THE separate customs territory (SCT) treatment for economic zones, which makes locator-registered business enterprises (RBEs) VAT-exempt entities by virtue of the cross-border doctrine (CBD) and destination principle in taxation, shall still apply despite conflict between the implementing rules and regulations (IRR) of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law and a memorandum circular of the Bureau of Internal Revenue (BIR).
Director General Tereso O. Panga of the Philippine Economic Zone Authority (Peza) made this clear, as he pointed out that the SCT status is a “unique selling point of ecozones to investors.”
“As to whether or not the separate customs territory (SCT) status vested in the ecozones has been rendered ineffectual by the CREATE IRR and BIR RMCs, the [Office of the Solicitor General] OSG has sustained Peza’s position that the SCT treatment for the ecozones—which makes the locator RBEs VAT-exempt entities by virtue of the cross-border doctrine and destination principle in taxation—are still applicable despite the conflicting provisions of the CREATE IRR and BIR RMC 24-2022,” Panga said in his social media post.
The PEZA chief noted that the [Office of the Government Corporate Counsel] OGCC also rendered the same opinion in favor of Clark Freeport’s locator companies.
With this, Panga said, “It is clear that the SCT accorded to the ecozones as originally contained in the PEZA law (including Clark and Subic Freeport authorities, et al) and retained in the CREATE law did not render inoperative the CBD for VAT purposes.”
Panga said since it is only the CREATE IRR and BIR RMC provisions that made such a ruling, the same are “inconsistent” with the CREATE.
Section 293(F) of the CREATE law states that Freeport zones “refer to an isolated and policed area adjacent to a port of entry, which shall be operated and managed as a separate customs territory to ensure free flow or movement of goods…”
By virtue of the SCT vested in the ecozones, Panga said, “no VAT will apply particularly on eligible goods/services purchased by export-oriented RBEs from the local market including those imported from abroad and brought/consumed inside the ecozones.”
“Since the SCT provision was retained in the CREATE, the CBD and destination principle in taxation are no doubt valid and enforceable for qualified transactions of ecozone RBEs,” the Peza chief also noted.
In relation to Panga upholding the SCT provision the PEZA law which was retained in the CREATE law, he emphasized that “recognizing the ecozones as SCTs is most crucial to PEZA’s attraction and facilitation of investments.”
In particular, he said, the cross border doctrine and destination principle in taxation are applied to locators’ transactions/movement of goods owing to the SCT status of ecozones.
As a result, the Peza chief said locators get to enjoy additional incentives on top of their income tax holiday and special tax rates such as tax and duty-free importation, zero-VAT rating on local purchases, and VAT exemption on inter-zone sales/constructive exportations.
“Given the freeport status accorded to ecozones, locators are able to avail of Peza electronic import/export permits and joint Peza-BOC automated systems on customs clearing (i.e., super green lane treatment for ecozone shipments),” Panga said.
This “long-standing” rule on SCT placing the ecozone under the investment promotion agencies’ (IPAs) supervision and the grant of zero VAT-rating and VAT exemption incentives have been the “selling point” of Peza and other free port authorities in attracting investors to locate in their ecozones, he added.
“We see the same best practice across ecozones/freeports worldwide including our competitors in Asean, which allow for goods introduced into said areas as deemed tax- and duty-free. As such, any attempt to remove these unique incentives and features of the ecozones will surely impact on Peza as an investment promotion agency and the country’s competitiveness as an investment destination,” Panga stressed.
Ecozone RBEs still enjoy SCT status, says PEZA chief
Source: News Paper Radio
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