BIR Ruling [DA-202-05]

April 21, 2005 BIR RULING [DA-202-05] 106 (A) (2) (a) (2) 106 (A) (2) (a) (3) Rafael B. Buenaventura Governor Bangko Sentral ng Pilipinas Roxas Boulevard, Manila S i r : This has reference to your letter dated November 25, 2004 requesting for a clarificatory ruling on the following issues: 1. Whether the credit advice from Bangko Sentral ng Pilipinas' (BSP) foreign receiving bank in lieu of an official receipt under Section 106(A)(2)(a)(2) of the National Internal Revenue Code of 1997 would still qualify the gold purchase for zero-rate VAT; 2. Whether the BIR is amenable to qualifying transactions falling under Section 106(A)(2)(a)(3) of the same Code even in the absence of individual applications for zero-rate VAT, provided that the required documents from the jewelers are submitted; 3. Whether the BSP should apply for the issuance of a general ruling covering the transactions mentioned above or enter into a Memorandum of Agreement (MOA) with the BIR in order to qualify the transaction for zero-rate VAT; and 4. Whether the transactions discussed in your letter are entitled to zero-rate VAT. cSDIHT The antecedent facts are as follows: The Bangko Sentral ng Pilipinas (BSP) through its Treasury Department (TD), will sell gold bars to the non-resident buyer of the local export-oriented jeweler. The non-resident buyer will pay in acceptable foreign currency and accounted in accordance with BSP rules and regulations. The BSP-TD, however, shall deal only with accredited financial institutions as its counter-parties. To obviate the need to accredit the non-resident buyer as counter party, payment of the gold bars will be coursed by the non-resident buyer only through financial institutions accredited by the BSP-TD. The credit advice from BSP's foreign receiving bank will constitute as evidence of payment for the sale of gold to the accredited financial institution in lieu of official receipt. Upon receipt of payment, BSP-TD will clear the release of the gold to the local-export oriented jeweler subject to the submission of the following documents: 1. Certificate of Registration with the Export Development Council (EDC) or Board of Investments; 2. Purchase order from the non-resident buyer; and 3. Specification of the gold requirement for the purchase order. The local export-oriented jeweler will use the purchased gold in manufacturing or processing the said buyer's goods in the Philippines and will have to re-export the gold jewelry to the non-resident buyer. Proof of actual importation will be submitted as a prerequisite on the subsequent purchase of gold, considering that these documents would not be available during the initial purchase. Under another arrangement, the BSP, through the Department of General Services (DGS), will sell semi-processed gold to local jewelers in Philippine currency. The zero-rate VAT will only be accorded to jewelers' whose export sales exceed seventy percent (70%) of their annual production. The BSP will require the following documents from the local jewelers before they could be accorded zero-rate VAT for their gold purchases: 1. Certified photocopy of the registration certificate with EDC, BOI, Philippine Economic Zone Authority (PEZA), Subic Bay Metropolitan Authority (SBMA), or Clark Development Authority (CDA); AND 2. Favorable endorsement from the pertinent government agency attesting to the jeweler's compliance with the requirements that its export sales exceed 70% of the total annual production. Proof of actual exportation of finished jewelry manufactured from the purchased gold will likewise be a pre-requisite for subsequent purchase of gold. Since the foregoing transaction is not among those qualified for automatic zero rate VAT, prior applications for zero rate VAT of each transaction must be filed with the BIR in order to avail of the zero-rate VAT. In reply, please be informed as follows: 1. The provision of the Tax Code under consideration in No. (1) above is Section 106(A)(2)(a)(2) which states: "(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." (emphasis supplied) The main concern in the aforementioned provision in considering the transaction as zero-rate VAT is that the sale to a nonresident buyer is paid for in acceptable foreign currency and that the same should accounted for in accordance with the rules and regulations of the BSP. The qualifying factor is then shifted to the office of the BSP. Thus, if the BSP, in its rules and regulations, considers the credit advice to be sufficient proof of payment, said transaction upon which the credit advice was issued would qualify for zero-rate VAT. 2. The second issue pertains to Section 106(A)(2)(a)(3) of the Tax Code of 1997 which provides: "(3) sale of raw materials or packaging materials to export oriented enterprise whose export sales exceed seventy percent (70%) of the total annual production." It is the policy of the Bureau to encourage the export-oriented enterprise to register with this Office regarding the operation of their business in order to qualify for a zero-rated VAT. It is only after the presentation of necessary documents that the Bureau issues a certification considering a particular export-oriented enterprise to be subject to zero percent (0%) rate. HaAISC In this regard, individual application of the respective export-oriented enterprise is necessary before it can avail of the zero percent (0%) rate. Consequently, this Office is not amenable with the automatic coverage of the zero-percent rate notwithstanding the submission of the enumerated documents with the Bangko Sentral ng Pilipinas. 3. As mentioned in the preceding paragraph, every export-oriented enterprise should individually apply with this Office before it can avail of the zero percent (0%) rate under the provision of the Tax Code. Henceforth, the BSP need not apply for a general ruling. 4. As presented, the transactions discussed in your letter qualify for a zero-rate VAT. However, the same should coincide with the foregoing discussion in items (1) to (3). Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group