VAT Ruling No. 106-92

September 11, 1992 VAT RULING NO. 106-92 NIRC Sec. 102 (a) Precedent Ruling 000-00 J.P. Tolentino & Co. Certified Public Accountants Room 808, Ayala Life Bldg. 6786 Ayala Avenue, Makati Metro Manila Attention: Mr. Joaquin P. Tolentino Gentlemen : This has reference to your letter dated December 4, 1991. As represented, your client, Overseas Merchandise Inspection Co., Ltd., (OMIC) is a local branch of a Japanese company engaged inspection work in the Philippines for the following entities: 1. Jibfair Shipping Agency Corp. (JSAC) OMIC renders inspection services in the Philippines to JSAC on the goods that are being shipped to the Philippines wherein the latter pays OMIC for such services in Philippine currency; 2. Catholic Relief Services NCWC and the Tools for Freedom Foundation with tax exemption privileges under Republic Act No. 4481 approved on June 19, 1965 OMIC renders inspection services in the Philippines to the foregoing entities on the goods that are being shipped to the Philippines wherein the contractees pay OMIC for such services in Philippine currency. Based on the foregoing, you now request information whether the fees for the service contracts of OMIC to said entities are subject to the 10% value-added tax (VAT) or zero-rated for VAT purposes. In reply, please be informed as follows: 1. Pursuant to Section 102(a)(1) and (2) of the Tax Code, only the services which are paid for in acceptable foreign currency inwardly remitted to the Philippines in accordance with Central Bank rules and regulations shall be subject to zero-rate VAT. Since the fees for the inspection services rendered by OMIC to JSAC were paid in local currency, said payments for such services shall be subject to the 10% VAT in accordance with Section 102 of the same Code. 2. The tax exemption granted to Catholic Relief Services-NCWC and the Tools for Freedom Foundation is limited only to taxes for which they are directly liable. VAT is an indirect tax and is the liability of the manufacturer/seller; and even if the same is passed on to the aforementioned institution as part of the cost of the goods it bought, they cannot be exempted therefrom, as this is not embraced within the scope of their direct tax exemption. Hence, the fees paid for inspection services to OMIC by Catholic Relief Service NCWC and Tools for Freedom Foundation is subject to VAT pursuant to Section 102 of the Tax Code. Please be guided accordingly. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue