VAT Ruling No. 110-92

October 2, 1992 VAT RULING NO. 110-92 NIRC Sec. 102 (a) (2) BIR Ruling No. 042-92 Erlinda F. Contreras Attorney-at-Law Room 504 National Life Bldg. 6768 Ayala Avenue Makati, Metro Manila M a d a m : This refers to your letter dated April 23, 1992, in effect, requesting for a ruling whether services rendered by a sub-contractor in behalf of a Japanese main contractor involving supply of technical consultancy and supervisory assistance to secondary schools in the project areas in Bicol, Leyte and Samar and the Polytechnic University of the Philippines which are paid for with Grants by the Government of Japan pursuant to the Exchange of Notes between the Japanese Ambassador to the Philippines and the Secretary of foreign Affairs dated April 25, 1991 are zero-rated. It appears that your client is a VAT-registered domestic corporation engaged in management and investment consultancy, such as the preparation of project and feasibility studies, etc; that it is engaged by the Systems Science Consultants, Inc. (SSCI) of Japan the principal contractor engaged by the Government of Japan to implement the Technical Assistance Agreement of Japan and the Philippines; and that payment to your client will be made by SSCI in foreign currency. In reply, please be informed that without the concurrence of the majority of the Congress as provided under Section 28(4), Article VI of the 1987 Constitution of the Philippines, the tax exemption clause indicated in Paragraph 6 of the Japanese Ambassador's letter dated April 25, 1991 shall be considered without force and effect (BIR Ruling No. 042-92). Moreover, whatever foreign currency your client might have received from SSCI cannot be considered as having been received in consideration of service rendered for a foreign principal; the reason being that the cause of said foreign currency remittance is the Grant by the Government of Japan. Thus, the provision of Section 102(a)(3) of the Tax Code cannot be invoked by your client to support its claim for the zero-rating of its service rendered for the local projects contracted by a foreign contractor. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue