BIR Ruling [DA-111-04]

March 11, 2004 BIR RULING [DA-111-04] Section 108 (b) VAT Ruling No. 024-2001 and 075-2001 BVM Sanchez and Son Customs Broker and Freight Forwarding Company, Inc. Suite 207 O. Ledesma Bldg., Gen. Luna corner Real St., Intramuros, Manila Attention: Ms. Bernardina M. Sanchez Gentlemen : This refers to your letter dated November 13, 2003 requesting in behalf of your client, Legaspi Import and Export Corporation, that transactions with BOI and PEZA registered corporations are VAT zero-rated. It is represented that your client, Legaspi Import and Export Corporation is a supplier of various articles in bulk to the following entities: Children Treasure, Inc. BOI Registered Company 250 Metric Tons of Di-Isononyl Phthalate; Crown Asia Compounder Corporation BOI Registered Company 3,000 to 3,600 Metric Tons DINP (Plasticizer); Isola Asia Pacific (Philippines), Inc. PEZA Registered Ecozone Enterprise 500 Metric Tons Acetone in Bulk; Coral Bay Nickel Corporation. PEZA Registered Ecozone Enterprise Nickel/cobalt/mixed sulfide/Methanol that Children Treasure, Inc. exports 100% of its manufactured products; that Crown Asia Compounders Corporation exports at least 70% of its production; that your client, Legaspi Import and Export Corporation maintains forty one (41) chemical tanks at the Jetty Facilities inside the Batangas Bay Terminal; that these chemicals are being unloaded thru pumps direct to the designated tanks; that the Jetty Facility is within the Customs Territory under the jurisdiction of the Port of Batangas; and that you are of the opinion that your client is subject to 0% VAT. In reply, please be informed that this Office has already ruled that Republic Act No. 7916 or the PEZA Law is one of the special laws falling under the coverage of Section 108(B)(3) of the Tax Code of 1997. This is more clearly reiterated in Revenue Memorandum Circular No. 74-99, particularly Section 3, which states that: HECaTD "(1) If the Buyer is a PEZA registered enterprise which is subject to the 5% special tax regime, in lieu of all taxes, except real property tax, pursuant to R.A. No. 7916, as amended: . . ." " Sale of service This shall be treated subject to zero percent (0%) VAT under the "cross border doctrine" of the VAT System, pursuant to VAT Ruling No. 032-98 dated November 5, 1998." Furthermore, the same Revenue Memorandum Circular provides that: 3. "In the final analysis, 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 PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT "This Circular shall serve as sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No. 7-95 effective as of the date of the issuance of this Circular." Accordingly, we hereby confirm your opinion that any sale of goods or services to Isola Asia Pacific (Philippines) Inc., and Coral Bay Nickel Corporation, both PEZA registered enterprise are legally entitled to zero percent (0%) VAT. In the case of Children Treasure Inc. and Crown Asia Compounder Corporation, both BOI registered companies, only Children Treasure, Inc. is qualified for automatic zero-rating because of its compliance with Revenue Memorandum Circular No. 9-2000 wherein its manufactured products are 100% exported to foreign countries and therefore said sales can be accorded automatic zero-rating treatment. On the other hand, since Crown Asia Compounders Corporation exports only at least 70% of its production, which is less than what is required pursuant to Section 2 of RMO No. 9-2000, the sales cannot be accorded automatic zero-rating treatment. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group