VAT Ruling No. 095-02

December 26, 2002 VAT RULING NO. 095-02 Sec. 108 (B) (3) 064-01 Bauang Private Power Corporation (BPPC) 2nd Floor BENPRES Building Meralco Avenue cor. Exchange road Pasig City Attention: Edward Alberto E. Eviota Senior Manager, Legal Affairs Gentlemen : This refers to your letter, dated August 27, 2002, requesting for clarification on the portion of VAT Ruling No. 009-2002, which states: "It is understood, however, that BPPC is VAT-registered and shall apply with the Revenue District Officer having jurisdiction over its principal place of business for the effective VAT zero-rating of its sale of electricity to NPC pursuant to the provisions of Revenue Regulations No. 7-95 (formerly Revenue Regulations No. 5-87). Without an approved application therefor, such sales will be treated merely as VAT-exempt transactions under Sec. 109(q) of the Tax Code of 1997 (formerly Sec. 103(u) of the Tax Code of 1977.)" It is represented that the BPPC entered into "Build, Operate and Transfer Project Agreement" ("BOT" Agreement) with the National Power Corporation (NPC); that, believing that BPPC's sale of services to the NPC is entitled to the benefit of the effectively zero-rated VAT, BPPC, through its Counsel, Melecio S. Sta. Maria Law Office, filed its request for the effective zero-rating of the said transaction in its letter, dated December 8, 1995, which was stamped received by the Law Division, on December 11, 1995; that, however, no action was taken thereon; that, BPPC, through Counsel, Puno and Puno Law Offices, again requested for a ruling on this matter in its letter, dated December 7, 1998, which was stamped received by the Law Division on December 8, 1998; that, again, no action was taken thereon; that, BPPC, through Counsel, Puno and Puno Law Offices, again reiterated its request for ruling in its letter of October 2, 2000, Attention: VAT Committee, which was stamped received by the Office of the Deputy Commissioner (Legal & Inspection Group) on October 3, 2000; that, finally, BPPC's application for VAT zero-rating was finally approved in VAT RULING No. 009-2002, dated March 06, 2002. In reply, please be informed that the facts and the law in this case are exactly identical to the facts and the law obtaining in the case of KEPCO Philippines Corporation, the subject of VAT RULING No. 064-2001. Both KEPCO and BPPC applied with the BIR for effective VAT zero-rating of their respective sale of electricity to the National Power Corporation (NPC). On January 15, 1998, BIR issued a ruling that sale of electricity to NPC is not zero-rated but subject to 10% VAT. On January 26, 1998, the Secretary of Finance revoked the said ruling stating therein that NPC's purchase of electricity from Independent Power Producers (IPP) is subject to VAT at zero percent rate. In VAT Ruling No. 064-2001, pursuant to the ruling of the Secretary of Finance, it was held that KEPCO's sale of electricity to the NPC shall be subject to the 0% VAT, retroactive to September 17, 1998, the date KEPCO's application was filed with the BIR, as follows: "Nevertheless, your sale of electricity to NPC shall be subject to 0% VAT effective September 17, 1998." Since BPPC's case is exactly identical to the facts and the law obtaining in the KEPCO case, its sale of electricity to the NPC shall, consequently, also be subject to the 0% VAT, effective December 11, 1995, the date BPPC's application for 0% VAT was filed with BIR. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Legal & Inspection Group