VAT Ruling No. 062-02

September 16, 2002 VAT RULING NO. 062-02 108 (B) 106-99 Stingray Ventures and General Services, Inc. B32 L16 Queen Cristina Street Queens, Row Subdivision Molino, Bacoor, Cavite Attention: Atty. Obet Aguilar Gentlemen : This refers to your fax letter dated July 16, 2002 requesting for a ruling that the sale of services by Stingray Ventures and General Services, Inc. (Stingray), a VAT-registered entity, to Formostar Garment Philippines Co., Inc. (Formostar), a BOI-registered enterprise, is subject to 0% VAT. It is represented that Stingray intends to conduct business with Formostar, a BOI-registered enterprise; that Formostar as a zero-rated VAT taxpayer intends to purchase the services of Stingray, a registered VAT taxpayer; that Formostar as a BOI-registered enterprise exports all of its goods; that under the proposed purchase of service agreement, Stingray, as sewing services hirees, will provide factory contract workers to Formostar on a per project basis; that Stingray will bill Formostar on a per contract worker on the basis of man hours worked at the prevailing or agreed labor rate, plus workers' benefits (i.e., SSS, PhilHealth & Pag-IBIG) plus P6.50 representing Stingray's service fee per employee; and that Stingray will prepare monthly billings to Formostar for the grand totals arrived at above including its service fees. In reply thereto, please be informed that Section 2 of Revenue Memorandum Order No. 9-2000 provides in part: "The rationale of RMC 74-99 may also find application to sales made by VAT registered suppliers to BOI-registered enterprises whose manufactured products are 100% exported to foreign countries and therefore said sales can likewise be accorded automatic zero-rating treatment." Based on the above-quoted provision, it is clear that your services to Formostar can be accorded automatic VAT zero-rating without the necessity of applying for and securing prior approval for zero-rating, provided, however, that all the conditions set forth in Section 3 of RMO 9-2000 are complied with, viz : "SEC. 3. Sales of goods, properties or services made by a VAT-registered supplier to a BOI registered exporter shall be accorded automatic zero-rating, i.e. , without necessity of applying for and securing approval of the application for zero-rating as provided in Revenue Regulations No. 7-95, subject to the following conditions: (1) The supplier must be VAT-registered; (2) The BOI-registered buyer must likewise be VAT-registered; (3) The buyer must be a BOI-registered manufacturer/producer whose products are 100% exported. For this purpose a Certification to this effect must be issued by the Board of Investments (BOI) and which certification shall be good for one year unless subsequently re-issued by the BOI; (4) The BOI-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOI certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said BOI-registered buyers; and (5) The VAT-registered supplier shall issue for each sale to BOI-registered manufacturer/exporters a duly registered VAT invoice with the words "zero-rated" stamped thereon in compliance with Section 4.108-1(5) of RR 7-95. The supplier must likewise indicate in the VAT invoice the name and BOI-registry number of the buyer." This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group