Atty. Socrates R. Rivera

December 8, 2009 BIR RULING [DA-(VAT-108) 750-09] 109 (G) and (I), RR 4-2007; DA (VAT-029) 258-08; DA-364-06; DA-249-04; DA-024-04; VAT Ruling No. 107-99 Atty. Socrates R. Rivera c/o The Medical City Ortigas Avenue, Pasig City Sir : This refers to your letter dated September 16, 2009 requesting on behalf of your client, Proser Health Services, Inc. (Proser for brevity) for a ruling to confirm your opinion that its services offered and rendered are not completely subject to value-added tax (VAT). It appears that Proser is a stock corporation duly organized under the Corporation Code of the Philippines (Batas Pambansa Blg. 68) and registered with the Securities and Exchange Commission (SEC) with SEC Registration No. 199565. Proser in its original Articles of Incorporation dated December 23, 1991, was primarily organized to engage, conduct, carry-out the business of rendering, performing, providing and supplying special, technical, advisory, consultancy, human resources management and all other type of management services to all kinds of business organizations or individual, such as, but not limited to conducting seminars and undertaking training programs. In its Amendment dated May 2, 1997, its corporate name was amended as Proser Health Services, Inc., as well as its primary purpose, wherein they were made to engage in the business of organizing, operating, developing, conducting, maintaining, marketing and selling of pre-need health plans as well as other type of pre-need plans. Moreover, in its Amendment of the Articles of Incorporation dated February 22, 2006, Proser was made to establish, operate, manage and maintain a hospital or hospitals medical and chemical and/or laboratories and other enterprises which may have similar or analogous undertaking or dedicated services in connection therewith to do and all kinds of transactions that will achieve the purposes mentioned. Finally, on July 5, 2007, Proser in its Amended Articles of Incorporation again modified its purposes, to include that it was organized to engage in the operation, maintenance and administration of satellite clinics within the Philippines. Among its secondary purposes is to establish and operate one or more branch offices of agencies and to carry on any and all of its operations and business without any restriction as to place or amount. DCcHIS Proser offers and renders to its clientele the following diagnostics services, like x-ray, CT-Scan, ultra sound, 2d echo, ECG, stress test, PMR et al., as well as diagnostics under laboratory services, such as, Eosinophil Count Test, Erythrocyte Sedimentation, Clot Retraction Time Test, Activated Partial Thromboplastin Time Test, Prothrombin Time Test, Direct Antiglobulin Test, Indirect Antiglobulin Test, Cell Count of Body Fluid: Gross Examination WBC, RCBC, Differential Count, Protein (Random Specimen) Test, Protein (24 hour specimen ) Test, Billirubin Test, Liver Function Test, Protein (total albumin, globuline, albuminglobulin) Test, Albumin Test, Protein Test, Anti-Streptolysin 0 Test, Hepatitis B Test, Rheumatoid Arthritis Test, RPR: Qualitative Test, RPR: Quantitative Test, VDRL Test, HCG (Serum) Test, HBAiC Test, Calcium Test, Potassium Test, Sodium Test, Anti-Hav IgG Test, Anti-HiV Test, HBsAG EIA Test, Anti-Hbe EIA, Anti-HBc EIA Test, Anti-HBc EIA, Anti-HAV Test, Anti-HCV EIA, Blood Typiong, Complete Blood Count (CBC), CBC Profile Test, Hematocrit, Peripheral Blood Smear, Red Blood Cell Count, Reticulocyte Count, White Blood Cell Count, Bleeding Time, Clotting Time, Platelet Count, Malaria Test, Semen Analysis, Hemoglucose Test, Ketones, Pregnancy Test, Routine Urinalysis, Specific Gravity, Sugar Test, Occult Blood: Qualitative, Routine Fecalysis Cellulose Tape Slide Preparation, Stool Examination, Fasting Blood Sugar, Bone Age Test, Cervical Test, Thoracic Test, Lumbo-sacral Test, Sacrum and Coccyx, Cervico-Thoracic, Thoraco-Lumbar, Scoliosis Study, IV of Standing AP Spine, Flat, Platw (KUB) or Pelvic Test, Flat and Upright Test, Pelvimetry, Met, Survey or Skeletal, Esophagus Test, Upper GI Series & Small Bowel, Gi and Be, IVP which in your opinion are non-VATable services. Furthermore, Proser likewise provide medical services, like consultation, OR Procedures given by medical practitioners, where professional fees paid to doctors are subject to VAT. In addition, other sources of income like rentals, management fees, sale from your client's pharmacy, selling, marketing, operating and maintaining a pre-need health plan, as well as other type of pre-need plans business offered and rendered by Proser and administrative services, like rendering, performing, providing and supplying special technical, advisory, consultancy, human resources management operation of satellite clinics and all other types of management services performed and/or being offered by Proser are also subject to VAT, and are not classified as medical services. Based on the preceding facts, you now request that the above-enumerated procedures classified as diagnostics and diagnostics under laboratory services rendered and/or offered by Proser be classified as non-vatable services, being in the nature of medical services. However, services rendered by Proser not in the nature or classified as medical services, like consultation, OR procedures, rentals, operation of satellite clinics, pharmacy (not those dispensed as in-patient category being a part of the procedures) and management services be considered as vatable. In reply, please be informed that Section 109 (G), as implemented by Revenue Regulations (RR) No. 16-2005 and as amended by RR 4-2007, provides: CSIcHA "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx (G) Medical, dental, hospital and veterinary services except those rendered by professionals; xxx xxx xxx Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine is subject to VAT. (emphasis ours) xxx xxx xxx" Based on the expressed provisions of the foregoing, it is clear that laboratory services are considered transactions exempt from VAT. Applying it to the instant case, insofar as the rendition of laboratory services by Proser is concerned, this Office hereby confirms that these are considered exempt from VAT. As service provider, Proser shall not pass on the VAT to its clients because said transactions are not subject to VAT. However, in relation to the conduct of diagnostic services, whether such is also exempt from VAT shall depend on how it is provided. The process of diagnosis is defined as the discovery of the source of a patient's illness or the determination of the nature of his disease from a study of its symptoms. The conduct of diagnostic service may either be carried out by an employee of Proser (the service fee is payment for both diagnostic and laboratory services as a package) or by an independent professional (consultants). The conduct of diagnostic service when done through the employees of Proser shall be exempt from VAT pursuant to Section 109 (1) which provides, viz. : "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: xxx xxx xxx (I) Services rendered by individuals pursuant to an employer-employee relationship; aDSHIC xxx xxx xxx" On the other hand, diagnostic services, when rendered by an independent professional (consultant), shall appropriately be subject to VAT. (BIR VAT Ruling No. 01-2006 dated November 20, 2006) In view thereof, this Office is of the opinion as it hereby holds that medical and hospital services, as well as the laboratory/diagnostic services of Proser except those rendered by independent professionals are exempt from VAT pursuant to Section 109 (I) of the 1997 Tax Code, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service