Onozawa Industries, Inc., Being a New Export Producer Enterprise Registered under E.O. 226, Was, from March 25, 1993 up to December 31, 1995 (prior to EVAT), Exempt from the Payment of VAT on Sale of Services to ASAHI pursuant to E.O. No. 226, in relation to the Tax Code, as amended by EO 273

October 22, 1996 BIR RULING NO. 109-96 102 (b) (5) 000-00 109-96 Joaquin Cunanan & Co. 8th Floor, BA-Lepanto Building 8747 Paseo de Roxas Makati City Attention: Mrs . Tomasa H . Lipana Partner Gentlemen : This refers to your letter dated April 27, 1994 and December 29, 1995 requesting for confirmation of your opinion that your client, Onozawa Industries, Inc. (ONOZAWA), is (a) exempt from the payment of the value-added tax (VAT) up to December 31, 1995 (prior to the implementation of the expanded VAT law on account of its registration with the Board of Investments (BOI) under Executive Order No. 226, otherwise known as the "Omnibus Investments Code of 1987" and (b) subject to 0% VAT effective January 1, 1996 pursuant to Section 102 (b) (5) of the Tax Code as amended by Republic Act No. 7716. cdtech It is represented that ONOZAWA is registered with the BOI as a new export producer of camera components under Certificate of Registration No. VII EP93-004 dated March 25, 1993; that its registered activities and its incentives as a new export producer cover and apply to, among others, its sale of services to Asahi Optical Philippines Corporation (ASAHI), a company registered with the Export Processing Zone Authority (EPZA); that it was this particular sale of services to ASAHI, which was the BOIs basis for registering the project under EO 226; that the said project is a joint venture between ONOZAWA, as a consignee, and ASAHI, as the consignor, wherein ASAHI consigns to the former almost all of its (ASAHIs) machineries, raw materials and supplies needed for the processing of its sub-assembled products; that the said sub-assembled products will be shipped back to ASAHI and that in consideration thereof, ASAHI will pay ONOZAWA for the processing fee to cover operational expenses and mark-up allowances based on the planned production quantity for the period; and that prior to the implementation of the Expanded VAT Law, ONOZAWA is entitled to exemption from contractors tax, under Article 39 (e) of EO 226. In reply, please be informed that prior to the implementation of the Expanded VAT Law, transactions which are exempt under special laws are exempt from VAT [Sec. 103 (q) of the Tax Code as amended by EO 273]. One such special law is EO 226 which expressly grants Exemption from Contractors Tax (now equated with VAT) to firms registered thereunder. Specifically, ONOZAWA is entitled to exemption from VAT effective March 25, 1993 (date when it was registered with the BOI) pursuant to Art. 39 (e) of EO 226 which reads: "Art. 39. Incentives to Registered Enterprises . All registered enterprises shall be granted the following incentives to the extent engaged in a preferred area of investment: xxx xxx xxx (e) Exemption from Contractor's Tax. The registered enterprises shall be exempt from the payment of contractors tax, whether national or local." The implementing rules of EO 226 likewise provide under Sec. 6, Rule II thereof, as follows: "Exemption from Contractor's Tax. Enterprises registered under the Code are exempt from contractor's tax, whether national or local with respect to their registered operations." The contractor's tax is now equated with the Value-Added Tax (VAT) and BOI registered enterprises may be exempted or zero-rated." Upon the implementation of EVAT, processing fees received by ONOZAWA from ASAHI shall already be subject to 0% VAT in accordance with Sec. 102 (b) (5) of the Tax Code as amended by RA 7716 and implemented by Section 4.102-2 (b) (5) of Revenue Regulations No. 7-95, which reads as follows: Section 102 (b) (5) of the Tax Code "(b) Transactions subject to zero-rate. The following services performed in the Philippines by VAT registered persons shall be subject to 0%. xxx xxx xxx (5) Services performed by subcontractors and/or contractors in processing, converting or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production." Section 4. 102-2 (b) (5) of RR 7-95. Transactions subject to zero-rate. The following services performed in the Philippines by VAT-registered persons shall be subject to 0%. xxx xxx xxx (5) Services performed by subcontractors and/or contractors duly accredited by either the Board of Investments or the Export Development Council in processing, converting or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of the total annual production." Accordingly, ONOZAWA, being a new export producer enterprise registered under E.O. 226, a) was, from March 25, 1993 up to December 31, 1995 (prior to EVAT), exempt from the payment of VAT on its sale of services to ASAHI pursuant to Article 39 (e) of E.O. No. 226, in relation to Section 103 (u) of the Tax Code, as amended by EO 273; and b) is subject to 0% VAT effective January 1, 1996 pursuant to Sec. 102 (b) (5) of the Tax Code, as amended by RA 7716 provided it is duly accredited by either the Board of Investments or the Export Development Council as required under Section 4.102-2 (b) (5) of Revenue Regulations No. 7-95. 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 null and void. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue