Filpride Resources Inc.

May 30, 2008 BIR RULING [DA-326-08] Sec. 107; DA 481-06; DA 165-06 Filpride Resources Inc. West Gate Office, Sampson Road, Central Business District Office, Subic Bay Freeport Zone Attention: Aniebeth S. Dionzon Chief Finance Officer This refers to your letter dated May 28, 2008 requesting for a confirmation that under Republic Act 9337, the sale by your company, Filpride Resources, Inc., (Filpride), of its products to buyers from the customs territory constitutes technical importation and that the buyers/importers, and not Filpride, shall be responsible for the payment of VAT and customs duties on the imposed on the imported products. It is represented that Filpride is a corporation duly organized and existing under and by virtue of Philippine laws with office address at West gate office, Sampson Road, Central Business District Office, Subic Bay Freeport Zone. It is engaged in the business of purchasing, selling, manufacturing, treating, producing, distilling, handling, distributing and dealing in petroleum, its products, by-products, compounds, derivatives and in other minerals, mineral substances and chemical substances. It is classified as a Subic Bay Freeport Enterprise as defined under Section 3, paragraph G of the Implementing Rules of the Subic Bay Metropolitan Authority and enjoys all the rights, privileges and benefits established under Republic Act (R.A.) 7227, among which, is the special tax regime of 5% of gross income earnings in lieu of all other taxes. It is further represented that as an SBMA-registered enterprise, it is allowed up to generate income from sources within the customs territory of up to thirty percent (30%) of its total income from all sources. Currently, Filpride supplies its registered products, such as biodiesel and unleaded gasoline, to local buyers or buyers within the customs territory including the National Power Corporation, Department of Public Works and Highways and Manila International Airport Authority. ETISAc In reply, please be informed that Section 12 (b) of R.A. 7227 provides that: "Sec. 12. Subic Special Economic Zone . (a) . . .; (b) The Subic Special Economic Zone shall be operated and managed as a separate customs territory ensuring free flow or movement of goods and capital within, into and exported out of the Subic Special Economic Zone, as well as provide incentives such as tax and duty free importations of raw materials, capital and equipment. However, exportation or removal of goods from the territory of the Subic Special Economic Zone to the other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines;" The above provision is implemented by Section 47 of the Implementing Rules and Regulations of R.A. 7227, and echoed in Section 5 of Revenue Regulations 1-95 or the Rules and Regulations to Implement that Tax Incentives Provisions under Paragraphs (b) and (c) of Section 12, Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992, to wit: "SEC. 47. Article Removed or Withdrawn from SBF. Notwithstanding the above-mentioned tax and duty exemptions, foreign articles removed, withdrawn or otherwise disposed of from the SBF into the Customs Territory, shall be subject to the payment of customs duties and internal revenue taxes as ordinary importations in accordance with the provisions of the Tariff and Customs Code of the Philippines, as amended, and the National Internal Revenue Code and other applicable laws." Relative thereto, Section 107 of the Tax Code, as amended by Republic Act No. 9337 provides that "(I)n the case of tax-free importation of goods into the Philippines by persons, entities or agencies exempt from tax where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation. The tax due on such importation shall constitute a lien on the goods superior to all charges or liens on the goods, irrespective of the possessor thereof." aDICET The above Section 107 of the Tax Code is implemented by Revenue Regulations No. 16-2005 dated September 1, 2005 which provides as follows: "SEC. 4.107-1. VAT on Importation of Goods . (a) In general. VAT is imposed on goods brought into the Philippines, whether for use in business or not. The tax shall be based on the total value used by the BOC in determining tariff and customs duties, plus customs duties, excise tax, if any, and other charges, such as postage, commission, and similar charges, prior to the release of the goods from customs custody. In case the valuation used by the BOC in computing customs duties is based on volume or quantity of the imported goods, the landed cost shall be the basis for computing VAT. Landed cost consists of the invoice amount, customs duties, freight, insurance and other charges. If the goods imported are subject to excise tax, the excise tax shall form part of the tax base. EcAISC The same rule applies to technical importation of goods sold by a person located in a Special Economic Zone to a customer located in a customs territory. xxx xxx xxx (c) Sale, transfer or exchange of imported goods by tax-exempt persons. In the case of goods imported into the Philippines by VAT-exempt persons, entities or agencies which are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the latter shall be considered the importers thereof and shall be liable for VAT due on such importation. The tax due on such importation shall constitute a lien on the goods, superior to all charges/or liens, irrespective of the possessor of said goods." Pursuant to the abovecited provisions, the BIR has held in several rulings that the sale, transfer or introduction of ECOZONE registered enterprises of products from ECOZONES into the Philippine domestic market, otherwise known as the "Customs Territory", shall be treated as a "technical importation" into the Philippines by the buyer, in which case, such buyer, rather than the ECOZONE registered enterprise or seller, shall be responsible for the tax imposed. Accordingly, the buyer shall be technically treated as the importer thereof who shall be personally liable for the tax, more particularly to the VAT on importation imposed under Section 107 of the Tax Code of 1997. (BIR Ruling No. DA-481-06 dated August 8, 2006; ITAD Ruling 27-2004 dated March 25, 2004; VAT Ruling No. 001-00 dated January 6, 2000; VAT Ruling 119-99 dated December 10, 1999). IDCHTE Considering that both Section 47 of the IRR of R.A. 7227, Section 5 of RR 1-95 and Section 4.107-1 of RR 16-05 classify the transfer by ECOZONE registered enterprises into the Philippine domestic market as "technical importation" wherein the buyer, rather than the ECOZONE registered enterprise, is responsible for the taxes, the same BIR rulings are also applicable in the case of Filpride. In view of the foregoing, this Office hereby confirms your opinion that under R.A. No. 9337 and its implementing rules, the sale by Filpride of its registered products to buyers from the customs territory constitutes "technical importation" and that the buyers, and not Filpride, shall be responsible for the payment of VAT and customs duties on the imported products. Consequently, the application for ATRIG with the Bureau of Internal Revenue shall be handled by the buyers. Moreover, no withholding VAT shall be imposed on the sale of goods by Filpride to buyers which are government entities. 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. ECSHAD Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service