BIR Ruling No. 124-84

July 25, 1984 BIR RULING NO. 124-84 200-00-213-83-124-84 Gentlemen : This refers to your letter dated February 23, 1984 requesting a ruling on whether Polyphosphates, Inc., Chemphil Building, 851 Pasay Road, Makati, Metro Manila can claim a tax credit equivalent to the sales tax deemed paid on the tax-exempt raw materials (phosphoric acid) which the said company uses in the manufacture of sodium tripolyphosphate (STPP)/ tetra sodium pyrophosphate (TSPP). It appears that Polyphosphates, Inc. maintains a division engaged in the manufacture of sodium tripolyphosphate (STPP) which is registered with the Board of Investments (BOI) but its tax exemption expired in 1981 and another division engaged in the manufacture of industrial grade phosphoric acid which is registered with the BOI on November 11, 1982 on a pioneer status; that to fulfill the requirements of BOI and to properly account the profits and losses for each registered activity, separate accounting records are being maintained for the manufacture and sale of sodium tripolyphosphate (STPP)/ tetra sodium pyrophosphate (TSPP) registered under Republic Act No. 5186 and the manufacture and sale of phosphoric acid registered under Presidential Decree No. 1789; that the tax exempt industrial grade phosphoric acid is being used by the other division in the manufacture of its non-exempt sodium tripolyphosphate (STPP). In reply, please be informed that since phosphoric acid, a tax-exempt product of taxpayer's division registered with the BOI on a pioneer status under P.D. No. 1789, is used in its manufacture of sodium tripolyphosphate (STPP)/tetra sodium pyrophosphate (TSPP), the sales tax deemed paid on said phosphoric acid may be credited against the sales tax due on its sales of STPP/TSPP. Section 200 of the Tax Code, as amended by Executive Order No. 872 effective April 1, 1983 limits the application of the tax-deemed paid treatment to the tax-exempt product of a pioneer enterprise registered with the BOI used in the manufacture or production of any article sold domestically, so that only the sales or specific taxes otherwise due on such tax exempt product shall be allowed as credit against sales tax due on the finished article. However, the sales tax deemed paid on the phosphoric acid may be credited against the sales tax due on the sales of STPP/TSPP, provided that Option 1 stated in the letter dated February 17, 1984 to the Board is complied with. Under this option, a transfer price based on market price to third parties shall be fixed on the phosphoric acid upon being transferred to another division for use in the manufacture of STPP/TSPP; and that the sales tax deemed paid shall be based on the said market price. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner