Church with an Exclamation Mark, Inc.

January 28, 2010 BIR RULING [DA-(VAT-004) 017-10] Sections 30 (E), 105 and 108; DA-249-05, VAT Ruling No. 056-02 Church with an Exclamation Mark, Inc. Operating Under the Name & Style of Church! Unit H, PSCOR Bldg., Elizalde St., BF Homes Phase 1, Paraaque City Attention: Ms. Marisa A. Recto Representative Gentlemen : This refers to your letter dated May 22, 2009 requesting for a certification for VAT exemption to be issued to Church with an Exclamation Mark, Inc. Operating Under the Name & Style of Church! (CHURCH!) for the purpose of refunding your VAT payments included as part of your rental payments from your lessor, Philippine Shares Corporation. It is represented based on the documents submitted to this Office that CHURCH! (formerly Minister in A Glorious Part of A Glorious Church, Inc.) is a religious corporation registered with the Securities and Exchange Commission (SEC) under Company Registration No. CN2000606700; that it entered into a lease contract with Philippine Shares Corporation since 2001; and that you were advised by your auditor that your organization should not be paying VAT in your rental payments since you are a religious organization. In reply, we regret to inform you that your request for tax exemption cannot be granted for lack of legal basis. Section 105 of the Tax Code of 1997 provides that 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 the same Code. 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 non-stock, non-profit 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. ACIEaH Accordingly, any person engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, shall also be liable to VAT. The tax exemption granted to corporations under Section 30 of the Tax Code of 1997 covers only income taxes for which said corporations are directly liable. It should be noted that VAT is an indirect tax payable by the seller and not by the purchaser of goods. However, being an indirect tax, it can be shifted or passed on to the buyer/purchaser, transferee or lessee of the goods, properties or services. Once shifted to the buyer/customer as an addition to the cost of goods or services sold, it is no longer a tax but an additional cost which the buyer/customer has to pay in order to obtain the goods or services (BIR Ruling DA-249-05 dated June 9, 2005). As lessor, Philippine Shares Corporation is the one primarily liable to the payment of VAT but it can pass on to you the amount of tax as part of your rental to the former. You cannot claim exemption from the VAT being passed on by your lessor because VAT, being an indirect tax may be shifted or passed on to the buyer of goods and services, pursuant to Section 105 of the same Code. While CHURCH! is exempt from the payment of income tax on income received by it as a religious organization under Section 30 (E) of the Code, its exemption only covers income taxes for which it is directly liable. The exemption does not cover the VAT passed on by VAT-registered companies on the Church's leased properties. It is a well-settled principle in statutory construction that exemption from tax is strictly construed against the taxpayer and liberally in favor of the taxing authority. A taxpayer who claims an exemption must be able to justify by the clearest grant of organic or statute law its exemption from the payment of tax. An exemption from the common burden cannot be permitted to exist upon vague implication. (VAT Ruling No. 056-02 dated September 12, 2002) The shifting of the VAT to a tax-exempt organization does not make it the person directly liable and therefore, said organization cannot invoke its tax exemption privilege under Section 30 (E) of the Tax Code to avoid the passing on or shifting of the VAT. Hence, assuming that you are a religious organization exempt from tax under Section 30 (E) of the Tax Code, your lease of Philippine Shares Corporation's properties shall nevertheless be subject to the 12% VAT pursuant to Section 108 of the said Code, as amended by Republic Act No. 9337. ADCTac 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, (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group