The Association for Overseas Technical Scholarship

October 24, 2008 BIR RULING [DA-(VAT-021) 342-08] Section 109, 30 (E); DA-134-2007 The Association for Overseas Technical Scholarship AOTS Manila Office (Philippines) 18th Floor, Pacific Star Building Sen. Gil Puyat Avenue cor. Makati Avenue Makati City Attention: Mr. Osamu Yoshioka General Manager Gentlemen : This refers to your letter dated May 21, 2008 requesting for a tax exemption pursuant to the provisions of Section 109 of the Tax Code of 1997. Documentary evidence submitted disclosed that the Association for Overseas Technical Scholarship (AOTS) is a non-stock, non-profit corporation organized and existing under the laws of Japan; that it is registered with the Securities and Exchange Commission under Company Registration No. F-1369 dated January 16, 2008; that the following shall be the objectives and activities of AOTS: 1. To receive industrial and technical trainees from overseas; 2. To train the overseas industrial technical trainees; 3. To manage and operate facilities needed to receive and train overseas industrial technical trainees; and 4. other activities needed to achieve the aim of the Association; that prior authority by the Board of Investments is not required since AOTS will not be undertaking any economic activity in the Philippines as contemplated under the law. In reply, please be informed that 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 (VAT) imposed in Sections 106 to 108 of the same Code. IcHAaS 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. In addition, Section 108 of the same Code provides there shall be levied, assessed and collected, a value-added tax equivalent to 10% (now 12%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The tax exemption granted to a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997, as amended, covers only income taxes for which it is 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 lease of the goods, properties or services. Once shifted to the buyer/customer as additional 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. The shifting of the VAT to AOTS does not make it the person directly liable and therefore, it can not invoke its tax exemption privilege under Section 30 of the Tax Code of 1997, as amended, to avoid the passing on or shifting of the VAT. Hence, notwithstanding that it is a non-stock, non-profit corporation, its purchases of goods or properties and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Sec. 107 of the said Code. (VAT Ruling No. 11-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004) Accordingly, revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. However, the above exemption from the 12% VAT does not extend to its purchases of goods or properties or services and importation of goods. 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, this ruling shall be considered null and void. caCSDT Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner