BIR Ruling No. 083-11

March 15, 2011 BIR RULING NO. 083-11 Sections 30 (E), 105 and 108 of the Tax Code of 1997; BIR Ruling No. DA-(VAT-004) 017-10; BIR Ruling No. DA-249-05; VAT Ruling No. 056-02 The Foundation for Reproductive Care Room 216 Don Santiago Building Taft Avenue, Ermita, Manila Attention: Lourdes B. Capito, M.D. Executive Director Gentlemen : This refers to your letter dated November 24, 2010 requesting for the issuance of Value-Added Tax (VAT) exemption certificate to The Foundation for Reproductive Care. DSITEH It is represented based on the documents submitted to this Office that The Foundation for Reproductive Care is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission under S.E.C. Reg. No. AN096-00480 dated February 7, 1996; that it was granted exemption from income tax under Section 30 (E) of the Tax Code of 1997, as amended, by the Revenue Region No. 6, Manila, on May 25, 2004; and that you are now required by Sofitel Philippine Plaza Manila for the VAT exemption certificate for the purpose of refunding the VAT payments that were included as part of your bills during your annual postgraduate course in July 2010. In reply, we regret to inform you that your request for tax exemption cannot be granted for lack of legal basis. 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 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 whatever 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. Accordingly, any person engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, shall also be liable to VAT. The tax exemption granted to corporations under Section 30 of the Tax Code of 1997 covers only income taxes for which said corporations are 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 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 and services (BIR Ruling DA-249-05 dated June 9, 2005). As seller of services, Sofitel Philippine Plaza Manila is the one primarily liable to the payment of VAT but it can pass on to you the amount of tax as part of your purchases of their services. You cannot claim exemption from the VAT being passed on by your seller because VAT, being an indirect tax may be shifted or passed on to buyer of goods and services, pursuant to Section 105 of the same Code. While The Foundation for Reproductive Care is exempt from the payment of income tax on income received by it as an organization under Section 30 (E) of the Code, its exemption only covers income taxes for which it is directly liable. It is a well-settled principle in statutory construction that exemption from tax is strictly construed against the taxpayer and liberally in favour of the taxing authority. A taxpayer who claims an exemption must be able to justify by the clearest grant of organic or statutory law its exemption from the payment of tax. An exemption from the common burden cannot be permitted to exist upon vague implication. (VAT Ruling No. 056-02 dated September 12, 2002) HTCIcE The shifting of the VAT to a tax-exemption organization does not make it the person directly liable and therefore, said organization cannot invoke its tax exemption privilege under Section 30 (E) of the Tax Code to avoid the passing on or shifting of the VAT. Hence, assuming that you are a foundation exempt from tax under Section 30 (E) of the Tax Code, your purchase of services of Sofitel Philippine Plaza Manila shall nevertheless be subject to the 12% VAT pursuant to Section 108 of the said Code, as amended by Republic Act No. 9337. (BIR Ruling No. DA-(VAT-004) 017-10 dated January 28, 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 null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue