Novel Complex and Technology Systems, Inc.

May 15, 2009 BIR RULING [DA-(VAT-040) 227-09] RR 16-05; RR 4-07; VAT Ruling No. 028-2001; DA-142-04; DA-579-2007 Novel Complex and Technology Systems, Inc. Unit 24-J, Summit One Office Tower 530 Shaw Boulevard, Highway Hills Mandaluyong City Attention: Mr. Eugenio R. Villanueva President Gentlemen : This refers to your letter dated April 13, 2009 requesting confirmation of your opinion that your export sales are entitled to automatic zero-rating and that purchases of a PEZA-registered company from domestic suppliers are likewise entitled to zero-rating without need of prior approval. It is represented that your company, Novel Complex & Technology Systems, Inc. (Novel Tech) is a domestic corporation duly organized and existing pursuant to laws, that you are engaged in developing software programs and building facilities for E-Commerce applications overseas, as well as in the export distribution of prepaid phonecards and airtime to foreign countries; that you are located in Summit One Office Tower which is accredited as a PEZA IT Park; and that for this purpose, you have applied as an ECOZONE IT Enterprise and your application is undergoing regular processing as of date. It is further represented that your sales of prepaid phonecards and airtime are 100% exported to foreign distributors who cater to Overseas Filipino Workers (OFWs) residing abroad; that your transactions are billed, collected (via inward remittances) and accounted for in foreign currency in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); that you purchase from local suppliers and principals, such as but not limited to, Globe Telecoms, Digitel Mobile, and Smart Communications; and that you would like confirmation of the following: 1. That the 100% export sales of Novel Tech to foreign distributions which are billed and paid for in foreign currency, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) should be treated as automatic zero-rated sales; 2. That, once duly accredited as a PEZA-registered Ecozone IT Enterprise, your purchases from Globe Telecom, Digitel Mobile, Smart Communication, Inc. and their affiliates are likewise entitled to VAT zero-rating without need of prior approval or clearance from your office. DEaCSA In reply, please be informed as follows: 1. Sec. 4.106-5 of Revenue Regulations (RR) No. 16-2005, as amended by RR 4-07, provides 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: (a) Export Sales. . . . (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; Provided, further, That pursuant to E.O. 226 and other special laws, even without actual exportation, the following shall be considered constructively exported: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones pursuant to Republic Act (R.A.) Nos. 7916, as amended, 7903, 7922 and other similar export processing zones ; (3) sale to enterprises duly registered and accredited with the Subic Bay Metropolitan Authority pursuant to R.A. 7227; (4) sales to registered export traders operating bonded trading warehouses supplying raw materials in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC); (5) sales to diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not. xxx xxx xxx" 2. Under Revenue Memorandum Circular No. 74-99 dated October 15, 1999, all sale transactions made by VAT-registered suppliers to PEZA-registered enterprises qualify for the zero-percent VAT. In connection therewith, it is mandated that the said Circular shall serve as a sufficient basis to qualify such sale transactions for purposes of the zero percent VAT. The pertinent portion of Section 3 (3) of RMC No. 74-99, provides: "SEC. 3. Tax Treatment of sales made by a VAT-registered supplier from the Customs Territory, to a PEZA-registered enterprise. xxx xxx xxx (3) . . . This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No. 7-95 effective as of the date of the issuance of this Circular." (BIR Ruling No. DA-142-04 dated March 29, 2004) Thus, if your local suppliers, e.g., Globe Telecoms, Digitel Mobile, Smart Communications, are VAT-registered suppliers, their sales to Novel Tech, once confirmed as a PEZA-registered enterprise operating within the Ecozone, shall be treated as qualified export sales and thus, entitled to the benefit of the zero percent (0%) VAT without further need of any prior application for a BIR permit to zero rate such transaction. However, pursuant to the provisions of Section 4.113-1 (B) (2) (c) of Revenue Regulations No. 16-05, if the sale is subject to zero percent (0%) VAT, the term "zero-rated sale" shall be written or printed prominently on the invoice or receipt issued by your suppliers. Otherwise, the same shall not be entitled to the benefit of a zero-rated VAT transaction. (VAT Ruling No. 028-2001 dated May 22, 2001) By the same token, this Office likewise confirms that the 100% export sales by Novel Tech of prepaid phonecards and airtime to foreign clients which are billed and paid for in foreign currency, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) are subject to zero percent (0%). (BIR Ruling Nos. DA-452-2007 and DA 579-2007) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. AIDSTE Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service