Whether China Chang Jiang Energy Corporation (Philippines) is Classified as VAT or Non-VAT Taxpayer

April 26, 1995 BIR RULING NO. 078-A-95 102-107 000-00 078A-95 China Chang Jiang Energy Corporation (Philippines) G/F 149 Roxas Blvd. cor. Airport Road Paraaque, Metro Manila Gentlemen : This refers to your letter dated December 19, 1994 stating that you are a BOI-registered corporation with pioneer status as the new operator of Binga Hydroelectric Plant on a Rehabilitate, Operate and lease-Back (ROL) scheme with the National Power Corporation (NPC/NAPOCOR); that pursuant to R.A. 7648, NPC/NAPOCOR has contracted you to rehabilitate and operate its Binga Hydroelectric Plant; that under this contract, NPC/NAPOCOR will pay you power hour inclusive of VAT; that based on this contract, NPC/NAPOCOR has been withholding 19% VAT on its payment to you; that you in turn did not file any VAT return since by your registration with BIR-Paraaque District Office, you were classified as Non-VAT taxpayer; and that lately, NPC/NAPOCOR has started refunding the 4% VAT to you. prcd Based on the foregoing, you now request for clarification on the following issues, viz: 1. Whether you are classified as VAT or Non-VAT taxpayer; 2. If classified as VAT taxpayer, whether your sales to NPC can be considered as zero-rated considering that all payments by NPC are in foreign currency denomination; 3. If classified as Non-VAT taxpayer, what percentage tax or any other business tax are you subject to and as to who can apply for the refund of the VAT withheld and remitted by NPC, and 4. If you should be liable to file and remit the 4% VAT refunded by NPC, whether you can request for abatement of penalties for late filing and late remittance considering that your failure to comply was due to the confusion of your registration as Non-VAT taxpayer and the withholding of the 10% VAT by NPC. In reply, please be informed that in its decision in the case of Ernesto M. Maceda vs. Hon. Catalino Macaraig, Jr., G.R. No. 88291, promulgated on June 8, 1993, the Supreme Court, resolving the issue as to "what kind of tax exemption privileges did NPC have?", states in part "V "Petitioner contends that P.D.no.938 repealed the indirect tax exemption of NPC as the phrase 'all forms of taxes, etc., in its Section 10, amending Section 13, R.A.No.6395, as amended by P.D.No.380, does not expressly include direct taxes. "His point is not well taken. "A chronological review of the NPC laws will show that it has been the lawmakers' intention that the NPC was to be completely tax exempt from all forms of taxes direct and indirect." It bears emphasis that in the decision on the same case, the Supreme Court noted that under "R.A. No. 358, the exemption was worded in general terms, as to cover 'all taxes, duties, fees, imposts, charges, etc. . . .." However, the amendment under R.A. No. 6395 enumerated the details covered by the exemptions. Subsequently, P.D. No. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from 'all forms of taxes, duties, fees, imposts, as well as costs and service fees including filing fees, appeal bonds, supersedeas bonds, in any court or administrative proceedings.' The use of the phrase 'all forms' of taxes demonstrate the intention of the law to give NPC all the exemption it has been enjoying before . The rationale for this exemption is that being non-profit the NPC "shall devote all its return from its capital investment as well as excess revenues from its operation, for expansion. . . ." In view thereof, this Office is of the opinion as it hereby holds that you are registrable as a VAT taxpayer. Since you do not hold a franchise to operate an electric power plant but sell electricity to NPC/NAPOCOR under the ROL scheme, you are subject to and registrable as a VAT taxpayer pursuant to Sections 102 and 107 of the Tax Code, as amended. However, since in the instant case, NPC/NAPOCOR, your sole customer enjoys exemption form both direct and indirect taxes, your sale of electricity to NPC/NAPOCOR is exempt from VAT. In other words, your billings to NPC/NAPOCOR should exclude VAT. Accordingly, the withholding of VAT from you is erroneous. cdpr Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue