VAT Ruling No. 043-97

May 15, 1997 VAT RULING NO. 043-97 Sec. 103 (u) 78-95 043-97 Batangas Power Corporation 3rd Floor, Corinthian Plaza 121 Paseo de Roxas, Makati Metro Manila, 12000 Philippines Attention: Mr . Miguel T . Gaffud, Jr . President Gentlemen : This refers to your letter dated January 10, 1996 requesting for a ruling whether the capacity fees (in U.S. dollars) and fixed O&M fees (in U.S. dollars and Philippine pesos) received from the National Power Corporation (NPC) in consideration of the electricity supplied to the latter is subject to VAT. LLjur It is represented that Enron Development Corporation (EDC) and NPC executed the Build Operate and Transfer (BOT) Agreement on June 29, 1992. Batangas Power Corporation (BPC) became a party to the said BOT Agreement through the execution by EDC, BPC, and NPC of an accession undertaking dated September 4, 1992 whereby BPC assumed all the rights and obligations of EDC under BOT Agreement; that under the BOT Agreement, BPC built a 110 Megawatt power station and using the fuel supplied by NPC, BPC generated and supplied electricity to the latter for distribution to its customers; that in consideration thereof, NPC paid capacity fees and fixed O&M fees; that BPC sells all its electricity to NPC only; that the Energy Regulatory Board (in a letter dated August 5, 1992) and the National Electrification Administration (in a letter dated August 12, 1992), ruled that BPC is not a public utility and need not apply for a franchise; and that BPC registered itself as a VAT taxpayer, billed NPC monthly for its capacity fees, fixed O&M fees, and Output VAT, and then remitted to the BIR the difference between its Output VAT and Input VAT. In reply, please be informed that pursuant to the decision in the case of Ernesto M. Maceda vs. Hon. Catalino Macaraig, Jr ., G.R. No. 88291, promulgated on June 8, 1993, this Office had previously ruled that the indirect tax exemption of NPC applies to its purchases of petroleum products used to generate electricity. Explaining the scope of said exemption, this Office under BIR Ruling No. 078-95, stated that sale of electricity to NAPOCOR is exempt from VAT; hence billing for electricity sold to the latter should exclude VAT. The underlying rationale of NPC's tax-exemption on its purchases of petroleum products in order to sell cheap electricity to the public is equally valid on its purchases of electricity. This conclusion finds support in the Supreme Court's statement in the same case that the government should not be stingy in interpreting the tax exemption privilege of NAPOCOR. Based on the foregoing, we hereby confirmed your opinion that the fees received for electricity supplied solely to NAPOCOR shall be exempt from VAT. LLphil This ruling is being issued to Batangas Power Corporation based on 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, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue