BIR Ruling [DA-251-02]

December 19, 2002 BIR RULING [DA-251-02] Section 105 Tax Code VAT Ruling 041-2001 Nihon Pisco Singapore Pte Ltd. Unit 1104 ALPAP II Building Trade St., corner Investment Drive Madrigal Business Park Muntinlupa City Attention: Mr. Yoshinori Ide Chief Representative Gentlemen : This refers to your letter dated June 3, 2002 requesting this Office to issue a certificate of exemption in favor of NIHON PISCO SINGAPORE PTE LTD. (Nihon for brevity), from the imposition of the value-added tax on the lease of property of ALPAP II. aTHASC Your request is anchored on the theory that Nihon is registered with the Bureau of Internal Revenue as non-VAT entity. It does not derive income from its business in the Philippines because it is merely a representative office. As such, it does not incur output VAT wherein it could deduct the input taxes paid particularly on the value-added tax imposed by ALPAP II on the lease of its property. Hence, this request. In reply thereto, please be informed that the value-added tax is imposed on the following transactions: 1. Any sale, barter or exchange of goods or properties, or similar transactions, in the course of trade or business; 2. Any sale of services, or similar transactions, in the course of trade or business; 3. Any lease of goods and properties, or similar transactions, in the course of trade or business ; and STEacI 4. Any importation of goods, whether in the course of trade or business or not. Pursuant to Section 105 of the Tax Code of 1997, the value-added tax is an indirect tax in which the amount of the tax may be shifted to or passed on to the buyer, transferee or lessee of goods, properties or services ( Sec. 4.99-2, Rev. Regs. No. 7-95 ). And since VAT is the direct liability of the lessor, once shifted, it is no longer a tax on the part of the lessee but an additional cost which the lessee must pay to obtain the lease of property ( VAT Ruling No. 041-2001 dated July 5, 2001 ). Accordingly, your request for exemption from the imposition of the value-added tax is hereby denied for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group