BIR Ruling [DA-367-04]

June 30, 2004 BIR RULING [DA-367-04] Section 108 (b) VAT Ruling Nos. 011-98; 034-2002 Vantage Resources Corporation Unit 509 Cityland 10 Tower II, 6817 H.V. dela Costa cor. Valero Sts., Salcedo Village, Makati City Attention: Mr . Ernesto G . Rosales General Manager Gentlemen : This refers to your letter dated August 26, 2003, which was indorsed to this office by the Chief, Legal Division, Revenue Region No. 8, Makati City on March 12, 2004, requesting that Vantage Resources Corporation be exempted from the imposition of the Value Added Tax on its importation/purchase of products since its transactions with EPZA registered corporations are VAT zero-rated. It is represented that Vantage Resources Corporation (VANTAGE) is a domestic corporation organized and existing under the laws of the Philippines; that its main business activity is to distribute 3M and Loctite products; that eighty (80) to eighty five (85) percent of its sales volume is to customers located at Export Processing Zone and Industrial Parks i.e. Laguna Technopark, Inc., Cavite Export Processing Zone, Light Industry and Science Park, Carmelray Industrial Park, and others; that you purchase your merchandise from 3M Philippines (3M Phils.) and Henkel (Phil) Inc. (Loctite Division); that you are charged the 10% value-added tax which you are supposed to pass to your customers; that this does not happen because when you sell to customers located at the Export Processing Zone or Economic Zones and Industrial Parks, you cannot bill the 10% VAT because they are considered zero-rated or VAT Exempt enterprises; that you end up with excess input taxes which you cannot use to your advantage and it affect your cash position and ability to operate viably; that you have rented a space at AAI Logistics Inc. ICBW No. 180, duly licensed by the Bureau of Customs as an operator of an Industry-Specific Custom Bonded Warehouse (ICBW); that it is located at Kaingin Road, Multinational Village, Paraaque City; that the tenants of this Industry-Specific Custom Bonded Warehouse are companies that sell to customers located at Export Processing Zones and Industrial Parks which are zero-rated or VAT exempt entities; that the bonded warehouse is controlled and supervised by the Bureau of Customs; and that the following are the details of your ordering process: 1) Vantage Resources places an order with 3M Philippines with specific instructions to ship/consign to AAI Logistics Inc. Industry-Specific Custom Bonded Warehouse No. 180; 2) Upon receipt of your order, 3M Philippines will place an order for the same item and quantity with their head office, 3M USA and/or any 3M subsidiary; 3) 3M USA or any 3M subsidiary then ship the order as instructed to the Industry Specific Custom Bonded Warehouse; 4) AAI Logistics Inc. process the release of the cargo from the customs and deliver to the Industry Specific Customs Bonded Warehouse which is an extension of the custom territory, tax and duty free; 5) 3M Philippines issues invoice to Vantage Resources Corporation for the order inclusive of the 10% VAT; 6) Vantage Resources Corporation prepares AAI withdrawal by indicating the customer name and corresponding purchase order; 7) Vantage Resources Corporation then delivers and process invoice to customer, zero-rated. In reply, please be informed that Section 105 of the Tax Code of 1997 provides: "SEC. 105. Persons Liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Section 106 to 108 of this Code. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services." Based on the foregoing, sale of goods by a VAT-registered entity is subject to the 10% value-added tax. Since VANTAGE and 3M Phils. are both VAT registered, their sale of goods are subject to 10% VAT unless the transaction is exempt from VAT under Section 109 or the transaction is subject to the zero-percent (0%) rate pursuant to Section 106(A)(2)(a)(5). Thus, the sale of imported goods by 3M Phils. to VANTAGE, which were shipped from abroad and delivered directly to VANTAGE's rented space at AAI ICBW No. 180, and for which it issues an invoice inclusive of VAT, is in order. On the part of VANTAGE, on the basis of its representation that it sells the imported goods to ECOZONE locators, the provision of Section 106(A)(2)(a)(5) of the Tax Code will apply. Section 106(A)(2)(a)(5) provides for a zero percent (0%) VAT with respect to sales considered as "export sales". As implemented by Revenue Memorandum Circular (RMC) No. 74-99 promulgated on October 15, 1999, sale of goods to PEZA-registered ECOZONE "shall be treated as indirect export, hence considered subject to zero percent (0%) VAT, pursuant to Section 106(A)(2)(a)(5), NIRC and Section 23 of R.A. 7916, in relation to Article 77(2)(8) of the Omnibus Investments Code." Based on the foregoing, sale of goods by VANTAGE to its customer-buyers located at the ECOZONE are treated in law as export sales, and therefore entitled to the benefit of effectively zero-percent (0%) VAT, pursuant to Section 106(A)(2)(a)(5) of the Tax Code of 1997, as implemented by Section 4.100-3 of Revenue Regulations No. 7-95. ECDaAc It has also been represented that, VANTAGE recognizes an input VAT on the purchases made based on the invoice issued by 3M Phils. We, therefore, hold that since an invoice issued by 3M Philippines is conclusive of the sale transaction so had between 3M Philippines and VANTAGE, who are both VAT registered taxpayers, the same having been subjected to the 10% VAT, VANTAGE may properly recognize the tax passed on to it as input tax. We also noted VANTAGE representation that the goods sold to it by 3M Phils. are being shipped from abroad and delivered directly to VANTAGE rented space at AAI Logistics Inc. ICBW No. 180. AAI Logistics Inc. ICBW is a Bureau of Customs controlled Industry-Specific Bonded Warehouse that leases only to tenants/companies exclusively selling to customers located at PEZA ECOZONE and Industrial Parks. In this connection, this Office has consistently ruled that the Customs Bonded Manufacturing Warehouse is removed from the jurisdiction of the Philippine Customs Territory, 1 hence, payments of internal revenue taxes shall be made upon withdrawal or removal from customs custody. 2 Such being the case, this Office hereby opines that, ICBW is considered removed from Philippine customs territory. Therefore, shipment/delivery of imported goods thereto, ICBW is not subject to the 10% VAT. Furthermore, since the imported goods are specifically for sale to ECOZONE locators, such sale by VANTAGE to the intended buyer, is considered as constructive export subject to zero percent (0%) pursuant to the aforementioned Section 106(A)(2)(a)(5) of the Tax Code of 1997, as implemented by RMC 74-99. Finally, input taxes, that are directly attributable to zero-rated (0%) sales of imported goods to ECOZONE locators, may be the subject of claim for refund or issuance of a tax credit certificate pursuant to Section 112 of the Tax Code, to wit: "SEC. 112. Refund or Tax Credits of Input Tax . (A) Zero-rated or Effectively Zero-rated Sales . Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax . . ." Accordingly, you may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group Footnotes 1. VAT Ruling No. 011-98 dated March 4, 1998. 2. Hamlin vs. Collector of Internal Revenue , 106 Phil. 723 as cited in VAT Ruling 085-90 dated April 5, 1990.