BIR Ruling [DA-138-99]

March 8, 1999 BIR RULING [DA-138-99] Powergen Incorporated Suite 702, Goldloop Towers One Goldloop Plaza Ortigas Center, Metro Manila Attention: Ms . Madelyne G . Cabacungan VP - Finance Gentlemen : This refers to your letter dated February 10, 1999, requesting for a ruling to the effect that you can pass on the 10% VAT to the Manila International Airport Authority (MIAA). It appears that you are billing 10% VAT as part of the operating fees payable by MIAA on your services of generating electricity at the NAIA Power Station; that since June 19, 1996 to November 25, 1998, the total payments made by NAIA amounted to P243,249,654.30 inclusive of the 10% VAT in the amount of P22,113,605.26; that however, MIAA refused to pay the VAT component for the billing periods covering November 25, 1998 to December 25, 1998 and December 25, 1998 to January 25, 1999, citing Section 7.14 of the Power Generation Agreement; that on February 3, 1999, MIAA agreed to pay the 10% VAT corresponding to the abovestated periods on the condition that should the Office of the Solicitor General and the Bureau of Internal Revenue render an opinion that the VAT cannot be passed on or shifted to MIAA, it will stop further payments of the VAT and shall credit all past VAT payments on future operating charges; hence, this request to resolve the issue concerning the shifting of the VAT charges between you and MIAA. prLL In reply, please be informed that VAT is the direct liability of the supplier of goods, properties or services made in the course of trade and business. However, since VAT is an indirect tax, the same may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services pursuant to Section 105 of the Tax Code of 1997. Once shifted as addition to the cost of goods sold, it is no longer a tax but an additional cost which the customer has to pay in order to obtain the goods. (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. 19707, August 17, 1976) This has been the consistent ruling of this Office on the matter. Accordingly, you can pass on or shift to the Manila International Airport Authority the 10% VAT not as a tax but as part of the operating fees for generating electricity at the NAIA Power Station. 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. prcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Duty Commissioner (Legal & Enforcement Group)