Central Luzon State University

August 6, 2008 BIR RULING [DA-(VAT-014) 116-08] Central Luzon State University Science City of Muoz Nueva Ecija Attention: Mr. Ruben C. Sevilleja President Gentlemen : This refers to your letter dated March 18, 2008 requesting for a ruling on whether the Central Luzon State University (CLSU), a government institution of higher learning, is subject to value-added tax (VAT). cCHITA Documents submitted show that CLSU (formerly, Central Luzon Agricultural College) was converted into CLSU by virtue of Republic Act (R.A.) No. 4067. Its primary purpose is to "give professional and technical training in agriculture and mechanic arts besides providing advanced instruction and promoting research in literature, philosophy, the sciences, technology and arts". The National Transmission Corporation (TRANSCO) is a government owned and controlled corporation duly organized and existing under and by virtue of R.A. 9136, otherwise known as the "Electric Power Industry Reform Act of 2001", with principal office address at Power Center, Quezon Avenue corner BIR Road, Diliman, Quezon City. On May 29, 2007, TRANSCO and CLSU executed a Contract for the External Monitoring of Land Acquisition and Resettlement Activities for Luzon Transmission Line Upgrading Project I which will traverse various municipalities in Pangasinan, Tarlac and Pampanga. Pursuant to the said contract, CLSU was commissioned by TRANSCO to monitor and evaluate the implementation of the Land Acquisition and Resettlement Plan (LARP) and conduct post-implementation evaluation of LARP for a contract price of PhP1,196,160.00. HIAcCD In reply, please be informed that Section 105 of the Tax Code of 1997, as amended 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 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. HCaEAT In a decision of the Supreme Court in the case of Commissioner of Internal Revenue vs. Court of Appeals and Commonwealth Management and Services Corporation, G.R. No. 125355, March 30, 2000, the High Court had occasion to rule as follows: "Contrary to COMASERCO's contention, the above provision clarifies that even a non-stock, non-profit organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term 'in the course of trade or business' requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. xxx xxx xxx Section 108 of the National Internal Revenue Code of 1997 defines the phrase 'sale of services' as the 'performance of all kinds of services for others for a fee, remuneration or consideration'. It includes 'the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project'." EcTaSC In view of the foregoing, this Office hereby holds that CLSU is subject to VAT on the sale of its services to TRANSCO. The VAT may be passed on by CLSU to TRANSCO. 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. EScAHT Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service