VAT Ruling No. 063-99

July 6, 1999 VAT RULING NO. 063-99 Section 106 (A) (2) (a) VAT Ruling No. 027-99 063-99 Siguion Reyna Montecillo & Ongsiako Philcom Building 8755 Paseo de Roxas Makati City Attention: Atty . Jose Lis C . Leagogo Gentlemen : This refers to your letter dated January 10, 1999 requesting for a ruling that the sale of raw materials by your client, Heraeus Electronic Materials Phils., Inc. (Heraeus) to BOI-registered export oriented enterprises and to Philippine Economic Zone Authority (PEZA) registered enterprises are considered effectively zero-rated transactions for value-added tax purposes. It is represented that Heraeus is registered with the Philippine Economic Zone Authority (PEZA) as an Ecozone Export Enterprise located at Gateway Business Park; that it is also a VAT-registered corporation; that it is engaged in the manufacture of gold bonding wire, a raw material used in the manufacture of integrated circuits and other semi-conductor components; that it sells its raw materials to the following corporations: LibLex (1) Cirtek Electronics Corporation (CEC) a BOI-registered enterprise; (2) Fastech Microassembly & Test, Inc. (FMTI), a BOI-registered enterprise; (3) Fastech Microelectronics, Inc. (FMI), a BOI-registered enterprise; (4) Fastech Electronik, Inc. (FEI), a PEZA-registered enterprise; (5) Gateway Electronics Corporation (GEC), a PEZA-registered enterprise. that the first three (3) BOI-registered corporations are export-oriented enterprises whose export sales of integrated circuits exceed seventy percent (70%) of their annual production; that these corporations were favorably endorsed for VAT zero-rating with respect to their purchases of raw materials and production supplies for 1998; and that the last two (2) corporations are PEZA-registered Ecozone Export Enterprises operating at the Light Industry Science Park and Gateway Business Park, respectively. cdlex In-reply, we hereby confirm that under Section 106(A)(2)(a) of the Tax Code of 1997, the sale-by a VAT-registered person of raw materials or packaging materials to export-oriented enterprises whose export sales exceed seventy percent (70%) of total annual production is considered export sales subject to VAT at zero percent (0%). Although Heraeus is a PEZA-registered enterprise, it is at the same time a VAT-registered taxpayer, because it is still enjoying the Income Tax Holiday (ITH) incentive in lieu of the 5% tax on gross income earned. Hence, as a VAT-registered entity, its sales of raw materials to BOI-registered enterprises such as CEC, FMTI and FMI are subject to zero percent VAT under the aforesaid provision of the Code, provided the export sales of such BOI-registered enterprises exceed seventy percent (70%) of total annual production. With respect to the sales by Heraeus to other PEZA-Registered Export Ecozone Enterprises, such as FEI and GEC, such transactions are likewise zero-rated pursuant to the cross-border doctrine, inasmuch as the raw materials sold formed part of the goods destined for use or consumption abroad (VAT Ruling No. 027-99 dated March 16, 1999). It shall be understood, however, that in both instances, Heraeus shall apply with the Revenue District Officer concerned having jurisdiction over its principal place of business for the effective zero-rating of its sales of goods to such BOI and PEZA registered enterprises. Without an approved application for zero-rating, the transaction shall merely be considered exempt, in which case no input taxes can be recognized thereon. (VAT Ruling No. 038-97 dated April 15, 1997). This ruling is being issued 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, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Local & Enforcement Group