VAT Ruling No. 107-99

November 12, 1999 VAT RULING NO. 107-99 Sec. 109 (1)-040-91-107-99 Puyat Jacinto & Santos Attorney-At-Law 12/F Manilabank Building 6772 Ayala Avenue Makati City Attention: Atty . David B . Puyat Gentlemen : This refers to your letter dated September 13, 1999 requesting, on behalf of your client, GLS (Philippines) LLC ("GLS"), for a ruling confirming your opinion that it is exempt from Value-Added Tax under Section 109(1) of the Tax Code of 1997. It is represented that GLS is a corporation organized and existing under the laws of the State of Delaware, U.S.A.; that it is licensed to transact business as a branch in the Philippines, per SEC Certificate of Registration No. A1997-16990; that GLS was organized for the primary purpose of providing medical equipment to hospitals and doctors and to render services related thereto; that in particular, it provides lithotripsy services for the painless and immediate eradication of kidney stones; that on January 7, 1998, GLS erroneously applied for registration as an entity performing VAT registrable/taxable activities; that GLS now intends to make its lithotripsy services available to the greater public; that as an entity rendering medical services, it should not be liable to pay the VAT. In support of your request, you have described the scope of the services being rendered by GLS as follows: "GLS provides hospitals with a lithotripter machine on an as needed basis, through its mobile clinics (in many instances, the lithotripter is contained in a truck where the procedure is conducted). It provides hospitals and doctors with well-trained technicians who operate GLS' lithotripter machines; "Generally, patient admission and recovery is done in the hospital. In these instances, there is no direct relation between GLS and any patient, as the patient at all times remains under the care and supervision of the hospital; "In every case, GLS' technical and support staff is available to operate the lithotripter, and the performance of the lithotripsy procedure is conducted under the supervision of physicians, nurses and employees of the hospital; and "GLS does not sell any of its equipment. Nor is it engaged in the sale of lithotripsy or other equipment. It is paid solely for lithotripsy services, either through direct remittance from the patient or by a portion of the hospital's charges for the treatment." In reply, we hereby confirm that medical services are exempt from VAT pursuant to Section 109(1) of the Tax Code of 1997 (then Sec. 103(1), NIRC), as implemented by Sec. 4.103-l.(B)(1) of Revenue Regulations No. 7-95. In extending lithotripsy services, i.e., services for the painless and immediate eradication of kidney stones through the operation of lithotripter machines, GLS is engaged in providing a form of medical service. The term "medical services" has been defined to include: ". . . various items of services, like general treatment, physical examination, consultation, medication, dressing, suturing, surgical operation, all that pertain to or deal with the healing art of the science of medicine" (Cortes v. Pan Oriental March Co., 7 C.A.R. (2s) 1014. The exemption however, applies only to taxes for which GLS is directly liable, i.e., VAT on gross receipts, and does not apply to taxes which are being passed on to it by its suppliers. Consequently, as regards purchases of goods and services by GLS, the VAT thereon paid by the supplier can be passed on to it and ultimately be considered as added cost of the goods and services procured. (VAT Ruling No. 132-90 dated May 14, 1990 and VAT Ruling No. 040-91 dated May 29, 1991) Finally, GLS should now cause the cancellation or amendment of its VAT registration, from a VAT-Registered Taxpayer to a Non-VAT Taxpayer. Once registered as Non-VAT taxpayer, GLS should refrain from issuing VAT invoice or receipts. This ruling is being issued on the basis of the foregoing facts as represented. If upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group