VAT Ruling No. 045-02

July 24, 2002 VAT RULING NO. 045-02 Sec. 108, 110, NIRC Ms. Elsa E. Panahon Block 11, Lot 2, Phase 14 Bahayang Pag-asa Subdivision Imus, Cavite Dear Madam : This refers to your communications dated June 15, 2001, July 10, 2001 and October 9, 2001 wherein it was stated that Leymar Technologies Ltd., Australia, (LEYMAR) a non-resident foreign corporation not doing business in the Philippines, will supply (on lease with option to buy) computer hardware and software systems to Systems Technologies Int'l., Inc. (STII), a domestic corporation. A third party, Macro Technology Systems, Inc. (MACRO), also a domestic corporation, is the designated local service provider which will receive the computer and install the same to the various branches of STII. All shipments will be consigned to MACRO which shall also advance the payment for the various expenses to be incurred in the shipment such as freight, duties and taxes, broker's fees, etc. LEYMAR will then reimburse MACRO for all expenses to be incurred. In view thereof, you ask the following: 1. "Can MACRO claim the VAT it paid with the shipment expenses as VAT input? If no, why?" 2. "Can LEYMAR claim the VAT it paid for the shipment expenses initially advanced by MACRO but was subsequently reimbursed to the latter? If no, why? If yes, how can MACRO go about availing the VAT as input tax?" 3. "On the premise that MACRO can claim VAT input on shipment expenses, then LEYMAR will reimburse MACRO for shipment expenses less the amount of VAT claimed as input tax. Did LEYMAR and MACRO treat VAT correctly? If VAT was treated correctly, will the normal filing procedure apply? If VAT was treated incorrectly, why? If VAT was treated incorrectly, what will be the responsibilities of LEYMAR and MACRO, if any? If VAT was treated incorrectly, what remedial step or action can LEYMAR and MACRO do to correct the mistake." 4. "If MACRO will charge LEYMAR commission or service fee for every installation, will it be subject to VAT? If no, why? If yes, can MACRO remit the VAT as Output Tax upon collection or upon accrual?" In reply, please be informed as follows: 1. MACRO will not be entitled to the input VAT credit representing the amount of VAT it will advance on the shipment of the computers from Australia to the Philippines for the reason that while it is the consignee, yet MACRO is not the real importer. This is shown by the fact that MACRO will only be reimbursed by LEYMAR, the shipper and the real importer. Section 110 of the Tax Code of 1997 provides that the input tax shall be creditable to the importer upon payment of the value added tax prior to the release of the goods from the custody of the Bureau of Customs (emphasis supplied). 2. The question on whether LEYMAR can claim as input tax the VAT on importation advanced by MACRO depends on whether it is a VAT-registered taxpayer in the Philippines or not. The term "input tax" means the value added tax due from or paid by a VAT-registered person in the course of his . . . importation of goods" (Sec. 110, same code). Considering that LEYMAR is not doing business in the Philippines and, therefore, it is not a VAT-registrable entity, it is not entitled to the input tax. 3. The third query need not be answered in the light of the negative answer to the first question. 4. If MACRO will charge commission or service fee for every installation, it shall be liable to VAT based on gross receipts. The term "gross receipts" means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services, and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value added tax (Sec. 108, supra ). Thus, considering that this is a case of sale of service, the output tax accrues upon collection or receipt of the service fee. This ruling is based on the foregoing facts as represented. If, however, it will be disclosed in an investigation that the facts are different, then this ruling shall be rendered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group