VAT Ruling No. 007-89

February 24, 1989 VAT RULING NO. 007-89 Magsaysay Lines Inc. 520 T. M. Kalaw Street Ermita, Manila Attention: Mr . Miguel A . Magsaysay President Gentlemen : This refers to your letter dated January 5, 1989, in effect, requesting reconsideration of VAT-Rulings Nos. 395-88 and 568-88, holding that the sale of 5 vessels by the National Development Company (NDC) to a group of investors composed of Magsaysay Lines, Baliwag Navigation and the Marden Group of Hongkong, is subject to the value-added tax. cdt Your opposition to the aforesaid rulings are essentially based on the following grounds: that NDC is not engaged in the business of selling vessels: therefore, it does not fall within the purview of a VAT-taxable activity as contemplated in Section 99 of the Tax Code, as amended by Executive Order No. 273; and that the sale of said vessels is involuntary since it has been mandated by the privatization program of the government. In reply, please be informed that the decision in the aforecited VAT rulings (dated August 18, 1988 and December 14, 1988) holding that the sale of vessels by NDC (a VAT registered taxpayer engaged in the leasing of the said vessels) is a transaction subject to VAT, is hereby reiterated. The fact that NDC carries on a business as a lessor of vessels which are capital assets used in the course of business, does not exclude the said sale from the coverage of the value-added tax merely because its business is that of leasing and not of selling vessels. This finds support in Section 3 of Revenue regulations 5-87 which reads as follows: "Value-added tax is imposed on any sale or transactions 'deemed sale' of taxable goods (including capital goods, irrespective of the date of acquisition) ..." cdta Very truly yours, JOSE U. ONG Commissioner of Internal Revenue