BIR Ruling [DA-456-06]

July 26, 2006 BIR RULING [DA-456-06] International Bazaar Foundation, Inc. IBF Secretariat, Office of Protocol, Department of Foreign Affairs 6/F DFA Building, 2330 Roxas Boulevard, Pasay City Attention: Rosie Lovely T. Romulo Overall Chairperson and Sylvia Farolan IBF President Mesdames : This refers to your letters dated dated March 15, 2006 and June 9, 2006 requesting exemptions from the payment of value-added (VAT) in connection with the annual traditional event known as the "Annual Bazaar" organized by the ladies of the Department of Foreign Affairs (DFA) under the International Bazaar Foundation, Inc. (IBF), with the active collaboration and participation of the Diplomatic an Consular Corps, to be held at the PICC Forum, CCP Complex, Roxas Boulevard, Pasay City on November 19, 2006. As represented, the following are the expenses to be incurred to which VAT is added: 1. Rental for Venue, PICC Forum; 2. Booth Construction Costs; and 3. Expenses for the preparation for the event. Further, it is represented that all proceeds derived from the Annual Bazaar will be utilized for the IBF's charitable projects such as scholarship program, medical assistance and livelihood projects. In reply, please be informed that VAT is in the nature of an indirect tax, which means that the burden to pay can be shifted or passed on to another. Once the VAT is shifted to IBF as the purchaser of goods and services, it becomes part of the cost of the goods or services purchased and hence, the burden to pay becomes IBF's indirect liability. Since there is no showing that IBF is exempt from indirect tax under any existing law, IBF's purchases of goods or services from VAT-registered entities as well as importation of goods are subject to 12% VAT. Such being the case, the rental payment to PICC as well as the payment for the construction of booths and for the services engaged for the preparation for the Annual Bazaar are subject to the 12% VAT. (VAT Ruling No. 023-2003 dated March 3, 2003) On the other hand, under Section 105 in relation to Sections 106, 107, and 108 of the Tax Code of 1997, as amended, the 12% VAT is imposed on "any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods". Accordingly, since no amount of the revenues of the participants of the Annual Bazaar are derived from sale of services or sale of goods made in the course of business but rather in connection with the fund raising activity of the organizer, the IBF, said revenues, therefore, are exempt from the 12% VAT (VAT Ruling No. 005-00 dated January 27, 2000). 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