In the Philippines, a domestic corporation called E Co. has requested confirmation on the applicability of Value-Added Tax (VAT) to consultancy services rendered to a foreign corporation, B Co. Additionally, E Co. has sought clarification on whether it can apply for a refund of any excess or unutilized input VAT due or paid from its zero-rated sale of services to B Co.
It is important to note that the Philippine government and the United States of America (USA) have signed an agreement called the Agreement Concerning Cooperation in Countering the Proliferation of Weapons of Mass Destruction, Strengthening Maritime Security, and other purposes (CTRA). The Defense Threat Reduction Agency (DTRA) is the implementing agency of the USA's Department of Defense responsible for executing the Cooperative Threat Reduction Integrating Contract (CTRIC) under the CTRA. B Co., as the prime contractor to implement the CTRIC in the Philippines, entered into a Basic Ordering Agreement with E Co. to perform consultancy services which shall be paid in foreign currency.
According to the 1997 Tax Code of the Philippines, as implemented by Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007, consultancy services 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 when the services are performed and the consideration for which is paid in acceptable foreign currency shall be subject to VAT zero-rating. Therefore, consultancy services rendered by E Co. to B Co., a foreign corporation, are subject to VAT zero-rating.
Furthermore, Section 1-12 (A) of the 1997 Tax Code, as implemented by Section 19 of RR No. 4-2007, provides that E Co. is entitled to apply for a refund of any excess or unutilized input VAT due or paid attributable to its zero-rated sale of services to B Co.
In summary, consultancy services rendered by a domestic corporation in the Philippines to a foreign corporation are subject to VAT zero-rating if the services are performed for a person engaged in business conducted outside the Philippines or a non-resident person not engaged in business. The domestic corporation may also apply for a refund of any excess or unutilized input VAT due or paid attributable to its zero-rated sale of services.