BIR Ruling

January 3, 1975 The President Philippine Coconut Oil Producers Association, Inc. Third Floor, Zaragoza Bldg. Gamboa cor. Trasiera St. Makati, Rizal S i r : This refers to your two letters, both dated October 29, 1974, requesting clarification on the liability for 2% tax of those transacting in coconut oil under the facts and circumstances hereunder described. In your first letter, it is represented that the Philippine Coconut Oil Producers Association (PCOPA) shall participate in the Philippine government Trade and Economic Mission to the People's Republic of China to develop the market for crude coconut oil, possibly to conclude sales contracts in the name of the association for and in behalf of the participating members, viz.: cdt 1. Lu Do & Lu Ym Corporation 2. Legaspi Oil Co., Inc. 3. Coco-Chemical Philippines, Inc. 4. NIDC Oil Mills, Inc. 5. Procter and Gamble Phil. Mfg. Corp. 6. Philippine Refining Co., Inc. 7. Central Vegetable Oil Mfg. Co. 8. San Pablo Manufacturing Corporation 9. Tantuco Enterprises, Inc. 10. Imperial Vegetable Oil Co., Inc. that should any sale of crude coconut oil for export or shipment to the People's Republic of China be concluded this time, it will be in the name of the PCOPA as seller with the various firms listed above as the suppliers for quantities according to each share; that to proceed with the required export documentation, the PCOPA shall make the necessary preparation of export documents and export sales invoices; that the member firms in turn shall then bill or invoice the PCOPA for the equivalent net FOB peso value of the export price of the quantity of crude coconut oil each has to load to complete tonnages of the shipment; that while each act of the participating firms of the PCOPA in loading crude coconut oil for exportation or shipment to the buyer (PCOPA) clearly indicate exportation of the product, thus exempted from the payment of the percentage tax under Section 189, the need to bill or invoice PCOPA for the amount due each of the quantity they shipped may be misconstrued as a local sale and thus be made to pay the percentage tax of two percent. Under the foregoing facts, you request that the transaction between the above-named firms and the PCOPA be exempted from the payment of the 2% tax due from coconut oil mills under Section 189 of the Tax Code. In your second letter, it is stated that in times of poor copra production and/or power failures from Meralco, a coconut oil miller/exporter is forced to buy necessary quantities of crude oil or expeller pellets from another coconut oil mill to complete his export contract loading for a vessel then in port; that the terms of the purchase is either delivered buyer's storage tank (preparatory to loading unto lighters for transshipment to ocean-going vessels) or pick up seller's oil tanks by lighters for transshipment to ocean-going vessels; that sometimes, delivery is FOB vessel in port; that the sale between the two oil mills is considered a domestic transaction, the seller being made to pay the percentage tax under Section 189; and that at the same time, the buyer oil mill is the exporter of record of the same parcel of crude coconut oil (or expeller pellets) also pays the export duties and premiums duties as the case may be. Under the circumstances as presented above, you would like to be informed whether this type of transaction is exempt from the payment of the 2% tax under Section 189 of the Tax Code. In reply, I have the honor to inform you that under Section 189 of the Tax Code, the 2% tax therein imposed shall not apply to coconut oil, if such coconut oil shall be removed for exportation and are actually exported without returning to the Philippines. Applying the said provision of Section 189 to the facts as presented in your first letter, exportation of the crude coconut oil by the participating firms through the Philippine Coconut Oil Producers Association is exempt from the 2% tax imposed in said Section. However, as correctly observed in the second letter of that Association, the sale of crude oil or expeller pellets by one oil mill to another to complete the latter's export contract loading for a vessel in port, is a domestic sale and, therefore the seller is subject to the 2% tax prescribed in Section 189 of the Tax Code. The buyer-exporter shall then be subject to the graduated annual fixed tax prescribed in Section 182(A)(2) of the Tax Code as a dealer of coconut oil. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5