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REVENUE MEMORANDUM CIRCULAR NO.

74-99
SUBJECT : Tax Treatment of Sales of Goods, Property and Services Made by
a Spplier from t!e Cstoms Territory to a PE"# $e%istered Enterprise& and Sale
Transactions Made by PE"# $e%istered Enterprises 'it!in and 'it!ot t!e
EC("()E
T( : #ll *nternal $evene (+cers and (t!ers Concerned
SECT*() ,- Scope- . T!is Circlar is bein% issed to consolidate and !armoni/e all
t!e pertinent tax la0s and t!eir correspondin% implementin% rles and re%lations
in respect of sales of %oods, property and services to and from t!e EC("()ES, in
relation to t!e provisions of $-#- )o- 12,3, as amended by $-#- )o- 4154, entitled
6T!e Special Economic "one #ct of ,2276 0!ic! created t!e P!ilippine Economic
"one #t!ority 8PE"#9- cdasia
SECT*() :- Bac;%rond- . *n %eneral, enterprises re%istered and operatin% nder
t!e said #ct, ot!er0ise ;no0n as EC("()E or PE"# re%istered enterprises, s!all
only be imposed 0it! a 7< special tax, based on 6%ross income earned6 in lie of all
taxes, except t!e real property tax- =o0ever, t!is tax incentive only applies in
respect of t!e re%istered enterprise>s operations 0it!in t!e EC("()E- T!e
EC("()ES 6are selected areas 0it! !i%!ly developed or 0!ic! !ave t!e potential to
be developed into a%ro?indstrial, indstrial torist@recreational, commercial,
ban;in%, investment and Anancial centers- #n EC("()E may contain any or all of
t!e follo0in%: indstrial estates, export processin% /ones, free trade /ones, and
torist@recreational centers-6 8SEC- 5 8a9, $-#- )o- 12,39- T!e EC("()E 6s!all be
mana%ed and operated by t!e PE"# as a separate cstoms territory-6 8SEC- 4, id-9
T!e term 6Cstoms Territory6 means 6t!e national territory of t!e P!ilippines otside
of t!e proclaimed bondaries of t!e EC("()ES except t!ose areas speciAcally
declared by ot!er la0s and@or presidential proclamations to !ave t!e stats of
special economic /ones and@or free ports-6 8Sec- , 8%9, PE"# $les and $e%lations9-
Generally, prodcts manfactred or prodced 0it!in t!e EC("()E are destined for
export to forei%n contries- '!ile sc! prodcts, nder certain conditions, may also
be sold to byers in t!e Cstoms Territory, i-e-, otside t!e EC("()E, sc! sales are
tec!nically considered as importation by sc! byer from t!e Cstoms Territory-
Since t!e EC("()E is tec!nically treated as anot!er separate Cstoms Territory,
t!e byer is treated as an importer and is imposed 0it! t!e correspondin% import
taxes and cstoms dties on !is prc!ase of prodcts from 0it!in t!e EC("()E-
'!ile all EC("()E enterprises are not necessarily manfactrer?exporters of
prodcts considerin% t!at t!ere are also service enterprises re%istered as EC("()E
enterprises, !o0ever, ta;en as a 0!ole, all t!eir inte%rated activities eventally
translate into manfactred prodcts 0!ic! are eit!er actally exported to forei%n
contries, in 0!ic! case, no B#T mst form part of its export price& or actally sold
to byers from t!e Cstoms Territory, in 0!ic! case, ,C< B#T s!all be paid t!ereon
by sc! byers, consistent 0it! t!e 6Cross Border Doctrine6 of t!e B#T system-
EexEib
T!e P!ilippines> Bale #dded Tax 8B#T9 la0 ad!eres to t!e 6Cross Border Doctrine6 of
t!e B#T System, 0!ic! basically means t!at no B#T s!all be imposed to form part of
t!e cost of %oods destined for consmption otside of t!e territorial border of t!e
taxin% at!ority- =ence, actal export of %oods and services from t!e P!ilippines to
a forei%n contry mst be free of t!e B#T- Conversely, t!ose destined for se or
consmption 0it!in t!e P!ilippines s!all be imposed 0it! t!e ,C< B#T- #ccordin%ly,
interpretation of t!e provisions of t!e B#T la0 !as been !armoni/ed 0it! t!e 6Cross
Border Doctrine6-
SECT*() F- Tax Treatment (f Sales Made By # B#T $e%istered Spplier Grom T!e
Cstoms Territory, To # PE"# $e%istered Enterprise- .
8,9 *f t!e Byer is a PE"# re%istered enterprise 0!ic! is sbHect to t!e 7< special
tax re%ime, in lie of all taxes, except real property tax, prsant to $-#- )o- 12,3,
as amended:
8a9 Sale of %oods 8i-e-, merc!andise9- . T!is s!all be treated as indirect export
!ence, considered sbHect to /ero percent 8C<9 B#T, prsant to Sec- ,C38#98:98a9
879, )*$C and Sec- :F of $-#- )o- 12,3, in relation to #$T- 118:9 of t!e (mnibs
*nvestments Code-
8b9 Sale of service- . T!is s!all be treated sbHect to /ero percent 8C<9 B#T
nder t!e 6cross border doctrine6 of t!e B#T System, prsant to B#T $lin% )o-
CF:?24 dated )ov- 7, ,224-
8:9 *f Byer is a PE"# re%istered enterprise 0!ic! is not embraced by t!e 7<
special tax re%ime, !ence, sbHect to taxes nder t!e )*$C, e-%-, Service
Establis!ments 0!ic! are sbHect to taxes nder t!e )*$C rat!er t!an t!e 7<
special tax re%ime:
8a9 Sale of %oods 8i-e-, merc!andise9- . T!is s!all be treated as indirect export
!ence, considered sbHect to /ero percent 8C<9 B#T, prsant to Sec- ,C38#98:98a9
879, )*$C and Sec- :F of $-#- )o- 12,3 in relation to #$T- 118:9 of t!e (mnibs
*nvestments Code-
8b9 Sale of Service- . T!is s!all be treated sbHect to /ero percent 8C<9 B#T
nder t!e 6cross border doctrine6 of t!e B#T System, prsant to B#T $lin% )o-
CF:?24 dated )ov- 7, ,224-
F- *n t!e Anal analysis, any sale of %oods, property or services made by a B#T
re%istered spplier from t!e Cstoms Territory to any re%istered enterprise
operatin% in t!e eco/one, re%ardless of t!e class or type of t!e latter>s PE"#
re%istration, is actally IaliAed and t!s le%ally entitled to t!e /ero percent 8C<9
B#T- #ccordin%ly, all sales of %oods or property to sc! enterprise made by a B#T
re%istered spplier from t!e Cstoms Territory s!all be treated sbHect to C< B#T,
prsant to Sec- ,C38#98:98a9879, )*$C, in relation to #$T- 118:9 of t!e (mnibs
*nvestments Code, 0!ile all sales of services to t!e said enterprises, made by B#T
re%istered sppliers from t!e Cstoms Territory, s!all be treated eJectively sbHect
to t!e C< B#T, prsant to Section ,C48B98F9, )*$C, in relation to t!e provisions of
$-#- 12,3 and t!e 6Cross Border Doctrine6 of t!e B#T system- Cdpr
T!is Circlar s!all serve as a s+cient basis to entitle sc! spplier of %oods,
property or services to t!e beneAt of t!e /ero percent 8C<9 B#T for sales made to
t!e aforementioned EC("()E enterprises and s!all serve as s+cient compliance
to t!e reIirement for prior approval of /ero?ratin% imposed by $evene
$e%lations )o- 1?27 eJective as of t!e date of t!e issance of t!is Circlar-
SECT*() 5- Tax Treatment (f Sales Made By # B#T?Exempt Spplier Grom T!e
Cstoms Territory, To # PE"# $e%istered Enterprise- . Sale of %oods, property and
services by B#T?Exempt Spplier from t!e Cstoms Territory, to a PE"#?re%istered
enterprise s!all be treated exempt from B#T, prsant to Sec- ,C2, in relation to
Sec- :F3, )*$C, re%ardless of 0!et!er or not t!e PE"# re%istered byer is sbHect to
taxes nder t!e )*$C, or enHoyin% t!e 7< special tax re%ime, or a re%istered
manfactrer?exporter t!e 6Cross Border Doctrine6 of t!e B#T System to t!e
contrary not0it!standin%-
SECT*() 7- Tax Treatment (f Sales Made By # PE"# $e%istered Enterprise- .
8,9 Sale of %oods 8i-e-, merc!andise9, by a PE"#?re%istered enterprise, to a byer
from t!e Cstoms Territory 8i-e-, domestic sales9- . T!is case s!all be treated as a
tec!nical importation made by t!e Byer- Sc! Byer s!all be treated as an
importer t!ereof and s!all be imposed 0it! t!e correspondin% import tax@es 8i-e-,
B#T or B#T pls excise tax, as t!e case may be9, prsant to Sec- ,C1, Title *B and
Title B*, )*$C, in relation to Sec- :3, $-#- )o- 12,3, as implemented by Sec- :, $le
B***, P#$T B of t!e PE"# rles and re%lations entitled 6$les and $e%lations to
*mplement $epblic #ct )o- 12,3-6 T!e re%istered enterprise>s 6%ross income
earned6 t!erefrom s!all be sbHect to t!e 7< special tax prsant to Sec- :5 of $-#-
)o- 12,3: Provided, !o0ever, t!at its sales in t!e Cstoms Territory do not exceed
t!e t!res!old allo0ed or permitted for sc! sales, prsant to t!e pertinent
provisions of t!e PE"# rles and re%lations: Provided, frt!er, t!at for income tax
prposes, if sc! sales s!old exceed t!e aforesaid t!res!old, its income derived
from sc! excess sales s!all be imposed 0it! t!e normal income tax prsant to t!e
provisions of Title **, )*$C: Provided, frt!er, t!at in comptin% for t!e income tax
de on sc! excess sales, its net income from sc! excess sales s!all be
determined in accordance 0it! t!e met!od of %eneral apportionment prsant to
t!e provisions of Sec- 7C, )*$C, 8i-e-, compte its total net income from total sales,
t!en, compte its net income from sc! excess sales by %eneral apportionment, as
follo0s: Excess sales divided by total sales times total net income from total sales
eIals net income from excess sales9-
8:9 Sale of Services by a PE"# $e%istered Enterprise to a Byer from t!e Cstoms
Territory- . T!is type of transaction is not embraced by t!e 7< special tax re%ime
%overnin% PE"#?re%istered enterprises prsant to $-#- )o- 12,3, as implemented
by t!e PE"# rles and re%lations !ence, sc! seller s!all be sbHect to t!e ,C<
B#T, prsant to Section ,C4 or to t!e percenta%e tax, prsant to Title B,
0!ic!ever is applicable, and to t!e normal income tax on income derived t!erefrom,
prsant to Title **, )*$C- Sc! income tax s!all be compted in accordance 0it!
t!e met!od of %eneral apportionment provided in t!e immediately precedin%
para%rap!-
8F9 Sale of Goods, by a PE"# $e%istered Enterprise, to #not!er PE"# $e%istered
Enterprise 8i-e-, *ntra EC("()E Sales of Goods9- . *ts sale of %oods or property to
anot!er /one enterprise s!all be exempt from B#T, prsant to Sec- ,C28I9, )*$C,
in relation to Sec- :5, $-#- 12,3, as implemented by Sec- ,, $le B***, P#$T B, of t!e
PE"# implementin% rles and re%lations-
859 Sale of Service by EC("()E Enterprise, to #not!er EC("()E Enterprise
8*ntra EC("()E Enterprise Sale of Service9:
8a9 *f PE"#?$e%istered Seller is SbHect to t!e 7< Special Tax $e%ime- . Exempt
from B#T or any percenta%e tax, prsant to Sec- :5, $-#- 12,3-
8b9 *f PE"#?$e%istered Seller is SbHect to Taxes Under t!e )*$C - . SbHect to
/ero percent 8C<9 B#T prsant to t!e 6Cross Border Doctrine6 of t!e B#T system,
re%ardless of t!e type or class of PE"# re%istration of t!e PE"# enterprise- Byer,
since t!e se for or beneAt from sc! prc!ase of service s!all eventally be
translated to actal export of %oods 8i-e-, s!ipment of %oods to a forei%n contry,
0!ic! is sbHect to /ero percent 8C<9 B#T, or translated into tec!nical export of
%oods 8i-e-, sale of %oods to a byer from t!e Cstoms Territory, 0!ic! is treated as
importation by sc! byer, !ence, sbHect to ,C< B#T a%ainst t!e said byer9-
SECT*() 3- $epealin% Clase- . #ny B*$ $lin%, if inconsistent !ere0it!, is !ereby
considered amended, modiAed or revo;ed accordin%ly- cdlex
8SGD-9 BEET=(BE) E- $U#E(
Commissioner of *nternal $evene