VAT Ruling No. 025-01

May 17, 2001 VAT RULING NO. 025-01 108 (B) (2) R.R. 7-95 010-99 016-90 Ocampo, Tanopo & Co . Certified Public Accountants Room 308 RASVER Bldg. 424 E. Rodriguez Sr. Avenue Cubao, Quezon City Attention: Ms . Ma . Cristina B . Ocampo Gentlemen : This refers to the letter dated March 1, 2000 of Bocobo Rondain Mendiola Cruz & Formoso Law Offices, requesting in behalf of your common client, Momentum Internet Phils., Inc. (Momentum), for registration as a VAT-registered entity subject to the Zero Percent (0%) VAT rate and to your letter dated February 7, 2001 requesting that in the event of a favorable ruling, the same be made effective from the time of the filing of the application. It is represented that Momentum is engaged in the business of designing web pages for the internet, writing programs for use in the internet, marketing web sites through the internet and engaging in other activities relating to or connected with the internet; that Momentum performs these services for its mother company, Momentum Internet Ltd., a foreign corporation and is paid in foreign currency for services rendered; and that enclosed to the letter-request is a copy of Momentum's Articles of Incorporation. In reply, please be informed that pursuant to Section 108(B)(2) of the Tax Code of 1997 (Section 102[b][2] of the NIRC of 1977; services other than those mentioned in Section 108(B)(1), the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas, shall be subject to zero (0%) rate. This provision finds implementation under Section 4.102(h)(2) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96 stating that "Services other than processing, manufacturing or repacking for other persons doing business outside the Philippines for goods which are subsequently exported, as well as services by a resident to a non-resident foreign client such as project studies, information services, engineering and architectural designs and other similar services, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BP" shall be subject to VAT at zero percent. Such being the case, the services rendered by Momentum for its mother company, Momentum Internet Ltd., a non-resident foreign client, the consideration for which is paid for in foreign currency accounted in accordance with the rules and regulations of the BSP, are subject to zero percent (0%) VAT pursuant to Section 108(B)(2) of the Tax Code of 1997. (BIR Ruling No. 010-99 dated January 21, 1999) With respect to your second request, please be informed that the services rendered by Momentum is considered automatically zero-rated, it being not one of the effectively zero-rated transactions enumerated under Section 4.102(c) of Revenue Regulations No. 7-95, and therefore, there is no need to file an application for zero-rate (VAT Ruling No. 100(a)(1)-000-00-016-90). In other words, the said activity is subject to VAT at zero-rate even without an application for zero rating. Thus, the status of Momentum as a zero-rated VAT taxpayer commenced from the effectivity of its VAT-registration. THaDEA This ruling is being issued on the basis of the foregoing 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, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group