BIR Ruling No. 338-2020

REPUBLICOF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNALREVENUE Quezon City

amended of the NIRC of 1997,`as Sections 105,108(B(2 YAT~ 0338-2020 Person to Contact: Chief, Law Division Tel. Nos. 926-55-36 / 927-09-63

Date:JUN 1 9 2020

MARIC GLOBAL MARKETING CORPORATION

Unit 2J, Unique Plaza Bldg., 56 Sierra Madre St..

Brgy. Highway Hills, Madaluyong City

Attention: MARIANO P. EVANGELISTA

President

Gentlemen:

This refers to your letters dated June 21, 2016 and March 21, 2017, requesting on behalf of MARIC Global Marketing Corporation (MGMC for brevity), for the issuance of a ruling

that commissions received by MGMC for its services rendered to non-resident clients are

subject to zero percent (0%) value-added tax (VAT) pursuant to Section 108 (B) (2) of the

National Internal Revenue Code of 1997, as amended.

It is represented that MGMC, with Tax Identification Number (TIN)

is a stock corporation duly organized under the laws of the Republic of the Philippines; that it

is registered with the Securities and Exchange Commission (SEC), bearing SEC Registration

purpose for which it was established, as provided in its Amended Articles of Incorporation, is No. dated June 30, 2015; that it is a VAT-registered entity; that the primary

"to engage in the importation and export of merchandize goods for wholesale and commission

trading"; that its primary activities arise from Indent Orders whereby it receives commission

from foreign suppliers (LS Cable & System (M) Sdn. Bhd. and PT. Tembaga Mulia Semanan

Tbk.); and that the commission amount is payment for its services as middleman between the

Sellers (non-residents, residing in foreign countries) and Buyer (local companies).

In reply, please be informed that under Section 105 of the National Internal Revenue

Code of 1997, as amended, it is provided that any person who, in the course of trade or

business, sells, barters, exchanges, leases goods or properties, renders services, and any person

who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to

108 of the same Code. The phrase in the course of trade or business' means the regular conduct

or pursuit of a commercial or an economic activity, including transactions incidental thereto.

by any person regardless of whether or not the person engaged therein is a non-stock, non-

profit private organization (irrespective of the disposition of its net income and whether or not

it sells exclusively to members or their guests), or government entity.

Relative to the above provision, Section 108 (A) of the National Internal Revenue Code

of 1997, as amended, in providing the test for the applicability of VAT on sale of services.

clarifies that payments for the sale or exchange of services, including the use or lease of

properties are subject to VAT only if the services are performed in the Philippines. The said

Section provides, viz.:

MARIC GLOBAL MARKETING CORPORATION VAT-1 N 19 2020

"SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties.

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a from the sale or exchange of services, including the use or lease of properties: Provided, that the President,_ upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%). . . value-added tax equivalent to ten percent (10%) of gross receipts derived

consideration. .. kinds of services in the Philippines for others for a fee, remuneration or The phrase 'sale or exchange of services' means the performance of all

Section 108 (B) of the National Internal Revenue Code of 1997, as amended, provides for the transactions which are subject to the 0% VAT, to wit: Moreover, Section 4.108-5 of Revenue Regulations (RR) No. 16-2005, implementing

"SEC: 4.108-5. Zero-Rated Sale of Services.

(a) In general. - A zero-rated sale of service (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these Regulations.

subject to zero percent (0%) VAT rate: (b) Transactions Subject to Zero Percent (0%) VAT Rate. - The following services performed in the Philippines by a VAT-registered person shall be

XXX XXX XXX

and regulations of the BSP; rendered to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines acceptable foreign currency and accounted for in accordance with the rules when the services are performed, the consideration for which is paid for in (2) Services other than processing, manufacturing or repacking

XXX XXX XXX

services may qualify for VAT zero-rating under Section 102 (b) (2) [now Section 108 (B) (2) the Supreme Court emphasized that certain requisites must be complied with in order that the of the National Internal Revenue Code of 1997, as amended], viz.: In the case of CIR vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc.2

1.The services must be performed in the Philippines: 2. The services must be rendered to persons engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who are outside the Philippines when the services are performed; and

I The VAT rate was increased to 12 percent beginning February 1, 2006, in accordance with the Memorandum

of the Executive Secretary to the Secretary of Finance dated January 31,2006, as circularized by Revenue

2 G.R. No. 153205, Jan. 22, 2007, Eduardo R. Ermita dated January 31, 2006 Approving the Recommendation of the Secretary of Finance to Increase the Value Added Tax Rate from Ten Percent to Twelve Percent) dated January 31, 2006. Memorandum Circular No. 7-2006 (Publishing the Full Text of the Memorandum from Executive Secretary

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VAY-0533-2821

:MARIC GLOBAL MARKETING CORPORATION JUN 1 9 2020

3. The fees to be paid are in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.

commission fees remitted by LS Cable & System (M) Sdn. Bhd. and PT. Tembaga Mulia Semanan Tbk. as payment to MGMC for services rendered. The said Certifications are only evidence of foreign currency accounts and no indication of payments made by its non-resident clients in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.Hence, the third (3rd) requisite in order that the services of MGMC may of 1997, as amended, has not been met. qualify for VAT zero-rating under Section 108 (B) (2) of the National Internal Revenue Code It is noted, however, that the Bank Certifications3 _submitted do not show, the

MGMC for its services rendered to non-resident clients are subject to zero percent (0%) value- received by MGMC for its services rendered to non-resident clients are subject to twelve added tax (VAT) pursuant to Section 108 (B) (2) of the National Internal Revenue Code of percent (12%) VAT pursuant to Section 108 (A) of the National Internal Revenue Code of 1997, as amended is hereby denied for lack of legal and factual basis. Thus, the commissions 1997, as amended. Accordingly, your request for the issuance of a ruling that commissions received by

Please be guided accordingly.

Very truly yours,

cy

K-1-LMAT Commissioner of Internal Revenue CAESAR R. DULAY 034303

3 Certifications of East West Banking Corporation and Metropolitan Bank & Trust Company

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