VAT Ruling No. 009-00

February 23, 2000 VAT RULING NO. 009-00 190 (q) 095-99 009-00 Mitsuba Philippines Corporation 900 Romualdez St., Ermita, Manila Attention: Mr. Takashi Nara President Gentlemen : This refers to your letter dated October 8, 1999 requesting for an opinion as to the proper procedure in claiming your VAT input tax arising from the payment of royalty to your mother company, Mitsuba Corporation in Japan. It is represented that Mitsuba Philippines Corporation is a duly registered PEZA ecozone enterprise located at the First Cavite Industrial Estate, Special Export Processing Zone in Dasmarias Cavite. That your company is one of the subsidiaries of Mitsuba Corporation of Japan in which you paid a royalty fee. That referring to VAT ruling 061- 98 dated December 15, 1998, you were informed that payment of royalty to your Mother Company is subject to the 10% VAT under Section 108 of the Tax Code of 1997. That in view thereof, you have to withhold the 10% VAT to your mother company being a non-resident person, pursuant to Section 114 (C) of the Tax Code. You now would like to request for an opinion as to whether you still have to request for an official receipt from your Mother Company reflecting your Input VAT. cdll In reply, please be advised that VAT Ruling # 061-98 has already been revoked/modified by VAT Ruling # 095-99 dated September 14, 1999. In the latter ruling, it stated that since PEZA-registered export enterprises may not pass on nor claim input VAT under the Cross-Border Doctrine or Destination Principle of the VAT System then its payment of royalties to a non-resident lessor is exempt from VAT As such, instead of zero-rating which the non-resident supplier cannot avail of, the provision for exempt transactions under Section 109 of the Code which provides VAT exemptions for transactions which are exempt under special laws, e.g. R.A. 7916 or PEZA law, should apply in the instant case. LibLex The VAT exemption notwithstanding, royalty payment of your company to MITSUBA Corporation of Japan, a non-resident foreign corporation. remains subject to the 25% income tax on royalties set forth under paragraph (2)(b) of Article 12 of the RP Japan Tax Treaty. (BIR Ruling No. 1 UN296-94 dated October 19, 1994). In view of the foregoing, you need not request for an official receipt from your mother company reflecting the Value Added Tax since the above transaction is VAT exempt rather than zero-rated. 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. cdll Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group