BIR Ruling [DA-264-05]

June 17, 2005 BIR RULING [DA-264-05] S.107 (A); 27 (A); DA-418-2003 dated 11-18-2003 Samsung Electronics Philippines Corporation Ground Floor Bonaventure Plaza, Ortigas Avenue, Greenhills, San Juan, Metro Manila Attention: Maeng Dal Bae Vice-President Gentlemen : This refers to your letter dated May 9, 2005 requesting on behalf of SAMSUNG ELECTRONICS PHILIPPINES CORPORATION (SEPCO for brevity) for a confirmation that its sale of electronic equipments to HALDANE PHILS, INC. (HALDANE for brevity) consummated outside the Philippines is not subject to Value Added tax. The facts, as you represent, are as follows: SEPCO is a corporation duly organized and existing under and by virtue of the laws of the Philippines with office address at Ground Floor Bonaventure Plaza, Greenhills, San Juan, Metro Manila. It is engaged in the business of Sales and Marketing of electronic products. HALDANE is a corporation duly organized and existing by virtue of Philippine laws. Its primary purpose is to operate, conduct and maintain the business of buying, selling, import, or otherwise dealing in, at wholesale or retail, in general merchandise, wares of all classes and description which are of lawful objects of commerce, such as but not limited to telecommunication products and any and all related devices, and in connection therewith, to do and deal in general business pertaining to the maintenance and servicing of telecommunication products and any and all related devices and all incidents thereto, and in connection therewith, to buy, purchase, import machinery, equipment accessories and appurtenances necessary for the operations of said business, to make and enter into contracts, agreements, undertakings and obligations with any persons, corporations or other associations, which may be necessary and expedient or in any manner pertaining to the whole or any part of the operations or transactions of the Company, as may be authorized by law. SEPCO intends to sell cell phone units to anywhere from 50,000 to 100,000 cell phone units annually. In order for its cell phone units to be competitive, SEPCO proposes to sell cell phone units to HALDANE while in transit or outside the Philippines so that HALDANE will acquire title over the cell phone units prior to their entry into the Philippines. Hence, in the shipping documents SEPCO will be the owner but the consignee will be HALDANE. The ultimate importer of the goods will be HALDANE since the goods will be sold by SEPCO while in transit. Hence, upon landing HALDANE will now be the owner of the goods, and SEPCO would not be burdened with any VAT liability on said transaction. In reply, please be informed that in BIR Ruling No. DA-418-2003 dated November 18, 2003 citing BIR VAT Review Committee Ruling No. 011-2001 dated March 8, 2001 where the sale of imported goods occurred while the same was in transit or outside the Philippines, the BIR ruled that such importation is exempt from VAT. Thus, ". . . pursuant to Section 107(A) of the Tax Code of 1997, `there shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any', such tax to be imposed on the IMPORTERS thereof Nonetheless, if, under the instant case, the importer/consignee of the subject goods to be imported is the Duty Free Philippines, the said importation is exempt from taxes . . . Accordingly, since ownership of the imported goods was transferred while in transit or outside Philippine territory, LDMPI is considered the importer of such goods . . . xxx xxx xxx Moreover, since the sale of cell phone units to LDMPI was consummated outside the territorial jurisdiction of the Philippines, the same is not subject to VAT . The proceeds, however, shall be subject to the ordinary corporate income tax under Section 27(A) of the 1997 Tax Code." (Emphasis supplied.) cDTCIA Accordingly, since the sale of cell phone units to HALDANE is to be consummated outside the territorial jurisdiction of the Philippines, SEPCO shall not be liable to VAT. However, since HALDANE is considered the importer of such cell phones, such importation shall be subject to VAT pursuant to Section 107(A) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group