Rustan Commercial Corporation

March 14, 2007 BIR RULING [DA-155-07] DA 427-06 Rustan Commercial Corporation Rustan's Building Greenhills, Mandaluyong City Attention: Ms. Flocerfida M. Vergara Vice President for Administration & Human Resources Gentlemen : This refers to your letter dated July 31, 2006 requesting for a ruling that the issuance or sale of Gift Certificate (GC) by Rustan Commercial Corporation to banks, corporate offices and customers (Corporate Clients) is not subject to the 12% value-added tax (VAT). IAEcCa It appears that Rustan Commercial Corporation is a domestic corporation duly registered with the Securities and Exchange Commission (SEC); that it sells GCs to Corporate Clients; that the said GC is a negotiable instrument which serves as deposit of customers and liability account on the part of the company; and that Rustan Commercial Corporation's main thrust of using the GC as a marketing tool, does not expect any income from the issuance of the GC. In reply thereto, please be informed that Section 105 of the Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337, provides that "SEC. 105. Persons Liable. 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 imposed in Sections 106 to 108 of the said Code. Corollarily, Section 108, supra provides that "SEC. 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, That the President, upon recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), . . . ." In the instant case, Rustan Commercial Corporation is not selling any goods or services to its Corporate Clients upon issuance of the GC to the latter, thus, not subject to 12% VAT. The VAT will be assessed and collected on every sale, barter or exchange of properties as well as sale or exchange of service, including the use or lease of properties (Sections 106 and 108, Tax Code of 1997, as amended by Republic Act (R.A.) No. 9337). The issuance of the GC to the Corporate Clients does not fall under the category of goods or services as contemplated under the VAT law. Hence, the issuance by Rustan Commercial Corporation of said GC to its Corporate Clients will not be subject to VAT. Accordingly, being a non-VAT transaction, Rustan Commercial Corporation will be issuing a non-VAT invoice to document the transaction. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service