VAT Ruling No. 010-01

March 8, 2001 VAT RULING NO. 010-01 Sec. 108 (B) (2) 000-00 Joaquin Cunanan & Co . 14th Floor Multinational Bancorporation Centre 6805 Ayala Avenue 1226 Makati City Attention: Myrna M . Fernando Partner, Tax Services Gentlemen : This refers to your letter of 07 July 2000 concerning your request for a confirmation of your opinion that your client, SYKES ASIA, INC . (Formerly MCQUEEN ASIA, INC . ) sale of services is entitled to the benefit of the zero percent value-added tax (VAT). It is represented that, your client is duly registered with the Securities and Exchange Commission (SEC) under Certificate No. A1997-09122; that as stated in its Articles of Incorporation, its primary purpose, among other things, is to engage in and carry on the trade or business of operating a multi-client, multi-lingual and multi-call centre, offering telephone, facsimile E-mail-and internet-based technical consultancy, telemarketing and pre-sales services; that consistent with its primary purpose, the services it provides are telephone and e-mail-based consultancy pertaining to computer technology (both hardware and software) to clients/customers in the Asia Pacific region and that such services are paid for in US dollars and remitted through the domestic banking system. Further, it was registered with the Board of Investments (BOI) on October 27, 1997 as a service exporter in the field of multi-client business communication center with pioneer status; and that it was registered with the Bureau of Internal Revenue (BIR) as a VAT taxpayer on May 29, 1997; 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. In reply, please be informed that 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) ; " 1 "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 . " 2 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. ETISAc 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.) RENE G. BAEZ Commissioner of Internal Revenue Footnotes 1. Sec. 108(B)(2), NIRC, as renumbered by R.A. 8424 2. Sec. 4.102-2, Rev. Regs. No. 7-95, as amended by Rev. Reg. No. 5-96.