VAT Ruling No. 027-99

March 16, 1999 VAT RULING NO. 027-99 106 (A) (2) (a) (5) 112 (A) (RA 8424) Sec 24 (RA 7916)-044-98-027-99 Cebu Business and Investment Consultants Ground Floor CRM Bldg., Escario cor. Molave Sts., Lahug, Cebu City Attention: Atty . Rolando P . Nonato Legal and Tax Division Gentlemen : This refers to your letter dated January 22, 1999 clarifying your previous letter dated October 6, 1998 requesting clarification-as to the right of your client to claim for refund/tax credit of the 10% VAT passed on to it by its building contractor who was contracted to construct its factory building within the Mactan Export Processing Zone, as well as the VAT passed on to it by its local suppliers of supplies and materials for use in their business operation in the zone. cdlex It is represented that your client, GOJI INDUSTRY PHILIPPINES CORPORATION (GOJI), is a PEZA-registered export manufacturer operating in the Mactan Export Processing Zone, Lapu-Lapu City; that aside from selling directly to customers abroad, GOJI also sells to other PEZA-registered zone enterprises within the zone who in turn will export their finished products into which GOJI's products have been used as component parts; that GOJI enjoys income tax holiday (ITH) incentive for four years from start of commercial operations and extendible for another two years subject to certain requirements; that after the lapse of the ITH, GOJI would already pay the 5% tax on gross earnings pursuant to the Special Economic Zone Act of 1995; that presently, GOJI still enjoys the ITH incentive; and that GOJI is a VAT-registered taxpayer. It is likewise represented that the present request for a clarificatory ruling stemmed from your application for tax credit covering the 10% VAT passed on by the building contractor and local suppliers of supplies and materials filed with the Department of Finance (DOF) within the two year statute of limitation; that you were informed that your client cannot claim the entire amount of the VAT input tax for the reason that GOJI had sold also to other PEZA-registered enterprise for which the DOF would want to treat as exempt sales only and not as zero-rated transaction; and that it is your contention that sales to other PEZA-registered enterprises, for being indirect export, should not reduce or prevent your client's claim from the government of the full amount of the 10% VAT input. In reply, please be informed that since GOJI is enjoying the Income Tax Holiday incentive and not the 5% final tax on gross taxable income earned in lieu of all taxes under Section 24 of R.A. 7916 (PEZA Law), it follows that for tax purposes, GOJI is still governed by the provisions of the National Internal Revenue Code (NIRC). Therefore, the VAT provisions of the Code are applicable to it. In view thereof, this Office hereby holds as follows: 1. As a VAT-registered and PEZA-registered enterprise, sales of goods by GOJI to other PEZA-registered export enterprises are considered subject to zero percent (0%) VAT in accordance with the cross-border doctrine because such goods are destined to be used or consumed outside the Philippines. (VAT Ruling No. 044-98 dated November 26, 1998). Hence, GOJI may apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such sales, to the extent that such input taxes have not been applied against its output taxes, provided that such application is made within two (2) years after the close of the taxable quarter when such sales were made, pursuant to Section 112 (A), NIRC of 1997. 2. GOJI's purchase of services from its VAT-registered building contractor, for the construction of its factory building, comes within the purview of a purchase of capital goods, hence, GOJI may apply for the issuance of a tax credit certificate or refund of the input taxes passed on by the said contractor, pursuant to Section 112 (B), NIRC of 1997, provided such application is made within two (2) years after the close of the taxable quarter in which such purchase was made, provided, further, that such input taxes have not been applied against GOJI's output taxes. LibLex This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it is established 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 and Enforcement Group