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BIR Clarifies the Tax Treatment for the Importation of Petroleum and Petroleum Products through and from Freeport Zones and Economic Zones.

On 26 May 2022, the Bureau of Internal Revenue (“BIR”) has issued Revenue Regulations (“RR”) No. 4-2022 to implement Section 295 (F), in relation to Section 294, both of the National Internal Revenue Code (“NIRC”) of 1997, as amended by Republic Act (“RA”) No. 11534 (Corporate Recovery and Tax Incentives for Enterprises [“CREATE Act”]). 

Upon effectivity of the CREATE Act, the importation of petroleum and petroleum products into the Freeport Zones and Economic Zones (“Zones”) is already subject to applicable taxes. In this regard, RR No.4-2022 was issued to prescribe tax treatment for the importation of Petroleum and Petroleum Products, into and subsequent transfer, transport and/or withdrawal through and from the Zones.

RR 4-2022 provides that the Value Added Tax (“VAT”) and Excise Tax due on petroleum and petroleum products that are imported into the Zones shall be paid to the Bureau of Customs (“BOC”) by the party which entered the same or the importer thereof.

On the other hand, the claim for credit or refund may be filed with the BIR for the VAT or excise tax paid for petroleum and petroleum products that are exported outside the Philippines or transferred, delivered, and sold to the following:

For VAT

  1. To a registered export enterprise and have been directly and exclusively used in its registered export project/ activity; or
  2. To entities engaged in international shipping or air transport operations and have been actually used therefor; or
  3. To entities that are statutorily zero-rated for VAT under special laws or international agreements to which the Philippines is a signatory.

For Excise Tax

  1. International carriers of Philippine or foreign registry on their use or consumption outside the Philippines; or
  2. Exempt entities or agencies covered by tax treaties, conventions, and other international agreements for their use of consumption; or
  3. Entities which are by law exempt from direct or indirect taxes

It was noted however in RR No.4-2022 that no refund for taxes shall be granted for the products sold in case the Zone registered enterprise shall subsequently sell/ introduce the petroleum and petroleum products into customs territory (except sales of fuels for use in international operations) or sell to another Zone registered business enterprise and/or party not enjoying tax privileges.

RR 4-2022 also requires all tank facilities, depots, or terminals throughout the Philippines to be registered with the appropriate BIR Office having jurisdiction over said facilities. This mandate shall cover those that are located within the Freeport Zones and Economic Zones. In cases where said facilities will be used for the storage of petroleum and petroleum products or other goods subject to excise tax, a Permit to Operate from the BIR shall be issued.

Apart from registration requirements, all owners, lessors or operators of tank facilities, depots, or terminals shall submit the following to the appropriate BIR Offices within fifteen (15) days from the date of effectivity of these Regulations:

  1. BIR Certificate of Registration 
  2. Latest Blueprint of the Perspective Design of the whole storage facility, depot, or terminal 
  3. Lease or Operating Agreement, in case the whole facility, depot, or terminal is being leased or operated by another person or entity other than the owner
  4. Terminalling, Lease or Storage Agreement(s) with the lessee-owner(s) of the contents of the respective tanks
  5. Notarized undertaking(s) executed jointly with respective lessee-owner(s) of the contents of the storage tank(s) within the storage facility, depot, or terminal containing the tank number, description of the products and the volume of inventory thereof as of the date of effectivity of these Regulations.

A Permit to Operate shall be issued by the concerned BIR Offices within 30 days from receipt of such documents. Lastly, any violation of these Regulations shall be subject to corresponding penalties under pertinent provisions of the NIRC, as amended and applicable regulations.