BIR Ruling [DA-457-03]

December 5, 2003 BIR RULING [DA-457-03] Luzon Electronics Technology, Inc. Hitachi Metals Special Export Processing Zone Gateway Business Park Brgy. Javalera; Gen. Trias, Cavite Attention: Ms. Luz G. Cuyco Finance Manager Gentlemen : This refers to your letter dated January 9, 2002 requesting that your sale to another PEZA-registered enterprise is entitled to zero-percent (0%) VAT and is not a VAT-exempt or effectively zero-rated transaction subject to application for VAT-zero rating. You have represented that you are a PEZA-registered export enterprise whose registered activity is the manufacture and assembly of magnetic head for hard disk drive used for personal computers; that you directly export the finished products to Japan and other countries and at the same time you are a sub-contractor of an affiliate, Hitachi Computer Products (Asia) Corp. (HICAP for brevity) and you manufacture magnetic heads for it; that HICAP, which is located at the Special Export Processing Zone in Laguna Technopark, Bian, Laguna, is also a PEZA-registered enterprise with Certificate of Registration No. 94-98 dated May 11, 1994; that HICAP is a 100% direct exporter of hard disk drives and the magnetic heads which you provide is a major component part of your HICAP's finished product; that you are paid in local (PESO) currency by HICAP; and that you and HICAP are both VAT-registered enterprises. In reply, please be informed that Section 5(3) of Revenue Memorandum Circular No. 74-99 dated October 15, 1999 explicitly provides that the Sale of goods by a PEZA-registered enterprise to another PEZA-registered enterprise ( i . e . Intra ECOZONE Sales of Goods) shall be exempt from VAT, pursuant to Section 109(q) of the 1997 NIRC, in relation to Section 24, R.A. No. 7916, as implemented by Section. 1, Rule VIII, Part V of the PEZA implementing rules and regulations. Accordingly, we regret to inform you that your request for zero-rating of your sale of goods to HICAP, which is paid for in local currency, cannot be granted for lack of legal basis. AcHSEa Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group