Specialty Pulp Manufacturing, Inc.

November 17, 2008 BIR RULING [DA-(VAT-033) 427-08] 106 (A) (2) (a) (5); BIR Ruling No. DA-066-08 Specialty Pulp Manufacturing, Inc. Room 403, CSP Building, 815 Quezon Avenue Quezon City Attention: Ms. Gina Ang-Fregil Finance Officer Gentlemen : This refers to your letter dated June 12, 2008 requesting for confirmation of your opinion that sales of electricity by National Power Corporation (NPC) to Specialty Pulp Manufacturing, Inc. (SPMI) are subject to value-added tax (VAT) at the rate of 0%. TcIaHC Documents show that SPMI is a domestic corporation registered with the Board of Investments (BOI), under Certificate of Registration No. 2002-020 issued on February 1, 2002, as a manufacturer and 100% exporter of abaca pulp. SPMI directly purchases the electricity it uses to run its factory from NPC. In reply, please be informed that Section 4.106-5 (a) (5) of Revenue Regulations No. 16-2005, implementing Section 106 (A) (2) (a) (5) of the Tax Code of 1997, as amended, provides as follows: "Section 106-5. Zero-Rated Sales of Goods or Properties. . . . The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export sales. "Export Sales" shall mean: xxx xxx xxx (5) Transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws. 'Considered export sales under Executive Order No. 226' shall mean the Philippine port 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 a registered export producer to another export producer, or to an export trader that subsequently exports 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 . . . . . . and Provided, finally, that sales of goods, properties or services made by a VAT-registered supplier to a BOI-registered manufacturer/producer whose products are 100% exported are considered export sales. A certification to this effect must be issued by the Board of Investment (BOI) which shall be good for one year unless subsequently re-issued by the BOI. In relation, Revenue Memorandum Order No. 9-2000 provides that sales of goods, properties or services by VAT-registered suppliers to BOI-registered exporters shall be treated as automatically zero-rated sales, without need of prior approval from this Office, provided that the supplier and the BOI-registered buyer are both VAT-registered taxpayers and provided further that the buyer is classified as 100% exporter by the BOI. In view of the foregoing, the sales of electricity by NPC, a VAT-registered supplier to SPMI, a registered 100% export manufacturer and which electricity is being used to run SPMI's factory are subject to value-added tax (VAT) at the rate of 0%. 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