BIR Ruling No. 626-12

November 22, 2012 BIR RULING NO. 626-12 Sec. 109 (1) (R) of NIRC of 1997; BIR Ruling No. 007-11; BIR Ruling No. 340-11; BIR Ruling No. 244-12 Allianz Marketing & Publishing Corporation 517 E. Annex Santol St., Sta. Mesa, Manila Attention: Atty. Gerry N. Manalili Corporate Secretary Gentlemen : This refers to your letter dated September 21, 2010 requesting exemption from the value-added tax (VAT) pursuant to the provisions of Section 109 (1) (R) of the Tax Code of 1997, as amended. aTSEcA Documents submitted disclose that ALLIANZ MARKETING & PUBLISHING CORPORATION ("ALLIANZ MARKETING") (TIN: 007-757-474-000) is a domestic corporation registered with the Securities and Exchange Commission (SEC) under SEC Registration No. CS201006981 dated May 7, 2010; that ALLIANZ MARKETING is primarily engaged in marketing and publishing of newspapers, journals, magazines, books and other literary works engaged in the printing of books; and that it is geared towards the publication of locally-authored textbooks for basic education (pre-school, elementary and secondary levels) and at the same time providing digital content on the web and via an assortment of digital media; and that you are now asking for confirmatory opinion on the sale, importation, printing and publication of textbooks being VAT exempt under Republic Act (R.A.) No. 9337. In reply, please be informed that Section 109 (1) (R) of the Tax Code of 1997, as amended by R.A. No. 9337: SEC. 109. Exempt Transactions . (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from value-added tax. xxx xxx xxx (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, is exempt from the imposition of the Value Added Tax. As such, regardless of the amount of the said transaction, you will not be subject to the VAT and consequently from the final withholding VAT or to the 3% percentage tax under Section 116, in relation to Sections 114 (C) and 109 (V) of the same Code." 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 magazines, 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, ALLIANZ MARKETING's sale, importation, printing and publication of books for pre-school, elementary and secondary level, for both private and government institutions, and newspapers, magazines, reviews or bulletins, which appear at regular intervals with fixed prices for subscription and sale and which are not devoted principally to the publication of paid advertisements are exempt from the payment of the VAT and consequently, from the coverage of the final VAT on its contracts with government schools as required under Section 4.114 of Revenue Regulations No. 2-98, as amended, as well as from the 3% percentage tax under Section 116, in relation to Section 109 (1) (V) of the Tax Code of 1997, as amended. (BIR Ruling No. 007-11 dated January 19, 2011) DAHaTc However, with regard to the sale and publication of its electronically printed materials, such as electronic books, this Office had the occasion to rule that the term "book" for purposes of VAT only applies to printed matters in hard copy, it does not apply to electronic copy of any book or publication. It was ruled in BIR Ruling No. 340-11 dated September 7, 2011 (citing VAT Ruling No. 060-97 dated September 30, 1997 and VAT Ruling No. 047-99 dated April 12, 1999) that: "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 [ sic ][ recte defined] 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) [ sic ][ recte 109(1)(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." Based on the foregoing, ALLIANZ MARKETING's sale and publication of its electronic copies of books and other instructional materials, being outside the term "book or any similar publication" for purposes of Section 109 (1) (R) of the 1997 Tax Code, as amended, including carrying out its business as "bookbinder, papermaker, stationer, engraver, photographic printer, stereotyper, electro-typer, etc." are subject to the 12% VAT. ALLIANZ MARKETING is therefore required to register as a VAT business entity and to issue separate VAT invoices/receipts to record such transactions that are subject to VAT. Moreover, VAT is an indirect tax payable by the seller and not the purchaser of goods, 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. Hence, the shifting of the VAT to ALLIANZ MARKETING does not make it the person directly liable and therefore, ALLIANZ MARKETING cannot invoke its tax exemption privilege under Section 109 (1) (R) of the Tax Code of 1997, as amended, to avoid the passing on or shifting of the VAT. Hence, notwithstanding that ALLIANZ MARKETING is a publication 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. 244-12 dated April 10, 2012) CASTDI 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 as represented are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue