VAT Ruling No. 048-01

July 18, 2001 VAT RULING NO. 048-01 Sec. 108 (B) (2) New Dynasty International, Inc . 277 Juan Luna St., Binondo, Manila Attention: Mr . Jerry T . Limpe General Manager Gentlemen : This refers to your letter dated 30 January 2001 concerning your request for a confirmation that your sale of services to China Airlines, Ltd. (a foreign international air carrier with landing right and doing business Philippines), as its General Sales Agent in the Philippines, is entitled to the benefit of the zero percent (0%) value-added tax (VAT), pursuant to Section 108 (B) (2) and (4) of the National Internal Revenue Code of 1997, which provides: "(2) 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) ;" "(4) Services rendered to vessels engaged exclusively in international shipping ;" It is being contended that in VAT RULING No. 033-91, dated 29 May 1991, it has been ruled that the sale of service by the Trans Pacific Air Service Corporation, as the General Sales Agent in the Philippines of Continental Air Micronesia. a foreign international air carrier, paid for in foreign currency that is accounted for according to the rules and regulations of the BSP, was entitled to the benefit of the zero percent VAT. In reply, please be informed that Section 108 (B) (2), NIRC of 1997 (formerly Sec. 102 (b) (2), old NIRC), is implemented by Sec. 4.102-2 (b) (2) of Revenue Regulations No. 7-95, as amended by Revenue Regulations No. 5-96, as follows: SEC. 4. 102-2 (b) (2) . . . of Revenue RegulationsNo.7-95 are hereby amended to read as follows: 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." 1 Section 108 (B) (2) of the said Code is only limited to (1) sale of service by a VAT-registered person, to a " non-resident foreign client ;" and (2) restricted to "project studies, information services, engineering and architectural designs and other similar services ." Since China Airlines Ltd. is a foreign corporation doing business in the Philippines, it is classified as a " resident foreign corporation ," pursuant to Section 28 (A) (3), NIRC of 1997. Moreover, your services as its General Sales Agent in the Philippines, is not embraced among the kinds of services enumerated under the above quoted implementing regulations. Consequently, your sale of service to the said resident foreign corporation, even if paid for in foreign currency that is accounted for according to the rules and regulations of the BSP, is not entitled to the benefit of the zero percent VAT. AaCTID It is true that, prior to the promulgation of Revenue Regulations No. 5-96, general sales agents of foreign international air carriers have been ruled entitled to the benefit of the zero percent VAT (i.e., VAT RULING No. 033-91, 29 May 1991, supra ; see also VAT RULING No. 104-90, 03 May 1990). However, these rulings have been abandoned and revoked upon the effectivity of Revenue Regulations No. 5-96. Section 108 (B) (4), NIRC of 1997 pertains to service rendered by a VAT-registered person, to " vessels engaged exclusively in international shipping ." Section 118 of the said Code classifies International Carriers into (1) " International Air Carriers and (2) " International Shipping Carriers ." It follows, your sale of service to China Airlines Ltd., which is an international air carrier, is not embraced under Section 108 (B) (4) of the Code, because this law is limited only to International Shipping Carriers ." "Under the familiar rule of statutory construction of expressio unius est exclusio alterius , the mention of one thing implies the exclusion of another thing upon which it is to operate, everything else must necessarily and by implication be excluded from its operation and effect (Crawford, Statutory Construction, pp. 334-335)" 2 In view of the foregoing, your aforementioned sale of service to China Airlines Ltd., as its General Sales Agent in the Philippines, even if paid for in foreign currency that is accounted for according to the rules and regulations of the BSP, became subject to the 10% VAT pursuant to Section 102(a), old NIRC (now Sec. 108(A), NIRC of 1997), upon effectivity of Revenue Regulations No. 5-96. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group Footnotes 1. Emphasis supplied. 2. VERA VS. FERNANDEZ, 89 SCRA 199, March 30, 1979.