BIR Ruling No. 010-09

May 8, 2009 BIR RULING NO. 010-09 Sec. 4.106-5; RR 4-2007; 000-00 SyCip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Mr. R. C. Vinzon Gentlemen : This refers to your letter dated July 31, 2007 requesting on behalf of your client, Monde Nissin Corporation for confirmation of your opinion that sales of finished goods by a VAT-registered supplier to a Bureau of Export Trade Promotion (BETP)-accredited exporter, under Revenue Regulations (RR) No. 4-2007 are automatically zero-rated without need of prior application with the Bureau of Internal Revenue (BIR). As represented, BETP was created as an arm of the Department of Trade and Industry (DTI) under Republic Act (R.A.) No. 7844, otherwise known as the Export Development Act dated December 21, 1994 in order to provide assistance to exporters. Companies who generate at least 70% of their revenues for export sales are qualified to apply for accreditation with the BETP provided that they submit the required documents. VAT-registered suppliers of BETP-accredited entities are given the benefit of automatic zero-rating, among other incentives. On the other hand, Revenue Memorandum Order (RMO) No. 9-2000 dated February 2, 2000 provides for the tax treatment of sales of goods, properties and services made by VAT-registered suppliers to BOI-registered manufacturers-exporters with 100% export sales. Section 3 thereof states that such sales of goods, properties and services shall be accorded automatic zero-rating without necessity of applying for and securing prior approval of the application for zero-rating. Hence, this claim for automatic zero-rating for your client under RMO No. 9-2000. DTAcIa In reply, please be informed that export sales is defined in Section 4.106-5 of Revenue Regulations (RR) No. 16-2005 as amended by RR No. 4-2007, 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. HECaTD '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 without actual exportation the following shall be considered constructively exported for purposes of these provisions: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) 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); (4) 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. caAICE xxx xxx xxx" In Commissioner of Internal Revenue vs. Seagate Technology (Philippines), G.R. No. 153866, February 11, 2005, the Supreme Court held that "(a)pplying the destination principle to the exportation of goods, automatic zero rating is primarily intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such seller internationally competitive by allowing the refund or credit of input taxes that are attributable to export sales. Effective zero rating, on the contrary, is intended to benefit the purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately bear the burden of the tax shifted by the suppliers. Pursuant to RR No. 16-2005, all exporters except for direct export sales, are required to apply in order to qualify for VAT zero-rating. Thus, under RR No. 16-2005, suppliers of raw materials and packaging supplies and or contractors or subcontractors of services of such exporters are required to apply for effective zero-rating. However, RR No. 4-2007 issued on February 7, 2007 amended certain provisions of RR No. 16-2005, viz.: "Section 6. Effectively Zero-Rated. Sec. 4.106-6 of RR No. 16-2005 is hereby amended to read as follows: SEC. 4.106-6. Meaning of the term 'Effectively Zero-Rated Sale of Goods and Properties'. The term "effectively zero-rated sale of goods and properties" shall refer to the local sale of goods and properties by a VAT-registered person to a person or entity who was granted indirect tax exemption under special laws or international agreement." It is argued that since RR No. 4-2007 did not reproduce the "prior application clause" that was expressly stated in RR No. 16-2005, it follows that the procedure has reverted to that existing under RMO No. 9-00, i.e., sales of goods, properties and services made by VAT-registered suppliers to BOI-registered manufacturers-exporters with 100% export sales shall be accorded automatic zero-rating without necessity of applying for and securing prior approval of the application for zero-rating. RMO No. 9-2000 under which you claim automatic zero-rating for your client, deals with only one subject and proclaims just one policy, namely according the benefit of automatic zero-rating treatment only to sales made by VAT-registered suppliers of goods properties and services to BOI-registered manufacturers whose manufactured products are 100% exported to foreign countries. This is clearly announced in the title of the RMO and embodied in Section 3 thereof which reads that "(s)ales of goods, properties or services made by a VAT-registered supplier to a BOI-registered exporter shall be accorded automatic zero-rating, i.e., without necessity of applying for and securing approval of the application for zero-rating as provided in Revenue Regulations No. 7-95, subject to the following conditions . . . ." Assuming RMO No. 9-2000 was not repealed, it will, therefore, not apply to BETP-registered manufacturers because the export sale referred to in the RMO is that as defined in E.O. No. 226 as implemented by BOI and not R.A. No. 7844 as implemented by BETP. IDEScC In view of the foregoing, this Office hereby holds that sales by VAT registered suppliers to a BETP-accredited exporter need prior application for VAT zero-rating with the BIR. 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. IcHTAa Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue