BIR Ruling No. 227-12

March 29, 2012 BIR RULING NO. 227-12 Sec. 109 (R) NIRC; BIR Ruling No. 007-2011 Innovative Educational Materials, Inc. 2356 Syquia St., Sta. Ana, Manila Attention: Ms. Gloria E. Mendoza Gentlemen : This refers to your letter dated May 18, 2010 requesting for VAT exemption certificate pursuant to the provisions of Section 109 (R) of the Tax Code of 1997, as amended. Documents submitted show that Innovative Educational Materials, Inc., with Taxpayer Identification No. (TIN) 003-956-946, is a domestic corporation duly registered with the Securities and Exchange Commission (SEC), bearing SEC Registration No. A809400009843, dated October 26, 1994; and that its primary purpose for which it was formed is to carry on business as proprietors and publishers of newspaper, journals, magazines, books and other literary works and undertakings; and also to carry on business as printers, booksellers, bookbinders, paper markers, stationers, engraver photographers, photographic printers, stereotypes electro-typers, lithographers, machinists, silkscreen, or any other business or manufacture that may seem expedient. DaTICE In reply, please be informed that Section 109 (R) of the 1997 Tax Code, as amended, the "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 VAT." The above provision is being implemented by Revenue Regulations (RR) No. 16-2005. Section 4.109-1 (B) (r) thereof, provides that "(r) 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;" shall be exempt from VAT. Prescinding from the above-cited provisions, it is clear 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. In view thereof, your business of publication and sale of books is exempt from the payment of VAT/creditable VAT and from the 3% percentage tax. However, if you have other transactions such as the printing of brochures, which are subject to the VAT, you will also be required to register your business as a VAT business entity and issue a separate VAT invoice/receipt to record such transactions. 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 Innovative Educational Materials, Inc. does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 109 (R) of the Tax Code of 1997, as amended, to avoid the passing on or shifting of the VAT. Hence, notwithstanding that Innovative Educational Materials, Inc. is a publication and printing 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. ( BIR Ruling No. 007-2011 dated January 19, 2011 ) 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 as null and void. ATCEIc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue