Subic Bay Free Trade Centre, Inc.

December 19, 2007 BIR RULING [DA-663-07] 109 (L); RR 20-2001; RMC 50-2007 Subic Bay Free Trade Centre, Inc. Building 8475 Corregidor Highway Naval Magazine Compound Subic Bay Freeport Zone Attention: Mr. Nilo H. Raymundo President Gentlemen : This refers to your letter dated December 13, 2007 requesting for a ruling that the purchase by Subic Bay Free Trade Centre, Inc. ("SBFTCI"), an SBMA locator, of one Toyota Super Grandia is subject to VAT at zero percent (0%) rate. aCITEH It is represented that SBFTCI is an SBMA locator with Certificate of Registration and Tax Exemption No. 99-0006 issued on May 8, 2007; and that it has a pending negotiation with Toyota Makati, Inc. for the purchase of a Super Grandia, specifically described as follows: Engine Number 2KD-1708596 Chassis Number JTFRS13P300008164 Color White Pearl Customer's Name Subic Bay Free Trade Centre, Inc. Address Bldg. 8475 Corregidor Highway, Naval Magazine Compound, Subic Bay Free Port Zone In reply, please be informed that the Philippine VAT Law adheres to the "cross border doctrine" of the VAT system, which basically means that no VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial border of the Philippine taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT. Conversely, those goods destined for use or consumption and services to be rendered within the Philippines shall be subject to the 12% VAT. In the case of Coconut Oil Refiners Association, Inc. et al. vs. Hon. Executive Secretary Ruben Torres, BCDA, et al., G.R. No. 132527, July 29, 2005, the Supreme Court held that "for as long as the goods remain within the zone, whether we call it an economic zone or a freeport zone, for as long as we say in this law that all goods entering this particular territory will be duty-free and tax-free, for as long as they remain there, consumed there or re-exported in that place, then they are not subject to duties and taxes in accordance with the laws of the Philippines." caHIAS Furthermore, Section 3 of Revenue Memorandum Circular (RMC) No. 50-2007 provides, viz .: "SEC. 3. Clarificatory Questions and Answers . xxx xxx xxx Q2: What will be the treatment of sale, barter, exchange or lease of goods, properties and sale or exchange of services to a registered Freeport Zone enterprise by sellers/contractors from the Customs Territory? A2: If the seller is a VAT taxpayer, such sale, barter or exchange shall be subject to VAT at zero (0%) percent. If the seller is a non-VAT taxpayer, the transaction shall be exempt from VAT." xxx xxx xxx Q5. What is the coverage of VAT zero-rating? A5: The zero-rating will cover sale, barter, exchange or lease of all goods, properties and/or services by a VAT-registered seller/contractor from the Customs Territory to a Freeport Zone-registered enterprise and shall include, among others, the following: a. The sale/supply of ordinary cars, vehicles, automobiles, specialize vehicles or other transportation equipment, provided that these are used exclusively within the subject special Freeport Zones;" From the afore-cited provision of RMC No. 50-2007, this Office is of the opinion that the sale of one Toyota Super Grandia to SBFTCI, an SBMA-registered enterprise with Certificate No. 99-0006, shall be automatically subject to VAT at zero percent (0%) rate. 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. aCTHDA Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service