BIR Ruling No. 126-13

April 4, 2013 BIR RULING NO. 126-13 Section 109 (R) of the Tax Code, as amended; BIR Ruling No. 227-12; BIR Ruling No. 255-12; BIR Ruling No. 244-12; BIR Ruling No. 340-12 The Bookmark, Inc. 264 Pablo Ocampo Sr. Ave., Makati City Attention: Bienvenido A. Tan Jr. President and General Manager Gentlemen : This refers to your letter dated January 21, 2013 requesting for the exemption of THE BOOKMARK, INC. (BOOKMARK) from payment of VAT and the 3% Percentage Tax. AaCcST It is represented that BOOKMARK with TIN 000-064-053-V is a wholly Filipino-owned corporation that actively publishes textbooks and tradebooks dealing with Philippine topics and themes; that BOOKMARK is registered with the Securities and Exchange Commission (SEC) with Company Registration No. 1057; that it is engaged in the wholesale and retail of books; that its social responsibility finds expression in its continuing efforts to develop materials that empower people's minds and spirits; that it seeks to develop books that contribute to Philippine development, documentation and dissemination of knowledge and information and the propagation of positive values and ethical practices; that its primary purpose is to engage in the importation, publication, manufacture, sale and distribution of books and other learning and teaching materials as well as stationary, accessories, and other commercial items for general home and office use; and that in support of your request, the following documents have been submitted: 1. Letter Application for Tax Exemption; 2. BIR Certificate of Registration; 3. Certified Machine Copy of the Certificate of filing of Amended Articles of Incorporation; 4. Certified Machine Copy of the Amended Articles of Incorporation; 5. Certificate of Increase of Capital Stock; 6. List of Publications; and 7. 2011 and 2012 Financial Statements. Based on the foregoing, you now request for the confirmation of your opinion that BOOKMARK is exempt from the payment of VAT and 3% percentage tax in its sales of books. In reply, please be informed that Section 109 (1) (R) of the 1997 Tax Code , as amended, provides: SEC. 109. Exempt Transactions . (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax . cSIHCA xxx xxx xxx (R) 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 the VAT. xxx xxx xxx Emphasis Supplied. However, with regard to the sale and publication of electronically printed materials, such as electronic books, this Office had the occasion to rule in BIR Ruling No. 340-2011 dated September 7, 2011, that the term "book" for purposes of the VAT law only applies to printed matters in hard copy. It does not, however, apply to electronic copy of any book or publication, thus: "CD-ROM comes within the purview of the "goods or properties", hence, the sale thereof made in the course of trade or business of the seller is subject to VAT pursuant to Section 99 in relation to Section 100 of the aforesaid NIRC. An electronic copy of any publication does not come within the purview of the terms "books, newspapers, periodicals, magazine, review or bulletin" for the purpose of VAT exemption as provided under Section 103(y) of the aforesaid NIRC. The said terms only apply to printed matters in hard copy as expressly provided therein. The term "book" has been defined as "A literary composition which is printed; a printed composition bound in volume." (Scoville V Toland 21 Fed. Cas. 864 BLACK'S LAW DICTIONARY) Clearly, there are four (4) activities that are exempt from the coverage of VAT-sale, importation, printing and publication of books, newspapers, magazines, reviews and bulletins. Moreover, the features of the said items, like magazine should appear at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements. In view thereof, your business of publishing textbooks and tradebooks is exempt from the payment of VAT and from the 3% percentage tax. However, if you have other transactions, 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. 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 BOOKMARK does not make it the person directly liable and therefore, it 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. DaECST Hence, notwithstanding the fact that BOOKMARK is a publication and printing 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. 007-2011 dated January 19, 2011) 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