VAT Ruling No. 007-04

April 5, 2004 VAT RULING NO. 007-04 Sections 105, 107 005-2000 Kapisanan Ng Tao Bilang Sentro, Inc. G/F The Gallery Building, Module I, Creekside Amorsolo St., Makati City Attention: Ms. Gemma Suzara President Gentleman : This refers to your letter dated September 25, 2003, requesting for exemption from the value-added tax (VAT) as a non-stock, non-profit corporation. Based on the documents which you submitted, it appears that Kapisanan ng Tao Bilang Sentro, Inc . is duly registered with the Securities and Exchange Commission on May 13, 2003 under SEC Registration No. CN200309963; that the purpose or purposes for which the corporation was formed are the following, viz : "1. To improve and develop relations between human beings, promoting non-discrimination and non-violence and aiming at achieving communication, tolerance, democratic participation in public life that leads to social, cultural and economic improvement for individual persons or groups of people in the Philippines and abroad; "2. To organize courses, seminars, formative training courses, reception centers for the underprivileged, conferences, campaigns to support particularly difficult situations, promote economic activities that aim in solving difficult situations, promote economic and cultural situations for individual persons or group in the Philippines and abroad; "3. To organize exhibitions, concerts, artistic laboratories, local fairs, trips, publications, audio-visual aids, creative, educational and assistance activities in national and international territories; "4 To accept grants, sponsorship, donations and the like from non-government organizations in the Philippines and abroad; and "5. To launch activities purely voluntary from its members and collaborators such that no member of the association, in any case, shall receive remuneration from their services, even if they are the direct beneficiaries of the activities. Upon the discretion of the association, members may be reimbursed upon presentation of proper documents as agreed upon by the members." that no part of the net income shall inure to the benefit of any individuals; that in the event of dissolution, all its remaining distributable assets shall be transferred and conveyed to similar institutions; and that it is maintained by means of contributions, membership dues and donations. In reply, please be informed that under Section 105 of the Tax Code of 1997, the 10% VAT is imposed on " 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 value-added tax (VAT) imposed in Sections 106 to 108 of this Code . . . . ." Non-stock, non-profit corporations are exempt from the payment of income tax on the income derived from the conduct of their primary purposes for which they are organized. However, the income of whatever kind and character of similar corporations from any of their properties, real or personal, or from any of their activities conducted for profit regardless of the disposition made of such income, shall be subject to income tax. ( Sec. 30, Tax Code of 1997 ) With regard to the value-added tax (VAT), it shall be noted that VAT is in the nature of an indirect tax, which means that the burden to pay can be shifted or passed on to another. Once the VAT is shifted to you as the purchaser of goods and services, it becomes part of the cost of the goods or services purchased and hence, the burden to pay it becomes your direct liability. On the other hand, your revenue from "contributions, membership dues and donations," not being derived from sale of services or sale of goods made in the course of business but rather in connection with its non-stock, non-profit activities, is exempt from the 10% VAT. However, the above exemption from the 10% VAT does not extend to your purchase of goods or properties or services and importation of goods. Hence, notwithstanding that you are a non-stock, non-profit corporation, your purchase of goods or properties or services and importation of goods shall nevertheless be subject to the 10% VAT pursuant to Section 107 of the said Code. Thus, it has been ruled in the case of The Camillian Fathers, Inc. that ". . . if your client imports goods, the said importation shall be subject to VAT. . . . " (VAT Ruling No. 119-90, dated May 14, 1990). Moreover, "If it engages in the sale of goods or services in the course of a business pursuit, in general, it shall also be liable to VAT. . . ." ( ibid .) [VAT Ruling No. 005-2000 dated January 27, 2000] 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. IHcTDA Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group