VAT Ruling No. 028-03

May 13, 2003 VAT RULING NO. 028-03 Section 106 and 112 VAT Ruling No. 029-01 Kyoei Kogyo (Phils.) Corp. #11 E.O. Bldg. Corner United & 2nd Sts. Bo. Kapitolyo, Pasig City Attention: Ms. Rose Bautista Accounting Manager Gentlemen : This refers to your letter dated November 21, 2002, requesting for application of zero percent (0%) value-added tax (VAT) in respect of the supply of Mazda 6 Welding Assembly Jigs and Stud Jigs of Kyoei Kogyo (Phils.) Corp. (KPC) to Vietnam Motors Corp. (VMC), as well as all purchases of KPC relative thereto. It is represented that KPC is a corporation organized and existing under the laws of the Republic of the Philippines and is registered with the Bureau of Internal Revenue as a VAT taxpayer; that VMC is a corporation organized and existing under the laws of the Republic of Vietnam; that KPC was awarded with a contract by VMC for the manufacturing, installation, testing and delivery, except shipping which will be borne by VMC, and commissioning of Mazda 6 Welding Assembly Jigs and Stud Jigs (inclusive of waived cost for main body jig re-design); that the total value of the contract is US$200,000.00; and that the shipment of the said jigs and master parts of Mazda 6 Model shall be made on or before April 20, 2003. In reply, please be informed that Section 106(A)(2)(a)(1) of the National Internal Revenue Code (Tax Code) of 1997 provides, viz : "(2) The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: "(a) Export Sales. The term `export sales' means: "(1) 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 and services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." In view of the foregoing provision, the sale and actual shipment of goods by a VAT-registered person from the Philippines to a foreign country is taxable at the rate of zero percent (0%) provided the same is "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 BSP" Considering that KPC is a VAT-registered person, and that there is a sale and actual shipment of jigs from the Philippines to Vietnam, and that such sale is paid for in acceptable foreign currency, the sale of KPC to VMC shall be subject to zero percent (0%) VAT provided that the payment of VMC to KPC is accounted for in accordance with the rules and regulations of the BSP. As such, KPC shall be entitled to a refund or credit of whatever input taxes attributable to its export sales, pursuant to Section 112(A) of the Tax Code of 1997, which provides "SEC. 112. Refunds or Tax Credits of Input Tax "(A) Zero-rated or Effectively Zero-rated Sales 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 creditable input tax due or paid attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied against the output tax: Provided, however ; That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales." ( VAT Ruling No. 029-2001 dated May 22, 2001 ) On the other hand, since the zero-rating privilege of the exporter ( i.e. , KPC) cannot be extended to its suppliers ( BIR Ruling No. 198-88 dated May 5, 1988 ), purchases made by KPC relative to the supply of automotive jigs to VMC shall be subject to VAT at the rate of ten percent (10%). This is without prejudice, however, to the right of the suppliers of goods and/or services of KPC to prove otherwise. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed or discovered that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. HTcADC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal Inspection Group