BIR Ruling [DA-057-05]

February 18, 2005 BIR RULING [DA-057-05] S.107 (A); 27 (A) DA-418-2003 dated 11-18-2003 Samsung Electronics Philippines Corporation Ground Floor Bonaventure Plaza, Ortigas Avenue, Greenhills, San Juan, Metro Manila Attention: Jeong Ryeol Kim Treasurer Gentlemen : This refers to your letter dated January 4, 2005 requesting for confirmation that the sale by SAMSUNG ELECTRONICS PHILIPPINES CORPORATION (SEPCO for brevity), of its electronic equipments to DUTY FREE PHILIPPINES. INC. (DFPI for brevity) consummated outside the Philippines is not subject to Value Added tax (VAT for brevity). The facts, as you represent, are as follows: SEPCO, a domestic corporation duly registered with the Securities and Exchange Commission, is principally engaged in the marketing and distribution of consumer electronics and electrical products purchased from Samsung Electronics Korea and/or its subsidiaries. It intends to sell electronic equipments to DFPI. DFPI was established as a tax and duty free merchandising system by virtue of Executive Order No. 46 granting the Department of Tourism, through the Philippine Tourism Authority (PTA) authority to operate a tax and duty free merchandising system in order to augment the service facilities for tourists and to generate foreign exchange and revenue for the government. The PTA shall have the exclusive authority to operate stores and shops that would sell, among others, tax and duty free merchandise, goods, and articles in international airports and seaports throughout the country. DFPI is a division of PTA primarily established to operate duty and tax free stores. AIaDcH In order for its electronic equipments to be competitive, SEPCO proposes to sell the same to DFPI while in transit or outside the Philippines so that DFPI will acquire title over them prior to their entry into the Philippines. Hence, in the shipping documents SEPCO will be the owner but the consignee will be DFPI. The ultimate importer of the goods will be DFPI since the goods will be sold by SEPCO while in transit. Hence, upon landing DFPI will now be the owner of the goods, and SEPCO would not be burdened with any VAT liability on said transaction. In reply, please be informed that this Office consistently ruled that where the sale of imported goods to an entity occurred while the same was in transit or outside the Philippines, consequently acquiring title over it before entering Philippine territory, such sale is not subject to VAT. Thus, ". . . pursuant to Section 107(A) of the Tax Code of 1997, 'there shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any', such tax to be imposed on the IMPORTERS thereof. Nonetheless, if, under the instant case, the importer/consignee of the subject goods to be imported is the Duty Free Philippines, the said importation is exempt from taxes . . . (BIR VAT Review Committee Ruling No. 011-2001 dated March 8, 2001) xxx xxx xxx Accordingly, since ownership of the imported goods was transferred while in transit or outside Philippine territory, LDMPI is considered the importer of such goods . xxx xxx xxx Moreover, since the sale of cell phone units to LDMPI was consummated outside the territorial jurisdiction of the Philippines, the same is not subject to VAT. The proceeds, however, shall be subject to the ordinary corporate income tax under Section 27(A) of the 1997 Tax Code ." (Emphasis supplied.) (BIR Ruling No. DA-418-2003 dated November 18, 2003) HCSDca Accordingly, since the sale of electronic equipments to DFPI is to be consummated outside the territorial jurisdiction of the Philippines, the same is not subject to VAT. The proceeds, however, shall be subject to the ordinary corporate income tax under Section 27(A) of the 1997 Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group