VAT Ruling No. 033-98

November 5, 1998 VAT RULING NO. 033-98 Sec. 105; Sec. 108-000-033-98 The Law Firm of Raymundo A. Armovit Suite 803, The Centerpoint Julia Vargas cor. Garnet Street Ortigas Center, Pasig City Attention: Atty . Miguel R . Armovit Gentlemen : This refers to your letter dated January 30, 1998 stating that your clients, Russet Construction and Development Corporation and Oyster Shopping Village, Inc. are the duly registered corporate owners of the Oyster Shopping complex located at Paraaque, Metro Manila; that in 1988, Oyster Shopping Village, Inc. leased out Building 1 of the Oyster Shopping Village to Amertron, Inc.; that in 1994, Russet Construction and Development Corporation leased out Building No. 3 of the Oyster Shopping Village to Amertron, Inc.; that upon the effectivity of the E-VAT Law, your clients accordingly sought to pass the 10% VAT on rentals of real property to Amertron, Inc. but the latter refuses to shoulder the same, arguing that existing leases do not provide for the shifting of the 10% VAT on rentals of real property. dctai Based on the foregoing, you are requesting for a ruling to the effect that as lessors of real property, your clients can shift or pass on to the lessee the 10% VAT in accordance with Section 99 of the Tax Code (now Sec. 105 of the Tax Code of 1997), as amended by R.A. No. 7716, as further amended by R.A. No. 8241. In reply, please be informed that as lessors of real property, Russet Construction and Development Corporation and Oyster Shopping Village, Inc., are primarily liable to the payment of VAT based on gross receipts under Section 108 of the Tax Code of 1997. However, since VAT is an indirect tax, the amount of tax may be passed on to Amertron, Inc. pursuant to Section 105 of the same Code which provides, viz: "SEC. 105. Persons Liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. "The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No. 7716." xxx xxx xxx In view thereof, Amertron, Inc., may be held liable for the payment of VAT since said tax is an indirect tax which can be passed on or shifted as part of the cost of rental of the real property. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue