VAT Ruling No. 012-97

February 10, 1997 VAT RULING NO. 012-97 Sec. 100; 33-96; 012-97 Takezawa Technology Transfer & Industrial Consultancy, Inc. 4658 Cuangco St. cor. S.S. Highway Pio del Pilar, Makati City Attention: Ms . Esther P . Europa Vice President M a d a m : This refers to your letter dated November 27, 1996 requesting for clarification on whether or not the sales of services to foreign companies duly registered with the Philippine Economic Zone Authority ("PEZA") can be considered as effectively zero-rated transactions. It is represented that Takezawa Technology Transfer & Industrial Consultancy, Inc. ("TTT-I/CI"), a VAT-registered taxpayer with Taxpayer Identification Number 048-004-661-664, is a management consultancy company engaged in the selling of services to foreign companies, particularly Japanese manufacturing firms registered with the Philippine Economic Zone Authority (PEZA). You now seek confirmation of your opinion that your sale of services to PEZA-registered enterprises are considered as effectively VAT zero-rated transactions based on Section 4.100-3 of Revenue Regulations 7-95. In reply, please be informed that under Section 24 of Republic Act No. 7916, otherwise known as the Special Economic Zone Act of 1993, businesses and enterprises within the ECOZONE as defined by Section 5 thereof shall, in lieu of paying local and national taxes, be liable to the payment of five percent (5%) preferential tax rate based on gross income earned distributed as follows: (1) three percent (3%) to the national government; (2) one percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE. Section 102 (a) of the Tax Code as amended by Republic Act No. 7716 and as implemented by Revenue Regulations No. 7-95 provides that sales of good and services to persons or entities whose exemption under special laws, (e.g. duly register and accredited enterprises of the PEZA under R.A. 7916) or international agreements to which the Philippines is a signatory effectively subjects the supply of such goods or services to zero rate. Such being the case, since R.A. 7916 is a special law which grants exemptions from national taxes to PEZA-registered business establishments operating within the ECOZONE, except payment of the preferential tax rate of 5% on gross income earned, the sales goods and services by Customs Territory contractors such as TTT-I/CI shall be effectively zero-rated (VAT Ruling 33-96). cdpr It shall be understood that the VAT-registered service contractors shall apply with the Revenue District Officer concerned having jurisdiction over their principal place of business for the effective zero-rating of their sales of services to PEZA-registered enterprises within the ECOZONE 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. 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. cdt Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant Chairman, VAT Review Committee