VAT Ruling No. 096-90

April 30, 1990 VAT RULING NO. 096-90 SGV & Company CPAs, P.O. Box 589 Manila Central Post Office Ermita, Manila Attention: S . U . Salvador, Jr . Tax Division Gentlemen : This refers to your letter of March 7, 1989 for and in behalf of your client, TOYO CONSTRUCTION CO. LTD., bearing on your request for opinion on the following: 1. Whether your client's sale of service, in favor of the Republic of the Philippines, represented by the Department of Public Works and Highways, is subject to zero rated VAT under Sec. 102(a)(2), NIRC, as amended; 2. If subject to 0% VAT, can your client claim for refund of the input taxes on its local purchases made in connection with the aforementioned sale of service. prcd It is represented that, the Republic of the Philippines is a grantee of a foreign loan from the Government of Japan and the RP-JAPAN Agreement which was signed on October 24, 1988 providing that the loan proceeds which shall be used to pay for goods/services sold by Japanese nationals shall be remitted by the Japanese Government and shall be deposited in a designated Bank, in terms of Japanese Yen. Moreover, your client as a Japanese corporation which supplied both labor and materials in the DPWH construction of ten (10) bridges in different parts of the Philippines, shall be paid in Japanese Yen from said bank deposit. In reply, please be informed that under the RP-JAPAN Agreement, the Republic of the Philippines shall "exempt Japanese nationals from customs duties, internal taxes and other fiscal levies which may be imposed in the Republic of the Philippines with respect to the supply of the products and services under the Verified Contacts" (STIPULATION NO. 6(1)(d) thereof) and the Philippine Government shall bear "all the expenses, other that those covered by the grant, necessary for the execution of the project" (STIPULATION NO. 6(1)(g), thereof). On the basis of these provisions this Office is of the following opinions: "1. On sale of service . Sec. 102(a)(2), of the same Code, imposes 0% VAT "on sale of services . . . the consideration for which is paid for in acceptable foreign currency which is remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines." Your client's sale of service qualifies as zero rated sale under Sec. 102(a)(2), NIRC, since for such VAT registered activity (VAT Registration No. 32A-4-000998) it is paid for in acceptable foreign exchange (i.e., Japanese Yen), out of foreign loan proceeds inwardly remitted and accounted for in accordance with the CB rules and regulations. 2. On Input Taxes incurred by your client pertaining to the said Project . Since your client's sale of service is subject to 0% VAT under the Tax Code, it is entitled to apply for the issuance of a TCC or claim for refund of the said input taxes, pursuant to the provisions of Sec. 106(b), NIRC, viz.: "Any person, except those covered by paragraph (a) above, whose sales are zero-rated or are effectively zero-rated may, within two years after the close of the quarter when such sales were made, apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such sales to the extent that such input tax has not been applied against output tax." cdpr Very truly yours, EUFRACIO SANTOS Deputy Commissioner Chairman-Special Committee