VAT Ruling No. 071-97

December 4, 1997 VAT RULING NO. 071-97 Sec. 102/104; 070-97; 071-97 Tri-Union Properties, Inc. 600 Carriedo Street Quiapo, Manila Attention: Ms . Arlynn L . Dee Comptroller M a d a m : This refers to your letters dated March 11, 1997 and June 25, 1997 requesting clarification on whether the "collections" on the share of each tenant in the expenses of common areas in a shopping mall is subject to the value-added tax. cdtech It is represented that Tri-Union Properties, Inc. of Manila is a corporation engaged in renting out properties in a shopping mall it owns; that aside from the rental charges, it also collects monthly charges representing the share of each tenant in the expenses of the common areas including, among others, janitorial services, repairs and maintenance, water and light and air conditioning bills; and that although the corporation desires that the collections should only be equal to or be reimbursements for these expenses, the amounts collected which are only based on an estimated industry cost often exceed the actual disbursements for expenses. You now ask our opinion on the following: 1) Are the collections for the common areas subject to VAT? 2) If in the positive, what will be the basis of the VAT the gross collections or excess of the collections over the actual expenses? 3) Since accounting of both income and expense accounts is on accrual basis, when can the input taxes on the services rendered to the corporation be availed of in the VAT return in the actual period when the service was performed, or only upon payment of such service? In reply, please be informed as follows: 1) The term "sale or exchange of services" means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties (Sec. 4.102-1 Revenue Regulations No. 7-95). Accordingly, the collections by your company for the maintenance of the common areas of shopping mall from the tenants are subject to VAT. 2) The basis of the VAT shall be gross receipts. Section 102 of the Tax Code, as amended, defines gross receipts as follows: "Gross receipts" refer to 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 advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding VAT. It shall likewise refer to "gross income" as defined under Section VAT 28(a) of the Code, whenever applicable. Accordingly, the basis of the VAT on the collections by your company from the tenants shall be the gross collections. (BIR Ruling No. 422-93) 3) Any input tax evidenced by a VAT invoice or official receipt issued by a VAT-registered person in accordance with Section 108 of the Tax Code shall be creditable against the output tax upon payment of such service. (Sections 4.104-1 and 4.104-2, RR 7-95) cdti Very truly yours, SIXTO ESQUIVIAS IV Assistant Commissioner Legal Service