VAT Ruling No. 018-00

March 21, 2000 VAT RULING NO. 018-00 108 (B) (3) 067-99 Ms . Consorcia T . Yap 15 Armstrong St., Tandang Sora, Quezon City M a d a m : This refers to your letter dated September 30, 1999 requesting on behalf of your client, MAGELLAN COGENERATION , INCORPORATED (MCI) , for a ruling on the following issues: "1. Whether Magellan Cogeneration, Incorporated is entitled to VAT zero rating of its sale electricity to National Power Corporation; TSacCH "2. Whether MCI may claim a tax refund/tax credit of its accumulated input VAT attributable to said sale for taxable years 1997 and 1998." It is represented that Magellan Cogeneration, Incorporated (MCI) was-as registered with the Board of Investments under Certificate of Registration No. 92-455 issued on March 12, 1993 and with Philippine Economic Zone Authority (PEZA) as an ECOZONE utilities enterprise under PEZA Certificate of Registration No 97-01-V issued on August 11, 1997; that pursuant to the Power Supply Agreement between MCI and the National Power Corporation (NPC), the former contracted itself to sell to the latter electricity generated by its power plant; that for taxable years 1997 and 1998, MCI has accumulated input vat attributable to its sale of power to NPC. Under then Section 102(b)(3) of the National Internal Revenue Code, as amended (now Sec. 108(B)(3) of the Tax Code of 1997), " services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero-percent VAT ." Pursuant to its Charter, NPC is exempt from direct and indirect taxes, which exemption has been affirmed by the Supreme Court in the case of Maceda vs. Macaraeg, GR No. 88291, May 31, 1991. In a Memorandum dated January 26, 1998 to the Commissioner of Internal Revenue by then Honorable Secretary Roberto F. de Ocampo, the VAT zero rating of the sale of the electricity by MCI to NPC as affirmed: "In view of the foregoing and using the power of review granted to the Secretary of Finance under Section 4 of R.A. 8424, the DOF upholds the ruling of the Supreme Court that NPC is exempt under its Charter and subsequent laws from all direct and indirect taxes on its purchases of petroleum products and electricity. Thus, the purchases of NPC of electricity from independent power producers are subject to VAT at zero rate." In reply thereto, please be informed that Section 108(B)(3) of the Tax Code of 1997 provides that services rendered to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects the supply of such services to zero percent (0%) rate. Thus, the sale of electricity by MCI to NPC is subject to zero percent (0%) VAT pursuant to said Sec. 108(B)(3) of the Tax Code of 1997. cTDIaC It shall be understood, however, that your client, MCI, shall apply with the Revenue District Officer concerned having jurisdiction over your client's principal place of business for the effective zero rating of its sale of electricity to NPC pursuant to Revenue Regulations No. 7-95, as amended. Without an approved application for zero-rating, the transaction otherwise entitled to zero rating shall be considered exempt. (VAT Ruling No. 067-99 dated July 14, 1999) With regard to your second query, please be informed that Section 112(A) of the Tax Code of 1997 pertinent portion of which provides, that " 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 input tax due or paid attributable to such sales, to the extent that such input tax has not been applied against output tax ." Furthermore, a claim for tax credit and/or refund may be granted only upon submission of the documentary requirements prescribed under Revenue Regulations No. 3-88. Accordingly, whether NPC is entitled to claim for tax credit and/or refund, the accumulated input VAT attributable to its sale of power to NPC for taxable years 1997 and 1998 will depend on the submission of the documents prescribed under RR No. 3-88. 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group