BIR Ruling [DA-169-05]

April 18, 2005 BIR RULING [DA-169-05] Sections 105 & 107 BIR Ruling No. S30-035-2004 Atty. Aleli Militsala Boniol c/o Don Bosco Technical Institute Pasong Tamo Street Makati City M a d a m : This refers to your letter dated' December 22, 2004 requesting on behalf of Don Bosco Technical Institute for a ruling that it is exempt from the payment of value-added tax. It is represented that you are a private, non-stock, non-profit educational institution; that you are a VAT-exempt entity based on your representation before the World Trade Center (WTC) and our records that you are an educational institution registered with the Department of Education, Culture and Sports (DECS); that you were billed hiring charges by the WTC for the use of its hall for your exhibit held on November 24 until December 2, 2004; that the event was dubbed as "The Manila Bulletin FAB 5 Magazine Christmas Show & Bazaar"; and that such event was only for a onetime transaction. In reply, please be informed that pursuant to Section 109(m) in relation to Section 105, both of the Tax Code of 1997, educational services rendered by private educational institutions, duly accredited by the DECS and the Commission on Higher Education, and those rendered by government educational institutions are exempt from VAT. The phrase "in the course of trade or business" under Section 105 of the Tax Code 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. Thus, while you are a private educational institution duly accredited by the DECS, whose services are exempt from VAT pursuant to the aforesaid Section 109(m) of the Tax Code of 1997, this Office, however, is of the opinion that the exhibition held in WTC is a transaction not entirely related to your business as an educational institution, hence, subject to VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 and DA-043-2004 dated February 4, 2004). Moreover, the tax exemption granted to you as a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which you are 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. The shifting of the VAT to you does not make you the person directly liable and therefore, you cannot invoke your tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. Hence, notwithstanding that you are a non-stock, non-profit corporation, your purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 10% VAT (BIR Ruling No. S-30-035-2004 dated November 10, 2004). Accordingly, the World Trade Center may legitimately pass on the VAT to its customers like yourself, hence, you are liable to the 10% VAT on the hiring charges. CcTIAH 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group