VAT Ruling No. 082-99

August 9, 1999 VAT RULING NO. 082-99 123-001-99-082-99 SGV & CO 6760 Ayala Avenue 1226 Makati City Attention: Mr . Joel L . Tan-Torres Tax Division Gentlemen : This refers to your letter dated July 16, 1999 requesting for confirmation of your opinion in behalf of your client, Sun Life Assurance of Canada (SLAC), that the sale of services by a new domestic life insurance corporation (NEWCO) to its affiliates in the Asia Pacific Region is subject to Value Added Tax at zero percent pursuant to Section 108(B)(2) of the Tax Code. It is represented that NEWCO will be incorporated in the Philippines as a domestic corporation and as an indirect subsidiary of SLAC; that SLAC has other affiliates in the Asia Pacific Region, i.e., Sun Life of Canada (International) Limited, a Bermuda Corporation, which has a branch in Hongkong, and P.T. Assuransi Sun Life Indonesia which is a resident of Indonesia; that aside from engaging in life insurance business in the Philippines, NEWCO will enter into an Administrative Service Agreement (Agreement) with the said affiliates of SLAC; that under the Agreement, NEWCO personnel will perform, among others, the following services: Information Technology Services, Actuarial, Product Development, Accounting, Audit, Legal, Human Resource, Marketing Support and New Business and Policy Administration Services; that these services will be performed mostly in the Philippines; that NEWCO will charge the affiliates at cost for the services rendered and for which NEWCO will be paid for in foreign currency. In reply, please be advised that since life insurance business for which NEWCO is to engage in, is exempt from VAT for being subject to the percentage tax under Section 123 of the Tax Code of 1997, it follows that NEWCO will not be required to comply with the VAT-registration requirement. Not being a VAT-registered entity, no consequence of zero-rating shall be accorded to it. Such being the case, NEWCO's performance of other services to the foreign affiliates of SLAC as contemplated under the proposed Agreement will merely be considered as part of the exempt transactions for entities subject to percentage tax under Title V of the Tax Code of 1997 (Section 109(j), ibid.). Moreover, it may not be said that the Administrative Service Agreement, calling for the rendition of services to affiliated foreign companies is conducted for a profit since the same is paid on reimbursement-of-cost basis, hence not subject to VAT. (VAT Ruling No. 001-99 dated January 6, 1999) cdlex This ruling is being issued on the basis of the foregoing facts as represented. However, if upon, investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group