-rated sale by a VAT registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. "(b) Transaction subject to zero-rate . The following services performed in the Philippines by VAT-registered persons shall be subject to 0%: "xxx xxx xxx " Services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported, as well as services by a resident to a non-resident foreign client such as project studies, information services, engineering and architectural designs and other similar services the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP . "xxx xxx xxx In view thereof, the sale of your services to foreign clients doing business abroad and without any office in the Philippines, paid for in foreign exchange that are accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP), falls squarely within the purview of the above quoted regulations, and therefore, entitled to the benefit of the zero percent VAT. Accordingly, since Toimisetti Corporation is a VAT-registered entity, its above licensed sale of services is entitled to the benefit of the zero percent (0%) VAT in accordance with the above-quoted law and regulations. Moreover, Toimisetti Corporation is not required to apply for approval for VAT zero-rating as required under Section 4.107-1(d), Revenue Regulations No. 7-95. Finally, trading fuel additives is subject to VAT. However, sale or importation of coal and natural gas, in whatever form or state, and petroleum products (except lubricating oil, processed gas, grease, wax and petrolatum) subject to excise tax imposed under Title VI of the Tax Code of 1997 is exempt from VAT pursuant to Section 109(e) of the same Code. Since trading fuel additives is subject to VAT, there is no need for Toimisetti Corporation to change its status from VAT to Non-VAT taxpayer. 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, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group