VAT Ruling No. 007-99

January 19, 1999 VAT RULING NO. 007-99 Sec. 105-000-00-007-99 Tricom Dynamics, Inc. Ground Floor Metro House 354 Sen. Gil Puyat Avenue Makati City Attention: Mr . Antonio S . Manalang, Jr . Credit & Collection Supervisor Subject: Forum Exploration , Inc . (FORUM) Gentlemen : Referring to your letter of 26 November 1998, please be informed that as per VAT Ruling No. 516-88 dated November 16, 1988, subcontactors engaged in petroleum operations in the Philippines are exempt from all taxes (including value-added tax) pursuant to the provisions of Presidential Decree No. 1354 and Fiscal Incentives Review Board (FIRB) Resolution No. 19-87. However, the aforesaid VAT ruling means that the aforesaid subcontractors are exempted from taxes to which they shall otherwise be liable to. LLpr VAT is a direct tax on the seller of goods, property or services while an indirect tax on the part of the buyer. Section 105 of the National Internal Revenue Code, as amended by R.A. No. 7716, and as re-numbered by R.A. No. 8424 provides: "The value-added tax 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. . . ." Thus, the aforesaid VAT ruling on the tax exemption of subcontactors engaged in petroleum operations in the Philippines may only apply to taxes on their sale of goods, property or services. However, it does not include the value-added taxes due from and which are indirectly passed on by their VAT-registered suppliers of goods, properties or services. In connection with the contention that FORUM is also exempt from documentary stamp taxes under the aforesaid law and FIRB Resolution, Section 173 of the Tax Code of 1997 provides, in part: "Provided, That whenever one party to the taxable document enjoys exemption from the tax herein imposed, the other party who is not exempt shall be the one directly liable for the tax." Thus, even granting that FORUM is exempt from documentary stamp tax, the tax on any taxable document in which FORUM is a party shall nevertheless be paid by the other party, unless such other party is also exempt from documentary stamp tax pursuant to the provision of any existing law. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group