BIR Ruling 032-98

Facts:
Shimizu was contracted to build TPCs
factory plant in Phil. Economic Zone (PEZ)
in Sta. Rosa, Laguna. TPC is registered
with PEZA as an Export Enterprise. BIR
Ruling 033-96 held that sales of services
by a VAT-registered person to PEZA-
registered business establishments
operating in the PEZ shall be entitled to
zero percent (0%) VAT.

Held:

TPCs products are exported outside the
Philippines, therefore, it is entitled to zero
percent (0%) VAT.

Sec. 108(B)(3) states that services
rendered to persons or entities whose
exemption under special laws or
international agreements to which the
Philippines is a signatory effectively
subjects the supply of such services to zero
percent (0%) rate.

Above quoted provision is implemented by
RR 7-95 which provides that Effectively
zero-rated sale of services shall refer to
sale by a VAT-registered person to a
person or entity who was granted indirect
tax exemption under special laws, or
international agreements. It shall be
limited to the local sale of services to
persons or entities who enjoy exemptions
from indirect taxes.

VAT zero-rating used when authorities
really wish to ensure that a product is to
be free of VAT. Used when countries
generally wish to pass on to the consumer
the benefits of VAT-free goods and
services.

VAT exemption tax is borne by the
trader, and if that trader sells to the public,
he must pass on the tax on input to the
public in his price or cut payments to his
factors of production (capital and labor)

EO No. 273 (VAT Law of the Phils.) adheres
to the Consumption Type VAT Regime and
in general, follows the destination principle.
The onus of taxation under our VAT
System is in that country where the goods,
property or services are destined, used or
consumed. Thats why imports are
subjected to 10% VAT and exports are
subjected to 0% VAT.

Enterprises under the Export Processing
zone are considered qualified for effective
zero rated VAT considering that their
export products are destined for use or
consumption outside the Philippines and
such export products must be free from
VAT which otherwise are indirectly passed
on by suppliers of goods, property or
services.

Imperial vs. Collector

Facts:
The CIR was ordered to refund P637.50
from Imperial as real estate dealers tax
plus P50 as compromise.

Imperial owned a 9-door camarin in Albay
which he leased to 3 merchants for P6,240
a year. He was a Senator-at-large and
Minister in a foreign country, the exercise
of the duties of which required the greater
part of his time and his absence from the
Philippines.

Held:
There was no proof that Imperial was
engaged in leasing real estate. To
engage is to embark in a business or to
employ oneself therein.