BIR Ruling [DA-735-06]

December 19, 2006 BIR RULING [DA-735-06] Section 110 (A) of the Tax Code; VAT Ruling No. 015-05 Aranas Consunji Barleta Law Office Unit 106, Le Metropole Bldg. 326 Tordesillas Cor. Dela Costa Sts. Salcedo Village, Makati City Attention: Jesus Clint O. Aranas Partner This refers to your letter requesting on behalf of your client, Tutuban Properties, Inc. ("TPI") for confirmation of your opinion that TPI as a VAT-registered entity may utilize the input VAT arising from direct utilities and services as well as CUSA expenses which are incurred in the course of running its mall operations and credit the same against its output VAT. aSTECI We understand that TPI secured goods and services from third parties (e.g., MERALCO, Maynilad, and other third party contractors, collectively referred to hereinafter as "utility and service providers"), for the maintenance and operation of the common areas and facilities of the Mall; that to pay for such goods and services, TPI and the Mall's lessees entered into a cost sharing agreement; that pursuant to this arrangement, TPI will advance all the direct utility and service expenses arising from the maintenance and operation of the mall with the understanding that TPI will later issue a billing statement to the Mall's tenants to charge such expenses at cost on a pro-rated basis and without any VAT component; that for example, in the case of direct services such as repairs to, and maintenance of, a tenant's stall, the contractors for the repairs will bill TPI for the services rendered; that in turn, TPI issues a billing statement to the tenant for the expense incurred; that for electricity and water, TPI maintains a mother meter which indicates the total utility consumption to be paid by TPI for a certain period; that TPI would advance the payment to the utility companies and would then subsequently issue a billing statement to its tenants using the individual sub-meters maintained by each tenant; that the tenants will then reimburse TPI based on actual consumption as part of the cost sharing arrangement; that TPI does not use a VAT invoice when billing its tenants, and as such does not pass on any VAT component to these tenants; that the VAT invoices or official receipts for the direct utility and service expenses issued by such utility and service providers are all in the name of TPI and the said billings include a VAT component passed on to TPI as part of the price of, or fee for, such goods and services. In reply, please be informed that TPI as a VAT-registered entity may utilize the input VAT arising from direct utilities and services as well as CUSA expenses which are incurred in the course of running its mall operations and credit the same against its output VAT. Section 110(A) of the National Internal Revenue Code of the Philippines (the "Tax Code"), as amended by R.A. No. 9337, provides, thus: (1) Any input tax evidenced by a VAT invoice or official receipt issued in accordance with Section 113 hereof on the following transactions shall be creditable against the output tax: (a) Purchase or importation of goods: xxx xxx xxx (iii) For use as supplies in the course of business; or xxx xxx xxx (b) Purchase of services on which a value-added tax has actually been paid. (2) The input tax on domestic purchase or importation of goods or properties by a VAT-registered person shall be creditable: (a) To the purchaser upon consummation of sale and on importation of goods or properties; and xxx xxx xxx Section 4.104-2 of Revenue Regulations No. 7-95, as amended, implements the above provision, as follows: Sec. 4.1.04-2. Persons who can avail of the input tax credit. The input tax credit on purchase of goods or properties or services shall be creditable: xxx xxx xxx (c) To the purchaser of services or the lessee or licensee upon payment of the compensation, rental, royalty or fee. In VAT Ruling No. 015-05, dated 26 August 2005, we ruled that the buyer must be properly identified in the invoice before it is given the privilege of claiming an input tax credit from its purchase of taxable goods and services. This is to avoid the possibility of a VAT taxpayer claiming an input tax from a VAT invoice or receipt issued to another tax payer. Accordingly, the one entitled to claim for an input tax from a VAT invoice or receipt is only the one who is named and properly identified in the invoice or receipt. DEcITS In the case at bar, the expenses incurred for acquiring goods and services for the maintenance and operation of the common facilities, utilities and services of the Mall are all purchases or payments by TPI in the course of its business. The VAT therefor has been actually paid by TPI, which fact is evidenced by the VAT invoices and official receipts issued by the utility and service providers in the name of TPI. Accordingly, we hereby confirm your opinion that that TPI as a VAT-registered entity may utilize the input VAT arising from direct utilities and services as well as CUSA expenses which are incurred in the course of running its mall operations and credit the same against its output VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it is ascertained 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 Asst. Commissioner Legal Service