Whether Continental Tamamura Philippines Manufacturing, Inc. is Exempt or Zero-Rated under the Present VAT System

February 8, 1994 BIR RULING NO. 045-94 103 (u) 080-92 045-94 Continental Tamamura Philippines Manufacturing, Inc. Km. 44, National Highway, Bo. Sala Cabuyao, Laguna Attention: Mr . Serafin Dela Cruz, Jr . Accounting Manager S i r s : This refers to your letter dated May 27, 1991 which was referred to this Office by the BIR Regional Director of Makati. As represented, your company is a BOI registered subcontractor performing conewinding services to Continental Manufacturing Corporation, a BOI-registered exporter which exports at least 70% of its total annual production. Before the implementation of the VAT system, your company was considered a manufacturer under E.O. No. 1045 and as such, was not subject to the 4% contractors tax. With the implementation of the VAT, your company registered for VAT purposes with the perception that your company could avail of tax credits in the form of VAT input taxes or refund in relation to your subcontracting services to BOI-registered exporters. But recently, when your company filed for VAT refund for the first quarter of 1988, your application was rejected on the ground that you are exempt from VAT under Section 3 of Revenue Regulation No. 2-88. Based on the foregoing, you request for a clarificatory ruling on whether or not your company is exempt or zero-rated under the present VAT system. In reply, please be informed that Section 3 of Revenue Regulations No. 2-88 explicitly states that BOI registered subcontractors and/or contractors performing services, such as processing, consisting or manufacturing goods for a BOI-registered exporter who exports at least 70% of its total production shall be exempt under the provisions of Section 103(u) of the Tax Code. Such being the case, you cannot avail of any input tax credit or refund attributable to your subcontracting services to Continental Manufacturing Corporation since said transaction is exempt from VAT. Accordingly, any application for zero rating in relation to said transactions cannot be approved for lack of legal basis. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue