Input Taxes Generated from Purchase of Goods or Services, Used as Credit Against Output Tax

October 14, 1999 BIR RULING NO. 159-99 110 (A) (3) (b)-000-00-159-99 Diaz Murillo Dalupan 5F Don Jacinto Building Dela Rosa corner Salcedo Streets Legaspi Village, Makati City Attention: Atty . Millard M . Manseguiao Gentlemen : This refers to your letter dated January 28, 1999 requesting confirmation of your opinion that unused input taxes generated by your client, Fujirebio Philippines, Inc., 6th Floor Trafalgar Plaza, H. V. de la Costa Street, Salcedo Village, Makati City while actively engaged as importer-trader are still valid deductions against its output tax as commission earner. It is represented that your client was incorporated on March 28,1996, that it is registered as a VAT taxpayer on June 4, 1996 as a wholesaler/importer; that beginning 1999 it will temporarily abandon its trading activity and will devote itself to negotiating or brokering between parties to effect sale of goods and will be earning commission income from such service. In reply thereto, please be informed that Section 110(A)(3)(b) of the Tax Code of 1997, defines the term "input tax" viz: "The term 'input tax' means the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including lease or use of property, from a VAT-registered person. . . ." It is noted from the above definition that input taxes are generated from the purchase of VAT taxable goods or services from a VAT-registered taxpayer without distinguishing whether the input taxes are sourced from the purchase of goods or services. In other words, input taxes generated from the purchase of goods or services can be used without distinction as a credit against the output tax due from VAT-registered person. Such being the case, the commission earner who is liable to the output tax on commission income may claim the input tax generated from his/its importation of goods or trading activity subject to the condition that such input taxes have not been applied against output taxes. 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.) BEETHOVEN L. RUALO Commissioner of Internal Revenue