VAT Ruling No. 018-92

February 28, 1992 VAT RULING NO. 018-92 NIRC Sec. 102 (a) (3) Precedent Ruling 000-00 Atty. Mariano C. Ereso, Jr. Valdes, Ereso, Valdes & Asso. Law Offices 5th Floor, CJVC Building 108 Aguirre St., Legaspi Village Makati, Metro Manila S i r : This refers to your letter of October 7, 1991 stating that your client, the TORNO AMERICA, INC. FOUNDATION SPECIALIST INC. (JOINT VENTURE) is a VAT-registered person under Registration No. 32A-7-008345; that it is the contractor of the Government's infrastructure project, viz., the construction of the Kalibo Highway and the Quirino Highway; that the said projects are funded by the US-Agency For International Development (USAID) under the RP-USA Grant Agreement; that your client has been hired directly by the USAID; that pertinent portion of the said RP-USA Grant Agreement provides: "Section B.4. Taxation . (a) This Agreement and the Grant will be free from any taxation of fees imposed under the laws in effect in the territory of the Grantee. (b) To the extent that (1) any contractor, including any consulting firm, any personnel of such contractor financed under the Grant, and any property or transactions relating to such contracts; and (2) any commodity procurement transaction financed under the Grant are not exempt from identifiable taxes, tariffs, duties, or other levies imposed under laws in effect in the territory of the Grantee, the Grantee will, as and to the extent provided in and pursuant to Project Implementation Letters, pay or reimburse the same with funds other than those provided under the Grant." On the basis of VAT Ruling No. 012-91, dated March 12, 1991, you now request confirmation of your opinion that the sales of goods/services made by a VAT-registered person to your client, as the contractor of the aforementioned projects are effectively zero-rated under Sections 100(a)(2), and 102(a)(3), NIRC and Section 8(b), Revenue Regulations No. 5-87. In reply thereto, please be informed that the above-quoted tax exemption provisions of the said international agreement, refers only to the tax exemption of the Grant which does not extend to the suppliers of goods and services as to entitle their sales to zero rated VAT. Such being the case, sales of goods and services to the Grantee in connection with the aforesaid construction project shall be subject to the 10% VAT which may however be shifted or passed on to the government agency undertaking the project, which shall be liable to pay the same with funds other than those provided under the Grant pursuant to Section 104 NIRC, in relation to paragraph (b) Section B.4 of the RP-USA Memorandum Agreement. This revokes VAT Ruling No. 012-91, dated March 12, 1991. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue