BIR Ruling [DA-165-04]

April 5, 2004 BIR RULING [DA-165-04] 106 (A) (2); 108 RR 7-95; RMC 74-99 028-01; 040-98; DA 142-04 Fenix (Subic) International, Inc. Bldgs. 8332 & 8398 Bohol St., Upper Cubi Subic Bay Freeport Zone Zambales Attention: Jaime D. Escao President & CEO Gentlemen : This has reference to your letter dated April 2, 2004 requesting confirmation of your opinion, viz : 1. That your purchases from Globe Telecom and Smart Communications, Inc., 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 Fenix (Subic) International, Inc. 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 Fenix (Subic) International, Inc. (Fenix for brevity) is a domestic corporation located within the Subic Bay Freeport Zone (SBFZ) classified as a Subic Bay Freeport Enterprise. Its business includes, among others, the importation, buying, selling of cell cards, phone units, cellular phone kits, electronic load and other related activities. Fenix purchases call cards from a Globe Telecom and Smart Telecommunications, Inc. All 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 (OFW). 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 the duly registered and accredited enterprises are qualified for the effective zero percent (0%) VAT. 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 from the Audit Information, Tax Exemption and Incentives Division (AITEID), Bureau of Internal Revenue (BIR) to the effect that his proposed sale transaction qualifies for effective zero percent VAT. Thus, if Globe Telecom and Smart Communications, Inc. are VAT-registered suppliers and prior approval for effective zero percent VAT have been secured from the BIR, their VATable sales to Fenix being a registered enterprise operating within the SBFZ shall be treated as qualified sales and thus, entitled to the benefit of the zero percent (0%) VAT. However, pursuant to the provisions of Section 108-I(5) of Revenue Regulations 7-95, Globe Telecom and Smart Communications shall only issue to Fenix 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; DA 142-04 dated March 29, 2004 ) 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 Fenix 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 the 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. cSHIaA Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group