BIR Ruling [DA-107-06]

March 14, 2006 BIR RULING [DA-107-06] Section 109 (R); VAT Ruling No. 055-02 NCP Publishing Corporation NCP Compound, Western Bicutan Taguig, Metro Manila Attention: Ms. Blanca C. Magabo Chief, Corporate Finance Gentlemen : This refers to your letter dated October 19, 2005 requesting for confirmation of your opinion that NCP Publishing Corporation ("NCPPC") is exempt from value-added tax (VAT) on its sale and printing of books and manuals under Section 109, paragraph (y) of the Tax Code of 1997, and therefore not subject to VAT required to be withheld by government entities. As represented, the NCPPC is a private corporation, wholly owned subsidiary of the Nutrition Center of the Philippines ("Center") established in 1977 and engaged in the printing and publishing of books and other information and education materials. The objective of the company is to publish and market print and audio-visual materials supportive of the informational and educational thrust of the national nutrition program. The company publishes and sells health and nutrition books developed by the Center in collaboration with implementors specifically in support of the government's program the Philippine Plan of Action for Nutrition, which appear at regular intervals with fixed prices for sale and which are not devoted principally for publication of paid advertisements. Other than major government agencies such as the Department of Education, Department of Social Welfare and Development, and Department of Health, a bulk of the company sales also came from various local government units, non-government organizations, private clubs, foundations and associations nationwide. ScHAIT In reply, please be informed that Section 109(R) [then Section 109(y)] of the Tax Code of 1997 as amended by Republic Act No. 9337 provides, viz : "SEC. 109. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements . . ." Accordingly, NCPPC is exempt from VAT on its sale, printing or publication of health and nutrition books. Consequently, its sale of the said books to government agencies such as the Department of Education, Department of Social Welfare and Development, and Department of Health, local government units, non-government organizations, private clubs, foundations and associations, is not subject to the 3% creditable VAT required under Section 114(C) of the Tax Code of 1997. Neither will NCPPC be required to pay the 3% percentage tax under Section 116, in relation to Section 109(V) [then Section 109(z)] of the Tax Code of 1997 as amended by R.A. No. 9337, since both the 10% VAT and 3% percentage tax are taxes on the business transaction or activity. Both are indirect taxes which may be passed on or shifted to the customer who ultimately bears or assumes the burden of the tax. In VAT Ruling No. 037-2001 dated June 13, 2001, this Office had the occasion to rule that the 3% percentage tax prescribed under Section 116 of the Tax Code of 1997 does not apply to transactions exempt from the 10% VAT listed in Section 109(a) to (y) [now Section 109(A) to (V)] of the Tax Code of 1997, as it applies only to transactions falling under item (z) [now (V)] of said section. However, if NCPPC has other transactions (such as the printing of brochures) which are subject to the VAT, it will also be required to register its business as a VAT business entity and issue a separate VAT invoice/receipt to record such transactions. Moreover, pursuant to Section 2.57.2(E)(3)(f) of Revenue Regulations (Rev. Regs.) No. 6-2001, as amended, a creditable income tax at the rate of 2% shall be withheld on income payments to printers, bookbinders, lithographers and publishers except those principally engaged in the publication or printing of any newspaper, magazine, review or bulletin which appears at regular intervals, with fixed prices for subscription and sale. The tax is computed by multiplying the income payment by 2%. Likewise, Section 2.57.2(N) of Rev. Regs. No. 6-2001, as amended, provides that income payments, except any single purchase which is P10,000.00 and below, which are made by a government office, national or local, including government-owned or controlled corporations, on their purchases of goods from local suppliers are subject to the one percent (1%) creditable withholding tax. The tax is also computed by multiplying the income payment by 1%. AaSHED 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service