VAT Ruling No. 023-89

January 27, 1989 VAT RULING NO. 023-89 DM Consunji Inc. 1881 Pres. Quirino Ave., Ext. Plaza Dilao, Pandacan Manila S i r s : This refers to your letter dated June 21, 1938 requesting a ruling on whether or not your company is zero-rated or exempt from VAT under Section 103(u) of the Tax Code, as amended. It is represented in your letter that your company entered into a subcontract agreement with Takenaka Mitsui Consortium, a temporary organization formed solely for the purpose of constructing the Food Development Center at FTI Complex and locally represented by Takenaka Corporation, a Japanese Corporation and that the project is part of the Japanese grant, more specifically, under "Exchange of Notes" between the Japanese and Philippine governments whereby a tax exemption privilege was granted to the contractor. In reply, please be informed that the pertinent provisions of the aforesaid Exchange of Notes between the Philippine and Japanese governments reads as follows: "The Government of the Philippines will, itself or through its executing agencies or instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors of consultants on and/or in connection with any that may accrue from the supply of products and/or services to be provided under the loan" ( Emphasis supplied .) It is clear from the said provisions that the tax exemption is limited only to Japanese firms and nationals and cannot be claimed by a domestic corporation such as yours. Such being the case, services rendered by non-Japanese nationals are subject to the 10% VAT. This, however, can be passed on to the main contractor in accordance with Item #2 of Subcontract Agreement between Takenaka and D.M. Consunji, to wit: cdpr ". . . but should the subcontractor fail to realize the VAT exemption, the Contractor shall bear VAT expenditure" The subcontracted services cannot be effectively zero-rated because the tax exemption privilege granted to the Takenaka Mitsui, is not extended to D.M. Consunji. Very truly yours, EUFRACIO D. SANTOS Deputy Commissioner