BIR Ruling [DA-067-06]

March 1, 2006 BIR RULING [DA-067-06] RMC 74-99; 046-95 Hana Tech Incorporated Blk. 2, Tepaurel Compound Putatan, Muntinlupa Attention: Mr. Woo Seog Yoon President/Gen. Manager Gentlemen : This refers to your letter dated November 8, 2005 requesting for a confirmation of your opinion that your transactions with Samsung Electro-Mechanics Philippines Corporation (SEMPHIL) who operates business at Calamba Premiere International Park-SEPZ is a VAT-zero transaction and that as supplier, you can claim the benefits allowed under the law. It is represented that SEMPHIL is a Philippine Economic Zone Authority (PEZA) registered Ecozone Export Enterprise with Registration Certificate No. 97-074 dated 16 October, 1997; and that it is engaged in the (a) manufacture of Multi-Layer Chip Capacitor (MLCC) and Thick Film Ch. Resistor, (b) manufacture of crystal oscillator and (c) manufacture of micro-chip tantalum capacitor and saw filter. In reply, please be informed that Section 4.106-2-5(c) of Revenue Regulations No. 16-2005 dated September 1, 2005 provides, viz: "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: EcICSA xxx xxx xxx (c) "Sales to Persons or Entities Deemed Tax-exempt under Special Law or International Agreement." Sales of goods or property to persons or entities who are tax-exempt under special laws, e.g., sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. No. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which the Philippines is signatory, such as Asian Development Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero-rate." In addition thereto, Section 3(3) of Revenue Memorandum Circular No. 74-99 provides, viz: ". . . any sale of goods, property or services made by a VAT registered supplier from the Customs Territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter's registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to Art. 77(2) of the Omnibus Investments Code, while all sales of services to the said enterprises, made by VAT registered suppliers from the Customs Territory, shall be treated effectively subject to the 0% VAT, pursuant to Section 108(B)(3), NIRC, in relation to the provisions of R.A. 7916 and the "Cross Border Doctrine" of the VAT system." Thus, the sale of goods by a domestic vendor in a customs territory, Hana Tech Incorporated, to a buyer located within the special Economic Zone, SEMPHIL, shall be considered export and effectively subject to zero percent (0%) VAT. The domestic vendor shall not impute or shift any VAT as part of the cost to be paid by SEMPHIL on its purchases from the Customs territory. (BIR Ruling No. 046-95 dated March 3, 1995) 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