BIR Ruling [DA-260-06]

April 12, 2006 BIR RULING [DA-260-06] 105; VAT Ruling No. 60-98 National Cinema Association of the Philippines Rm. 410 Imperial Palace Suites Tomas Morato cor. Timog Avenue Quezon City Attention: Mr. Roesholm Camaligan President Gentlemen : This refers to your letter dated July 1, 2005 which was endorsed to this Office by Mr. Waldo Q. Flores of the Office of the President on July 26, 2005 relative to your request for a re-evaluation of the present interpretation of the VAT law in reference to the imposition of 10% VAT on admission tickets to movies on top of the 30% amusement tax. In reply, please be informed that Section 105 of the Tax Code of 1997 defines the persons liable for value-added tax as those who in the course of trade or business sell, barter, exchange, lease goods or properties, render services and any person who imports goods. The phrase "in the course of trade or business" 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 organization . . . or government entity." The activity of the cinema operators falls under the purview of this provision. Hence, the income derived from admission tickets is subject to the imposition of value-added tax of ten percent (10%) (now 12%) provided under Section 108 of the same Code. The basis for the imposition of value-added tax shall be gross receipts which is defined as "the total amount of money or its equivalent representing contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person excluding the value-added tax'' Furthermore, such transactions cannot be considered exempt from VAT for the reason that these are already subject to amusement taxes. It should be noted that while Title V of the Tax Code classifies amusement taxes as percentage taxes for which Sec. 109(j) exempts the transactions already subjected thereto from the imposition of VAT, Sec. 125 of Title V limits the enumeration of amusement taxes paid by proprietors, operators or lessors of cabarets, cockpits, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks as only those which may be considered percentage taxes that are remitted to or collected by the Bureau. The provision does not include amusement taxes paid to local government units which are classified as local taxes under the Local Government Code in contradistinction from the national internal revenue taxes found under the provisions of the National Internal Revenue Code. SDIaHE Therefore, the basis for the imposition of value-added tax on the transactions by cinema operators shall be the total gross receipts undiminished by whatever local taxes that are imposed by the local municipal government on the receipts generated from admission tickets. (BIR VAT Ruling No. 60-98 dated December 15, 1998) Likewise, please be informed that pursuant to Revenue Memorandum Order No. 26-2005 dated October 11, 2005, pending resolution of the issue in the Court of Tax Appeals, issuance of assessments for deficiency VAT against operators/owners of cinemas/theaters is suspended until further notice, provided that the taxpayer concerned shall execute a waiver of the statute of limitations under the Tax Code. Very truly yours, Commissioner of Internal Revenue By: (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service