VAT Ruling No. 026-99

March 15, 1999 VAT RULING NO. 026-99 106 (A) (2) (a) (5) 000-00 026-99 D & L Industries, Inc . 65 Industria St., Bagumbayan Quezon City Attention: Ms . Carmelita Valle Ching Distribution Manager Gentlemen : This refers to your letter of 13 April 1998 concerning your request for information whether your sales of goods to your client, SAGARA METRO PLASTICS INDUSTRIAL CORPORATION (SAGARA, for short), may qualify for the zero percent (0%) value-added tax. It is represented that last year, you filed an application for zero percent VAT on sales to be made to your aforesaid client. However, the same was denied both by the Board of Investment (BOI) and by the Bureau of Internal Revenue (BIR) because SAGARA is not a BOI-registered " direct exporter " but rather a mere " indirect exporter" ; that, this year, your said client requested you to apply to the BIR for the VAT zero-rating of your sales of raw materials to your aforesaid client; that you informed your said client that your previous application for zero percent VAT has been denied in the past. However, your said client insisted that your sales of raw materials to them are subject to zero percent VAT considering that the same shall be delivered to its duly registered Customs Bonded Warehouse as part of their raw materials for use in the manufacture of products for export. In reply, please be informed that under Article 23 of Executive Order No. 226 otherwise known as the Omnibus Investments Code of 1987, "( 1 ) sales to bonded manufacturing warehouses of export-oriented manufacturers are considered constructively exported ." Section 106(A)(2)(a)(5) of the National Internal Revenue Code (NIRC), as amended by R.A. No. 7716, and as renumbered by R.A. No. 8424, further provides that (5) Those considered as export sales under Executive Order No . 226, otherwise known as the Omnibus Investment Code of 1987 and other special laws shall be considered subject to the zero percent value-added tax ." Considering that the Board of Investment refused to endorse to the BIR the request of D & L INDUSTRIES, INC. for VAT zero rating of its sales of goods to SEGARA for the reason that SEGARA is merely an indirect exporter, hence, not embraced under the term "export-oriented manufacturers," such sales by D & L INDUSTRIES, INC. to SEGARA may not accordingly be treated as constructive export under ART. 23 of the Omnibus Investments Code, in relation to Section 106 (A) (2) (a) (5) of the National Internal Revenue Code of 1997. Therefore, such sales of goods are subjects to the 10% VAT. Very truly yours, (SGD) BEETHOVEN L. RUALO Commissioner of Internal Revenue