First Datacorp

April 17, 2007 BIR RULING [DA-236-07] R.R. 2-2005; RR 12-2005 First Datacorp 3/F Citibank Center 8741 Paseo de Roxas Makati City Attention: Ms. Elvira C. Jaducana Senior Finance Assistant Gentlemen : This refers to your letter dated February 20, 2007 requesting on behalf of your client Bayview Technologies, Inc . for confirmation of your opinion that it is entitled to VAT zero rating on its purchases of computer products and peripherals, repair and services. It is represented that Bayview Technologies, Inc. is a Cagayan Special Economic Zone and Freeport registered enterprise under CSEZFP Certificate of Registration No. CF-006; that it is engaged in interactive gaming; and that it is a beneficiary of the incentives established under Republic Act No. 7922, otherwise known as the Cagayan Special Economic Zone Act of 1995. In reply, please be informed that Section 3 of Revenue Regulations No. 02-2005 provides, viz: "Section 3. National Tax Exemption and Incentives to Zone Registered Enterprises All ECOZONE-registered enterprises, CAGAYAN-ECOZONE registered enterprises and ZAMBO-ECOZONE registered enterprises who are covered by the special tax regime of 5%, including all SUBIC-ECOZONE registered enterprises doing business within the Zone shall enjoy the following: a. Exemption from national internal revenue taxes on importations of raw materials for manufacture and actually manufactured into finished products, and capital goods and equipment needed for their business operation, within the Zone. Removal of raw materials, capital goods, equipment and consumer items out of the Zone for sale to non-Zone registered enterprises shall be subject to the usual taxes and duties provided for in Republic Act No. 7227 for SUBIC-ECOZONE. b. Exemption from the national internal revenue taxes, such as gross receipts tax, VAT, ad valorem and excise taxes on their sales of goods and services for which they shall otherwise have been directly liable, except for local sales as discussed in sub-section f of this Section and unless provided for in other laws to the contrary; c. Exemption from franchise, common carrier or value added taxes and other percentage taxes on public and service utilities and enterprises within the Zone for services rendered within the Zone; d. Preferential tax treatment on income earned/derived from business operations within the Zone or from foreign sources. However, in the case of telecommunications service, the income of the enterprise within the Zone shall be net of the share of the foreign telecommunications company and in the case of common carriers by land, air or water, only that portion of the income and expenses for the transport of cargoes and passengers with the Zone shall be covered by the preferential income tax treatment and what is not covered shall be subject to the regular corporate income tax; e. Purchases from enterprises in the Customs Territory of raw materials forming part of finished goods exported by the Zone registered enterprises shall be considered effectively zero-rated or exempt for VAT purposes depending on the fiscal incentives availed of by the Zone registered. The application of this rule on VAT will however be covered by a separate Revenue Regulations discussing in particular the VAT implications of transaction within, into and outside the Zone. EAIaHD f. Zone registered enterprises may generate income from sources within the Customs Territory of but up to Thirty Percent (30%) of its total income from all sources only. All of the income of Zone registered enterprises generated from sources within the Customs Territory shall be subject to the internal revenue laws of the Customs Territory and the regular internal revenue laws of the Customs Territory and the regular internal revenue taxes and rate imposed for enterprises in the Customs Territory; g. Carriers who undertake to transship articles to and/or from the Zone to a Customs Bonded warehouse within the Customs Territory shall be bonded in an amount to be determined by the SBMA, PEZA, ZAMBO-ECOZONE Authority or CEZA and Bureau of Customs which shall not be less than fifty thousand (P50,000) pesos conditioned upon the carrier transporting and delivering without delay, and in accordance with rules and regulations in effect in the Customs Territory, to the Collector of Customs at the port of destination/export. The provisions of the Tariff and Customs Code, as amended, on transshipment, and its implementing regulations shall govern cases of transshipment for foreign articles to and/or from the Zone. h. Articles which are manufactured in the Zone and exported therefrom to a foreign country shall, upon subsequent importation into customs territory, be subject to the laws on importation applicable to like articles manufactured in a foreign country. Business enterprises operating within the Zone, but which are not registered by or accredited with SBMA, PEZA, ZAMBO-ECOZONE Authority or CEZA shall not be entitled to the preferential tax treatment provided for in Section 12(c) of the Republic Act No. 7227; Section 24 of Republic Act No. 7916; Section 4(f) of Republic Act No. 7903; and Section 4(c) of Republic Act No. 7922." Moreover, Section 2 of Revenue Regulations No. 12-2005 provides, viz: "Section 2. Suspension of Certain Provisions of Revenue Regulations 2-2005 The effectivity of Sections 3, 4 and 5 of Revenue Regulations No. 2-2005 is hereby suspended in so far as it applies to enterprises registered under R.A. 7922 and R.A. 7903, pending issuance of a new regulations pertaining on the matter related thereto." Therefore, pending issuance of a new regulations, the provisions of Section 3 of Revenue Regulations No. 2-2005 relative to the National Tax Exemption and Incentives to Zone Registered Enterprises of enterprises registered under R.A. 7922 and R.A. 7903 can not be given full force and effect. The foregoing premises being considered, the issuance of certification qualifying an enterprise for vat-zero rating is likewise suspended. SHECcT Hence, we regret to inform you that a certificate for vat-zero rating in your favor cannot yet be issued pending issuance of new regulations on the matter related thereto. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service