VAT Ruling No. 024-04

September 17, 2004 VAT RULING NO. 024-04 Sec. 108, 109 VAT Ruling No. 076-02 Diaz Murillo Dalupan & Company (L.C. Diaz and Company), CPAs 5F Don Jacinto Building Dela Rosa cor. Salcedo Streets Legaspi Village, Makati City Attention: Atty. Millard M. Manseguiao Director, Tax & Corporate Services Gentlemen : This refers to your letter dated April 20, 2004 in effect requesting for a confirmatory ruling that your client, Instone Philippines, Inc. (Instone) , with registered office address at 8th Floor, PDCP Building, Paseo de Roxas, Makati City, is entitled to claim input VAT credits on its purchases of airlines tickets, not otherwise subject to VAT, based on the invoice value appearing in the VAT-registered invoices/official receipts issued by International Airline Services Asia, Inc. (IAS). It appears that IAS is a VAT-registered service company engaged in selling international airlines tickets to travel agents, or brokers i.e. , Instone Philippines, Inc., a VAT-registered domestic corporation which is also engaged in selling airlines tickets to manning agents. IAS issued VAT-registered sales invoices and official receipts on airlines tickets purchased by Instone. In reply, please be informed that pursuant to the last paragraph of Section 109 of the Tax Code of 1997 (Code), effective January 1, 1998, a VAT-registered official receipt or sales invoice issued by a VAT-registered person for a VAT-exempt transaction generates input tax credits in favor of the VAT-registered customer ( VAT Ruling No. 076-02 dated November 11, 2002 ). Said provision of the Code is quoted below for immediate reference. "The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods or properties or services which are otherwise not subject to VAT, but who issues a VAT invoice or receipt therefor shall, in addition to his liability to other applicable percentage tax, if any, be liable to the tax imposed in Section 106 or 108 without the benefit of input tax credit, and such tax shall be recognized as input tax credit to the purchaser under Section 110, all of this Code." (Emphasis supplied) It is to be noted, however, that for a VAT-registered customer to be entitled to input tax credit on purchase of services, as in the case of sale of airline tickets, the proper source document is the VAT official receipt, not the VAT sales invoice, issued by the seller. Thus, only the aforementioned VAT official receipts issued by IAS to Instone beginning January 1, 1998 will entitle the latter to input tax credits. ISCHET Based on the foregoing, we hereby confirm your opinion with modification to the effect that Instone's purchases of airlines tickets from IAS covered by the latter's VAT-registered official receipts issued beginning January 1, 1998 will generate input tax credits. On the part of IAS, it is worth mentioning that it is liable to the 10% VAT in addition to the applicable percentage tax on the sale of airlines tickets to Instone covered by VAT official receipts. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group