VAT Ruling No. 081-99

August 9, 1999 VAT RULING NO. 081-99 108 (A)-031-96-081-99 Megascope Graphics, Inc . 2000 Roxas Boulevard Carmen Apts., Suite 82 Malate 1004 Manila Attention: Ms . Arlyn F . Tolentino Vice President-Finance Gentlemen : This refers to your letter requesting for an opinion on whether or not it is correct for a contractor of a Zone Enterprise to claim exemption from VAT on the services provided to the former. prcd It is represented that your company is a VAT-registered taxpayer engaged in audio visual (AV) production; that your client, Pico Philippines (PICO) was commissioned by the Philippine Centennial Commission for the Expo Filipino project in Clark, Pampanga; that work for the project were sub-contracted to you by PICO; that your cost proposal to PICO included VAT but PICO advised you to exclude VAT since the latter can provide you with VAT exemption; that the VAT exemption which PICO supplied came from Clark Development Corporation in behalf of the First Centennial Clark Corporation, a registered Clark Special Economic Zone (CSEZ) enterprise; that since payments you received from PICO did not include VAT, you are now asking whether it is correct for PICO not to pay the corresponding VAT. In reply, please be advised, insofar as ECOZONE enterprise is concerned, total exemption from VAT, where warranted, is granted in the form of effective zero-rating which is secured upon prior application from this Office. However, the same is granted only to local suppliers directly transacting business with ECOZONE enterprises. This does not extend to transactions made by said local suppliers with its own VAT-registered sub-contractors or sellers of goods in the customs territory. Since you are merely a sub-contractor of PICO, which is not a Registered Zone Enterprise but a customs territory enterprise, it is erroneous for them to exclude the VAT in its payments for the services rendered by your company, said services being subject to the normal 10% VAT. (VAT Ruling No. 031-96 dated October 30, 1996). LexLib Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group