Best Telephone Directories, Inc. Subject to Value-Added Tax on Gross Receipts

June 29, 1998 BIR RULING NO. 099-98 108 (A)-000-00-099-98 SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty . M . F . A . Balili Gentlemen : This refers to your letter dated March 27, 1998 requesting confirmation, that your client, Best Telephone Directories, Inc. (" BTDI "), which is engaged in the sale of services, is subject to value-added tax (" VAT ") on its gross receipts under Section 108(A) of the Tax Code of 1997. dctai It is represented that BTDI is a corporation duly organized and existing under the laws of the Philippines; that it was awarded the exclusive contract to publish the Bayantel and the Globe Telecom Telephone Directories (" Directories "), to solicit advertisements therefor, and to include and print such advertisements in the yellow pages of the Directories; that from April to December 1997, BTDI was booking advertising space for the 1998 issue of the Directories; that BTDI was able to secure advertising space from both local and foreign advertisers; that by February 28, 1998, BTDI had completed delivery of the Directories to Bayantel and the Globe Telecom Telephone subscribers; that the terms and conditions of the agreement between BTDI and each local advertiser is set forth in the "Application for Telephone Directory Advertising"; that among others, the application specifically provides for the monthly payment of the charges for advertisements placed in a specified annual issue of the Directories; that publication of the advertisement in the Directories constitute acceptance of BDTI of the application; that when BTDI completed the delivery of the Directories which contained the various accepted advertising placements. BTDI started billing the local advertisers and expects to receive monthly payments, beginning March 1, 1998; that the payment terms for the foreign advertisers differ in that BTDI entered into a Sales Agency Agreement with Bizlink Communications Pte. Ltd. (" Bizlink "), pursuant to which BTDI commissioned Bizlink as its sales agent in Singapore; that among the obligations of Bizlink under the Sales Agency Agreement are: (1) solicitation of advertising placements from Singapore-based business entities seeking yellow pages market exposure in the Philippines through the Directories; (2) billing and collection of advertising rates; and (3) remittance of revenue due to BTDI; that upon signing of a contract with an advertiser, Bizlink collects 50% of the advertising charge and remits this amount to BTDI, together with the signed contract within 10 days; that upon receipt of the Directories, Bizlink then collects from the advertiser the 50% balance of the advertising charge and remits the amount to BTDI, within 30 days; and that BTDI received the 50% initial payment from the Singapore advertisers in February 1998. In reply, please be informed that Section 108 (A) of the Tax Code of 1997 provided as follows: "Sec. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . "(A) Rate and Base of Tax . There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of the gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase ' sale or exchange of services ' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, . . . regardless of whether or not the performance thereof calls for the exercise or use of physical and mental faculties. . . . The term ' gross receipts ' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax." Such being the case, this Office confirms your opinion that BTDI is engaged in the sale of services, and therefore subject to the 10% VAT on gross receipts derived from the sale or exchange of services. Consequently, BTDI is required to file its VAT returns covering the fees received from its advertisers, and to pay the VAT due thereon on the following dates: 1. On the 25th day of the month succeeding the month of receipt of the advance payments from Bizlink; 2. On the 25th day of the month succeeding the month of receipt of each succeeding payment from Bizlink; and 3. On the 25th day of the month succeeding the month of receipt of each remittance from the Philippine-based advertisers. 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 will be considered null and void. cdlex Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue