BIR Ruling [DA-635-06]

October 27, 2006 BIR RULING [DA-635-06] DA-094-2000; Sec. 3 (o), IRR of RA 7227 Floats and Fuel Cells Services (Asia Pacific Operations), Inc . Bldg 8005, Subic Bay International Airport Subic Bay Freeport Zone, Zambales Attention: Thelma M. Dizon Accounting Officer Gentlemen : This refers to your letter dated June 6, 2006, requesting this Office to consider your purchase of a vehicle from Diamond Motors Corporation as a VAT zero-rated transaction. It is represented that Floats and Fuel Cells Services (Asia Pacific Operations), Inc. ("FFC" for brevity) is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. CS200301756 dated January 30, 2003; that it is also registered as a Subic Bay Freeport Enterprise with the Subic Bay Metropolitan Authority (SBMA); that under its Certificate of Tax Registration and Exemption, FFC is registered as engaged in the business of assembly, repair and maintenance of floats, fuel cells and containers of various aircraft in the Subic Bay Freeport Zone. It is further represented that it was issued a Certificate of Tax Registration and Exemption No. 2003-0032 on June 17, 2005 by the SBMA; and that under Article IV of said Certificate, it is 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. FFC recently purchased a Mitsubishi L300 van from Diamond Motors which is for the sole use of its employees going to and from the company's premises located in Building 8005, Subic Bay International Airport. FFC now requests this Office's confirmation of its opinion that this purchase is subject to VAT zero-rating, considering that the said vehicle will be used exclusively in the abovementioned manner. EIDATc In reply, please be informed that Section 106 (A)(2)(c) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337, provides that: "SEC. 106. Value-Added Tax on Sale of Goods or Properties . (A) Rate and Base of Tax . There shall be levied, assessed and collected on every sale, barter or exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross value in money of the goods or properties sold, bartered or exchanged, such tax to be paid by the seller or transferor: Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied. xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (c) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate." Since FFC is a registered Subic Bay Freeport Enterprise, it is entitled, under RA 7227, and by virtue of Article IV of its Certificate of Tax Registration and Exemption, to avail of tax and duty-free importation of articles for use solely within the Subic Bay Freeport Zone. "Articles", as defined under Sec. 3(o) of the Implementing Rules and Regulations of RA 7227 (The Bases Conversion and Development Act of 1992), when used with reference to importations or exportations, shall consist of raw materials, supplies, equipment, machineries, spare parts, packaging materials, wares, merchandise, and in general, anything that may, under the Rules of the SBMA, be made the subject of importation to and or exportation from the Zone. However, this Office has asserted in BIR Ruling No. DA-094-2000 that, to avail of the VAT zero-rating privilege under the above Section, PEZA, SBMA and other ECOZONE-registered enterprises' importation of the above-mentioned articles must be used in connection with the registered activity of an ECOZONE enterprise. In this regard, FFC represents that its purchase/importation of a Mitsubishi L300 van from Diamond Motors is for the exclusive purpose of ferrying its employees to and from the company's premises. Considering that FFC's area of operations is located in the Subic International Airport, where it assembles, repairs and maintains floats, fuel cells and containers of various aircraft, the necessity of ferrying its employees to and from the airport, where public transportation is intermittent or even non-existent, is evident. It can be seen here that FFC's activities would be severely hampered without an effective means of transportation of its employees, taking into consideration the strict time schedules to be observed in airport operations and FFC's role in such operations. Accordingly, this Office rules that FFC's purchase of a Mitsubishi L300 van is subject to VAT zero-rating, provided that such vehicle is exclusively used for the purpose of transportation of its employees to and from its work premises in the Subic International Airport and that its use is confined within the ECOZONE area. 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. aSACED Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service