VAT Ruling No. 002-00

January 12, 2000 VAT RULING NO. 002-00 106 (A) (2) (a) (5) 054-98 002-00 Ramon F . Garcia & Company Suite 410 Manila Bank Building Ayala Avenue, Makati City Attention: Mr . Josefino F . Garcia Partner Gentlemen : This refers to your letter dated May 20, 1999 stating that your client, Karina, Inc ., is an Export Trader duly registered with the Securities and Exchange Commission (SEC) on October 25, 1968 and with the Board of Investments on January 8, 1975 with Certificate of Registration No. 75-35, with principal address at Karina Bldg., #33 Shaw Blvd., Ortigas Center, Pasig City, and is registered with this Office as VAT-Zero Rated entity since May 20, 1998; that as an Export Trader (100% of its sales are export), it purchases goods particularly from VAT-registered local suppliers who charged it 10% VAT; and that since it is a VAT-Zero Rated company, it would like to have its purchases, net of VAT. LexLib Based on the foregoing representations and documents submitted, you are now requesting in behalf of your client, Karina, Inc. for a ruling rendering the sale in its favor by its suppliers of goods it purchases regularly as effectively zero-rated. In reply, please be informed that under Section 106(A)(2)(a)(5) of the Tax Code of 1997, the term "export sale" means, among others, those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws. In this connection, Sec. 4.100-2 of Revenue Regulations No. 7-95 provides that effectively zero-rated sales of goods and properties shall refer to the sale by a VAT-registered person, which is a taxable transaction for VAT purposes, shall not result in any output tax. However, the input tax on his purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Revenue Regulations No. 7-95. Such being the case, and since zero-rated transactions cover local sale of goods and properties to persons or entities who enjoy exemption from indirect taxes under par. (a)(3) of Sec. 4.100.2 of Revenue Regulations No. 7-95, this Office is of the opinion that the local sale of goods in favor of your client, Karina, Inc., as export trader, by its suppliers renders such sale as effectively zero-rated pursuant to Sec. 4.100.2 of Revenue Regulations No. 7-95 (VAT Ruling No. 054-98). It must be understood, however, that in order to qualify for such effectively zero-rated status of such sales, your suppliers must first seek prior approval from this Office. Without an approved application for effective zero-rating, the transaction shall only be considered exempt for VAT purposes. (Section 4.107-1(d), Revenue Regulations No. 7-95. cdll 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group