VAT Ruling No. 069-89

March 21, 1989 VAT RULING NO. 069-89 Mr. Harry G. Kong General Manager Celebrity Engineering & Development Enterprises #18 Oslo Avenue, Capitol District Quezon City Dear Mr. Kong : This refers to your letter dated October 6, 1988 requesting for VAT exemption of Celebrity Engineering and Development Enterprises (CEDE), a single proprietorship involved mainly in providing engineering consultancy services, particularly in the field of telecommunications and electrical engineering. In a meeting held at Central Bank Security Plant Complex last October 11, 1988, it was verbally represented that you, as an electric engineer coordinate the implementation of a project by integrating all the services of independent engineers who are assigned to undertake plumbing, electrical and sanitary requirements. LLjur The following allocation scheme was presented in the October 11, 1988 meeting. a) Generally, 6% to 8% of total project cost is for the construction activity b) 100% of the above cost is allotted to: 60% architecture 40% engineering activities c) 100% of the 40% (engineering activities) is allotted to: 10% coordinator income 90% professional fee d) 100% of the 90% (professional fee) is allotted to: 55% structural engineer 15% electrical engineer 15% mechanical engineer 15% sanitary engineer Example: An 8% cost allocated for construction activities corresponds to P100,000 where P60,000 of which go to architecture fees while P40,000 of which go to engineering activities. Of the P40,000 P4,000 correspond to coordinator's income while P36,000 allocated for the service fee of the following professionals. Structural engineer P19,800 Electrical engineer 5,400 Mechanical engineer 5,400 Sanitary engineer 5,400 P36,000 Your accounting entries are: Dr. Cr. Cash P 40,000 Professional fee P 5,400 Coordinator income 4,000 Payable (Professional fees in trust) 30,600 In reply, please be informed that for VAT purpose the professional fee is VAT exempt under Sec. 103 (r) of the Tax Code while the coordinator income is subject to VAT under Sec. 102(a) of the same Code. LLcd Very truly yours, JOSE U. ONG Commissioner of Internal Revenue