June 29, 2016

BIR RULING NO. 333-16

Section 109, RA 8424, as amended; BIR RR

No. 4-2015
Los Ricos Compania Corp.
E2102-B/C, 21st Floor Philippine Stocks Exchange Center,
Exchange Road, Ortigas, Pasig City

Attention: Harry G. Liu

Chairman

Gentlemen :
This refers to your letter dated March 5, 2013, requesting for a clarification on
whether cocosugar is covered by the exemption in Section 109 (1) (A) as implemented
by Section 4.109-1 (B) Revenue Regulations No. 16-2005, as amended. DcHSEa

Documents submitted show that Los Ricos Compania Corp., with Taxpayers
Identification No. 006-900-937, is a domestic corporation registered with the Securities
and Exchange Commission (SEC) under SEC Registration No. CS200716595; that the
purposes for which it is formed are:
That the primary purpose of this corporation is to engage in the business
of trading Cocosugar and its by-products, domestic and/or export.
That the secondary purpose of this corporation is to engage in the
business of trading goods such as garments and accessories and household
goods on a wholesale and commission basis.
Section 109 of the National Internal Revenue Code of 1997, as amended (Tax
Code), provides:
"SEC. 109. Exempt Transactions. — (1) Subject to the provisions
of subsection (2) hereof, the following transactions shall be exempt from the
value-added tax:
"A) Sale or importation of agricultural and marine food
products in their original state, livestock and poultry of a kind generally
used as, or yielding or producing foods for human consumption; and
breeding stock and genetic materials therefor.
"Products classified under this paragraph shall be considered in their
original state even if they have undergone the simple processes of preparation
or preservation for the market, such as freezing, drying, salting, broiling,
roasting, smoking or stripping. Polished and/or husked rice, corn grits, raw
cane sugar and molasses, ordinary salt, and copra shall be considered in
their original state;" (Emphasis supplied.)
The provision above quoted defines the term "original state" in two ways. First, in
the first sentence, that the term includes an article which is in its original state,
unprocessed and not a finished product or a by-product of a raw material. This includes
materials that have undergone the simple processes of preparation or preservation for
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 the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping.
Thus, what would be outside of the scope of the term "simple process" is the kind of
physical or chemical process which would alter the exterior texture or form or inner
substance of a product in such a manner as to prepare it for special use to which it
could not have been put in its original form or condition.
The second definition, a definition by enumeration, gives a list of products which
are considered per se, as in its original state.
As represented in the flow chart attached to the letter of Los Ricos Compania
Corp. coconut sap or nectar undergoes the following processes for the production and
extraction of cocosugar:
1. Coconut Sap or Nectar
2. Sap is boiled
3. Sap solidifies when cool
4. Coconut sugar is dried and strained
From the foregoing, it is obvious that the process undergone by coconut sap or
nectar to produce coconut sugar is not one that may be considered within the purview
of the line "simple process of preparation or preservation for the market." The product
produced by the above process is already a finished product.
Neither does cocosugar belong to the second definition. The list does not include
cocosugar. The only kind of sugar that is exempt from VAT is raw cane sugar in the
form of muscovado sugar as clarified in Revenue Regulations No. 4-2015. 1 The rule of
exclusio unius est exclusio alterius may be applied in the case. In conjunction to this,
exemption from taxation is not favored and should be construed strictissimi juris against
the taxpayer and liberally in favor of the taxing authority. 2 Since the list does not
include cocosugar, we cannot construe that is belongs to the list.
It must also be understood that the exemption in Section 109 (1) (A) is not given
to a specific taxpayer but to the nature of the transaction involved. Accordingly, and
provided that the subject agricultural and marine products are in their original state and
are food for human consumption, the sale of the above products as qualified are
considered VAT exempt.
From the foregoing, we hereby rule that the sale of cocosugar is not among those
which are exempted under Section 109 (1) (A); and that no blanket tax exemption for
any entity is allowed by the said provision. Thus, the change of registered tax-type of
Los Ricos Compania Corp. to VAT-EXEMPT cannot be allowed. Thus, your request is
hereby denied. SCaITA

Please be guided accordingly.

Very truly yours,

(SGD.) KIM S. JACINTO-HENARES

Commissioner of Internal Revenue

Footnotes

1. "Amending Further Section 2 of Revenue Regulations No. 13-08, as amended by Revenue

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 Regulations No. 13-2013, Relative to the Definition of Raw Sugar and Raw Cane Sugar
for Value-Added Tax Purposes" issued on March 13, 2015.

2. Note from the Publisher: Copied verbatim from official document. Missing Footnote Text.

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