VAT Ruling No. 070-89

March 2, 1989 VAT RULING NO. 070-89 Benito E. Iglesia 217 Chico Street, Landing, Limay 2103 Bataan S i r : This refers to your letter dated September 23, 1988 stating that you are a VAT-registered labor subcontractor (with VAT Registration No. 17-4-000246) rendering services to the Philippine Shipyard Engineering Corp. (PHILSECO), a government-owned corporation engaged in the ship repair business; that as an EPZA registered enterprise, PHILSECO's transactions which are exempt under special laws are exempt from the value-added tax; and that as a result of the exemption granted to PHILSECO (per BIR Ruling No. 354-87) you cannot pass on the 10% VAT to the main contractor, thus giving you the burden to shoulder the 10% on the subcontracting services. Based on the foregoing, you now inquire if being a subcontractor providing labor only to an exempt main contractor can be classified under a zero-rated transaction. In reply please be informed that the exemption privilege granted to PHILSECO under the EPZA Law is not extended to its supplier of goods and services. This, being the case, your subcontracting services rendered to PHILSECO do not qualify for effective zero rating. This does not mean, however, that you have to bear the burden of shouldering the 10% VAT. As an indirect tax the VAT can be passed on as an additional cost to your main contractor, regardless of whether it is VAT exempt of not. cdtech This finds support in BIR Ruling No. 337-88 and 340-88. Very truly yours, VICTOR A. DEOFERIO, JR. Deputy Commissioner