VAT Ruling No. 014-89

February 3, 1989 VAT RULING NO. 014-89 Lyn Jal Corporation P.O. Box 309, Camp Gen. E. Aguinaldo Quezon City Attention: Mr Bai Z . F . Garcia President & Gen . Manager S i r : This refers to your letter dated October 17, 1988 stating that the United States Government through its Contracting Officer at the U.S. Naval Supply Depot, Subic Naval Base, Olongapo City, is furnishing assistance or aid to the Armed Forces of the Philippines by supplying its personnel with military uniforms and other clothing outfits; that instead of procuring these articles abroad, the United States Government contracts the same with a local contractor at a definite price; and that in its billing the local contractor adds the 10% value-added tax. LLjur As the United States Government had objected to the billing of the tax, you now request for a ruling on the propriety of including the VAT on your billings. In reply, please be informed that Article XVIII of the R.P.-U.S. Military Bases Agreements, (as supported by the Exchange of Notes Constituting an agreement between the Republic of the Philippines and the United States implementing the agreements of March 14, 1947 concerning military bases) states that: "1. It is mutually agreed that the United States shall have the right to establish on bases, free of all licenses, fees, sales, excise or other taxes, or imposts; Government agencies, including concessions, such as sales commissaries and posts exchanges, messes and social clubs, for the exclusive use of the United States military forces and authorized civilian personnel and their families. The merchandise or services sold or dispensed by such agencies shall be free of all taxes, duties and inspection by the Philippine authorities. Administrative measures shall be taken by the appropriate authorities of the United States to prevent the resale of goods which are sold under the provisions of this Article. . . ." Therefore, your sale of goods, services, or both, to the United States Subic Naval Base authorities, shall be effectively zero-rated pursuant to Section 100(a)(2) (for sale of goods) and/or Section 102(a)(3) (for sale of services) of the Tax Code, as amended by Executive Order No. 273. In other words, you need not include the VAT in your billings, provided, however, that you are VAT-registered and that you have applied for zero-rating in accordance with Section 8(d) of Revenue Regulations No. 5-87. Consequently, you can claim for tax credit or refund of the VAT on your purchases of materials used in your contract with the aforesaid Base authorities pursuant to Section 106(b) of the same Code. If on the other hand, you have not yet previously applied for zero-rating under Revenue Regulations No. 5-87, your sale of goods or services to said Military Base authorities is merely exempt pursuant to Section 103(u) of the same Code. In this case, your billings shall exclude the VAT, but you cannot claim for tax credit or refund of the VAT element on your purchases of materials used in your contract with said Base authorities. cdta Please be guided accordingly. Very truly yours, VICTOR A. DEOFERIO JR. Deputy Commissioner