SEC. 4.108-2. Meaning of “Sale or Exchange of Services”.

– The term “sale or

exchange of services” means the performance of all kind of services in the

Philippines for

others for a fee, remuneration or consideration, whether in kind or in cash, including

those

performed or rendered by the following:

(1) construction and service contractors;

(2) stock, real estate, commercial, customs and immigration brokers;

(3) lessors of property, whether personal or real;

(4) persons engaged in warehousing services;

(5) lessors or distributors of cinematographic films;

(6) persons engaged in milling, processing, manufacturing or repacking goods for

others;

(7) proprietors, operators, or keepers of hotels, motels, rest houses, pension houses,

inns, resorts, theaters, and movie houses;

(8) proprietors or operators of restaurants, refreshment parlors, cafes and other

eating

places, including clubs and caterers;

(9) dealers in securities;

(10) lending investors;

(11) transportation contractors on their transport of goods or cargoes, including

persons

who transport goods or cargoes for hire and other domestic common carriers by
land relative to

their transport of goods or cargoes;

(12) common carriers by air and sea relative to their transport of passengers, goods
or

cargoes from one place in the Philippines to another place in the Philippines;

(13) sales of electricity by generation, transmission, and/or distribution companies;

(14) franchise grantees of electric utilities, telephone and telegraph, radio and/or

television broadcasting and all other franchise grantees, except franchise grantees of
radio

and/or television broadcasting whose annual gross receipts of the preceding year do
not exceed

Ten Million Pesos (P10,000,000.00), and franchise grantees of gas and water
utilities;

(15) non-life insurance companies (except their crop insurances), including surety,

fidelity, indemnity and bonding companies; and

(16) similar services regardless of whether or not the performance thereof calls for
the

exercise or use of the physical or mental faculties.

The phrase “sale or exchange of services” shall likewise include:

(1) The lease or the use of or the right or privilege to use any copyright, patent,
design

or model, plan, secret formula or process, goodwill, trademark, trade brand or other
like

property or right;

(2) The lease or the use of, or the right to use any industrial, commercial or scientific

equipment;

(3) The supply of scientific, technical industrial or commercial knowledge or

information;

(4) The supply of any assistance that is ancillary and subsidiary to and is furnished
as a means of enabling the application or enjoyment of any such property, or right as
is mentionedin subparagraph (2) hereof or any such knowledge or information as is
mentioned in subparagraph (3) hereof;

(5) The supply of services by a non-resident person or his employee in connection

with

the use of property or rights belonging to, or the installation or operation of any
brand,
machinery or other apparatus purchased from such nonresident person;

(6) The supply of technical advice, assistance or services rendered in connection

with technical management or administration of any scientific, industrial or
commercial undertaking, venture, project or scheme;

(7) The lease of motion picture films, films, tapes, and discs; and

(8) The lease or the use of, or the right to use, radio, television, satellite transmission

and cable television time.

REVENUE MEMORANDUM CIRCULAR NO. 42-2003 issued on July 23, 2003

clarifies certain issues raised relative to the processing of claims for Value-Added
Tax (VAT) credit/refund, including those filed by direct exporters with the Tax and
Revenue Group, One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center
of the Department of Finance.

In BIR Ruling No. DA­320­07, dated May 31, 2007, the Bureau of 
Internal Revenue (BIR) even provides the requisite criteria for 
identifying lending investors, to wit: (a) one must be engaged in the 
business of lending money for themselves or others at interest; and (b) 
the lending of money must be carried on with a view to profit or 
livelihood. Citing its pronouncement in a previous issuance, the BIR 
ruled that where the taxpayer is not engaged in the practice of lending 
money, and that the lending of money for an interest is not pursued as a
business activity or to generate income, but merely to provide financial 
support to its affiliates, the lender should not be deemed as a lending 
investor within the contemplation of Section 108 of the Tax Code. 

The CTA subscribes to the view that as long as the entity provides 
service for a fee, remuneration or consideration, the same is subject to 
VAT, regardless of whether it received payments for services rendered 
to affiliates on a reimbursement­on­cost basis. Thus, it is a small 
wonder that the loan assistance extended by company engaged in 
managing, promoting, administering or assisting in any business or 
activity of another corporation or entities, is summarily treated as 
incidental to the main business, subject to VAT. 

Clearly, the BIR acknowledges the fact that an interest is charged on 
cash advances so that the transactions will be considered as at arm's 
length pursuant to Revenue Memorandum Order No. 63­99, dated July 
19, 1999. However, the sweeping pronouncement of the CTA can just 
as well result to a turnabout by the BIR from its current position, 
should the decision attain finality. 

In the meantime, taxpayers will continue to rely on prevailing rules, 
regulations and BIR rulings for the proper observance of VAT laws. 

SEC. 4.108­4. Definition of Gross Receipts. ­“Gross receipts” refers 
to the total amount of money or its equivalent representing the contract 
price, compensation, service fee, rental or royalty, including the amount
charged for materials supplied with the services and deposits applied as
payments for services rendered and advance payments actually or 
constructively received during the taxable period for the services 
performed or to be performed for another person, excluding VAT.

“Constructive receipt” occurs when the money consideration or its 
equivalent is placed at the control of the person who rendered the 
service without restrictions by the payor. The following are examples 
of constructive receipts:

(1) deposit in banks which are made available to the seller of services 
without restrictions;

(2) issuance by the debtor of a notice to offset any debt or obligation 
and acceptance thereof by the seller as payment for services rendered; 
and

(3) transfer of the amounts retained by the payor to the account of the 
contractor.

renewable sources of energy, and shall not extend to the sale of services
related to the maintenance or operation of plants generating said power.

“SEC. 4.108­4. Definition of Gross Receipts. – ‘Gross receipts’

refers to the total amount of money or its equivalent representing the 
contract price, compensation, service fee, rental or royalty, including 
the amount charged for materials supplied with the services and 
deposits applied as payments for services rendered and advance 
payments actually or constructively received during the taxable period 
for the services performed or to be performed for another person, 
excluding the VAT, except those amounts earmarked for payment to 
unrelated third (3rd ) party or received as reimbursement for advance 
payment on behalf of another which do not  redound to the benefit of 
the payor.

A payment is a payment to a third (3rd) party if the same is made to 
settle an obligation of another person, e.g., customer or client, to the 
said third party, which obligation is evidenced by the sales 
invoice/official receipt issued by said third party to the obligor/debtor 
(e.g., customer or client of the payor of the obligation). 

An advance payment is an advance payment on behalf of another if the 
same is paid to a third (3rd) party for a present or future obligation of 
said another party which obligation is evidenced by a sales 
invoice/official receipt issued by the obligee/creditor to the 
obligor/debtor (i.e., the aforementioned “another party”) for the sale of 
goods or services by the former to the latter. 

For this purpose ‘unrelated party’ shall not include taxpayer’s 
employees, partners, affiliates (parent, subsidiary and other related 
companies), relatives by consanguinity or affinity within the fourth (4th
) civil degree, and trust fund where the taxpayer is the trustor, trustee or
beneficiary, even if covered by an agreement to the contrary. 

‘Constructive receipt’ occurs when the money consideration or its 
equivalent is placed at the control of the person who rendered the 
service without restrictions by the payor. The following are example s 
of constructive receipts:

(1) deposits in banks which are made available to the seller of

services without restrictions;

(2) issuance by the debtor of a notice to offset any debt or

obligation and acceptance thereof by the seller as payment

for services rendered; and

(3) transfer of the amounts retained by the payor to the account

of the contractor.”

BIR Ruling No. 195­89, Sept. 8, 1989

“The term “gross receipts” means all amounts received by the prime or 
principal contractor as the total contract price, undiminished by any 
amount paid to the subcontractor under a subcontractor arrangement”

VAT Ruling No. 111­88, April 25, 1989
Basis of the 10% value added tax prescribed in Section 102 of the Tax 
Code, as amended by Executive Order 273, is the gross receipts of the 
person rendering service. The value added tax is computed on the total 
composition of billings i.e., due to employees, due the government, 
depreciation of equipment (billed to clients), supplies, and 
administrative overhead. 

VAT Ruling No. 205­90

The managed company shoulders the expenses incurred in connection 
with the above­mentioned services and pays an agreed management fee
out profit, the company does not receive any fee. 

It is defined on Sec. 2(m) of Revenue Regulations No. 5­87 that “gross 
receipts” as the total amount of money or its equivalent representing the
contract price, compensation or service fee, including the amount 
charged for materials supplied with the service and deposits or advance 
payments actually or constructively received during the taxable year. 

The following payments are subject ot the 10% VAT:

1. management fee;
2. expenses in connection with the services rendered; and 
3. reimbursement by the managed company of the salary and fringe 
benefits (SSS, Medicare, pension/ retirement) paid to the Chief 
Operating Officer assigned to the managed company, the latter 
being an employee of the company.

AMOUNTS EARMARKED FOR PAYMENT TO THIRD 
PARTIES

Sec. 4.108­4 Rev. Regs. No. 16­2005,  Sept 1, 2005

BIR Ruling No. DA­069­2006
REIMBURSEMENT OF EXPENSES

Sec. 4.108­4 Rev. Regs. No. 16­2005, Sept 1, 2005

VAT Ruling No. 283­88, July 4, 1988

Service billing as a customer broker covers the following:

1. Advances for expenses payable to government entitles and/or 
government controlled corporations.
2. Advances for trucking, transportation, petty, representations and 
other miscellaneous expenses related to shipping.
3. Brokerage fee

It is represented that items #1 and #2 above are mere advances that are 
subject to reimbursement and therefore not covered by VAT.

Aforesaid transactions the brokerage fee is subject to VAT; whereas 
advances indicate under #1 and #2 are exempt from Vat provided that;

1. You issue a VAT invoice/receipt corresponding to the amount of 
brokerage fee;
2. The advances are billed separately and non­VAT receipt is issued
to your client for the total amount advanced;
3. Each person or entity who directly renders service to your client 
for whom you advanced the payment, shall issue a receipt/ 
invoice in the name of your client.
4. For liquidation purposes, you may attach the original copy of all 
invoices/receipts issued in the name of your client to your non­
VAT receipt reflecting the total amount being reimbursed to you

VAT Ruling No. 87­88 April 14, 1988
Requesting information on the applicability of the value­ added tax on 
the following businesses:

1. Review classes for nursing, CGFNS, nutrition and midwifery;
2. Recruitment services; and 
3. General merchant.

All the above­mentioned activities are subject to VAT pursuant to 
Sections 100 and 102 of the Tax Code, as amended by E. O. No. 273. 
For tax credit purposes, the input taxes for the purchase of goods for 
use as supplies in connection with trade or business or as material s in 
the sale of services can be claimed against your output law.

In the computation of the VAT on recruitment services, the basis of the 
tax is the amount of placement fee which will not include 
reimbursement of expenses which shall be limited to fees for 
passport/visa, medical examination, clearances and inoculation 
provided that these expenses are supported by receipts issued by the 
supplying company or government agency in the names of the 
applicant. On the other hand, the agency is required to pay the 10% 
VAT on the entire amount of placement fee if the abovementioned 
reimbursable expenses are supported by receipts issued in the name of 
the agency.

VAT Ruling No. 97­88, April 15, 1988

Requesting on the proper computation of the value added tax in the 
service income of the contractual or temporary staff. Inasmuch as the 
company provides services to different client *GROSS SALARY, 
*FEES INCLUDNG THE AMOUNT, *THE SERVICE and subject 
to the 10% velue added tax under Sec. 102 of the NRC, as amended by 
E.O. No. 273.

REVENUE MEMORANDUM CIRCULAR NO. 65-2012

This Circular is issued to clarify the taxability of association dues, membership fees, and
other assessments/charges collected by condominium corporations from its members and
tenants.

The Bureau has issued several rulings exempting from income tax the assessments/
charges collected by condominium corporations from its members, on the ground that the
collection of association dues and other assessments/charges are merely held in trust to be
used solely for administrative expenses in implementing its purposes i.e., to operate,
manage and maintain the condominium project, to defray the costs of the condominium,
and from which a condominium corporation could not realize any gain or profit as a
result of its receipt thereof.

In addition, the same rulings exempted association dues from value-added tax for the
reason that a condominium corporation does not sell, barter, exchange, nor lease any
goods or property and neither does it render any service for a fee, but merely implements
the administration of the required services to collect the association dues from the unit
owners pursuant to its corporate purpose(s) as trustee of the fund thereof.

The taxability of association dues, membership fees, and other assessments/charges

collected by a condominium corporation from its members, tenants and other entities are
discussed hereunder.

I. Income Tax -- The amounts paid in as dues or fees by members and tenants of a
condominium corporation form part of the gross income of the latter subject to income
tax. This

is because a condominium corporation furnishes its members and tenants with benefits,
advantages, and privileges in return for such payments. For tax purposes, the association
dues, membership fees, and other assessments/charges collected by a condominium
corporation constitute income payments or compensation for beneficial services it
provides to its members and tenants. The previous interpretation that the assessment dues
are funds which are merely held in trust by a condominium corporation lacks legal basis
and is hereby abandoned.
Moreover, since a condominium corporation is subject to income tax, income payments
made to it are subject to applicable withholding taxes under existing regulations.

II. Value-Added Tax (VAT) – Association dues, membership fees, and other
assessments/charges collected by a condominium corporation are subject to VAT since
they constitute income payment or compensation for the beneficial services it provides to
its members and tenants.

Section 105 of the National Internal Revenue Code of 1997, as amended, provides:

"SECTION 105. Persons Liable. — 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 this Code.

xxx

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 nonstock, nonprofit 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.”
(Emphasis supplied)

The above provision is clear -- even a non-stock, non-profit organization or government

entity is liable to pay VAT on the sale of goods or services. This conclusion was affirmed
by the Supreme Court in Commissioner of Internal Revenue v. Court of Appeals and
Commonwealth Management and Services Corporation, G.R. No. 125355, March 30,
2000. In this case, the Supreme Court held:

“(E)ven a non-stock, non-profit organization or government entity, is liable to pay VAT on the sale of goods
or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale,
barter, exchange of goods or property, and on the performance of services, even in the absence of profit
attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of
a commercial or an economic activity, regardless of whether or not the entity is profit- oriented.

The definition of the term "in the course of trade or business" incorporated in the present law applies to all
transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person
who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to
pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity
is liable to pay VAT for the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the
"performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the
supply of technical advice, assistance or services rendered in connection with technical management or
administration of any scientific, industrial or commercial undertaking or project."

On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 emphasizing
that a domestic corporation that provided technical, research, management and technical assistance to its
affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of
realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized
without any intention of realizing profit, any income or profit generated by the entity in the conduct of its
activities was subject to income tax.
Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered. As long as the entity provides service for a
fee, remuneration or consideration, then the service rendered is subject to VAT.”

Accordingly, the gross receipts of condominium corporations including association dues,

membership fees, and other assessments/charges are subject to VAT, income tax and
income payments made to it are subject to applicable withholding taxes under existing
regulations.

DIFFERENCE BETWEEN ZERO-RATING AND EXEMPTION

Secs. 4.106-5, 1st par., and 4.108-5(a), Rev. Regs. No. 16-2005,
Sept. 1, 2005 cf. Sec. 4.109-1(a)

Secs. 4.106-5

A zero-rated sale of goods

or properties (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.

The following sales by VAT-registered persons shall be subject to zero

percent (0%) rate:

(a) Export sales. – “Export Sales” shall mean:

(1) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may be
agreed upon which may influence or determine the transfer of
ownership of the goods so exported, paid for in acceptable foreign
currency or its equivalent in goods or services, and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);

(2) The sale of raw materials or packaging materials to a non-resident

buyer for delivery to a resident local export-oriented enterprise to be
used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer’s goods, paid for in acceptable foreign
currency, and accounted for in accordance with the rules and
regulations of the BSP;

(3) The sale of raw materials or packaging materials to an export-

oriented enterprise whose export sales exceed seventy percent (70%) of
total annual production; Any enterprise whose export sales exceed 70%
of the total annual production of the preceding taxable year shall be
considered an export-oriented enterprise.

(4) Sale of gold to the BSP; and

(5) Transactions considered export sales under Executive Order No.

226, otherwise known as the Omnibus Investments Code of 1987, and
other special laws.

“Considered export sales under Executive Order No. 226” shall mean
the Philippine port F.O.B. value determined from invoices, bills of
lading, inward letters of credit, landing certificates, and other
commercial documents, of export products exported directly by a
registered export producer, or the net selling price of export products
sold by a registered export producer to another export producer, or to
an export trader that subsequently exports the same; Provided, That
sales of export products to another producer or to an export trader shall
only be deemed export sales when actually exported by the latter, as
evidenced by landing certificates or similar commercial documents;
Provided, further, That without actual exportation the following shall be
considered constructively exported for purposes of these provisions:

(1) sales to bonded manufacturing warehouses of export-oriented

manufacturers;

(2) sales to export processing zones;

(3) sales to registered export traders operating bonded trading

warehouses supplying raw materials in the manufacture of export
products under guidelines to be set by the Board in consultation with
the Bureau of Internal Revenue (BIR) and the Bureau of Customs
(BOC);

(4) sales to diplomatic missions and other agencies and/or

instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign currency or
not.

For purposes of zero-rating, the export sales of registered export traders

shall includecommission income. The exportation of goods on
consignment shall not be deemed exportsales until the export products
consigned are in fact sold by the consignee; and Provided,finally, that
sales of goods, properties or services made by a VAT-registered supplier
to a BOI registered manufacturer/producer whose products are 100%
exported are considered export sales. A certification to this effect must
be issued by the Board of Investment (BOI) which shall be good for
one year unless subsequently re-issued by the BOI.

(6) The sale of goods, supplies, equipment and fuel to persons engaged
in international shipping or international air transport operations;
Provided, That the same is limited to goods, supplies, equipment and
fuel pertaining to or attributable to the transport of goods and
passengers from a port in the Philippines directly to a foreign port
without docking or stopping at any other port in the Philippines;
Provided, further, that if any portion of such fuel, goods or supplies is
used for purposes other than that mentioned in this paragraph, such
portion of fuel, goods and supplies shall be subject to 10% VAT.

(b) “Foreign Currency Denominated Sale”. – “Foreign Currency

Denominated Sale” means the sale to a non-resident of goods, except
those mentioned in Secs. 149 and 150 of the Tax Code, assembled or
manufactured in the Philippines for delivery to a resident in the
Philippines, paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the BSP.

Sales of locally manufactured or assembled goods for household and

personal use to Filipinos abroad and other non-residents of the
Philippines as well as returning Overseas Filipinos under the Internal
Export Program of the government paid for in convertible foreign
currency and accounted for in accordance with the rules and regulations
of the BSP shall also be considered export sales.

(c) “Sales to Persons or Entities Deemed Tax-exempt under Special

Law or International Agreement”. - Sales of goods or property to
persons or entities who are taxexempt under special laws, e.g. sales to
enterprises duly registered and accredited with the Subic Bay
Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to
enterprises duly registered and accredited with the Philippine Economic
Zone Authority (PEZA) or international agreements to which the
Philippines is signatory, such as, Asian Development Bank (ADB),
International Rice Research Institute (IRRI), etc., shall be effectively
subject to VAT at zero-rate.

Sec 4. 108-5(a) 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.

Sec 4. 109-1(A) VAT-Exempt Transactions. –

(A) In general. – “VAT-exempt transactions” refer to the sale of goods

or properties and/or services and the use or lease of properties that is
not subject to VAT (output tax) and the seller is not allowed any tax
credit of VAT (input tax) on purchases.

The person making the exempt sale of goods, properties or services

shall not bill anyoutput tax to his customers because the said
transaction is not subject to VAT.

REVENUE REGULATIONS NO. 2-2012

issued on February 20, 2012 prescribes the tax administration treatment

of petroleum and petroleum products imported into the Philippines
including those coming in through freeport zones and economic zones
and registration of all storage tanks, facilities, depots and terminals.

The Value-Added Tax (VAT) and Excise Taxes which are due on all
petroleum and petroleum products that are imported and/or brought
directly from abroad to the Philippines, including Freeport and
Economic zones, shall be paid by the importer thereof to the Bureau of
Customs (BOC).

The subsequent exportation or sale/delivery of these petroleum or

petroleum products to registered enterprises enjoying tax privileges
within the Freeport and Economic zones, as well as the sale of said
goods to persons engaged in international shipping or international air
transport operations, shall be subject to 0% VAT. With respect to the
VAT paid on petroleum or petroleum products by the importer on
account of aforesaid 0% VAT transactions/entities and the Excise Taxes
paid on account of sales to international carriers of Philippine or
Foreign Registry for use or consumption outside the Philippines or
exempt entities or agencies covered by tax treaties, conventions and
international agreements for their use or consumption (covered by
Certification in such entity’s favor), as well as entities which are by law
exempt from indirect taxes, the importer may file a claim for credit or
refund with the BOC. The BOC shall process the claim for refund,
subject to the favorable endorsement of the BIR, in accordance with
existing rules and procedures: Provided, that no claim for refund shall
be granted unless it is properly shown to the satisfaction of the BIR that
said petroleum or petroleum products have been sold to a duly
registered locator and have been utilized in the registered
activity/operation of the locator, or that such have been sold and have
been used for international shipping or air transport operations, or that
the entities to which the said goods were sold are statutorily zero-rated
for VAT, and/or exempt from Excise Taxes.

In the event that the said Freeport/Economic zone-registered

enterprise shall subsequently sell/introduce the petroleum or petroleum
products, or part of the volume thereof, into the customs territory
(except sales of fuel for use in international operations) or another
Freeport/Economic zone-registered enterprise not enjoying tax
privileges, no refund for Excise Taxes shall be granted to the importer
for the product sold. In any event, the possessor of petroleum or
petroleum products must be able to present sufficient evidence that the
Excise Taxes due thereon have been paid, otherwise the Excise Taxes
due on said goods shall be collected from said possessor/user.

In case of sale/introduction of petroleum and petroleum products,

or part of the volume thereof, by a Freeport/Economic zone-registered
enterprise, or part/volume thereof, into the customs territory or to a
Freeport/Economic zone-registered enterprise not enjoying tax
privileges, or any sale to an entity not enjoying 0% VAT rate, the seller
shall be liable for 12% VAT. In this instance, no refund for VAT shall be
allowed the importer or an assessment for VAT shall be issued to the
said importer, if the refund has already been granted, and another
assessment for VAT shall be made against the seller.

For each and every importation of petroleum and petroleum

products, the importer thereof shall secure the prescribed ATRIG from
the BIR’s Excise Tax Regulatory Division (ETRD), and pay the VAT
and Excise Taxes, as computed, before the release thereof from the
BOC’s custody. In case of subsequent sale/introduction to customs
territory by a Freeport/Economic zone-registered enterprise of
petroleum and petroleum products, the importer shall secure the
necessary Withdrawal Certificate.

For Excise Tax purposes, all importers of petroleum and

petroleum products shall secure a Permit to Operate with the BIR’s
ETRD. Such permit shall prescribe the appropriate terms and
conditions which shall include, among others, the issuance of a
Withdrawal Certificate and the submission of liquidation reports, for
the Permitee’s strict compliance.

All tank facilities, depots or terminals throughout the Philippines,

including those located within the Freeport Zones as well as within the
Economic Zones shall be registered by the owners, lessors or operators
thereof with the appropriate BIR Office having jurisdiction over the
said facilities as follows:
Revenue Regions Where the Storage Facilities are Located

Revenue Region Nos. 4, 5, 6, 7, 8, 9 and 10

Appropriate BIR Office

Excise Tax Regulatory Division,

National Office

Revenue Regions Where the Storage Facilities are Located

Revenue Region Nos. 1, 2 and 3

Appropriate BIR Office

Excise Tax Area I-Baguio City

Revenue Regions Where the Storage Facilities are Located

Revenue Region Nos. 11 and 12

Appropriate BIR Office

Excise Tax Area III-Bacolod

Revenue Regions Where the Storage Facilities are Located

Revenue Region Nos. 13, 14

Appropriate BIR Office

Excise Tax Area IV-Cebu

Revenue Regions Where the Storage Facilities are Located

Revenue Region Nos. 15 and 19

Appropriate BIR Office

Excise Tax Area V-Davao

Revenue Regions Where the Storage Facilities are Located

Revenue Region Nos. 16, 17 and 18

Appropriate BIR Office

Excise Tax Area VI-Cagayan de Oro

In cases where said facilities will be used for the storage of

petroleum or petroleum products or other goods subject to Excise
Taxes, a Permit to Operate from the BIR shall be issued. Said permit
shall prescribe the appropriate terms and conditions which shall
include, among others, the maintenance of Official Register Books or
their equivalent, joint supervision over the facilities with the BIR,
through the assignment of Revenue Officers, and stocktaking/physical
inventory taking of petroleum and petroleum products stored therein.
The monitoring requirements prescribed in this Section and in the
permit granted shall likewise be strictly observed.

A facility which will not be used for storage of petroleum or

petroleum products or other articles subject to Excise Taxes, if
satisfactorily established to the BIR, will be issued a Permit to Operate
Exempt Facility. This notwithstanding, both Permit to Operate and
Permit to Operate Exempt Facility should categorically state the goods
stored therein, and should any changes be planned, an application for
new permit should be made.

All owners, lessors or operators of tank facilities, depots or

terminals shall submit the required documents specified in the
Regulations to the appropriate BIR offices within fifteen (15) days
from the date of effectivity of these Regulations.

BIR Ruling DA 30-07, January 19, 2007

Section 106 (A) (2) (a) (1) of the Tax Code, as amended, provides

SEC. 4.106-. VAT on Sale of Goods or Properties. –

 (A) RATE and BASE of Tax - VAT is imposed and collected on
every sale, barter or exchange, or transactions “deemed sale” of
taxable goods or properties at the rate of 10% of the gross
selling price or gross value in money of the goods or properties
sold, bartered, or exchanged, or deemed sold in the Philippines.

(2) The following sales by VAT-registered persons shall be subject

to zero percent (0%) rate

(a) Export sales. – “Export Sales” shall mean:

(1) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported, paid for in
acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP)

Considering that Nenaco shall sell the Vessels to various foreign

companies not engaged in trade or business in the Phils., respective
foreign buyers shall bring the Vessels outside of the Philippines, and
the respective foreign buyers shall pay Nenaco in USD (Dollars) by
way of swift and/or telegraphic transfer to the bank account of Nenaco
in the Philippines, which shall be accounted for in accordance with the
rules and regulations of the BSP, the said sale of Vessels to the foreign
buyers shall be considered export sale and shall be subject to VAT at
zero percent (0%) rate under Section 106 (A) (2) (a) (1) of the 1997 Tax
Code, as amended (BIR Ruling No. 076-98 dated May 27, 1998)

BIR Ruling No. 176-94

*refers to the faxed letter dated Aug 31, 1994 requesting for a
confirmation of opinion that export sales, paid for in acceptable
foreign currency and accounted for in accordance with the Rules
and Regulations of the BSP will qualify as zero-rated sales even if
the proceedsthereof are not converted into Philippine currency.

Under BSP Circular No. 1889 issued on April 13, 1993, pertinent
portions of which are quoted hereunder as follows:

Circular No. 1389 CONSOLIDATED FOREIGN EXCHANGE RULES

AND REGULATIONS

Pursuant to Monetary Board Resolution No. 246 March 26, 1993 the
foreign exchange rules and regulations on current accounts, capital
accounts, foreign currency deposit units, offshore banking units and
representative offices of foreign banks are hereby consolidated as
follows:

PART ONE, CURRENT ACCOUNTS

CHAPTER 1

NON_TRADE FOREIGN EXCHANGE RECEIPTS AND

DISBURSEMENT TRANSFERS OF LOCAL CURRENCIES AND
GOLD TRANSACTIONS

Sec 1. Disposition of Foreign Exchange Receipts.—Foreign

exchange receipts, acquisitions or earnings of residents from non-
trade sources may, at the option of said residents, be sold for
pesos to Authorized Agent Banks (AABs) or outside the banking
system, retained, or deposited in foreign currency accounts,
whether in the Phils or abroad. All categories of banks (except
Offshore Banking Units [OBUs]), duly licensed by the Central
Bank shall be considered as AABs

Sec. 20. Disposition of Export Proceeds. – Foreign

exchange receipts, acquisitions or earnings of resident from
export may, at the option of said exporter, be sold for pesos to
AABs or outside the banking system, retained, or deposited in
foreign currency accounts, whether in the Philippines or abroad
and may be used freely for any purpose
The exporters are given the option to sell their foreign currency
earnings to the Authorized Agent Banks or to deposit the same in
foreign currency accounts in banks located within or outside the
Philippines. Accordingly, your opinion that export sales paid for in
acceptable foreign currency and accounted for in accordance with the
rules and regulations of the BSP qualify as zero-rated sales even if the
proceeds thereof are not converted to Phil. Pesos, is hereby confirmed.

VAT Ruling No. 47-00 Oct. 26, 2000

*refers to your letter dated Nov. 17, 1999, for and in behalf of your
client, CARGILL PHILIPPINES, INC., requesting for a
confirmation of your opinion that for purposes of applying for
refund of input taxes attributable to export sales, it is not necessary
for he exporter to prove the inward remittance and conversion to
Philippine Pesos of its export sales.

Section 106 (A) (2) (a) (1) of the Tax Code, as amended, provides

SEC. 4.106-. VAT on Sale of Goods or Properties. –

(A) RATE and BASE of Tax - VAT is imposed and collected on

every sale, barter or exchange, or transactions “deemed sale” of
taxable goods or properties at the rate of 10% of the gross
selling price or gross value in money of the goods or properties
sold, bartered, or exchanged, or deemed sold in the Philippines.

(2) The following sales by VAT-registered persons shall be subject

to zero percent (0%) rate

(a) Export sales. – “Export Sales” shall mean:

(1) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that
may be agreed upon which may influence or determine the
transfer of ownership of the goods so exported, paid for in
acceptable foreign currency or its equivalent in goods or
 services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP)

The term “and accounted for in accordance with the rules and
regulations of Bank Sentral ng Pilipinas (BSP) is implemented by
BSP Circular No. 1389 dated April 13, 1993 the pertinent portion of
which provides:

Sec. 20. Disposition of Export Proceeds. – Foreign

exchange receipts, acquisitions or earnings of resident from
export may, at the option of said exporter, be sold for pesos to
AABs or outside the banking system, retained, or deposited in
foreign currency accounts, whether in the Philippines or abroad
and may be used freely for any purpose

“Accordingly, your opinion that export sales paid for in acceptable

foreign currency and accounted for in accordance with the rules and
regulations of the BSP qualify as zero-rated sales even if the proceeds
thereof are not converted to Philippine pesos, is hereby confirmed.”
(BIR Ruling No. 176-94 vis-à-vis query of San Miguel Corporation)

EFFECTIVE ZERO-RATED TRANSACTIONS

Sec. 4.106-6

Meaning of the Term “Effectively Zero-rated Sale of Goods and

Properties”. – The term “effectively zero-rated sale of goods and
properties” shall refer to the local sale of goods and properties by a
VAT-registered person to a person or entity who was granted indirect
tax exemption under special laws or international agreement. Under
these Regulations, transactions which, although not involving actual
export, are considered as “constructive export” shall be entitled to the
benefit of zero-rating, such as local sales of goods and properties to
persons or entities covered under pars. (a) no. (3) - (sale to export-
oriented enterprises), (a) no. (6) - (sale of goods, supplies, equipment
and fuel to persons engaged in international shipping or international
air transport operations), (b) (Foreign Currency Denominated Sale) and
(c) (Sales to Tax-Exempt Persons or Entities) of the preceding section.
 Except for Export Sale under Sec. 4.106-5(a) and Foreign
Currency Denominated Sale under Sec. 4.106-5(b), other cases of zero-
rated sales shall require prior application with the appropriate BIR
office for effective zero-rating. Without an approved application for
effective zero-rating, the transaction otherwise entitled to zero-rating
shall be considered exempt. The foregoing rule notwithstanding, the
Commissioner may prescribe such rules to effectively implement the
processing of applications for effective zero-rating.

EXEMPT TRANSACTIONS

General Rule

BIR Ruling No. 155-98, Oct. 21, 1998

Based on the foregoing representations, you are now requesting for a

ruling on the following:

1. is there a tax due on my purchase of crude oil from Shell inside

their refinery?
2. Will the diesel and gasoline products which I will use as raw
materials for my ALCO DIESEL and LAN-GAS inventions be
subject to any tax?

3. How about the other yields from the said processing?

ABOVE QUERIES ARE ANSWERED AS FOLLOWS:

1. Since your primary purpose for buying crude oil is practically

to procure the raw materials for your inventions at a lesser
cost, as purchaser therefore, you are not liable to pay any tax
on your said purchase of crude oil. Furthermore, the sale of
crude oil not being among those enumerated under Section
148 of the Tax Code of 1997 as excisable petroleum product is
not subject to excise tax. However, Pilipinas Shell Petroleum
Corporation, seller of the said crude oil, shall be subject to
income tax on whatever gain it may derive on said sale of
crude oil.
 2. Second query is answered in the negative. Considering that
you are now the owner of the crude oil which will be
processed by Pilipinas Shell Petroleum Corp for a fee, the
removal of the said yields i.e naphtha, diesel, gasoline,
LPGas, and bunker c, from the Shell Refinery in Tabangao,
Batangas City, which you will exclusively use as raw
materials for your inventions, i.e., ALCO DIESEL with the
following raw materials as its components: methanol, ethanol,
naphtha and diesel, and LAN-GAS with the following raw
materials as its components: ethanol, methanol, naphtha and
mogas (gasoline), and SUPERBUNKER FORMULA L with
the following raw materials as its components: kerosene,
naphtha, Bunker c, LPG and water, are not subject to excise
tax imposed under Section 148 of the Tax Code of 1997 and
the income tax imposed under Section 24(A)(1) of the same
Code.

Incase yields are sold, you shall be assessed with the

corresponding excise tax under section 148 of the tax code of 1997 and
the gains therefrom will be subject to income tax under section 24(A)
(1) of the same code notwithstanding your exemption under R.A. No.
7459.

On the other hand, the sale or exchange of sevices by Pilipinas

Shell Petroleum Corp’s refinery plant shall be subject to value-added
tax equivalent to 10% of gross receipts pursuant to section 108 of the
Tax Code of 1997. The phrase “sale or exchange of services” means the
performance of all kinds of services in the Phils for others for a fee,
remuneration or consideration. The value-added tax is payable by the
seller and not by the purchaser of goods or services. However, the
value-added tax which is by nature an indirect tax, the amount of the
tax may be shifter or passed on to the buyer, transferee or lessee of the
goods, properties or services. (section 105, tax code of 1997) Once
shifted, it is no longer a tax but an additional cost which the purchaser
has to pay to obtain the goods or services.
Hence, you cannot invoke your exemption privileges as an inventor to
avoid the passing on or shifting of the value-added tax billed by
Pilipinas Shell Petroleum Corps Refinery Plant for their services
rendered.