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REVENUE

MEMORANDUM ORDER NO. 9-2000 issued March 29, 2000 prescribes the
conditions for the automatic zero-rating of sales of goods, properties and services made by
VAT-registered suppliers to BOI-registered manufacturers-exporters with 100% export
sales, to wit: 1) the supplier must be VAT-registered; 2) the BOI-registered buyer must
likewise be VAT-registered; 3) the buyer must be a BOI-registered manufacturer/producer
whose products are 100% exported as certified by the BOI; 4) the BOI-registered buyer
shall furnish each of its suppliers with a copy of the BOI Certification; and 5) the VAT-
registered supplier shall issue for each sale to BOI-registered manufacturer/exporters a
duly-registered VAT invoice with the words "zero-rated" stamped thereon.

VAT; Sale to BOI-registered supplies; Implications - Section 3 of RMO No. 9-2000
provides that sales of goods, properties, or services made by a VAT-registered supplier to a
BOI-registered exporter shall be accorded automatic zero-rating, i.e., without necessity of
applying for and securing approval of the application for zero-rating as provided in Revenue
Regulations No. 7-95.

1. Since IPMI is a BOI-registered enterprise and at the same time a VAT-registered
taxpayer as shown by its Certificate of Registration No. EP-97-319 duly issued by
the Board of Investments as a 100% exporter and Certificate of Registration No.
000-125-079 duly issued by the Bureau of the Internal Revenue while its supplier,
HPPC, is likewise a VAT-registered company with VAT Registration No. 003-956-
294-000, in accordance with the aforementioned conditions of RMO 9-2000, the sale
by HPPC of home PCs to IPMI shall be subject to zero-percent (0%) VAT pursuant to
Section 3 of RMO No. 9-2000.

2. Section 3(1) (a) of RMC No. 74-99 provides that sales made by a VAT-registered
supplier to a PEZA- registered enterprise shall be subject to zero-percent (0%) VAT
pursuant to Section 106(A)(2)(a)(5) of the Tax Code of 1997 and Section 23 of RA
No. 7916. The sale by HPPC of home PCs to ITPI, a PEZA-registered enterprise shall
be subject to zero-percent (0%) VAT pursuant to Section 106(A)(2)(a)(5) of the Tax
Code of 1997 as clarified in RMC No. 74-99. However, the VAT Registration of ITPI is
considered as an erroneous registration, thus, ITPI is not entitled to input taxes on
its purchases of home PCs from HPPC.

3. As represented, IPMI and ITPI shall grant home Personal Computers to the
employees in consonance with the objective to develop, improve internet, e-
business and PC skills and likewise to advance Intel products to the said employees
and their families. Thus the grant of said benefits is necessary to the trade or
business of IPMI and ITPI. However, since there is no clear showing on whether or
not ownership to said personal computers shall be immediately transferred to the
employees the following the tax implications:

(a) If ownership and possession is transferred to the employees, the grant to
managerial and supervisory employees is subject to the fringe benefits tax
(FBT) imposed under Section 33 of the Tax Code of 1997, as implemented by
Revenue Regulations No. 3-98 while those granted a rank-and-file
employees shall be subject to the tax imposed under Section 24(A)(1)(c) of
the same Code and, consequently, to the withholding tax on compensation
under Revenue Regulations No. 2-98, the valuation of which shall be the
entire acquisition cost of the computers. In this case, the value of the

benefits consisting of the acquisition cost of the computers shall be taken up


under the Fringe Benefits expense account, not capitalized, and, therefore,
not subject to depreciation.

(b) If ownership over said computers is retained by IPMI and ITPI and only
the right of usufruct is transferred to the employees, it is our opinion that
50% of the monetary value of said benefit is subject to the FBT, if granted to
the managerial and supervisory employees, or to the withholding tax on
compensation in the case of the rank-and-file employees, applying by
analogy the rules on the FBT imposed on the grant of motor vehicles under
Sec. 2.33(B)(3)(e) of Revenue Regulations No. 3-98.

While computers, and other office equipment, do not exactly belong to the category of
motor vehicles, yet the application of the FBT rule on motor vehicles, which are not entirely
used in business, in so far as company-owned equipment are concerned, is in order, for both
are similarly situated. Corollary to this, generally accepted accounting principles dictate that
the acquisition cost of the computers shall be capitalized and subjected to the periodic
depreciation charges which are allowable as deductions for income tax purposes, together
with the fringe benefits tax paid thereon. (BIR Ruling No. 074-2000 dated December 22,
2000)