VAT Ruling No. 006-99

January 19, 1999 VAT RULING NO. 006-99 108 (B) (5)-000-00-006-99 GIRC Philippines, Inc. 12th Floor, JMT Corporate Condominium ADB Avenue, Ortigas Center Pasig City Attention: Ms . Ma . Josefina M . Reyes Treasurer Gentlemen : This refers to your letter dated October 30, 1998 requesting for a ruling to the effect that the sale of services by GIRC Philippines , Inc . (GIRC) to Software Ventures International (SVI) is subject to zero percent (0%) VAT. It is represented that GIRC is a wholly owned subsidiary of SVI; that GIRC converts/produces programs and software for SVI; that the tools/programs form part of the Year 2000 conversion solution which SVI markets to its foreign clients in the U.S. and Japan; that GIRC is a subcontractor of SVI; that SVI is registered with the Board of Investments under Certificate of Registration No. EP 95-105 dated June 27, 1995 as an expanding export producer of computer software on a non-pioneer status exporting more than 70% of its product output; GIRC tools are primary components to the products SVI is offering to its clients; that the tools are usually stored in computer diskettes or magnetic tapes and are passed on to SVI for the completion of the manufacturing process of the same; and that GIRC produces one portion of the software which is put together and completed by SVI. In reply thereto, please be informed that Section 108(B)(5) of the Tax Code of 1997 provides that services performed by VAT-registered subcontractors and/or contractors in processing, converting or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production shall be subject to zero percent (0%) VAT. Such being the case, and since GIRC is a subcontractor of SVI and that per certification dated November 10, 1998 of the Board of Investments (BOI), SVI is a BOI-registered expanding export producer of computer software on a non-pioneer status exporting more than 70% of its production output, the sale of services by GIRC to SVI is subject to a zero-percent (0%) VAT pursuant to Section 108(B)(5) of the Tax Code of 1997. It shall be understood that you shall apply with the Revenue District Officer concerned having jurisdiction over your principal place of business for the effective zero-rating of your sales to SVI pursuant to Revenue Regulations No. 7-95. Without an approved application for zero-rating, the transactions otherwise entitled to zero rating shall be considered exempt. llcd Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue