Exemption of National Kidney Foundation of the Phil. from Payment of Taxes, Fees, Charges, and Assessments

1988 VAT RULING NO. 243-88 102-(a)-000-00-243-88 Board of Investments 385 Gil Puyat Avenue, Makati, Metro Manila Gentlemen : In reply to your letter dated February 15, 1988 referring to us a letter of Unidata Corporation dated February 4, 1988, please be informed as follows: cdta Case 1 Unidata Corporation registered with the Board of Investments under P.D. No. 1789, as amended by B.P. Blg. 391, as non-pioneer export producer of computer data base. It has obtained a foreign encoding job but because of limited capacity, it sub-contracted a portion of that job to another encoding company which is not BOI-registered. Query: Will the subcontractor be exempt from the payment of the VAT considering that the services performed by said sub-contractor will ultimately be exported? Answer: There is no legal basis to either exempt or to subject to 0% the services of a sub-contractor even if performed services to Unidata are ultimately exported. Case 2 The principal contractor for a foreign encoding job is not BOI registered. This company sub-contracted part of the encoding job to Unidata. Query: Is Unidata liable for the payment of value-added tax? Is it also liable to value-added tax if the principal contractor pays Unidata in foreign currency? Answer: If Unidata is merely sub-contracted to perform a foreign job in behalf of the principal contractor who is not BOI-registered, it is still entitled to tax-exemption under Article 39(e) of the Omnibus Investment Code of 1987. Such being the case, it shall be exempt from value-added tax pursuant to Section 103(u) of the Tax Code as amended by Executive Order No. 273. If the principal contractor pays Unidata in foreign currency which is accounted for in accordance with Central Bank rules and regulations, the latter shall still be exempt and it cannot be zero rated for the reason that it is not among those qualified to optionally register. Case 3 Both Unidata and sub-contractor are BOI-registered. Query: Are both companies exempted from the payment of value-added tax? Answer: Yes, pursuant to Section 103(u) of the Tax Code, as amended, in relation to Article 39(e) of the Omnibus Investment Code of 1987. Case 4 Due to limited capacity Unidata leased several computer equipment from a local supplier in order to supplement its present computer equipment. Query: Will Unidata be exempted from the payment of value-added tax on the lease of computer equipment charged by local supplier? Answer: No, the party principally liable for the payment of VAT on the consideration for the lease of equipment is the lessor-supplier of the equipment. The lesser-supplier may or may not pass on the VAT to Unidata. Case 5 Unidata's computer equipment utilized for its foreign encoding jobs are being serviced and maintained by a local company, Saztec Management Service, Inc. Query: Will Unidata be exempted from the payment of VAT charged by Saztec Management Service? Answer: VAT is an indirect tax, therefore, it can be passed on by Saztec to Unidata in spite of the fact that the latter is VAT exempt and not qualified for VAT registration. It cannot claim an exemption from the VAT because it is not the party directly liable for the payment thereof. Very truly yours, EUFRACIO D. SANTOS Deputy Commissioner