The Thomasite Center for International Studies, Inc.

March 7, 2008 BIR RULING [DA-140-08] 109 (L); RR 20-2001; RMC 50-2007; DA-663-2007 The Thomasite Center for International Studies, Inc. Bldg. 8256 Bataan Drive Upper Cubi-Triboa District Subic Bay Freeport Zone Attention: Dong Seung Chung Gentlemen : This refers to your letter dated February 09, 2008 requesting for a ruling that the purchase by The Thomasite Center for International Studies, Inc. a Subic Bay Freeport Enterprise, of one 2008 Ford Expedition is subject to VAT at zero percent (0%) rate. It is represented and supporting documents show that The Thomasite Center for International Studies, Inc. is a Subic Bay Freeport Enterprise with Certificate of Registration No. 2007-0035 issued on March 26, 2007; that it purchased from Ford Commonwealth Company a 2008 Ford Expedition specifically described as follows: Engine Number 8LA28430 Serial Number 1FMFU18588LA28430 Color Black Clearcoat Model 2008 Customer's Name The Thomasite Center for International Studies, Inc. Address Bldg. 8256, Bataan Drive, Upper Cubi Triboa District, Subic Bay Freeport Zone, Olongapo City that said Company is owned and operated by Everest Motors, Inc., a VAT-registered entity based in Quezon City; and that the vehicle will be used to transport its students which is a registered activity. HIDCTA In reply, please be informed that the Philippine VAT Law adheres to the "cross border doctrine" of the VAT system, which basically means that no VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial border of the Philippine taxing authority. Hence, actual export of goods and services from the Philippine to a foreign country must be free of VAT. Conversely, those goods destined for use or consumption and services to be rendered within the Philippines shall be subject to the 12% VAT. In the case of Coconut Oil Refiners Association, et al., vs. Hon. Executive Secretary Ruben Torres, BCDA, et al., G.R. No. 132527, July 29, 2005. The Supreme Court held that "for as long as the goods remain within the zone, whether we call it an economic zone or a freeport zone, for as long as we say in this law that all goods entering this particular territory will be duty-free and tax-free, for as long as they remain there, consumed there or re-exported in that place, then they are not subject to duties and taxes in accordance with the laws of the Philippines." Furthermore, Section 3 of Revenue Memorandum Circular (RMC) No. 50-2007 provides, viz.: "SEC. 3. Clarificatory Questions and Answer. xxx xxx xxx Q2: What will be the treatment of sale, barter, exchange or lease of goods, properties and sale or exchange of services to a registered Freeport Zone enterprise by sellers/contractors from the Customs Territory ? A2: If the seller is a VAT taxpayer, such sale, barter or exchange shall be subject to VAT at zero (0%) percent. If the seller is a non-VAT taxpayer, the transaction shall be exempt from VAT. xxx xxx xxx Q5: What is the coverage of VAT zero rating? A5: The zero-rating will cover sale, barter, exchange or lease of all goods, properties and/or services by a VAT-registered seller/contractor from the Customs Territory to a Freeport Zone registered enterprise and shall include, among others, the following: aDcHIS a. The sale/supply of ordinary cars, vehicles, automobiles, specialize vehicles or other transportation equipment, provided that these are used exclusively within the subject Freeport Zones." From the afore-cited provision of RMC No. 50-2007, this Office is of the opinion that the sale of one 2008 Ford Expedition to The Thomasite Center for International Studies, Inc. a Subic Bay Freeport registered enterprise with Certificate of Registration No. 2007-0035, shall be automatically subject to VAT at zero percent (0%) rate provided that the vehicle shall be used exclusively within the Freeport Zone. 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