VAT Ruling No. 013-04

May 14, 2004 VAT RULING NO. 013-04 Sec. 108 (A) (B) E.O. No. 226, as amended by R.A. No. 8756 038-2001 035-2001 Milcon Gulf Unit 2302, 23rd Floor, Antel 2000 Corporate Center 121 Valero Street, Salcedo Village Makati City 1227 Attention: I. L. Mendiola Administrative Officer Gentlemen : This refers to your letter dated November 15, 2002, requesting for confirmation whether the VAT Review Committee Ruling No. 50-2000 dated October 30, 2000 applies to all regional headquarters registered with the Securities and Exchange Commission (SEC) under the provisions of Executive Order No. 226, as amended and which repealed P.D. No. 218, as amended. It is represented that Milcon Gulf (MG) is a foreign multinational company organized and existing under the laws of the United Arab Emirates and was registered with the SEC for the establishment of a regional headquarter or area headquarter in the Philippines under Registration Certificate No. 216 dated March 20, 1979; that MG is also registered with the Board of Investments dated October 18, 2002; that MG is leasing the office space at Noble Haus Realty and Development Corporation (NHRDC); that NHRDC, the lessor, is requiring MG to present a VAT exemption certification; that it is your opinion that MG as a registered regional headquarter is exempt from VAT by virtue of Article 65 of the Omnibus Investment Code of 1987 (E.O. No. 226) as amended by Section 6 of R.A. No. 8756 and Section 14 of the Implementing Rules and Regulations of R.A. No. 8756. In reply, please be informed that Section 108(B) of the National Internal Revenue Code (Tax Code) of 1997 provides, viz : "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . "(A) . . . "(B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: "(1) . . . ; "(2) . . . ; "(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 percent (0%) rate; xxx xxx xxx." On the other hand, Section 65 of E.O. No. 226, as amended by R.A. No. 8756, provides as follows, viz : "Art. 65. Value-Added Tax . The-regional or area headquarters established in the Philippines by multinational companies shall be exempted from value-added tax. In addition, the sale or lease of goods and property and the rendition of services to regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the National Internal Revenue Code, as amended. "Regional operating headquarters shall be subject to the ten percent (10%) value-added tax as provided for under the National Internal Revenue Code, as amended." Under the aforequoted Section 108(B)(3), to be eligible for zero-rating, (1) the exemption of the person or entity with whom a VAT-registered person enters into a transaction must be provided under a special law (or international agreement); and (2) the exemption effectively subjects such transaction to zero rate. In this case, it is clear from Article 65 of the EO No. 226, as amended, that regional headquarters are exempt from VAT and that lease of properties are subject to the zero-percent (0%) VAT rate. Such being the case and since the said EO is a special law, the lease of property to MG by NHRDC shall be effectively subject to the zero-percent (0%) VAT rate. Please be reminded, however, that for NHRDC to avail of the zero-percent rate, it is required to obtain an approved application for effective zero-rating, pursuant to Section 4.107.1(d) of Revenue Regulations 7-95, as amended. ( VAT Review Committee Ruling No. 035-2001 dated June 13, 2001 ) With regard to services rendered to regional operating headquarters by VAT-registered persons, they remain subject to the ten-percent (10%) VAT rate, pursuant to the said Article 65. cDCSTA This ruling is issued based on facts as requested. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group