VAT Ruling No. 017-89

February 21, 1989 VAT RULING NO. 017-89 National Sugar Refineries Corporation 4th Floor, Liberty Bldg. Pasay Road, Makati Metro Manila Attention: Mr . Jose Ma . S . Lopez Executive Vice President S i r s : This refers to your letter dated March 4, 1988 requesting a clarificatory ruling in order to cover the tax loophole in the following arrangement between the trader-tollee and the refinery: cdt 1. A trader-tollee who wants to have his raw sugar to be refined enters into a simulated sale of the raw sugar to the refinery. 2. The objective of the simulated sale is to transfer the ownership of the raw sugar to the refinery at the time of refining. Technically, therefore, there should be no tolling fee to be charged since the refinery is merely refining its own sugar. It follows that since there is no tolling fee there can be no VAT. 3. After the raw sugar has been converted to refined sugar another simulated sale is executed to return ownership of the sugar to the real owner who is the trader. Thus the payment of VAT on the tolling fee is completely avoided. In reply, please be informed that pursuant to Section 102 of the Tax Code, as amended, and VAT Ruling No. 292-88 (dated July 13, 1988), the tolling fee received for milling other persons' raw sugar into refined sugar is subject to VAT. The same ruling applies to tolling fees collected in the processing of blanco directo, plantation white and washed sugar. In the case of the simulated sale made between the trader-tollee and the refinery, the milling of the raw sugar purchased by the refinery is subject to VAT because the transaction is not a "bona fide" sale. LLphil Very truly yours, VICTOR A. DEOFERIO, JR. Deputy Commissioner