VAT Ruling No. 016-97

February 27, 1997 VAT RULING NO. 016-97 Sec. 100; 000; 016-97 A.M. Sison and Associates Suite 2002-A Pacific Bank Bldg. 6776 Ayala Avenue, Makati City Philippines Attention: Antonio L . Cardio Gentlemen : This refers to your letter dated May 17, 1996 and follow-up letter dated August 20, 1996 requesting for a ruling as to whether or not sales of accounts receivables to banks and/or financial institutions, in the nature of financing arrangements are subject to value-added tax (VAT). cdLL It is represented that your client, Sara Lee Philippines, Inc. is a VAT registered corporation with TIN No. 321-000-135-595V; that it has a division known as House of Sara Lee; that this division sells personal products like bras, hair cremes, lotions, colognes, lipsticks, make-up, etc. to various independent dealers nationwide; that for goods sold on credit, it issued VAT invoices, reported the same as sales in its monthly VAT declarations, paid the corresponding VAT thereto, and recorded the same as accounts receivables; that substantial portion of its current assets are in the form of accounts receivables from said independent dealers; and that to supplement its working capital and finance its operations, it sells or discounts, as the need arises, its accounts receivables from said independent dealers with banks or financial institutions. In reply, please be informed that sale of account receivable to banks and/or financial institutions in the nature of financing arrangement is a mere collection alternative. Since such sale on credit was already subjected to VAT, the financing scheme intended to convert the account receivables of the seller cash is no longer subject to another round of VAT under Section 100 of the Tax Code. cdt Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue