VAT Ruling No. 034-03

July 16, 2003 VAT RULING NO. 034-03 SEC. 106, 108, RR 7-95, R.A. 7844 and its IRR VAT Ruling No. 10-93, 12-99 & 001-00 Abre Enterprises, Inc. No. 36 Rio de Janeiro Ext., Southgate B.F. Homes, Las Pias, Metro Manila Attention: Mr. Jeffrey R. Abrina, VP Finance Gentlemen : This refers to your letter, dated March 6, 2001, requesting for exemption from the value added tax (VAT) on the ground that, as an accredited exporter, your direct export of goods and sale of services are entitled to the benefit of the zero percent (0%) VAT under Sections 106(2)(a) and 108(B)(2), respectively, NIRC of 1997. However, based on your representations, it appears that what you are actually requesting is for exemption from the 10% VAT being passed on by your suppliers of goods and services which, in effect, is actually a request that your said VAT-registered suppliers of goods and services be treated entitled to the benefit of the zero percent (0%) VAT; that, while you are not registered with the Board of Investments (BOI), you are, however, a holder of a Certificate of Accreditation No. BETP-02-001, dated February 5, 2002, as an " eligible exporter satisfying the requirements of Republic Act No. 7844 , " issued by the Bureau of Export Trade Promotion, Department of Trade and Industry, upon your application filed with Export Development Council. In reply, please be informed, as follows: ON SALE OF GOODS Sale of goods entitled to the benefit of the zero percent (0%) VAT, pursuant to Section 106(A)(2)(a)(5), NIRC of 1997, includes: "Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws ." Section 4(a) of R.A. No. 7844, otherwise known as the " Export Development Act of 1994 ," defines the term "Exporter" as follows: "SEC. 4. Definition of Terms . For purposes of this Act, the following definitions shall apply to the following terms: "(a) `Exporter' means any person, natural or juridical, licensed to do business in the Philippines, engaged directly or indirectly in the production, manufacture or trade of products or services which earns at least fifty percent (50%) of its normal operating revenues from the sale of its products or services abroad for foreign currency: Provided, That in the case of services, the same shall be limited to information technology services, construction services and other services as defined jointly by the Department of Finance (DOF) and the Department of Trade and Industry (DTI). Services rendered by overseas contract workers are not covered by the definition. "xxx xxx xxx." Since you are a certified " eligible exporter " pursuant to R.A. No. 7844, your VAT-registered suppliers of goods are, therefore, treated as " indirect exporters " of goods, thus, may accordingly be entitled to the benefit of the zero percent (0%) VAT, pursuant to Section 106(A)(2)(a)(5), 1 NIRC of 1997, in relation to the above quoted provision of Sec. 4(a), R.A. No. 7844, subject to the following conditions: (1) That your Supplier is a duly Accredited Indirect Exporter under the Export Development Act (R.A. No. 7844); (2) That your Supplier has been issued with a Permit for VAT zero-rating, pursuant to Section 4.107-1(d), Revenue Regulations No. 7-95, reading, viz. : "(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 ;" You shall furnish your Supplier with a copy of your " Certificate of Accreditation as Eligible Exporter ," issued pursuant to R.A. No. 7844, duly certified by the Bureau of Export Trade Promotion, Department of Trade and Industry, which shall be the basis of your said Supplier in availing of the benefit of the zero percent (0%) VAT. (3) Your Supplier shall issue to you a VAT-registered invoice for VAT zero-rated sales, duly registered with the BIR and printed, pursuant to the provisions of Section 4.108-1, Revenue Regulations No. 7-95. These Regulations require that the word " zero rated " shall be " imprinted on the invoice covering zero-rated sales ." CaAcSE ON SALE OF SERVICES Sale of services entitled to the benefit of the zero percent (0%) VAT, pursuant to the provisions of Section 108(B), NIRC of 1997, includes: "(5) Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production. Your VAT-registered Suppliers of service may also be entitled to the benefit of the zero percent (0%) VAT for as long as their services to you involve processing, converting, or manufacturing goods used in your export business provided, however, that your export sales exceed 70% of your total annual production, and that your VAT-registered Suppliers of service are either accredited by the Board of Investments or by the Export Development Council, pursuant to the provisions of Section 4.102-2(b)(5), Revenue Regulations No. 7-95, as follows: "(5) Services performed by subcontractors and/or contractors duly accredited by either the Board of Investments or the Export Development Council in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of the total annual production. Provided, however, that your Supplier has been first issued with a BIR Permit for VAT zero-rating, pursuant to the above quoted Section 4.107-1(d), and issued to you a duly registered VAT invoice for VAT zero-rated sales, pursuant to Section 4.108-1, Revenue Regulations No. 7-95. This ruling is being issued based on your representations. However, if upon investigation, it will be revealed that the facts are different from what have been represented, then this ruling shall be rendered null and void from the date of issuance. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspections Group Footnotes 1. "(5) Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investment Code of 1987, and other special laws ." are treated entitled to the benefit of the zero percent (0%) VAT.