VAT Ruling No. 048-03

December 1, 2003 VAT RULING NO. 048-03 Sec. 105 ECOS Environmental Foundation, Inc. Rm. 604-B SEDCCO-I Bldg. Rada Street corner Legaspi Street Makati City Attention: Mr. Timi D. Abad President Gentlemen : This refers to your letter dated May 7, 2003 requesting for exemption from the payment of the value-added tax. It is represented that ECOS Environmental Foundation, Inc. is a non-stock, non-profit corporation duly organized and existing under Philippine laws with SEC Certificate of Registration No. CN200258890 issued on November 6, 2002; that your primary purpose is to establish, support and/or operate a center for environmental protection, promote a clean air environment and improve the lives of the people by providing precautionary measures to save Mother Earth from further harmful pollution; that the principal source of your income will come from contributions from its members and government or non-government organizations and no part of your income shall inure to the benefit of any private member of the foundation; and that you believe the amount that you can conserve from such exemption will help further to support your project and campaign for Sustainable Environmental Development Program. In support of your request, you attached photocopies of the following documents: 1) SEC registration; 2) Affidavit dated March 28, 2003; 3) Articles of Incorporation; 4) By-laws; and 5) Other pertinent documents In reply, please be informed that the receipt of contributions from your members is not a transaction subject to value-added tax pursuant to the provisions of Section 105 of the Tax Code which limits the imposition of the said tax only to those who in the course of trade or business sell goods and properties, sell services, and to those who import goods, irrespective of whether the importation is done in the course of trade or not. Since you are a nonstock, nonprofit organization deriving income principally from contributions, you are exempt from the value-added tax. However, should you engage in any of the taxable activities enumerated above, you will indubitably become liable to the value-added tax pursuant to paragraph 3 of Section 105 of the Tax Code which provides: DCaSHI "The phrase `in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity." Moreover, it should be emphasized that being a nonstock, nonprofit organization, you are not relieved from the burden of value-added tax on your purchase of taxable goods and services. The VAT is an indirect tax, payable by the seller and not by the purchaser of goods or services. Being an indirect tax, the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services (Section 105, Tax Code of 1997). 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) . 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group