BIR Ruling [UN-060-94]

February 15, 1994 BIR RULING [UN-060-94] Ponce Enrile Cayetano Reyes 8 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 you client, Philippine Associated Smelting and Refining Corporation (PASAR) is registered with both 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, please be informed that RMO No. 22-92 clearly states that only the sale to EPZA-registered firms of raw materials which shall form part of the finished goods that is eventually exported can qualify for effective zero-rating. On the other hand, sale of goods (i.e., materials which will not form part of the finished goods to be exported) to EPZA-registered firms are exempt from VAT pursuant to Section 103(u) of the Tax Code in relation to Article 77(1) of the Omnibus Investments Code of 1987 (E.O. No. 226) Furthermore, sale of services to EPZA-registered firms shall be subject to the 10% VAT in accordance with Section 102(a) of the Tax Code. (VAT Ruling No. 007-93 dated February 12, 1993). cdtech Very truly yours, JAIME M. MAZA Assistant Commissioner