BIR Ruling [DA-503-99]

September 3, 1999 BIR RULING [DA-503-99] Toyota Motor Philippines Corporation Km. 15 South Superhighway Paraaque, Metro Manila Attention: Ms . Rosario Espino Zara Direct Sales Officer Gentlemen : This refers to your letter dated January 26, 1999 requesting for a ruling as to whether or not your sale of locally assembled motor vehicle to Cubi Point Aviation, Inc. of Subic Bay Freeport Enterprise in Subic, Olongapo City, is effectively zero-rated pursuant to Section 106(A)(2)(c) of the Tax Code of 1997; and that said sale is exempt from ad valorem tax. It is represented that you sold one (1) unit of Toyota Corona Exsior 2.0 Ex Saloon to Cubi Point Aviation, Inc., a Subic Bay Freeport Enterprise engaged in the business of aircraft brokerage with principal office address at Unit 106, Bldg. 789, Sta. Rita Road corner Canal Road, Subic Bay Freeport Zone, as evidenced by Pro Forma Invoice dated January 26, 1999; and that said locally assembled Toyota vehicle is more particularly described as follows: One Unit Toyota Corona Exsior 2.0 Ex-Saloon 1998 cc 5 Speed Manual Transmission with Aircon, AM/FM Radio/Cassette, 6 Disc CD Shuttle and with all the power features, and ABS, Air Bag (Driver) Model: ST191L-AEMNK to which the amounts of P155,084.00 and P59,818.00 were deducted for ad valorem tax and value-added tax, respectively. In reply, please be informed that Section 106(A)(2)(c) of the Tax Code of 1997 provides that sales of goods and services to persons or entities whose exemption under special laws (e.g. R.A. 7227 and R.A. 7916) or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. However, in interpreting and applying the above-cited section, this Office in RMC No. 25-99 declared that the sales of ordinary automobiles to PEZA, or SBMA and other ECOZONE registered enterprises are not entitled to VAT zero-rating. This is so because Section 2(ii) of R.A. No. 7916 provides that the term "Merchandise or Goods" shall collectively refer to raw materials, supplies, equipment, machineries, spare parts, packaging materials or wares of every description to be used in connection with the registered activity of an ECOZONE enterprise . (Emphasis supplied) cdll The phrase "to be used in connection with the registered activity of an ECOZONE enterprise" in describing what comprises merchandise or goods imparts the presumption that the same are somehow utilized in the production activity of an ECOZONE enterprise. Such being the case, since the sale of locally assembled motor vehicle to Cubi Point Aviation, Inc. is not directly related to its registered activity as Subic Bay Freeport enterprise the same could not be covered within the classification of goods or merchandise entitled to the benefit of tax exemption. Moreover, since value-added tax is an indirect tax, the amount of tax may be shifted or passed on to the buyer of the goods, properties or services. Accordingly, the sale of one (1) unit of motor vehicle to Cubi Point Aviation, Inc. is subject to 10% value-added tax. (BIR Ruling No. 74-99 dated June 4, 1999) However, Cubi Point Aviation, Inc. being an activity operating within the freeport zone, is not liable to the corresponding ad valorem tax for the purchase of locally assembled motor vehicle in the amount of P155,084.00 pursuant to Section 149 of the Tax Code of 1997. However, in case such service vehicle or company service car is used for more than an aggregate period of 14 days per month outside the freeport zone, the owner or importer shall pay the corresponding customs duties, taxes and charges. 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)