VAT Ruling No. 075-91

August 7, 1991 VAT RULING NO. 075-91 Punongbayan & Araullo 6th Floor, Vernida IV Bldg. Alfaro Street, Salcedo Village 1200 Makati, Metro Manila Attention: Atty . Rosario S . Bernaldo Tax Partner Gentlemen : This refers to your letter dated December 11, 1990 requesting confirmation of your opinion that the sale of services by your client, Krisalis Construction, Inc. (KRISALIS),to Republic Asahi Glass Corporation (RAGC),a BOI-registered entity, is subject to VAT at 0%. It is represented that your client, KRISALIS, is a VAT-registered entity engaged in the construction business as a general contractor; whereas, RAGC is a BOI-registered enterprise obviously engaged in the manufacture of glass products; and that the service sold by your client to RAGC is general construction work. In reply, please be informed that under Section 39(e) of Executive Order No. 226 reading: "ARTICLE 39 Incentives to Registered Enterprise . All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment: xxx xxx xxx (e) Exemption from Contractor's tax . The registered enterprise shall be exempt from the payment of contractor's tax, whether national or local." A BOI-registered enterprise is exempt from contractor's tax if it is the party directly liable therefor as when it is the one selling the service, but not where it is the buyer thereof. In the case at bar, RAGC, the BOI-registered entity is not a seller of service but rather a buyer of service, thus, this cited provision of the Omnibus Investment Code cannot be invoked. Accordingly, your query is answered in the negative. In other words, your client, Krisalis Construction, who sells general construction service to a BOI-registered firm is not entitled to claim the benefit of zero-rating under Section 102(a)(3) of the Tax Code nor the exemption under the Omnibus Investment Code (Art. 39) in relation to Sec. 103(u) of the Tax Code. The exemption under the Omnibus Investment Code is granted to RAGC only for its direct tax liability and not to tax liability of its supplier which can be passed on to the former for nowhere in the said law can be found extension of tax exemption to suppliers of the grantee. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue