BIR Ruling [UN-336-95]

September 15, 1995 BIR RULING [UN-336-95] Law Firm of Tanjuatco, Sts. Maria, Tanjuatco 3rd Flr. Equitable Bank Building 381 Sen. Gil Puyat Avenue Makati City Attention: Atty . Helen C . de Leon-Manzano Gentlemen : This refers to your letter dated September 1, 1995 requesting for a confirmation of your opinion that the sale of electricity by your client, Duracom Mobile Power Corporation (DMPC), a duly accredited Private Sector Generation Facility (PSGF) of the Department of Energy (DOE) is exempt from value added tax but is subject to 2% franchise tax on electric utilities pursuant to section 117 of the Tax Code, as amended. cdtech It is represented that DMPC is a corporation duly organized and existing under the laws of the Philippines for the purpose of operating power plants and barges to generate electricity for sale; that it will build, own and operate a Duracom Power Barge Project and all electrical output thereof will be sold to Manila Electric Company (MERALCO) under a Power Supply Agreement; that DMPC is a duly accredited Private Sector Generation Facility (PSGF) by the Department of Energy (DOE) pursuant to Executive Order No. 215; and that DMPC's accreditation is covered by Certificate of Accreditation OSAC No. 94-17, dated October 17, 1994. In reply, please be informed that under E. O. No. 215 private corporations, cooperatives or similar associations are allowed to construct and operate electric generating plants subject to the rules and regulations to be formulated by the National Power Corporation for areas within the NPC grids and the National Electrification Administration for areas outside the NPC grids. Inasmuch as Private Sector Generation Facility is governed by laws applicable to electric utilities, then it is exempt from the payment of value-added tax on its sale of electricity pursuant to Section 103(j) of the Tax Code, as amended, However, as electric utility granted authority by the DOE pursuant to Executive Order No. 215, to own, operate and generate electricity, it is subject to the 2% franchise tax under Section 117 of the Tax Code, as amended, Accordingly, DMPC is therefore exempt from value-added tax but subject to 2% franchise tax. (VAT Rulings No. 222-90 dated December 12, 1990) 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. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)