VAT Ruling No. 070-97

November 27, 1997 VAT RULING NO. 070-97 Sec. 102; 422-93; 070-97 Shimizu Philippines Contractors, Inc. 5-F King's Court I Bldg. 2129 Pasong Tamo St. Makati City Attention: Mr . Yukihiko Isabe Admin . & Actg . Manager Gentlemen : This refers to your letter dated August 1, 1997 requesting for clarification as to whether the charging of the 10% value-added tax on your gross billing (construction cost) to Nippon Pain Manufacturing Complex is correct and proper. cdt It is represented that your company, SHIMIZU PHILIPPINE CONTRACTORS, INC. (SHIMIZU), entered into a contract with NIPPON PAINT MANUFACTURING COMPLEX (NIPPON) to construct the factory of the latter; that in the course of the construction, there were some changes from the original plans and specifications; that when the construction was completed, the final billing was computed as follows: Construction Cost (Change 1-6) P23,086,046.75 Add: 10% VAT 2,308,604.68 TOTAL P25,394,651.43 ============ that NIPPON, thru their Engineering consultant, Constech Management Group, Inc., informed SHIMIZU that the 10% value-added tax should be applied only to the labor and mark-up costs and should not include material cost, hence, this request. In reply, please be informed that Section 102 of the Tax Code, as amended, provides as follows: SEC. 102. Value-added tax on sale of services and use or lease of properties . . . . (a) Rate and base of tax . There shall be levied assessed and collected, a value-added tax equivalent to (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. xxx xxx xxx The term "gross receipts" means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with services and deposits and advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding the value-added tax." xxx xxx xxx Such being the case, the gross billing of SHIMIZU to NIPPON shall not only include the labor and mark-up costs but also the material cost, excluding VAT. Accordingly, the charging of the 10% value added tax on gross billing by SHIMIZU to NIPPON is correct and proper (BIR Ruling No. 422-93 dated October 25, 1993). This ruling is being issued to SHIMIZU PHILIPPINE CONTRACTORS, INC. based on 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. LibLex Very truly yours, SIXTO ESQUIVIAS IV Assistant Commissioner Legal Service