VAT Ruling No. 026-04

October 4, 2004 VAT RULING NO. 026-04 R.R. 7-95 Bases Conversion and Development Authority BCDA Corporate Center 2/F Bonifacio Technology Center 31st Street cor. 2nd Avenue Bonifacio Global City Taguig, Metro Manila Attention: Mr. Rufo Colayco President and Chief Executive Officer Gentlemen : This refers to your letter dated August 13, 2004 stating that the Bases Conversion and Development Authority (BCDA) is wholly-owned government corporation created by Republic Act (R.A.) No. 7227 for the purpose of accelerating the conversion of military reservation/camps, which include Fort Bonifacio, into alternative productive uses and raising funds through the sale of portions of said military reservations/camps in order to promote the economic and social development of the country in general; that BCDA is a value-added tax (VAT) taxpayer, having been registered with the Bureau of Internal Revenue (BIR) as such since January 1, 1996; that as a government-owned and controlled corporation (GOCC), BCDA has been issuing only Republic of the Philippines (ROP) invoices and receipts (Form No. 51) for it has no specialized accountable forms ( i.e. , VAT invoices or receipts); that on the other hand, Station Square East Commercial Corporation (SSECC) is a corporation organized and existing under Philippine laws (formerly Liberty Real Holdings Corporation), and is engaged in the development of Market! Market!, a value mall located along C-5 Road in Taguig; that SSECC has been a registered VAT taxpayer since January 1, 1997; that SSECC has a 50-year lease agreement with BCDA covering the lot upon which Market! Marked! is being erected; that pursuant to the lease agreement, SSECC is obligated to pay BCDA an Annual Fixed Lease of P117,130,440.00; that this amount is paid in advance in June of every year; that in addition, SSECC is obliged to pay Variable Rent, which is based on a specified percentage of the annual gross revenues arising from the sub-leases to tenants, payable on the succeeding calendar year following the start of commercial operations (commercial operations shall start in September this year); that SSECC paid its Annual Fixed Lease for the rental terms of June 2002 to May 2003, and June 2003 to May 2004 and was accordingly issued ROP ORs which are required of a GOCC; that in view of the BIR's inaction on its request for tax exemption filed as early as January 4, 2002 and for which BCDA is awaiting a decision, BCDA reported the Annual Fixed Lease paid by SSECC in its VAT returns; since BCDA is a GOCC the printing, binding and distribution of all its standard and accountable forms is being undertaken by the National Printing Office (NPO) pursuant to the provision of E.O. 285; that likewise, BCDA is obliged to abide by the provisions of the Government Accounting and Audit Manual (GAAM), specifically in handling government collections; that however, on November 19, 1998, the Office of the President issued Memorandum Order No. 38 allowing all government agencies, including government-owned and controlled corporations, to contract the services of accredited private security printers for the printing of accountable forms with money value and other specialized forms subject to certain guidelines; that there are two (2) classes of prescribed accountable forms being used in acknowledging collections, i.e . , (i) accountable forms with face value; and (ii) accountable forms without face value; that however, the Commission on Audit (COA) issued an opinion dated October 22, 2002 disallowing the continuous use of the specialized forms of official receipts allegedly for better control and sound management; that with the advent of DOF-BLGF Memorandum Circular No. 05-03 dated March 17, 2003, it allowed the use of specialized accountable forms provided that in addition to the conditions set in Memorandum Order No. 38, these forms be pre-numbered for control and accountability and that the name of the incumbent city treasurer be omitted in Form No. 51; that it is to be emphasized, that the subject circular allowing the use of specialized accountable forms only covers government agencies and local government units, not GOCCs; that, it may be safe to argue that GOCCs are still not allowed to use specialized forms of official receipts; and that in this light, BCDA has been using the general form of Official Receipts (i . e . , the ROP ORs) for all its collections, whether VAT or Non-VATable transactions. In connection therewith, you now request approval from this Office that the issuance by the BCDA of official receipts in the name of ROP on which the TIN of BCDA followed by the word "VAT" is stamped would be a substantial compliance with the requirement of issuance of VAT registered official receipts pursuant to Section 4.108-1 of Revenue Regulations No. 7-95, as amended, thereby enabling SSECC and similarly situated customers of BCDA to claim the input VAT against their output VAT in accordance with Section 4.104-1 of the said regulations. In reply thereto, please be informed that Section 4.108-1 of Revenue Regulations No. 7-95 provides that "Sec. 4.108-1. Invoicing Requirements . All VAT-registered persons shall, for every sale or lease of goods or properties or services, issue duly registered receipts or sales or commercial invoices which must show: "1. the name, TIN and address of seller; "2. date of transaction; "3. quantity, unit cost and description of merchandise or nature of service; "4. the name, TIN, business style, if any, and address of the VAT-registered purchaser, customer or client; "5. the word "zero rated" imprinted on the invoice covering zero-rated sales; and "6. the invoice value or consideration. "xxx xxx xxx" Corollarily, Section 4.104-1 of the said regulations provides that Sec. 4.104-1. Credits for input tax . "Input tax" means the value-added tax due from or paid by a VAT-registered person on importation of goods or local purchases of goods or services, including lease or use of property, from another VAT-registered person in the course of his trade or business. It shall also include the transitional or presumptive input tax determined in accordance with Section 105 of the Code. IHaSED "It includes input taxes which can be directly attributed to transactions subject to the value-added tax plus a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity. "xxx xxx xxx" A careful scrutiny of the above-cited sections disclosed that all VATable transactions, which include lease of properties, should be evidenced by VAT invoices or receipts in order that the VAT-registered customers should be allowed to claim input VAT against their output VAT. The receipts or invoices must show that name, TIN and address of both the seller and the buyer, date of transactions and etc. WHEREFORE, in view of the foregoing , this Office holds that the issuance by the BCDA of official receipts in the name of the ROP on which the TIN of BCDA followed by the word "VAT" is stamped would indeed be a substantial compliance with the requirement of issuance of VAT registered official receipts pursuant to Section 4.108-1 of Revenue Regulations No. 7-95, as amended, thereby enabling the SSECC and similarly situated customers of BCDA to claim the input VAT against their output VAT under Section 4.104-1 of said regulations. 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group