Philex Mining Corporation

April 3, 2007 BIR RULING [DA-203-07] 106 (A) (2) (4); RMC 74-99; VAT Ruling No. 026-01 Philex Mining Corporation No. 27 Philex Building Fairlane St., Kapitolyo Pasig City Attention: Atty. Gari Tiongco Legal Counsel Gentlemen : This refers to your letter dated March 22, 2007 requesting for confirmation of your opinion that in view of the pronouncement by the Supreme Court in the case of COMMISSIONER OF INTERNAL REVENUE vs. BENGUET CORPORATION, G.R. Nos. 134587 & 134588, dated July 8, 2005 and G.R. No. 145559, dated July 14, 2006, wherein the Highest Magistrates ruled that VAT Ruling No. 008-92 which imposes 10% VAT on sales of gold to Central Bank (CB) and Philippine Associated Smelting and Refining Corporation (PASAR) cannot be given retroactive application, your claims for refund/tax credit for the period 1988 to 1991, which were previously disallowed due to the issuance of VAT Ruling No. 008-92, can now be granted to you. It is represented that PHILEX MINING CORPORATION ("PHILEX", for brevity) is a domestic corporation organized and existing under the laws of the Republic of the Philippines; that it is engaged in the mining business and as such, is a duly registered Value-Added Tax (VAT) taxpayer; that for the period 1988 to 1992, PHILEX, aside from exporting its gold products, likewise sold gold to CB and PASAR; that pursuant to VAT Ruling No. 100-000-00-378-88 dated August 23, 1988, Revenue Memorandum Circular (RMC) No. 59-88 dated December 14, 1988 and Revenue Regulations No. 2-88 dated February 15, 1988, sales of gold by PHILEX to CB/PASAR are considered export sales and, therefore, subject to VAT at zero percent (0%) rate; that for the period 1988 to 1991, PHILEX timely filed, on separate occasions, applications for refund/tax credit of its unutilized input taxes paid on its purchases of goods and services attributable to its zero-rated export sales, including sales to CB and PASAR; that the applications were acted upon favorably by the BIR and in fact various Tax Credit Certificates were duly issued; that, however, the amount granted were already net of deductions/disallowances made in respect to the sales to PASAR and CB; that the input taxes pertaining to sales to CB and PASAR were disallowed due to the issuance of VAT Ruling No. 008-92 and RMO 22-92 which considered sales of gold to CB and PASAR as local sales subject to the 10% VAT rate and was made retroactive to January 1, 1988 by VAT Ruling No. 59-92; that in the case of COMMISSIONER OF INTERNAL REVENUE vs. BENGUET CORPORATION, G.R. Nos. 134587 & 134588, dated July 8, 2005 and G.R. No. 145559, dated July 14, 2006, the Supreme Court categorically ruled that VAT Ruling No. 008-92 which imposes 10% VAT on sales of gold to CB and PASAR cannot be given retroactive application; and that in view of the said decision of the Supreme Court, you are of the opinion that the previously disallowed input taxes pertaining to sales to PASAR and CB should be rightfully refunded to PHILEX. TcIHDa In reply, please be informed that Republic Act No. 7716, or the Expanded Value-Added Tax Law (implemented beginning January 1, 1996), which amended pertinent provisions of the National Internal Revenue Code, provides: "Section 2. Section 100 of the National Internal Revenue Code, as amended, is hereby further amended to read as follows: Section 100. Value-added tax on sale of goods or properties . (a) Rate and Base of Tax. There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to 10% of the gross selling price or gross value of the goods or properties sold, bartered or exchange, such tax to be paid by the seller or transferor. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to 0%. (A) Export sales the term export sales means: xxx xxx xxx (iii) Sale of raw materials or packaging materials to export-oriented enterprises whose export sales exceed seventy percent (70%) of the total annual production; (iv) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); xxx xxx xxx Since the inception of the VAT in 1988, sale of gold to the Central Bank has been considered by the BIR to be zero-rated. Hence, pursuant to Section 106 (a) of the Tax Code, the input taxes attributed to such sales of gold can be refunded. Said provision was further amplified by the following rulings and circulars, to wit: a. VAT Ruling No. 100-000-00-378-88 dated August 23, 1988, which states that the sale of gold to the Central Bank is considered as an export sale subject to zero-rating; b. Revenue Memorandum Circular No. 59-88, dated December 14, 1988 which states that the sale of gold to the Central Bank, if made by a VAT-registered firm (such as PHILEX), is zero-rated; c. CB Circular No. 960 (Sec. 169) which states that gold producers shall qualify as export-oriented firms even if their entire output is sold to the Central Bank; d. CB Circular No. 1301 which states that all sales of gold to the CB are considered constructive exports; e. CB Circular No. 1318 which states that all gold sold to the Central Bank are considered constructive exports. Moreover, Revenue Regulations No. 2-88 dated February 15, 1988 states that the sales of raw materials to BOI-registered enterprises whose export sales under rules and regulations of the Board of Investments, exceed seventy percent (70%) of the total productions (such as PASAR), shall be subject to zero percent (0%) VAT rate. Sales to PASAR shall be entitled to zero percent (0%) VAT as held by the Court of Tax Appeals in the cases of Marcopper Mining Corporation vs. Commissioner of Internal Revenue, CTA Case Nos. 4603 & 4677, dated October 3, 1995 and Lepanto Consolidated Mining Company vs. Commissioner of Internal Revenue, CTA Case Nos. 4445, 4629 & 4874, dated December 21, 1998 . The Court of Tax Appeals in the aforecited Lepanto case, citing the case of Atlas Consolidated Mining and Development Corporation vs. Court of Tax Appeals and Commissioner of Internal Revenue, CA-G.R. SP No. 34152 dated February 6, 1998 , ruled on this particular issue in this manner: "The deduction made by Respondent of Petitioner's sales of calcine to PASAR is likewise bereft of legal basis. Revenue Regulations No. 2-88, which recognized sales to BOI-registered enterprises which export over 70% of its sales as zero-rated, is crystal clear. It does not require that 100% of its sales be actually exported. For as long as an enterprise exports over 70% of its sales, as in the case of herein Petitioner, then 100% of the net input taxes paid may be refunded." Likewise, as quoted in the Lepanto case, the BIR itself, in its letter to PASAR, confirms this opinion, which provides in part that: ". . . please be informed that insofar as the raw materials supplied to PASAR by the above-named companies are concerned, their application for zero-rated status is hereby approved; that the said mining companies need not pay the 10% VAT covering sales of copper concentrates and calcines to PASAR; and that consequently PASAR does not have to file a claim for refund of the said VAT payments." cIHCST Due, however, to the issuance of VAT Ruling No. 008-92 which considered sales of gold to the Central Bank/PASAR as local sales subject to the 10% VAT rate and was given retroactive effect by VAT Ruling No. 059-92 to January 1, 1988 (date of effectivity of the VAT Law), the treatment previously accorded to PHILEX as a zero-rated export seller was changed. The Expanded VAT Law (R.A. No. 7716), now expressly provides that "sale of gold to the Bangko Sentral ng Pilipinas (BSP)" is an export sale subject to 0% VAT rate. Further, that the sale of raw of materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production, and sale of gold to the Bangko Sentral ng Pilipinas (BSP) are considered as "export sales" subject to zero percent (0%) rate, was re-affirmed in Section 106 (A) (2) (a) (3) & (4) of Republic Act No. 8424 (Tax Reform Act of 1997) and Section 4 (A) (2) (a) (3) & (4) of Republic Act No. 9337 (Reform VAT Law). This was implemented by Revenue Regulations No. 16-2005. Corollary thereto, in VAT Ruling No. 026-01 dated May 22, 2001 , this Office had the occasion to rule that the sale of gold to the Bangko Sentral ng Pilipinas is subject to the zero percent (0%) VAT pursuant to Section 106 (A) (2) (4) of the Tax Code of 1997. Likewise in the same ruling, it was ruled that since PASAR is a PEZA-registered enterprise, sales of goods, properties or services to it, shall entitle the supplier to the benefit of zero percent (0%) VAT rate pursuant to Revenue Memorandum Circular (RMC) No. 74-99. In the case of COMMISSIONER OF INTERNAL REVENUE vs. BENGUET CORPORATION, G.R. Nos. 134587 & 134588, dated July 8, 2005 and in the most recent case of COMMISSIONER OF INTERNAL REVENUE vs. BENGUET CORPORATION, G.R. No. 145559, dated July 14, 2006 , which on factual circumstances are in all fours with the present case, the Supreme Court held that VAT Ruling No. 008-92 which imposes 10% VAT on sales of gold to Central Bank/PASAR cannot be given retroactive application. The Supreme Court said: "Here, when respondent sold gold to the CB, it relied on the formal assurances of the BIR, i.e., VAT Ruling No. 378-88 dated August 28, 1988 and VAT Ruling RMC No. 59-88 dated December 14, 1988, that such sales are zero-rated. To retroact a later ruling VAT Ruling No. 008-92 revoking the grant of zero-rating status to the sales of gold to the CB and applying a new and contrary position that such sales are now subject to the 10% VAT, is clearly inconsistent with justice and the elementary requirements of fair play. Accordingly, we find that the CA did not commit a reversible error in holding that VAT Ruling No. 008-92 cannot be retroactively applied to respondent's sales of gold to the CB during the period January 1, 1988 to July 31, 1989, hence, it is entitled to tax credit in the amount of P49,749,223.31 attributable to such sales." Such being the case, this Office is of the opinion and hereby holds that PHILEX's claims for refund/tax credit for the years 1988 to 1991 representing input taxes paid attributable to sales of gold to Central Bank and PASAR, which were previously disallowed pursuant to the VAT Ruling No. 008-92, may now be granted. SDHTEC This ruling serves as the authority to the concerned Revenue District Office to process the Tax Credit Certificate in favor of PHILEX subject to the substantiation requirements as provided for by law and for review and approval of the higher authorities. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service