BIR Ruling [DA-289-05]

June 27, 2005 BIR RULING [DA-289-05] Secs. 105-108; S-30-035-2004 Southfield Maritime Training Foundation, Inc . 5th Floor, VIP Building 1140 Roxas Boulevard Ermita, Manila Attention: Mr. Reuben C. Romero Treasurer Gentlemen : This refers to your letter January 24, 2005 requesting for a ruling exempting you from payment of value-added tax (VAT). It is represented that Southfield Maritime Training Foundation, Inc .is a non-stock, non-profit association whose main objective is to promote, improve and develop the maritime industry of the country through education, training and upgrading of students, seafarers, laborers and other workers, employees, and staff related to maritime activities and to establish, operate maintain maritime institutions and its ancillary facilities, to conduct seminars, training programs, and up-grading courses related to maritime activities, to hire trainers and specialists in the field of maritime industry; that it is duly registered with the Securities and Exchange Commission under SEC Registration No. A200115145 dated October 4, 2001; and that no part of the income which the corporation may obtain as an incident to its operation shall be distributed as dividends to its members, trustees or officers. In reply, please informed that pursuant to Section 105 of the Tax Code of 1997, "any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added (VAT) imposed in Sections 106 to 108 of the same Code . " 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 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. Based on the foregoing, a person engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, shall also be liable to VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 & DA-043-2004 dated February 4, 2004). 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. CTaIHE 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 (BIR Ruling No. DA-043-2004 dated February 4, 2004). Moreover, 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) Accordingly, 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 pursuant to Section 107 of the Tax Code of 1997. (BIR Ruling No. S-30-035-2004 dated November 10, 2004) 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group