VAT Ruling No. 033-96

October 30, 1996 VAT RULING NO. 033-96 Section 100-000-033 Penn Philippines, Inc. FTI Ave., FTI Complex Taguig, Metro Manila Attention: Mr . Carlito P . Yu VP-Finance and Administration Gentlemen : This refers to your letter dated September 9, 1996 requesting for clarification on whether or not the sales of goods and services to Penn Philippines, Inc. (PPI) by EEI Corporation (EEI) can be considered as effectively zero-rated transactions. LibLex It is represented that the PPI is registered with the Philippine Economic Zone Authority (PEZA) as a manufacturer of elastic fabrics for export; that PPI will put up a manufacturing plant within the export zone of the Laguna International and Industrial Park (LIIP) SEPZ in Bian, Laguna; that PPI is in the process of finalizing a contract with EEI for the construction of the said plant; that the proposed contract involves the supply of both labor and materials; and the PEZA through its Acting Manager of the Project Evaluation and Review Department certified that PPI's purchase of goods and services are entitled to effective VAT zero-rating based on Section 4.100-3 of Revenue Regulations 7-95. In reply, please be informed that under Section 24 of Republic Act No. 7916, otherwise known as the Special Economic Zone Act of 1993, businesses and enterprises within the ECOZONE as defined by Section 5 thereof shall, in lieu of paying local and national taxes, be liable to the payment of the five percent (5%) preferential tax rate based on gross income earned distributed as follows: (1) three percent (3%) to the national government; (2) one percent (1%) to the local government units affected by the declaration of the ECOZONE; and (3) one percent (1%) for the establishment of a development fund to be utilized for the development of municipalities outside and contiguous to each ECOZONE. Section 102 (a) of the Tax Code as amended by Republic Act No. 7716 and as implemented by Revenue Regulations No. 7-95 provides that sales of goods and services to persons or entities whose exemption under special laws, (e.g. duly registered and accredited enterprises of the PEZA under R.A. 7916) or international agreements to which the Philippine is a signatory effectively subjects the supply of such goods or services to zero rate. Such being the case, since R.A 7916 is a special law which grants exemptions from national taxes to PEZA-registered businesses establishments operating within the ECOZONE, except payment of the preferential tax rate of 5% on gross income earned, the sales of goods and services by Customs Territory contractors like EEI Corporation Philippines, Inc., shall be effectively zero-rated. It shall be understood that the VAT-registered service contractors shall apply with the Revenue District Officer concerned having jurisdiction over their principal place of business for the effective zero-rating of their sales of services to PEZA-registered enterprises within the ECOZONE pursuant to Revenue Regulations No. 7-95. Without an approved application for zero-rating, the transactions otherwise entitled to zero-rating shall be considered exempt. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue