VAT Ruling No. 010-99

January 21, 1999 VAT RULING NO. 010-99 108 (B)-044-98-010-99 Macro Asia-Eurest Catering Services, Inc. Unit 2404-D, 24th Floor, West Tower Philippine Stock Exchange Building Exchange Road, Ortigas Center Pasig City Attention: Mr . Reynaldo O . Munsayac Treasurer Gentlemen : Thus refers to your letter dated March 24, 1998 stating that your company, Macro Asia-Eurest Catering Services, Inc. is currently constructing its NAIA inflight kitchen facility which is estimated to be completed and ready to operate by May 31, 1998; that your company will engage in the business of the Airline Catering and Inflight Services at the Ninoy Aquino International Airport and expects the production/delivery of the first batch of airline meals in June/July 1998; that your company's sales are expected to be 100% export sales and will be paid in US Dollar currency or its equivalent; and that all sales proceeds shall be deposited with or remitted through the banking system in the Philippines; that you are registered with the Board of Investments (BOI) per CR#SE-97-262 as a New Service Exporter in the field of Airline Catering and Inflight Services. Based on the foregoing representations and documents submitted, you are now requesting for a ruling that the export sales of Macro Asia-Eurest Catering Services, Inc. be considered and approved as zero-rated for VAT purposes. In reply, please be informed that our VAT law, which was first adopted and promulgated under E.O. 273, effective January 1, 1988 is basically a Consumption Type VAT System and, therefore, follows the destination principle or Cross Border Doctrine. Under the VAT System, VAT exemption and VAT zero-rating are distinguished, as follows: "...zero rating should be used when the authorities really wish to ensure that a product is to be free of VAT. Using an exemption for VAT means that the tax is borne by the trader, and if that trader sells to the public, he must pass on the tax on input to the public in his price or cut payments to his factors of production (capital and labor).This suggests that countries that generally wish to pass on to the consumer the benefits of VAT-free goods and services should be allowed to use the zero rate." (Value Added Tax International Practice and Problems, Allan A. Tait, International Monetary Fund, Washington D.C.,1988, p. 51) "When considering a VAT, important decisions to be made by a country concerns what regime to adopt for international trade: the origin principle (exports taxable, imports exempt),or the destination principle (export exempt, imports taxable)." (Value Added Tax by Antonio Carlos Rodriguez, Harvard Law School, 1995, citing Shoup (1986) on destination principle, viz: "the country taxes all value added, at home and abroad, or goods that have as their destination the consumers of that country. Exports are exempt, imports are taxable. This is comparable with the consumption type VAT.") Accordingly, the onus of taxation under our VAT System is in that country where goods, property or services are destined, used or consumed. This is the reason why under our VAT law, goods, property or services destined to, used or consumed in the Philippines are subject to the 10% VAT whereas those destined, used or consumed abroad are subject to zero percent (0%) VAT. In view thereof, this Office is of the opinion, as it hereby holds, that the services, rendered by Macro Asia-Eurest Catering Services, Inc. in supplying catering and inflight services to international air carriers at the Ninoy Aquino International Airport (NAIA),are subject to zero percent (0%) VAT pursuant to the "Cross Border Doctrine" which is the underlying principle of our VAT System, considering that the said services are destined to, used or consumed outside the Philippine Territory. (See BIR RULING NO. 044-98, dated November 26, 1998, in the case of PHIL. AIRPORT AND GROUND SERVICES, INC.) LexLib This ruling is being issued on the basis of the 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group