VAT Ruling No. 083-99

August 10, 1999 VAT RULING NO. 083-99 Sec 114 ( c)-DA-063-98-083-99 Heaven's Gate Construction & Equipment Rental, Inc . 202 Banlat Road, NPC Compound Tandang Sora, Quezon City Attention: Ms . Amparo S . Lim Vice President- Finance Gentlemen : This refers to the indorsement made by the Department of Public Works and Highways (thru Asst. Secretary Joel L. Altea) last June 7, 1999 regarding your request that the withholding of VAT from your billings be reduced from 8.5% to 5%. This request for reduction is based on the BIR ruling issued by this Office last December 29, 1998, in favor of G.G. Reyes Construction Inc. in connection with the construction of Lower Agusan Development Project Stage I, Phase I, Butuan City (VAT Ruling No. DA-063-98). It is claimed that your contract with DPWH amounting to P36 Million is a derivative of the original contract of G.G. Reyes Construction, Inc. with DPWH of P445.8 Million,-which is the subject of the BIR Ruling No. DA-063-98 and that this portion was simply separated and detached from the subject original contract to speed up the construction of the captioned project. As such, request is hereby made that the ruling issued in favor of G.G. Reyes Construction Inc. be similarly applied to your case, whereby it was held that the 8.5% withholding VAT required under Section 114 ( C) of the 1997 Tax Code, would be shared between the contractor and the executing agency such that only 5% VAT shall be withheld from the gross billings of the G.G. Reyes Construction Inc. and the difference of 3.5% will be assumed by DPWH. Since your contract with DPWH is part and parcel of the P445.8 Million total original project cost of the Lower Agusan Development Project Stage I, Phase I for which G.G. Reyes Construction, Inc. was able to secure a favorable ruling on the withholding of 5% instead of 8.5% withholding VAT, it follows, therefore, that your contract, being a derivative of the original contract, where all items of work and prices has been adopted, shall likewise enjoy the same privileges granted to said original contract. As this Office has previously ruled the withholding of VAT at a rate of only 5% on the gross billings made to the concerned executing agency with respect to the said original contract, it hereby holds, that for your P38 Million contract with DPWH involving the construction of Lower Agusan Development Project Stage I, Phase I, Butuan City, your company shall only be liable to a five percent (5%) withholding rate of creditable. VAT on its gross billings to DPWH with the three and one half percent (3.5%) being assumed by DPWH, making up for a total remittance of 8.5% withholding VAT required under Section 114( C) of the same Code. This ruling is being issued on the basis of the facts represented. However, if upon investigation, it will 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