VAT Ruling No. 005-05

April 25, 2005 VAT RULING NO. 005-05 105 072-01 Brahma Kumaris World Spiritual University (Phil.) Foundation, Inc . 209 Nicanor Garcia Street Bel-Air II, Makati City Attention: Ms. Esther O. Cruz Accountant Gentlemen : This refers to your letter dated February 1, 2005 stating that the Brahma Kumaris World Spiritual University (Phils) Foundation, Inc. (Foundation) is a non-stock, non-profit corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 127866; that the purposes for which the Foundation is formed are as follows: 1. To propagate the teachings, beliefs and practices of different religions in a harmonious manner, thereby to revive divine virtues and qualities in the lives and activities of all; 2. To teach Raja Yoga (meditation) a spiritual discipline which provides relief from mental and physical distress by providing connection between the soul, the self and God; 3. To train, ordain and maintain a corps of spiritual teachers and workers dedicated to the spiritual purposes of the Foundation; 4. To establish centers and meeting places for meditation (Raja Yoga) and prayer, services and classes in spiritual matters and for other activities of the Foundation related to spiritual renewal programs; 5. To conduct missionary activities throughout the Philippines so as to increase the knowledge of the practices and tenets of the Foundation; 6. To establish camps, centers and residences of the Foundation for teachers and students for living a pure life; celibacy, vegetarian diet, daily morning study of spiritual education and inculcation of divine virtues in personal life in a homelike environment; DCISAE 7. To arrange lectures, exhibits, programs, conferences and other means of conveying the message of the Foundation, and to prepare and distribute books, pamphlets, articles and other educational materials containing divine knowledge regarding spiritual teachings, beliefs and practices of same; 8. To accept and receive voluntary donations or gifts, bequests or contributions of a kind, whether in cash, property or otherwise, from the general public here and abroad, and to enter into any activity not inconsistent with the aforementioned purposes and to provide support for them; 9. To acquire, purchase, own, hold, operate, develop, lease, mortgage, pledge, exchange, sell, transfer or otherwise invest, trade or deal in, in any manner permitted by law, real and personal property of every kind and description or any interest therein; and to enter into financial transactions, like loans, mortgage, pledges, whether or not secured by real or personal property, for the advancement of the purposes aforementioned; HEDCAS that the Foundation is being maintained through voluntary contributions and donations from the general public, locally and abroad, and no part of its net income inures to the benefit of any private individual or member; that the Foundation is registered as a donee institution in accordance with BIR-NEDA Regulations No. 1-81; and that on December 9, 1986, the BIR issued a certificate of tax exemption and the filing of the income tax return. 2005iatdc In connection therewith, you now request for exemption from the filing and payment of the value-added tax as prescribed in Section 114(A) of the Tax Code of 1997. In reply thereto, please be informed that Section 105 of the Tax Code of 1997 provides that VAT is collected upon any person, who in the course of trade or business, sells, barters, exchanges, leases goods or properties and renders services. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a non-stock, non-profit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity. A careful scrutiny of the above-cited section discloses that the imposition of the said tax is limited only to those who in the course of trade or business sell goods and properties, sell services, and to those who import goods, irrespective of whether the importation is done in the course of trade or not. Since the Foundation is deriving income principally from contributions and donations from the general public, locally and abroad, it is not engaged in transactions subject to VAT as contemplated under Section 105 of the Tax Code of 1997. Accordingly, it is exempt from filing the VAT returns prescribed in Section 114(A) of the Tax Code of 1997. It should be emphasized, however, the 10% VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. (Section 105, Tax Code of 1997) Since there is no showing that the Foundation is exempt from indirect tax under any existing law, its purchases of goods, properties or services from VAT-registered entities are subject to 10% VAT, which shall then be passed on to the Foundation as an indirect tax and shall form part of the invoice price thereof. ( BIR VAT Ruling No. 072-01 dated October 16, 2001 ) SUCH BEING THE CASE, the shifting of the VAT to the aforesaid Foundation does not make it the person directly liable and therefore, it cannot invoke its tax exempt status granted under Section 30(E) of the Tax Code of 1997 to avoid the passing on or shifting of the VAT. 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. EDcICT Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group