Applicability of Zero Tax Rate and Issuance of Purchase Confirmation in Overseas Outbound Transactions for Processing Purposes
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The transaction structure is as follows: based on an order from our company (B), the vendor (A) delivers materials produced for module products under a JV agreement to an overseas entity (the module company). On the export documents, the Exporter/Export Agent/Shipper is the vendor (A), the Importer/Buyer is the overseas module company, and the Notify Party is our company (B). The payment method is Telegraphic Transfer (T/T). There is a material supply contract between vendor (A) and our company (B); therefore, when paying for the export transaction, vendor (A) is the supplier and our company (B) is the recipient, a zero-rated tax invoice is issued, and our company (B) issues the Purchase Confirmation. Meanwhile, our company (B) is in a JV (agreement) relationship with affiliates, and there is no direct contract between our company (B) and the overseas module company; there is only a contract between the JV entity and the overseas module company.
Questions:
1. Is it possible to apply the zero tax rate and issue a Purchase Confirmation for goods purchased from vendor (A) when our company (B) has no direct contractual relationship with the overseas processing company?
2. What is the correct contractual relationship required to apply the zero tax rate?
3. Can the contractual relationship between the JV and the overseas module processing company be recognized as a contractual relationship with our company?
4. How can transactions for which payment has already been made applying the zero tax rate be corrected?
5. What type of trade transaction structure exists between vendor (A) and our company (B)?
Answer 1
- 01. A Purchase Confirmation is a document issued for the purpose of applying a zero tax rate when purchasing goods intended for export. Since it is issued when purchasing domestic goods to export them abroad and earn foreign currency, the final destination of the goods must be overseas and the process must involve the acquisition of foreign currency. In your case, the final destination of the goods is listed as Korea; if the final place of consumption is Korea, it is not considered an export, so the zero tax rate likely cannot be applied. 2. Upon final export (involving foreign currency acquisition), a Purchase Confirmation can be issued based on the export declaration, and subsequent Purchase Confirmations can be issued sequentially based on the primary Purchase Confirmation. 3. It is questionable whether sending goods abroad for processing purposes can be viewed as an export for the purpose of export/foreign currency acquisition (whether direct or indirect export). Sending goods abroad for processing involves the payment of foreign currency rather than the acquisition of it. 4. If a zero-rated tax invoice has been issued incorrectly, it can be corrected by issuing a standard tax invoice. As the facts of this case appear complex, please consult with your tax accountant for further details.Machine translated
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