11/17/2019 VAT Ruling No.

076-99 | GLEITBAU

August 6, 1999

VAT RULING NO. 076-99

105
078-91 076-99

The Commercial Counselor

at the Austrian Embassy in Manila
P.O. Box 1215 CPO
1202 Makati, Metro Manila

Attention: Wolfgang H. Harwalik

Commercial Counsellor

SUBJECT : GLEITBAU

Dear Counsellor Harwalik :

This refers to your letter of 07 July 1999 for and in behalf of GLEITBAU, a Sub-
Contractor of a Service Contractor engaged in petroleum operations in the Philippines,
requesting for information whether GLEITBAU's suppliers of goods, properties and
services may legally be considered entitled to the zero percent (0%) value added tax
(VAT) under Sections 106 (A) (2) (c) and 108 (B) (3) of the National Internal Revenue
Code of 1997 since GLEITBAU is subject only to the 8% final income tax, in lieu of any
and all taxes, whether a national or a local tax, pursuant to the provisions of
Presidential Decree No. 1354. cda

It is represented that GLEITBAU is a sub-contractor to the SHELL

MALAMPAYA PROJECT, which is a petroleum project registered under Presidential
Decree No. 87, as amended by Presidential Decree No. 1354, entitled "Imposing Final
Income Tax On Subcontractors And Alien Employees Of Service Contractors And
Subcontractors Engaged In Petroleum Operations In The Philippines Under
Presidential Decree No. 87"; that, under this law, GLEITBAU is only liable to 8% final
income tax, in lieu of any and all taxes, national or local; that, under Sections 106 (A)
(2) (c) and 108 (B) (3) of the National Internal Revenue Code of 1997, sales of goods,
properties and services by VAT-registered persons to persons or entities whose
exemption under special laws or international agreements to which the Philippines is a
signatory effectively subjects such sales to zero rate are subject to the zero percent
(0%) VAT; that, since GLEITBAU is subject only to the 8% final income tax, in lieu of

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11/17/2019 VAT Ruling No. 076-99 | GLEITBAU

any and all taxes, national and local, its suppliers of goods or services may be
considered effectively zero rated for VAT purposes; and that, accordingly, GLEITBAU
may not be passed on with the 10% VAT by its suppliers of goods and services.
In reply, please be informed that the term "effectively subjects such sales to
zero rate" VAT is governed by Sections 4.100-3 and 4.102-2 (c) of Revenue
Regulations No. 7-95, which provide that this proviso only refers to any purchaser of
goods, properties or services who enjoys exemption from "indirect taxes" pursuant to
the provision of any special law or international agreement. cdtai

Section 105 of the National Internal Revenue Code of 1997 provides that the
10% value added tax (VAT) is a tax on any person who, in the course of trade or
business, sells, barters, exchanges, or leases goods or properties, or who renders
services, and on any person who imports goods, which means, except on importation,
it is a tax on the seller rather than on the buyer of goods, properties or services
although, however, the cost of the VAT shall be indirectly passed on to the buyer as
part of the invoice price.
Section 1 of P.D. No. 1354 provides:
"SEC. 1. Tax on subcontractors. — Every subcontractor, whether
domestic or foreign, entering into a contract with a service contractor engaged
in petroleum operations in the Philippines shall be liable to a final income tax
equivalent to eight percent (8%) of its gross income derived from such contract,
such tar to be in lieu of any and all taxes, whether national or local: Provided,
however, that any income received from all other sources within and without
the Philippines in the case of domestic subcontractors and within the
Philippines in the case of foreign subcontractors shall be subject to the regular
income tax under the National Internal Revenue Code. The term "gross
income" means all income earned or received as a result of the contract
entered into by the subcontractor with a service contractor engaged in
petroleum operations in the Philippines under Presidential Decree No. 87."

The tax exemption of Sub-contractors of Service Contractors engaged in

petroleum operations in the Philippines under the foregoing provisions of P.D. 1354,
only refers to taxes, national or local, for which the said sub-contractors would
otherwise be directly liable. It does not provide for exemption from any "indirect tax".
In view of the foregoing, GLEITBAU's suppliers of goods, properties or services
cannot legally be considered entitled to zero percent (0%) VAT, the provisions of
Section 1 of P.D. No. 1354 notwithstanding. cda

Very truly yours,

Commissioner of Internal Revenue

By:

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11/17/2019 VAT Ruling No. 076-99 | GLEITBAU

(SGD.) SIXTO S. ESQUIVIAS IV

Deputy Commissioner
Local & Enforcement Group

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