VAT Ruling No. 074-01

October 16, 2001 VAT RULING NO. 074-01 Sec. 109 (d) BIR VAT Ruling No. 028-98 SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty. C. P. Noel Tax Division Gentlemen : This refers to your letter dated October 9, 2000, in behalf of your client, Schering Plough Animal Health, Inc., (SPAH). It is represented that SPAH is a subsidiary of Schering Plough Corporation, an American firm with headquarters in New Jersey, USA; that SPAH operates locally nationwide through regional distributor that work closely with their sales team; that its clientele includes integrators, feedmillers and farms; that it is known for brands like "tasmix", "tribrissen" "gusanex" and "omnicide" and that most of its products (ranging from vaccines to injectables are imported, while the rest are "toll" manufactured locally by Interphil Laboratories and Hizon Laboratories but with imported raw materials. You now request for confirmation of your opinion that certain products that are sold and/or imported by SPAH are exempt from value-added tax (VAT) in accordance with Section 109(d) of the Tax Code of 1997, in relation to Republic Act No. 1556 (as amended by Presidential Decree No. 7). You likewise cite BIR VAT Ruling Nos. 028-98, 002-99, and 011-99 to support your contention. The products you refer to are: a) ENDRADIN growth promotant plus for pigs and poultry; b) AIVLOSIN PREMIS/SOLUBLE for the prevention and treatment of mycoplasma pneumonia; c) VITAMIN CONCENTRATES vitamins for swine and poultry; d) MINERAL CONCENTRATES minerals for swine and poultry; e) MULTIVITAMIN + MINERALS FOR SWINE & POULTRY vitamins + minerals premixes for swine and poultry; f) TRIBISSEN POULTRY FORMULA (TRIQUIN SQX) feed additive; and g) FEED PHOSPHATE for calcium and phosphorous supplementation on pigs, poultry and aqua feeds. You further stated that the above-mentioned products are not strictly ingredients in the manufacture of animal feeds because they are not necessary in the manufacturing process and that the feeds can stand as such even in their absence. However, it is still your opinion that being feed additives and feed supplements they are considered feed ingredients pursuant to BIR VAT Ruling No. 028-98. In reply, please be informed that Sec. 109(d) of the Tax Code of 1997 provides that the sale of importation of fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets) is exempt from VAT. The law regulating the manufacture, importation, sale and distribution of "animal feeds" is R.A. No. 1556, as amended by P.D. No. 7; therefore, in defining the terms "feeds" and "ingredients" (except specialty feeds and ingredients), we will adopt the definitions as stated in Sec. 2 thereof, viz .: "Paragraph (d). Feeds or Feeding Stuff shall embrace all such articles to be used as feeds purporting to supply proteins, carbohydrates, fats, minerals, vitamins, antibiotics, growth promoting factors whether identified or unidentified, and/or correcting nutritional disorders. Such articles may be locally produced or imported, mixed or in the form of simple ingredients . . ." (emphasis supplied) "Par. (1). Ingredients means any single article of feed or feeding stuff which enters into the composition of a ration, concentrate, or supplement." However, Sec. 4 thereof states, thus: "Par. (a). Any person, partnership, firm, corporation or association desiring to engage in the manufacture, importation, sale or distribution of feeds or feeding stuffs shall first be registered in the Office of the Director." "Par. (b) . . . Each type or kind of feeds or feed stuffs manufactured or imported shall be registered separately." "Par. (d). "No feeds or feeding stuffs in the form of complete mixture, concentrate, supplement, or ingredient which have not been registered with the Director, shall be manufactured, imported, advertised, sold or offered for sale or held in possession for sale in the Philippines." The Bureau of Animal Industry (BAI) has been tasked to implement the afore-said R.A. No. 1556 (as amended by P.D. No. 7) more particularly on the registration of products and business entities. It is, therefore, competent in determining a person's eligibility to manufacture, import, sell or distribute "animal feeds" and "feed ingredients", as well as the nature or specification of any product claimed as such. Hence, such determination will govern the classification of goods as "animal feeds" or "feed ingredients" for purposes of VAT exemption under Sec. 109(d) of the Tax Code of 1997, unless it is determined that the goods are purely specialty feeds or are ingredients used solely in manufacturing the same. Accordingly, any person claiming such VAT exemption must secure the following mandatory requirements, to wit: (a) a current BAI-Certificate of Business Registration; (b) a BAI-Certificate of Product Registration for each type/kind of product; and/or (c) a BAI-Import Permit for each type/kind of product. Provided, however, that in all cases of importation of goods/items referred to above, the same shall not be released from Customs custody unless covered by an "Authority to Release Imported Goods" issued by the Revenue District Officer of the place where the importer's principal place of business is located. In your case, therefore, SPAH's products heretofore listed will qualify as VAT-exempt under Sec. 109(d) of the Tax Code of 1997 as soon as you secure the aforementioned mandatory requirements. This ruling supersedes any previous ruling inconsistent herewith. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group