March 16, 2006

BIR RULING [DA-119-06]

106 (A) (2); 112; VAT Ruling Nos. 55-98; 30-2004;

DA-346-99; DA-146-2003

Mendoza Querido & Co.

Certified Public Accountants
22nd Floor, Multinational Bancorporation
6805 Ayala Avenue, Salcedo Village
Makati City

Attention: Mr. Richard S. Querido

Partner

Gentlemen :

This refers to your letter dated October 3, 2005 requesting on behalf of your
client, FILGIFTS.COM, INC. ("Filgifts" for brevity), for confirmation of your
opinion as follows:

1. That the sales of Filgifts to its nonresident clients for delivery to a

resident of the Philippines, which are paid through credit card
charging in US Currency, can be considered as "foreign currency
denominated sales" and therefore, subject to value-added tax
("VAT") at zero percent (0%) rate; and

2. That the unutilized excess input VAT of Filgifts from its local
purchases which are directly attributable or ratably apportioned to its
zero-rated sales can be claimed for refund or tax credit.

It is represented that Filgifts is a corporation duly organized and existing

under and by virtue of the laws of the Republic of the Philippines with registered
office address at 2nd floor, Filipino Building, 135 Dela Rosa Street, Legaspi
Village, Makati City; that Filgifts provides online shopping mall wherein clients
can purchase gifts, flowers and other similar items online while they are situated
outside the Philippines, and deliver the same to their relatives here in the
Philippines; and that the clients are billed in US Currency and that all payments
are made through credit card charging and the collections received by Filgifts are
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 also in US Currency. SECATH

In reply, please be informed that Section 106(A)(2)(b) of the Tax Code of

1997, as amended by Republic Act No. 9337, provides, viz:

"SEC. 106. Value-added Tax on Sale of Goods or Properties. —

(A) Rate and Base of Tax. —

xxx xxx xxx

(2) [Zero-rated Sales.] — The following sales by

VAT-registered persons shall be subject to zero percent (0%) rate:

xxx xxx xxx

(b) Foreign Currency Denominated Sale. — The phrase 'foreign

currency denominated sale' means sale to a nonresident of goods, except
those mentioned in Sections 149 and 150, 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 Bangko Sentral ng Pilipinas (BSP)."

The above-quoted provision of law is implemented by Section 4.106-5 of

Revenue Regulations No. 16-2005, as follows:

"SEC. 4.106-5. Zero-rated sales. — A zero-rated sales by a

VAT-registered person, which is a taxable transaction for VAT purposes,
shall not result in any output tax. However, the input tax on his 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 —

(b) "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 Bangko
Sentral ng Pilipinas (BSP)." TEaADS

In VAT Ruling No. 030-2004 dated October 29, 2004, this Office had
occasioned to rule, as follows:

"Therefore, when your non-resident client avails of your online

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 shopping mall services and pays through credit card charging, said sale is
a foreign currency denominated sale subject to value-added tax at zero
percent (0%) rate."

The premises being considered and since the sales of Filgifts to its
nonresident clients for delivery to a resident of the Philippines are being paid for in
US Currency through credit card charging, such sales are considered foreign
currency denominated sale, and thus subject to value-added tax at zero percent
(0%) rate.

Furthermore, the unutilized excess input VAT of Filgifts from its local
purchases which are directly attributable or ratably apportioned to its zero-rated
sales can be claimed for refund or tax credit pursuant to Section 112 of the Tax
Code of 1997 (VAT Ruling No. 055-98 dated December 2, 1998), as amended and
subject to compliance of the invoicing requirements under Revenue Regulations
(RR) No. 7-95, as amended by RR No. 14-2005.

This ruling is being issued on the basis of the foregoing facts as

represented. However, if upon investigation, it shall be disclosed that the facts are
different, then this ruling shall be considered null and void.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

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