VAT Ruling No. 035-90

February 14, 1990 VAT RULING NO. 035-90 102 (a)-000-00-035-90 J.E. Manalo & Co., Inc. Bernal St., cor. Pasig Blvd. Extension Rosario, Pasig, Metro Manila Attention: Mr . Justo E . Manalo President & General Manager S i r s : This has reference to your application for zero rate filed last April 4, 1989 stating that your company renders subcontracting services to FEAGLE Construction Corporation (FCC), a main contractor of the OICC NAVFAC, Southwest Pacific, Clark Air Base; that per Subcontract Agreement, you, as the subcontractor, shall furnish labor, materials, tools and equipment, supervision and perform all work as described in Article II of the Agreement for the "COPE THUNDER OPS RAMP Project" except ready mix concrete, joint sealant and its incidentals, and all civil related works for electrical for FCC at the Clark Air Base, Angeles, Pampanga; and that such services are to be paid for in US Dollars the conversion of which to Philippine currency shall be at the current bank exchange rates at the time of payment. Based on the foregoing, you now request that your subcontracting services be qualified for effective zero-rating. In reply, please be informed that your subcontracting services cannot be effectively zero-rated since it is only the prime contractor (FCC) who is qualified for effective zero-rating on services and goods sold to US Military facilities [Section 102(3) of the Tax Code, as amended and as implemented by Section 8(c)(2) of Revenue Regulations No. 5-87 in relation to the RP-US Military Base Agreement]. Such being the case, your sale of services is subject to the 10% VAT pursuant to Section 102(a) of the same Code which the said prime contractor can use either as input tax credit against its output tax due on sales (section 104) or claimed as a refund to the input tax attributable to zero rated sales under Section 106(b) of the same Code. aisadc Very truly yours, JOSE U. ONG Commissioner of Internal Revenue