Applicability of VAT on the Sale of Goods and Services to a Foundation

November 16, 1988 BIR RULING NO. 547-88 99-00 297-88 547-88 Gentlemen : This refers to your letter dated August 5, 1988 stating that your company is an advertising agency subject to 10% VAT on your agency commission; that one of your clients is The Foundation of Ranamel Christian Ministries, Inc., a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission; and that they claim to be exempt from the payment of income tax under then Section 27(e) of the Tax Code. You now request for a ruling as to the applicability of VAT on you sale of goods and services to said foundation. In reply, please be informed that your sales of services to the aforesaid Foundation are subject to the 10% value-added tax imposed by Sections 100 and 102 of the Tax Code, as amended by Executive Order No. 273. Said sales cannot be zero-rated because neither you nor the Foundation is exempt from taxes. Under Revenue Regulations No. 5-87 implementing the VAT law, to be zero-rated, the law must grant exemption from taxes not only to the buyer but also to the seller-supplier of the goods and services. (B.I.R. Ruling No. 437-880) In this case, the Foundation is exempt only from income tax, a direct tax, for being a religious and charitable organization pursuant to Section 26(a) of the Tax Code. It is not exempt from taxes on goods and services sold to it. Since you are the party directly liable for the payment of the VAT on the services sold to the Foundation, said VAT being an indirect tax can be passed on to the Foundation who availed of your services. Once shifted to your customer as addition to the cost of the goods/services sold, it is no longer a tax but an additional cost which the customer has to pay in order to obtain the goods/services. (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967) cdti Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner