BIR Ruling [DA-342-05]

August 10, 2005 BIR RULING [DA-342-05] 106 (A) (1) (a); 034-2001 Coca-Cola Bottlers Philippines, Inc . 20F San Miguel Properties Center No. 7 St. Francis Avenue, Ortigas Center Mandaluyong City Attention: Nelson D. Empalmado VP-Tax & Financial Services Gentlemen : This refers to your letter dated July 11, 2005 requesting confirmation of your opinion that the sale of the building, machinery and equipment is not subject to value-added tax (VAT) pursuant to Section 109(w) of the Tax Code of 1997 [now Sec. 109(P) of R.A. No. 9337]. It is represented that Coca-Cola Bottlers Philippines, Inc. (CCBPI) and Orca Energy, .Inc. (ORCA) entered into an agreement whereby for and in consideration of the purchase price of P1,236,526,012.00, exclusive of value-added tax, the latter sold, transferred and conveyed to CCBPI all its rights, title and interest of its assets free from all liens, charges and encumbrances. Among the assets sold by ORCA are real properties listed below with the corresponding Tax Declaration Numbers, to wit: Kind of Property Tax Declaration No. Building 099-27015-00247 Machinery & Equipment 099-27015-00253 Machinery & Equipment 099-27015-00254 Machinery & Equipment 099-27015-00255 Machinery & Equipment 099-27015-00256 Machinery & Equipment 099-27015-00257 Machinery & Equipment 099-27015-00258 Machinery & Equipment 099-27015-00259 Machinery & Equipment 099-27015-00260 Machinery & Equipment 099-27015-00261 Machinery & Equipment 099-27015-00262 It is worth mentioning that ORCA is engaged in the business of supplying CCBPI with electricity, steam and CO2 (carbon dioxide). It owns a building wherein machinery and equipment were placed for electricity, steam and CO2 generation. These properties were declared as real properties for real property taxation pursuant to Sec. 202 of R.A. No. 7160, otherwise known as the Local Government Code of 1991. CSAcTa In reply, please be informed that under Section 106(A)(1)(a) of the National Internal Revenue Code of 1997, the sale of real property may only be imposed with the 10% VAT provided the same is " held primarily for sale to customers or held for lease in the ordinary course of trade or business ." (See also RMC No. 3-96; Sec. 4.100-1, RR 7-95; VAT Ruling No. 002-96, May 9, 1996) Since the aforesaid building, machinery and equipment is not held by ORCA primarily for sale to customers or held for lease in the ordinary course of its trade or business, considering that its business involves electricity, steam and CO2 generation, it follows that the sale of the same is not subject to VAT pursuant to the abovementioned provision of the Tax Code and its implementing rules and regulations. ( BIR Ruling No. 034-2001 dated June 13, 2001 ) 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, (SGD.) JOSE MARIO C. BUAG OIC, Commissioner of Internal Revenue