VAT Ruling No. 004-96

May 14, 1996 VAT RULING NO. 004-96 Section 102 (a)-000-004 SM Investments Corporation Rm. 426 Building Ayala Avenue Makati, Metro Manila Attention: Ms . Cecilia R . Patricio AVP, Tax Division M a d a m : This refers to your letter dated February 8, 1996, in effect, requesting for a confirmation of your opinion that the lease of certain space of your Taal Vista Hotel to the Philippine Amusement and Gaming Corporation (PAGCOR) for its Casino Filipino branch at Tagaytay City will qualify as a zero-rated transaction. It appears that PAGCOR is subject to a 5% franchise tax, but exempt from other forms of taxes as indicated in the following provisions of Presidential Decree No. 1869 stating: 1. Customs duties, taxes and other impost on importation. All importations of equipment. All importations of equipment, vehicles, automobiles, boats, ships, barges, air craft and such other gambling paraphernalia, including accessories of related facilities, for the sole and exclusive use of the casinos, the proper and efficient management and administration thereof, and such other clubs, recreation or amusement places to be established under and by virtue of this Franchise shall be exempt from the payment of all kinds of customs duties, taxes and other imposts, including all kinds of fees, levies, or charges of any kind or nature, whether National or Local. xxx xxx xxx 2. Income and other taxes. (a) Franchise Holder; No tax of any kind or form, income or otherwise, as well as fees, charges or levies of whatever nature, whether National or Local, shall be assessed and collected under this Franchise from the Corporation; nor shall any form of tax or charge attach in any way to the earnings derived by the Corporation, except a franchise tax of five (5%) percent of the gross earnings derived by the Corporation from its operation under this Franchise. Such tax shall be due and payable quarterly to the National Government and shall be lieu of all kinds of taxes, levies, fees or assessments of any kind, nature or description, levied, established or collected by any municipal, provincial, or national government authority (Emphasis supplied) "(b) Others: The exemption herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporations, associations, agencies, or individuals with whom the Corporation or operator has any relationship in connection with the operations of the casino authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator. In reply, please be informed that PAGCOR, which falls under "other franchise grantees" under Section 117(c) of the Tax Code, as amended, is now subject to the 10% VAT under Section 102(a) of the same Code, as amended by Republic Act No. 7716, otherwise known as the Expanded VAT Law, effective January 1, 1996. Gleaned from the aforesaid tax exemption clauses of the charter of PAGCOR, its tax exemption privilege covers only taxes for which it is directly liable; hence, it cannot invoke said tax exemption to avoid payment of the VAT which is an indirect tax which may be passed on by the seller to the buyer as part of the cost of the goods/services pursuant to Section 99 of the same Code, as amended. In other words, the transaction involving rental of your space at Taal Vista Hotel by PAGCOR will not qualify for effective zero-rating. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue