Ibiden Philippines, Inc.

August 21, 2008 BIR RULING [DA-(VAT-025) 162-08] RR 16-2005; 4-2007; DA-367-2007 Ibiden Philippines, Inc. First Philippine Industrial Park Brgy. Sta. Anastacia Sto. Tomas, Batangas Attention: Ms. Annabell Palo Assistant Officer Finance and Accounting Gentlemen : This refers to your letter dated May 27, 2008 stating that Ibiden Philippines, Inc. (IPI) is a Philippine Economic Zone Authority (PEZA) registered Ecozone Export Enterprise with Registration Certificate No. 00-061 dated July 20, 2000, to engage in the: (1) manufacture of Flip Chip Ball Grid Array (FC-BGA), rendering of engineering support services and back end process of Rambus Inline Memory Module (RIMM), (2) manufacture of new generation Flip Chip Grid Ball Array 7 (FCBGA7), and (3) manufacture of tooling assembly products, such as drilling bit; and that per Certification issued by PEZA with Certification No. 2007-288 dated December 17, 2007, it is certified as follows: "This is to certify further that IPI's (1) manufacture of Flip Chip Ball Grid Array (FC-BGA), rendering of engineering support services and back end process of Rambus Inline Memory Module (RIMM) are entitled to the 5% Special Tax on Gross Income under Section 24 of R.A. No. 7916, as amended by R.A. No. 8748. The 5% Special Tax on Gross Income shall apply on IPI's project (2) manufacture of tooling assembly products, such as drilling bit after the expiry of its Income Tax Holiday." In connection therewith, you now request confirmation that IPI's transactions with its local supplier of goods, properties and services qualify for Value Added Tax (VAT) zero-rating pursuant to Sections 106 (A) (2) (a) (5) and 108 (B) (3) of the Tax Code, as amended. In reply, please be informed that Sections 106 (A) (2) (a) (5) and 108 (B) (3) of the Tax Code, as amended, provides as follows: "SEC. 106. Value-added Tax on Sale of Goods or Properties. (A) Rate and Base of Tax. . . . (2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: cDSaEH (a) . . . (5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws;" "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (B) Transactions Subject to Zero Percent (0%) Rate. The following services performed in the Philippines by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;" The foregoing provisions are amplified under the implementing regulations, Revenue Regulations No. 16-2005, as amended by Revenue Regulations No. 4-2007, pertinent portions of which state as follows: "SEC. 4.106-5. Zero-Rated Sales of Goods or Properties. . . . The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: xxx xxx xxx (c) Sales to Persons or Entities Deemed tax-exempt under Special Law 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 Bank (ADB), International Rice Research Institute (IRRI), etc., shall be effectively subject to VAT at zero rate." "SEC. 4.108-6. Zero-Rated Sale of Services. . . . (a) In general. A zero-rated sale of services (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these Regulations. EASIHa (b) Transactions Subject to Zero Percent (0%) VAT Rate. The following services performed in the Philippines by a VAT-registered person shall be subject to zero percent (0%) VAT rate: xxx xxx xxx (3) Services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate;" In view of the foregoing, this Office hereby confirms your opinion that the sales of goods and/or services by VAT-registered suppliers, to their various PEZA-registered customers are subject to value-added tax (VAT) at zero percent (0%) rate. Provided, however, that in the case of sale of services, the service should be performed within the ecozone. Sale of services within the customs territory, hence, rendered outside the ecozone, is not qualified for VAT zero rating. Further, the input tax on purchases of goods or services related to such zero-rated sale incurred by the supplier of services or goods shall be available as tax credit or refund in accordance with the aforecited provisions of Revenue Regulations No. 16-2005 as amended by Revenue Regulations No. 4-2007. IcDCaS 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service