VAT Ruling No. 064-98

December 29, 1998 VAT RULING NO. 064-98 Sec. 106-2 (a) & (b)-000-00-064-98 Asiawood International Corporation VWL Compound, Barrio Malaria Tala, Kaloocan City Attention: John A . Aguilar , CPA External Auditor Gentlemen : This refers to your letter dated August 28, 1998, requesting for a ruling of zero-rating of your transactions, and of the billings to you by your suppliers and contractors. It is represented that your company is a registered VAT member conducting business at VWL Compound, Barrio Malaria, Tala, Kaloocan City; that is engaged in the manufacture of all kinds of wood products which it exports; that none of its products are sold in the local market and it is registered with the Philippine Economic Zone Authority pursuant to Republic Act No. 7916 as an Ecozone Export Enterprise per Certificate of Registration No. 97-043 dated June 5, 1997; that under Section 106-2(a) of the National Internal Revenue Code, as amended by Republic Act No. 8424, your company is a direct exporter, and your sales are subject to zero-rating; that your suppliers and contractors should be, on this basis, precluded from passing on VAT in their billings. dctai In reply, please be informed that the provision of law you have cited, i.e., Sec. 106-2(a) and (b) of the NIRC as amended by RA 8424, defines "Export sales" as: (a) "The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP)." (b) "Sale of raw materials or packaging materials to export-oriented enterprises whose export sales exceed seventy percent (70%) of the total annual production." Accordingly, your interpretation as to the applicability of the above cited provisions to your enterprise so as to classify you as a direct exporter subject to zero-rating is correct, provided your company is registered with the Bureau as a VAT taxpayer. Consequently, your suppliers of raw materials are likewise subject to zero rating, provided they apply for effective zero-rating with our Office, since they are not the direct exporter. Likewise, suppliers of services are zero-rated provided their services are directly related to the manufacturing, processing, or packaging of goods which are subsequently and actually exported. However, to avail of such privilege, they should file an application and secure prior approval for effective zero-rating with the Revenue District Officer having jurisdiction over their principal place of business, otherwise the said transaction shall be considered exempt from VAT. prLL This ruling issued on the basis of the foregoing as represented. If, however, it will be disclosed in an investigation that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue