BIR Ruling [DA-342-98]

July 27, 1998 BIR RULING [DA-342-98] Mitsumi Philippines, Inc. Luzon Avenue, Bataan Export Processing Zone Mariveles, Bataan Attention: Mr . Hector Taleon, Jr . Senior Supervisor Gentlemen : This refers to your letter dated January 28, 1997 requesting confirmation of your opinion that your company, a Philippine Economic Zone Authority (PEZA) registered enterprise can be classified as an "ECOZONE Facilities Enterprise" subject to the 5% preferential tax rate under R.A. 7916; and that it does not affect its eligibility to claim the 10% VAT input tax added on its purchases of goods and services. It is represented that your company is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) and is originally registered with the Export Processing Zone Authority (EPZA); that it is located at the Export Processing Zone in Bataan, which has been designated as an ECOZONE under Section 5 of R.A. No. 7916; and that it is engaged in the manufacture of electronic components such as the modulators, tuners and coils for export. prcd In reply, please be informed that Section 24 of R.A. No. 7916, otherwise known as "The Special Economic Zone Act of 1995," provides that no taxes, local and national, shall be imposed on business establishments operating within the ECOZONE and that in lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises within the ECOZONE shall be remitted to the national government. Section 102(a) of the Tax Code, as amended by Republic Act No. 7716 and as implemented by Revenue Regulations No. 7-95 [now Section 108(A) of the Tax Code of 1997] provides that sales of goods and services to persons or entities whose exemption under special laws, (e.g., duly registered and accredited enterprises of the PEZA under R.A. 7916) or international agreements to which the Philippines is a signatory effectively subject the supply of such goods or services to zero-rate. Such being the case, since R.A. 7916 is a special law which grant exemptions from national taxes to PEZA-registered business establishments operating within the ECOZONE, except payment of the preferential tax rate of 5% on gross income earned within the ECOZONE, the sale of goods and services to Mitsumi Philippines, Inc. shall be effectively zero-rated. Accordingly, the input tax on its purchase of goods, properties or services related to such zero-rated sale shall be available as a tax credit or refund in accordance with Revenue Regulations No. 7-95, as amended. It shall be understood that the VAT registered enterprises shall apply with the Revenue District Officer concerned having jurisdiction over their principal place of business for the effective zero-rating of their sales of goods and services to PEZA-registered enterprises within the ECOZONE pursuant to Revenue Regulations No. 7-95, as amended. Without an approved application for zero-rating, the transactions otherwise entitled to zero-rating shall be considered exempt (BIR Ruling No. 33-96 dated October 30, 1996). Hence, the sale of goods is not subject to output tax and the seller is not allowed any tax credit on the VAT previously paid. Consequently, Mitsumi Philippines, Inc., a PEZA registered enterprise cannot claim from the Bureau of Internal Revenue as credit on its purchases of goods and services in this particular case. 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, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)