BIR Ruling [DA-563-06]

September 19, 2006 BIR RULING [DA-563-06] BIR Ruling No. 113-98; Sec. 105, NIRC Interadent Zahntechnik Phils., Incorporated InteraDent Building Pascor Drive, Sto. Nio Paraaque City Attention: Zenaida H. Marqueses Finance Manager Gentlemen : This refers to your letter dated July 11, 2006, requesting for a ruling as to whether or not sale of your company cars can be considered as a VAT-exempt transaction. It is represented that InteraDent Zahntechnik Phils., Inc . (" InteraDent " for brevity) is a domestic corporation duly registered with the Securities and Exchange Commission under SEC Registration No. 128448 dated January 28, 2004. InteraDent is engaged primarily in the manufacturing and export of custom-made dental products such as, but not limited to, crowns and bridges, full and/or partial denture, steel frame works, milling, and precision. It is further represented that InteraDent acquired the following cars for its officers/executives, all registered in its name and used for the company's operations. Date Particulars Assignee 03/26/01 Nissan Patrol 2001 Y61AD A/T Diesel, President and General Manager 4 cyl 04/30/01 Volvo S-60 2.07, Light Pressure Turbo, Vice-Chairman Operation Director 20 valves, 1984cc 5 Speed, 2070 gross wt. 04/30/02 Nissan Cefiro Elite A/T, 4D Operation Manager 04/30/02 Honda Accord VTiL, 2.0. A/T. 4cyl Asst. Operation Manager 03/04/04 Toyota Corolla Altis 1.6E.M/T, 4CYL Finance Manager InteraDent now intends to sell the above motor vehicles and replace them with new ones to be used in its operations. In this regard, InteraDent now requests this Office for an opinion on whether or not the sale of the above company cars is subject to the payment of 12% VAT. aTcIEH In reply, please be informed that Section 105 of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337 states that: "SEC. 105. Persons Liable . 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 shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. xxx xxx xxx The phrase " in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto , by any person regardless of whether or not the person engaged therein is a nonstock nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity." xxx xxx xxx From the foregoing, it can be seen that sales of goods or services done in the course of trade or business, as defined under Section 105 of the same Tax Code, are subject to 12% VAT. As InteraDent's regular line of business is the manufacturing and export of custom-made dental products, it follows that InteraDent may only be subjected to 12% VAT on sales related to this kind of business activity. In this regard, there is nothing to indicate that Interadent's sale of its company cars is made on a regular basis or even incidental to the manufacturing and/or export of dental products. Thus, there is no basis to subject the sale of the abovementioned company cars to VAT. 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