VAT Ruling No. 011-01

March 8, 2001 VAT RULING NO. 011-01 Sec 107 (A) 000-00 Joaquin Cunanan & Co . 14th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue Makati City Attention: Atty . Alexander B . Cabrera Partner Tax Services Department Gentlemen : This refers to your letter dated April 8, 1999 requesting, on behalf of your client, Master Foods Philippines, Inc. (MFPI), for a confirmation of your opinion that its sale of goods to Duty Free Philippines and other duty free entities consummated outside the Philippines is not subject to value-added tax (VAT). It is represented that MFPI is a domestic corporation engaged in the business of importing food products for local distribution; that it now intends to sell these products to duty free entities (DFE), including Duty Free Philippines and/or entities located in Special Economic Zones; that in order for the products to be competitively priced, the DFEs wish to avail of their tax and duty free privileges in the importation thereof; that MFPI, thus, proposes to sell the goods to DFEs while they are still in transit or outside the Philippines so that the DFEs will acquire title over the goods before the goods enter the Philippines; that if MFPI were to import the goods before selling the same to DFEs, its price will not be competitive as this will include the costs of import taxes; that in such case, it will not pursue this business activity; that on the other hand, if this business activity will be feasible, MFPI will generate additional revenue on which income taxes (and local business taxes) will be paid, hence, its feasibility will be beneficial to the government. In reply, please be informed that pursuant to Section 107(A) of the Tax Code of 1997, "there shall be levied, assessed and collected on every importation of goods a value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody: Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, if any", such tax to be imposed on the IMPORTERS thereof. Nonetheless, if, under the instant case, the importer/consignee of the subject goods to be imported is the Duty Free Philippines, the said importation is exempt from taxes pursuant to Executive Order No. 46 as restored by FIRB Resolution No. 10-87 but subject to the following conditions: (1) The said exemption shall be limited only to taxes arising out of merchandise imported/purchased abroad by the Duty Free Philippines and subsequently sold by it through authorized tax and duty free shops; and (2) Operations of tax and duty free shops shall be restricted only to the two international airports situated in Manila and Cebu. Conversely, if the importer of the subject merchandise is the MFPI itself, then the said importation is subject to VAT. TIESCA This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) RENE G. BAEZ Commissioner of Internal Revenue