VAT Ruling No. 039-02

July 1, 2002 VAT RULING NO. 039-02 VAT Ruling No. 110-99 VAT Ruling No. 023-2002 The Zenitaka Corporation 23rd Floor, Tower 2, The Enterprise Center 6766 Ayala Avenue, Makati City Attention: Yasutaka Honda, Resident Agent Gentlemen : This refers to your letter, dated May 22, 2002, concerning the 10% value added tax (VAT) on your sale of service to the National Irrigation Administration (NIA), covering the " Rehabilitation of Apron at Angat Afterbay Regulatory Dam ," known as the "Project." Since the aforesaid "Project" is governed by an International Agreement between the Republic of the Philippines (RP) and the Government of Japan (GOJ), under which the GOJ extended GRANT AID to the RP, through the National Irrigation Administration (NIA) as the RP's Executing Agency, based on the provisions of the said International Agreement, this Office held in VAT RULING No. 023-2002, dated April 18, 2002, that ZENITAKA shall bill the NIA for the 10% VAT on its sale of service to the latter; that, ZENITAKA shall file its VAT return, declare therein its gross receipts from the NIA, deduct from the 10% output VAT due thereon, its input taxes on purchases from its suppliers and sub-contractors, and pay the VAT due, net of its input taxes. Thus, the said ruling, in effect, settled the issue raised by the NIA, i.e., that it is not the NIA that may remit, to the BIR, the VAT due from the ZENITAKA. Rather, it is ZENITAKA that shall remit the VAT due on its sale of service to the NIA; that, the only obligation of the NIA is to pay ZENITAKA's invoice billing, inclusive of the 10% VAT. The pertinent portion of the said ruling reads: "This case is similar to the VAT issue raised in the case of the Government of Japan Grant Aid to the Department of Health, as Executing Agency of the Republic of the Philippines, which was resolved under VAT RULING NO. 110-99, dated December 02, 1999, as follows: `a.) The suppliers and sub-contractors of the Japanese contractors shall bill and pass on the 10% VAT to the said Japanese contractors. The Japanese contractors, in turn, shall bill and pass on the 10% VAT to the concerned executing agencies of the Philippine government . Thus, billings to the executing government agencies shall be deemed inclusive of VAT. Since, under the said Exchanges of Notes, the Philippine Government obligated itself to make necessary measures to exempt Japanese nationals involved in the said Projects from internal revenue taxes, then the VAT is to be paid out of the Philippine counterpart fund. [RMC 42-99 (A)(2)] `b.) The Japanese contractors or nationals shall file the prescribed VAT returns on the gross receipts derived from the said Projects, claim their input taxes from their purchases of goods, properties and services from their suppliers or sub-contractors, and shall pay the VAT thereon, after offsetting the allowable input taxes, considering that the amount intended for payment of the VAT has already been collected and received by the Japanese contractors or nationals from the executing government agencies as part of the total invoice price . [RMC 42-99 (A)(3)] `xxx xxx xxx.'" It appears that, despite the said ruling, the NIA still refuses to pay ZENITAKA's invoice billing. Hence, on request by the ZENITAKA, a meeting was held on May 13, 2002 at the conference room of the BIR National Office building between the VAT REVIEW COMMITTEE, the representatives of the NIA and the representatives of the ZENITAKA. The VAT Review Committee confirmed the correctness of the above quoted VAT procedures, being strictly in accord with the aforementioned RP-GOJ INTERNATIONAL AGREEMENT. However, it appears from your letter that the NIA now, further, requires that ZENITAKA submit to the NIA a copy of its VAT return, duly filed with the BIR, as a condition for payment of ZENITAKA's invoice billing, inclusive of the 10% VAT, to which condition you vehemently disagreed. In reply, please be informed that " 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 . . . " 1 The VAT shifted to the buyer is, in turn, remitted by the seller to the BIR, 2 net of the seller's input taxes. 3 " Once shifted, it is no longer a tax but an additional cost which the purchaser has to pay to obtain the goods or services (Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17, 1967)." 4 As the buyer of service, the legal obligation of the NIA is to pay for ZENITAKA's invoice billing, inclusive of the 10% VAT. ZENITAKA is under no obligation to prove to the buyer (the NIA in this case) that it, in fact, filed its VAT return before the buyer (i.e., the NIA) may be compelled to pay for its purchase of service. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group Footnotes 1. Sec. 105, NIRC of 1997. 2. Sec. 114, NIRC of 1997. 3. Sec. 110, NIRC of 1997. 4. VAT RULING NO. 004-00, January 13, 2000.