BIR Ruling No. 340-11

September 7, 2011 BIR RULING NO. 340-11 Section 109 (R) 1997 Tax Code; VAT Ruling No. 060-97; VAT Ruling No. 047-99; City of Iloilo, et al. vs. Smart Communications, Inc. G.R. No. 167260 CD Technologies Asia, Inc. 83 Capitol Drive, Bo. Kapitolyo Pasig City 1603 Attention: Atty. Maria Theresa G. Libunao Vice President for Customized Client Solutions Atty. Ma. Lourdes D. Sitaca Vice President for Publishing and Operations Gentlemen : This refers to your letter dated November 3, 2009 requesting a ruling on whether the sale of CD Technologies Asia, Inc. (CD-Asia) products is exempt from value-added tax (VAT) imposed under Section 109 (R) of the 1997 Tax Code, as amended. It is represented that CD Asia is a duly registered corporation operating under the laws of the Republic of the Philippines. It was established in April 2004 * and was subsequently registered as VAT taxpayer with the Bureau of Internal Revenue (BIR) under Tax Identification Number 003-872-096. CD Asia's principal business is the creation of electronic publications under its various product lines: "The Philippine Law Library",which includes the Lex Libris series, "Legal Knowledge Titles",and "Philippine Legal Encyclopedia Series".These titles consist of the compilation of various references, annotations and information regarding different fields of law. The production process involves the conversion of printed materials into electronic format, the classification, tagging and annotation thereof, the application of a search and retrieval software which has been customized for legal research, and the publication thereof on optical media, such as CD-ROM and DVD-ROM, and online. CD Asia publishes two to three new titles annually. Most of its publications are updated with the latest materials, also in digital formats, through subscription which are delivered either quarterly, semi-annually or annually. Based on the foregoing representations, you now request for a ruling as to whether the sale of your publications is exempt from VAT. aEHTSc In reply, please be informed that in VAT Ruling No. 060-97 dated September 30, 1997 and VAT Ruling No. 047-99 dated April 12, 1999, this Office had the occasion to rule that the term "book" for purposes of the VAT law only applies to printed matters in hard copy. It does not, however, apply to electronic copy of any book or publication, thus: "CD-ROM comes within the purview of the "goods or properties", hence, the sale thereof made in the course of trade or business of the seller is subject to VAT pursuant to Section 99 in relation to Section 100 of the aforesaid NIRC. An electronic copy of any publication does not come within the purview of the terms "books, newspapers, periodicals, magazine, review or bulletin" for the purpose of VAT exemption as provided under Section 103(y) of the aforesaid NIRC. The said terms only apply to printed matters in hard copy as expressly provided therein. The term "book" has been defines as "A literary composition which is printed; a printed composition bound in volume." (Scoville V Toland 21 Fed. Cas. 864 BLACK'S LAW DICTIONARY) Accordingly, it does not come within the purview of the VAT exemption provided under Section 109 (y), NIRC, as amended by RA No. 8241, and as renumbered by R.A. No. 8424 (now Sec. 109 (R) of the 1997 Tax Code), as follows: (y) 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." It is a governing principle in taxation that tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. In City of Iloilo, et al. vs. Smart Communications, Inc. G.R. No. 167260 ,February 27, 2009, the Supreme Court held that: "The basic principle in the construction of laws granting tax exemptions has been very stable. As early as 1916, in the case of Government of the Philippine Islands v. Monte de Piedad, this Court has declared that he who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake. This doctrine was repeated in the 1926 case of Asiatic Petroleum v. Llanes ,as well as in the case of Borja v. Commissioner of Internal Revenue (CIR) decided in 1961. Citing American jurisprudence, the Court stated in E. Rodriguez, Inc. v. CIR : EICScD 'The right of taxation is inherent in the State. It is a prerogative essential to the perpetuity of the government: and he who claims an exemption from the common burden, must justify his claim by the clearest grant of organic or statute law. ..When exemption is claimed, it must be shown indubitably to exist. At the outset, every presumption is against it. A well-founded doubt is fatal to the claim; it is only when the terms of the concession are too explicit to admit fairly of any other construction that the proposition can be supported.' In the recent case of Digital Telecommunications, Inc. v. City Government of Batangas, et al. ,we adhered to the same principle when we said: A tax exemption cannot arise from vague inference. ..Tax exemptions must be clear and unequivocal. A taxpayer claiming a tax exemption must point to a specific provision of law conferring on the taxpayer, in clear and plain terms, exemption from a common burden. Any doubt whether a tax exemption exists is resolved against the taxpayer." Based on the foregoing, CD-Asia's products which have been converted into electronic or digital format do not come within the purview of the term "books or any similar publication" for purposes of Section 109 (R) of the 1997 Tax Code, as amended, hence not embraced by the VAT exemption under the said law. 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue