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Destination Principle and Cross Border Doctrine
#1
Such tax treatment of goods brought into the export processing zones are only consistent with the Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres. According to the Destination Principle, goods and services are taxed only in the country where these are consumed. In connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 10% (now 12%) VAT. Export processing zones are to be managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this reason, sales by persons from the Philippine customs territory to those inside the export processing zones are already taxed as exports.

-G.R. Nos. 141104 & 148763, June 8, 2007

References:
-See Sec 108 B 2 of NIRC as amended (Transactions subject to zero per cent rate) – Services rendered to persons outside the PH, paid in forex.
-RA 9337 
-RR14-2005/RR16-2005 – Consolidated VAT Regulations

Destination Principle - Commissioner of Internal Revenue v. Seagate Technology (Philippines), G.R. No. 153866, 11 February 2005, 451 SCRA 133, 144.
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