VAT Ruling No. 028-02

April 30, 2002 VAT RULING NO. 028-02 Sec. 105 106 (2) (1) VAT Ruling No. 001-00 Adviento-Mallonga Adviento Law Office 59 West Capitol Drive Barrio Kapitolyo Pasig City Attention: Robbie Pierre M. Roco Gentlemen : This refers to your letter dated August 8, 2001, concerning the proper application of the Value-Added Tax on sale of goods by a domestic corporation to a foreign corporation but the goods are manufactured and subsequently delivered to another domestic corporation in the Philippines. It is represented that Nike is a domestic multinational corporation engaged in the manufacture, distribution and sale of rubber shoes in the Philippines; that one of its clients is "Sportmart," a foreign corporation created and organized under the laws of Hongkong, which has a representative office here in the Philippines; that for the past year, Nike had been selling rubber shoes to Sportmart; that in return, Sportmart sells it directly to Duty Free Philippines, a domestic corporation; that the goods are not actually shipped outside the country but Nike directly delivers them to Duty Free Philippines; that Sportmart pays Nike in its Peso equivalent and Duty Free Philippines pays Sportmart in US$ in Hongkong; that, however, Nike has consistently included the Value-Added Tax of 10% to the selling price in an attempt to transfer the value-added tax to its client, and that Sportmart, however, refused to pay the value-added tax arguing that it is a foreign entity and that the sale is an export sale by, virtue of Sec. 106(2)(a)(1) of the NIRC. You now, therefore seek a ruling as to how the above transaction be treated under the VAT Law. In reply, please be informed of the following rules in Value-Added Tax: 1. That VAT is a tax on "Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods. . . The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. . . " [See Sec. 99, NIRC, as amended by R.A. No. 7716 (now Sec. 105, NIRC, as renumbered by R.A. No. 8424)]. 2. That under Sec. 106(2)(a)(1) of the NIRC as amended, Export Sales under the VAT law means "The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." In view of the foregoing rules, the sale of goods by Nike to Sportmart, notwithstanding the fact Sportmart is a foreign corporation, is subject to the 10% Value-Added Tax. Actual shipment of the goods from the Philippines to a foreign country is a precondition of an export sale following the Destination Principle being adhered to by our VAT System. As such, the onus of taxation under our VAT system is in that country where goods, property or services destined to, used or consumed. This is the reason why under our VAT law, goods, property or services destined to, used or consumed in the Philippines are subject to the ten percent 10% VAT whereas those destined, used or consumed abroad are subject to the zero percent (0%) VAT (VAT Ruling No. 001-00). Hence, it is inconsequential for VAT purposes that the sale is made to a foreign person if the goods were actually delivered within the Philippines. This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation, it will be discovered that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group