Tax Treatment of Sales of Goods, Properties and Services Made by VAT-registered Suppliers to BOI-registered Manufacturers-Exporters With 100% Export Sales

February 2, 2000 REVENUE MEMORANDUM ORDER NO. 09-00 SUBJECT : Tax Treatment of Sales of Goods, Properties and Services Made by VAT-registered Suppliers to BOI-registered Manufacturers-Exporters With 100% Export Sales TO : All Internal Revenue Officers and Others Concerned SECTION 1 . Scope . This Order is being issued to harmonize the application of the privilege of zero-rating with respect to sales of goods, property and services made by VAT-registered suppliers to enterprises duly registered with the Board of Investments (BOI) as manufacturer-exporter and whose manufactured products are 100% exported to foreign countries. SECTION 2 . Rationale . In Revenue Memorandum Circular No. 74-99, promulgated on October 15, 1999, it has been clarified that sales of goods, property and services made by VAT-registered suppliers to PEZA-registered enterprises shall qualify for zero-rating pursuant to the provisions of Section 106(A)(2)(a)(5) of the National Internal Revenue Code of 1997, in relation to Section 23 of R A. No. 7916 (the PEZA Law) and Article 77(2) of Executive Order No. 226 (the Omnibus Investments Code of 1987). This treatment is anchored on the " Cross Border Doctrine " of the VAT System, which in essence means that no value-added tax shall form part of the cost component of products which are destined for consumption outside of the territorial border of the Philippines. This principle is achieved through the application of VAT zero-rating products exported from the Philippines to foreign countries. Furthermore, Article 25 of the Omnibus Investments Code provides. among others, that products sold "to bonded manufacturing warehouses of export-oriented manufacturers shall be considered " constructively exported " while Section 106(A)(2)(a)(5) NIRC of 1997, provides for the application of zero rating to " those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws ." . LibLex The rationale of RMC 74-99 may also find application to sales made by VAT registered suppliers to BOI-registered enterprises whose manufactured products are 100% exported to foreign countries and therefore said sales can likewise be accorded automatic zero-rating treatment. 3 . Sales of goods, properties or services made by a VAT-registered supplier to a BOI-registered exporter shall be accorded automatic zero-rating, i.e., without necessity of applying for and securing approval of the application for zero-rating as provided in Revenue Regulations No. 7-95, subject to the following conditions : (1) The supplier must be VAT-registered, (2) The BOI-registered buyer must likewise be VAT-registered; (3) The buyer must be a BOI-registered manufacturer/producer whose products are 100% exported. For this purpose a Certification to this effect must be issued by the Board of Investments (BOI) and which certification shall be good for one year unless subsequently re-issued by the BOI; (4) The BOI-registered buyer shall furnish each of its suppliers with a copy of the aforementioned BOI Certification which shall serve as authority for the supplier to avail of the benefits of zero-rating for its sales to said BOI-registered buyers; and; (5) The VAT-registered supplier shall issue for each sale to BOI-registered manufacturer/exporters a duly-registered VAT invoice with the words "zero-rated" stamped thereon in compliance with Sec. 4.108-1(5) of RR 7-95. The supplier must likewise indicate in the VAT invoice the name and BOI-registry number of the buyer SECTION 4 . Repealing Clause . Any Circular, Order or Ruling inconsistent herewith is hereby considered amended, modified or revoked accordingly. SECTION 5 . Effectivity Clause . This Order takes effect immediately. cdlex (SGD.) DAKILA B. FONACIER .. Commissioner of Internal Revenue