Proof of Zero-Rate Tax for Re-exportation After Repair — Can a previous Purchase Confirmation be used for transactions with a different legal entity?
Machine translated
We issued a zero-rate tax invoice to Company A's domestic factory and sold goods to Company A's overseas branch. At that time, we submitted the Purchase Confirmation received from Company A's domestic factory as proof for the zero-rate application.
Subsequently, Company A's overseas branch requested repairs through Company B, and Company B imported the goods, which our company then received. After the repair, we issued a zero-rate tax invoice for the sale of goods to Company B, and the goods were re-exported to Company A's overseas branch via Company B (Import/Export Declaration Certificate is available).
Company B stated that there would be no issues with the zero-rate proof as long as we have a repair contract, so we provided them with the repair contract, B/L, Invoice, and the Import/Export Declaration Certificate.
I have been advised that when filing VAT, I can report this as a supply based on a Local L/C or Purchase Confirmation by attaching the repair contract and the previous Purchase Confirmation from the original sale. However, since the legal entity being invoiced is different, will this be acceptable? Or should I report the VAT using a different method?
Answer 1
- 0✓To apply a zero tax rate to domestic transactions, it is necessary to issue a Purchase Confirmation or a Local Letter of Credit (Local L/C) to verify that the purchase is for raw materials or equipment intended to earn foreign exchange. Regarding your question, since the previous transaction was between your company and Company A, and the current transaction is between your company and Company B, we believe it is not possible to apply the zero tax rate to the current transaction based on the previously issued Purchase Confirmation. Furthermore, you mentioned that the transaction with Company B is being processed as sales of goods; however, since the essence of the transaction is the provision of repair services rather than the sale of goods, it is deemed correct to issue a general tax invoice with the service fee for repair services recorded as revenue. Regarding whether repair services can be viewed as processing services for exported goods, please refer to the tax ruling (VAT46015-2606, 1998.11.24.), which states: "Repair services for used machinery intended for export do not constitute processing services for exported goods and are therefore not subject to the zero tax rate."Machine translated
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