BIR Ruling [DA-264-06]

April 12, 2006 BIR RULING [DA-264-06] Section 107 (A); VAT Ruling No. 119-90 & BIR Ruling No. DA-043-2004 Tulay Foundation, Inc . Rm. 210 Aloha Hotel 250 Roxas Blvd. Cor. Quirino Ave. Malate, Manila Attention: Ms. Seemay C. Yu Corporate Secretary Gentlemen : This refers to your letter dated April 25, 2005 indorsed to this Office by Regional Director Alfredo V. Misajon of Revenue Region No. 6 requesting for tax exemption on your importation of One Thousand Two Hundred (1,200) wheelchairs to be donated to various public hospitals and charitable institutions. Documents show that Tulay Foundation, Inc. is a non-stock corporation under the laws of the Republic of the Philippines. It is registered with the Securities and Exchange Commission (SEC) under SEC Registration No. ANO-93-01801 dated April 20, 1993. It is also registered with the Bureau of Internal Revenue under Certificate of Registration No. OCN-1R0000194494 dated April 12, 2005. Its primary purpose is to "exist, operate, act and serve as a non-stock, non-profit, non-governmental private voluntary organization/foundation for community development, social and economic welfare, educational, civic, cultural, humanitarian, charitable and related purposes and concerns." In reply, please be informed that Section 107(A) of the Tax Code of 1997 provides that there shall be levied, assessed and collected on every importation of goods a value-added tax (VAT) equivalent to ten percent (10%) based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody provided that where the customs duties are determined on the basis of the quantity or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any. On the other hand, the tax exemption granted to a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is 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 a 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. cHSTEA The shifting of the VAT to you does not make you the person directly liable and therefore, you cannot invoke the tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT (BIR Ruling No. DA-043-2004 dated February 4, 2004). Hence, notwithstanding that you may be a non-stock, non-profit corporation, your importation of goods shall nevertheless be subject to the 10% VAT pursuant to Section 107 of the said Code. Thus, it has been ruled in the case of The Camillian Fathers, Inc. that ". . . if your client imports goods, the said importation shall be subject to VAT. . . ." (VAT Ruling No. 119-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004). However, transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590, are exempt from the VAT pursuant to Section 109(q) of the Tax Code of 1997. Republic Act (RA) No. 7277, otherwise known as the "Magna Carta for Disabled Persons" is a special law which grants tax incentives to foreign donor/s on donation, bequest, subsidy or financial aid made to government agencies engaged in the rehabilitation of disabled persons and organizations of disabled persons. Pertinent provisions of the RA 7277 provides, as follows: "SEC. 3. Coverage. This Act shall cover all disabled persons and, to the extent herein provided, departments, offices and agencies of the National Government or nongovernment organizations involved in the attainment of the objectives of this Act . xxx xxx xxx SEC. 41. Support From Nongovernment Organizations . Nongovernment organizations or private volunteer organizations dedicated to the purpose of promoting and enhancing the welfare of disabled persons shall, as they, are hereby encouraged, become partners of the Government in the implementation of vocational rehabilitation measures and other related programs and projects. Accordingly, their participation in the implementation of said measures, programs and projects is to be extended all possible support by the Government. SEC. 42. Tax Incentives . (a) Any donation, bequest, subsidy or financial aid which may be made to government agencies engaged in the rehabilitation of disabled persons and organizations of disabled persons shall be exempt from the donor's tax subject to the provisions of Section 94 of the National Internal Revenue Code (NIRC), as amended and shall be allowed as deductions from the donor's gross income for purposes of computing the taxable income subject to the provisions of Section 29(h) of the Code (now Section 34(H) of the Tax Code of 1997). b) Donations from foreign countries shall be exempt from taxes and duties on importation subject to the provisions of Section 105 of the Tariff and Customs Code of the Philippines, as amended, Section 103 of the NIRC, as amended (now Section 109) of the Tax Code of 1997), and other relevant laws and international agreements. xxx xxx xxx" In view of the foregoing, this Office holds that the donation of One Thousand Two Hundred (1,200) wheelchairs from foreign countries to be made to government agencies engaged in the rehabilitation of disabled persons and organizations of disabled persons shall be exempt from the 10% VAT on importation pursuant to Section 107(A) of the Tax Code of 1997. 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. cCaDSA Very truly yours, (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service