BIR Ruling [DA-346-03]

October 8, 2003 BIR RULING [DA-346-03] Sec. 106 (A) VAT 50-00; VAT 35-01 SyCip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty. Emmanuel C. Alcantara Tax Division Gentlemen : This refers to your letter dated September 10, 2003 requesting on behalf of your client. Dole Asia Ltd. Regional Headquarters ("Dole-RHQ"), for a confirmation of your opinion that the purchase of an automobile by Dole-RHQ is subject to 0% VAT pursuant to Article 65 of E.O. 226, otherwise known as the Omnibus Investments Code and Section 14 of the implementing rules and regulations of E.O. 226, as amended by Republic Act (R.A.) No. 8756. It is represented that Dole-RHQ is a regional headquarters registered with the Securities and Exchange Commission (SEC) pursuant to the provisions of E.O. 226, as amended; and that Dole-RHQ intends to purchase a Jaguar X-type 2.0 luxury model valued at P2.4 million from Jaguar Cars, Inc. located at 399 Sen. Gil Puyat Avenue, Makati. In reply, please be informed that Section 106(A)(2)(c) of the National Internal Revenue Code (Tax Code) of 1997 provides, viz. : "SEC. 106. Value-added Tax on Sale of Goods or Properties . (A) . . . (1) . . . (2) . . . (a) . . . (b) . . . (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate." On the other hand, Section 65 of E.O. No. 226, as amended by R.A. No. 8756, provides as follows, viz. : "Art. 65. Value-Added Tax . The regional or area headquarters established in the Philippines by multinational companies shall be exempted from the value-added tax. In addition, the sale or lease of goods and property and the rendition of services to regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the National Internal Revenue Code, is amended. TECcHA Regional operating headquarters shall be subject to the ten percent (10%) value-added tax as provided for under the National Internal Revenue Code, as amended." (cited in VAT Ruling No. 035-2001 dated June 13, 2001) Article 65 of the Omnibus Investments Code, as amended by R.A. No. 8756, is implemented by Section 14 of its Implementing Rules and Regulations, as follows: "Section 14. Value-Added Tax . Regional or area headquarters shall be exempted from the value-added tax. The sale or lease of goods and property and the rendition of services to regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the National Internal Revenue Code, as amended. The regional or area headquarters shall not be required to obtain or secure a prior permit from the Bureau of Internal Revenue for Zero-Rating of the supplier's sale of goods and services to them. In general, the regional operating headquarters shall be subject to the ten percent (10%) value-added tax unless otherwise provided under the National Internal Revenue Code, as amended or other existing laws." Under the aforequoted Section 106(A)(2)(c) of the Tax Code of 1997, to be eligible for zero-rating, (1) the exemption of the person or entity with whom a VAT-registered person enters into a transaction must be provided under a special law (or international agreement); and (2) the exemption effectively subjects such transaction to zero rate. In this case, it is clear from Article 65 of E.O. No. 226, as amended, that RHQs are exempt from VAT and that sale of goods thereto are subject to the zero-percent (0%) VAT rate. Such being the case and since the said E.O. is a special law, this Office hereby confirms your opinion that the sale of an automobile to the Dole-RHQ by Jaguar Cars, Inc. shall be effectively subject to the zero-percent (0%) VAT rate. Please be reminded, however, that for Jaguar Cars, Inc. to avail of the zero-percent rate, it is required to obtain an approved application for effective zero-rating, pursuant to Section 4.107.1(d) of Revenue Regulations No. 7-95, as amended; otherwise, failure to obtain a prior approval, the transaction shall be considered only exempt from VAT. 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 as null and void. ECDAcS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group