Makati Garden Club, Inc.

February 16, 2007 BIR RULING [DA-102-07] Section 30 Makati Garden Club, Inc. Ayala Avenue cor. E. delos Santos Avenue Makati City Attention: Ms. Leilani M. Perez Admin. Officer Gentlemen : This refers to your request for VAT exemption certificate in favor of the Makati Garden Club, Inc. As represented, the Makati Garden Club, Inc. (the "Club") is a non-stock, non-profit corporation registered with Tax Identification No. 000-473-974-000. The Club is a non-stock and non-profit corporation. It was organized as a private science and research organization for the promotion and development of modern methods of horticulture and botany in the Philippines, and to encourage the acceptance and use of these modern methods as an aid in the propagation and preservation of Philippine plants life. The Club is funded through annual membership dues from its members as well as from donations and contributions from persons, associations and organizations interested in the attainment of the Club's objectives and purposes. No part of the Club's receipts inures to the benefit of any of its members. 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 (VAT) imposed in Sections 106 to 108 of the same Code. SETaHC 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 members or their guests), or government entity. Accordingly, if the Makati Garden Club, Inc. 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). Moreover, the tax exemption granted to non-stock, non-profit corporations under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. It should be noted that VAT is an indirect tax payable by the seller and not by 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. DcITaC Thus, the shifting of the VAT to it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. Revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% (then 10%) VAT. However, the above exemption from the 12% VAT does not extend to its purchase of goods or properties or services and importation of goods. Hence, notwithstanding that the Makati Garden Club, Inc. is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code (VAT Ruling No. 119-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004). In view of the foregoing, this Office hereby denies your request for VAT exemption certificate. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service