Application of Sara Lee Philippines, Inc. for Accreditation for Incentives under the Export Development Act

September 9, 1996 BIR RULING NO. 095-96 DA 330-96-000-00-095-96 MEMORANDUM FOR : Secretary Roberto F. de Ocampo Department of Finance FROM : Commissioner Liwayway Vinzons-Chato Bureau of Internal Revenue SUBJECT : Application of Sara Lee Philippines, Inc. for accreditation for incentives under the Export Development Act Date : July 17, 1996 This refers to the request of Ms. Ma. Corazon R. Gamallo, Special Assistant, Office of the Secretary, to give our comments on the letter of the Hon. Cesar B. Bautista, Chairman, Executive Committee, Export Development Council dated June 24, 1996 regarding the application of Sara Lee Philippines, Inc. for accreditation to qualify for the incentives under the Export Development Act (EDA), the pertinent portion of which states as follows: "In summary, the Council favorably endorses the application of Sara Lee in view of the following considerations: "(a) Sara Lee offers such expansion of export activity, forecasts an additional export performance of approximately $7 Million in the next three (3) years and stands to create close to 1,000 new job opportunities in addition to the activities now being done at Gelmart Industries, Inc. dctai "(b) The incentives to be availed of are only on the duty-free importation of capital equipment since they intend to operate a bonded warehouse." REPRESENTATIONS: It is represented that Sara Lee Phils. Inc. is a SEC-registered manufacturer of pharmaceutical and consumer products, undergarments and apparel items which CURRENTLY CATERS TO THE DOMESTIC MARKET: that it INTENDS to set up a manufacturing facility for intimate apparel exports and is requesting for accreditation under EDA of said manufacturing activity in order to avail of tax and duty-free importation of capital equipment; that as a multinational company, it has been buying from the Philippines for the last twenty years and that in 1995, its imports of intimate apparel from the Philippines, through Gelmart Industry, amounted to FOB US$53 Million. COMMENTS: Section 16 of Republic Act No. 7844, otherwise known as the "Export Development Act of 1994" provides, among others, that the incentives referred to therein, in addition to the existing incentives provided by the Board of Investments shall be granted to EXPORTERS. "Exporters", as defined under Section 4(a) of the said Act refers to "any person, natural or juridical, LICENSED TO DO BUSINESS IN THE PHILIPPINES, ENGAGED DIRECTLY OR INDIRECTLY IN THE PRODUCTION, MANUFACTURE OR TRADE OF PRODUCTS OR SERVICES WHICH EARNS AT LEAST FIFTY PER CENT (50%) OF ITS NORMAL OPERATING REVENUES FROM THE SALE OF ITS PRODUCTS OR SERVICES ABROAD FOR FOREIGN CURRENCY: . . ." Under the aforementioned Section 4(a) of RA No. 7844, Sara Lee, Phils. Inc. does not fall within the ambit of the said definition because, currently, as per representation, it merely CATERS TO THE DOMESTIC MARKET in contradistinction with the definition that "it should earn at least fifty per cent (50%) of its normal operating revenues from the sale of its products or services ABROAD FOR FOREIGN CURRENCY." Furthermore, to qualify as such, the "Exporter" must be a member of a single umbrella organization of exporters duly accredited by the Export Development Council which shall represent the exporters' concerns and interests. This seems not be true in the case of Sara Lee Phils. Inc. It is likewise worth mentioning that under the aforesaid definition of the term "Exporter" under the Export Development Act, in order that a firm may qualify as such, what is being considered is its own export performance and not the one belonging to the applicant's sister companies because under our laws, sister companies are considered separate and distinct from each other, and they may be considered as one only when the doctrine of "piercing the veil of corporate fiction" is applied in cases of circumvention of corporate, tax and other laws. Furthermore, the previous act of Sara Lee International of importing the goods manufactured by Gelmart Industries, Inc. is a plain and simple case of "importation" by Sara Lee International and NOT EXPORTATION, and is therefore not even a plus factor in Sara Lee Philippines' favor because what is being considered in the Economic Development Act is the company's "exportation." In view of all the foregoing, this Office does not concur with the favorable recommendation of the Executive Committee Chairman of the Export Development Council USEC Cesar B. Bautista dated June 24, 1996 and hereby DENIES Sara Lee Philippines, Inc.'s request for tax exemption incentives on its importation of capital equipment under the Export Development Act. LLpr Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue