VAT Ruling No. 050-00

October 30, 2000 VAT RULING NO. 050-00 Gutteridge Haskins & Davey Pty. Ltd. (GHD) c/o Executive Director LETICIA V. IBAY Technical Services Group BOARD OF INVESTMENTS Industry & Investments Building 385 Gil J. Puyat Avenue, Makati City Dear Director Ibay : This refers to your letter of 01 August 2000, for and in behalf of GUTTERIDGE HASKINS & PTY . LTD (GHD) , endorsing approval of its application for the entitlement of its suppliers of office equipment to the benefit of the zero percent (0%) value-added tax (VAT). It is represented that the GHD is a multinational company organized and existing under the laws of Australia; that it has established a "regional headquarters" in the Philippines under SEC License No. F-1998-00014 issued on 15 October 1998, and that the GHD's suppliers of these office equipment are entitled to the benefit of the zero percent VAT, pursuant to ARTICLE 65 of the Omnibus Investments Code of 1987, as amended by R.A. No. 8756 enacted into law on 23 November 1999, to amend BOOK III (Regional Headquarters) and BOOK IV (Regional Warehouse) of the said Code. In reply, please be informed that Sec. 2 of R.A. No. 8756 provides: "(1) Multinational Company shall mean a foreign company or a group of foreign companies with business establishments in two or more countries. "(2) Regional or Area Headquarters (RHQ) shall mean an office whose purpose is to act as an administrative branch of a multinational company engaged in international trade which principally services as a supervision, communications and coordination center for its subsidiaries, branches or affiliates in the Asia-Pacific Region and other foreign markets and which does not earn or derive income in the Philippines ; and "(3) Regional Operating Headquarters (ROHQ) shall mean a foreign business entity which is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines in the Asia-Pacific Region and in other foreign markets ." Art. 65 of the Omnibus Investments Code of 1987, as amended by Sec. 6 of R.A. No. 8756, further provides: "Art. 65. Value-Added Tax . The regional or area headquarters established in the Philippines by multinational companies shall be exempted from the value-added tax. In addition, the sale of lease of goods and property and the rendition of services to regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the National Internal Revenue Code, as amended. "Regional operating headquarters shall be subject to the ten percent (10%) value-added tax as provided for under the National Internal Revenue Code, as amended." Art. 65 of the Omnibus Investments Code of 1987, as amended by R.A. No. 8756, is implemented by Section 14 of its Implementing Rules and Regulations, as follows: "Section 14. Value-Added Tax . Regional or area headquarters shall be exempted from the value-added tax. The sale or lease of goods and property and the rendition of service to regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the National Internal Revenue Code, as amended. "The regional or area headquarters shall not be required to obtain or secure a prior permit from the Bureau of Internal Revenue for Zero-rating of the supplier's sale of goods and services to them . "In general, the regional operating headquarters shall be subject to the ten percent (10%) value-added tax unless otherwise provided under the National Internal Revenue Code, as amended or other existing laws." Subject to the condition that the GHD is a duly-registered regional or area headquarters of a multinational company, this Office hereby confirms (a) that its VAT-registered suppliers of goods, properties and services are entitled to the benefits of the zero percent (0%) VAT, pursuant to the aforequoted law and regulations. This rule applies to GHD's proposed acquisition of office equipment (supra); and (b) that the said suppliers of the GHD are entitled to the benefit of the zero percent (0%) VAT without necessity of any prior permit from this Office. As such, the aforesaid VAT-registered suppliers shall use and issue only a duly-registered VAT invoice on which the word "zero rate" is pre-printed thereon, to cover the said zero-rated sales, pursuant to the provisions of Sec. 4.108-1 of Revenue Regulations No. 7-95, otherwise known as the Consolidated Value-Added Tax Regulations. Very truly yours, (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group