MM Steel Service Center Corporation

February 5, 2007 BIR RULING [DA-057-07] VAT Ruling No. 26-99; Sec. 4.106-5 (a) (5); R.R. 16-2005; Art. 23, E.O. 226 MM Steel Service Center Corporation Km. 53 Bo. Tulo Calamba City Laguna Attention: Daniel J. Panuncio Gentlemen : This refers to your letter dated October 28, 2006 requesting this Office's opinion on whether or not your sales of steel sheets/coils to your customer are subject to VAT zero-rating pursuant to Revenue Regulations (RR) No. 16-2005. It is represented that MM Steel Service Corporation (MM Steel) is engaged in the business of importing steel sheets/coils and selling these products to your customer, JIT Custom Bonded Trading Warehouse Inc. (JIT) as raw materials in the manufacture of various finished products for export. It is further represented that JIT is a registered export trader operating a Bureau of Customs (BOC)-accredited bonded trading warehouse which supplies raw materials to BOC-accredited manufacturing exporters. In reply, please be informed that Section 4.106-5 (a) (5) of RR 16-2005 provides that; "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties . A zero-rated sale of goods or properties (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with these Regulations. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate. (a) Export sales. "Export Sales" shall mean: xxx xxx xxx (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. "Considered export sales under Executive Order No. 226" shall mean the Philippine port F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents of export products exported directly by a registered export producer, or the net selling price of export products sold by a registered export producer to another export producer, or to an export trader that subsequently exports the same; Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents; Provided, further, That without actual exportation, the following shall be considered constructively exported for purposes of these provisions: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); . . . " In addition, under Article 23 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, "(1) sales to bonded manufacturing warehouses of export-oriented manufacturers are considered constructively exported." As such, these transactions are entitled to be regarded as effectively VAT zero-rated, upon prior application with the BIR, in accordance with Revenue Memorandum Order (RMO) No. 7-2006. From the foregoing, it is clear that MM's Steel's sales of steel sheets/coils to JIT, a registered export trader operating a licensed customs bonded trading warehouse pursuant to Section 24 of Customs Administrative Order No. 2-91, are considered as constructive exports, and thus, entitled to effective VAT zero-rating pursuant to Section 4.106-5 (a) (5) of RR 16-2005 and Article 23 of EO 226. SIcEHD This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service