BIR Ruling No. 133-15

April 30, 2015 BIR RULING NO. 133-15 Section 109 (1) (R); BIR Ruling No. 007-11; BIR Ruling No. 514-11 SH Publications, Inc. 7/F Cybergate Tower 3 Pioneer Street corner EDSA Mandaluyong City Attention: Mr. Lance Y. Gokongwei Chairman/President Gentlemen : This refers to your letter dated May 17, 2012 stating that SH Publications, Inc. is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A199702524; that it is primarily organized "To carry on business as proprietors and publishers of newspapers, journals, magazines, books and other literary works and undertakings; and also to carry on business as printers, booksellers, bookbinders, paper makers, stationers, engraver photographers, photographic printers, stereotypes, electro-typers, lithographers, machinists, silkscreeners, or any other business or manufacture that may seem expedient." that SH Publications, Inc. is the publisher of Cosmopolitan and Good Housekeeping magazines; and that the said magazines appear at regular intervals ( i.e. , monthly),both with fixed prices of P125.00 for subscription and sale and which are not devoted principally ( i.e. , advertisements comprise at most 47% of the total pages, depending on the title of the magazine, and the rest are editorials) to the publication of paid advertisement. Based on the foregoing representations, you now request confirmation of your opinion that 1. The sale and importation of the above magazines are exempt from value-added tax (VAT) consequently, the sellers thereof should not pass on any VAT to the buyers; 2. The printing of the above magazines is also exempt from VAT, consequently, the printers thereof should not pass on any VAT to SH Publications, Inc.; 3. The publication of the above magazines is likewise not subject to VAT; and 4. Considering that their VAT exemption is pursuant to Section 109 (1) (R) of the Tax Code of 1997, the above transactions are likewise not subject to the 3% percentage tax imposed under Section 116, in relation to Section 109 (V) of the said Code, as amended. In reply, please be informed that Section 109 (R) of the Tax Code of 1997, as amended, provides that "SEC. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from value-added tax. xxx xxx xxx (R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulleting which appears at regular intervals with fixed prices for subscriptions and sale and which is not devoted principally to the publications of paid advertisements;" Prescinding from the above-cited provisions, it is undisputed that there are four (4) activities that are exempt from the coverage of VAT, i.e. , 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. Corollarily, Section 116, supra, provides "SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). Any person whose sales or receipts are exempt under Section 109(V) of this code from the payment of value-added tax and who is not a VAT registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed." In stressing the rationale of the above-cited provisions, this Office elucidated the matter in BIR Ruling No. 514-11 dated December 20, 2011 , as follows: "The aforementioned provision of law specifies the entities that are exempt from the value-added tax but are covered by percentage taxes. As clearly stated in the law, non-VAT registered entities exempt under Section 109(1)(V) of the Tax Code of 1997, as amended, are covered by percentage taxes. By implication, entities covered by Section 109(A) to (U) are also exempt from percentage taxes. DaECST xxx xxx xxx In view of the foregoing, this Office hereby confirms that publication of textbook is exempt from the 12% value-added tax and three percent (3%) percentage tax." However, if you have other businesses such as bookbinding, paper making stationers, engraving photographers, photographic printing, stereotyping, electro-typing, lithographers, machinists, silkscreens, printing of brochures and conducting an advertising business both as principal and agent including the preparation and arrangements of advertisements, and the manufacture and construction of advertising devices and novelties, to erect, construct, purchase, lease or otherwise acquire bill boards, signboards, buildings and other structure suitable for advertising purposes, which are subject to VAT, you will also be required to register your business as a VAT entity and issue a separate VAT invoice/receipt to record such transactions. (BIR Ruling No. 007-11 dated January 19, 2011) Moreover, VAT is an indirect tax payable by the seller and not the purchaser of goods. This is so because, 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. (ibid) Thus, the shifting of the VAT to SH Publications, Inc. does not make it the person directly liable and therefore, SH Publications, Inc. cannot invoke its tax exemption privilege under Section 109 (1) (R) of the Tax Code of 1997, as amended, to avoid the passing on or shifting of the VAT. Hence, notwithstanding that SH Publications, 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. WHEREFORE, in view of the foregoing, this Office hereby confirms, as follows: 1. The sale and importation of the above magazines are exempt from value-added tax (VAT),provided, that the magazines appear at regular intervals with fixed prices for subscription and sale and which are not devoted principally to the publication of paid advertisements. Consequently, the sellers thereof should not pass on any VAT to the buyers; 2. The printing of the above magazines is also exempt from VAT, provided that the magazines appear at regular intervals with fixed prices for subscription and sale and which are not devoted principally to the publication of paid advertisements. Consequently, the printers thereof should not pass on any VAT to SH Publications, Inc.; 3. The publication of the above magazines is likewise not subject to VAT; and 4. The above transactions are likewise not subject to the 3% percentage tax imposed under Section 116, in relation to Section 109 (1) (V) both of the Tax Code of 1997, as amended. 5. SH Publications, Inc., however, shall be subject to the 12% VAT pursuant to Section 107 of the Tax Code of 1997, as amended on its purchase of goods, properties or services from its suppliers. 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