VAT Ruling No. 016-99

1999 VAT RULING NO. 016-99 Secs. 106 (A) (2) (c) & 108 (B) (3) 055-98-016-99 Casme Technology and Consultants, Inc . 1409 Newton Street Barangay San Isidro Makati City Attention: Mr . Herminigildo R . Flancia President Gentlemen : This refers to your letter dated 26 January 1999 requesting clarification on whether or not you can pass on the 10% VAT for the sales of goods and services to an entity having a PEZA-registered enterprise as a subsidiary. It is represented that your firm, Casme Technology Consultants, Inc. (CTCI) was contracted by Asian Technicon Manager and Consultants, Inc., Project Manager of Pycon Philippines, Inc. (PPI) for the architectural, structural, electrical, plumbing, and fire protection works in relation to the construction of PPI's Burn-In Facility in the Laguna International Industrial Park (LIIP) Special Economic Zone (SEZ); that it is the contention of PPI that the works were performed for Pycon Technology Philippines, Inc. (PTPI), a subsidiary of PPI which is a PEZA-registered enterprise; that however, PPI is not a PEZA-registered enterprise nor an export-producer; that it is the PPI's subsidiary, Pycon Technology Philippines, Inc. (PTPI) that is PEZA-registered, as confirmed and established by Certificate of Registration No. 98-006 issued by PEZA Director General Lilia B. de Lima dated 19 January 1998; that after you have delivered the works to PPI and billed them for the full contract price, the latter has informed that it would be retaining the 10% VAT from the contract price since the works were rendered for PTPI which enjoys VAT zero-rating as a PEZA-registered enterprise. In reply, please be informed that in order that sales of goods or services can be accorded the benefit of VAT zero-rating, the same must have been sold or 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 goods or services to zero percent (0%) rate. (Sections 106(A)(2)(c) and 108(B)(3), Tax Code of 1997). One such special law is R.A. 7916, otherwise known as the Special Economic Zone Act of 1995 or the PEZA Law. (BIR Ruling 055-98 dated December 2, 1998). Clearly, the provisions of law for effective VAT zero-rating is limited only to the sale of goods or the rendition of services to persons or entities that are exempt under special laws, e.g. R.A. 7916. Since, at the outset, it is represented that you have transacted business with PPI which is not a PEZA-registered enterprise nor an export producer, it follows that the VAT zero-rating is not applicable to the transaction. Neither is the same qualified for exemption under any of the exempt transactions enumerated in Section 109 of the Tax Code of 1997. Consequently, your said transaction with PPI is subject to 10% VAT. prcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group