The Executive Runners Club Phil., Inc. (Runnex)

June 16, 2010 BIR RULING [DA-(VAT-014) 099-10] Section 30; RR No. 2; BIR Ruling No. DA-048-06 The Executive Runners Club Phil., Inc. (Runnex) Room 404 NEC Building, UP Diliman Quezon City Attention: Artemio F. Disini Chairman Gentlemen : This refers to your letter dated July 21, 2009 requesting for Value-Added Tax Exemption Certificate be issued to The Executive Runners Club Phil., Inc. (Runnex) . As represented, The Executive Runners Club Phil., Inc. (Runnex) is a non-stock corporation constituted and incorporated under the laws of the Republic of the Philippines; that it is registered with the Securities and Exchange Commission under Registration No. 112861 dated September 30, 1996 with Tax Identification Number 260-009-980; and among the purposes for which the corporation was formed are "To promote long-distance running both as a sport and a way to greater health; to provide and/or assist members in obtaining not only competent technical and medical advice on jogging as a means of attaining physical fitness but also facilities and equipments which may be necessary for the attainment of such physical fitness through jogging". You now claim that the VAT Exemption Certificate will be provided to the suppliers of the company in order for you not to be charged with VAT. 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. HTCaAD 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. 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). Although the seller is the one primarily liable to the payment of VAT, it can pass on to the buyer the amount of tax as part of the latter's purchases. The buyer cannot claim exemption from the VAT being passed on by its seller 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 The Executive Runners Club Phil., Inc. (Runnex) is exempt from the payment of income tax on income received by it as a non-stock corporation under Section 30 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 purchases made by The Executive Runners Club Phil., Inc. (Runnex) . 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 of the Tax Code to avoid the passing on or shifting of the VAT. Hence, assuming that you are a non-stock corporation exempt from tax under Section 30 of the Tax Code, your purchases shall nevertheless be subject to the 12% VAT pursuant to Section 108 of the said Code, as amended by Republic Act No. 9337. DCcHAa 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