VAT Ruling No. 011-03

January 13, 2003 VAT RULING NO. 011-03 R.R. 74-99 VAT-054-00 SGV & Co. 6760 Ayala Avenue Makati City 1227 Attention: Atty. E.C. Alcantara Tax Division Gentlemen : This refers to your letter dated February 11, 2002 requesting on behalf of your client, Takenaka Corporation (Takenaka), for confirmation of your opinion that sales of services rendered by Takenaka to Philippine International Airport Terminals Co., Inc. (PIATCO) are zero rated for value-added tax (VAT) purposes. It is represented that Takenaka is a corporation registered under the laws of the Republic of the Philippines with business address at Andrews Avenue, Villamor Airbase, Pasay City; that the primary purpose of Takenaka is "to provide goods and services to PIATCO for the construction of the NAIA Terminal III"; that, on the other hand, PIATCO is also a corporation duly registered under the laws of the Republic of the Philippines and registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Developer/Operator under Certificate of Registration No. EZ-98-01 dated February 3, 1998 and as an Ecozone Facilities Enterprise with Certificate of Registration No. 98-01-F dated May 8, 1998; that sometime in year 2000, Takenaka entered into a contract with PIATCO for the construction of the NAIA Terminal III; that NAIA Terminal III will be operated by PIATCO pursuant to a Build-Operate-Transfer Agreement between Takenaka and the Philippine Government through the Manila International Airport Authority (MIAA); that in the course of providing services to PIATCO, it accumulated VAT input taxes arising from its purchases of goods and services from duly registered VAT taxpayers; and that these purchases are duly substantiated and evidenced by VAT registered invoices and receipts. On the basis of the foregoing you request confirmation of your opinion that: 1. Sales of goods and services rendered by Takenaka to PIATCO are zero-rated for VAT purposes without need of securing an approved application for zero-rating; and 2. All VAT input taxes accumulated by Takenaka in relation to its services to PIATCO, from its purchases of goods and services from duly registered VAT taxpayers may be issued a tax credit certificate or may be refunded pursuant to Section 108 of the Tax Code of 1997. In reply, please be informed that Section 3(3) of Revenue Memorandum Circular 74-99 provides for the zero-rating of sales of goods, property or services to PEZA-registered entities: "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. AEIcSa 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." In relation thereto, Section 112 of the Tax Code of 1997 provides for the refund or tax credit in cases of zero-rated sales. Thus, it states SEC. 112. Refunds or Tax Credits of Input Tax. "(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against output tax: . . ." 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. In addition, suppliers entitled to the benefit of zero-rated sale of goods, property or services may apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid attributable to such sales. Therefore, sale of goods and services rendered by Takenaka to PIATCO are subject to the zero percent (0%) VAT and requires no prior approval for zero rating based on RMC 74-99. Accordingly, Takenaka is entitled to refund or the issuance of a tax credit certificate (TCC) covering all its accumulated VAT input taxes in relation to its services rendered to PIATCO and from its purchases of goods and services from duly registered VAT taxpayers, duly supported by a VAT invoice or official receipt conforming with the requirements of Sections 113 and 237 of the Tax Code of 1997; provided that the application for refund or issuance of a Tax Credit Certificate (TCC) is made within two years after the close of the taxable quarter when the sales were made. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group