VAT Ruling No. 002-03

January 9, 2003 VAT RULING NO. 002-03 RMO 9-2000 000-00 Temic Automotive (Phils.), Inc. TEMIC Bldg., Bagsakan Road FTI Estate, Taguig, Metro Manila Attention: Ms. Norma L. Bias Commercial Affairs & Treasury Manager Gentlemen : This refers to your letters dated May 15, 2002 and July 4, 2002 requesting for VAT exemption of one (1) unit Isuzu Trooper motor vehicle which you purchased from Isuzu Manila on March 16, 2002. It is represented that the said motor vehicle is a service car for the use of your Quality Division Manager when doing audit and qualification visits to your suppliers for the purpose of interfacing with them regarding your material quality requirements; that, you have purchased a number of service vehicles and company cars from other car dealers to support your manufacturing activities and you were given the privilege of VAT exemption, being a BOI-registered company that exports 100% of your automotive electronic products to Europe and the United States. Apparently, other car dealers, i.e., Citimotors, Toyota and Prestige Motors have considered that the said transactions are subject to zero percent (0%) VAT, pursuant to Section 3 of Revenue Memorandum Order (RMO) No. 9-2000. However, Isuzu Manila questioned the applicability of the said RMO on your purchase of the said motor vehicle; hence, the instant request. In reply, please be informed that the rationale underlying RMO No. 9-2000 is premised on the rationale of Revenue Memorandum Circular (RMC) No. 74-99 vis-a-vis purchase of goods by PEZA-registered enterprises from VAT-registered suppliers in the Customs Territory, as follows: "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." 1 Under RMC No. 74-99, the VAT zero-rating of local purchase of goods by PEZA-registered enterprises is limited only to " specialized vehicles and other transportation equipment that are directly related to the registered activity. For example, a registered construction firm may import specialized vehicles such as pay loaders, graders, etc . . . . exemption does not extend to importation of service vehicles . . .". 2 The Commissioner of Internal Revenue further held that purchase of a cargo truck by Automotive Interiors Corporation, a PEZA-registered Export Enterprise, from PILIPINAS HINO INCORPORATED, is not entitled to the benefit of the zero percent VAT, as follows: IaDcTC "Otherwise stated, the rules extend the benefit of tax exemption only to the importation of specialized vehicles and other transportation equipment, and that if what will be involved is the purchase of ordinary vehicles and transportation equipment, the same has to be procured locally which necessarily includes all component duties and taxes, such as value-added tax. (Revenue Memorandum Circular No. 25-99 dated March 18, 1999) Since there is no importation involved and there is no showing of a specialized nature of the vehicle purchased, this Office is of the opinion, and so holds that the purchase of one (1) unit cargo truck is not entitled to the benefit of zero rating ." 3 Since local purchases of ordinary motor vehicles, made by PEZA-registered enterprises, are not entitled to the benefit of the zero percent VAT, with more reason that similar purchases, made by BOI-registered 100% exporter, are also not entitled to the said tax exemption benefit. In view thereof, your aforesaid request is hereby denied for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group Footnotes 1. RMO No. 92000. 2. March 18, 1999. REVENUE MEMORANDUM CIRCULAR NO. 2599 3. VAT RULING No. 05100, October 30, 2000.