BIR Ruling [DA-265-06]

April 18, 2006 BIR RULING [DA-265-06] Section 107 (A); BIR Ruling No. 054-00 & DA-043-04 Felix Y. Manalo Medical Foundation, Inc . Commonwealth Avenue, corner Tandang Sora New Era, Quezon City Attention: Dr . Ben C . Malabanan Director Gentlemen : This refers to your letter dated November 29, 2005 requesting for a ruling exempting Felix Y. Manalo Medical Foundation, Inc. ("Foundation") from payment of value-added tax (VAT) on importation of donated medical equipment (used) to be utilized in the normal operations of the Foundation for its charitable works. aTHCSE In reply, we regret to inform you that your request cannot be granted for lack of legal basis. Importation of medical equipment is subject to the 10% VAT based on the total value used by the Bureau of Customs in determining tariff and customs duties, plus customs duties, excise tax, if any and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody pursuant to Section 107(A) of the Tax Code of 1997. The provision of Section 107(B) of the Tax Code of 1997 will not apply to the Foundation since the tax exemption granted to the Foundation as a non-stock, nonprofit corporation under Section 30 of the Tax Code of 1997 and BIR Ruling No. S-30-088-01 dated November 10, 2005 covers only income tax which is a direct tax. It is clear that the Foundation's tax exemption covers only income taxes for which it is directly liable, there being no specific reference to its indirect tax exemption. It is 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. 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). Moreover, Section 101(B)(2) of the Tax Code of 1997 which you also rely upon to support your request refers to donor's tax and not VAT. In view of the foregoing, the Foundation's importation of donated medical equipment is subject to the 10% VAT 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. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue