VAT Ruling No. 029-91

May 23, 1991 VAT RULING NO. 029-91 Emiliano Medrana No. 5 St. Paul St., Perpetual Village, Taguig Metro Manila S i r : This refers to your letter stating that you are a holder of Quarry Permit Nos. IV-16 and IV-17 issued on January 25, 1991 covering your private land located in Calamba, Laguna, and as a permittee, you have paid P100.00 per hectare as quarry fee; that on September 26, 1989, you entered into an Operating Agreement covering said permit with Rock Mountain Enterprise, Inc. represented by Messrs. Lamberto Ocampo and Henry Go for the latter to extract and dispose of aggregate materials; and that based on the operating agreement, said operator shall pay you, the permittee, a royalty fee of 6% based on the gross value of aggregate materials extracted and sold or disposed of. Based on the foregoing, you now request clarification on the following: "1. Who is liable for payment of the 10% VAT? 2. As a land owner/permittee receiving only 6% royalty fees from the operator, do I pay for the VAT for the 6% or for the gross value of the aggregate materials sold by the operator? and 3. Is my operator authorized to deduct the 10% VAT on the 6% if any or on the gross value of the aggregate materials?" In reply, please be informed as follows: 1. Pursuant to Sections 99 and 100(a) of the Tax Code, the person liable for the payment of the 10% VAT is the producer who, in the instant case is the operator engaged in extracting and disposing quarry materials. 2. As a quarry permittee, you hold a real right over an immovable property as contemplated in Article 415(10) of the Civil Code. Such being the case, the 6% royalty fee you receive from the operator who actually undertook the extracting and disposing of quarry materials, is, in effect, rental for the use real right over an immovable; hence, exempt from VAT pursuant to Section 103(q) of the Tax Code. 3. Since the 6% royalty fee you receive from the operator is not subject to VAT and considering further, that VAT is not one of the taxes subject to the expanded withholding tax because it is not determinable at the time of payment, there is, therefore no legal basis for the operator to deduct or withhold the 10% VAT from the 6% royalty fees periodically paid to you. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue By: VICTOR A. DEOFERIO, JR. Deputy Commissioner Officer-in-Charge