BIR Ruling [DA-368-05]

August 30, 2005 BIR RULING [DA-368-05] S.107 (A); 27 (A); DA-418-2003 Samsung Electronics Philippines Corporation Ground Floor Bonaventure Plaza, Ortigas Avenue, Greenhills, San Juan, Metro Manila Attention: Jeong Ryeol Kim Treasurer Gentlemen : This refers to your request for confirmation that sale of goods to entities located in Special Economic Zones but were consummated outside the Philippines are not subject to value-added tax (VAT). The facts, as represented, are as follows: EVERHARVEST CORPORATION (Everharvest for brevity) is a corporation duly organized and existing by virtue of Philippine laws. Its primary purpose is to engage in the business of trading of goods such as assorted groceries, garments and housewares on wholesale/retail basis and trading of all kinds of vehicles (buses, cars, vans, motorcycles, machinery and heavy equipments, their spare parts and accessories). SAMSUNG ELECTRONICS PHILIPPINES CORPORATION (SEPCO) intends to sell its electronic and information technology products to Everharvest. It is an entity duly registered with Clark Development Corporation (CDC) as a Clark Special Economic Zone Enterprise. SEPCO proposes to sell the said products to Everharvest while in transit or outside the Philippine territory, so that Everharvest will acquire title over the said products prior to their entry into the Philippines. Hence, in the shipping documents SEPCO will be the owner but the consignee will be Everharvest. The ultimate importer of the goods will be Everharvest since the goods will be sold by SEPCO while in transit, and as such, upon landing Everharvest will be the owner of the goods, and being a Clark Special Economic Zone Enterprise, SEPCO would not be burdened with any VAT liability on said transaction. In reply, please be informed that in BIR Ruling No. DA-418-2003 dated November 18, 2003 citing BIR VAT Review Committee Ruling No. 011-2001 dated March 8, 2001, where the sale of imported goods to a VAT-exempt entity occurred while the same was in transit or outside the Philippines, thus, acquiring title over it before entering Philippine territory, the BIR ruled that such importation is exempt from VAT. Thus, ". . . pursuant to Section 107(A) of the Tax Code of 1997, 'there shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any', such tax to be imposed on the IMPORTERS thereof. Nonetheless, if, under the instant case, the importer/consignee of the subject goods to be imported is the Duty Free Philippines, the said importation is exempt from taxes . . ." Accordingly, since ownership of the imported goods was transferred while in transit or outside Philippine territory, LDMPI is considered the importer of such goods. And since LDMPI is a duly registered Subic Bay Freeport Enterprise, its importation of the said goods is not subject to VAT in accordance with Article IV of its Certificate of Registration and Tax Exemption issued by SBMA, which states that: 'ARTICLE IV The Company shall be entitled to tax-and duty-free importation of raw materials, capital equipment, and household and personal items for use solely within the Subic Bay Freeport Zone pursuant to Section 12(b) and 12(c) of the Act and Sections 43, 45, 46, and 49 of the Implementing Rules. The Company shall have the burden of showing that their Subic Bay Freeport Enterprise is in compliance with the foregoing laws and regulations.' Moreover, since the sale of cell phone units to LDMPI was consummated outside the territorial jurisdiction of the Philippines, the same is not subject to VAT. The proceeds, however, shall be subject to the ordinary corporate income tax under Section 27(A) of the 1997 Tax Code." Accordingly, since the sale by SEPCO of the said products to Everharvest is to be consummated outside the territorial jurisdiction of the Philippines, the same is not subject to VAT. The proceeds, however, shall be subject to the ordinary corporate income tax under Section 27(A) of the 1997 Tax Code. TcSCEa This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue