San Buenaventura Law Offices

February 16, 2009 VAT RULING NO. 004-09 Secs. 119, 236; 000-00 San Buenaventura Law Offices 2/F Raha Sulayman Building 108 Benavidez Street Legaspi Village, Makati City Attention: Atty. Leopoldo E. San Buenaventura Managing Partner Gentlemen : This refers to your letter to RDO Simplicio Madulara of RDO 47-Makati, which he referred to the Law Division on March 30, 2006, and later by the Office of the Deputy Commissioner for Legal & Inspection Group to the VAT Review Committee on August 9, 2007, relative to your request for the cancellation of the VAT Registration of your client, Community Media Network, Inc., a franchise grantee under Republic Act No. 9115. IDTSaC It is represented that Community Media Network, Inc. is a domestic corporation duly registered with the Securities and Exchange Commission (SEC); that its primary purpose is "To establish, contract, install, operate and engage in the business of radio station including but not limited to AM, FM and FM multiplex transmission in the Philippines or abroad at such places as the corporation may select, for domestic and international telecommunication, broadcasting and television/cable stations and to receive and collect fees and charges for services rendered in connection thereof and to contract for the purchases, lease or hire of rights, lease, licenses, franchises, certificates or permits of radio/TV telecommunication stations, equipments, parts or materials as said corporation may desire." that Community Media Network, Inc. was registered as a VAT taxpayer on January 1, 1997 per BIR Form No. 2303 with OCN9RC0000092300; that on April 15, 2001, Community Media Network, Inc. was granted a franchise under R.A. No. 9115; that it has continued paying the VAT even after becoming a franchise grantee; and that its VAT and income tax returns for the past four (4) years starting 2001 have consistently shown an annual gross income and receipts of less than P10,000,000.00; and that it is now requesting for the cancellation of its VAT registration. In reply, please be informed that Section 119 of the Tax Code of 1997, as amended by R.A. 9337, provides that "Sec. 119. Tax on Franchises. Any provision of general or special law to the contrary notwithstanding, there shall be levied, assessed and collected in respect to all franchises on radio and/or television broadcasting companies whose annual gross receipts of the preceding year does not exceed Ten million pesos (P10,000,000.00), subject to Section 236 of this Code, a tax of three percent (3%) and on gas and water utilities, a tax of two percent (2%) on the gross receipts derived from the business covered by the law granting the franchise: Provided, however, That radio and television broadcasting companies referred to in this Section shall have an option to be registered as a value-added taxpayer and pay the tax due thereon: Provided, further, That once the option is exercised, said option shall be IRREVOCABLE. " In relation to this, Section 9.236-6 of Revenue Regulations No. 16-2005, implementing R.A. No. 9337, provides that "Any person, who opted to be registered as a VAT taxpayer, may apply for cancellation of such registration. However, the optional registration as a VAT taxpayer of a franchise grantee of radio and/or television broadcasting whose gross receipts for the preceding year did not exceed P10,000,000.00 shall not be revocable. " Generally, the registration as a VAT or non-VAT taxpayer is optional on the part of the taxpayer. Thus, a VAT-registered person may opt to cancel his registration for VAT if his gross sales or receipts for the following twelve (12) months will not exceed One million five hundred thousand pesos (P1,500,000.00) or he/it has ceased operations and does not expect to continue the same. However, such option is not available to franchise grantees of radio and/or television broadcasting whose gross receipts do not exceed P10,000,000.00. This is so because the optional registration shall be considered irrevocable. The law is very clear when it says that a franchise grantee of radio and/or television broadcasting whose gross receipts for the preceding year did not exceed P10,000,000.00 shall be subject to the 3% franchise tax instead of the VAT, but, if it opted to register as a VAT taxpayer, then said optional registration shall be irrevocable. In the instant case, since Community Media Network, Inc. has opted to continuously register as a VAT-taxpayer even after becoming a franchise grantee on April 15, 2001, it can no longer be allowed to register as a non-VAT taxpayer subject to the 3% franchise tax under Sec. 119 of the Tax Code, as amended, because its optional VAT registration is already irrevocable pursuant to Sec. 9.236-6 of RR 16-2005, implementing Sec. 236, in relation to Sec. 119 of the Tax Code, as amended by R.A. No. 9337. SUCH BEING THE CASE, this Office is of the opinion and hereby holds that your request for the cancellation of the VAT-registration of your client, Community Media Network, Inc., cannot be granted for lack of legal basis. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Commissioner of Internal Revenue