BIR Ruling No. 007-11

January 19, 2011 BIR RULING NO. 007-11 Sec. 109 (R) NIRC; BIR Ruling No. [DA-(VAT-008) 030-10]; BIR Ruling [DA-(VAT-005) 021-10] Nalandangan, Inc. Gaddang St., La Vista Brgy. Pansol, Quezon City Attention : Jovita Ventura Castro President Gentlemen : This refers to your letter dated August 10, 2010 requesting for tax exemption pursuant to Section 109 (R) of the Tax Code of 1997, as amended. It appears that Nalandangan, Inc. is duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 119987, with Taxpayer Identification Number (TIN) 004-838-841-000; and that the primary purpose for which the corporation was formed is to publish, produce, import, export, buy, sell, distribute and/or otherwise deal in books at wholesale or retail as the law may permit, any and all objects or articles of commerce such as magazines, educational materials and supplies; to act as agents, contractors, factors, manufacturers' representatives, indentors, commission merchants, brokers, or in any other representative capacity for natural and juridical persons, whether domestic or foreign; to contract, erect, maintain, operate, own, hold, rent, lease, mortgage, sell and otherwise acquire or convey lands, buildings, factories, structures, machineries, equipment and other properties and things necessary for the operation of the business of the company. In reply, please be informed that Section 109 (R) of the Tax Code of 1997, as amended, sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin, which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements is exempt from the imposition of VAT. As such, regardless of the amount of the said transaction, you will not be subject to said tax and consequently to the creditable VAT or to the 3% percentage tax under Section 116, in relation to Section 109 (V) of the same Code. In view thereof, your business of publishing and selling of books is exempt from the payment of VAT/creditable VAT and from the 3% percentage tax. However, if you have other transactions such as the printing of brochures, which are subject to the VAT, you will also be required to register your business as a VAT business entity and issue a separate VAT invoice/receipt to record such transactions. BIR Ruling [DA-(VAT-005) 021-10] dated February 3, 2010. Moreover, VAT is an indirect tax payable by the seller and not 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. Thus, the shifting of the VAT to Nalandangan, Inc. does not make it the person directly liable and therefore, Nalandangan, Inc. cannot invoke its tax exemption privilege under Section 109 (R) of the Tax Code of 1997, as amended, to avoid the passing on or shifting of the VAT. Hence, notwithstanding that Nalandangan, Inc. is a publication company, its purchases of goods, properties or services from its suppliers shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the same Code. BIR Ruling No. [DA-VAT-008) 030-10] dated February 18, 2010. 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 as null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue