VAT Ruling No. 058-98

December 15, 1998 VAT RULING NO. 058-98 Sec. 110 (B)-000-00-058-98 Jose A. Dizon Law Firm 148 Shaw Blvd., Bagong Silang Mandaluyong City Attention: John U . Chua Gentlemen : This refers to your letter dated 25 August 1998 asking this Bureau's comments on the following issues: 1) Whether or not there is any time constraint on the availment of the VAT input tax credit; and 2) Whether or not the sale of condominium units to persons based in the United States who remit US dollars as payment thereof can be considered export sales subject to zero-rated VAT. In connection with the first issue, it is represented that the input tax credit on your client, a condominium developer, relative to its purchases of construction materials is in the millions of pesos. Since the disposition of all condominium units is projected to take more than five years, you are concerned if there is any time constraint in crediting excess input tax against the output tax. In reply, please be informed that there is nothing in the tax code that sets any prescriptive period in setting-off excess VAT input tax against output tax. Specifically, Section 110(B) of the National Internal Revenue Code, as amended, provides: "(B) Excess Output or Input Tax. . . . If the input tax exceeds the output tax, the output tax shall be carried over to the succeeding quarter or quarters . Any input tax attributable to the purchase of capital goods or to zero-rated sales by a VAT-registered person may at his option be refunded or credited against other internal revenue taxes, subject to the provisions of Section 112." (Emphasis supplied) As regards the second issue, in clarifying the meaning of the term "export sales" subject to zero-rated VAT, the tax code emphasizes that there should be an actual shipment of goods from the Philippines to a foreign country [Sec. 106(A)(2)(a)(1), NIRC, as amended]. While the term "goods" for VAT purposes includes real properties held primarily for sale to customers, it is obvious that zero-rated export sales are limited only you understood that a transaction was either subject to the withholding tax or to the sales tax (now replaced by the VAT) not to both since that would constitute double taxation; that the licensee is the one expected to advance the VAT and as such, it is allowed to deduct this as input tax against its output tax does not seem to change the fact that this is a case of double taxation; that it is clear that the licensor is the entity being subject to the VAT but this is in addition to the tax withheld from its license fee. LLpr In reply, please be informed that Sec. 4.100-3(b) of Revenue Regulations No. 7-95 implementing R.A. No. 7716 provides that: "The lessee or licensee, with respect to lease or use of property or property rights owned by the non-residents, . . . shall before making payment, withhold and remit the 10% VAT due thereon by filing a separate VAT return for and in behalf of the payee." Since the withholding tax above described is in the nature of advanced VAT payment in contrast to the 15% withholding tax imposed on the license fee, which is a form of income tax, your claim as to the existence of double taxation is baseless. Double taxation means taxing for the same tax period the same thing or activity twice, when it should be taxed but once, for the same purpose and with the same character of tax. Hence, there would be no double taxation where a lessor of property has to reckon with and pays a real estate tax on the leased premises, a real estate dealer's tax based on rental receipts, and an income tax on such rentals, these impositions being of different character and purposes (Villanueva vs. City of Iloilo, 26 SCRA 578). Moreover, no reference is made in the RP-Finland Tax Treaty to any preferential tax treatment with regard to sales taxes, and consequentially, to the value-added tax. Therefore, the licensor, Kemira Chemicals Oy, a foreign corporation doing business in the Philippines, is subject to the 10% withholding tax on its license fee income and the 10% withholding VAT. Your company, being in control of the payment, is the duly constituted withholding agent, and as such is duty bound to deduct, remit and withhold the afore-described withholding taxes. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue