VAT Ruling No. 031-99

March 18, 1999 VAT RULING NO. 031-99 Sec. 108 (B) (2) 044-98 010-99 031-99 Agcaoili & Associates 7th Floor, Citibank Center, Paseo de Roxas Makati City, PO Box 7420 (ADC) NAIA, Manila Attention: Atty . Ma . Carmen Agcaoili-Orea Gentlemen : This refers to your letter dated December 15, 1998 stating that your client, Fresh Asia Produce Company International Corporation (FAPCI), is a VAT-registered corporation duly organized and existing under the laws of the Philippines; that foreign purchasers of banana and other agricultural products from growers in the Philippines engaged the services of FAPCI to basically ensure the prompt and efficient delivery of products it purchases as well as to maintain the quality of such fruits and vegetables; that one of the clients of FAPCI is Oceanview Investments Ltd. (OIL), a company duly organized and existing under the laws of the British Virgin Islands; that under the Technical Services Agreement executed by and between FAPCI and OIL on December 1, 1998, the former shall render technical services to the latter related to the purchase of agricultural products for export; that the technical services include the conduct of port operations, monitor procurement and deliveries of packaging materials, hire and/or subcontract quality control inspectors, prepare loading and other operational reports, conduct the physical count of packaging materials delivered to the growers and farmers of the fresh produce, advance the payment of and thereafter collect the same amount therefrom, the port charges for the farmer growers; that FAPCI will be paid in US dollars for the services it provides; and that those foreign exchange receipts are then either sold for pesos to local banks or outside the banking system, retained or deposited in foreign currency accounts whether in the Philippines or abroad as the same is allowed under Section 1 of BSP Circular No. 1389, as amended. Based on the foregoing, you are requesting for confirmation or your opinion that the aforedescribed transaction is subject to VAT at zero percent (0%) rate. In reply, please be informed that our VAT law is basically a consumption type VAT system and follows the Destination principle or Cross Border Doctrine. Under this system, the onus of taxation is in that country where the goods, property or services are destined, used or consumed. This is the reason why under our VAT law, goods, property or services destined to be used or consumed in the Philippines are subject to the 10% VAT while those destined, used or consumed abroad are subject to zero percent (0%) VAT. Accordingly, this Office is of the opinion and so holds that the technical services rendered by FAPCI to OIL, payable in acceptable foreign currency in accordance with Section 1 of BSP Circular No. 1389, as amended, are subject to VAT at 0%, considering that such services are destined, used or consumed outside the Philippine Territory. (VAT Rulings Nos. 044-98; 010-99). This ruling is being issued on the basis of the foregoing facts as presented. However, if upon investigation, it shall be disclosed that the facts are different then this ruling shall considered null and avoid. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)