VAT Ruling No. 107-90

May 8, 1990 VAT RULING NO. 107-90 Earnsun Co. Ltd. Sarmiento Bldg. No. 2 Pasong Tamo Extension Makati, Metro Manila Attention: Mr . Ching Kim Eng Vice President - Treasurer S i r s : This refers to your letter dated November 16, 1989 representing that this office advised your suppliers of the withdrawal of the BOI's favorable endorsement of their qualification for effective VAT zero rating with respect to their sales of raw materials and goods to your company. Such advice was an offshoot of the opinion of the BOI that your company, being registered under Book II of Executive Order 226 (Omnibus Investment Code of 1987), cannot be covered by Section 2 of Revenue Regulations No. 2-88 since the BOI registered export producers referred to it are those that are registered under Book I of the same Code. prll Based on the foregoing facts, you now request for a confirmation of your opinion that an exporter registered under Book II of the said Code but which exports at least 70% of its total production is covered by the said regulation. In reply, please be informed that under the Omnibus Investment Code of 1987, there are two different types of enterprises among others registered with the BOI. Under Book I (Investment with Incentives) a registered firm is either a pioneer or non-pioneer enterprises which is basically engaged in the manufacture, processing or production and not merely in the assembly or packaging of goods, products, commodities or raw materials that have not been or are not being produced in the Philippines on a commercial scale. (Article 17, E.O. 226) On the other hand, under Book II (Foreign Investments without Incentives) a registered firm is not a Philippine national which is allowed to invest in any enterprise formed, organized or existing under Philippine law. As an enterprise "doing business" its activities shall include soliciting orders, purchases, service contracts, opening offices whether called "liaison" offices or branches; appointing representatives or distributors who are domiciled in the Philippines . . .; participating in the management, supervision or control of any domestic firm, entity or corporation (Article 44, E.O. 226). In meeting the objective of the regulations of lessening administrative work in terms of processing claim for tax refund or credits of exporters, two basic criteria were followed namely: (1) the exporter must be a BOI registered producer who buys raw materials to be used in the production or manufacture, and processing of the exportable goods and (2) the said registered enterprise exports at least 70% of its total production as favorably endorsed by BOI. Based on the foregoing facts, it can be concluded that since RR 2-88 speaks only of BOI registered firms, it does not distinguish those registered under Book I from those registered under Book II. Such being the case, the enterprises referred therein should equally cover BOI enterprises registered either in Book I or Book II of the Omnibus Investment Code. Since your office operates as a branch office engaged in the manufacture of and exportation of plywood products your supply of raw materials by VAT registered sellers qualify for effective zero rating provided that: (a) an application for zero rate filed by your seller be approved by this Office; (b) the Board of Investments has favorably endorsed that at least 70% of your total production is exported. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue By: VICTOR A. DEOFERIO, JR. Deputy Commissioner (Officer-in-Charge)