BIR Ruling [DA-389-98]

August 25, 1998 BIR RULING [DA-389-98] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . C . P . Noel Tax Division Gentlemen : This refers to your letter dated June 1, 1998 requesting for a ruling that your client, Alsons Security Co., Inc. (ALSEC), is not subject to value added tax since it is a corporation operated not for profit but solely to provide security services to its affiliates through reimbursement-of-cost basis. cdt It is represented that ALSEC is a domestic corporation engaged in the business of providing security and related services; that on April 3, 1998, ALSEC amended its articles of incorporation to clearly state its primary purpose of providing security and related services solely to its affiliates while maintaining its subsistence through reimbursements; that the articles of incorporation of ALSEC shows that its primary and secondary purposes are as follows: "PRIMARY PURPOSE "a) To provide security and related services to its affiliated companies and maintain its subsistence by receiving plain reimbursement of the exact costs and expense it incurs, such as, salaries, benefits and allowances to its employees, office rentals, cost of power, water, telephone, communication, travel and transportation and other miscellaneous expenses; "SECONDARY PURPOSE "b) To operate a security investigation and watchman agency after being duly licensed by the proper authorities and to make available its services to its affiliated companies;" and that it does not derive any profit from its operations. In reply, please be informed that Section 105 of the Tax Code of 1997 provides that "any person, who in the course of trade or business , sells, barters, exchanges, leases goods or properties or renders services, and any person, who imports goods, shall be subject to the value added tax." Accordingly, since ALSEC does not sell , barter, exchange, nor lease any good or property and neither does it render any service to its affiliates for profit, it is not deemed to be engaged in trade or business, hence, the services it renders to its affiliates, i.e., providing security services through reimbursement-of-cost basis, are not subject to the value added tax. 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. (BIR Ruling No. 26-97 dated April 1, 1997; VAT Ruling No. 12-96 dated June 24, 1996) casia Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)