As we recall, the Bureau of Internal Revenue (BIR) has issued Revenue Regulations No. 3-2023, which removes the requirement for local suppliers of goods and services to Registered Export Enterprises (REEs) and other entities to secure prior approval for VAT zero-rate with the BIR.

It also emphasized that in order to qualify for VAT zero-rating, the local purchases of the REE must be directly and exclusively used in the registered project or activity and be excluded in the negative list provided in Revenue Regulations No. 3-2023. If falling within the negative list, the REE is not precluded from further proving, with supporting evidence, to the concerned IPA that such goods and/or services are indeed directly and exclusively used in the registered project or activity. In addition, in the case of health maintenance organization (HMO) plans acquired by REEs for employees directly and exclusively involved in their registered projects or activities and forming part of their compensation package, they shall be considered "directly and exclusively used" in the registered project or activity of the REE. Moreover, if the purchased goods or services are used in both the registered project or activity and administrative operations, REEs shall adopt an allocation method to best apportion the same. Otherwise, if a proper allocation cannot be determined, the purchase of goods and services shall be subject to twelve percent (12%) VAT.

Further, it was also discussed that all VAT zero-rating applications, with accompanying VAT zero-rating certification issued by the concerned IPA, received but not yet acted upon by the BIR prior to April 28, 2023, shall be granted VAT zero-rating treatment from the date of filing of such an application subject to the abovementioned post-audit investigation and verification by the BIR.

The provisions of Revenue Regulations No. 3-2023 baffled some of the taxpayers; hence, the BIR issued Revenue Memorandum Circular No. 80-2023 to supply further clarifications.

The said circular, noted specifically on question no. 15 the documentary requirements needed to be secured by the local supplier of goods and/or services granted with VAT zero-rate incentives under special laws and international agreements for VAT zero-rating for the supplier of Renewable Energy Developer. It was stated therein that the VAT zero-rating shall apply only to the sale of goods, properties, and services for the development, construction, and installation of the RE Developer's power plant facilities done within the ecozone. This includes the whole process of exploring and developing renewable energy sources up to their conversion into power, including, but not limited to, the services performed by subcontractors and/or contractors. With this, it connotes that the said requirements still pertain to the directly related expenses incurred thereto. This discussion of other entities, particularly for the supplier of RE Developer, takes a conflicting stand with the revised CREATE IRR since it accentuates what transactions are subject to 0% VAT and enumerates expenses that would fall under the phrase "directly and exclusively used."

Considering the ambiguity of the provisions in relation to the revised CREATE IRR, we hope that the BIR will issue a circular that will finally address the vague areas and concerns faced by taxpayers.



P&A Grant Thornton

Certified Public Accountants

P&A Grant Thornton is the Philippine member firm of Grant Thornton International Ltd.


As published in SunStar Cebu, dated 02 September 2023