VAT Ruling No. 102-92

August 20, 1992 VAT RULING NO. 102-92 NIRC Sec. 100 (a) Precedent Ruling 031-92 Interope Corporation Suite 707 Heritage Condominium 1851 Dr. Vasquez St. Malate, Manila Attention: Mr. Jose K. Milanes, CPA Corporate Secretary S i r s : This has reference to your letter dated October 21, 1991 stating that Interope Corporation was registered with the Securities and Exchange Commission (SEC) on June 6, 1989 per SEC Reg. No. 164467; that it is primarily engaged in abaca rope making and that it commenced operations only in July, 1991; and that it registered with the Board of Investment (BOI) as export producer of abaca ropes and with the BIR for VAT purposes as per VAT Reg. No. 25-7-005168 on April 1, 1990. In connection thereto, you now request for clarification on whether or not the sales of domestic suppliers to your company are zero-rated based on the following representation of facts: 1. The supplier sells to you local raw materials which you use for your export product and forming a part thereof; 2. As a BOI-registered enterprise, you are entitled to tax credit on imported/local materials used for your export product, and as such this may result into an accumulation of positive balance of input taxes against output taxes because most of your sales are vat exempt being export sales, and you are enjoying an income tax holiday for four (4) years; and, 3. In order to minimize the burden of filing an application for tax credit on purchases of raw materials, sales of raw materials by a VAT-registered supplier to you must be zero-rated. In reply, please be informed that Section 2 of Revenue Regulations No. 2-88 specifically states that only sales of raw materials by VAT-registered entities to export-oriented BOI-registered enterprises whose export sales, under BOI rules and regulations, exceed seventy percent (70%) of total annual production shall be subject to zero-rate VAT. Since your company is exporting more than 70% of its annual production as evidenced by the attached indorsement letter of the BOI, your company's purchases of raw materials are zero-rated pursuant to the aforementioned provision. AcTDaH Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue