10% Value-Added Tax on the Purchase of Vessel

November 29, 1990 BIR RULING NO. 224-90 99,100 (a) 000-00 224-90 S i r : This refers to your letter dated November 9, 1990 requesting a ruling on a query stated as follows: "Vessel X is sequestered and transferred to the Asset Privatization Trust (APT) for disposal. While in the custody of APT, the said vessel was damaged by fire and declared a total loss. As co-insurer, GSIS and Insurance Co. A indemnify APT for the loss. Insurance Co. A now holds the vessel and contemplates to dispose it to a private company for scrapping. Insurance Co. A is a private corporation and engaged in insurance and underwriting services." Based on the foregoing facts, you posed the following question: "What business tax will Insurance Co. A be subjected to when it disposes the vessel to a private company considering that this transaction is incidental to the primary purposes for which this particular company was created by law? Also considering that the vessel was conveyed by GSIS, (a government entity, hence, a tax exempt corporation) to Insurance Co. A, a private corporation." In reply, please be informed that pursuant to Section 99 of the Tax Code, any person who, in the course of trade or business, sells, barters or exchanges goods, renders services, or engages in similar transactions and any person who imports goods shall be subject to the value-added tax (VAT). However, in this case, the contemplated sale of the vessel would only be incidental to the business of Insurance Co. A for insurance and underwriting services, hence not subject to value-added tax (VAT). The private company that will purchase the vessel to sell the same as scrap in the course of its business, as dealer of scrap materials, shall be subject to the 10% value-added tax pursuant to Section 100 (a) of the Tax Code. Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner