BIR Ruling [UN-048-94]

February 9, 1994 BIR RULING [UN-048-94] Ponce Enrile Cayetano Reyes & Manalastas Law Offices 3rd Flr., Vernida IV Bldg. Alfaro St., Salcedo Village 1227 Makati, Metro Manila Attention: Atty . Regulus E . Cabote and Atty . Pericles C . Consunji Gentlemen : This refers to your letter dated December 2, 1993 stating that your client, Philippine Associated Smelting and Refining Corporation (PASAR) is registered with both the Export Processing Zone Authority (EPZA) under Presidential Decree No. 66 as amended by Executive Order No. 226 and the Board of Investments (BOI) under Executive Order No. 226 otherwise known as the Omnibus Investments Code; that PASAR is engaged in copper smelting and has its base of operations at the Leyte Industrial Development Estate (LIDE) Export Processing Zone; that at present the materials and supplies as well as the other equipment requirements utilized by your client for its operations originate from outside the export processing zone; and that your client is being made liable to the payment of the 10% VAT passed on to it by its suppliers. In connection therewith, you are requesting a ruling as to whether the sale of merchandise, materials, supplies and other articles to your client, an EPZA and BOI registered entity is considered as export sale and therefore, a zero-rated transaction or as a sale to an entity exempt under special law and therefore an exempt transaction. In reply thereto, please be informed that pursuant to Revenue Regulations No. 2-29 as amplified by Revenue Memorandum Order No. 22-92 implementing Section 100 (a) (1) & (2) of the Tax Code, sales of raw materials to export-oriented BOI-registered enterprises whose export sales, under rules and regulations of the Board of Investments exceed seventy percent (70%) of total annual production, shall be subject to zero-rate under the following conditions: (1) the seller shall file an application with the BIR 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 other government office tax credits on their zero-rated purchases. Moreover, sale of goods to EPZA registered firms are zero-rated provided that the goods sold are raw materials and that the same shall form part of the finished goods which are eventually exported. (RMO. 22-92). In other words to be considered as a zero-rated sale or purchase, the goods/or raw materials sold to export-oriented BOI-registered enterprises or EPZA-registered firms must form part of their finished goods that are eventually exported. (VAT Ruling No. 106 (6)-000-00-271-88 dated June 24, 1988) cd Very truly yours, JAIME M. MAZA Assistant Commissioner Legal Service