VAT Ruling No. 035-92

March 13, 1992 VAT RULING NO. 035-92 NIRC Sec. 103 (u) Precedent Ruling 246-90 Continental Tamamura Philippines Manufacturing, Inc. La Huerta, Paraaque, Metro Manila Attention: Serafin dela Cruz, Jr. Accounting Manager Gentlemen : This refers to your letter dated May 27, 1991 inquiring whether your transactions are exempt or zero-rated for value-added tax purposes. It is represented that Continental Tamamura Phils. (CTP), is a BOI-registered subcontractor performing conewinding services to Continental Manufacturing Corporation (CMC); that CMC is a BOI-registered company exporting at least 70% of its total production; that before the implementation of the VAT system, CTP was considered a manufacturer under E.O. 1045 and as such, was not subject to the 4% contractor's tax (now replaced by VAT); that your company applied for VAT registration on January 1, 1988, since the conewinding services are rendered to BOI-registered exporters; and that when CTP filed for VAT refund for the first quarter of 1988, its application was rejected on the ground that it is exempted from VAT under Section 3 of R.R. 2-88. In reply, please be informed that pursuant to Section 2 of Revenue Regulations No. 2-88, sale of raw materials to BOI-registered exporters exporting at least 70% of its total annual production shall qualify for zero-rating subject to the following conditions. (1) The seller shall file an application for zero-rating with BIR; (2) The raw materials sold are to be used exclusively by the buyer in the manufacture, processing or repacking of his own registered export product; and (3) The words "zero-rated sales" shall be prominently indicated in the sales invoice, the exporter (buyer) can no longer claim from the Bureau of Internal Revenue or any other government office tax credits on their zero-rated purchases. Based on the foregoing, your transactions with CMC cannot qualify for effective zero rating since only sales of raw materials to BOI registered enterprises could be zero-rated; hence, your request for VAT refund is denied for lack of legal basis. However, since you are a BOI-registered subcontractor rendering conewinding services to BOI-registered export producers exporting at least 70% of its annual production, the same are exempt from VAT pursuant to Section 3 of the same regulations. In other words, BOI-registered subcontractors performing subcontracting and/or contracting services to export producers are only exempt from VAT on the date the said service was registered with the BOI; without the benefit of tax credits/refunds on input taxes attributable to said sales. Please be guided accordingly. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue