BIR Ruling [DA-513-06]

August 25, 2006 BIR RULING [DA-513-06] 16-2005; VAT Ruling 011-2005 Asia Pacific Energy Corporation TECO-SEZ, Bo. Bundagul Mabalacat, Pampanga Attention: Ms. Leticia S. Servio Accounting and Finance Head Gentlemen : This refers to your letter dated August 24, 2005 stating that Asia Pacific Energy Corporation (APEC) is a power generation company located in Bundagul, Mabalacat, Pampanga. It was registered with the BIR on October 2, 2003 but it is not specified in its Certificate of Registration whether it is a VAT, Non-VAT, Zero-Rated VAT or VAT Exempt entity. On March 12, 2004, APEC got its certification from the Philippine Economic Zone Authority (PEZA) as an Ecozone Utilities Enterprise (with Registration Certificate No. 04-01-U) to develop and operate a power supply and distribution facility at the TECO-SEZ. SDTIHA As a PEZA-registered company, APEC is exempt from payment of all national and local taxes in lieu of the payment of 5% final tax on gross income in accordance with the provisions of Republic Act (RA) No. 7916. Based on the above representations, you now request for an opinion on: 1. How should APEC be registered with BIR VAT, Non-VAT, 0% VAT or VAT Exempt? 2. How will APEC activities be classified "Sale of Goods" or "Sale of Services"? 3. What documents shall be issued to customers aside from the Official Receipts/Sales Invoice and Statement of Account? In reply, please be informed that: 1. Pursuant to Section 24 of RA 7916, otherwise known as "The Special Economic Zone Act of 1995", as amended by RA No. 8748, except for real properties on land owned by developers, no taxes, national and local, shall be imposed on business establishments operating within the Ecozone and that in lieu of paying taxes, five percent (5%) of the gross income earned by all businesses and enterprises from their registered operations within the Ecozone shall be remitted to the national government (3%) and to the municipality or city (2%) where the enterprise is located. Thus, APEC, which is registered with PEZA as an Ecozone Utilities Enterprise, is exempt from national taxes, which include, among others, corporate income tax and VAT. Moreover, under Sec. 4.109-1 of Revenue Regulations (RR) No. 16-2005, implementing Section 109 of the 1997 Tax Code, as amended by RA 9337, transactions of persons or entities which are exempt under international agreements or special laws are exempt from VAT. AIDTSE It is to be understood that incentives granted by the PEZA shall apply only to registered operations of the Ecozone Enterprise and only during the period of its registration with PEZA. Considering that your BIR Certificate of Registration does not state whether or not you are a VAT or Non-VAT entity, it is but proper that you file BIR Form 1905 with BIR-RDO 21, San Fernando, Pampanga as a VAT-entity to properly update your Certificate of Registration. 2. Pursuant to Sec. 4.108-2 of RR 16-2005, the term "sale or exchange of services" means the performance of all kinds of services in the Philippines for a fee, remuneration or consideration, whether in kind or cash, including those rendered by generation, transmission and/or distribution companies on its sale of electricity. Inasmuch as APEC is a power generation company providing power supply and distribution facility at the TECO-SEZ, its sale of electricity, therefore, is considered sale of services. 3. APEC should issue a duly-registered receipt for every sale in conformity with the requirements of Sections 113 and 237 of the 1997 Tax Code. While it is true that generation and distribution companies are not required to issue Statements of Account, APEC, in its intention of giving ample services to its customers, may opt to issue Statements of Account. For your guidance and information. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service