BIR Ruling [DA-521-98]

November 23, 1998 BIR RULING [DA-521-98] Pilipinas Kyohritsu, Inc. 8/F King's Court Bldg. 2129 Pasong Tamo Makati City Attention: Mr . Valentin R . Valdez General Manager Gentlemen : This refers to your letter dated June 17, 1998 which referred to this Office by the Regional Director of Revenue Region No. 9, San Pablo City, bearing on your request for a ruling as to whether the "offsetting arrangement" in settling your trade accounts with Marubeni Auto Sales Corporation (MASC) will be allowed by the Bureau of Internal Revenue without affecting your future claim for refund of excess Input VAT. cdi You have represented that Pilipinas Kyoritsu Inc. (PKI) is a domestic corporation registered with the Board of Investments (BOI) as an export producer of automotive wiring and plastic products; that a substantial portion of the raw materials used in the manufacture of your products are imported with 80.70% thereof being supplied by MASC, a corporation organized under the laws of Japan which also buys 100% of your finished products; that Marubeni Corporation (MC), also a Japanese corporation with office address at 4-2 Ohtemachi, 2-Chrome Chiyoda-Ku, Tokyo, Japan owns 100% of MASC and at the same time a stockholder of PKI controlling 10% of its shareholdings; that the mode of payment for the said transactions is by way of telegraphic transfer, separate for import and separate for export; that on April 1, 1998, the Japan Foreign Exchange Control Law legalized the "Offsetting" of trade accounts with foreign companies to give relief to corporations of the burden of documenting transactions with the banks; that the Bangko Sentral ng Pilipinas (BSP) has allowed you to avail the "offset arrangement" as a mode of payment of your import and export transactions with MASC; and that since you intend to implement the said "offsetting arrangement" you want to know if the same will not affect your future claim for refund of excess input VAT since the agent bank will issue bank credit advice and certificate of inward remittance to the extent of the net export proceeds instead of on the gross amount of each export transaction. In reply, please be informed that the proposed offsetting arrangement you have graphically presented shows that there is substantive compliance with Revenue Memorandum Order No. 40-94 which prescribes the procedures in the processing of tax credit/refund of value-added tax paid. Moreover, you have also made an assurance that your import and export transactions are separately documented so much so that you can properly account what import transaction has been offsetted against a particular export transaction. Accordingly, and since the BSP has authorized the use of the Offset Agreement as a mode of payment for your import and export transactions with MASC, this Office interposes no objection to the submission of bank credit certification/advise to the extent of the net export proceeds instead of on the gross export proceeds in the processing of your input tax refund. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue