VAT Ruling No. 099-92

August 14, 1992 VAT RULING NO. 099-92 NIRC Sec. 103 (u) Precedent Ruling 000-00 Punongbayan & Araullo 6th Floor, Vernida IV Bldg. Alfaro St., Salcedo Village Makati, Metro Manila Attention: Atty. Rosario S. Bernaldo Tax Partner Gentlemen : This refers to your letter dated May 15, 1992 requesting in behalf of your client, Zilog Philippines, Inc. (Zilog), a confirmation of your opinion that transfer of a factory and production facilities, including the equipment and office furnitures inside the building, under the circumstances described below, is not subject to 10% value-added tax (VAT). It is represented that Zilog, a duly organized domestic corporation, is registered with the Board of Investments under Book I of the Omnibus Investments Code of 1987 as an entity engaged in the manufacturing of semi-conductors; that presently, Zilog proposes to establish a wholly-owned subsidiary (Zilog-Jr.) which will assume its present operations; and that, as part of the reorganizational scheme, Zilog will transfer ownership to the proposed subsidiary its factory and production facilities, equipment and other related machineries used in the manufacture of semi-conductors including furnitures, fixtures and office equipment. In reply, please be informed that the 10% VAT imposed on sale or on any transfer of goods pursuant to Section 100 of the Tax Code, as amended, does not cover real or immovable properties. The implementing regulations of the VAT law, specifically, Section 2(p) of Revenue Regulations No. 5-87, defines, "goods" as any movable, tangible objects which is appropriable or transferable. Real or immovable properties include land, buildings, roads and constructions of all kinds adhered to the soil; everything attached to an immovable in a fixed manner in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object; and machineries, receptacles, instruments or implements intended by the owner of the tenement for an industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet the needs of the said industry or works. ( Article 415 of the Civil Code ). Based on the foregoing facts and pursuant to Section 99 of the Tax Code in relation to Section 2(p) of Revenue Regulations No. 5-87, your opinion that the transfer of a factory and all production facilities and equipment which are permanently attached to an immovable in a fixed manner is not subject to 10% VAT, is hereby confirmed. The office furnitures, fixtures and other equipments indispensably needed in the activities/operation of the factory and, of course, included in the transfer of the building, are also not subject to VAT. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue