BIR Ruling No. 4-2020

Quezon City

0T-004-2020 Date: JA N 1 4 -2020

Department of Agriculture- Regional Ficld Office VI

Iloilo City Parola. Fort San Pedro Street

Attention: Remclvn R. Recoter

Executive Dircctor

Gentlemen:

This refers to your letter dated October 14, 2019 relative to the request by the Department of Agriculture-Regional Field Office 6 for legal opinion on the taxability of the sale of' 1.585 units of Collapsible Dryer made by GrainPro Phils., Inc., an cntity registered with the Subic Bay Metropolitan Authority (SBMA), to the Department of Agriculture, a buyer outside SBMA Frecport Zone.

In reply- please be informed that under Section 105 of the 1997 Tax Code. as

amended, any person who. in the course of trade or husincss. sells. barters. cxchanges.

Ieases goods or properties. renders services. and/or imports goods shall be subject to

the value-added tax (VAT) imposed under Sections 106 to 108 of the same Code. The

phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an cconomic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged thercin is a non-stock, non-

profit private organization (irrespective of the disposition of its net income and whether

or not it sells exclusively to members or their guests), or government cntity.

Notwithstanding the above provision, there are certain transactions which arc VAT-exempt or subject to zero percent (0%) VAT as may be provided under special laws. Under Section12 of Republic Act (R.A.) No.7227. as amended by RA No.9400.

otherwise known as the "Bases Conversion and Development Aet of 1992". it is provided that the Subic Special Economic Zone shall be considered as a separate

customs territory,viz:

"SEC.12.xxxexxx XxX

" The Subic Special Economic Zone shall he operated and manuged

us a seporute customs territory enstwring free flow or movement of goods and capitul within into and exported out of the Subic Special Economic Zone, us well as provide incentives such as tax and duty-free importations of_rawmaterials...capital and_cquipment.However.

exportation or removal of goods from the territory of the Subic Speciul Economic Zone to the other parts of the Philippine territory shall be suhject to customs duties cnd toxes umder the Tariff and Custons Code of the Philippines,us amended, the National Internal Revenue Code of 1997,as amended. and other relevant tux taws of the Philippines.

In dixcussing the nature of a "separate customs territory"the Supreme Court. in the case of Commissioner of luternal Reventeus.Seugute Technology (Philippines) fiction of foreign territory.The Court further stated thatTA/n ecozone ---induhitably G.R.153866 dated Fehruary 11.2005.held that in such zone is created the legal

u geographical territory of the Philippines---is,however,regarded in law us foreign

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Quczon City

Date: 0T-004-2020 JA 1 4-2020

Department of Agriculture- Regional Ficld Office VI Parola. Fort San Pedro Street Iloilo City

Attention: Remclyn R. Recoter Executive Dircctor

Gentlemen:

Of the sale of 1.585 units of Collapsible Dryer made by GrainPro Phits., Inc., an entity Department of Agriculture-Regional Field Office 6 for legal opinion on thc taxability registered with the Subic Bay Metropolitan Authority (SBMA), to the Department of Agriculture. a buyer outsidc SBMA Frceport Zone. This refers to your letter dated October 14. 2019 relative to the request by the

amended, any person who. in the coursc of trade or busincss. sells. barters. cxchanges. the value-added iax (VAT) imposed under Sections 106 to 108 of the same Code. The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an cconomic activity, including transactions incidental thereto. by any or not 'it sells exclusively to members or their guests), or government entity. teases goods or properties. renders services. and/or imports goods shall be subject to person regardless of whether or not the person engaged therein is a non-stock, non- profit private organization (irrespective of the disposition of its net income and whether In reply- please be informed that under Section 105 of the 1997 Tax Code, as

laws. Under Section12 of Republic Act(R.A.) No.7227. as amended by RA No.9400. otherwise known as the "Bases Conversion and Development Aet of' 1992". it is VAT-exempt or subiect to zero percent (0%) VAT as may be provided under special provided that the Subic Special Economic Zone shall be considered as a separate Notwithstanding the above provision, there are certain transactions which are

customs territory, viz.

"SEC.12.xxxxxx SXXX

Economic Zone to the other parts of the Philippine territory shall be suhject to customs duties andtoxes under the Taviff and Customs Code of thePhilippines,us anended the National Internal Revenue Code of as aseporate customs territory ensuring free flow or movement of goods importutiomsofrawmaterias..capital and cquipment.However and capital within, into and exported out of the Subic Special Economic Zone,-as well as provide incentives such as tax and duty-free exportation or removal of goods from the territory of the Subic Special " The Subic Special Economic Zone shall be operated and managed

1997.as amended. and other relevant tax lens of the Phitippines.

in the case of Commissioner of luternal Revenuevs.Seugate Technology (Philippines) G.R.153866 dated Fehruary11.2005.held that "in such zone is created the legal In discussing the nature of a "separate customs territory"the Supreme Court.

fiction of foreign territoryThe Court further statcd that(A/n ecozoue ---indubitably

a geographical territory of the Philippines---is,however,regarded iu law as foreign C

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Soit. This legal fiction is necessary to give meaningful effect to the policies of the speeial law creating the zone.

there is. likewise, the creation of a legal fiction that it is a foreign territory. Accordingly. consumption outside of the territorial border of the taxing authority. a separate customs territory in accordance with Scction 12 of RA 7227.as amended. deemed by fiction of law as export goods to a foreign territory or foreign soil. and therefore not within the customs territory. It is well to note that under the "Cross Border Doctrine", no VAT shall be imposed to form part of the cost of goods destined for goods that are destined for use or consumption within the Clark Freeport Zone are Accordingly, since the Subic Freeport Zone is being operated and managed as

within the Freeport Zones arc VAT-exempt or subject to zero percent (0%)VAT,as the consumption outside the Frecport Zones or within the customs territory. This has been case may be, ihe same rule does not apply to goods that are destincd for use or expounded under Revenue Memorandum Circular (RMC) No.74-99 dated October 15 1999 which provides: However. while it is true that goods that are destined for use or consumption

Registered Enterprisc. - "SECTION 5. Tax Treatment Of Sales Made By A PEZA

Sale of goods(i.c..merchandise).by aPEZA-registered enterprise, to a buver from the Customs Territory (i.c., domestic Salcs)

and regulations entitled "Rules and Regulations to Implement Republic Act No. 7916." The registered enterprise's "gross income rules and regulations: Provided. further. that for income tax Title IV and Title VI.NIRC. in relation to Sec.26,R.A.No.7916. as implemented by Scc.2. Rule VIII. PART V of the PEZA rules earned" therefrom shall be subject to the 5% special tax pursuant to Sec. 24 of R.A. No. 7916: Provided, however. that its sales in the Customs Territory do not exceed the threshold allowed or permitted Buver. Such Buver shall be treated as an importer thereof and shall he imposed with the corresponding import tax/es (i.c., VAT or VAT plus excise tax,as the casc may be), pursuant to Sec.107 for such sales: pursuant to the pcrtinent provisions of the PEZA purposes. if such sales should exceed the aforesaid threshold. its This case shall be treated as a technical importation made by the

income derived from such cxcess salcs shall be imposed with the

determined in accordance with the method of general from total sales equals net income from excess sales). Provided. furthcr. that in computing for the income tax due on such excess sales. its net income from such excess sales shall be apportionment pursuant to the provisions of Sec. 50, NIRC. (i.e.) income from such excess sales by general apportionment, as compute its total net income from total sales, then, compute its net follows: Excess sales divided by total sales times total net income normal income tax pursuant to the provisions of Title II, NIRC:

embraced by the 5%special tax regime governingPE/A-registered enterprises _pursuant to R.A. No. 7916. as implemented by the PEZA rules and regulations hence. such seller shall be subject to from the Customs Territory. -- This type of transaction is not (2) Sale of Services by a PEZA Registered Enterprise to a Buyer

: Section 2, Revenue Memorandum Circular No. 74-99

Pa ge 2 of 3

the 10% (now 12%) VAT._ pursuant to Section 108 or to_ the percentage taxpursuant to Title Vwhiehever is applicable,and to with the method of general apportionment provided in the immediately preceding paragraph. the normal income tax on income derived therefrom. pursuant to Title II.NIRC.Such income tax shall be computed in accordance

sales of goods, property and services made by PEZA-registered enterprises within PEZA-registered entities and SBMA-registered entities are similarly situated. that is.they are both located in a separate customs territory.Moreover,RMC No.50-07 enterprise to a buyer from the customs territory. to wit: and without the Ecozone. the same finds application in this case considering that atso clarified the tax treatment of the sale of goods by a Freeport Zone-registered Although the above RMC was issued to discuss the tax consequences of the

Customs Territory) from the customs territory? (i.c. from the Freeport Zone into ihe "Q8: What is the tax treatment of sale, barter or exchange of goods and propertics by Freeport Zone-registered enterprises to a buyer

corresponding import taxes and duties prior to release of the goods or merchandise from Customs custody. Any unpaid taxcs thereon. aside from being the primc liability of the buyer-importer, shall constitutc a licn on such goods or merchandise imported from the Freeport Zone. importation made by the buyer in the customs territory.The buyer shall be treated as the importer and shall be imposed the A8: The sale. barter or exchange shall be treated as a technical

Agriculture is treated as the importer thercof who shall-be liable for the applicable such a ease, the sale is considered a technical importation and the Department of taxes. ineluding VAr. enterprise to the Department of Agriculture. an entity outside the Freeport Zones. is subject to applicable taxes. ineluding VAT. under RMC Nos. 74-99 and 50-07. In Based on the foregoing. the sale of goods and services by a SBMA-registered

this ruling shall be considered null and void. However. if upon investigation. it will be ascertained that the facts are different. then This ruling is being issued on the basis of the foregoing facts as represented.

Very truly yours.

Commissioner of Internal Revenue CAESAR R. DULAY

034105