BIR Ruling [DA-142-04]

March 29, 2004 BIR RULING [DA-142-04] 106 (A) (2); 108 RR 7-95; RMC 74-99 028-01; 040-98 Ventaja International Corp. Unit 1806, Centerpoint Building Garnet corner Julia Vargas Streets Ortigas Center, Pasig City Attention: Vincent D. Grey President Gentlemen : This has reference to your letter dated March 17, 2004 requesting confirmation of your opinion, viz : 1. That if your company is located in Subic Bay Freeport Zone (SBFZ), or obtains a PEZA accreditation, your purchases from Globe Telecoms, Smart Communications, Inc. and their affiliates is considered as effectively zero rated in accordance with the provisions of Revenue Regulations No. 7-95; and 2. That the 100% export sales of Ventaja International Corp. to foreign distributors which are billed and paid for in foreign currency, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) should be treated as zero rated-sales in accordance with the same regulations. It is represented that Ventaja International Corp. (VIC for brevity) is a domestic corporation seeking to: 1) locate in the SBFC; or 2) obtain a PEZA accreditation. The nature of its business is selling goods, including Globe and Smart call cards to foreign companies via the electronic commerce and other commercial means. VIC purchases call cards from Globe Telecom, Smart Communications and their affiliates. All call cards purchased from these telecom companies are directly exported to foreign distributors in different countries abroad and the latter sell the same to Overseas Filipino Workers (OFWs). In reply, please be informed as follows: 1. Under Section 4.100-2(c) in relation to Section 4.100-3 of Revenue Regulations No. 7-95, sales by VAT-registered suppliers to PEZA registered enterprises are qualified for the effective zero percent VAT. In general, a VAT-registered person whose proposed sale transaction may qualify for effective zero percent VAT under Sections 106(A)(2) and 108(B) of the National Internal Revenue Code of 1997 shall first, formally apply for and secure prior approval of this Office to the effect that his proposed sale transaction qualifies for effective zero percent VAT, pursuant to Section 4.107-I(d), Revenue Regulations No. 7-95, which provides: "Application for effective zero-rating. Except for actual export sale, other cases of zero-rated sales in Sec. 4.100-3 and Sec. 4.102-2(c) shall require prior application with the Revenue District Office for effective zero-rating. Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt." On the other hand, the same treatment will be extended if VIC will conduct its business within the SBFZ because SBFZ is considered part of Ecozones. Section 2 of RMC 74-99 defines the term "Customs Territory" as the national territory of the Philippines outside of the proclaimed boundaries of the ECOZONES, except those areas specifically declared by other laws and/or presidential proclamations to have the status of special economic zones and/or free ports . All sale transactions made by VAT-registered suppliers to PEZA-registered enterprises qualify for the zero-percent VAT, considering the style of business operations in the ECOZONE. In connection therewith, it is mandated under Revenue Memorandum Circular No. 74-99 dated October 15, 1999, that the said Circular shall serve as a sufficient basis to qualify such sale transactions for purposes of the zero percent VAT. The pertinent portion of Section 3(3) of RMC No. 74-99, provides: "SEC. 3. Tax Treatment of sales made by a VAT-registered supplier from the Customs Territory, to a PEZA-registered enterprise . xxx xxx xxx "(3) . . . This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for 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." Thus, if Globe Telecom, Smart Communications and their affiliates are VAT-registered suppliers, their VATable sales to VIC being a PEZA-registered enterprise operating within the Ecozone shall be treated as qualified sales and thus, entitled to the benefit of the zero percent (0%) VAT without further necessity of any prior application for a BIR permit to zero rate such transaction. However, pursuant to the provisions of Section 108-I(5) of Revenue Regulations 7-95, Globe Telecom, Smart Communications and their affiliates shall only issue to VIC a duly registered VAT invoice intended for VAT zero-rated sales, i . e ., that "the word 'zero-rated' is imprinted on the invoice." Otherwise, the same shall not be entitled to the benefit of a zero-rated VAT transaction. ( VAT Ruling No. 028-2001 dated May 22, 2001 ) 2. The onus of taxation under our VAT system is in that country where goods, property or services are destined, used or consumed. This is the reason why under our VAT law, merchandise, goods or services destined to, used or consumed in the Philippines are subject to the 10% VAT whereas those destined, used or consumed abroad are subject to the zero percent (0%) VAT. ( VAT Ruling No. 040-98 ) Consequently, this Office hereby confirms the opinion that the 100% export sales by VIC to foreign distributors which are billed and paid for in foreign currency, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) are subject to zero percent (0%) VAT since the call cards are destined, used or consumed outside the Philippine territory. 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. aHTcDA Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group