VAT Ruling No. 006-04

April 2, 2004 VAT RULING NO. 006-04 Sec. 108 (A) BIR Ruling No. 093-95 Subic Bay Metropolitan Authority Office of the Chairman & Administrator Bldg. 229, SBMA Center Waterfront Road Subic Bay Freeport Zone Attention: Hon. Felicito C. Payumo Chairman and Administrator Gentlemen : This refers to your letter dated December 5, 2003 requesting for an opinion as to whether or not guarantee fee charged by the Development Bank of the Philippines (DBP) to the Subic Bay Metropolitan Authority (SBMA), relative to the latter's loan to the Eximbank of the Republic of China (Eximbank), is subject to value-added tax (VAT). It is the contention of DBP that the guarantee facility issued for the SBMA's $23.575M loan to the Eximbank is subject to VAT pursuant to the issuances of the BIR, particularly Revenue Regulations No. 20-2003, implementing Republic Act No. 9010, which subjects the services rendered by banks, non-bank financial intermediaries including quasi-banks and finance companies to VAT effective January 1, 2003; that the documents submitted by the SBMA to prove its exemption from VAT, to wit: (1) SBMA's Certificate of Registration; and (2) Letter of DOF to SBMA dated November 13, 2001, are not sufficient basis for exemption from VAT or zero-rating, as the privileges apply only to services rendered by financial institutions that are directly related to the registered activity of the export enterprise while SBMA is not an export enterprise but a government corporation that leases warehouses or lands to export enterprises operating within the Subic Freeport Zone; and that Section 27(C) of the Tax Code of 1997 expressly excluded SBMA, a GOCC, from the list of GOCC's whose income are tax-exempt such as GSIS, SSS, PHIC, PCSO and PAGCOR. In reply thereto, please be informed that Section 12(c) of Republic Act No. 7227, otherwise known as the Bases Conversion Development Act, as implemented by Revenue Regulations No. 1-95, as amended by Revenue Regulations No. 16-99 provides "(c) The provision of existing laws, rules and regulations to the contrary notwithstanding, no taxes, local and national, shall be imposed within the Subic Special Economic Zone. In lieu of paying taxes, three percent (3%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone shall be remitted to the National Government, one percent (1%) each to the local government units affected by the declaration of the zone in proportion to their population area, a development fund of one percent (1%) of the gross income earned by all businesses and enterprises within the Subic Special Economic Zone to be utilized for the development of municipalities outside the City of Olongapo and the Municipality of Subic, and other municipalities contiguous to the base areas. Prescinding from the above-cited provisions, it is clear that the 5% preferential tax shall be in lieu of all national and local taxes otherwise due from the SBMA and/or SBF registered-enterprises. Accordingly, SBMA although not one of the GOCCs exempt from tax under Section 27(C) of the Tax Code, is nevertheless exempt from income tax. With respect to the imposition of the value-added tax, Section 4.100-2(c) of Revenue Regulations No. 7-95, as amended, implementing Section 108(B)(3) of the Tax Code of 1997 provides that sales to persons or entities whose exemption under special laws, e.g., RA No. 7227 duly registered and accredited enterprises with Subic Bay Metropolitan Authority (SBMA) . . . or international agreements, . . ., to which the Philippines is a signatory effectively subject such sales to zero-rate. A zero-rated 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, as amended. Thus, services rendered by the DBP, a VAT registered entity, to SBMA, which is enjoying exemption under RA 7227, a special law, is subject to zero-rated VAT. SUCH BEING THE CASE, this Office holds that the guaranty fee charged by the DBP to the SBMA relative to its loan to the Eximbank is subject to zero-rated VAT as prescribed in Section 108(B) of the Tax Code of 1997. Provided, however, that DBP, aside from being VAT-registered, shall apply for effective zero-rating on the sale of services to SBMA with the Audit Information Tax Exemption and Incentives Division in accordance with the Executive Order No. 175. Without the approved application for zero-rating, the guaranty fee will only be exempt from VAT. 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. TAEDcS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group