Monarch Agricultural Products, Inc.

February 6, 2008 BIR RULING [DA-076-08] RR 16-2005; DA-747-06 Monarch Agricultural Products, Inc. Roofdeck No. 5650, Don Pedro Street Barangay Poblacion, Makati City Attention: Ms. Mena P. Estaras Gentlemen : This refers to your letter dated October 16, 2007 requesting for a ruling that the sales of pesticides by Monarch Agricultural Products, Inc. (MAPI) to Tagum Agricultural Development Co., Inc. (TADECO), being considered export sales shall be subject to zero percent (0%) VAT rate and therefore, MAPI can apply for a Tax Credit Certificate (TCC) for the unused input VAT. It is represented that MAPI, a VAT-registered enterprise, is engaged in the importation and distribution of quality agricultural pesticides; that it is duly registered with the Fertilizer and Pesticide Authority; that MAPI will be selling various pesticides to TADECO, a banana grower and exporter in Davao; that being an exporter, TADECO is also a BOI registered company; and that TADECO is a VAT zero rated registered enterprise as shown in its BIR Certificate of Registration. In reply, please be informed that Section 106 (A) (2) (a) (5) of the Tax Code of 1997 provides, that: "Section 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate (a) Export Sales. The term "export sales" means xxx xxx xxx (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws." (Emphasis supplied) Implementing the above provision, Section 4.106-5 (a) (5) of Revenue Regulations No. 16-2005, as amended by Section 5 of Revenue Regulations No. 4-2007 provides as follows: SAHaTc "SEC. 5. Zero-rated Sales. Section 4.106-5 of RR 16-2 00 5 is hereby amended to read as follows: ITCcAD SEC. 4.106-5. Zero Rated Sales of Goods or Properties. xxx xxx xxx The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. "Export Sales" means (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code, 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 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, finally, that sales of goods, properties or services made by a VAT-registered supplier to a BOI-registered manufacturer/producer whose products are 100% exported are considered export sales . . . ." AaEcHC Since the sales of goods, materials and supplies by VAT-registered suppliers (ex., MAPI) to TADECO (banana exporter), which are for the exclusive use of the latter's plantation, fall within the definition of export sale under E.O. No. 226, such sale is the export sale contemplated by Section 106 (A) (2) (a) (5) of the Tax Code of 1997 as implemented by Section 4.106-5 (a) (5) of Revenue Regulations 4-2007 which is subject to VAT zero-rating. (VAT Ruling No. 003-2002 dated February 6, 2002 and 010-2005 dated July 28, 2005) Accordingly, this Office hereby confirms your opinion that the sales by VAT-registered suppliers to TADECO being export sales shall be subject to zero (0%) percent VAT rate. 1uptax08 Thus, as to the advance VAT paid by MAPI, the same can be credited against its output VAT or subject of a claim for refund or tax credit certificate. cCSTHA 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