BIR Ruling [DA-247-06]

April 12, 2006 BIR RULING [DA-247-06] RMC 74-99; 046-95 Enkei Philippines, Inc . 104 Industry Drive Carmelray Industrial Park Canlubang, Calamba City Laguna Attention: Mr. Ryusuke Onoki Managing Director Gentlemen : This refers to your letter dated December 16, 2005 requesting for a confirmation of your opinion that your transactions with Ford Motor Company Philippines, Inc. (FORD MOTORS) who operates business at Cavite Economic Zone, Rosario, Cavite is a VAT-zero transaction and that as supplier, you can claim the benefits allowed under the law. It is represented that FORD MOTORS is a Philippine Economic Zone Authority (PEZA) registered Ecozone Facilities Enterprise with Registration Certificate No. 01-013-F dated 01 October 2001; and that it is engaged in warehousing operations particularly in (a) the importation/procurement of raw materials, semi-finished goods and other production of goods for packing, re-packing, kitting, sub-assembly, and other related activities, for sale, transfer or disposition to its export enterprise-clients, for direct export or for consignment, and (b) storage, deposit, inventory management of goods for subsequent transfer directly to its export enterprise-clients at the Cavite Economic Zone and storage and inventory management of raw materials, semi-finished products, production supplies or indirect materials and specialized packaging materials not locally available, used in the manufacture, assembly or processing of electronic products, semiconductor products and automotive products, for a re-packing, kiting, labeling, etc. In reply, please be informed that pursuant to Section 4.108-(a) & (b)(3) of Revenue Regulations No. 16-2005 dated September 1, 2005, which provides, viz: "SEC. 4.108-5. Zero-Rated Sale of Services . (a) In general. A zero-rated sale of service (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services, related to such zero-rated sale, shall be available as tax credit or refund in accordance with these Regulations. (b) Transactions Subject to Zero Percent (0%) VAT Rate. The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate." ICTaEH In addition thereto, Section 5(3) of Revenue Memorandum Circular No. 74-99 provides, viz: "SEC. 5. Tax Treatment of Sales Made by a PEZA Registered Enterprise . xxx xxx xxx "(4) Sale of Goods, by a PEZA Registered Enterprise, to Another PEZA Registered Enterprise (i.e., Intra ECOZONE Sales of Goods). Its sale of goods or property to another zone enterprise shall be exempt from VAT, pursuant to Section 109(q) NIRC, in relation to Section 24 of R.A. 7916, as implemented by Section 1, Rule VIII, PART V of the PEZA implementing rules and regulations." Thus, the sale of services by ENKEI to FORD MOTORS shall be considered export and effectively subject to zero percent (0%) VAT. The vendor shall not impute or shift any VAT as part of the cost to be paid by FORD MOTORS on its purchases. (BIR Ruling No. 046-95 dated March 3, 1995) 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.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service