BIR Ruling [DA-029-97]

January 15, 1997 BIR RULING [DA-029-97] Sharp (Phils.) Corporation Km. 23, West Service Road South Superhighway, Alabang Muntinlupa, Metro Manila Attention: Mr . Silver F . Montalbo Senior Manager Gentlemen : This refers to your letter dated August 23, 1996 requesting clarification of paragraph 2, BIR Ruling 8-96 dated January 19, 1996, viz: cd "Importations thru customs bonded manufacturing warehouse of raw materials, supplies and spare parts used in the manufacture/assembly of articles for export will likewise not be subject to the 10% VAT on imports. This is because articles imported thru customs bonded manufacturing warehouse, used or forming part of finished products that are subsequently exported, are not considered as having entered Philippine territory for purpose of Customs and National Internal Revenue laws, rules and regulations." It is represented that Sharp (Phils.) Corporation, a BOI registered firm and exporting washing machines to Japan and other Asian countries is an operator of a bonded manufacturing warehouse and a member of the Semiconductors Electronics Industries Foundation, Inc. (SEIFI); that it is a promoter of parts localization and in the process is buying parts and components from the local suppliers which are operators of bonded manufacturing warehouse; that said parts and components form part of Sharp's finished product (Washing Machine) being exported to Japan and other Asian; and that this process known as "constructive exportations" is now the subject of the directive by the appropriate BIR-RDO re: imposition of the 10% VAT for every sale/transfer of bonded parts and components. In reply, please be informed that pursuant to Section 4.100-2 (a) (5), Revenue Regulations No. 7-95, importations through a customs bonded manufacturing warehouse of raw materials an spare parts used in the manufacture/assembly of products for export are not subject to 10% VAT. The customs bonded manufacturing warehouse is removed from the jurisdiction of the Philippine customs territory, thus the raw materials and/or spare parts are deemed not to have entered the customs territory, and therefore, were never introduced into Philippine commerce; hence, imported articles brought into the bonded manufacturing warehouse which are used as raw materials of finished products which are eventually exported are exempt from VAT. (BIR Ruling 8-96 dated January 19, 1996) cdt Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)