BIR RULING DA- 202-08

It is represented that Manila Peninsula Hotel provides room

accommodation, food and beverage services to PEZA-registered
companies; that they present their respective PEZA Certificate in order
for them to avail of the supposed benefits of VAT zero-rating or
exemption; that however, having been previously advised by the Chief,
BIR Large Taxpayers Assistance Division that the zero-rating applies
only to transactions rendered within the ecozone, the Hotel would
advise its respective clients of the same and thus contest their claims;
that to maintain good business relationship with the clients, the Hotel
usually end up shouldering the 12% VAT absent any ruling to the effect
that since the service is done outside the ecozone, the same is subject
to VAT.

Whether or not the services that Peninsula Manila (Hotel) renders to its
various clients in its business location enjoy the benefits of VAT zero-
rating or tax exemption.

Sales of services by VAT-registered entities from the Customs Territory

to PEZA-registered enterprises are entitled to avail of effective VAT
zero-rating. The basis of VAT zero-rating is the fact that under R.A.
7916, as amended (PEZA Law), ECOZONEs are declared as separate
customs territories which by legal fiction are considered foreign soil.

In BIR Ruling No. DA-344-2003 dated October 7, 2003, this Office held
that the special tax incentives only apply with respect to the registered
enterprise's operations within the ECOZONE (destination principle thus
imports are subject to VAT and exports are free of VAT).

Sale of Services to a PEZA-registered enterprises shall be

subject to VAT at zero percent (0%):

1. The supplier of services is a VAT-registered taxpayer

2. The services are rendered within the ECOZONE; and
3. The services are rendered in connection with the registered
activity/ies of the buyers, i.e., PEZA-registered entities.

Sale of Services subject to 12% VAT

Conversely, if the service is rendered within the customs territory, such
sale of service by a VAT-registered person shall be subject to the 12%
VAT irrespective of the status of the buyer as ECOZONE registered
enterprise. This is in consideration that the situs of VAT for sale of
services is the place where the service is rendered.

Conclusion:
In the present case, the food and accommodation services which
Peninsula Manila renders to its PEZA-registered clients are made at the
former's premises in Makati City and not within any Ecozone. Thus,
there is no basis for the aforementioned clients to claim that such
services are entitled to VAT zero-rating and accordingly, these services
are subject to 12% VAT under Section 108 (A) of the Tax Code of 1997,
as amended by R.A. 9337.