BIR Ruling [DA-368-04]

July 1, 2004 BIR RULING [DA-368-04] Section 108 BIR Ruling No. DA284-00 & DA251-02 J.P. Tolentino & Co., CPAs No. 16 Pelota St., Francis Village Cainta, Rizal Attention: Mr. Joaquin P. Tolentino Gentlemen : This refers to your letter dated May 31, 2004 requesting on behalf of your client, Eduardo L. Montinola Corporation (ELM), for a ruling on whether ELM has the right to include in its billing the 10% value-added tax on the lease of its real property to Robinson Land Corporation (RLC). It is represented that Eduardo L. Montinola Corporation (ELM) is a domestic corporation engaged in real estate business of renting out real properties; that on February 26, 1999, ELM entered into a Contract of Lease with Robinson Land Corporation (RLC) on the properties of ELM in Iloilo City; and that the Contract of Lease did not indicate the value-added tax (VAT) component of the lease rate. In reply, please be informed that the 10% VAT is an indirect tax in which the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services (Section 105 of the Tax Code of 1997; Section 2.4.99-22 Revenue Regulations No. 7-95; and BIR Ruling No. DA-251-2002 dated December 19, 2002). Once shifted, the VAT forms part of the cost of goods and services purchased ( Philippine Acetylene Co. vs. CIR , CTA Case No. 708, September 17, 1965). The 10% VAT imposed under Section 108 of the Tax Code of 1997 is computed based on the "gross receipts" derived from the sale or exchange of services. "Gross receipts" means "the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax" (Section 108 of the Tax Code of 1997 & BIR Ruling No. DA-284-2000 dated July 18, 2000). In view of the foregoing, this Office holds that Eduardo L. Montinola Corporation may include in its billing the 10% value-added tax on the lease of its real property to Robinson Land Corporation computed in accordance with Section 108 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. caADIC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group