BIR Ruling [DA-449-98]

October 6, 1998 BIR RULING [DA-449-98] Philippine Communications Satellite Corporation Telecoms Plaza Bldg. 316 Gil J. Puyat Avenue Makati City Attention: Mr . Oscar Rudijer T . Santiano VP-Comptroller/Internal Audit Gentlemen : This refers to your letter dated July 10, 1996 stating that Philippine Communications Satellite Corporation (Philcomsat) is a grantee of a legislative franchise under Republic Act No. 7549 to establish and operate ground satellite terminal station/stations for telecommunications with satellite facilities and delivery to common carriers; that on September 18, 1990, Philcomsat executed an agreement with Philippine Long Distance Telephone Co. (PLDT) wherein Philcomsat shall provide and maintain a restoration facility for G-P-T and HAW-4 ITTC-3 fiber optic cable system on a standby basis; that the agreement was effective for 3 years and was extended for another 2 years from September 18, 1993; that for the abovementioned services Philcomsat charges PLDT space segment cost with a mark-up of 25%, among others; that PLDT advised us that the actual space segment charges are actually being passed on to and paid among the foreign administrations (their correspondents) in accordance with their contract; that PLDT advised you that their correspondents are not willing to absorb the 10% EVAT which you imposed on the space segment charges in view of the nature of the agreement and end use; that PLDT further alleged that they are mere conduits to the transaction; hence, they are not liable to pay the VAT; and that you were advised by PLDT to bill directly their foreign correspondent on Intelsat space segment charges. LLphil In connection therewith, you are requesting opinion on the following: "1. Whether the space segment charges billed directly to the foreign administration is exempt from VAT? "2. If this billing will be coursed through PLDT, who is going to allocate the charges and pass them to the foreign administration, is the said space segment charges VAT exempt?" In reply thereto, please be informed that any person who, in the course of trade or business, sells, barters, exchanges, lease goods or properties, renders services, and any person who imports goods shall be subject to the Value Added Tax (VAT) imposed in Sections 106 to 108 of the Tax Code of 1997. Moreover, VAT is an indirect tax which can be shifted or passed on to the buyer as part of the cost of the goods/services rendered. Accordingly, Philcomsat as the seller of the service, i.e. "to provide and maintain a restoration facility for G-P-T and HAW-4 ITTC-3 fiber optic cable system on a standby basis to PLDT" is subject to the 10% VAT based on the gross receipts (space segment charges) derived from the sale of the service pursuant to Section 108(A) of the Tax Code of 1997. However, the VAT which is an indirect tax can be shifted or passed on to the buyer as part of the cost of the goods/services rendered. (BIR Ruling No. 025-98 dated September 4, 1998) 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. cdtech Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)