BIR Ruling [DA-530-04]

October 19, 2004 BIR RULING [DA-530-04] Sec. 236; BIR Ruling No. 091-96 Center for International Trade Expositions and Missions (CITEM) Golden Shell Pavillon Roxas Boulevard cor. Gil J. Puyat Avenue Pasay City Attention: Ms. Angelita A. Madulid Caretaker Gentlemen : This refers to your letter dated September 6, 2004 requesting clarification on whether or not the participation of the exhibitors in the various trade fairs organized by the Department of Trade and Industry through the Center for International Trade Expositions and Missions (DTI-CITEM) constitutes operation of a " branch " or " facility " which would require another registration with the BIR and payment of the annual registration fee, aside from the registration at their principal place of business. It is represented that the DTI-CITEM is the primary agency of the government promoting export by organizing trade fairs, trade missions and other promotional activities; and that it implements a year-round schedule of trade fairs which include the following: 1. National Trade Fair (NTF) which showcases the products of Filipino producers/manufacturers from various regions and promote them to the local market; 2. Local Fairs which provide a venue for local producers to find buyers and generate trade orders from local and foreign markets; and 3. Manila F.A.M.E. International an order-taking event which showcases the export products of Filipino manufacturers to foreign buyers; It is further represented that except for the NTF, both Manila F.A.M.E. International and the local fairs are trade events that cater mainly to trade buyers; that during the implementation of these activities, DTI-CITEM leases an exhibit venue appropriate for the event and subleases the same to participating manufacturers and exporters for a short period of time which usually runs from three (3) to four (4) days; that to ensure that these exhibitions are paying taxes, DTI-CITEM requires them to be registered with the BIR at their principal place of business and to submit a copy of said registration prior the event proper; that however, Section 236(B) of the Tax Code requires " An annual registration fee in the amount of P500 for every separate or distinct establishment or place of business, including facility types where sales transaction occur, shall be paid . . ."; that the same provision also states that the term "facility" may include sales outlets, places of production, warehouses or storage places; that from its understanding of the above provision, a "branch" or a "facility" refers to a permanent structure being maintained by a BIR-registered entity, aside from its principal place of business; that it posits that a trade exhibitor who is already registered with the BIR at its principal place of business cannot be considered to have effectively established a "branch" or "facility" upon joining a trade fair which runs for only 3 to 4 days; and that the Revenue District Office No. 51, Pasay City opines otherwise, hence, this request for clarification. In reply, please be informed that pursuant to Sections 4.107-1 and 4.107-2 of Revenue Regulations (Rev. Regs.) No. 7-95 implementing the EVAT Law, any person who sells, barters, exchanges, leases goods or properties and renders services either subject to VAT under Sections 106 and 108 (then Secs. 100 and 102) of the Tax Code of 1997 or not, shall register with the Revenue District Office (RDO) concerned before commencement of business and every year thereafter on or before the 31st day of January as prescribed under Sec. 236 of the Tax Code of 1997 and shall pay an annual registration fee in the amount of Five Hundred Pesos (P500.00). This registration requirement and payment of annual registration fee shall also apply to every separate business or distinct establishment or place of business that the taxpayer maintains. Said Section 4.107-1 of Rev. Regs. No. 7-95 further defines the foregoing registrable place of business as follows, to wit: "Separate or distinct establishment" shall mean any branch or a warehouse where a taxpayer conducts his business operation. "Branch" means a fixed establishment in a locality which conducts sales operation of the business as an extension of the principal office. "Principal place of business'' refers to the place where the head or main office is located as appearing in the corporation's Articles of Incorporation. In the case of individual, the principal place of business shall be the place where the head or main office is located and where the books of accounts are kept. "Warehouse" means the place or premises where the inventory of goods for sale are kept and from which such goods are withdrawn for delivery to customers, dealers, or persons acting in behalf of the business. aEHTSc In fine, all the foregoing terms refer either to a head office, branch or facility as mentioned in said Section 236 of the Tax Code. This Office has noted that DTI-CITEM performs a unique function which involves promotion of Philippine products by organizing trade fairs and exhibits which are of short duration and are being held for the purpose of showcasing Philippine products either for international and/or domestic market and not for the purpose of establishing a permanent establishment in the designated fair venues. Further, the only transaction being undertaken by the exhibitors during the duration of trade fairs is the order taking event. The order taking is the pre-selling stage with no corresponding delivery of or payment for the goods or articles being ordered. Moreover, gross receipts from sale of goods becomes subject to VAT when the corresponding invoice has been issued. The order-taking without the corresponding issuance of an invoice is not considered a "sale"; hence forth, for purposes of taxation, the exhibitors are not deemed engaged in sales operation during the 34 days trade fairs/exhibits. In view of the foregoing, this Office is of the opinion as it hereby rules that the participation by exhibitors-sellers in short duration trade fairs being organized by DTI-CITEM at designated venues being leased merely for the purpose of showcasing Philippine products without conducting sales transaction, does not constitute operation of a "branch" or "facility." Such being the case, the exhibitors-participants are not required to register their trade fair booths as a separate business establishment and consequently, payment of the annual registration fee will not apply. aTCADc Furthermore, considering that Philippine trade fairs are organized and held simultaneously with other trade fairs in the Asian region, a need of a single venue which gives convenience and easy access to the buyers, specifically the foreign buyers requires the lease by CITEM of a premises where it can house the 300 plus exhibitors during trade fairs. In effect, a trade fair is a convenient one-stop showcase to promote Philippine products and not for the purpose of establishment by each and every exhibitors-manufacturers of a branch" or "facility" in the leased venue. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group