VAT Ruling No. 009-98

February 5, 1998 VAT RULING NO. 009-98 R.A. 7916-033-96-009-98 Joaquin Cunanan & Company 14th Flr. Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Atty . Tomasa H . Lipana Managing Partner Gentlemen : This refers to your letter dated December 11, 1997 concerning your request for a confirmation that the royalty payments of your client, HITACHI COMPUTER PRODUCTS (ASIA) CORPORATION (HICAP for brevity), to its non-resident foreign licensor are exempt from or not subject to the value-added tax (VAT). casia It is represented that HICAP is registered with the Philippine Economic Zone Authority (PEZA), pursuant to the provisions of R.A. No. 7916 and its implementing regulations, for the manufacture of computer hard disk drives which are exclusively for export; that it is duly licensed to manufacture the said goods using the trade mark "HITACHI" pursuant to its technical collaboration agreement with HITACHI LTD. OF JAPAN, a non-resident foreign corporation, in consideration for which the aforesaid royalties are paid; and that it undertakes its business activities exclusively at the Laguna Technopark, a special economic zone under the PEZA. In reply, please be informed that under Section 24 of R.A. No. 7916, otherwise known as the "Special Economic Zone Act of 1993", businesses and enterprises within the ECOZONE as defined by Section 5 thereof shall, in lieu of paying local and national taxes, be liable to the payment of the five percent (5%) preferential tax rate based on gross income earned, distributed as follows: (1) three percent (3%) to the national government; (2) one percent (1%) to the local government units affected by the declaration of the ECOZONE; and (3) one percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE. The aforementioned 5% preferential tax is a commutation of all the national and local taxes otherwise due from businesses and enterprises operating within the ECOZONE. Such being the case, your client is considered exempt from all direct and indirect taxes hence, may not legally be passed-on with the value-added tax otherwise due from its foreign licensor vis-a-vis the said royalty payments. (BIR VAT Ruling No. 033-96 dated October 30, 1996) In view thereof, and considering that your client's foreign licensor is a non-VAT registered person, your client's aforesaid royalty payments are accordingly exempt from the value-added tax. Consequently, your client is also exempt from the obligation to withhold and remit the 10% value-added tax on its payments and remittances of the aforesaid royalties which otherwise would be due thereon pursuant to the provisions of Section 110 of the National Internal Revenue Code, as amended by R.A. No. 7716, and as implemented by Section 4.110-3 of Revenue Regulations No. 7-95, otherwise known as the Consolidated Value-Added Tax Regulations. cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue