BIR Ruling [DA-161-02]

September 16, 2002 BIR RULING [DA-161-02] Sec. 109 (y); 116 001-02/1-7-02 Philippine Journalists, Inc. Journal Building, Railroad St., Bet. 19th and 20th Sts., Port Area, Manila Attention: Mr. Bobby G. Dela Cruz President & CEO Gentlemen : This refers to your letter dated June 11, 2002 requesting for a categorical ruling on the following issues: 1) Pursuant to Section 109(y) of the 1997 Tax Code, gross receipts derived from the sale, printing and publication of People's Journal, People's Tonight, Women's Journal, People's Taliba, and People's Journal Insider, including receipts from advertisements are not subject to VAT since the said newspapers and magazines are not devoted principally to the publication of paid advertisements; and 2) Neither will the said gross receipts be subject to the 3% percentage tax under Section 116, in relation to Section 109(z) of the 1997 Tax Code. The facts, as you represent, are as follows: The Philippine Journalists, Inc. (PJI for brevity), is a government sequestered corporation and is the publisher of the People's Journal, People's Tonight, Women's Journal, People's Taliba & People's Journal Insider. As a matter of public knowledge, these publications are devoted primarily to the circulation of news items and appear at regular intervals with fixed prices for subscription and sale to the general public. More importantly, these newspapers and magazines are not devoted principally to the publication of paid advertisements. Prior to the imposition of the VAT Law, newspaper publishers were totally exempted from the 4% contractor's tax imposed by then Section 205 of the National Internal Revenue Code. ( renumbered as Section 170 by P.D. 1994 ). Thus "Sec. 170. Contractor's, proprietors or operators of dockyards, and others. A contractor's tax of four percent of the gross receipts is hereby imposed on proprietors or operators of the following business establishments and/or engaged in the business of selling or rendering the following services for a fee or compensation. xxx xxx xxx "(n) Printers, bookbinders, lithographers and publishers, except those engaged in the publication or printing and publication of any newspaper, magazines, 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 advertisements; To be exempt from contractor's tax at that time, four requisites must be met namely: (1) the publishers must be engaged in the publication of any newspaper, magazine, review or bulletin; (2) such publication should appear at regular intervals; (3) there must be fixed price for subscription and sale; and, (4) the newspaper, magazine, review or bulletin should not be devoted principally to the publication of advertisement ( UST vs. Collector of Internal Revenue, promulgated on November 28, 1958, G.R. No. L-11274 and L-11280 ). With the advent of the VAT system, all sale of services were subjected to the 10% VAT under Section 108 of the Tax Code of 1997, except those specifically exempted under Section 109 of the same Code. In exempting the sale, importation and publishing of newspapers, etc. from VAT, we see the same exempting conditions with practically the same wordings, thus "SEC. 109. Exempt Transactions The following shall be exempt from the value-added tax: "(y) 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; While then Section 205 of the Code shows that the percentage tax is imposed on the person performing the service, Sections 108 and 109 of the new Tax Code impose the value-added tax directly upon the sale or exchange of services. Still the taxpayer remains the same the publisher or the printer. Publishing is defined as "the activity that involves selection, preparation, and marketing of printed matter. As it is known today, it depends on a series of three major inventions writing, paper and printing and one crucial social development the spread of literacy." (Vol. I, Encyclopedia Britannica, page 221) Printers refers to those engaged in impressing letters, figures and characters of types and in ink of various forms and colors on paper of various kind or on some yielding surface ( BIR Ruling; Vol. 2, Jose Araas, commentary ) You likewise invoke exemption from the percentage tax under Sec. 116 of the Code. Pursuant to VAT Review Committee Ruling No. 002-2000 dated June 23, 2000, it was held that: " Under Sec. 109(y) of the Tax Code of 1997, 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, is exempt from the imposition of the VAT. As such, regardless of the amount of said transaction, it will not be subjected to the VAT. Neither will it be subjected to the 3% percentage tax under Section 116, in relation to Section 109(z) of the same Code ." In reply, please be informed of the following: As to Issue No. 1 There is no doubt, to this Office's mind, that the sale, printing and publication of a newspaper, such as People's Journal, People's Tonight, Women's Journal, People's Taliba, and People's Journal Insider is exempt from VAT provided that the conditions set forth in Section (y) of the 1997 Tax Code are duly complied with. Section 109(y) of the 1997 Tax Code specifically provides that: "SEC. 109. Exempt Transactions. The following shall be exempt from the value-added tax: xxx xxx xxx (y) 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; " (Emphasis supplied.) Furthermore, numerous BIR Rulings have been previously issued validating the opinion that such sale, importation, printing or publication is exempt from VAT. However, the more critical issue is whether the gross receipts from advertisements are likewise exempt from VAT. You posit that from the exercise of the integrated services components, the publishers derive gross receipts, Section 108 of the Tax Code of 1997, which deals with Value-added Tax on sale of services, defines gross receipts in this wise: "The term 'gross receipts' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits quarterly for the services performed or to be performed for another person, excluding value-added tax." From the foregoing, you find no basis to support a piece-meal approach to the tax treatment of your gross receipts. You added that the highest tribunal of the land interpreted the term "gross receipts" to mean all receipts of a taxpayer , except only those which have been especially earmarked by law or regulation for the government or some person other than the taxpayer. ( The Commissioner of Internal Revenue vs. Manila Jockey Club, Inc. G.R. Nos. L-13890 & L-13887, June 30, 1960 ) By analogy, you stated, in a case concerning 'gross receipts' for the purpose of the amusement tax, the Supreme Court said that the term 'gross receipts' embraces all the receipts of the proprietor, lessee or operator of the amusement place, and which definition is broad enough to embrace the cession of advertising and streamer spaces as the same embraces all the receipts of the proprietor, lessee or operator of the amusement place. The law being clear, there is no need for an extended interpretation. ( PBA vs. CA, CTA, and CIR, G.R. No. 119122, August 8, 2000 ) You further stated that when you publish, print, and sell newspapers, you necessarily perform all the integrated component services, including the printing of advertisements. In the light of the all-encompassing, definition of gross receipts, it will be illogical to subject one component to VAT, while exempting the others at the same time. Even in the early stage of the implementation of the VAT law the BIR has already held that " . . . newspapers, appearing at regular intervals with fixed process for subscription and sale and not devoted principally to the publication of advertisements are exempt from VAT (Sec. 103(f), Ibid). On account of these VAT exemptions, the said stations and newspapers do not bill any VAT as part of the consideration paid by the advertisers and advertising agencies . . . . " . ( VAT Ruling No. 141-90 dated May 14, 1990 ). You, therefore, maintain that the exemption found in Section 109 of the Code applies to the entire gross receipts derives from newspaper publishing considering that our publications are not devoted principally to paid advertisements. cDTACE This Office finds your contention meritorious. "Gross receipts", as defined in Section 108(A) of the 1997 Tax Code, is the "total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed to another person, excluding value-added tax." The gross receipts derived from advertisements, this Office agrees, is but a mere component in the intricate process to produce the finished product in the form of newspaper, magazine, reviews or bulletin, such as gathering news and information; writing and editing stories, editorials, and features; making up the pages; actual production and printing, and distribution or Marketing. Since the sale, printing and publication of a newspaper, such as People's Journal, People's Tonight, Women's Journal, People's Taliba, and People's Journal Insider is exempt from VAT, it necessarily follows that the gross receipt derived from advertisement, a component of the said sale, printing and publication thereof, should also be exempt from VAT. Conversely, the sale, printing and publication of a newspaper, if it is principally devoted to the publication of paid advertisement, shall be subject to VAT. By the same token, the gross receipts derived therefrom shall likewise be subject to VAT. Therefore, this Office, hereby, confirms your opinion that the gross receipts you derive from advertisement is exempt from VAT. As to Issue No. 2 This Office, in VAT Review Committee Ruling No. 1-2002 dated January 7, 2002, had the occasion to reiterate, among others, the precept laid down in VAT Committee Ruling No. 022-2000 dated June 23, 2000 that the transaction enumerated in Section 109(y) of the 1997 Tax Code shall not be subjected to the three percent (3%) percentage tax under Section 116, in relation to Section 109(z) of the same Code. Prescinding from the foregoing, this Office, therefore, confirms your opinion that the gross receipts of PJI are not subject to the 3% percentage tax under Section 116, in relation to Section 109(z) of the 1997 Tax Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group