BIR Ruling [UN-367-95]

October 10, 1995 BIR RULING [UN-367-95] Software Breakthroughs, Inc. CS Building, Meraled Center Ortigas Avenue, Pasig City Metro Manila Attention: Mr . Victor R . Gruel President Gentlemen : This refers to your letter dated August 8, 1995, in effect requesting for a ruling as to whether or not an electric cooperative can claim exemption from the value-added tax passed on to it on its purchases of goods/services from a VAT-registered company. It appears, that you have entered into a sales agreement with Benguet Electric Cooperative (BENECO) on October 13, 1992 but the 10% VAT passed on by you is still outstanding because the former is claiming exemption pursuant to FIRB Resolution No. 24-87; that you are also encountering the same problem with Pampanga III Electric Cooperative, Inc. (PELCO III) and Pangasinan III Electric Cooperative, Inc. (PANELCO III) which are both claiming exemption from VAT pursuant to the provisions of R.A. No. 6938 otherwise known as the Cooperative Code of the Philippines. In reply, please be informed that in all our rulings issued to cooperatives, we have always emphasized that their (cooperatives) exemption from taxes under Article 61 or Article 62 of the Cooperative Code does not include the 10% value-added tax being passed on or shifted on their purchases of goods and/or services . This is so because VAT is an indirect tax which can be added as part of the cost of the goods purchased and which the purchaser has to pay to obtain the goods purchased. In short, the above named electric cooperatives cannot invoke their tax exemption privileges granted under R.A. No. 6938 to avoid the passing on or shifting of the VAT to them by a seller of goods like you. (BIR Ruling No. 151-91; VAT Ruling Nos. 007-91 and 015-93). cdll Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)