Health Plan Philippines, Inc.

March 26, 2008 VAT RULING NO. 003-08 VAT Ruling No. 018-98; Sections 108 (A), 109 (G), NIRC Health Plan Philippines, Inc. Rm. 207, Sunrise Condominium Ortigas Avenue San Juan Attention: Virgilio V. Oconer, MD Medical Director Gentlemen : This refers to your letter dated July 20, 2007, requesting this Office for a ruling exempting your organization from VAT. It is represented that Health Plan Philippines, Inc. ("HPPI" for brevity) is a corporation duly organized and existing under Philippine laws, registered with the Securities and Exchange Commission, accredited by the Department of Health and licensed by proper authority to conduct its business; and that it operates as a Health Maintenance Organization (HMO), a pre-paid health care delivery system that takes care of health care services for its members through its nationwide network of accredited doctors, hospitals, dental and medical clinics. It is further represented that HPPI is regarded as a pioneer in the health maintenance industry with twenty-one years of experience since June 1986. It is a founding member of the Association of Health Maintenance Organizations of the Philippines, Inc. (AHMOPI). Its mission is to provide health care benefits to its members that include in-patient and out-patient care, preventive health care, dental care, special laboratory tests and diagnostic examinations and referrals to Specialists/Consultants through its duly accredited primary physicians in accredited medical facilities. ADCETI You now request this Office to confirm your opinion that HPPI is exempt from VAT as an HMO under the Tax Code of 1997, as amended by Republic Act (RA) No. 9337. In reply, please be informed that Section 108 (A) of the Tax Code of 1997, as amended, provides that: "Sec. 108. Value-added tax on sale of services and use or lease of properties. (A) Rate and base of tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. . . ." The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors, . . .; and similar services regardless of whether or not the performance thereof calls for the exercise or use of mental faculties. xxx xxx xxx The term gross receipts means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually and constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax." The above provision must be read in connection with Section 109 (G) of the same Tax Code which states that: "SEC. 109. Exempt transactions. Subject to the provisions of Subsection (2) hereof, the following shall be exempt from the value-added tax: xxx xxx xxx (G) Medical, dental, hospital and veterinary services, except those rendered by professionals;" DEcSaI xxx xxx xxx From the foregoing, it is evident that entities providing non-professional medical, dental, hospital and veterinary services are entitled to VAT exemption on such transactions. However it appears that in the present case, HPPI merely arranges for the provision of health care services to members when the need arises, which will be rendered by independent health care providers, in exchange for pre-paid membership fees. HPPI is subject to value-added tax under Sec. 108 (A) of the same Tax Code as a service contractor. It could not be exempt under Sec. 109 (G) of the same Tax Code since HPPI does not directly perform or render medical, dental, hospital and/or veterinary service, non-professional or otherwise, but merely acts as a conduit between the members and their accredited and recognized hospitals and clinics. (CIR vs. Philippine Health Care Providers, Inc. G.R. No. 168129, April 24, 2007) The basis for computing the abovementioned 10% VAT (now 12% under Revenue Memorandum Circular No. 7-2006) in the case of sellers of services shall be the gross receipts as defined under Sec. 108 (A) of the Tax Code, as amended, which in the undiminished by any amount paid or payable to owners/operators of hospitals, clinics and medical and dental practitioners. However, the HMO, if a VAT-registered taxpayer, is entitled to input tax credits in determining its VAT liability. Accordingly, this Office denies your request for VAT exemption for lack of legal basis. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner