VAT Ruling No. 009-90

January 5, 1990 VAT RULING NO. 009-90 SGV & Co. P.O. Box 589 Manila Central Post Office Ermita, Manila Attention: Mr . F . G . Tagao Tax Division S i r s : This refers to your letter dated December 21, 1988, requesting in behalf of your client, KAWASAKI STEEL CORPORATION (KSC), for a confirmation that the gross receipts derived from its contract executed prior to January 1, 1988 are not subject to the value-added tax. LLjur It is represented that in 1981 the Construction and Development Corporation of the Philippines (now Philippine National Construction Corporation) and KSC entered into a contract with Metropolitan Waterworks and Sewerage System (MWSS) for the construction of water mains and pipe rehabilitation in certain areas in Metro Manila. While the contract has already been completed prior to January 1, 1988 there had been change orders in it; hence, MWSS as part of its billing policy will only allow billings by KSC upon its approval of the changes for payment. This finds support in an attached MWSS certification (dated March 24, 1989) that this is a standard government auditing procedure as required by the Implementing Rules and Regulations of PD 1594 to have change orders approved first by proper authority before processing payment thereof. Due to this government policy, KSC was not able to bill MWSS before January 1, 1988 even if it wanted to. In reply, please be informed that pursuant to Section 6(g) of Revenue Regulations No. 5-87, amounts due on contracts completed on or before December 31, 1987 but payments for which are receivable on or after January 1, 1988 shall be considered as accrued as of December 31, 1987 for the purpose of the payment of the 4% contractor's tax (in lieu of the VAT) subject to the following conditions: (i) an information return shall be filed showing the name(s) of the contractee(s) and the amount(s) of the contract price outstanding as of December 31, 1987, and containing a declaration of the obligation to pay the contractor's tax due; (ii) The contractor billed the unpaid amount not later than December 31, 1987, and copy of such billing is attached to the information return required in (i) hereof; (iii) the contractor has recorded in his books of accounts for the year 1987 the amount receivable; and (iv) the contractor files not later than January 20, 1988, and on or before the 20th day after each calendar quarter, the regular contractor's tax return for the payment of the contractor's tax on payments received in 1988. Based on the foregoing representations, this office is of the opinion that your client's gross receipts derived from its contract executed and completed prior to January 1, 1988 are not subject to VAT but to the contractor's tax since the second requirement provided in the abovementioned subsection is deemed to have been substantially complied with by your client (KSC) by virtue of the billing policy of its contractee (MWSS). This is further subject to the condition that your client has complied with the other three requirements enumerated above. prll Very truly yours, JOSE U. ONG Commissioner of Internal Revenue By: EUFRACIO D. SANTOS Deputy Commissioner