BIR Ruling No. 137-12

February 27, 2012 BIR RULING NO. 137-12 Sec. 109 (1) (E) and (2), Sec. 117 of the Tax Code of 1997, as amended; R.A. 9337; RR 16-2005; 000-00 The Law Firm of Tiongco, Avecilla, Flores & Palarca 21st floor, Robinsons Equitable Tower Ortigas Center, Pasig City Attention: Catherine S. Bringas Gentlemen : This refers to your letter dated September 2, 2010 requesting clarification, in behalf of Hafti Transport, Inc., in reference to the Percentage Taxes on Domestic Carriers under Section 117 of the NIRC, as amended in relation to Section 109 (E) on Expanded Value Added Tax (eVAT); that if a VAT-registered domestic carrier elects Subsection (1) of Section 109 not apply to its sale of goods or properties or services, does this mean that the domestic carrier may issue receipts without being held subsequently liable for applicable percentage taxes on their transactions. It is represented that Hafti Transport, Inc. with Taxpayer's Identification No. 228-179-572-000, is a VAT-registered domestic common carrier engaged in transporting passengers by land; that it is registered with the Securities and Exchange Commission (SEC) under Registration No. CS200341357; and that the purpose or purposes for which it was incorporated is to construct, equip, maintain and work motor buses or other vehicle appropriate for the carriage of passengers or goods and to carry on the business of motor bus proprietors and carriers of passengers and goods in and around the Philippine Archipelago and such other places as may from time to time be thought fit, to purchase, construct, sell, hire or let motor buses, engines, machinery and other chattels and things used for any of the above purposes to enter into contracts with any person or company as to interchange of traffic, running powers, or otherwise; and to obtain all powers and authorities necessary to carry out or extend any of the above objects. In reply, please be informed that the transport of passengers is subject to percentage tax under Section 117 of the Tax Code of 1997, as amended, which provides that: "SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. Cars for rent or hire driven by the lessee; transportation contractors, including persons who transport passengers for hire, and other domestic carriers by land for the transport of passengers (except owners of bancas and owners of animal-drawn two wheeled vehicle), and keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts. xxx xxx xxx" However, Section 109 1 (1) (E) and (2) of the Tax Code of 1997, as amended provide as follows: "SEC. 109. Exempt Transactions. Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax: "(E) Services subject to percentage tax under Title V; "xxx xxx xxx "(2) A VAT-registered person may elect that Subsection (1) not apply to its sale of goods or properties or services: Provided, That an election made under this Subsection shall be irrevocable for a period of three (3) years from the quarter the election was made. " Section 4.109-2 of Revenue Regulations No. 16-2005, that discussed the provision Section 109 (2) of the Tax Code of 1997, as amended which provides: A VAT-registered person may, in relation to Sec. 9.236-1 (c) of these Regulations, elect that the exemption in Subsection (1) hereof shall not apply to his sales of goods or properties or services. Once the election is made, it shall be irrevocable for a period of three (3) years counted from the quarter when the election was made. In relation thereto, Sec. 9.236-1 (c) of the same Revenue Regulations, provides; Any person who is VAT-exempt under Sec. 4.109-1 (B) (1) (V) 2 not required to register for VAT may, in relation to Sec. 4.109-2, elect to be VAT-registered by registering with the RDO that has jurisdiction over the head office of that person, and pay the annual registration fee of P500.00 for every separate and distinct establishment. Based on the foregoing provisions, common carriers or transportation contractors are explicitly subjected to the three percent (3%) tax, and therefore, exempt from VAT. For this purpose, "a common carrier or transportation carrier may be defined, broadly, as one who holds himself out to the public as engaged in the business of transporting persons or property from place to place, for compensation, offering his services to the public generally." 3 Article 1732 of the New Civil Code of the Philippines defines a "common carrier" as "any person, corporation, firm or association engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public." Accordingly, there is no doubt that Hafti Transport, Inc. is a transportation contractor for the transport of passengers within the purview of Section 117 of the Tax Code of 1997. Moreover, Hafti Transport, Inc.'s primary purpose includes carriage of passengers and goods, hence, pursuant to Sec. 117 of the Tax Code of 1997, as amended, and RR 16-2005, it is subject to percentage tax only on its gross receipts from transport of passengers and subject to VAT on its gross receipts from transport of goods or cargoes. Consequently, the option granted in Section 109 (2) of the Tax Code of 1997, as amended, which allows a VAT-registered person to elect that it not be VAT exempt does not apply to services subject to percentage tax under Title V of the NIRC as such services are explicitly subjected to percentage taxes, and thus, exempt from VAT. Furthermore, Section 4.108-3 (d) of Revenue Regulations No. 16-2005, provides; (d) . . . "Common carrier" refers to persons, corporations, firms or associations engaged in the business of carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering their services to the public and shall include transportation contractors. Common carriers by land with respect to their gross receipts from the transport of passengers including operators of taxicabs, utility cars for rent or hire driven by the lessees (rent-a-car companies), and tourist buses used for the transport of passengers shall be subject to the percentage tax imposed under Sec. 117 of the Tax Code, but shall not be liable for VAT In view of all the foregoing, this Office is of the opinion and so holds that if Hafti Transport, Inc. availed of the option under Section 109 (2) Tax Code of 1997, as amended, it is subject even to the three percent (3%) tax as a transportation contractor for the transport of passengers. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed or discovered that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Section 7 of Republic Act No. 9337. 2. Sale or release of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One Million Five Hundred Thousand Pesos (P1,500,000.00) . . . . 3. First Philippine Industrial Corporation vs. Court of Appeals, G.R. No. 125948, December 29,1998.