BIR Ruling No. 386-11

October 20, 2011 BIR RULING NO. 386-11 Tax Code, Secs. 30; 105; 106; 107; 108; 109; BIR Ruling No. DA-043-2004; BIR Ruling No. S30-27-2003 Norwegian Refugee Council (Philippines),Inc. San Gregorio St.,Rosary Heights VIII Cotabato City Attention: Jenet Minanga Cedeo Finance and Administrative Manager Gentlemen : This refers to your letter dated January 4, 2011 received by this Office on January 11, 2011 by way of Indorsement dated January 6, 2011 from the Department of Finance, requesting on behalf of Norwegian Refugee Council (Philippines),Inc. ("NRC Philippines") for exemption from the payment of value-added tax (VAT) on its purchases and importation of goods and services as a non-stock, non-profit organization under Section 30 of the 1997 Tax Code, as amended. It is represented that NRC Philippines, with Tax Identification No. (TIN) 007-877-981, is a non-stock, non-profit organization duly registered with the Securities and Exchange Commission (SEC) bearing registration no. CN201015114 and that, it is wholly funded by foreign donations. In reply, please be informed that the tax exemption granted to a non-stock, non-profit corporation under Section 30 of the Tax Code of 1997 covers only income taxes for which it is directly liable. Notwithstanding that it is a non-stock, non-profit corporation, its purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 12% VAT pursuant to Section 107 of the said Code (BIR Ruling No. DA-043-04 dated February 4, 2004). It should be noted that VAT is an indirect tax payable by the seller and not by 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 it does not make it the person directly liable and therefore, it cannot invoke its tax exemption privilege under Section 30 of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. STcEIC Furthermore, Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of the same Code. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests),or government entity. Accordingly, if NRC Philippines is engaged in the sale of goods or services in the course of a business pursuit, including transactions incidental thereto, in general, it shall also be liable for VAT (BIR Ruling No. S30-27-2003 dated November 21, 2003 & DA-043-2004 dated February 4, 2004). Revenue from contributions and donations, not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 12% VAT. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained 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