Tax Consequences of the Sale of Supplies to EPZA Registered Enterprise

April 11, 1994 BIR RULING NO. 091-94 105 (u) 32-92 091-94 Sycip Gorres Velayo & Co. 6760 Ayala Avenue, Makati Metro Manila Attention: Cornelio C . Gison Head, Tax Division Gentlemen : This refers to your letter dated October 20, 1993 stating that your client Philippine Phosphate Fertilizer Corporation (Philphos), a domestic corporation registered with the Export Processing Zone Authority (EPZA), is a manufacturer of fertilizer products; that at least 70% of its finished products are exported; that in connection with its production and export activity, Philphos will purchase from Petrophil Corporation (PETRON) the following products viz: diesel fuel, lubricants and bunker oil ; that both diesel fuel and lubricants will be used as supplies while, the bunker fuel oil will be used to coat your client's fertilizer products for purposes of preservation. cdti Based on the foregoing facts, you now request for a clarification on the tax consequences of the foregoing transactions. In reply, please be informed that pursuant to Revenue Memorandum Order No. 22-92, sale of supplies to EPZA registered enterprise is exempt from value-added tax. In the case of lubricants that are VAT-taxable products and used as supplies by your client, the purchases thereof by your client are exempt from value-added tax. In the case of diesel fuel, which is also used as supply and enjoys exemption from value-added tax under Section 103(d) of the Tax Code, no tax consequence results from the purchase thereof by your client. On the other hand, bunker fuel oil, used as raw material in the manufacture of granulated fertilizer, is zero-rated under Revenue Memorandum Order No. 22-92, subject to the supplier's compliance with the registration requirements for effective zero-rating prescribed under Revenue Regulations No. 2-88, as follows: "(1) The seller shall file an application with the BIR, ATTN.: VAT Division, applying for zero-rating for each and every separate buyer, in accordance with Section 8(d) of Revenue Regulations No. 5-87. The application should be accompanied with a favorable recommendation from the Board of Investments." "(2) The raw materials sold are to be used exclusively by the buyer in the manufacture, processing or repacking of his own registered export product; "(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The exporter (buyer) can no longer claim from the Bureau of Internal Revenue or any other government office tax credits on their zero-rated purchases;" cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue