VAT Ruling No. 047-98

December 2, 1998 VAT RULING NO. 047-98 27 (A); 108 (A) (8)-000-00-047-98 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Atty . J . A . Osana Partner - Tax Division Gentlemen : This refers to your letter dated July 14, 1998 stating that your client, Cruz Telephone Company (Company), with office address at Manila East Road, Taytay, Metro Manila, renders telecommunications services to the general public; that in the course of its business, it accumulates outstanding receivables generally in the form of its periodic billings to its subscribers and the general public, representing fees, due from its subscribers or users for the services rendered; that to improve the cash position of the Company and to effect an earlier receipt of the payment for the services it renders, the Company has entered into a funding or securitization program for its receivables, whereby the receivables are liquefied, by selling or assigning them, at a discount, on a "without recourse basis", to a third party purchaser, who, at its sole option, may elect to either (i) hold the receivables in its books until paid or (ii) pool the receivables and sell the same through a securitization of the pooled receivables. Based on the foregoing, you are requesting this Office to confirm your opinion that your client is liable to pay the (a) corporate income tax, based on its net income from the telecommunications business; and (b) 10% VAT on its gross receipts which includes of the proceeds from the sale or discounting of the receivables without recourse. In reply, please be informed that this Office hereby confirms your opinion that your client is liable to pay not only the corporate income tax imposed under Section 27(A) of the Tax Code of 1997 but also the 10% VAT on its gross receipts which is defined under Sec. 108(A)(8) also of the Tax Code of 1997, as follows: "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 to 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". (Emphasis supplied) By selling or discounting the receivables, your client in effect has collected the receivables which comprise its gross receipts. In other words, the Company is deemed to have received payment for the service fees payable by its subscribers and users upon the receipt of the proceeds from the sale of the receivables. Accordingly, your client is liable to pay 10% VAT on its gross receipts as above defined. LexLib 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, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue