VAT Ruling No. 038-01

June 25, 2001 VAT RULING NO. 038-01 Sec. 108 (B) (2) 000-00 Pilipinas International Marketing Services, Inc . Unit 2004 - 2006 20th Floor Orient Square Emerald Avenue, Ortigas Center Pasig City Attention: Mr . Arnel A . Lacorte Corporate Secretary Gentlemen : This refers to your letter dated October 11, 1999 requesting for the reconsideration of VAT Ruling No. 079-99 dated August 9, 1999, where this Office rules as follows: "xxx xxx xxx "In reply, please be advised that on the assumption that your primary activity is that of tele-marketing, and that you act as agents in the Philippines for Japanese corporations, your services, out of which you will be paid in foreign currency, would essentially be performed in the Philippines. Under Section 108 of the TaxCodeof 1997, there is levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services performed in the Philippines. Our VAT law is basically a consumption type VAT system and follows the Destination Principle or Cross-Border Doctrine, under which 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 accorded to the benefit of zero-rating. (VAT Ruling No. 031-99 dated March 18, 1999.) "Such being the case, your tele-marketing services remain subject to 10% VAT." It appears that the primary purpose by which Pilipinas International Marketing Services, Inc. (PIMS) was set up is to engage in tele-marketing; that PIMS's client is a Japanese corporation which does not have an office or permanent establishment in the Philippines; that for the services rendered, PIMS is paid for in foreign currency which is remitted to the Philippine banking system; and that it is believed that the said transaction is zero-rated for VAT purposes since it falls squarely under Section 108(B)(2) of the Tax Code of 1997. IaSCTE In reply thereto, please be informed that your request for reconsideration is hereby granted. Section 108(B)(2) of the Tax Code of 1997 provides that services other than those mentioned in the preceding paragraph, 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 (BSP) shall be subject to value-added tax at zero-percent (0%) rate. To further clarify that requirement, as provided in the Tax Code, Section 4.102-2(b)(2) of RR 5-96, by way of examples, illustrated the type of services that will qualify for zero-rating, thus: "Sec. 4.102-2(b)(2) 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 BSP." The services above-enumerated include the term "information services" which is precisely the nature of services rendered by PIMS when it provides its non-resident foreign client of prospective Filipino subscribers working/residing in Japan which service is paid for in acceptable foreign currency and inwardly remitted in the Philippines. In other words, the services are actually destined for consumption abroad and therefore would qualify for zero-rating as the same would have clearly satisfied the requirements under the destination principle or cross-border doctrine. Accordingly, this ruling shall revoke BIR Ruling No. 079-99 dated August 9, 1999. Very truly yours, (SGD.) REN G. BAEZ Commissioner of Internal Revenue