BIR Ruling [UN-145-95]

April 10, 1995 BIR RULING [UN-145-95] E.S. Pasamba & Co. 4/F CDC Building 1195 Ma. Orosa St. Ermita, Manila Attention: Atty . Eladio S . Pasamba Gentlemen : This refers to you letter dated January 31, 1995 requesting in behalf of your client, Integrated Multi-Cotton Mills, Inc. (IMCMI) for a ruling whether the proceeds of export sales deposited abroad and/or deposited under on FCDU Account with a local bank is still zero (0%) rated under Section 100(a) (1) of the National Internal Revenue Code, as amended. cdta It is represented that IMCMI is a VAT registered enterprise with offices at 759 Gen. Luis St., Kalookan City; that it is engaged in the manufacture of knitted fabrics for export to different Asian Countries for several years; that as a result of the liberalization of foreign exchange by the Bangko Sentral ng Pilipinas (BSP), it has retained the proceeds of their export sales abroad on deposit with an FCDU Account with banks in the Philippines; and that the BSP has confirmed to your client that under Section 20 of Central Bank Circular No. 1389 dated April 13, 1993, foreign exchange receipts from export sale may be retained or deposited in foreign currency accounts in the Philippines or abroad without prior BSP approval. In reply, please be informed that under BSP Circular No. 1389 issued on April 13, 1993 pertinent portions of which are quoted hereunder as follows: "Circular No. 1389 "CONSOLIDATED FOREIGN EXCHANGE RULES AND REGULATIONS "Pursuant to Monetary Board Resolution No. 246 dated March 26, 1993 the foreign exchange rules and regulations on current accounts, capital accounts, foreign currency deposit units, offshore banking units and representative office of foreign banks are hereby consolidated as follows: "PART ONE. CURRENT ACCOUNTS "CHAPTER I "NON-TRADE FOREIGN EXCHANGE RECEIPTS AND DISBURSEMENTS, TRANSFERS OF LOCAL CURRENCIES AND GOLD TRANSACTIONS "SEC. 1. Disposition of Foreign Exchange Receipts . Foreign exchange receipts, acquisitions or earnings of residents from non-trade sources may, at the option of said residents, be sold for pesos to Authorized Agent Banks (AABs) or outside the banking system, retained, or deposited in foreign currency accounts, whether in the Philippines or abroad. All categories of banks [except Offshore Banking Units (OBUs)], duly licensed by the Central Bank shall be considered as AAB's. "xxx xxx xxx "SEC. 20. Disposition of Export Proceeds . Foreign exchange receipts, acquisition or earnings of residents from exports may, at the option of said exporter, be sold for pesos to AABs or outside the banking system, retained, or deposited in foreign currency accounts, whether in the Philippines or abroad and may be used freely for any purpose. "xxx xxx xxx the exporters are given the option to sell their foreign currency earnings to the Authorized Agent Banks (AABs) or to deposit the same in foreign currency accounts in banks located within or outside the Philippines. Accordingly, export sales paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP qualify as zero-rated sales even if the proceeds thereof are not converted to Philippine pesos. (BIR Ruling No. 176-94 dated December 13, 1994) Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Rev. Executive Assistant Legal Service