BIR Ruling [DA-358-05]

August 22, 2005 BIR RULING [DA-358-05] 109 (m); DA-317-2005 St. Paul University Philippines Tuguegarao City, Cagayan 3500 Attention: Sr. Maria Vicenta Estrella, SPC Vice President for Finance Gentlemen : This refers to your letter dated May 4, 2005 requesting for a ruling to the effect that St. Paul University Philippines is exempt from the value-added tax (VAT). It is represented that St. Paul University Philippines located at Mabini Street, Tuguegarao City is a non-stock, non-profit educational institution run by the Community of the Sisters of St. Paul of Chartres, Inc.; and that it is your opinion that being an educational institution, the school is VAT exempt on the basis of the provision of Section 109(m) of the Tax Code of 1997, which reads as follows: "Sec. 109. Exempt Transactions . The following shall be exempt from the value-added tax: xxx xxx xxx (m) Educational services rendered by private educational institutions, duly accredited by the Department of Education, Culture and Sports (DECS) and the Commission on Higher Education (CHED),and those rendered by government educational institutions; xxx xxx xxx In reply, please be informed that St. Paul University Philippines shall be exempt from value-added tax (VAT) pursuant to Section 109(m) of the Tax Code of 1997, provided they are accredited as such either by the Department of Education, Culture and Sports or by the Commission on Higher Education. Accordingly, gross receipts from its operation are exempt from the 10% VAT, however, this exemption does not extend to its other activities involving sale of goods and services pursuant to Revenue Memorandum Circular No. 76-2003. EcSCAD The payment of VAT is the direct liability of the seller of goods, properties, or services or of the importer, unless the seller or importer is exempt from payment thereof or the transaction is one of those exempt from VAT pursuant to Section 109 of the Tax Code of 1997. However, this exemption does not cover the VAT that are being passed on to you by your suppliers of services, equipment and the materials or the VAT being assessed/paid on your importation. Pursuant to Section 105 of the Tax Code, VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. Considering that your exemption from VAT is limited only to sale of services as an educational institution, the amount of tax passed on or shifted to you shall be considered as merely part of the cost of the goods, properties or services purchased. Hence, notwithstanding that you are non-stock, non-profit educational institution, your purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 10% VAT pursuant to Sections 106, 107 and 108 of the Tax Code of 1997. Finally, under Section 235 of the Tax Code of 1997, any provision of existing general or special law to the contrary notwithstanding, the Revenue District Officer shall conduct an audit of annual information return filed, the books of accounts and other pertinent records of St. Paul University Philippines to determine compliance with the conditions set forth in the certificate of tax exemption and tax liability, if any. Likewise, under Section 236 of the Tax Code of 1997, persons subject to any internal revenue tax are required to register with the BIR their business names. Furthermore, pursuant to Revenue Memorandum Circular No. 76-2003, educational institutions are subject to the payment of the Annual Registration Fee of P500.00 as prescribed in Section 236(B) of the Tax Code of 1997. They are also required under Section 6(C) in relation to Section 237 of the same Code to issue duly registered receipts or sales or commercial invoices for each sale or transfer of merchandise or for service rendered which are not directly related to the activities for which they are registered. (BIR Ruling No. DA-317-2005 dated July 13, 2005) Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service