Tuesday, May 20, 2008 Tax notes: VAT on trade fair sales by Peza firms
A COMPANY registered with the Philippine Economic Zone Authority (Peza) that has sold some of its products to its employees and to customs territory buyers during a trade fair organized by the ecozone shall be liable to the customs duties and the applicable internal revenue taxes such as value-added tax (VAT).
The court rejected the argument that these were technical importations for which the buyer shall be liable to the applicable taxes and duties.
Section 5 of Rule VIII of the Peza rules requires that domestic sales be subject to all applicable rules and regulations, including the payment of customs duties and internal revenue taxes. Section 3, Rule X of the same rules provides that merchandise or goods may be taken into or brought out of the restricted areas of the ecozones only upon prior approval or permit by the Peza in accordance with its documentation and security procedures.
Hence, domestic sales are allowed, subject to certain conditions to be complied with by the Peza entity, particularly regarding the payment of taxes and duties and the documents required for the entry and exit of goods to and from the restricted areas. (CS Garments Inc. v. Commissioner of Internal Revenue, CTA EB No. 287 re: CTA Case No. 6520, Jan.
14, 2008)
Although the company presented supporting documents to prove that said local sales were in fact importations by the buyers from the customs territory, these were not adequate.
The Informal Import Entry Declaration was undated and in the name of “Peza Trade Fair.” The Bureau of Customs (BOC) official receipt for the duties and taxes paid on the importation as well as the application for permit to bring goods from the zone into the customs territory were both in the name of the Peza entity as consignee.
The documents do not correspond to the taxable period in question.
In addition, sales to employees cannot be considered importations because Peza rules have specific provisions regarding “sales to employees” requiring prior written permission from the Peza, and this was not secured by the company.
The term “customs territory” shall mean the national territory of the Philippines outside of the proclaimed boundaries of the ecozones, except those areas specifically declared by other laws and/or presidential proclamations to have the status of special economic zones and/or free ports. (Source: Punongbayan & Araullo)
