BIR Ruling No. 170-13

May 6, 2013 BIR RULING NO. 170-13 Sec. 109 (1) (R) of the Tax Code; RMC No. 75-2012; BIR Ruling No. 007-11; BIR Ruling No. 503-11 Thistle International, Inc. 10th Flr. Aurora Milestone Tower, No. 1045 Aurora Blvd., Loyola Heights, Quezon City Attention: Mr. Renato D. Yanos President Gentlemen : This refers to your letter dated December 4, 2012, requesting on behalf of THISTLE INTERNATIONAL, INC., for certificate of tax exemption on the importation and sale of Britannica print and online products pursuant to Section 109 (R) of the Tax Code of 1997, as amended. It is represented that THISTLE INTERNATIONAL, INC., with Taxpayer's Identification No. (TIN) 008-119-635-000, is a corporation organized and existing under the laws of the Philippines; that it is duly registered with the Securities and Exchange Commission (SEC) under SEC Reg. No. CS201115704 dated September 7, 2011; and that the primary purpose for which the corporation was formed is to act as the Britannica representative for the Philippines to import, wholesale and retail of Britannica products such as print, digital, and online educational products utilizing direct sales methodology. In reply, please be informed that Section 109 (1) (R) of the Tax Code of 1997, as amended, 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 Value-Added Tax. In view thereof, THISTLE INTERNATIONAL, INC.'s business of selling books is exempt from the payment of VAT or from the 3% percentage tax under Section 116, in relation to Section 109 (1) (V) of the 1997 Tax Code. (BIR Ruling No. 007-11 dated January 19, 2011) SIcCTD However, with regard to the digital and other online educational products, Revenue Memorandum Circular No. 75-2012 made a clarification to be exempted from VAT, thus: "The terms "book", "newspaper", "magazine", "review" and "bulletin" as used in the provision refer to printed materials in hard copies. They do not include those in digital or electronic format or computerized versions, including but not limited to: e-books, e-journals, electronic copies, online library sources, CDs and software." In view of the foregoing, the wholesale and retail by THISTLE INTERNATIONAL, INC. of digital and online educational products, being outside the purview of the term "books or any similar publication" for purposes of Section 109 (1) (R) of the 1997 Tax Code, are subject to the 12% VAT. Thus, it is required to register its business as a VAT business entity and issue a separate VAT invoice/receipt to record such transactions. (BIR Ruling No. 503-11 dated December 15, 2011) 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 THISTLE INTERNATIONAL, INC. does not make it the person directly liable and therefore, it 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. 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. ESDHCa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue