Unison Computer Systems, Inc.

February 15, 2007 BIR RULING [DA-099-07] 105; 106; DA-043-2004 Unison Computer Systems, Inc. 18th Floor, West Trade Center Building 132 West Avenue, Quezon City Attention: Ms. Grace F. Baracena Corporate Account Executive Gentlemen : This refers to your letter dated March 7, 2006 requesting opinion as to the tax consequences, particularly the value-added taxes (VAT), on the purchase of local materials/goods and services made by and on behalf of your client Rosettanet Philippines, Inc. (Rosettanet), and whether it is a duly constituted withholding agent. It is represented that Rosettanet is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission on February 27, 2003; that Rosettanet purchases local materials/goods and services from Unison Computer Systems, Inc. (Unison); and that Rosettanet claims that it is a withholding tax agent, hence, can deduct 2% withholding tax from its every purchase of local materials/goods and services. In reply, please be informed that Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. STDEcA The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to member of their guests), or government entity. Accordingly, if Rosettanet is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 & DA-043-2004 dated February 4, 2004). CDHacE It should be noted that VAT is an indirect tax payable by the seller and not the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services. Thus, the shifting of the VAT to Rosettanet does not make it the person directly liable and therefore, Rosettanet cannot invoke tax exemption privilege to avoid the passing on or shifting of the VAT. Likewise, the Philippine VAT system adopts the credit method. In short, VAT is not being withheld by the income payor except when the payor is a government entity. Thus, Rosettanet cannot withhold the VAT on its purchases from Unison. Similarly, the purchases by Rosettanet are not subject to 2% withholding tax imposed under Section 2.57.2 (E) (4) (m) of Revenue Regulations No. 14-2002. AcHaTE This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner