CE-Logic Inc.

March 19, 2008 VAT RULING NO. 002-08 Sec. 109 (R), R.A. 9337, Secs. 5 (f) & 7, R.A. 8792; VAT Ruling No. 047-2003 CE-Logic Inc. 1672 Quezon Avenue, South Triangle Quezon City Attention: Franklin A. Naig Legal Counsel Gentlemen : This refers to your letter dated October 3, 2007, requesting for a ruling that sales of educational products in digital/electronic format is not subject to VAT. It is represented that CE-Logic, Inc. (CE-Logic), is a corporation organized under Philippine laws with office address at 1672 Quezon Avenue, South Triangle, Quezon City; and that it is primarily engaged in the business of selling educational products, mainly acting as the exclusive distributor in the Philippines of online academic library resources, e-Books, and e-Journals of various foreign publishers. The products that CE-Logic sells, are described as follows: 1. ONLINE ACADEMIC LIBRARY RESOURCES An online library resource is a library in which collections are stored in digital formats (as opposed to print, microform, or other media) and accessible by computer. The digital content may be stored locally, or accessed remotely via the internet or computer networks. 2. E-BOOKS An e-book or electronic book is the digital media equivalent of a conventional printed book. Such documents are either read on personal computers, or on dedicated hardware devices known as e-book devices or e-book readers. Copies thereof can be made instantly and in as great a quantity as desired. acCDSH 3. E-JOURNALS Electronic journals are scholarly journals or magazines that can be accessed via electronic transmission. They are specialized forms of electronic documents: they have the purpose of providing material for academic research and study, they are formatted approximately like printed journal articles, the metadata is entered into specialized databases, such as DOAJ or OACI as well as the databases for the discipline, and they are predominantly available through academic libraries and special libraries. In view thereof, CE-Logic would like to confirm its opinion that its sales of e-journals, e-books and online library resources are exempt from VAT since their products are considered as merely computerized versions of printed media and that these appear at regular intervals; are available for subscription and sale at fixed prices; and are not principally devoted to the publication of paid advertisements. In reply, please be informed that Section 109 (R) of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337, provides that: "Sec. 109. Exempt Transactions. Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from VAT: 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." The above provision must be read in connection with Sections 5 (f) and 7 of RA 8792, otherwise known as the "Electronic Commerce Act of 2000" which state that: "Sec. 5. Definition of Terms. For the purposes of this Act, the following terms are defined, as follows: xxx xxx xxx f. "Electronic Document" refers to information or the representation of information, data, figures, symbols or other modes of written expression, described or however represented, by which a right is established or an obligation extinguished, or by which a fact may be proved and affirmed which is received, recorded, transmitted, stored, processed, retrieved or produced electronically. HcTIDC xxx xxx xxx Sec. 7. Legal Recognition of Electronic Documents. Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing . . .". From the above provisions, it can be seen that entities engaged in the importation and sale of printed material as stated in Sec. 109 (R) of the Tax Code of 1997, as amended, may avail of VAT exemption on such printed material. In this regard, RA 8792 clearly allows for documents/messages/information which are electronically written, capable of being sent, received, recorded, stored, downloaded, transmitted, retrieved and finally reduced into printed form to be considered as equivalent to print media. Moreover, this Office held in VAT Ruling No. 047-2003 that: xxx xxx xxx "absence of hard copy (print format) does not negate the fact that every electronic data message or document electronically written is capable of being sent, received, recorded, stored, downloaded, transmitted, retrieved and finally reduced into printed form. Such being the case, although the aforesaid journals and periodicals can be accessed only through the web, they are nonetheless considered written publications. Accordingly, such importation of journals and periodicals which can be accessed only through the internet may be exempted from VAT as provided for under Section 109 (y) of the Tax Code of 1997, if (1) their publication in the internet appears at regular intervals; (2) they are available for subscription and sale at fixed prices; and (3) they are not principally devoted to the publication of paid advertisements." Accordingly, since the e-books, e-journals and online library resources of CE-Logic are considered as equivalent to printed media; appear at regular intervals; available for subscription and sale at fixed prices; and are not principally devoted to the publication of paid advertisements, CE-Logic's sales of such products are exempt from VAT in accordance with Section 109 (R) of the Tax Code of 1997, as amended. 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 are different, then this ruling shall be considered null and void. EaISDC Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner