Mr. Bienvenido A. Tan, Jr.

April 23, 2007 VAT RULING NO. 006-07 Sec. 105 & 108 G.R. No. 125355 Mr. Bienvenido A. Tan, Jr. Unit 7A, The Valero Tower 122 Valero Street Salcedo Village, Makati City S i r : This refers to your letter dated June 30, 2006 requesting for a ruling on whether or not the processing fee and annual fee being charged by Philippine Council for NGO Certification (PCNC) are subject to value-added tax (VAT). In reply, please be informed that pursuant to the Memorandum of Agreement dated January 29, 1998 executed by and between the Secretary of Finance and PCNC's Interim Chairman, the PCNC was duly designated by the Secretary of Finance to accredit non-stock, non-profit organizations/corporations. However, Section 105 of the Tax Code of 1997 provides that any person who, in the course of trade or business , sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the VAT imposed in Sections 106 to 108 of the same Code. 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. In a decision of the Supreme Court in the case of Commissioner of Internal Revenue vs. Court of Appeals and Commonwealth Management and Services Corporation , G.R. No. 125355, March 30, 2000, the High Court had occasion to rule as follows: "Contrary to COMASERCO's contention, the above provision clarifies that even a non-stock, non-profit organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term 'in the course of trade or business' requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented. xxx xxx xxx Section 108 of the National Internal Revenue Code of 1997 defines the phrase 'sale of services' as the 'performance of all kinds of services for others for a fee, remuneration or consideration.' It includes 'the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project.'" Thus, applying the above decision, the processing fee and annual fee PCNC charges for the performance of services as an accrediting entity are subject to VAT. The VAT component of the sale of service must be based on charges constituting administrative overhead and operational costs plus any mark-up being billed by PCNC. The VAT may be passed on by PCNC to the foundation-applicant. CADacT 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 as null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue