BIR Ruling [DA-289-04]

May 24, 2004 BIR RULING [DA-289-04] Rev. Reg. 29-02 Philfoodex Philippine Food Processors and Exporters Organization, Inc. Rm. 305, Bahay ng Alumni, Pres. Ramon Magsaysay Avenue U.P. Campus, Diliman Quezon City Attention: Mr. Jesus T. Tanchanco, Sr. President Gentlemen : This refers to your letter dated October 17, 2003 requesting for a ruling as to whether or not PHILFOODEX is liable to pay the advance value-added tax (VAT) to Victorias Milling Company for the tolling of its B-1 Sugar for the use of its members as contemplated in VAT Ruling No. 088-99 and later reiterated in BIR Ruling No. DA363-03. In reply thereto, please be informed that in the above-cited rulings, this Office has consistently ruled that ". . ., the sugar refinery is constituted as a withholding agent and collects the VAT in advance from the intended recipient/owner in connection with the sale of refined sugar, that is, prior to its withdrawal from refinery. Inasmuch as PHILFOODEX, under a toll milling arrangement, will have their allocated B-1 sugar milled not for the purpose of reselling the refined product but for direct consumption in food manufacturing process as ingredient in Philippine food products for export, then this Office may recognize the non-application of the advance VAT payment for the withdrawal of refined sugar. Likewise, since as represented, members of PHILFOODEX are engaged in the export of food products, then said activity may be either exempt or subject to zero percent VAT, thus not resulting in any output tax against which any advance payment of VAT can be credited against. Accordingly, your request for the exemption therefrom is hereby confirmed and this ruling shall serve as the authority for the concerned sugar mill not to collect advance VAT from PHILFOODEX. It must be understood, however, that the toll milling arrangement is subject to VAT." aEHTSc It is well to emphasize at this point that in VAT Ruling No. 030-03 dated June 23, 2003, the VAT Committee ruled that "VMC's "Tolling Fees" for milling of raw sugar into refined sugar, for others, is subject to VAT. It is not embraced by the VAT exemption under . . . Section 109 of the Code since the said VAT exemption is limited only to "milling for others of sugar cane into raw sugar; it does not extend to milling for others of raw sugar into refined sugar. On the same occasion, the said Committee invoked Revenue Regulations No. 7-89, as amended by Revenue Regulations No. 29-2002, which states that "Section 4. Prohibition of withdrawal . The proprietor or operator of a sugar mill/refinery shall not allow any withdrawal of refined sugar from its premises without the advance payment of the VAT made by the owners/sellers and submission of proof thereof as described in Section 5 of these Regulations, unless the said owner or seller presents proof of the sugar mill/refinery that it is exempt from the VAT, as in the case of agricultural cooperatives which are exempt from the VAT on their sale of agricultural products pursuant to Republic Act No. 6938 and Section 109(r) of the Code, as implemented through Revenue Regulations No. 20-2001." and held that "The sugar traders are required to pay advance VAT before the withdrawal from the premises of VMC of the refined sugar owned by such trader. The . . . share of VMC of raw sugar, that it milled into refined sugar, which are sold to the traders are likewise subject to the payment of advance VAT prior to release." The tax exemption of PHILFOODEX from the advance VAT is indeed confirmed by the BIR in VAT Ruling No. 088-99 and later reiterated in BIR Ruling No. DA363-03. However, with respect to the VAT on the tolling fees, the person directly liable to pay thereof is the sugar refinery, VMC. But since VAT is an indirect tax, the amount of tax may be passed on to the buyer of the service. ( Sec. 105, Tax Code of 1997 ) Section 110(B) of the Tax Code of 1997 provides that any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112 of the same Code. Accordingly, since VAT on the tolling fees is not a tax on the refined sugar owned by PHILFOODEX but on the refinery service rendered by VMC, the same is not subject to advance VAT. The amount of tax may however, be shifted or passed on by VMC to the PHILFOODEX. In such case, the amount of VAT shall be an input tax of PHILFOODEX which may be subject to a claim for refund or tax credit provided for in the aforementioned Section 110 of the Tax Code of 1997. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group