Ambergris Solutions Philippines, Inc. (ASPI)

March 4, 2002 VAT RULING NO. 006-02 VAT Ruling 010-01 Ponce Enrile Reyes & Manalastas Law Offices 3rd Floor, Vernida IV Bldg.,128 Leviste St. Salcedo Village 1227 Makati City Attention: Attys. Regulus E. Cabote and Emelyn Corpus-Martinez SUBJECT : Ambergris Solutions Philippines, Inc. (ASPI) Gentlemen : This refers to your letter, dated October 04, 2001, concerning your request for a confirmation of the following: 1. That, ASPI's business activities (described below) is entitled to the benefit of the zero percent (0%) VAT; and 2. That, in the affirmative, the 0% VAT shall be effective from date of ASPI's VAT registration. It is represented that, ASPI is a domestic corporation duly registered with the Securities and Exchange Commission on May 25, 2001; that, ASPI's primary purpose is to engage in the business of outsourcing customer relationship management solutions for United States based entities and such other entities from different countries, including but not limited to, technical help desk support, reservations, account management, pre-sales consulting, web assistance, customer marketing and acquisition, product sales and such other similar services through a remote customer contact center to be established in the Philippines utilizing telephone, facsimile, e-mail, the internet/Web and such other telecommunications infrastructure; that, ASPI will provide technical support or solutions to its clients as well as the latter's customers. To illustrate, a US-based company supplies its customers with a phone number or an e-mail address to contact in case assistance is needed. When these customers dial the number or send the e-mail to the address furnished to them by said US company, the customers assume that they shall reach the US company concerned. Instead, the call or e-mail is routed to ASPI in the Philippines . ASPI's personnel provides the assistance required by said customer and thereafter, ASPI bills the US company for its services; that, all of ASPI's clientele shall be US or foreign based and payment for its services shall be made in US dollars or other acceptable foreign currency and remitted inward through the banking system and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). In reply, please be informed as follows: 1. ASPI's above described sale of services is entitled to the benefit of the zero percent (0%) VAT. The facts represented in your said letter-inquiry are totally synonymous with the facts availing in VAT RULING No. 010-01, dated March 08, 2001, issued by the Commissioner of Internal Revenue, the pertinent portion of which reads: "...that, to illustrate, customers from the Asia Pacific region purchase computer units/systems and/or computer programs from various clients of Sykes Asia, Inc.;that each computer unit or software is covered by a manual of operation. Buyers encountering problems in their units/software or who simply wish to clarify certain items in the manual, can dial the indicated telephone number or send an e-mail to ask their questions. The buyer or caller would assume that the number or e-mail address indicated is that of the supplier of the computer unit or of the software. In actuality, however, that particular call or e-mail is routed to the Sykes call center and is received by one of the technical people (mostly multilingual computer engineers) of Sykes Asia, Inc. in the Philippines. The technical person then provides the technical information needed by the caller. For such services rendered for the supplier, Sykes Asia, Inc. Philippines sends its billing for services rendered to the foreign suppliers of the hardware and/or software and is paid for in foreign currency ..." The Commissioner held in VAT RULING No. 010-01 that the above described sales of services made by Sykes Asia, Inc. are entitled to the benefit of the zero percent (0%) VAT, as follows: ". . . Section 108(B) (2) of the National Internal Revenue Code of 1997 (NIRC), as implemented by Section 4.102-2 (b) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96, provide: '(2) Services other than those mentioned in the preceding paragraph, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);' ' 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 .' IScaAE "Your client's sale of the above described information services to its foreign clients, paid for in foreign exchange that are accounted for according to the rules and regulations of the Bangko Sentral ng Pilipinas (BSP),fall squarely within the purview of the above quoted law and regulations. Accordingly, your opinion that the same is entitled to the benefit of the zero percent VAT is hereby confirmed ." In view thereof, this Office hereby confirms your opinion that the aforementioned sale of services by your client, ASPI, are likewise entitled to the benefit of the zero percent (0%) VAT, pursuant to the above quoted law and its implementing regulations. 2. ASPI's sale of service is entitled to the benefit of the zero percent (0%) VAT without need of a prior application for VAT zero rating. Section 108 (B), NIRC of 1997 (formerly Section 102 (b), old NIRC), is implemented by Section 4.102-2, Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96, as follows: "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%: "(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 BSP; "(2) 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 ;(as amended by Rev. Reps. No. 5-96) "(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero-rate; (4) Services rendered to vessels engaged exclusively in international shipping; (5) Services performed by subcontractors and/or contractors duly accredited by either the Board of Investments or the Export Development Council in processing, converting or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of the total annual production. "(c) Effectively zero-rated sale of services . Effectively zero-rated sales of services shall refer to the sale by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws, or international agreements. Under these Regulations, effectively zero-rated transactions shall be limited to the local sale of services to persons or entities who enjoy exemptions from indirect taxes under subpar, (b) Nos. (3) (4) and (5) of this section. " Since ASPI's sale of services is governed by Section 108 (B) (2),NIRC of 1997, as implemented by Section 4.102-2 (b) (2), Revenue Regulations No. 7-95, the same is entitled to the benefit of the zero percent (0%) VAT without need of any prior application to the BIR for VAT zero rating, otherwise required under Section 4.107-1 (d), Revenue Regulations No. 7-95. Such prior application is required only for effectively zero rated sale of service as enumerated under Section 108 (B) (3), NIRC of 1997, as implemented by Section 4.102-2 (b) (3),(4) and (5) .Accordingly, ASPI's above sales of services, since its registration under the VAT law, are entitled to the benefit of the zero percent (0%) VAT in accordance with the above quoted law and regulations. 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 null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group