VAT Ruling No. 024-01

May 17, 2001 VAT RULING NO. 024-01 108 (B) 000-00 Atty . Katherine Agnes M . C . Arnaldo 3/F PAIR-PAGS Center, Ninoy Aquino International Airport, Pasay City M a d a m : This refers to your letter dated November 7, 2000, requesting confirmation of your opinion that the insurance premium payments of your client, Philippine International Air Terminals Co . , Inc . (PIATCO), relate to a zero-rated transaction for which it is not liable to pay 10% VAT. You stated that your client is a domestic corporation duly registered with the Philippine Economic Zone Authority (PEZA), both as an Ecozone Developer/Operator and as a Facilities Enterprise, as evidenced by PEZA Certificate of Registration No. EZ-98-01 and PEZA Certificate of Registration No. 98-01-F. It is represented that in May 2000, PIATCO procured several project insurance policies from the Government Service Insurance System (GSIS) including, among others, professional liability insurance and airport contractors' third party liability insurance. PIATCO paid the insurance premiums due to the GSIS but the GSIS has been invoicing amounts together with 10% VAT on the insurance premiums due. Even after PIATCO exhibited its PEZA Certificate of Zero-Rating issued on January 18, 2000 and effective until December 31, 2001, the GSIS maintained that your client should obtain a specific ruling from the BIR to the effect that PIATCO's insurance premium payments are subject to 0% VAT. In reply, please be informed that Section 108(B) of the Tax Code of 1997 states that: "The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: . . . "(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;" PIATCO, as a PEZA-registered enterprise, is entitled to the tax incentives under Section 24 of Republic Act No. 7916, as amended, which reads: "Except for real property taxes on land owned by developers, no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE. In lieu thereof five percent (5%) of the gross income earned by all business enterprises within the ECOZONE shall be paid and remitted as follows: . . . " This Office has already ruled that Republic Act No. 7916 or the PEZA Law is one of the special laws falling within the coverage of Section 108 (B)(3) of the Tax Code (BIR Ruling No. 055-98, dated December 2, 1998). This is more clearly reiterated in Revenue Memorandum Circular No. 74-99, particularly Section 3, which states that: "(1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu of all taxes, except real property tax, pursuant to RA. No. 7916, as amended: . . ." "(b) Sale of service . This shall be treated subject to zero percent (0%) VAT under the "cross border doctrine" of the VAT System, pursuant to VAT Ruling No. 037-98 dated November 5, 1998." Furthermore, the same Revenue Memorandum Circular provides that: 3. "In the final analysis, any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ECOZONE, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. . . ." "This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No. 7-95 effective as of the date of the issuance of this Circular." The effectivity of Revenue Memorandum Circular No. 74-99 has been upheld by this Office in VAT Ruling No. 016-00 dated March 20, 2000 wherein it was ruled that Revenue Memorandum Circular No. 74-99 itself serves as sufficient basis to entitle a supplier of goods or services to a PEZA-registered enterprise to the benefit of zero-rating. There is no longer any requirement to apply for a prior permit for zero-rating. TEAaDC Accordingly, we hereby confirm your opinion that any sale of goods or services to PIATCO, a PEZA-registered enterprise, including the provision to it of insurance services in the form of insurance policies, is legally entitled to zero percent (0%) VAT. This means that PIATCO's insurance premium payments to insurers such as the GSIS are subject to 0% VAT. This ruling is being issued on the basis of the facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue