VAT Ruling No. 028-99

March 16, 1999 VAT RULING NO. 028-99 Section 2 (mm) PEZA Rules and Regulations; Section 112 (A)-044-98 028-99 Clarion Mitsuwa Philippines, Inc . (CMPI) 3/F Cacho gonzales Bldg. 101 Aguirre St.,Legaspi Village 1200 Makati City Attention: Mr . Tomoyuki Nonoyama President Gentlemen : This refers to your letter dated January 21, 1999 which basically seeks the opinion of this Office on whether or not the sale by a PEZA-registered enterprise to another PEZA-registered enterprise is entitled to zero percent (0%) Value-Added Tax (VAT) or is merely considered VAT-exempt. Among others, it is represented that Clarion Mitsuwa Philippines, Inc. (CMPI) is a PEZA-registered enterprise and entitled to Income Tax Holiday until March 31, 1999; that it produces plastic injected parts which are sold to another PEZA-registered company, Clarion Manufacturing Corporation of the Philippines (CMCP) which then assembles CMPI's products into stereos for export world wide; that since April 1993, all such PEZA to PEZA sales were considered "constructive exports" under the Rules and Regulations to Implement PEZA Law and subjected to zero rating under Section 4-100-2(5) of Revenue Regulations No. 7-95; that as such, you have been granted Tax Credit Certificate by the One-Stop-Shop of the Department of Finance; that recently, the One-Stop-Shop adopted an opinion from the Regulatory and Monitoring Division of this Bureau that all PEZA to PEZA sale are considered exempt transactions only without however citing any specific provision of law or regulations; that in view of this opinion, the One-Stop-Shop stopped the issuance of any tax credit on VAT input taxes relating to such intra-zone sales. In reply, please be advised that as a VAT-registered seller and PEZA-registered .enterprise, sales of goods by Clarion to another PEZA-registered export enterprise 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). Furthermore, it is provided under Section 2(mm) of the Rules and Regulations to Implement Republic Act No. 7916 that PEZA to PEZA sales shall be considered export sales, thus: "Export Sales shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of credit, landing certificates and other commercial documents of export products exported directly by an ECOZONE Export or Free Trade Enterprises to another export producer or to an export trader that subsequently exports the same; Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by the landing certificate or similar commercial documents; Provided, further, that without actual exportation, the following shall be considered constructively exported : xxx xxx xxx 2) sales to registered ECOZONE Export or Free Trade Enterprises: xxx xxx xxx" Since the buyer, CMCP is a registered ECOZONE Export Enterprises, the seller, CMPI may apply for the issuance of a tax credit certificate or refund of the input tax 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) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing representations. If upon investigations, it will be determined 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