Chamber of Furniture Industries of the Philippines, Inc.

May 7, 2009 BIR RULING [DA-(VAT-039) 223-09] Section 109, 30 (E); DA-134-2007 Chamber of Furniture Industries of the Philippines, Inc. Unit H. 9th Floor Strata 100 Bldg., Emerald Avenue Ortigas Center, Pasig City Attention: Ms. Ma. Charmaine D. Guevara Executive Director Gentlemen : This refers to your letter dated June 17, 2008 requesting for a VAT exemption on its rental payments at SMX Convention Center payable to SM Investments Corporation for the Philippine International Furniture Show to be held on March 5 to 9, 2009. aAEIHC Documentary evidence submitted disclosed that the Chamber of Furniture Industries of the Philippines, Inc. ("CFIP") with TIN 000-863-738-000 is a non-stock, non-profit business support organization organized and registered with the Securities and Exchange Commission; that it is registered as a non-VAT entity with the Bureau of Internal Revenue; that CFIP assists its members in their export market development efforts through the organization of the annual Philippine International Furniture Show, a trade exhibit that solely provides a business development venue for its members to showcase, display and exhibit to prospective customers their products, designs and craftsmanship; that no actual retail sales are made during the trade exhibit itself; and that CFIP members and trade show participants are all business enterprises duly registered with the BIR in their respective places of business. 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 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. 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 in 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. The shifting of the VAT to CFIP 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 services shall nevertheless be subject to the 12% VAT pursuant to Section 105 of the said Code. Moreover, if it renders service to its members for a fee, the service fee charged shall also be subject to 12% VAT. (VAT Ruling No. 11-90 dated May 14, 1990 and BIR Ruling No. DA-043-2004 dated February 4, 2004) AIDTSE Thus, applying the above provision, the rental payments at SMX Convention Center payable to SM Investments Corporation's charges for the lease of the property are subject to VAT pursuant to Section 105 of the same Code. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group