VAT Ruling No. 006-06

May 30, 2006 VAT RULING NO. 006-06 Section 108; VAT Ruling No. 010-2001 E-Way Business Inc . Unit 1503 15/f Antel Global Corporate Center #3 Dona Julia Vargas Avenue Ortigas Center Pasig City 1600 Attention: Mary C. Lim Corporate Secretary Gentlemen : This refers to your follow-up letter dated September 13, 2005 requesting for the registration of your business as a VAT-registered entity subject to the Zero Percent (0%) VAT rate, which would classify your business as "Automatically Zero Rated Transaction" pursuant to section 108(B)(2) of the Tax Code of 1997 (formerly Section 102 (B) (2) of the NIRC of 1977) pursuant to Section 4, 102 (b)(2) of Revenue Regulations (RR for brevity) No. 7-95, as amended by RR No. 5-96 and as such, there is no need to file application for zero-rate and that the status as a Zero-rated VAT taxpayer commence from the effectivity of the VAT-registration under Certificate of Registration No. 3RC0000261945 dated September 6, 2004. It is represented that E-WAY BUSINESS INC. (E-WAY for brevity) is a recently established company, engaged in the business of offering Contact Center/Call Center, Business Process Outsourcing & other allied services (including but not limited to data & information processing and providing telephone, facsimile and E-mail-based services). Your target clients are non-resident foreign business entities whom you will bill and be paid for in BSP-acceptable foreign currency (such as USD, AUD, NZD) In reply, please be informed that in VAT RULING No. 010-2001 dated March 08, 2001, this Office stated that: ". . . Section 108(B) (2) of the National Internal Rev enue Co de of 1997 (N IR C), as implemented by Section 4.102-2 (b) of Revenue Regulations N o. 7-9 5, as amended by Revenue Regulations N o. 5-9 6, 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. 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. aIcCTA xxx xxx xxx" In view thereof, this Office hereby confirms your opinion that the aforementioned sale of services by E-WAY is likewise entitled to the benefit of the zero percent (0%) VAT pursuant to the above quoted ruling. Moreover, in VAT Review Committee Ruling No. 025-2001 dated May 17, 2001 this Office clarified that: ". . . pursuant to Section 108(B)(2) of the Ta x Co de of 1997 (formerly, Section 102[b][2] of the NI RC of 19 77) services other than those mentioned in Section 108(B)(1), 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, shall be subject to zero (0%) rate. This provision finds implementation under Section 4.102(b)(2) of Revenue Regulations N o. 7-9 5, as amended by Revenue Regulations N o. 5-9 6 stating that "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" shall be subject to VAT at zero percent. Such being the case, the services rendered by Momentum for its mother company, Momentum Internet Ltd., a non-resident foreign client, the consideration for which is paid for in foreign currency accounted in accordance with the rules and regulations of the BSP, are subject to zero percent (0%) VAT pursuant to Section 108(B)(2) of the Ta x Co de of 1997. (BIR Ruling No. 010-99 dated January 21, 1999) With respect to your second request, please be informed that the services rendered by Momentum is considered automatically zero-rated, it being not one of the effectively zero-rated transactions enumerated under Section 4.102(c) of Revenue Regulations N o. 7-9 5, and therefore, there is no need to file an application for zero-rate (VAT Ruling No. 100(a)(1)-000-00-016-90). In other words, the said activity is subject to VAT at zero-rate even without an application for zero rating. Thus, the status of Momentum as a zero-rated VAT taxpayer commenced from the effectivity of its VAT-registration." Applying the foregoing precepts laid down by the said ruling, this Office hereby confirms your opinion that E-WAY's sale of services is considered automatically zero-rated, it being not one of the effectively zero-rated transactions enumerated under Section 4 102(c) of Revenue Regulations No. 7-95, and therefore, there is no need to file an application for zero-rate and the status of E-WAY as a zero-rated VAT taxpayer commenced from the effectivity of its VAT registration. 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.) JOSE MARIO C. BUAG Commissioner of Internal Revenue