VAT Ruling No. 032-99

March 18, 1999 VAT RULING NO. 032-99 Sec. 108 (B) (2) 044-98 010-99 032-99 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, Davao Cold Storage Corporation (DCSC), is a VAT-registered corporation duly organized and existing under the laws of the Philippines with Board of Investments registration; that DCSC services the need for registration facilities of perishable agricultural products for export from the time these products are harvested, packed and ready for loading and shipment; that one of DCSC's clients is Oceanview Investments Ltd. (OIL), a company duly organized and existing under the laws of the British Virgin Islands; that OIL is engaged in the purchase of agricultural products in the Philippines for export; that prior to the arrival of the export carrier at the port of Davao, there is a need to store the agricultural products in the cold storage facility; that on December 1, 1998, a Storage Contract was executed by and between DCSC and OIL whereby during the period from September 1, 1998 to September 1, 1999, the former shall allow the latter to use the cold storage facility in Davao; that for services rendered to OIL, DCSC is paid in US dollars; and that the 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. cdlex Based on the foregoing, you are requesting for confirmation of 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. prcd Accordingly, this Office is of the opinion and so holds that the services rendered by DCSC in allowing OIL to use its cold storage facility in Davao, 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 be considered null and avoid. llcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)