Tarlac II Electric Cooperative, Inc.

February 20, 2009 BIR RULING [DA-(VAT-025) 104-09] Rev. Regs. No. 16-2005 Tarlac II Electric Cooperative, Inc. (TARELCO II) San Nicolas, Concepcion, Tarlac Attention: Atty. Adenn L. Sigua Legal Counsel Gentlemen : This refers to your letter dated January 20, 2009, in behalf of your client, TARLAC II ELECTRIC COOPERATIVE, INC. (TARELCO II, for short) with TIN: 000-543-815, requesting a clarification on the validity of your claim for input tax corresponding to your sales to the International Broadcasting Bureau. DCScaT It is represented that International Broadcasting Bureau (IBB, for short), is an affiliated agency of United States Mission in the Philippines, per US Embassy Diplomatic Note Nos. 0651 and 0717, referred to this Bureau by the Office of the Protocol and States Visits, Department of Foreign Affairs, Manila; that on September 26, 1997, TARELCO II as represented by its Vice-President Atty. Napoleon M. Reyes, entered into a Contract of Power Supply with the Government of the United States of America for United States Information Agency, International Broadcasting Bureau, Philippines Relay Station (formerly Voice of America), Concepcion, Tarlac, as represented by Victor E. Manley, Contracting Officer of the American Embassy, Manila; that it is your opinion that since IBB is an affiliated agency of the United States of America and the same is included in the updated list of diplomatic missions, it is entitled to VAT exemption in the Philippines. (BIR Ruling No. 026-95 dated February 14, 1995). Thus, TARELCO II's sale of power to IBB is considered as export sales subject to zero (0%) rate and as such, the input tax on zero-rated sale of goods shall be available as tax credit or refund in accordance with Section 4.106-5 of Revenue Regulations No. 16-2005. In reply, please be informed that Section 4.106-5 (C) of Revenue Regulations No. 16-2005, provides, viz. : SEC. 4.106-5 (C) "Sales to Persons or Entities Deemed Tax-exempt under Special Laws or International Agreement" . Sales of goods or property to persons or entities who are tax-exempt under special laws, e.g. , sales to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority (SBMA) pursuant to R.A. 7227, sales to enterprises duly registered and accredited with the Philippine Economic Zone Authority (PEZA) or international agreements to which the Philippines is signatory , such as, Asian Development (ADB), International Rice Research Institute (IRRI), et al., shall be effectively subject to VAT at zero-rate. Accordingly, the sale of power by TARELCO II to IBB, being a complement of the United States of America, qualifies as a zero-rate VAT sales. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service