BIR Ruling [DA-463-06]

July 28, 2006 BIR RULING [DA-463-06] R.R. 74-99; VAT Ruling 011-2003 Fernandez Aguja Law Firm CPA Lawyers Suite 5F JL Bldg., Don Jose Avila cor. Don Gil Garcia Streets, Cebu City Attention: Atty. Luna Mae F. Aguja Partner Gentlemen : This refers to your letter dated July 16, 2006 requesting on behalf of your client, Concrete Solutions, Inc. (CSI), for confirmation of your opinion that the ready mix concrete pouring service contracts entered into by CSI with Primary Industrial Properties Corporation (PIPC), Cebu Microelectronics, Inc. (CMI) and Metro Wear Incorporated (MWI) prior to the effectivity of R.A. 9337 are considered as automatically zero-rated and do not require an application for zero rating. It is represented that CSI is a corporation duly organized under Philippines laws with principal place of business located at Purok Bougainvilla, Sitio Mangahan, Canduman Mandaue City; that it is duly registered as a VAT enterprise with the Bureau of Internal Revenue; that on the other hand, PIPC, CMI and MWI are all PEZA-registered enterprises and all duly certified by PEZA as qualified enterprises for purposes of VAT zero-rating on their transactions with their local supplier of goods, properties and services; that prior to the effectivity of R.A. 9337, CSI entered into various ready mix concrete pouring service contracts with PIPC, CMI and MWI, as follows: CHATcE Name of Buyer Volume of Concrete Pouring Services Primary Industrial Properties Corporation 20,000 cubic meters Cebu Microelectronics, Inc. 1,900 cubic meters Metro Wear Incorporated 700 cubic meters that subsequent to the effectivity of R.A. 9337, CSI collected various amounts from the said pouring service contracts; and that CSI did not apply for effective VAT zero-rating on the said contracts but subjected all of its collection pertaining to the said contracts to automatic VAT zero-rate based on the provisions of RMC 74-99. In reply, please be informed that under Section 3(3) of Revenue Memorandum Circular No. 74-99, sales of goods, property or services by a VAT registered supplier from the Customs territory to a PEZA-registered enterprise operating in the ecozone shall be subject to zero percent (0%) VAT. For this purposes, no prior approval for zero-rating is necessary to entitle the supplier of goods, property or services to the benefit of zero-rating as the RMC serve as a sufficient basis for entitlement to the zero percent rate. In addition, suppliers entitled to the benefit of zero-rated sale of goods, property or services may apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. It is noted, however, that RMC 74-99 has been deemed amended by Revenue Regulations No. 16-2005 by classifying sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) as effectively zero-rated. Under the new regulations, sales to PEZA-registered enterprises shall require prior application with the appropriate BIR Office for effective zero-rating. Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt. Revenue Memorandum Order No. 7-2006 dated December 15, 2005 was likewise issued in prescribing for the guidelines and procedures in the processing of application for zero-rating of effectively zero-rated transactions for VAT purposes. Since the pouring service contracts of CSI were entered into prior to the effectivity of Revenue Regulations No. 16-2005, the provision of the said Revenue Regulation on the requirement of securing prior application for zero-rating shall not apply. Accordingly, the sale of concrete pouring services rendered by CSI to PIPC, CMI and MWI is subject to zero percent (0%) VAT and requires no prior approval for zero rating based on RMC 74-99. 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