VAT Ruling No. 086-99

August 10, 1999 VAT RULING NO. 086-99 108 (B)-044-98-086-99 MacroAsia Airport Services Corporation Unit 2502-B, 25th Flr. PSE Center Exchange Road, Ortigas Center Pasig City, Metro Manila Attention: Mr. Reynaldo O. Munsayac Vice President Finance and Administration Gentlemen : This refers to your letter dated February 01, 1999 requesting confirmation of your opinion that the services rendered by MacroAsia Airport Services Corporation (MASC) to international carriers are subject to 0%-VAT. It is represented that MASC is currently establishing its operations at NAIA as provider of ground handling services to international air carriers and should be ready to start operations by April 1999; that the company's sales are expected to be 100% export sales and paid in US Dollar currency or its equivalent; that sales proceeds shall be deposited with or remitted through the banking system in the Philippines in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). LexLib In reply, please be informed that our VAT law which was first adopted and promulgated under EO No. 273, effective January 1, 1988 is basically a Consumption Type VAT System and, in general follows the destination principle or Cross Border Doctrine. Under the VAT System, VAT exemption and VAT zero-rating are distinguished as follows: " ...zero rating should be used when the authorities really wish to ensure that a product is to be free of VAT. Using an exemption for VAT means that the tax is borne by the trader, and if that trader sells to the public, he must pass on the tax on input to the public in his price or cut payments to his factors of production (capital and labor).This suggests that countries that generally wish to pass on to the customer the benefits of VAT free goods and services should be allowed to use the zero rate" (Value Added Tax International- Practice and-Problems, Allan-A. Tait, International Monetary Fund, Washington D.C.,1988, p.51) "When considering a VAT, important decisions to be made by a country concerns what regime to adopt for international trade; the origin principle (exports taxable, imports exempt),or the destination principle (exports exempt, imports taxable)." (Value Added Tax by Antonio Carlos Rodriguez, Harvard Law School, 1995, citing Shoup (1996) on destination principle, viz: " the country taxes all value added, at home and abroad, or goods that have as their destination, the consumers of that country. Exports are exempt, imports are taxable. This comparable with the consumption type of VAT.") The onus of taxation under our VAT System is in that country where goods, property or services are destined used or consumed. This is the reason why under our VAT Law, goods, property or services destined to, used or consumed in the Philippines are subject to the 10% VAT whereas those destined, used or consumed abroad are subject to zero percent (0%) VAT. Accordingly, the services rendered by MASC to international air carriers are subject to the 0%-VAT provided under Section 108(B) of the 1997 Tax Code, for the same are directly connected to the international flights of the aforesaid international air carriers. (VAT Ruling No. 044-98 dated November 26, 1998) prcd This ruling is issued on the basis of the facts represented. 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