Alba Romeo & Co.

April 4, 2007 BIR RULING [DA-205-07] VAT Ruling No. 52-2003; Sec. 109(B), NIRC; Sec. 9.236-6 (2), R.R. 16-2005 Alba Romeo & Co. 6850 Ayala Avenue Makati City Attention: Alba Romeo Gentlemen : This refers to your letter dated February 19, 2007, requesting for a ruling on behalf of your client, with respect to whether your client's activities are exempt from VAT and if it can change its BIR registration to reflect such exemption. It is represented that your client, Walcom Bio Chemicals Philippines, (WALCOM for brevity) is a corporation duly registered with the Securities and Exchange Commission (SEC) with SEC Registration No. CS200342443 on December 11, 2003; that WALCOM is engaged in the trading, selling and marketing of feed and additive products on wholesale basis; that it was registered as a VAT taxpayer with the BIR on February 2, 2004; and that it was issued a License to Operate by the Bureau of Animal Industry under BAI LTO No. VDAPDI-0341 dated August 24, 2006, which is valid for nine (9) months or until May 13, 2007. It is further represented that WALCOM has three registered products with the Bureau of Animal Industry namely: Porcimax, Aviamax and Eggromax as evidenced by Certificates of Product Registration. All three products are feed ingredients or additives. IHEAcC WALCOM, however, was mistakenly registered as a VAT-taxpayer on February 2, 2004 despite the fact that its transaction is VAT-exempt under Section 109 (B) of the Tax Code. In this regard, you now ask this Office to confirm your opinion that: (a) the importation or sale of feeds and additive products is exempt from value-added tax; and (b) WALCOM can change its Certificate of Registration from a VAT-registered taxpayer to a VAT-exempt registered taxpayer. In reply, please be informed that Section 109 (B) of the Tax Code of 1997, as amended by Republic Act No. 9337, provides that: "SEC. 109. Exempt Transactions . (1) Subject to the provisions of subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets);" xxx xxx xxx From the foregoing provision, it is clear that the sale or importation of feeds, including their ingredients, is considered as exempt from VAT. This includes feed additives, which, by virtue of BIR VAT Ruling No. 52-2003, are considered within the purview of term 'feed ingredients'. It is significant to note that since the manufacture, importation, sale or distribution of feeds or feedstuff require prior registration and permit from the Bureau of Animal Industry (BAI) under Republic Act No. 1556, as amended by Presidential Decree No. 7, the certification in the nature and composition of the commodities/items as stated in the registration and import permit issued by BAI will govern the classification of the said items for purposes of VAT under Section 109 (B) of the Tax Code of 1997, as amended by RA 9337. Hence, if BAI classified the products/commodities as feed ingredients, even if the same are susceptible to multiple usage, they shall be exempted from VAT under the aforecited section. All others not classified as feed ingredients will be subject to VAT on their sale or importation. Thus, sales or importations of WALCOM's BAI-registered feed ingredients/additives, namely Porcimax, Aviamax and Eggromax, are entitled to VAT exemption in accordance with Section 109 (B) of the same Tax Code. With respect to your second query, Section 9.236-6 (2) of Revenue Regulations (RR) No. 16-2005 provides that: "SEC. 9.236-6. Cancellation of VAT Registration . A VAT-Registered person may cancel his registration for VAT if. xxx xxx xxx Some instances where taxpayer will update his registration by submitting a duly accomplished Registration Update Form (BIR Form No. 1905): xxx xxx xxx 2. A change in the nature of the business itself from sale of taxable goods and/or services to exempt sales and/or services; xxx xxx xxx When WALCOM first registered as a VAT taxpayer in February 2, 2004, its sales of Porcimax, Aviamax and Eggromax feed ingredients/additives were not considered VAT-exempt as the mandatory BAI registrations required for the exemption of such products were not secured till December 18, 2006. It was only on said date that the abovementioned products qualified for VAT exemption under Section 109 (B) of the same Tax Code. Considering that sale of these products is the sole business activity of WALCOM, it should be regarded as presently engaged in the sale of VAT-exempt feed ingredients/additives. Accordingly, this Office holds that WALCOM may cancel its existing VAT registration and update its registration to a non-VAT taxpayer by submitting a duly accomplished Registration Update Form (BIR Form No. 1905) to BIR Revenue District Office No. 38, in accordance with Section 9.236-6 (2) of RR 16-2005. aDCIHE 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