March 8, 2001

VAT RULING NO. 011-01

Sec 107 (A) 000-00

Joaquin Cunanan & Co.

14th Floor, Multinational Bancorporation Centre
6805 Ayala Avenue
Makati City

Attention: Atty. Alexander B. Cabrera

Partner
Tax Services Department

Gentlemen :

This refers to your letter dated April 8, 1999 requesting, on behalf of your client,
Master Foods Philippines, Inc. (MFPI), for a con rmation of your opinion that its sale of
goods to Duty Free Philippines and other duty free entities consummated outside the
Philippines is not subject to value-added tax (VAT).
It is represented that MFPI is a domestic corporation engaged in the business of
importing food products for local distribution; that it now intends to sell these
products to duty free entities (DFE), including Duty Free Philippines and/or entities
located in Special Economic Zones; that in order for the products to be competitively
priced, the DFEs wish to avail of their tax and duty free privileges in the importation
thereof; that MFPI, thus, proposes to sell the goods to DFEs while they are still in transit
or outside the Philippines so that the DFEs will acquire title over the goods before the
goods enter the Philippines; that if MFPI were to import the goods before selling the
same to DFEs, its price will not be competitive as this will include the costs of import
taxes; that in such case, it will not pursue this business activity; that on the other hand, if
this business activity will be feasible, MFPI will generate additional revenue on which
income taxes (and local business taxes) will be paid, hence, its feasibility will be
beneficial to the government.
In reply, please be informed that pursuant to Section 107(A) of the Tax Code of
1997, "there shall be levied, assessed and collected on every importation of goods a
value-added tax equivalent to ten percent (10%) based on the total value used by the
Bureau of Customs in determining tariff and customs duties, plus customs duties,
excise taxes, if any, and other charges, such tax to be paid by the importer prior to the
release of such goods from customs custody: Provided, That where the customs
duties are determined on the basis of the quantity or volume of the goods, the value-
added tax shall be based on the landed cost plus excise taxes, if any", such tax to be
imposed on the IMPORTERS thereof.
Nonetheless, if, under the instant case, the importer/consignee of the subject
goods to be imported is the Duty Free Philippines, the said importation is exempt from
taxes pursuant to Executive Order No. 46 as restored by FIRB Resolution No. 10-87 but
subject to the following conditions:

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 (1) The said exemption shall be limited only to taxes arising out of
merchandise imported/purchased abroad by the Duty Free
Philippines and subsequently sold by it through authorized tax and
duty free shops; and
(2) Operations of tax and duty free shops shall be restricted only to the two
international airports situated in Manila and Cebu.
Conversely, if the importer of the subject merchandise is the MFPI itself, then the
said importation is subject to VAT. TIESCA

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

Very truly yours,

(SGD.) RENE G. BAÑEZ

Commissioner of Internal Revenue

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