Digest of VAT Rulings for May, June, July and August 1991

1992 REVENUE MEMORANDUM CIRCULAR NO. 22-92 SUBJECT : Digest of VAT Rulings for May, June, July and August 1991 TO : All Revenue Officials and Others Concerned Attached herewith as Annex "A" are the Digests of VAT Rulings issued in the months of May, June, July and August 1991. For the information and guidance of all concerned. JOSE U. ONG Commissioner of Internal Revenue By: (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge ANNEX A DIGEST OF VAT RULINGS FOR MAY 1991 1. Commissions on the sale of real property earned by individual agents who are not employees of real estate companies are subject to VAT if such commissions per twelve month period exceeds P200,000. However, it is not subject to withholding of VAT. On the other hand, commissions not exceeding P200,000 are subject to the 2% tax prescribed in Sec. 112 of the Tax Code, as amended. (VAT) Ruling No. 028-91 dated May 22, 1991) 2. The operator who has contracted with a landowner/permittee to extract and dispose quarry materials is the one liable for the payment of VAT pursuant to Secs. 99 and 100(a) of the Tax Code, as amended, rather than the landowner with whom the contract was executed. Pursuant to Art. 415(10) of the Civil Code, a quarry permittee holds a real right over an immovable property. Thus, the royalty fee received by the permittee from the quarry operator is, in effect, rental for the use of a real right over an immovable property and is exempt from VAT pursuant to Sec. 103(q) of the Tax Code, as amended. Furthermore, the royalty fee is not subject to VAT, and since VAT is not determinable at the time of payment, there is, therefore, no legal basis for the operator to deduct or withhold periodically the VAT from the said fees to the permittee. (VAT Ruling No. 029-91 dated May 23, 1991) cd i 3. Only the VAT, and not any other kind of import duties and charges paid on imported raw materials, can be claimed as input tax credit against output tax liabilities (Sec. 10, Revenue Regulations (RR) No. 5-87). Any Tax Credit Certificate (TCC) received covering the VAT paid on imported materials, whether issued by the BIR, BOI or BOC, shall reduce the BOI-registered enterprise's available input tax credit, pursuant to Sec. 11 of RR No. 5-87. The TCC issued by the BOI does not form part of the taxable gross income of the grantee pursuant to Sec. 21 of E.O. No. 226. Upon receipt thereof and in accordance with RR No. 9-89, the book entries shall be: TCC . . . . . . . x x x Input tax . . . . . . .x x x (VAT Ruling No. 030-91 dated May 29, 1991) 4. Transactions which are tax exempt under the provisions of special laws are exempted from VAT pursuant to Sec. 103(u) of the Tax Code, as amended by E.O. No. 273. Thus, BOI-registered enterprises which are exempt from the payment of the contractor's tax pursuant to Art. 39(e) of the Omnibus Investment Code (E.O. No. 226) are now exempt from VAT which merely replaced the contractor's tax upon the promulgation of E.O. No. 273. (VAT Ruling No. 031-91 dated May 29, 1991) 5. The exemption privilege granted to enterprises registered under the Kalakalan 20, as well as those registered as foundations/charitable institutions is limited only to taxes for which they are directly liable. Since VAT is an indirect tax, it can be passed on to said entities and once shifted, it forms part of the cost of goods purchased. The shifting of the VAT to said entities does not make them directly liable for the payment of the VAT, hence, they cannot invoke the exemption privilege granted to avoid the passed-on VAT. Such being the case, sale of goods to them is subject to VAT under Sec. 100(a) of the Tax Code, as amended. (VAT Ruling No. 032-91 dated May 29, 1991) 6. Pursuant to Sec. 102(a)(2) of the Tax Code, as amended, the commissions earned from the sale of airline tickets shall only be zero-rated when they are paid for in acceptable foreign currency actually or constructively remitted to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines. Otherwise, the commissions shall be subject to 10% VAT in accordance with Sec. 102(a) of the same Code. (VAT Ruling No. 032-91 dated May 29, 1991) 7. The exemption of the Nayong Pilipino Foundation from all taxes under P.D. No. 37 has been repealed by P.D. No. 1931 which withdrew all tax and duty exemption privileges granted to government-owned or controlled corporations. Moreover, even if such decree remains valid, it cannot be invoked by Nayong Pilipino Foundation for VAT exemption of its purchases from Datagraphics, Inc., inasmuch as the tax exemption privileges provided thereto are applicable only to direct taxes. VAT, being an indirect tax, may be passed on by Datagraphics to the Foundation who will shoulder the VAT as an additional cost to its total goods purchased. Such being the case, the Foundation is liable to the payment of all forms of taxes including VAT. (VAT Ruling No. 034-91 dated May 29, 1991) 8. The exemption privilege of electric cooperatives withdrawn by E.O. No. 93 but restored by FIRB Resolution No. 24-87 is limited only to the taxes for which the electric cooperatives are directly liable. Since VAT is an indirect tax, it can be shifted to the purchasers and once shifted, it forms part of the cost of the goods and services purchased. The shifting of the VAT to the customers/clients does not make them directly liable therefor; hence, they cannot invoke their tax exemption privilege. Such being the case, the purchases made by the electric cooperatives are subject to VAT pursuant to Sec. 100(a) of the Tax Code, as amended. (VAT Ruling No. 035-91 dated May 29, 1991) casia 9. A company engaged in the operation of a refreshment parlor or eating place for baked foods and drinks and which also maintains a take-out counter for its goods is subject to the 4% caterer's tax pursuant to Sec. 114 of the Tax Code, as amended, on its operations as an eating place, as well as to VAT as a bakeshop on its operation of take-out counters. In effect, the company is operating two lines of businesses for which it has to register as a non-VAT taxpayer for its operation of a refreshment parlor or eating place pursuant to RR No. 6-88 and as a VAT taxpayer for its operation of a take-out counter in accordance with Sec. 18 of RR No. 5-87. However, if the sales from its take-out counter do not exceed P200,000 in any 12-month period, it may not register as a VAT taxpayer in which case its receipts therefrom shall be subject only to 2% percentage tax pursuant to Sec. 112 of the same Code. (VAT Ruling No. 036-91 dated May 29, 1991, as supported by BIR Ruling No. 199-90) 10. All approved applications for zero-rating granted to any sellers of goods to AFPCES and PC/INPSSS became ineffective and/or considered revoked as of January 1, 1990. However, input taxes generated by the seller on its purchases of raw materials and supplies used in the production of finished goods sold to AFPCES and PC/INPSSS prior to January 1, 1990 may be credited against his output tax liability or claimed as refund and/or tax credit pursuant to Sec. 104(b) and Sec. 106(b) of the Tax Code. (VAT Ruling No. 037-91 dated May 29, 1991) 11. If an account executive is an employee of a company, there being an employer-employee relationship, his commission income shall be exempted from VAT pursuant to Sec. 103(s) of the Tax Code, as amended. However, the employer shall deduct and withhold the withholding tax on wages. If there is no employer-employee relationship, he shall be subject to VAT as a seller of service in the course of his business or practice of profession, pursuant to Sec. 102(a) of the same Code. Moreover, he shall not be subject to the expanded withholding tax because VAT is not covered by the Expanded Withholding Tax Regulations (RR No. 6-85, as amended). Furthermore, the payor is neither allowed by law to impose the VAT nor is he allowed to withhold the same from the payee vis-a-vis his income payment to the latter, whether or not such payee is a VAT or non-VAT person. Accordingly, the aforesaid account executive cannot claim for a refund or credit of the VAT imposed and withheld from him by his employer. Rather, his recourse is to make a demand from his employer of such amount which was purportedly imposed and withheld from his compensation. Before engaging in the practice of his profession, a commission agent has an option to: i) register as a non-VAT person, if his gross commission for the next 12-month period is estimated not to exceed the P200,000 ceiling, he shall register as a VAT person. As a non-VAT registered person, he shall be liable for payment of the 2% percentage tax, based on his gross receipts, rather than the 10% VAT, but without the benefit of input tax credit vis-a-vis his purchases; or ii) register as a VAT person and become liable for the payment of the 10% VAT against which he can deduct from his output taxes any input tax attributable to his purchases. (VAT Ruling No. 038-91 dated May 29, 1991) 12. The VAT exemption granted to breeding stocks, and genetic materials under Sec. 103(b) of the Tax Code, as amended, is limited only to those that are intended for the raising of poultry and livestock (which includes cows, bulls, calves, pigs, goats and rabbits). It refers only to live animals that are generally used as or yielding or producing food for human consumption (Sec. 9(b)(2) of RR No. 5-87). Hence, the importation of horses (thoroughbred broodmares) for breeding purposes to be used in sports or games, which cannot be classified as livestock, is not exempt from VAT. (VAT Ruling No. 039-91 dated May 29, 1991, as supported by VAT Ruling Nos. 102-89 and 243-90) 13. Hospital and medical services rendered by Ospital ng Maynila is not subject to VAT pursuant to Sec. 103(1) of the Tax Code, as amended. The exemption, however, applies only to taxes for which it is directly liable and does not apply to taxes which are being passed on to it by its suppliers. Consequently, as regards purchases of goods and services, the VAT thereon paid by the supplier can be passed on to said hospital and ultimately be considered as added cost of the goods and services procured, for the VAT at this stage is merely an indirect tax. (VAT Ruling No. 040-91 dated May 29, 1991) cd 14. The sale "as is" of imported goods subjected to final tax in 1985 and prior years, whether included or not in the December 31, 1987 inventory list, remains subject to the 10% VAT pursuant to Secs. 99 and 100 of the Tax Code, as amended. However, transitional input tax credits are allowed to be recognized only on goods included in the inventory list as of December 31, 1987 submitted pursuant to RR 5-87. As an example, for goods imported prior to January 1, 1986, the advance sales tax paid on which was accordingly a final tax rather recognized as a deferred sales tax credit when sold beginning January 1, 1986 and thereafter. In general , such imported goods are embraced by the transitory input tax provision under Sec. 25(a)(3) of E.O. No. 273. If unsold as of December 31, 1987 the importer-seller/VAT person can recognize a presumptive 8% transitory input tax credit therefrom, provided, however, that he reported such unsold inventory lists as of December 31, 1987. This rule applies whether or not such importer failed to take up in his books of accounts as of January 1, 1988 the transitory 8% presumptive input tax thereon, as a separate account under Input Taxes. Under this situation, the importer-seller should make a correcting entry in his books of accounts to segregate the amount previously recorded alone under his inventory account into: (i) inventory account; and (ii) input tax account. (VAT) Ruling No. 041-91 dated May 29, 1991) 15. The tax exemption privileges granted to coal operators (i.e., exemption from all taxes except income tax) under Sec. 16 of P.D. No. 972 depends upon the provisions of its duly approved coal operating contract with the government. Furthermore, since the said incentives are available only to said operators, the same may not be extended to other persons with whom such operators may contract with even where such contract is incidental or in furtherance of their coal operating contracts. Hence, if they have awarded some of their coal mining areas to sub-contractors/permittees with an agreement that they will buy latter, such sub-contracting of their coal operating contract is not entitled to said tax exemption privileges. Hence, said sub-contractors are subject to the applicable national internal revenue taxes, including VAT on their sales of coal to coal operators pursuant to Secs. 99 and 100 of the Tax Code, as amended. (VAT Ruling No. 042-91 dated May 29, 1991) 16. In accordance with Sec. 149 of the Tax Code, as amended, the purchase of a brand new car, intended as a prize in a fund-raising project undertaken by a parish church, shall be subject to the ad valorem tax based on the manufacturer's selling price net of excise tax and VAT. Furthermore, under Sec. 99 of the same Code, the VAT is imposed on the person who sells goods, renders services or imports goods. Since VAT is an indirect tax, the seller can pass it on to the buyer, who will have to pay the VAT as an additional cost of the goods purchased. On the other hand, when the car shall be given as a prize, it shall be subject to a final withholding tax of 20% pursuant to Sec. 21 (c)(1) of the same Code, which shall be withheld and remitted by the person or entity awarding the prize. (VAT Ruling No. 043-91 dated May 29, 1991) 17. The business of leasing a space on public utility vehicles for the purpose of putting up advertising boards, which are then sublet or offered to the general public for a fee, invoices a sale of service. Hence, companies engaged in said business activity is subject to VAT pursuant to Secs. 99 and 100 of the Tax Code, as amended. This applies regardless of whether the company makes the advertising paraphernalia by itself or sub-contracts production of the same to outside contractors. (VAT Ruling No. 044-91 dated May 29, 1991) 18. The requirement under Sec. 2 of RR No. 2-88 that in order for sales of raw materials to export-oriented BOI-registered enterprises to qualify for zero-rated VAT, export sales of such enterprise must exceed seventy percent (70%) of its total production, is not merely a requirement of the BOI but rather forms part of the VAT law, consistent with the doctrine that the implementing regulations of a law are part of the said law. Hence, the request for zero-rated VAT on purchases of a company which did not satisfy said requisite is necessarily denied for lack of legal basis. (VAT Ruling No. 045-91 dated May 29, 1991) 19. An agency which is engaged in the business of selling security guard services is subject to the 10% VAT based on the agency's quarterly gross receipts which, in this case, is composed of the salary and allowance of the guard, employer's share in the SSS, Medicare and State Insurance contributions, and the agency's administrative overhead and profit margin. If such gross receipts already include the 10% VAT, the taxable gross receipts should be computed by excluding the VAT forming part of said amount, such VAT being equivalent to 1/11 of the gross receipts. Accordingly, the VAT cannot be based solely on the agency's administrative overhead and profit margin. (VAT Ruling No. 046-91 dated May 29, 1991, as supported by VAT Ruling No. 232-89) 20. Molasses is not an agricultural product in its original state. Rather, the agricultural product in its original state is sugar cane, the milling of which to produce sugar generates molasses as a by-product. Neither can molasses be considered as "raw sugar cane", as the latter refers to "crystallized or solidified juice of sugarcane, distinctly brown in color resulting from the simple and primary milling process such as treating the juice with lime to remove impurities, boiling and spinning the syrup to force out the molasses," pursuant to Sec. 9(b)(2) of Revenue Regulations (RR) No. 5-87, as amended by RR No. 5-89. The same regulations cited that molasses and bagasse, among others, are not covered by the exemption under Sec. 103 of the Tax Code, as amended. In view of this, the sale of molasses, is subject to VAT pursuant to Sections 99 and 100 of the same Code. (VAT Ruling No. 047-91 dated May 29, 1991) 21. Local purchases of equipment (e.g., motorcycle units) by the USAID for the Bureau of Local Government Finance is exempt from VAT pursuant to Sec. 103(u) of the Tax Code, as amended, hence, are not qualified for zero-rated VAT. (VAT Ruling No. 048-91 dated May 29, 1991, as supported by BIR Ruling No. 275-89 dated November 8, 1989) aisa dc 22. Coffee beans are agricultural food products in their original state, hence, the sale and subsequent sale thereof is not only exempt from VAT pursuant to Sec. 103(h) of the Tax Code, but the seller is likewise exempt from registering as a VAT taxpayer. However, when the seller opts to register as such pursuant to Sec. 107(d) of the same Code, his local sales become subject to the 10% VAT, while his export sales are zero-rated under Sec. 100(a)(1) of the same Code. On the other hand, if the coffee bean trader is not VAT-registered, the sale, subsequent sale, or export of the coffee beans are exempt in accordance with Sec. 103(h) of the same Code. (VAT Ruling No. 049-91 dated May 29, 1991) 23. Copra cake, also known as copra meal, is a by-product of copra, which comes out in pellet form after the oil is extracted using solvents or through pressing. Since it is a processed product ultimately used as ingredient or supplement to animal feeds, it cannot be considered exempt under either Sec. 103(h) or Sec. 103(c) of the Tax Code, as amended. All input taxes available to a taxpayer can be credited against his/its output tax due on the sale of VAT taxable products with the exception of those attributable to exempt transactions. (VAT Ruling No. 050-91 dated May 29, 1991) 24. A sale-and-leaseback transaction in acquiring capital equipment between a company/borrower and a financing company partakes the nature of a sale of personal property from the former to the latter. Hence, the borrower/company is subject to VAT on its sale of said equipment pursuant to Sec. 100(a) of the Tax Code, as amended. However, if the equipment is immobilized by incorporation to an immovable structure at the time of sale (Art. 415(3) of the New Civil Code), or by distribution in premises where it is used to meet the needs of the industry or works therein carried on (Art. 415(5) of the New Civil Code), the sale thereof by the company/borrower is exempt from VAT pursuant to Sec. 2(p) of RR No. 5-87 which limits the scope of the VAT to objects which are movable, tangible and which are appropriable or transferrable. On the part of the financing company, rental received from its leaseback transactions is not subject to VAT but to the 5% gross receipts tax since it is treated as part of its gross income under Title V of the Tax Code, as amended. Besides, the lease rentals during the term of the lease cover principal and interest payments of the credit extended by the financing company. Such being the case, the VAT on the sale of equipment, if taxable, passed on by the lessee/borrower shall be recorded by the financing company as part of its expense or cost. (VAT Ruling No. 051-91 dated May 29, 1991) 25. A contract with an owner/operator of cold storage facilities is not a lease of real property but, rather a warehousing contract. As such, the warehouse operator is subject to VAT pursuant to Sec. 102 of the Tax Code, as amended. (VAT Ruling No. 052-91 dated May 31, 1991) 26. Charter hire contracts for vessels are of two types, namely, charter of demise and charter of affreightment. A charter of demise, also known as bareboat charter, is a charter wherein the vessel owner delivers the chartered vessel to the lessee without provisions and complement of the crew, with the lessee himself supplying the necessary provisions and crew for the operation of the vessel. This type of charter is considered a contract of lease . On the other hand, in a charter of affreightment, commonly known as a time charter, the vessel owner himself operates and runs the vessel through his own crew for the purpose of transporting the person and/or cargo of the charterer. This type of charter hire is considered a contract of carriage and company engaged in such, is subject to the 3% common carrier's tax based on its gross quarterly receipts pursuant to Sec. 115 of the Tax Code, as amended, hence, exempted from the 10% VAT pursuant to Sec. 103(j) of the same Code. Revenues from port services business, as an independent line of business, are understood to include revenues from berthing, terminalling lease of service equipment at the port and warehousing services, such activities being mainly connected to, if not incidental or as a necessary consequence of port services business. The same are, accordingly, indivisible, hence, may not be detached and treated as revenues arising from different independent lines of businesses. Thus, berthing fees and receipts from warehousing services may not be considered revenues from distinct, separate and independent lines of businesses with the end in view of treating them as lease of real property. Accordingly, the same will not be exempted from the 10% VAT under Sec. 103(q) of the Tax Code, as amended. Rather, the same are all classified as gross receipts from port services business, which involves sale of services other than the real estate leasing and, accordingly, subject to the 10% VAT pursuant to Sec. 102 of the same Code. As a further clarification, warehousing business is not considered a leasing of real property and the warehouseman's compensation for his warehousing services cannot be considered rentals from lease of real property. Instead, a warehouseman's services consist of receiving and storing goods and merchandise for others, for a fee and his gross receipts from the sales of such services are subject to VAT in accordance with Sec. 102 of the Tax Code, as amended. This also follows from the fact that such warehousing activities are part of the port services business which is subject to VAT. (VAT Ruling No. 053-91 dated May 31, 1991) DIGEST OF VAT RULINGS FOR JUNE 1991 1. The term "animal feeds" exempted under Sec. 103(c) of the Tax Code, as amended, is limited only to animal feeds as a complete product and does not include raw materials, ingredients or supplements to animal feeds. The exemption from VAT of soya bean and fish meal arises from their being an independent and distinct tax exempt class of products under Sec. 103(c) and not because the same are used in the production of animal feeds. Hence, the importation of "D-L Methione" which is used as an essential additive in the formulation and manufacture of animal feeds is subject to VAT. (VAT Ruling No. 054-91 dated June 17, 1991) 2. Service contractors under the Oil Exploration Development Act (P.D. No. 87) are exempt from all taxes except income tax. The exemption is limited, however, to taxes for which they are directly liable. Since the VAT on the sales to said contractors is the liability of the sellers and not of the purchasers, and said contractors have no indirect tax exemption, they cannot claim the privilege of making purchases from said sellers, net of VAT. (VAT Ruling No. 055-91 dated June 17, 1991) 3. VAT-registered freight forwarders whose services are rendered to clients outside the Philippines and paid for in acceptable foreign currency inwardly remitted to the Philippines and accounted for in accordance with Central Bank rules and regulations are zero-rated pursuant to Sec. 102(a)(2) of the Tax Code, as amended. There is no need for them to apply for zero-rating on their sale of services to said clients. Only transactions covered by Secs. 100(a)(2) and 102(a) (3) of the same Code will require an application for zero-rating. (VAT Ruling No. 056-91 dated June 21, 1991, as supported by VAT Ruling No. 060-89) 4. Importations are subject to VAT, whether donated or purchased. Such being the case, importation of articles consigned to charitable, religious, cultural or social welfare corporations or institutions, e.g., church bells and spares consigned to a parish church, are not exempt but are subject to 10% VAT pursuant to Sec. 101 of the Tax Code, as amended. This, however does not apply to transactions where the recipient is granted special exemption privileges, i.e., exemption from indirect taxes like VAT, under it charter or provided for under the Constitution. (VAT Ruling No. 057-91 dated June 21, 1991, as supported by VAT Ruling No. 169-89) 5. If a chemical, e.g., xylene, is used as a raw material in the manufacture of pesticides, its importation is exempt from VAT pursuant to Sec. 103(c) of the Tax Code, as amended. However, if it is not used as a raw material in the manufacture of pesticides by the importer himself and used for agricultural purposes as duly certified by the Fertilizer and Pesticide Authority (FPA), its importation is subject to VAT in accordance with Sec. 101 of the same Code. (VAT Ruling No. 058-91 dated June 26, 1991, which clarified BIR Ruling No. 092-91) 6. In accordance with Sec. 2 of Revenue Regulations (RR) No. 2-88, only sales of raw materials to BOI-registered export producers exporting at least 70% of their actual production shall qualify for zero-rating. Hence, sale of manpower services to a BOI-registered domestic corporation is subject to VAT pursuant to Sec. 102(a) of the Tax Code, as amended, and cannot be zero-rated for lack of legal basis. (VAT Ruling No. 059-91 dated June 26, 1991, as supported by VAT Ruling No. 134-90) 7. The input taxes which were generated from the purchase of services for the construction of pier facilities which form part of the manufacturing plant of a company are creditable against output taxes, or a tax credit or refund of such input taxes which are attributed to export sales may be availed of subject to the condition that such input taxes have not been applied against output taxes. (VAT Ruling No. 060-91 dated June 26, 1991, as supported by VAT Ruling No. 086-90) 8. Under Sec. 100(a) of the Tax Code, as amended, as implemented by Sec. 8(b)(1) of RR No. 5-87, internal exports under the Incentives for Internal Exports Program pursuant to LOI No. 1355 are subject to zero-rate VAT, even if suppliers of the goods will quote their prices in Philippine peso rather than the present pricing scheme in which prices are quoted in US dollar, provided that the goods are subsequently sold by the Philippine International Trading Corporation (PITC), the implementing agency for such program, to qualified buyers and paid for in acceptable foreign currency inwardly remitted to the Philippines. (VAT Ruling No. 061-91 dated June 26, 1991) 9. The term "internal export" under P.D. No. 1820 and E.O. No. 765 (which are laws prior to E.O. No. 273) does not apply for VAT purposes, being inconsistent with the term "export sales" under the VAT law (subsequent law), which is restricted to actual export and foreign currency denominated sales. Such being the case, the sale of domestic manufacturers for the supply of articles for government project, financed from the proceeds of foreign loans cannot be considered subject to zero percent VAT. Moreover, although loan agreements between the government and foreign creditors may provide for the exemption from taxes, charges and other levies of local contractors and suppliers for projects utilizing proceeds from said loans, this exemption privilege is extended only to the awardee of the contract (i.e., the contractor) and not to suppliers of such contractors. Hence, the sale of steel pipes to a contractor of a government agency for a waterworks project, funded by the World Bank cannot be legally considered VAT-exempt nor zero-rated. (VAT Ruling No. 062-91 dated June 26, 1991) 10. A foreign contractor, which is organized under the laws of a foreign country, rendering services for the construction of the National Power Corporation (NPC) Gas Turbine Plant Project funded from a foreign loan agreement, is subject to VAT, notwithstanding the fact that NPC is tax exempt under its Charter and their contract stipulated that NPC will assume the responsibility for taxes due said foreign contractor. Such a stipulation is binding only between NPC and the contractor, in their private capacities, and the latter's personal liability to pay its taxes may not be transferred to the former with binding effect on the BIR. However, in case the loan agreement was made pursuant to the Foreign Borrowings Act (RA No. 4860, as amended by PD No. 150), the contractor may be accorded VAT exemption if such agreement contained a proviso that a contractor shall be exempt from taxes, including the 10% VAT. Otherwise, VAT exemption cannot be granted the NPC, for and in behalf of said contractor, for lack of legal basis. (VAT Ruling No. 063-91 dated June 27, 1991) 11. The exemption privilege granted to cooperatives under RA No. 6938 is limited only to taxes for which they are directly liable. The VAT, being an indirect tax, can be shifted to them and once shifted, it forms part of the cost of goods purchased. The shifting of the VAT to purchasers does not make them directly liable therefor; hence, they cannot invoke exemption privileges granted to them. Such being the case, sale of goods to cooperatives is subject to the 10% VAT under Sec. 100(a) of the Tax Code, as amended, hence, does not qualify for zero-rated VAT. (VAT Ruling No. 064-91 dated June 27, 1991) 12. Hamburger patties are "processed meat products" having undergone manufacturing process thru mixture of salt, pepper, garlic powder, monosodium glutamate, hydrolyzed vegetable protein and water; hence, are no longer meat products in their original state. Such being the case, their sales are subject to 10% VAT pursuant to Sec. 100 of the Tax Code, as amended. (VAT Ruling No. 065-91 dated June 27, 1991) 13. The agricultural and marine food products in their original state, which are exempted from VAT under Sec. 103(b) of the Tax Code, as amended, refer only to those intended, as food for human consumption. Said products are considered remaining in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, smoking or stripping. Polished and/or husked rice, corn grits and raw cane sugar shall be considered in their original state for purposes of said law. The following, which are all products in their original state and are food for human consumption, may be considered VAT-exempt under Sec. 103(b) of the Tax Code, as amended: 1. Green peas 2. Dried peas 3. Mongo peas 4. Mung beans 5. Navy beans 6. White beans 7. Kidney beans 8. Unpopped popcorn 9. Sunflower seed 10. Pepper 11. Wheat grains "Pepper" shall be classified as in its original state, only if it has undergone processing limited to the aforementioned simple processes. Otherwise, the same will no longer be considered agricultural food product in its original state. (BIR Ruling No. 092-88 dated March 10, 1988) casia Other agricultural products, such as "Chick peas", "Dun Peas", "Lucerne", "Barley", "Flowers", "Safflowers" and "Millet" shall not be VAT-exempt under Sec. 103(b) of the Tax Code, as amended, if they are not intended as food for human consumption, even if they are in their original state. Thus, when they are actually used as supplements or ingredients of "animal feeds", the same shall not qualify for VAT exemption under this part of the law. (VAT Ruling No. 244-90 dated Dec. 28, 1990) Moreover, "Chick peas", if intended as supplement or ingredient to animal feeds, shall not be VAT-exempt since only animal and poultry feeds, as finished product, qualifies for VAT exemption under Sec. 103(c) of the Tax Code, as amended. (VAT Ruling No. 244-90) "Whole oats are husked wheat, hence, not in their original state since husked (or milled) grains are generally not considered in their original state except only vis-a-vis "rice, corn grits and raw cane sugar". ( supra ) "Raw cotton" and "raw-hide" are not agricultural food products but are rather non-food agricultural products. Sale thereof is VAT-exempt only if the seller is its primary producer or owner of the land where the same is produced. (Sec. 103(a) of the Tax Code, as amended) "Fertilizers" are VAT-exempt in all stages of sale under Sec. 103(c) of the Tax Code, as amended. (VAT Ruling No. 066-91 dated June 27, 1991) DIGEST OF VAT RULINGS FOR JULY 1991 1. In accordance with Sec. 102(a)(3) of the Tax Code, as amended, and in relation to Art. XVIII of the RP-US Military Bases Agreement and the diplomatic exchange of notes between the Philippines and the United States (US), services rendered to US Military Bases are effectively zero-rated effective Jan. 1, 1988, the effectivity of the VAT Law. (VAT Ruling No. 067-91 dated July 5, 1991) 2. In case of sales of goods, the VAT is based on the gross selling price or gross value in money of the goods sold, bartered or exchanged pursuant to Sec. 100 of the Tax Code, as amended. While the law allows deduction of discounts from gross sales, such discounts must not be conditioned upon the subsequent happening of an event or fulfillment of certain conditions. It then follows that discounts given, but the enjoyment of which is conditioned upon the subsequent happening of an event or the fulfillment of certain conditions imposed, may not be deducted from gross sales for VAT purposes, e.g. , a discount to be given is the purchase price is paid upon delivery or a discount to be given if the buyer pays within seven days after delivery. (VAT Ruling No. 068-91 dated July 5, 1991) 3. Indent service income which is paid for in acceptable foreign currency and inwardly remitted in accordance with Central Bank rules and regulations qualifies for zero-rate VAT pursuant to Sec. 102(A)(2) of the Tax Code, as amended. (VAT Ruling No. 069-91 dated July 5, 1991, as supported by VAT Ruling No. 212-90) 4. The tax exemption privileges of AFPCES and PC/INPSSS had been withdrawn effective Jan. 1, 1990. Such being the case, sales to AFPCES and PC/INPSSS are now subject to VAT, except (a) those sales of goods that are specifically enumerated to be VAT-exempt under Sec. 103 of the Tax Code, as amended; and (b) those that were purchased before Dec. 31, 1989 but were delivered in 1990 or any subsequent year (VAT Ruling No. 169-90). However, the AFPCES and PC/INPSSS are entitled to subsidy availment under FIRB Res. Nos. 28-90, 38-90 and 39-90 by means of the application and issuance of a Tax Compliance Certificate which may be used by their suppliers as payments of their VAT liabilities pursuant to Revenue Regulations No. 9-90. (VAT Ruling No. 070-91 dated July 5, 1971) 5. The following processed food products which are packed in bulk plastic bags and sold for resale or further processing are no longer in their original state as contemplated in Sec. 103(b) of the Tax Code, as amended: a) Dried fruits ( e.g. , mangoes, papayas) - made from fresh fruits which are dried using a locally fabricated dryer; sold to wholesalers/repackers; b) Dried and ground fruits and tubers ( e.g. , guava, tamarind, ubi) - made by blanching, slicing, drying and grinding the fruits/tubers; sold to blenders for the manufacture of soup mixes and other products; and c) Fruits preserved in syrup ( e.g. , jackfruit, banana, mango) - made by adding sugar to raw fruits, then heat sterilizing, packing and chilling the same; sold to manufacturers of ice cream and other products. Hence, producers thereof shall be subject to VAT pursuant to Sec. 100 of the Tax Code, as amended. (VAT Ruling No. 071-91 dated July 5, 1991) cd 6. A non-stock, non-profit organization, e.g. , Our Blessed Mother of Victory Mission Foundation, is exempt only from income tax on income received by it as a social welfare organization under Sec. 26(g) of the Tax Code, as amended, and is not exempt from other taxes. As such, imported relief goods and equipment received as donation from abroad by such organization are subject to VAT pursuant to Sec. 101 of the same Code. (VAT Ruling No. 072-91 dated July 17, 1991) DIGEST OF VAT RULINGS FOR AUGUST 1991 1. Production of live concerts which involves rendering of amusement services is not subject to VAT, since the jurisdiction to impose amusement tax on gross receipts from admission to places of amusement shall be exercised by the provincial government, to the exclusion of the national or municipal government (Sections 11 and 13 of the Local Tax Code). However, other revenues or receipts from the conduct or production of live or televised concerts, other than admission receipts, which are in the nature of revenues or receipts from advertising services rendered, such as payments received from sponsors of the live/televised concert whose products are advertised in the course of such concert, shall be subject to 10% VAT pursuant to Sec. 102 of the National Internal Revenue Code (NIRC), as amended. Moreover, gross receipts from management of local talent involves sales of services, hence, are also subject to the 10% VAT under Sec. 102 of the NIRC. (VAT Ruling No. 073-91 dated August 5, 1991, amended VAT Ruling No. 092-90) 2. Only the VAT component on the purchase of coal from coal miners/producers to be used in the manufacture of cement shall be considered and taken up as input tax since coal is subject not only to 10% VAT under Section 100(a) of the Tax Code, as amended, but also to excise tax of P10.00 per metric ton under Section 151 of the same Code. However, the excise tax paid on coal forms part of the taxable base in computing the VAT. Furthermore, the input tax on the coal purchased and used in the manufacture of said finished product is creditable against the output tax on the manufacturer's sales pursuant to Section 104 of the same Code. (VAT Ruling No. 074-91 dated August 7, 1991) 3. A BOI-registered enterprise is exempt from contractor's tax pursuant to Section 39(e) of E.O. No. 226 (Omnibus Investments Code) if it is the party directly liable therefor as when it is the one selling the service, but not where it is the buyer thereof. Thus, a company who sells general construction service to a BOI-registered firm is not entitled to claim the benefit of zero-rating under Sec. 102(a)(3) of the Tax Code, as amended, nor the exemption under the Omnibus Investments Code in relation to Sec. 103(u) of the same Code. Such privileges are granted to BOI-registered firms only for its direct tax liability, and not to tax liabilities of its suppliers which can be passed on to the former, for said law does not provide for the extension of tax exemption to suppliers of the grantee. (VAT Ruling No. 075-91 dated August 7, 1991) 4. The VAT is imposed on the taxable sales of the seller. Accordingly, the output VAT should be based on the gross sales price appearing in the seller's VAT invoice and not the sales price appearing in the VAT invoice of the customer. Corporations are distinct persons, hence, an act of one corporation cannot be legally assigned to another corporation. The tax shall be determined by multiplying the gross selling price, including the amount intended to cover the tax by the factor 1/11 under Sec. 100(d)(2) of the same Code. (VAT Ruling No. 076-91 dated August 7, 1991) 5. The sale of services by stock transfer agents to stockbrokers through clearing houses is subject to VAT pursuant to Section 102(a) of the Tax Code, as amended. The VAT, being an indirect tax, can be passed on by the agents to the clearing house (which is registered as a bank, hence, a non-VAT entity) and once shifted, forms an additional and integral part of the cost of goods and/or services that the non-VAT entity has to shoulder. (VAT Ruling No. 077-91 dated August 21, 1991)