VAT Ruling No. 011-02

March 6, 2002 VAT RULING NO. 011-02 Sec. 106 (B) (1) BIR Ruling 057-99 Executive and Tourist Aviation, Inc. Chemphil Building 851 Arnaiz Avenue Legaspi Village, Makati City Attention.: Ms. Carmelita G. Salgado Sr. Executive Vice-President M a d a m : This refers to your letter dated June 6, 2000 stating that you are a domestic corporation, 100% owned by Chemical Industries of the Philippines, Inc. (CIP) and a non-pioneer firm registered with the Board of Investments (BOI); that on October 25, 1991, you were granted by the BOI authority to import tax and duty-free one (1) unit Beechcraft Super King Aire B200 with Serial No. BB-989, US reg. N5200 for US$1,437,700; that due to severe losses from the very first year of your operations the Board of Directors and Stockholders in separate meetings held on January 6, 1997 resolved and approved the cessation of all business operations; that it was likewise resolved to assign your assets, including the particular aircraft to CIP as liquidating dividends and for CIP to assume all your obligations; that when you requested for a BIR tax clearance as required by SEC you were told that the transfer of your assets to CIP falls under the category of a "deemed sale" transaction and therefore subject to VAT; that you explained to the BIR examiners assigned to your case that you have ceased operations and CIP merely took your assets as sole sale owner in the form of liquidating dividends. Based on the foregoing, you are now seeking concurrence of this Office that you are not subject to VAT since the transfer of your assets was done in the course of liquidation in settlement of equity claims of your sole stockholders, CIP. At the time of your closure, CIP's equity claims had been grossly impaired by your massive annual losses from the very first year of operations. In reply, please be informed that your contention is not meritorious. Pursuant to Section 106(B)(1) of the Tax Code of 1997 which provides that "Sec. 106. Value-added tax on Sale of Goods or Properties . "(B) Transactions Deemed Sale . The following transactions shall be deemed sale; "(1) Transfer, use or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business;" "xxx xxx xxx.: the sale not in the course of business of all the properties which are originally intended for use in the course of business, is transaction "deemed sale" which is subject to VAT under paragraph (A) of the same Section 106 of the 1997 Tax Code. Such being the case, the transfer by Executive and Tourist Aviation, Inc. (ETAI) of all its assets including the aircraft in question to its sole stockholder, CIP, is subject to the 10% VAT imposed under Section 106(A) of the 1997 Tax Code. (BIR Ruling No. 057-99 dated April 27, 1999) 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.) EDMUNDO P. GUEVARA Deputy Commissioner (Legal and Inspection Group)