VAT Ruling No. 038-99

March 29, 1999 VAT RULING NO. 038-99 R.R. 7-95 000-00 038-99 SGV & CO . 6760 Ayala Avenue Makati City Attention: Atty . Jose A . Osana and Mr . Joel Tan-Torres Gentlemen : This refers to your letter dated November 3, 1997 requesting in behalf of your client, KRL Land, Inc ., for a ruling that it can claim as input VAT the entire amount of P13,588,363 representing the 10% VAT paid on the purchase of the land from Filinvest Alabang, Inc. in its initial monthly VAT declaration for the month of May, 1997 when full payment of the property was made. It is represented that KRL Land, Inc. (KRL) is a domestic corporation duly organized to engage in the construction business; that it was issued a Certificate of Incorporation by the Securities and Exchange Commission (SEC) on March 27,1997 and a Certificate of Registration (as a VAT-taxpayer) by the Bureau of Internal Revenue (BIR) on April 30, 1997; that on December 18, 1996, its treasurer-in-trust was able to negotiate with Filinvest the purchase of a lot in Filinvest Corporate City for a price of P149,472,000, inclusive of VAT, amounting to P13,588,363; that on December 26, 1996, KRL made a 30% down payment of the price of the property or P44,841,600, and the balance in the amount of P104,630,400 paid in 1997, the last payment of which was made on May 29, 1997; that the said lot will be the site of a residential condominium building that KRL will construct; that when it filed its quarterly VAT return for the 4th quarter of 1996, Filinvest reported the transaction as a cash sale in December 1996; and that Filinvest paid to the BIR the amount of P13,588,363 representing the 10% VAT on the sale of the land in January 1997. In reply, please be informed that Revenue Regulations No. 7-95, as amended, otherwise known as the "Consolidated Value-Added Tax Regulations", provides as follows, viz.: "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. "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. "Any input tax evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordance with Section 108 of the Code, on the following transactions, shall be creditable against the output tax: "(a) . . . "(b) Purchases of real properties for which a VAT has actually been paid; xxx xxx xxx Likewise, Section 4.104-5 of the same Rev. Regs. provides that "SEC. 4.104-5. Substantiation of claims for input tax credit . (a) Input taxes shall be allowed only if the domestic purchase of goods, properties or services is made in the course of trade or business. The input tax should be supported by an invoice or receipt showing information as required under Section 108 (a) and 238 of the Code. Input tax on purchases of real property should be supported by a copy of the public instrument, i.e., deed of absolute sale, deed of conditional sale, contract/agreement to sell, etc., together with the VAT receipt issued by the seller. xxx xxx xxx" Based on the foregoing provisions, the following are required in order for KRL to claim as input VAT the amount of P13,588,363, representing the 10% VAT paid on the purchase of the land from Filinvest: 1. The purchase of the land by KRL Land, Inc. was made in the course of trade or business. 2. The input tax on the purchase of the land is evidenced by a VAT invoice or official receipt issued by a VAT-registered person. 3. The input tax must be supported by a copy of the deed of conditional sale and/or deed of absolute sale. Considering that, as represented, all the requisites prescribed under Rev. Regs. No 7-95, as amended, are met by your client, your opinion that KRL Land, Inc . can claim as input VAT the entire amount of P13,588,363, representing the 10% VAT paid on the purchase of the land from Filinvest Alabang, Inc ., is hereby confirmed . Moreover, since KRL was incorporated on March 27, 1997 and registered with the BIR on April 30, 1997, your opinion that KRL can claim the said input VAT when it files its initial monthly VAT declaration for the month of May, 1997 corresponding to the month when full payment of the property was made is, likewise, confirmed . 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, and/or any requirements imposed in this letter is not complied with, then this ruling shall be considered null and void. LexLib Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue