VAT Ruling No. 006-05

May 4, 2005 VAT RULING NO. 006-05 Sec. 108 (B) (3) RA 7916 RMC 74-99 VAT Ruling 011-03 F.F. Cruz & Co., Inc. 800 E. de los Santos Avenue Quezon City Attention: Mr. Felipe F. Cruz President Gentlemen : This refers to your latter dated January 14, 2005 stating that you are about to sign a contract with the Philippine Associated Smelting and Refining Corporation (PASAR) for the renovation of its old pier plus additional lengths, for about P400 Million including VAT. You also submitted a copy of a certification by the Philippine Economic Zone Authority (PEZA) that PASAR is registered with the then Export Processing Zone Authority (EPZA), now PEZA, as a Zone Export Enterprise for the manufacture of copper cathodes, gold in dore, silver in dore, selenium blister copper (containing copper, gold and silver) and sulfuric acid. In addition, you also represented that you are a VAT-registered taxpayer. Based thereon, you now request for a ruling on the following: 1. The VAT treatment of construction services to be rendered by your firm to PASAR; and 2. Whether or not you can claim input tax on purchases of goods, properties or services attributable to said project. In reply, please be informed that Section 3(3) of Revenue Memorandum Circular No. 74-99, implementing the pertinent provisions of Republic Act No. 7916, as amended by R.A. No. 8748, otherwise known as the Philippine Economic Zone Act of 1995, provides for the automatic zero-rating of sales of goods, property or services to PEZA-registered entities. Thus, it was held in VAT Ruling No. 011-03 dated January 13, 2003 in this wise: "3. In the final analysis, any sales of goods, property or services made by a VAT registered supplier from the Customs territory to any registered enterprise operating in the ecozone, regardless of the class or type of the latter's PEZA registration, is actually qualified and thus legally entitled to the zero percent (0%) VAT. Accordingly, all sales of goods or property to such enterprise made by a VAT registered supplier from the Customs Territory shall be treated subject to 0% VAT, pursuant to Sec. 106(A)(2)(a)(5), NIRC, in relation to ART. 77(2) of the Omnibus Investments Code, while all sales of services to the said enterprises, made by VAT registered suppliers from the Customs Territory, shall be treated effectively subject to the 0% VAT, pursuant to Section 108 (B)(3), NIRC, in relation to the provisions of R.A. 7916 and the "Cross Border Doctrine" of the VAT system." 2005iatdc "This Circular shall serve as a sufficient basis to entitle such supplier of goods, property or services to the benefit of the zero percent (0%) VAT for sales made to the aforementioned ECOZONE enterprises and shall serve as sufficient compliance to the requirement for prior approval of zero-rating imposed by Revenue Regulations No. 7-95 effective as of the date of the issuance of this Certificate." cdtax2005 xxx xxx xxx "Based on the foregoing, sale of goods, property or services by a VAT registered supplier from the Customs Territory to a PEZA-registered enterprise operating in the ecozone shall be subject to zero percent (0%) VAT. For this purpose, no prior approval for zero-rating is necessary to entitle the supplier of goods, property or services to the benefit of zero-rating as the RMC serves as a sufficient basis for entitlement to the zero percent rate . . ." With respect to the second issue, please be informed that under the VAT system, a VAT-registered taxpayer is entitled to such input tax as enumerated and qualified under Section 111 of the Tax Code of 1997. Such being the case, the sale of services to be rendered by F. F. Cruz & Co., Inc. to PASAR is subject to zero percent (0%) VAT which requires no prior approval for zero rating based on RMC 74-99. So also, F. F. Cruz & Co., Inc., being a VAT-registered taxpayer, is entitled to VAT input tax credits from its purchases of goods, properties and services from duly registered VAT-taxpayers, in relation to its services to be rendered to PASAR, which should be duly supported by a VAT invoice or official receipt conforming with the requirements of Sections 113 and 237 of the Tax Code of 1997. This ruling is based on the foregoing facts as represented. If it will be disclosed in an investigation that the facts are different, then this ruling shall be considered null and void and of no effect. TAESDH Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group