VAT Ruling No. 093-99

September 14, 1999 VAT RULING NO. 093-99 108-000-00-093-99 Apex Mining Co ., Inc . 6th Floor, Manilabank Building Ayala Avenue, Makati City Attention: Mr . Clarence D . Guerrrero Legal Counsel Gentlemen : This refers to your letter dated July 13, 1999 requesting for a ruling that (1) the fees received by Apex Mining Corporation (Apex) for the use of its mining plants and equipment is not subject to VAT, and (2) the input taxes accumulated beginning 1988 can be used as a deduction from output tax of the current year. It is represented that in March 1991, Apex ceased operations as a result of the employee's sit down strike; that it did not have any revenue from its operations since then; that on December 24, 1994, Apex entered into a Mines Operating Agreement (MOA) with Base Metals & Minerals Resources Corporation (BMMRC), which agreement gave the latter a) the sole and exclusive right to explore, develop, mine and operate the Masara Project of the company situated in the Province of Davao del Norte; and b) the sole and exclusive right and privilege to uses possess, manage, and operate Apex's mills, plants, mining facilities, tools, machineries, equipments, buildings, stores, or improvements of whatever kind, which are utilized and are adjunct to the mining and processing operations; that the agreement also provides that in the event that any or all of the mineral properties are placed into commercial production, BMMRC shall pay Apex a royalty fee and rental for the use of all the existing facilities, machineries and equipments; that there was no gold production and the only revenue that Apex derived in 1996 were the fees for the use of the mining properties amounting to P19,499,685.00; and that you are baffled as to why the fees from BMMRC for the use of the said properties are subject to VAT. In this regard, it is your contention that the revenue from BMMRC's use of the mining plants and equipment are not subject to VAT since the fees only come in the form of reimbursement for the depreciation of the equipment as a result of their usage by BMMRC. You further contend that since the privilege granted by Apex to BMMRC to use and possess said mining facilities is merely an accessory or adjunct to the right of BMMRC to explore, develop, mine and operate the mining claims. Thus, Apex did not charge BMMRC additional amount for VAT. Another issue which you would like to be clarified on is whether or not input taxes accumulated beginning 1988 can be used as a deduction from output tax of the current year. It is your opinion that Apex has the right to deduct its input taxes of previous years as long as they are reflected in the books and remained unused. In reply, please be advised that Section 102 of the National Internal Revenue Code, as amended by R.A. 7716 (now Section 108 of the Tax Code of 1997) provides as follows: "Sec. 102. Value-added tax on sale of services and use or lease of properties. (a) Rate and base of tax. There shall be levied, assessed and collected, a value-added tax equivalent to 10% of gross receipts derived from the sale or exchange of services, including the use or lease of properties ." The rental payment for the use of your mining facilities, machineries and equipment is clearly a transaction subject to VAT. It must be noted that under the amendments introduced to the VAT law by R.A. 7716 and R.A. 8241, the sale or exchange of services has been expanded to mean the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration and now includes lessors of property, whether personal or real. (Section 108, ibid.) The transaction being subject to VAT, it follows that Apex should issue VAT invoice to BMMRC. We confirm, however, that the unutilized input taxes which you have accumulated over the years are available as a deduction from the output taxes-payable for the current year, pursuant to the third paragraph of Section 4.104-4 of Revenue Regulations No. 7-95, implementing Section 104(b) of the NIRC (now Section 110(B) of the Tax Code of 1997) cdlex This ruling is being issued on the basis of the foregoing facts, as represented. 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