BIR Ruling [DA-747-06]

December 29, 2006 BIR RULING [DA-747-06] RR 16-2005; VAT Ruling No. 010-015 Philex Mining Corporation No. 27 Philex Building Fairlane St., Kapitolyo Pasig City Attention: Atty. Gari Tiongco Legal Counsel Gentlemen : This refers to your letter dated December 27, 2006, requesting for confirmation of your opinion that the sale of goods, properties or services by VAT-registered suppliers to Philex Mining Corporation ("Philex") being considered export sales shall be subject to zero percent (0%) VAT rate. It is represented that Philex is a VAT-registered enterprise and a BOI-registered producer whose products are 100% exported; that it is engaged in the mining industry; that its local purchases of goods, materials and supplies used exclusively for the production of copper, gold and silver, which are 100% exported, are being subjected to VAT by its suppliers; and that it is believed that sales by VAT-registered suppliers to Philex is zero (0%) percent VAT rate. In reply, please be informed that Section 106(A)(2)(a)(5) of the Tax Code of 1997 provides that: "Section 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax xxx xxx xxx (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate (a) Export Sales . The term " export sales " means xxx xxx xxx (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws." (Emphasis supplied) ACTESI Implementing the above provision, Section 4.106-5(a)(5) of Revenue Regulations No. 16-2005 provides as follows: SEC. 4.106-5. Zero Rated Sales of Goods or Properties . xxx xxx xxx The following sales by VAT-registered persons shall be subject to zero percent 0% rate: (a) Export Sales. "Export Sales" means (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws. " Considered export sales under Executive Order No. 226 " shall mean the Philippine F.O.B. value determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer , or the net selling price of export products sold by registered export producer to another export producer, or to an export trader that subsequently export the same. Provided, that sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates or similar commercial documents . . . ." . . . . Provided, finally, that sales of goods, properties or services made by VAT-registered supplier to a BOI registered manufacturer/producer whose products are 100% exported are considered export sales. . . . ." (Emphasis supplied.) Hence, since the sales of goods, materials and supplies by VAT-registered suppliers to Philex (a registered 100% export producer), which are for the exclusive use of the latter's production of copper, gold and silver, fall within the definition of export sale under E.O. No. 226 such sale is the export sale contemplated by Section 106(A)(2)(a)(5) of the Tax Code of 1997 as implemented by Section 4.106-5(a)(5) of Revenue Regulations No. 16-2005, which is subject to VAT zero-rating (VAT Ruling Nos. 003-2002 dated February 6, 2002 and 010-2005 dated July 28, 2005). Accordingly, this Office hereby confirms your opinion that the sales by VAT-registered suppliers to Philex being considered export sales shall be subject to zero (0%) percent VAT 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. EIAHcC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service