VAT Ruling No. 013-03

January 20, 2003 VAT RULING NO. 013-03 108 (B) (2) 010-01 006-02 Lina Lavares Didulo Yam & Leviste-Avellana Law Offices Unit 2202 Asia Tower Building Paseo de Roxas cor. Benavidez St. Legaspi Village Makati City Attention: Atty. Jose Leonilo V. Didulo Gentlemen : This refers to your letter dated December 7, 2002, concerning your request for confirmation of the following: 1. That, Net Trans Asia Pacific, Inc.'s (NTAP) business activities is entitled to the benefit of the zero percent (0%) VAT; and 2. That the 0% VAT shall be effective from date of NTAP's VAT registration without a need of a prior application for VAT zero-rating. It is represented that NTAP is a domestic corporation duly registered with the Securities and Exchange Commission; that, Net Trans Group herein represented by Net Trans Services AS (NTS), a non-resident foreign corporation organized under the laws of Norway, represents an international group of companies providing global end-to-end data processing and financial services to the travel industry particularly commission handling for travel agencies, hotels and transportation companies; and that the main service provided by NTS is to handle reconciliation, collection and distribution of commission on behalf of travel agencies in various areas of the world. For example, travel agencies in countries like Norway, London, Spain, Japan, Australia, or United States will book plane tickets and hotel reservations for its worldwide clients; rather than the individual travel agency or hotel collecting from its accounts, NTS provides the facilities for the collection of agent fees on behalf of the hotels and travel agencies. NTS likewise provides collection support services on outstanding claims including assessment of whether claims have been paid and matching payments received to claims sent NTS then distributes the collected fees to its corresponding clients hotels and travel agencies. NTS entered into a service agreement with NTAP whereby the latter will provide NTS collection support which includes assistance in database preparation and update of records to facilitate collection of outstanding claims in the travel industry against different vendors (hotels, hostels, resorts, etc.) including assessment of whether claims have been paid and matching payments received to claims are sent. NTAP handles most of the encoding jobs required to update the travel agents' and hotel's commissionable bookings. NTAP also provides assistance in customer relations including the necessary communication with the customers in following up claims, improvement in services and other personal follow ups. All payments made by its worldwide accounts (hotels and travel agencies) will be remitted directly to NTS in Norway. As consideration for NTAP's services to be performed in the Philippines, NTAP will be paid in US dollars by NTS and which amount will be remitted from Norway into the Philippine banking system and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). In reply, please be informed as follows: 1. NTAP's above described sale of services is entitled to the benefit of the zero percent (0%) VAT. The facts represented in your letter-inquiry are analogous with the facts availing in VAT Ruling No. 006-02 dated March 4, 2002 citing VAT Ruling No. 010-01 dated March 8, 2001, the pertinent portion of which reads: ". . . 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. . . " The Commissioner held in VAT Ruling No. 010-01 that the above described sales of services made by Sykes Asia, Inc. are entitled to the benefit of the zero percent (0%) VAT, as follows: ". . . 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);' '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.' "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." In view thereof, this Office hereby confirms your opinion that the aforementioned sale of services by your client, NTAP, are likewise entitled to the benefit of the zero percent (0%) VAT, pursuant to the above quoted law and its implementing regulations. 2. NTAP's sale of service is entitled to the benefit of the zero percent (0%) VAT without need of a prior application for VAT zero rating. Section 108(B) of the Tax Code of 1997 (Section 102(b) of the Tax Code, as amended), is implemented by Section 4.102-2, Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96, as follows: "SEC. 4.102-2. Zero-Rating. (a) In general. A zero-rated sale by a VAT registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. "(b) Transaction subject to zero-rate. The following services performed in the Philippines by VAT-registered persons shall be subject to 0%: "(1) Processing, manufacturing or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP; "(2) 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; (as amended by Rev. Regs. No. 5-96) "(3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero-rate; "(4) Services rendered to vessels engaged exclusively in international shipping; "(5) Services performed by subcontractors and/or contractors duly accredited by either the Board of Investments or the Export Development Council in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of the total annual production. "(c) Effectively zero-rated sale of services. Effectively zero-rated sales of services shall refer to the sale by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws, or international agreements. Under these Regulations, effectively zero-rated transactions shall be limited to the local sale of services to persons or entities who enjoy exemptions from indirect taxes under subpar, (b) Nos. (3) (4) and (5) of this section." Since NTAP's sale of services is governed by Section 108(B)(2) of the Tax Code of 1997, as implemented by Section 4.102-2(b)(2), Revenue Regulations No. 7-95, the same is entitled to the benefit of the zero percent (0%) VAT without need of any prior application to the BIR for VAT zero rating, otherwise required under Section 4.107-1 (d), Revenue Regulations No. 7-95. Such prior application is required only for effectively zero rated sale of service as enumerated under Section 108(B)(3) of the Tax Code of 1997, as implemented by Section 4.102-2(b)(3)(4) and (5). Accordingly, NTAP's above sales of services, since its registration under the VAT law, are entitled to the benefit of the zero percent (0%) VAT in accordance with the above quoted law and regulations. 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. THAICD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group