VAT Ruling No. 040-92

March 26, 1992 VAT RULING NO. 040-92 NIRC Sec. 102 (a) Precedent Ruling 246-90 Honda Philippines, Inc. 4F Mondragon House, 324 Sen. Gil J. Puyat Ave. Ext., Makati, Metro Manila Attention: Mr. Ed V. Clemente Import/Export Manager S i r s : This refers to your letter dated February 28, 1992 stating that you are a VAT registered entity exporting more than 70% of your production to Japan to be used as luggage carriers and mainstands for motorcycles; that you import some of your raw materials while others are sourced locally; that the said materials are sent to your subcontractors for assembly; and that after the assembly of the products, these are delivered back to you for finishing works such as welding, grinding and buffing before actual exportation to Japan. Based on the foregoing, you now request information whether the transaction between you and your supplier of services is subject to VAT. In reply, please be informed that pursuant to Section 3 of Revenue Regulations No. 2-88, stating: "BOI-registered subcontractors and/or contractors performing services, such as processing, converting or manufacturing goods for a BOI-registered exporter who exports at least 70% of its total production shall be exempt under the provisions of Section 103(u) of the Tax Code." the aforesaid services rendered by BOI-registered subcontractors shall be exempt from VAT. However, if the entity rendering the service is not registered with the BOI, the same shall be subject to VAT under Section 102(a) of the Tax Code, as amended. The exemption contemplated under said regulations shall become effective only upon the registration of the subcontractors with the BOI. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue