VAT Ruling No. 031-01

May 29, 2001 VAT RULING NO. 031-01 Sec. 4. 100-2 Yarn Ventures Resources, Inc . No. 3 Brixton St., Bo. Kapitolyo Pasig, Metro Manila Attention: Dulce D . Barreto Executive Vice-President Gentlemen : This refers to your letter dated July 5, 2000 concerning your request for information whether, as a VAT-registered person, your herein proposed transaction may qualify for the zero percent (0%) value added tax (VAT). It is represented that you are a supplier of raw materials (i.e., acrylic yarns); that you will sell these raw materials to a foreign customer who shall pay in U.S. dollars; that you shall deliver these raw materials to its subcontractors in the Philippines; that these subcontractors shall use these raw materials in the manufacture of finished products who shall, in turn, deliver and export the same to the aforesaid foreign customer. In reply, please be informed that Section 4.100-2 of Revenue Regulations No. 7-95, implementing Section 100 (a) (2), old NIRC (now, 106 (A) (2) of the National Internal Revenue Code of 1997, as renumbered), provides: "SEC. 4.100-2. Zero-rated sales . ... ... ... "The following sales by VAT-registered persons shall be subject to 0%: "(a) Export sales "'Export Sales' shall mean: "(1) ... ... ...; "(1) ... ... ... "(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export oriented enterprise to be used in manufacturing processing, packing or repacking it the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance With the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); "(3) The sale of raw materials or packaging material to an export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production; "Any enterprise whose export sale exceed 70% of the total annual production of the preceding taxable year shall be considered an export-oriented enterprises upon accreditation as such under the provisions of the Export Development Act (R . A . 7844) and its implementingrules andregulations ." In view of the foregoing, please determine from your aforementioned buyers whether or not they are accredited as export-oriented enterprises under the provisions of the Export Development Act and its implementing rules and regulations. In the affirmative, then your sales of raw materials to the aforesaid subcontractors may qualify for the zero percent (0%) VAT, pursuant to the aforesaid law and regulations subject, however, to your compliance with the provisions of Section 4.107-1 (d) of Revenue Regulations No. 7-95, which provides: "(d) Application for effective zero-rating . Except for actual export sale other cases of zero-rated sales in Sec. 4.100-3 and Sec. 4.102-2 (c) shall require prior application with the Revenue District Office for effective zero-rating. Without an approved application for effective zero-rating, the transaction otherwise entitled to zero-rating shall be considered exempt." HTCSDE Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group