Widus International Leisure

February 20, 2009 BIR RULING [DA-(VAT-026) 112-09] Sec. 106 (A) (2) (a) (5); 113; RMC 50-2007; DA-306-2006 Widus International Leisure Building 5400, M.A. Roxas Highway, Clark Freeport Zone, Pampanga Attention: Ms. Shirley C. Medina Finance Manager Gentlemen : This refers to your letter dated February 8, 2008 requesting for legal opinion on the VAT exemption of Widus International Leisure ("Widus") as a Clark Special Economic Zone (CSEZ) enterprise and whether or not Widus may claim a refund of the VAT paid on the transaction. CHaDIT It is represented that Widus International Leisure ("Widus" for brevity) is engaged in the business of establishing, operating, maintaining resorts, golf courses, hotels and other allied businesses; that the Widus was issued a Certificate of Registration as a CSEZ enterprise on October 30, 2006 with Certificate No. 2006-228 which is valid until October 29, 2031; that Widus purchased from Toyota San Fernando Pampanga, Inc. a Toyota Camry and a Toyota Innova on January 19 and February 2, 2008 respectively; that the purchase prices of said vehicles were inclusive of Value Added Tax (VAT); and that the vehicles will be used directly in the business operations of Widus as part of its guests' transport service to and from the airport. 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." Section 3 of Revenue Memorandum Circular (RMC) No. 50-2007 1 dated July 30, 2007 provides, viz. : "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." The said RMC further defines the coverage of transactions subject to VAT Zero Rating, to wit: "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: CSDcTH a. The sale/supply of ordinary cars, vehicles, automobiles, specialized vehicles or other transportation equipment, provided that these are used exclusively within the subject special Freeport Zones;" Based on the foregoing, since the subject vehicles were purchased by Widus from Toyota San Fernando Pampanga, Inc. which is a VAT registered enterprise and that the purpose of using them as transportation of its guests to and from the airport, the sale thereof by Toyota shall be effectively subject to VAT at zero-rate. A zero-rated sale of goods, properties and/or 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 existing regulations. Under this type of sale, no VAT shall be shifted or passed-on by VAT-registered sellers/suppliers from the Customs Territory on their sale, barter or exchange of goods, properties or services to the subject registered Freeport Zone enterprises. (Vide: A3) To claim VAT refund, Widus must show proof of payment of the VAT to Toyota on the transaction that should have been considered a 'zero-rated sale'. Copies of Toyota's Vehicle Sales Invoice Nos. 5308 and 5374 submitted by Widus do not accurately show the VAT paid by it on the sales transactions. Section 113 (B) of the 1997 Tax Code, as amended, provides for the information contained in the VAT Invoice or VAT Official Receipt, to wit: "(2) The total amount which the purchaser pays or is obligated to pay to the seller with the indication that such amount includes the value-added tax: Provided, That: (a) The amount of tax shall be shown as a separate item in the invoice or receipt; (b) . . . (c) If the sale is subject to zero percent (0%) value-added tax, the term 'zero-rated sale' shall be written or printed prominently on the invoice or receipt. xxx xxx xxx" Thus, subject to the finding of VAT passed on by Toyota to Widus on the sale of vehicles, the latter may claim a refund considering that the sale of the vehicles should have been zero-rated. 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. acCDSH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. Tax Treatment of Sale, Barter or Exchange of Goods or Properties or Sale or Exchange of Services Made by Suppliers from the Customs Territory to Registered Freeport Zone Enterprises in the Subic Freeport Zone (SFZ), the Clark Freeport Zone (CFZ), as well as the Poro Point Freeport Zone (PPFZ), and Vice Versa under Sections 12 and 15 of Republic Act No. 7227, as amended by Republic Act No. 9400.