BIR Ruling [DA-303-04]

June 4, 2004 BIR RULING [DA-303-04] VAT Ruling No. 057-2003 Sec. 4.106-1, Rev. Regs. No. 7-95 A.D. Naval Law Office 33 Rep. Ignacio St., Daanghari Navotas, Metro Manila 1485 Attention: Atty. Arnold D. Naval Counsel Gentlemen : This refers to your letter dated January 23, 2004 requesting on behalf of your client, R & R SHIPLIFT SYSTEMS, INC. (R&R), for a legal opinion concerning the proper procedure on how to recover the excessive VAT payment that way inadvertently made. It is represented that R&R had a transaction with Hoya Marine Corporation ("Hoya"), which is a registered Subic Freeport Enterprise engaged in bunkering and water supply, lighterage, boat and launch service, harbor tug and towing service, shipping and cargo forwarding, ship chartering and brokering, ship management and consultancy services in Subic Bay Freeport Zone; that on June 4, 2003, Hoya drydocked its vessel "Hoya Grace" at R&R's shipyard in Navotas, Metro Manila; that Hoya paid the 10% VAT for services rendered by R&R so that the vessel could be released, and as such, the vessel was undocked on June 16, 2003; that upon Hoya's inquiry on how the transaction should be treated for VAT purposes, this Office has issued VAT Review Committee Ruling No. 057-2003 dated December 15, 2003, which categorically states that "under Section 4(A)(e) of Revenue Regulations No. 1-95, purchases of . . . services by SBMA and SBF accredited enterprises from enterprises in the Customs Territory shall be considered EFFECTIVELY ZERO-RATED for VAT purposes. . . ."; that dispositively, it was ruled that the sale of the service to Hoya by R & R Shipyard in Manila "can only be zero-rated if it has already an approved application for effectively zero-rating of the sale of service, otherwise, the said sale shall only be exempt from VAT;" and that, Hoya fervently hope that said VAT payment be refunded them, hence, this request. In reply, please be informed that pursuant to Section 4.106-2 of Revenue Regulations (Rev. Regs.) No. 7-95, claims for refunds or tax credit shall be filed with the appropriate Revenue District Office (RDO) having jurisdiction over the principal place of business of the taxpayer. It must be emphasized further, that pursuant to Section 4.106-1 of Rev. Regs. No. 7-95, " only a VAT-registered person may be given a tax credit certificate or refund of VAT paid corresponding to the zero-rated sales of goods, properties or services, excluding the presumptive input tax and to the extent that such input tax has not been applied against the output tax. The application should be made within two (2) years after the close of the taxable quarter when the sales were made ." " However, where the taxpayer is engaged in both zero-rated or effectively zero-rated sales and in taxable or exempt sales of goods, properties or services, and where the amount of creditable input tax due or paid cannot be directly and entirely attributable to any of the transaction, only the proportionate share of input taxes allocated to zero-rated or effectively zero-rated sales can be refunded or issued a tax credit certificate ." For purposes of effective zero-rating, Sec. 4.107(d) of said Rev. Regs. No. 7-95 requires that a prior approved application for effective zero-rating must have been secured from the Audit Information, Tax Exemption and Incentives Division of this Office. Failure on the part of the seller to secure the aforementioned approved application for VAT zero-rating, the transaction shall be considered only as exempt from VAT. (VAT Ruling No. 057-2003 dated December 15, 2003) Accordingly, the sale of services by R&R Shiplift Systems to Hoya Marine Corp. at the former's shipyard in Navotas can only be accorded with a zero percent (0%) VAT if there is an approved application for effective zero-rating on the said sale of service; otherwise, the said sale shall be considered as only exempt from VAT. For this purpose, an exemption from VAT means that the sale of services by R & R Shiplift Systems, Inc. is not subject to output tax neither shall it be allowed any tax credit on VAT (input tax) previously paid. (Section 4.103-1, Rev. Regs. No. 7-95, as amended) This ruling is 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. TcDAHS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group