BIR Ruling [DA-425-06]

July 12, 2006 BIR RULING [DA-425-06] VAT 074-01 Ms. Salvacion M. Danao 28 Ibuna Street, Little Baguio San Juan, Metro Manila M a d a m : This refers to your letter dated June 16, 2006 stating that your client, Innovative Animal Nutrition Philippines, Inc. (Innovative), is a 100% foreign-owned domestic corporation duly registered with the Securities and Exchange Commission (SEC); that its primary purpose is to engage in the importation and manufacturing of products for animal nutrition, particularly feed additives and to trade the same on wholesale basis; that Innovative is duly registered with the BIR as a VAT-registered taxpayer; and that it is licensed to operate under the Bureau of Animal Industry (BAI) bearing BAI LTO No. VDAPDI-06-44NCR dated May 11, 2006. In connection therewith, you now request confirmation/ruling on the following: 1. Innovative's sales are VAT-Exempt as it falls under Article 109(d) of the Tax Code. 2. Is it automatic that Innovative's importations are also VAT-Exempt, and that the Bureau of Customs will not compute VAT on the imported goods? 3. Should local VAT-registered suppliers of goods and services to Innovative issue VAT-Exempt invoices/receipts? 4. Innovative was initially registered as VAT-corporation; should it amend its registration to Non-VAT? In reply thereto, please be informed as follows: 1.& 2. Section 109(B) of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337, as implemented by Revenue Regulations No. 16-2005, provides that "(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings, fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets); shall be exempt from VAT." In applying and interpreting the aforesaid provision, this Office in BIR VAT Ruling No. 074-01 dated October 16, 2001 , ruled that ". . . The law regulating the manufacture, importation, sale and distribution of "animal feeds" is R.A. No. 1556, as amended by Presidential Decree (P.D.) No. 7; therefore, in defining the term "feeds" and "ingredients" (except specialty feeds and ingredients), we will adopt the definitions as stated in Section 2 thereof, viz: Paragraph (d). Feeds or Feeding Stuff shall embrace all such articles to be used as feeds purporting to supply proteins, carbohydrates, fats, minerals, vitamins, antibiotics, growth promoting factors whether identified or unidentified, and/or correcting nutritional disorders. Such articles may be locally produced or imported, mixed or in the form of simple ingredients . . . . Par. (1). Ingredients means any single article of feed or feeding stuff which enters into the composition of a ration, concentrate, or supplement. However, Sec. 4 thereof states, thus: Par. (a). Any person, partnership, firm, corporation or association desiring to engage in the manufacture, importation, sale or distribution of feeds or feeding stuff shall first be registered in the Office of the Director. Par. (b). . . Each type or kind of feeds or feed stuff manufactured or imported shall be registered separately. Par. (d). "No feeds or feeding stuffs in the form of complete mixture, concentrate, supplement, or ingredient which have not been registered with the Director, shall be manufactured, imported, advertised, sold or offered for sale or held in possession for sale in the Philippines. The Bureau of Animal Industry (BAI) has been tasked to implement the afore-said R.A. No. 1556, as amended by P.D. No. 7 more particularly on the registration of products and business entities. It is, therefore, competent in determining a. person's eligibility to manufacture, import:, sell or distribute "animal feeds" and "feed ingredients", as well as the nature or specification of any product claimed as such. Hence, such determination will govern the classification of goods as "animal feeds or "feed ingredients" for purposes of VAT exemption under Section 109(d) of the Tax Code of 1997, unless it is determined that the goods are purely specialty feeds or are ingredients used solely in manufacturing the same. cACTaI Accordingly, any person claiming such VAT exemption must secure the following mandatory requirements, to wit: (a) a current BAI-Certificate of Business Registration; (b) a BAI-Certificate of Product Registration for each type/kind of product; and/or (c) a BAI-Import Permit for each type/kind of product. Provided, however, that in all cases of importation of goods/items referred to above, the same shall not be released from Customs custody unless covered by an "Authority to Release Imported Goods" issued by the Revenue District Officer of the place where the importer's principal place of business is located. In your case, therefore, SPAH's products heretofore listed will qualify as VAT-exempt under Section 109(d) of the Tax Code of 1997 as soon as you secure the aforementioned mandatory requirements." Inasmuch as Innovative is duly licensed by BAI to operate under BAI LTO No. VDAPD1-06-044NCR, the sale and importation of animal feeds is exempt from VAT pursuant to Section 109(B) of the Tax Code of 1997, as amended by R.A. No. 9337. 3. Any person who, in the course of his trade or business, sells, barters, exchanges or leases goods or properties, or renders services, and any person who imports goods, shall be liable to VAT imposed in Sections 106 to 108 of the Tax Code. (Sec. 4.105-1, Revenue Regulations No. 16-2005) VAT is an indirect tax it can be passed on to the purchaser and once shifted, it forms part of the cost of goods that it purchases. Since the exemption privilege of Innovative is limited only to taxes for which it is directly liable under Section 109 of the Tax Code of 1997, as amended by R.A. No. 9337, the shifting of the VAT to it does not make it directly liable for the payment of the VAT. ( BIR VAT Ruling No. 032-91 dated May 29, 1991 ) Consequently, Innovative cannot invoke the exemption privilege granted to it to avoid the passed-on VAT. As such, its purchases shall be subject to VAT and the VAT-registered suppliers of goods and services of Innovative shall issue the corresponding VAT invoices or receipts. 4. Innovative should update its registration by submitting a duly accomplished Registration Update Form (BIR Form No. 1905), since its transactions are 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 null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service