BIR Ruling [DA-362-06]

June 9, 2006 BIR RULING [DA-362-06] RR 30-03; Sec. 110; DA-238-05; 484-04; 246-88 Siguion Reyna Montecillo & Ongsiako 4th & 6th Floors, Citibank Center Paseo de Roxas, Makati City Attention: Attys. Jose Lis C. Leagogo and Julie Ann S. Terrado Gentlemen : This refers to your letter dated March 24, 2006 requesting on behalf of your client, Manila Memorial Park Cemetery, Inc . ("MMPC") confirmation on the following: "1. That the amount received in advance by MMPC from MPCF, upon request therefor, and to be paid to contractors and suppliers for expenses in the maintenance of the park cemeteries are monies merely entrusted to MMPC and without benefit to it, hence, do not form part of the gross receipts of MMPC subject to income tax and value-added tax; "2. That the withholding of taxes by MMPC, in lieu of MPCF, on income payments made to suppliers and contractors and the remittance thereof to the BIR is deemed substantial compliance with the withholding tax requirements, hence, said remittance may be credited to the account of MPCF as the actual payor; and "3. That any input VAT on the above transaction forms part of the purchase costs of MPCF for the maintenance of the park cemeteries and, therefore, deductible as an expense by MPCF." It is represented that Manila Memorial Park Cemetery, Inc. ("MMPC") is a corporation duly organized and existing under the laws of the Philippines; that its primary purpose is to buy, barter for, lease, locate, or otherwise acquire, to sell, lease, sublease or otherwise dispose of, to establish, lay out, improve, equip, construct, conduct, maintain, and operate real estate for burial purposes, cemeteries, funeral parlors, chapels, and other necessary buildings and improvements for burial, cremation, and care of the remains of the dead. The company receives contributions from its customers for the Memorial Park Care Fund ("MPCF'") separately and independently of the purchase price of the memorial lots; that said contributions are being turned over by MMPC to the Trustee, Rizal Commercial Banking Corporation ("RCBC"), of an Irrevocable Trust established to pay for the care of the cemetery, i.e ., cutting of grass upon plots, raking and clearing of plots, pruning shrubs and trees and the general preservation of the plots and grounds, walks, roadways, boundaries and structures, to the end that said grounds shall remain and be reasonably cared for as a memorial park cemetery. acAIES In the standard "Offer to Purchase" and "Deed of Sale and Certificate of Memorial Park Care" the amount covering the customers contribution to MPCF is separately indicated as contribution to MPCF in contradistinction with the purchase price of the cemetery lot; that MMPC is obligated to set aside and deliver the amount covering the contribution to MPCF established to care for the memorial park cemetery; that the contribution does not form part of the purchase price of the lot and MMPC merely acts as the collecting agent and immediately turns the same over the Trustee; and that any income earned by MPCF shall henceforth be utilized to cover the maintenance expenses of the cemetery. MMPC, as administrator of the cemetery, incurs expenditures in the upkeep of the same; that it makes use of the amounts requested and received from the Trustee of the MPCF, subject to liquidation, without mark-up or profit element, merely serving as the administrator of the funds in negotiating contracts with suppliers or contractors and as a flow-through entity in the payment of the obligations of MPCF to the said suppliers or contractors. Considering that MPCF is established pursuant to the Perpetual Care Trust Agreement executed between MMPC and RCBC, and that the latter insists that its only role is to disburse Funds upon request, subject to conditions set forth in the Perpetual Care Trust Agreement, and that the documentation and recording of the transactions with the suppliers or contractors no longer form part of the Trustee's obligations, it is MMPC, for the account of MPCF, that procures the goods and services for the maintenance of the memorial park cemeteries using funds entrusted to it, subject to liquidation of said expenses. In reply, please be informed as follows: 1. The amounts received in advance by MMPC from MPCF, upon request therefor, and to be paid to contractors and suppliers for expenses in the maintenance of the park cemeteries are monies merely entrusted to MMPC and without benefit to it, hence, do not form part of the gross receipts of MMPC subject to income tax and value-added tax. (BIR Ruling No. DA-238-05 dated June 01, 2005) ASTcEa 2. Pursuant to Section 2.57.3 of Revenue Regulations No. 2-98, as amended by Section 5 of Revenue Regulations No. 30-03, agents, employees or any person purchasing goods or services/paying for and in behalf of the aforesaid withholding agents shall likewise withhold on their behalf, provided that the official receipts of payment/sales invoice shall be issued in the name of the person whom the former represents and the corresponding certificate of taxes withheld (BIR Form No. 2307) shall immediately be issued upon withholding of the tax. Such being the case, the withholding of taxes by MMPC, in lieu of MPCF, on income payments made to suppliers and contractors and the remittance thereof to the BIR is deemed substantial compliance with the withholding tax requirements, hence, said remittance may be credited to the account of MPCF as the actual payor. (BIR Ruling No. DA-484-04 dated September 10, 2004) 3. Pursuant to Section 110 of the Tax Code of 1997, as amended, provides: "Section 10. Tax Credits. (A) Creditable Input Tax . (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: (a) Purchase or importation of goods: xxx xxx xxx (b) Purchase of services on which a value-added tax has been actually paid. xxx xxx xxx." Such being the case, any input VAT on the above transaction forms part of the purchase costs of MPCF for the maintenance of the park cemeteries and, therefore, deductible as an expense by MPCF, and considering that MPCF does not render any vatable services and is a non-vat registered entity, and considering further, that MPCF reimburses MMPC for the full purchase price, inclusive of input VAT, then MPCF will have to shoulder the VAT as an expense deductible from its income tax. (VAT Ruling Nos. 246-88 dated June 08, 1988; 336-88 dated July 22, 1988; 490-88 dated October 17, 1988) 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service