VAT Ruling No. 037-97

April 15, 1997 VAT RULING NO. 037-97 Sec. 100-33-96-037-97 Pioneer Insurance Pioneer House 108 Paseo de Roxas Makati City Attention: Ms . Sally C . Ong Pac Senior Vice-President Gentlemen : This refers to your letter dated July 18, 1996 requesting for confirmation of your opinion that the sale of non-life insurance policies to Subic Bay Metropolitan Authority ("SBMA") registered and Philippine Export Zone Authority (PEZA) registered enterprises are considered as effectively zero-rated transactions. It is represented that Pioneer Insurance ("Pioneer") established a branch office within Subic Bay Freeport Zone and was also issued a Permit to Operate by the SBMA; that Pioneer was able to solicit insurance business from SBMA-registered enterprises; and that Pioneer likewise has clients which are PEZA-registered enterprises. LexLib It is your contention that sale of goods and services to SBMA-registered and PEZA-registered are entitled to effective VAT zero-rating in accordance with the National Internal Revenue Code as implemented by 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 carried 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. The abovementioned preferential tax rates are likewise applied to SBMA-registered enterprises under Section 12 (C) of Republic Act No. 7227 (otherwise known as the Bases Conversion Development Act). Section 100 (2)(c)(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 good and services to persons or entities whose exemption under special laws, e.g. RA 7227 registered and accredited enterprises with SBMA and R.A. 7916 or international agreements to which the Philippines is a signatory effectively subjects the supply of such goods or services to zero rate. Such being the case, since both R.A. 7916 and R.A. 7227 are special laws which grant exemptions from national taxes to duly registered business establishments operating within their proper jurisdiction, except payment of the preferential tax rate of 5% on gross income carried, the sales of goods and services by Customs Territory contractors such as Pioneer Insurance, shall be effectively zero-rated (VAT Ruling 33-96 and BIR Ruling 162-94). 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 either PEZA-registered or SBMA-registered enterprises within their respective zones 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. This ruling is being issued to Pioneer Insurance on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant Chairman, VAT Review Committee