BIR Ruling [DA-094-00]

February 10, 2000 BIR RULING [DA-094-00] 106 (A) (2) (C) 74-99 Ford Edsa 29 Edsa, Greenhills San Juan, Metro Manila Attention: Ms . Loreta C . Sumalde Accountant Ford Edsa, Inc. Gentlemen : This refers to your letter dated March 26, 1999 requesting for a ruling as to whether or not the sale of vehicle to Sang Woo of the Phils., Inc. a Philippine Economic Zone Authority (PEZA) registered ecozone export enterprise with Registration Certificate No. 92-011, located at the Laguna International Industrial Park-SEZ, is effectively zero-rated pursuant to Section 106(A)(2)(c) of the Tax Code of 1997. In reply, please be informed that Section 106(A)(2)(c) of the Tax Code of 1997 provides that sales to persons or entities whose exemption under special laws (e. g., R.A. No. 7227 and R.A. No. 7916) or international agreements to which the Philippine is a signatory effectively subject such sale to zero rate. However, in interpreting and applying the above-cited section, this Office in RMC No. 25-99 declared that the sales of ordinary automobiles to PEZA or SBMA and other ECOZONE registered enterprises are not entitled to VAT zero-rating. This is so because Section 2(ii) of R.A. No. 7916 provides that the term "Merchandise or Goods" shall collectively refer to raw materials, supplies, equipment, machineries, spare parts, packaging materials or wares of every description to be used in connection with the registered activity of an ECOZONE enterprise . (Emphasis supplied) The phrase "to be used in connection with the registered activity of an ECOZONE enterprise" in describing what comprises merchandise or goods imparts the presumption that the same are somehow utilized in the production activity of an ECOZONE enterprise. Such being the case, since the sale of locally assembled motor vehicle to Sang Woo of the Phils., Inc. is not directly related to its registered activity as PEZA enterprise, the same could not be covered within the classification of goods or merchandise entitled to the benefit of tax exemption. Moreover, since the value-added tax is an indirect tax, the amount of tax may be shifted or passed on to the buyer of the goods, properties or services. Accordingly, the sale of one (1) unit of motor vehicle to Sang Woo of the Phils., Inc. is subject to 10% value-added tax. (BIR Ruling No. 74-99 dated June 4, 1999) 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. DaAETS Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)