Scope of Zero-Rate Tax Application for Paid-Supply Materials and Issuance of 3rd Purchase Confirmation

Question

The transaction structure involves companies A, B, and C, where B supplies to A (1st Purchase Confirmation) and C supplies to B (2nd Purchase Confirmation). Question 1) When B holds a 2nd Purchase Confirmation for C, what is the scope for applying the zero-rate tax? 1) Does it include the total amount, including paid-supply materials, self-procured materials, and additional processing fees? 2) Or does it only include the amount for self-procured materials and additional processing fees (excluding paid-supply materials)? I personally believe there is no need for specific exclusions, but I am asking because there are opinions suggesting that paid-supply materials should be excluded. Question 2) To apply the zero-rate tax to the paid-supply materials portion that B supplies to C, is it necessary to have a 3rd Purchase Confirmation based on the 2nd Purchase Confirmation for the finished goods that C supplies to B? Or is it impossible to apply the zero-rate tax if only the 2nd Purchase Confirmation is available?

ryder_by_the_bay · Answer

1. There may be controversy regarding the scope of issuing a Purchase Confirmation for paid supply (chargeable supply). Generally, since paid supply is viewed as a supply of goods, a tax invoice is issued for the total amount including the paid supply materials; therefore, it appears that a Purchase Confirmation should be issued for the entire amount. However, since the Purchase Confirmation is linked to trade performance, practical handling requires careful consideration, as trade performance (based on the subcontractor) can fluctuate significantly depending on whether the cost of the paid supply materials is included in the Purchase Confirmation amount. From a tax perspective, the distinction between paid supply and free-of-charge supply also requires caution on a case-by-case basis. 2. B's export performance is the sales supplied to A, which can be recognized as a primary Purchase Confirmation. If additional export performance is recognized for the paid supply provided to C, it would result in duplicate recognition of export performance for the same transaction; therefore, it is judged that issuing a tertiary Purchase Confirmation for this purpose would be impossible.

Scope of Zero-Rate Tax Application for Paid-Supply Materials and Issuance of 3rd Purchase Confirmation

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