BIR Ruling No. 306-2022

BUREAU OF INTERNAL REVENUE REPUBLICOF THE PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

OT-306-2022 CREATE Law;IRR of CREATE 2022;BIR Ruling No.523-17 RMC No.24-2022;RMC No.49- Law; Republic Act No.7916 and its IRR: JUN 2 3 2022

Quezon City Metro Manila, Philippines Rm 202 Belman Bldg. 78 Cordillera St., Corner Quezon Ave. KING CAPUCHINO TAN & ASSOCIATES

Attention: ATTY.RUDOLPH S.CAPUCHINO

Gentlemen:

parcel of land located within the Philippine Economic Zone Authority (PEZA) is exempt from value-added tax (VAT Philippines,Inc.FVCPI, for confirmation of your opinion that FVCPI's purchase of a This refers to your request on behalf of your client, Forever Vision Company

Background

1.FVCPI, with Taxpayer Identification No. Second District National Capital Region (NCR), 1100. organized and existing under the laws of the Philippines; (b) duly registered with the 27;2 (c engaged in the manufacture of optical lenses for eye glasses for export purposes; and (d with office address at 74 Mindanao Averi e,Project 6,Quezon City Securities and Exchange Commission (SEC with license number 1 is: (a) a company

2. On April 28, 2022, pursuant to PEZA Resolution No. 22-091, FVCPI's application for approved. lenses at the Cavite Technopark~Special Economic Ecozone CT-SEZwas registration as an ecozone export enterprise engaged in the manufacture of optical

3.Under the said PEZA Resolution,FVCPI shall be entitled to:afive 5 years Income equipment, raw materials, spare parts, or accessories; and (d) VAT exemption on years after the enjoyment of the ITH; (c duty exemption on importation of capital Tax HolidayITH(b5% Special Corporate Income Tax (SCIT for ten(10

Per Certificate of Incorporation dated November 18.2021. 2022 Per executed Deed of Absolute Sale between SNS Ecozone Properties Corporation and FVCPI dated June I.

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provisions of Republic Act No.11534CREATE Law). subject to the FVCPI's signing of the Registration Agreement with PEZA and compliance with the terms and conditions thereof. importation and VAT-zero rating on local purchases. all in accordance with the

4. On June 1,2022.FVCPI entered into a deed of absclute sale with SNS Ecozone Properties Corporation SNS relating to its purchase of a parcel of land with an

aggregate area of 11,752 square meters, more or less, situated in Barrio of Sabang. Municipality of Naic,Province of Cavite.and covered by Transfer Certificate of Title No. (the"Property").

5. FVCPI intends to construct its office and warehouse building for the manufacture of

optical lenses.

In reply, please be informed that Section 5, Rule 2 of the Implementing Rules and Regulations IRR of the CREATE Law provides thatregistered export enterprises are granted VAT zero-rating incentive on their local purchases of goods and services that are directly and exclusively used in its registered project or activity, to wit

Tax und Duty Incentives "Rule 2

SECTION 5. Value-Added Tax (VAT) Zero-Rating and Exemption.- The VAT exemption on importation and VAT sero-rating on local purchases shall only apply to goods and services directly and exclusively used in the registered project or activity of export enterprises, during the peripd of registration of the s.aid registered project or activity with the concerned IPA;...xxx

The direct and exclusive use in the registered project oi activity refers to raw materials, inventories, supplies, equipment, goods, services and other expenditires necessary for the registered project.or activity without which the registered project or activity cannot be carried out. " (Underscoring supplied)

For this purpose, under Questions No.13 and 14 of Revenue Memorandum Circular "RMCNo.24-2022 the Bureau clarified that the phrasedirect and exclusive usereferred to as:

"Q13: What is meant by direct and exclusive use in the regisired project or activity?

A13: Direct and exclusive use in the registered project or activity refers to raw materials, supplies, equipment, goods, packaging materiis, services, including

3 An Act Reforming the Corporate Income Tax and Incentives System, Amending for the Purpose Sections 20. 22.25.27.28.29.34.40.57.209.116.204 and 290 of the National Internal Revenue Code of 1997. as Amended. and Creating Therein New Title XIII. and for Other Purposes.March 26.2021. Implementing Rules and Regulations of Title XIII of Republic Act No. 8424.Otherwise Known as theNational internal Revenue Code of 1997.as Amended by Republic Act No.11534 cr the Corporate Recovery and Tax Incentives for EnterprisesCREATE) Act.June 22,2021 Clarifying Issues Relative to Revenue Regulations (RR) No. 21-2021 Imptementing the Amendments to the Value-Added Tax (VAT Zero Rating Provisioris Under Sections 106 and 103 of the National Internal Revenue Code of 1997 (Tax Code, in Relation to Sections 294(e) and 295(D),Title XIII of the Tax Code, Introduced by Republic Act 9R/A.) No.11534 (CREATE Act):and Section 5,Rule 2 and Section 5,Rule 18 of the CREATE Act Implementing Rules and Regulations (CREATE IRR). February 23. 2022

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equipment, and other expenditures directly attributable to the registered project or activity without which the registered project or activity cannot be carried out. provision of basic infrastructure, utilities, and maintenance, repair and overhaul of

XXX XXX XX

Ql4: What cost items fall under the "other expenditures " in the preceding question?

or activity of the export enterprise. " (Emphasis and underscoring supplied) which, the project or activity cannot proceed, and these include expenses that are necessary or required to be incurred depending on the nature of the registered project A14: These are costs that are indispensable to the project or activity, i.e., without

provision of basic infrastructure and other expenditures that is/will be directly and exclusively used in or attributable to the registered project or activity. Based on the afore-quoted provisions, purchases of ghods and services includes the

bridges, irrigation, sewerage and drainage systems. Thus, it ca be inferred that the intention long as the same is/will be directly and exclusively used in or attributable to the registered project or activity of an export enterprise. of the legislators is to include in the phrase goods and servicesany kind of infrastructure as Infrastructure, by definition, is wide and may pertain to facilities, buildings, road

the registered project or activity of an export enterprise. qualifies as to the use of the property, it can be deduced that the above rule covers purchase of that such building and/or structure is/will be directly and exclusively used in or attributable to real properties such as land where the building and/or structure will be constructed, provided Logically, and in the spirit of fairness and equality, considering that the law only

Property is/will be directly and exclusively used in the registered project or activity of FVCPI. manufacture of optical lenses will be constructed on the Property,it can be concluded that the Applied in this case, considering that FVCPI's office ard warehouse building for the

amended by RMC No.49-2022, summarizes the rules on sales of goods and services (which. as discussed above, real properties) by non-export locators or domestic market enterprises during the effectivity of the CREATE Law,viz DMEs and registered export enterprises to registered export enterprises both before and Taking into account the foregoing, Questions no. 17 and 18 of RMC No. 24-2022, as

Seller is registered prior to the effectivity of CREATE Eaw; Sale by Registered Non- Export Enterprises:

1.Sales by a registered non-export enterprise (under 5% SCIT regime to registered export enterprise, whether iniside or outside the Ecozone and Freeport Zone, shall its VAT-registered local suppliers shall form part of its cost or expenses. be VAT exempt only to the extent of the registered activity.The VAT passed on by

7 Amending Pertinent Portion of the Questions and Answers (Q&A) in Revenue Memorandum Circular (RMC) No.24-2022 to Align Them with the Provisions iof CREATE Act and its Irnplementing Rules and Regulations (RR, April 19, 2022 as the Government Procurement Reform Act, 2016. Section 5.Rule 1. Revised Implementing Rules and Regulations of Republic Act No. 9184. Otherwise Known

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2.Sales by a registered non-xport enterprise (under ITH regime) to a registered export enterprise shall be subject to VAT at zero-rate, provided the goods and services are directly and exclusively used int eh latter's registered project or activity.

Seller is registered during the effectivity of CREATE Iaw; Sale by Registered Non- Export Enterprises:

3. Sales to registered export enterprises are subject to VAT at zero-rate, provided the goods and services are directly and exclusively used in the latter's registered project or activity.

Sale by Registered Export Enterprises 4. Sales by registered export enterprise (under ITH regime; VAT-registered) to and services are directly and exclusively used in the latter's registered project or activity. another registered export enterprise is subject VAT at zero-rate,provided, the goods

5.Sales by registered export enterprise (under 5% SCIT regime) the sale of goods and or export service of the later, of at least seventy percent (70%) of its total production or output, shall be VAT-exempt. services, such as manufactured, assembled or process product or IT/BPO services to another registered export enterprise that will form part of the final export product

a registered export enterprise, shall be: Consequently, this Office hereby rules that the sale of the Property by SNS to FVCPI.

1.VAT-exempt, provided that:

a.SNS is non-export enterprise registered priof to the passage of the CREATE Law and under the five percent (5%SCIT regime; or b.SNS is a registered export enterprise under 5% SCIT regime.

Rule XIV, Rules and Regulations to Implenient Republic Act No. In lieu thereof, the same is liable to pay the five (5%) preferential rate on its gross income from said activities, pursuant to Section 1 (A of 7916.8

2.Subject to VAT at zero-rate percent, provided that the same is/will be directly and exclusively used in the registered project or activity, and:

a. SNS is a non-export enterprise registered pricr to the passage of the CREATE Law and under the ITH regime;

7916. Special Economic Zone Act of 1995, February 24. 1995. Rules and Regulations to Implement Republic Act No. 7916. IRR of RA 7916,May 17, 1995; Republic Act No.

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b. SNS is a non-export errterprise registered during the effectivity of the CREATE Law and under the ITH regime; or

c.If SNS is a VAT-registered export enterprise urder ITH regime

that whenever one party to the taxable document enjoys exemption from the documentary from the payment of DST on their transaction. Hence,the sale of the Property is exempt from DST. for the tax, it should be noted that FVCPI and SNS, being both PEZA-registered, are exempt stamp tax (DST), the other party thereto who is not exempt shall be the one directly liable Further,while Section 196 in relation to Section 173 of the Tax Code, states provides

investigation it shall be disclosed that the facts are different, then th s ruling shall be considered null and void. This ruling is issued on the basis of the foregoing facts as represented. However, if upon

Very truly yours.

MeejoMwa

Commisioner f mte * ?' "*3 CAESAR R. DULAY L

BIR Ruling No.523-17,November 9,2017

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