Ramirez, Ma. Aurea T.

July 7, 2016
Introduction to Tax and Income (HTAXAT3) 404 words
ACT141

WHAT IS MEANT BY A ‘CROSS BORDER DOCTRINE’ AND HOW DOES IT APPLY TO

CUSTOMS TERRITORY?

Under the Cross Border Doctrine, the ecozone is recognized, by legal fiction, as a 14
foreign territory. Thus, no VAT shall be imposed to form part of the cost of goods destined 17
for consumption outside the territorial border of the taxing authority. In turn, actual export of 15
goods and services from the Philippines to a foreign country must be free of the VAT. As for 18
the Destination Principle, it provides that the onus of taxation is the country where the 15
goods, property or services are destined, used or consumed. Those destined for use or 14
consumption within the Philippines shall be imposed with the 12-percent VAT. Thus, the 13
availment of VAT zero-percent rating on sales of services by VAT-registered persons in the 14
customs territory to PEZA-registered entities is limited to those performed within the 12
ecozone. (BDB Law’s “Tax Law For Business”) 7

Customs Territory shall mean the national territory of the Philippines outside of the 13
proclaimed boundaries of the ECOZONES except those areas specifically declared by other 12
laws and/or presidential proclamations to have the status of special economic zones and/or 13
free ports. (Sec. 1 (g), PEZA Rules and Regulations) 9

Application of Cross Border Doctrine to Customs Territory would be difficult to 12

understand without a thorough comprehension on its correlated matters and concepts. 11
Cognizance about Philippine Economic Zone Authority and Special Economic Zone is 11
essential. 1

PEZA - attached to the Department of Trade and Industry - is the Philippine 12

government agency tasked to promote investments, extend assistance, register, grant 10
incentives to and facilitate the business operations of investors in export-oriented 11
manufacturing and service facilities inside selected areas throughout the country proclaimed 11
by the President of the Philippines as PEZA Special Economic Zones. (www.peza.gov.ph) 12

Special Economic Zones (SEZ) – hereinafter referred to as the ECOZONES, are 11

selected areas with highly developed or which have the potential to be developed into agro- 15
industrial, Industrial tourist/recreational, commercial, banking, investment and financial 8
centers. An ECOZONE may contain any or all of the following: Industrial Estates (IEs), 14
Export Processing Zones (EPZs), Free Trade Zones, and Tourist/Recreational Centers. 10
(Sec. 4 (a), R.A. No. 7916) 6

From the above information, it is apparent that PEZA-registered ECOZONE 10

enterprises are 100% VAT free yet are subject to 5% special tax on gross income. On the 17
other hand, importers and enterprises within Customs Territory, even so PEZA-registered, 11
cannot be subjected to 0% VAT rating due to the rule implemented under the Cross Border 16
Doctrine that 12% of VAT rating should be imposed. 9