VAT Ruling No. 062-92

May 6, 1992 VAT RULING NO. 062-92 Section 102 (a); 095-91 Gentlemen : This refers to your letter dated June 28, 1991 requesting for reconsideration of VAT Ruling No. 052-91, dated May 31, 1991, holding that your contractor (Philippine Cryo Foods Corporation) is subject to the 10% value-added tax (VAT) as a warehouse operator pursuant to Section 102 of the Tax Code, as amended. Your said contractor is engaged in business as an operator of a cold storage facilities hence, normally, engaged in cold storage warehousing services. However, in your said request for reconsideration it is being represented that your said contractor may not legally be classified as warehouseman because, per your contract, you are given exclusive possession, control and supervision of a fixed area (storage room Nos. 1 & 5, measuring 369 and 65 cubic meters, respectively); that, you are solely responsible in monitoring your inventory of goods and that you provide all personnel to carry out all physical activities in the said leased premises; that, to be considered a warehouseman, he must receive goods owned by another for storage, and collect fees in connection with the same. Hence, it is represented that your contract is a mere lease of real property rather than a contract of warehousing. cDTCIA Please be informed that, under Sections 99 and 102, NIRC, as amended by E.O. No. 273, sales of services made in the course of business is subject to the 10% VAT. The only exceptions are sales of services expressly exempted under Section 103 thereof. This Office believes that your said contractor is engaged in the business of selling service which, in substance, involves cold storage-warehousing services. The most basic consideration of your contract is the obligation of your contractor to provide its cold storage facilities and to maintain the required temperature for the safekeeping of your perishable goods, for a fee. There is no doubt that your contractor renders services by providing the said required temperature. The most basic consideration for warehousing is for the safekeeping of goods owned by another, for a fee. This is also the basic consideration of your contract in the sense that, without the cold storage services provided by your contractor, there can be no safekeeping of your perishable goods. Besides, granting, for the sake of argument, that your contractor may not legally be classified as a warehouseman, however, it still remains that it is subject to the 10% VAT since its rendering of cold storage services is not expressly exempted from VAT under Section 103, hence, subject to the 10% VAT under Sections 99 and 102, NIRC. Furthermore, this Office believes that your said contract is not a lease of real property. Leases are governed by Title VIII, Chapter I of the Civil Code. Thus, a contract of lease may be of things, or of work or service. Hence, from the viewpoint of the subject matter of a contract of lease, there are three kinds of leases, viz. : Lease of things, whether real or personal; a lease of service; or a lease of work, otherwise known as a contract for a piece of work. (Civil Code, annotated, by PARAS, pp. 234; 235) "In a lease of work or service, one of the parties binds himself to execute a piece of work or to render to the other some service for a price. . . . " (ART. 1644, ibid. ) Since the most basic consideration of your contract is for your contractor to provide and maintain the required temperature for the safekeeping of your perishable goods, it follows, the said contract is a lease of service rather than a lease of real property. Thus, also, on this score, your said contractor remains subject to the 10% VAT, pursuant to Sections 99 and 102 of the said NIRC. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner Officer-in-Charge