Brigitta: Are we really going to sing for a whole lot of people tonight?
Uncle Max: Of course. Look, The Von Trapp Family Singers. Here are your names: Liesl,
Friedrich, Louisa, Brigitta, Kurt, Marta and Gretl.
Gretl: Why am I always last?
Uncle Max: Because you are the most important.
This is a scene from The Sound of Music, a classic film based on a true story of the Von Trapp Family Singers, a world-renowned concert group in the pre-World War II era.
Throughout the movie, whenever the Von Trapp children would perform, Gretl, the youngest, would always be the last to be introduced. In what can only be sensed as frustration, Gretl asked why this was always so. But in a reassuring tone, Max, Captain von Trapp’s older brother, said that this is because she is the most important, to which Gretl oohed gleefully. True enough, Gretl is essential in every performance. It is hard to imagine a So Long, Farewell number without Gretl singing: “The sun has gone to bed and so must I.”
In tax practice, the last regulation, memorandum circular, ruling, etc. issued by the tax authorities is often the most important because it consolidates and clarifies the changes brought about by amendments of the Tax Code. Thus, it is important to keep abreast with the latest revenue issuances.
Following the enactment of the TRAIN Law in 2018 and the CREATE Act in 2021, several issuances have been released by the Department of Finance and the Bureau of Internal Revenue (BIR) to implement and clarify the changes in our VAT rules, especially those on VAT zero-rated transactions.
On 7 December 2021, Revenue Regulations (RR) No. 21-2021 was issued further amending the Consolidated VAT Regulations of 2005 (RR No. 16-2005), providing a seemingly reduced enumeration of transactions that may qualify for VAT zero-rating. RR No. 16-2005, as amended, now provides that the following sales of VAT-registered persons shall be subject to zero percent VAT:
a. Export sales which shall refer to: (1) sale and actual shipment and goods from the Philippines to a foreign country paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP); and (2) sale of goods, supplies, equipment, and fuel to persons engaged in international shipping or international air transport operations; Provided, that the goods, supplies, equipment, and fuel shall be used exclusively for international shipping or air transport operations.
b. Sales to persons or entities whose exemption from direct and indirect taxes under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate.
c. Sale of raw materials, inventories, supplies, equipment, packaging materials, and goods, to a registered export enterprise, to be used directly and exclusively in its registered project or activity.
d. Services other than processing, manufacturing, or repacking of goods rendered to a person engaged in business conducted outside the Philippines when the services are performed, the consideration for which is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP.
e. Sales rendered to persons or entities whose exemption from direct and indirect taxes under special laws or international agreements to which the Philippines is a signatory, effectively subjects the supply of such services to zero percent rate.
f. Sale of services, including provision of basic infrastructure, utilities, and maintenance, repair, and overhaul of equipment, to a registered export enterprise.
g. Services rendered to persons engaged in international shipping or air transport operations, including leases or property for the use thereof: Provided that these services shall be exclusively for international shipping or air transport operations.
h. Transport of passengers and cargos by domestic air or sea vessels from the Philippines to a foreign country.
i. Sale of power or fuel generated through renewable sources of energy such as, but not limited to, biomass, solar, wind, hydropower, geothermal and steam, ocean energy, and other emerging sources using technologies such as fuel cells and hydrogen fuels: Provided, however that zero-rating shall apply strictly to the sale of power or fuel generated through renewable sources of energy and shall not extend to sale of services related to the maintenance or operation of plants generating said power.
As expected, the release of RR No. 21-2021 raised some issues, specifically those pertaining to its effectivity and VAT treatment of transactions entered by registered export enterprises.
Thus, on 9 March 2021, the BIR issued a 40-item Q&A in the form of Revenue Memorandum Circular (RMC) No. 24-2022 to provide clarification on the following matters:
a. Rules which will apply upon effectivity of the CREATE Act;
b. Effectivity and transitory provisions in relation to RR No. 21-2021;
c. VAT treatment of sale to registered export enterprises upon effectivity of the CREATE Act;
d. Taxability of existing export enterprises registered prior to the CREATE Act;
e. Application for VAT zero-rating; and
f. Refund by local suppliers and recovery of input VAT passed on to registered export enterprises.
Without RMC No. 24-2022, which as of this writing is the latest issuance concerning VAT, many taxpayers would be at risk of misinterpreting the changes in the rules and be exposed to possible deficiency tax findings. In a time where the economy is slowly recovering from the effects of the COVID-19 pandemic, due diligence must be exercised to avoid such risks. This includes staying informed. Thankfully, while Philippine tax rules are very dynamic, the BIR has made being up to date with the most recent revenue issuances easier by making these easily accessible in its website. Likewise, KPMG, as a top-tier tax service provider also makes sure that our clients are timely and adequately informed of the recent issuances not only by the tax authorities but also by other government agencies.
Julius Patrick C. Acosta is a Manager from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.
The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.