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1) There are two types of VAT exemptions - exempt transactions and exempt parties. Exempt transactions involve specifically exempted goods/services, while exempt parties are granted exemption under law.
2) PEZA-registered enterprises operating within economic zones are considered VAT-exempt parties, not because of their income tax holiday but because economic zones are treated as foreign territory.
3) Therefore, no VAT can be passed on to PEZA enterprises on sales made to them, as they are VAT-exempt parties according to the Cross Border Doctrine.
Descripción original:
a difference between an Exempt Transaction and an Exempt Party
1) There are two types of VAT exemptions - exempt transactions and exempt parties. Exempt transactions involve specifically exempted goods/services, while exempt parties are granted exemption under law.
2) PEZA-registered enterprises operating within economic zones are considered VAT-exempt parties, not because of their income tax holiday but because economic zones are treated as foreign territory.
3) Therefore, no VAT can be passed on to PEZA enterprises on sales made to them, as they are VAT-exempt parties according to the Cross Border Doctrine.
1) There are two types of VAT exemptions - exempt transactions and exempt parties. Exempt transactions involve specifically exempted goods/services, while exempt parties are granted exemption under law.
2) PEZA-registered enterprises operating within economic zones are considered VAT-exempt parties, not because of their income tax holiday but because economic zones are treated as foreign territory.
3) Therefore, no VAT can be passed on to PEZA enterprises on sales made to them, as they are VAT-exempt parties according to the Cross Border Doctrine.
An exempt transaction- involves goods or The Philippine VAT system
services which, by their nature, are adheres to the Cross Border specifically listed in and expressly exempted from the VAT under the Tax Code, without Doctrine, according to which, no regard to the tax status – VAT-exempt or not VAT shall be imposed to form part – of the party to the transaction… of the cost of goods destined for An exempt party - is a person or entity consumption outside of the granted VAT exemption under the Tax Code, territorial border of the taxing a special law or an international agreement to which the Philippines is a signatory, and by authority. Hence, actual export of virtue of which its taxable transactions goods and services from the become exempt from VAT (Commissioner of Internal Revenue v. Seagate Technology Philippines to a foreign country (Philippines) must be free of VAT; while, those destined for use or consumption It is now a settled rule that based on the Cross within the Philippines shall be Border Doctrine, PEZA-registered enterprises, imposed with ten percent (10%) such as Toshiba, are VAT-exempt and no VAT VAT. can be passed on to them. Applying said doctrine to the sale of goods, properties, and It is now a settled rule that based on the services to and from the Cross Border Doctrine, PEZA-registered ECOZONES, the BIR issued enterprises, such as Toshiba, are VAT-exempt Revenue Memorandum Circular (RMC) No. 74-99, on 15 October and no VAT can be passed on to them. The 1999. Of particular interest to the Court explained in the Toshiba case that – present Petition is Section 3 thereof, which reads – PEZA-registered enterprise, which would necessarily be located within SECTION ECOZONES, are VAT-exempt 3. Tax Treatment of entities, not because of Section 24 Sales Made by a of Rep. Act No. 7916, as amended, VAT Registered which imposes the five percent Supplier from the (5%) preferential tax rate on gross Customs Territory, income of PEZA-registered to a PEZA enterprises, in lieu of all taxes; but, Registered rather, because of Section 8 of the Enterprise. – same statute which establishes the fiction that ECOZONES are Q1 (1) If the Buyer territory. is a PEZA registered enterprise which is xxxx subject to the 5% special tax regime, in are subject to taxes lieu of all taxes, except under the NIRC rather real property tax, than the 5% special pursuant to R.A. No. tax regime: 7916, as amended: (a) Sale of (a) Sale of goods (i.e., goods (i.e., merchandise). – This merchandise). – This shall be treated as shall be treated as indirect export hence, indirect export hence, considered subject to considered subject to zero percent (0%) zero percent (0%) VAT, pursuant to Sec. VAT, pursuant to Sec. 106(A)(2)(a)(5), 106(A)(2)(a)(5), NIRC and Sec. 23 of NIRC and Sec. 23 of R.A. No. 7916 in R.A. No. 7916, in relation to ART. 77(2) relation to ART. 77(2) of the Omnibus of the Omnibus Investments Code. Investments Code. (b) Sale of (b) Sale of Service. – This shall service. – This shall be treated subject to be treated subject to zero percent (0%) zero percent (0%) VAT under the “cross VAT under the “cross border doctrine” of the border doctrine” of the VAT System, VAT System, pursuant to VAT pursuant to VAT Ruling No. 032-98 Ruling No. 032-98 dated Nov. 5, 1998. dated Nov. 5, 1998. (3) In the final (2) If Buyer is analysis, any sale of a PEZA registered goods, property or enterprise which is not services made by a embraced by the 5% VAT registered special tax regime, supplier from the hence, subject to taxes Customs Territory to under the NIRC, e.g., any registered Service enterprise operating in Establishments which the ecozone, regardless of the class goods, property or or type of the latter’s services to the benefit PEZA registration, is of the zero percent actually qualified and (0%) VAT for sales thus legally entitled to made to the the zero percent (0%) aforementioned VAT. Accordingly, ECOZONE all sales of goods or enterprises and shall property to such serve as sufficient enterprise made by a compliance to the VAT registered requirement for prior supplier from the approval of zero- Customs Territory rating imposed by shall be treated subject Revenue Regulations to 0% VAT, pursuant No. 7-95 effective as to Sec. of the date of the 106(A)(2)(a)(5), issuance of this NIRC, in relation to Circular. ART. 77(2) of the Omnibus Investments Indubitably, no output VAT Code, while all sales may be passed on to an ECOZONE of services to the said enterprise since it is a VAT-exempt enterprises, made by entity. x x x.[58] VAT registered suppliers from the Customs Territory, shall be treated A VAT-registered seller of goods and/or effectively subject to services who made zero-rated sales can claim the 0% VAT, pursuant tax credit or refund of the input VAT paid on its to Section 108(B)(3), purchases of goods, properties, or services NIRC, in relation to relative to such zero-rated sales, in accordance the provisions of R.A. with Section 4.102-2 of Revenue Regulations No. 7916 and the No. 7-95, which provides – “Cross Border Doctrine” of the VAT Sec. 4.102-2. Zero-rating. – system. (a) In general. - A zero-rated sale by a VAT-registered person, which is a This Circular taxable transaction for VAT purposes, shall serve as a shall not result in any output sufficient basis to tax. However, the input tax on his entitle such supplier of purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with these regulations. b. Purchases are evidenced by VAT invoices or receipts, whichever is The BIR, as late as July 15, 2003, when applicable, with shifted it issued RMC No. 42-2003, accepted VAT to the purchaser prior to the applications for credit/refund of input VAT on implementation of purchases prior to RMC No. 74-99, filed by RMC No. 74-99; and PEZA-registered enterprises which availed themselves of the income tax holiday. The BIR c. The supplier issues a sworn statement under answered Question Q-5(1) of RMC No. 42- penalties of perjury that it 2003 in this wise – shifted the VAT and declared the sales to the Q-5: Under Revenue Memorandum PEZA-registered Circular (RMC) No. 74-99, purchaser as taxable sales purchases by PEZA-registered in its VAT returns. firms automatically qualify as zero-rated without seeking prior For invoices/receipts issued upon the approval from the BIR effective effectivity of RMC No. 74-99, the October 1999. claims for input VAT by PEZA- 1) Will the OSS-DOF Center still registered companies, regardless of the accept applications from type or class of PEZA-registration, PEZA-registered should be denied. (Emphases ours.) claimants who were allegedly billed VAT by their suppliers before and during the effectivity of the RMC by issuing VAT invoices/receipts?
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A-5(1): If the PEZA-registered
enterprise is paying the 5% preferential tax in lieu of all other taxes, the said PEZA-registered Thus, the seller remains directly and legally taxpayer cannot claim TCC or liable for payment of the VAT, but the buyer refund for the VAT paid on bears its burden since the amount of VAT paid purchases. However, if the by the former is added to the selling price. taxpayer is availing of the income tax holiday, it can Once shifted, the VAT ceases to be a claim VAT credit provided: tax[30] and simply becomes part of the cost that the buyer must pay in order to purchase the a. The taxpayer-claimant good, property or service. is VAT-registered;