VAT Ruling No. 067-91

July 5, 1991 VAT RULING NO. 067-91 Reliable Protective System, Inc. El Rico Suites, Rm. 41 1048 Metropolitan Avenue Makati, Metro Manila Attention: Mr . Samuel E . Bides Asst . Vice President Gentlemen : This refers to your letter dated April 26, 1991 requesting in effect that your sale of services rendered to the U.S. Military Facility at Subic Bay be subject to Value-Added Tax at zero rate pursuant to Section 102(3) of the Tax Code, in relation to Article XVIII of the RP-US Military Bases Agreement. dctai In reply, please be informed as follows: Article XVIII, par. 1 of the US-RP Military Bases Agreement provides as follows: "It is mutually agreed that the United States shall have the right to establish on bases, free of all licenses, fees, sales, excise or other taxes or imposts, Government agencies, including concessions, such as sales commissaries, and post exchanges, messes and social clubs, for the exclusive use of the United States military forces and authorized civilian personnel and their families, the merchandise or services sold or dispensed by such agencies shall be free from all taxes, duties and inspection by Philippine authorities." This was further amplified by the exchange of notes between Foreign Affairs Secretary J.M. Elizalde who, in his note dated January 15, 1953, stated that "I have the honor to refer to my note of December 29, 1952 proposing the exemption of U.S. military agencies and their instrumentalities including their authorized contractors from the contractor's tax of 3%, etc."; and this was accepted in a note signed by Ambassador R.A. Spruance dated February 9, 1953. Section 102(3) of the Tax Code subject to Value-Added Tax at zero rate sales of services, by VAT registered person, viz: "(b) services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero rate." Section 8(c)(2) of Revenue Regulations No. 5-87, implementing the aforequoted provisions of the VAT law on zero rated sale of services provides as follows: "(c)(2). Services rendered to persons or entities which are effectively zero rated under special laws or international agreements. In this case, if under the law or agreement, it is not only the entity that is exempt from taxes but also its suppliers, the sales of services to such entity are effectively zero rated. The example given above with respect to sale of goods to U.S. military facility and the Asian Development Bank shall also apply to those rendering services." Thus, applying the foregoing provisions of law, diplomatic exchange of notes and regulations, this Office, in VAT Ruling No. 324-88, dated July 14, 1988, granted the request that its application for zero rated sale of services be made applicable effective January 1, 1988, the effectivity of the value-added tax. In other words, your application for effectively zero rated sale of services on services rendered to the U.S. military facility at Subic effective January 1, 1988 is hereby granted. cdpr Very truly yours, JOSE U. ONG Commissioner of Internal Revenue