VAT Ruling No. 016-05

August 26, 2005 VAT RULING NO. 016-05 101 Sec. 4.102-1 (b) SyCip Gorres Velayo & Co . 6760 Ayala Avenue 1226 Makati City Attention: Joel L. Tan-Torres Tax Division Gentlemen : This refers to your letter dated December 8, 2003 requesting on behalf of your client, ABS-CBN Broadcasting Corporation, for confirmation of your opinion that the withholding VAT paid by ABS-CBN to the Bureau of Internal Revenue in the taxable year 2003, arising from royalties paid to non-residents in 2001 and 2002; may be claimed as input VAT in the taxable year 2003, when if filed the tax return and paid the corresponding withholding VAT thereon. It is represented that ABS-CBN Broadcasting Corporation (ABS-CBN) is a VAT-registered entity engaged primarily in broadcasting; that during the years 2001 and 2002 it paid royalties to foreign non-resident licensors; that it failed to file withholding VAT declaration/returns for the aforementioned periods and failed to remit the corresponding VAT on behalf of the non-resident foreign licensors; and that ABS-CBN paid the 10% withholding VAT and filed the appropriate returns on these royalties during the taxable year of 2003. In reply, please be informed that Section 4.102-1(b) of Revenue Regulations (Rev. Regs.) No. 7-95, as amended, provides: "(b) The VAT on rental and/or royalties payable to non-resident foreign corporation or owners for the sale of services and use or lease of properties in the Philippines shall be based on the contract price agreed upon by the licensor and the licensee. The licensee shall be responsible for the payment of VAT on such rentals and/or royalties in behalf of the non-resident foreign corporation or owner by filing a separate VAT declaration/return for this purpose. The duly validated VAT declaration/return is sufficient evidence in claiming input tax credit by the licensee. . . ." aIcHSC Moreover, Section 4.110-3(b) of RR No. 7-95, as amended by Section 3 of Revenue Regulation 8-02 provides: "(b) Withholding of Final VAT. The government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) as well as private corporations, individuals, estates and trust, whether large or non-large taxpayers, shall withhold ten percent (10%) VAT with respect to the following payments: (1) Lease or use of properties or property rights owned by non-residents; (2) Services rendered to local insurance companies, with respect to reinsurance premiums payable to non-residents; and (3) Other services rendered in the Philippines by non-residents. In remitting the VAT withheld whether creditable or final, the withholding agent shall use BIR Form No. 1600- Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld. The VAT withheld and paid for the non-resident recipient (remitted using BIR Form No. 1600), which VAT is passed on to the resident withholding agent by the non-resident recipient of the income, may be claimed as input tax by said VAT-registered withholding agent upon filing his own VAT Return, subject to the rule on allocation of input tax among taxable sales, zero-rated sales and exempt sales. The duly filed BIR Form No. 1600 is the proof or documentary substantiation for the claimed input tax or input tax or input VAT. xxx xxx xxx." In view of the foregoing the input tax may be recognized by ABS-CBN upon showing that the VAT on royalties has been withheld and remitted to the BIR. Accordingly, this Office confirms your opinion that the withholding VAT pertaining to the royalties paid to non-residents in the taxable years 2001 and 2002, remitted and the tax return thereon filed only in the taxable year 2003, may be claimed in the taxable year 2003 as input tax but not the surcharges and interest for late remittance, under Section 110 of the Tax Code of 1997 upon filing of the corresponding VAT returns and payment of the VAT thereon. However, your client, ABS-CBN is subject to surcharge and interest for its failure to file withholding VAT declarations/returns for the taxable year 2001 and 2002 and remit the corresponding VAT on behalf of its non-resident foreign licensors pursuant to Sections 248 (A)(1) and 249, both of the Tax Code of 1997. Since ABS-CBN filed the VAT returns for its royalty payments and remitted the withholding VAT thereon in the taxable year 2003, then ABS-CBN, after having filed its returns, may thereafter claim the withheld VAT thereon as allowable input VAT provided that ABS-CBN did not deduct the amount as royalty expense in taxable years 2001 and 2002. 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. ASHaDT Very truly yours, (SGD.) JOSE MARIO C. BUAG OIC-Commissioner of Internal Revenue