BIR Ruling [DA-518-04]

October 6, 2004 BIR RULING [DA-518-04] S. 107 (A); 27 (A); DA-418-2003 dated 11-18-2003 Samsung Electronics Philippines Corporation Ground Floor Bonaventure Plaza, Ortigas Avenue, Greenhills, San Juan, Metro Manila Attention: Jeong Ryeol Kim Treasurer Gentlemen : This refers to your letter dated July 27, 2004 requesting for confirmation that sale of goods to entities located in Special Economic Zones consummated outside the Philippines is not subject to Value Added tax (VAT for brevity) The facts, as you represent, are as follows: MATRIX MOBILE INC. (MATRIX for brevity) is a corporation duly organized and existing by virtue of Philippine laws. Its primary purpose is to engage, conduct and carry on internationally and/or locally the business of buying, selling, distributing, marketing and wholesale any and all kinds of goods, commodities, wares and merchandise of every kind and description; to enter into all kinds of contracts for export, import, purchase, acquisition, sale at wholesale and other disposition for its own account as principal or representative capacity as manufacturer's representative, merchandise, broker indentor, commission merchant, factors or agents upon consignment of all kinds of goods, wares, merchandise or products whether natural or artificial. SAMSUNG ELECTRONICS PHILIPPINES CORPORATION (SEPCO for brevity) intends to sell cell phone units to MATRIX, a domestic corporation duly registered with the Subic Bay Metropolitan Authority (SBMA for brevity) as a Subic Bay Freeport Enterprise. IEHaSc MATRIX is an international trader and sells cell phones to its clientele in the Asia/Pacific Region. In order for its cell phone units to be competitive, SEPCO proposes to sell cell phone units to MATRIX while in transit or outside the Philippines so that MATRIX will acquire title over the cell phone units prior to their entry into the Philippines. Hence, in the shipping documents SEPCO will be the owner but the consignee will be MATRIX. By virtue of the aforecited facts, you claim that the ultimate importer of the goods will be MATRIX since the goods will be sold by SEPCO while in transit. Hence, upon landing MATRIX will now be the owner of the goods. In reply, please be informed that in BIR Ruling No. DA-418-2003 dated November 18, 2003 citing BIR VAT Review Committee Ruling No. 011-2001 dated March 8, 2001 where the sale of imported goods to a VAT exempt entity occurred while the same was in transit or outside the Philippines, thus, acquiring title over it before entering Philippine territory, the BIR ruled that such importation is exempt from VAT. Thus, ". . . pursuant to Section 107(A) of the Tax Code of 1997, 'there shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any', such tax to be imposed on the IMPORTERS thereof. Nonetheless, if, under the instant case, the importer/consignee of the subject goods to be imported is the Duty Free Philippines, the said importation is exempt from taxes. . . ." Accordingly, since ownership of the imported goods was transferred while in transit or outside Philippine territory, LDMPI is considered the importer of such goods. And since LDMPI is a duly registered Subic Bay Freeport Enterprise, its importation of the said goods is not subject to VAT in accordance with Article IV of its Certificate of Registration and Tax Exemption issued by SBMA, which states that: ITDHSE 'ARTICLE IV The Company shall be entitled to tax-and duty-free importation of raw materials, capital equipment, and household and personal items for use solely within the Subic Bay Freeport Zone pursuant to Section 12(b) and 12(c) of the Act and Sections 43, 45, 46, and 49 of the Implementing Rules. The Company shall have the burden of showing that their Subic Bay Freeport Enterprise is in compliance with the foregoing laws and regulations.' Moreover, since the sale of cell phone units to LDMPI was consummated outside the territorial jurisdiction of the Philippines, the same is not subject to VAT. The proceeds, however, shall be subject to the ordinary corporate income tax under Section 27(A) of the 1997 Tax Code." Accordingly, since the sale of cell phone units to MATRIX is to be consummated outside the territorial jurisdiction of the Philippines, the same is not subject to VAT. The proceeds, however, shall be subject to the ordinary corporate income tax under Section 27 (A) of the 1997 Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group